Overview
Introduced: Proposed March 21, 2022; adopted March 6, 2024
Effective from: 60 days after publication in the Federal Register
Last modified: April 4, 2024 (due to legal challenges)
Region(s): United States
About
The U.S. Securities and Exchange Commission (SEC) adopted new rules requiring public companies to disclose climate-related risks that are likely to impact their business, strategy, operations, or financial condition. These rules aim to provide investors with consistent, comparable, and reliable information about how climate-related risks affect financial performance. The SEC’s climate disclosure rules are part of broader efforts to align U.S. financial regulations with global sustainability reporting standards, although they differ in significant ways from other regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the IFRS Sustainability Disclosure Standards.
Criteria for compliance
All public companies that file reports under the Securities Exchange Act of 1934 are subject to the disclosure rules. Specific requirements vary based on the size and type of registrant:
- Large accelerated filers (LAFs): Subject to the full scope of disclosure requirements, including greenhouse gas (GHG) emissions disclosures and attestation requirements.
- Accelerated filers (AFs): Required to disclose GHG emissions with phased-in assurance requirements.
- Non-accelerated filers (NAFs), smaller reporting companies (SRCs), and emerging growth companies (EGCs): Exempt from certain requirements, including GHG emissions disclosures.
Compliance timelines
| Registrant type | Disclosure requirements begin |
|---|---|
| LAFs |
|
| AFs (other than SRCs and EGCs) |
|
| SRCs, EGCs, NAFs |
|
Disclosure requirements
The rules require companies to disclose the following information in their registration statements and annual reports:
1. Climate-related risks
- Identify material physical and transition risks and explain their actual or potential impacts on the company’s strategy, business model, financial condition, and operations.
- Detail risk management processes and governance structures, including the role of the board of directors and management in overseeing climate-related risks.
2. Financial statement disclosures
- Disclose the financial impacts of severe weather events, natural conditions, and climate-related targets or transition plans in the audited financial statements.
- Report costs, expenditures, and losses related to carbon offsets and renewable energy credits if they are a material component of achieving climate-related goals.
3. GHG emissions
- Report Scope 1 and Scope 2 GHG emissions, with phased-in assurance requirements for larger registrants.
- Provide details on the methodologies, assumptions, and standards used for GHG emissions reporting, including any significant differences from financial reporting boundaries.
4. Climate-related targets and goals
- Share information about any climate-related targets or goals that have materially affected or are likely to affect the company’s business, including expenditures and impacts on financial estimates and assumptions.
Third-party auditing
- LAFs: Must obtain limited assurance on Scope 1 and Scope 2 GHG emissions starting in FYB 2029, transitioning to reasonable assurance by FYB 2033.
- AFs: Limited assurance required starting in FYB 2031.
- NAFs, SRCs, EGCs: No assurance requirements.
Penalties for non-compliance
The SEC’s rules include a safe harbor provision from private liability for certain forward-looking statements related to climate risks, transition plans, and climate-related targets or goals. However, companies are still subject to enforcement actions by the SEC for failing to comply with disclosure requirements.
