US SEC Adopts New Climate Change Disclosure Rules
On March 6, 2024, the US Securities and Exchange Commission (SEC) voted 3 to 2 in favor of adopting new rules that will require public companies to disclose extensive climate change-related information in their SEC filings. However, on March 15, 2024, a federal appellate court imposed a temporary stay pending judicial review of the new rules.
Key Changes from Proposed Rules
- The final rules have been pared down from the SEC’s original proposal two years ago.
- Proposed requirements to disclose Scope 3 greenhouse gas (GHG) emissions have been eliminated.
- Disclosure of Scope 1 and 2 GHG emissions is now limited to larger public companies and only if such emissions are material.
- Requirements to disclose climate-related board of directors expertise have been eliminated.
New Disclosures Required
The final rules, if implemented, will require significant new disclosures for both domestic and foreign private issuers that file annual reports and registration statements with the SEC. The new rules apply to companies on a phased-in basis, with the first compliance deadline for large accelerated filers required for fiscal year 2025 annual reports filed in 2026.
Highlights of the New Rules
- Disclosure of climate-related goals, targets, and material risks.
- Activities to mitigate or adapt to material climate-related risks.
- Board oversight of climate-related risks and management’s role in assessing and managing these risks.
- Disclosure of material Scope 1 and 2 GHG emissions for larger public companies.
- Financial statement disclosure of costs, losses, and impacts related to severe weather events and other natural conditions.
Legal Challenges and Current Status
The new rules have faced legal challenges, and a temporary stay has been imposed pending judicial review. Litigation challenging the rules has been filed in several federal courts, and additional lawsuits are expected. The SEC has requested that the litigation be consolidated in a single court of appeals.
Phase-In Periods and Accommodations
The new rules will be phased in on a timeline based on the registrant’s filer status. Smaller reporting companies and emerging growth companies have extended compliance deadlines and phase-in periods. There are also accommodations for delayed emissions disclosure and an expanded safe harbor for forward-looking climate-related disclosures.
Practical Considerations and Next Steps
- Companies should begin preparations early and develop a plan to comply with the new disclosure requirements.
- Disclosures should be tailored to fit each company’s risk profile and structures.
- Materiality should be assessed based on each company’s circumstances.
- Companies should assess board committees’ responsibilities and charters in relation to climate-related risks.
- Internal control over financial reporting should be evaluated to ensure compliance with the new requirements.
- Companies should be aware of the increased liability risks associated with the new disclosures.
This article is prepared for the general information of interested persons and should not be regarded as legal advice.
SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 13: Climate Action | Target 13.2: Integrate climate change measures into national policies, strategies, and planning | – Disclosure of climate-related risks that have had or are reasonably likely to have a material impact on business strategy, results of operations, or financial condition – Assessment, management, board oversight, and mitigation of climate-related risks – Disclosure of Scope 1 and 2 GHG emissions for large accelerated filers and accelerated filers if material – Financial statement disclosures related to severe weather events and other natural conditions, carbon offsets, and renewable energy credits if material to climate-related targets or goals |
| SDG 9: Industry, Innovation, and Infrastructure | Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable | – Disclosure of activities to mitigate or adapt to material climate-related risks, including expenditures and impacts on financial estimates resulting from such activities – Disclosure of transition plans to manage material transition risks, including expenditures and impacts on financial estimates resulting from disclosed actions |
| SDG 12: Responsible Consumption and Production | Target 12.6: Encourage companies to adopt sustainable practices and integrate sustainability information into their reporting cycle | – Disclosure of climate-related goals, targets, and material climate-related risks – Disclosure of activities to mitigate or adapt to material climate-related risks, including expenditures and impacts on financial estimates resulting from such activities – Disclosure of financial impacts of severe weather events and other natural conditions, as well as costs, expenditures, and losses related to carbon offsets and renewable energy credits if material to climate-related targets or goals |
Analysis
1. Which SDGs are addressed or connected to the issues highlighted in the article?
The issues highlighted in the article are connected to SDG 13: Climate Action, SDG 9: Industry, Innovation, and Infrastructure, and SDG 12: Responsible Consumption and Production.
2. What specific targets under those SDGs can be identified based on the article’s content?
Based on the article’s content, the specific targets that can be identified are:
- Target 13.2: Integrate climate change measures into national policies, strategies, and planning
- Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable
- Target 12.6: Encourage companies to adopt sustainable practices and integrate sustainability information into their reporting cycle
3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
Yes, there are indicators mentioned in the article that can be used to measure progress towards the identified targets. These indicators include:
- Disclosure of climate-related risks that have had or are reasonably likely to have a material impact on business strategy, results of operations, or financial condition
- Assessment, management, board oversight, and mitigation of climate-related risks
- Disclosure of Scope 1 and 2 GHG emissions for large accelerated filers and accelerated filers if material
- Financial statement disclosures related to severe weather events and other natural conditions, carbon offsets, and renewable energy credits if material to climate-related targets or goals
- Disclosure of activities to mitigate or adapt to material climate-related risks, including expenditures and impacts on financial estimates resulting from such activities
- Disclosure of transition plans to manage material transition risks, including expenditures and impacts on financial estimates resulting from disclosed actions
SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 13: Climate Action | Target 13.2: Integrate climate change measures into national policies, strategies, and planning | – Disclosure of climate-related risks that have had or are reasonably likely to have a material impact on business strategy, results of operations, or financial condition – Assessment, management, board oversight, and mitigation of climate-related risks – Disclosure of Scope 1 and 2 GHG emissions for large accelerated filers and accelerated filers if material – Financial statement disclosures related to severe weather events and other natural conditions, carbon offsets, and renewable energy credits if material to climate-related targets or goals |
| SDG 9: Industry, Innovation, and Infrastructure | Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable | – Disclosure of activities to mitigate or adapt to material climate-related risks, including expenditures and impacts on financial estimates resulting from such activities – Disclosure of transition plans to manage material transition risks, including expenditures and impacts on financial estimates resulting from disclosed actions |
| SDG 12: Responsible Consumption and Production | Target 12.6: Encourage companies to adopt sustainable practices and integrate sustainability information into their reporting cycle | – Disclosure of climate-related goals, targets, and material climate-related risks – Disclosure of activities to mitigate or adapt to material climate-related risks, including expenditures and impacts on financial estimates resulting from such activities – Disclosure of financial impacts of severe weather events and other natural conditions, as well as costs, expenditures, and losses related to carbon offsets and renewable energy credits if material to climate-related targets or goals |
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Source: whitecase.com
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