Climbing the Regulatory Peak: SEC’s Latest Rules on Climate Disclosure Unveiled

8th March 2024

As anticipated, the Securities Exchange Commission (SEC) adopted the finalized version of the Enhancement and Standardization of Climate-Related Disclosures for Investors rules (Climate Disclosure Rules). The Climate Disclosure Rules are intended to address concerns regarding greenwashing in the investment industry as well as allow investors to make more informed decisions concerning environmental, social, and governance (ESG) factors. While not identical to the proposed rules, the Climate Disclosure Rules as adopted capture the spirit of a thorough climate disclosure framework.  

The Climate Disclosure Rules will apply to registrants with the SEC, including foreign private issuers. The required disclosures will be included in registration statements and annual reports either in their own section or other appropriate sections such as Risk Factors, Description of Business, or Management’s Discussion and Analysis.  

The required disclosures will include:  

  • Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition, along with the actual and potential material impacts of any identified climate-related risks on the strategy;
  • Specify a registrant’s activities to mitigate or adapt to a material climate-related risk; 
  • Any oversight by the board of directors of climate-related risks and any role by management to assess and manage those risks; 
  • If, as part of its strategy, a registrant has undertaken steps to mitigate or adapt to material climate risks, a quantitative and qualitative description of those expenditures made pursuant to these steps; 
  • For large accelerated filers and accelerated filers, information about material scope 1 emissions and/or scope 2 emissions; 
    • Scope 1 and Scope 2 emissions are classifications of greenhouse gas emissions.  
  • The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets, disclosed in a note to the financial statements.  

While still comprehensive, the Climate Disclosure Rules, as adopted are narrower than the proposed rules, likely in response to the thousands of comments the SEC received. For example, the Climate Disclosure Rules omitted the Scope 3 categorization for greenhouse gas emissions, which would encompass a broad scope of emissions, including end-consumer emissions. The compliance dates vary by requirement in the rules as well as by registrant, but they span from fiscal year beginning in 2025 through fiscal year beginning 2033.  

The new requirements proscribed by the Climate Disclosure Rules are extensive and vary depending on the registrant and their strategies. Contact our experts at Zeidler Group for guidance on compliance, get in touch with our team of specialists.

Author

Madeline Gegg