The Securities and Exchange Commission (SEC) made a landmark decision by adopting its long-anticipated climate disclosure rules. 

The rules, which mandate that some public companies disclose climate-related risks and data in their registration statements and annual reports, were subject to intense debate and ultimately received a final 3-2 approval on Wednesday, March 6, 2024. See the 10 key points of the new SEC ruling below.

Supporters of the rules argue that investors have the right to be protected and informed about how companies are evaluating, measuring and mitigating the effects of climate change. Conversely, opponents argue that the rules could impose financial burdens on businesses and negatively affect consumers. Opponents have also raised constitutional concerns that the SEC has overreached its regulatory power. 

10 Points of New SEC Ruling

More than two years since their initial announcement, the approved rules represent a scaled-back, weakened version compared to the original proposal. Key provisions mandate companies to disclose:  

• Climate-related risks that have had or are likely to have a material impact on their business strategy, operations or financial condition.
• The actual and potential material impacts of identified climate-related risks on their strategy, business model and outlook.
• Details on any mitigation or adaptation activities undertaken, including expenditures and impacts on financial estimates. 
• Information on the board of directors’ oversight of climate-related risks and management’s role in assessing and managing these risks. 
• Processes for identifying, assessing and managing material climate-related risks and how this is integrated into the company’s risk management system.
• Climate-related targets or goals, along with expenditures and impacts on financial estimates.
• Scope 1 and Scope 2 emissions for certain filers, with assurance reports for large-accelerated filers.
• Disclosure in financial statements of the costs and losses due to severe weather events and other natural conditions.
• Costs and losses related to carbon offsets and renewable energy credits.

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Notably, the contentious Scope 3 emissions reporting, which extends beyond a company’s direct operations to encompass its entire value chain, was omitted from the finalized rules. This exclusion likely stems from the extensive feedback the SEC received, totaling over 24,000 comment letters, during the public comment period for the proposed rules.

These comments underscore industry concerns regarding the complexities associated with measuring and disclosing emissions beyond a company’s immediate control. However, the SEC has left the door open, hinting at future rulings on Scope 3 emissions disclosure.

Despite the applause and criticism, these rules will inevitably face legal challenges. Nevertheless, they are set to take effect 60 days after publication in the Federal Register, with compliance dates phased in based on filer status, according to a SEC fact sheet that provides details on the final rules.

In light of these developments, companies should prioritize thoroughly assessing and disclosing material climate-related risks, implementing robust mitigation strategies and integrating climate-related considerations into their overall risk management systems. 

Proactive engagement with stakeholders and ongoing monitoring of regulatory developments will be crucial in navigating the evolving landscape of climate disclosure requirements and ensuring compliance with the SEC's mandates.

Companies should also leverage this opportunity to enhance their corporate sustainability initiatives and strengthen their corporate communications and competitive positioning in the marketplace. By demonstrating a commitment to transparency and responsible business, companies can not only meet regulatory obligations, but also build trust with investors, customers and other stakeholders, ultimately driving long-term value creation and resilience in the face of climate-related changes.

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