SEC Climate Disclosure: What U.S. Companies Need to Know

In March 2024, the U.S. Securities and Exchange Commission (SEC) adopted landmark rules requiring public companies to disclose climate-related risks and greenhouse gas (GHG) emissions. These rules aim to provide investors with consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks.

However, the implementation of these rules has faced legal challenges, leading the SEC to stay the rules pending judicial review.

Key Requirements of the SEC Climate Disclosure Rules

The SEC’s climate disclosure rules mandate that registrants include climate-related disclosures in their annual reports and registration statements. These disclosures encompass:

• Climate-Related Risks: Companies must disclose climate-related risks that have had or are reasonably likely to have a material impact on their business strategy, results of operations, or financial condition.
• Governance and Risk Management: Disclosures about the board’s oversight of climate-related risks and management’s role in assessing and managing those risks are required.
• GHG Emissions: Disclosure of Scope 1 (direct) and Scope 2 (indirect) GHG emissions is required for large accelerated filers, subject to phased-in assurance requirements. Scope 3 emissions disclosures are not required under the final rule.
• Financial Statement Disclosures: Companies must disclose the effects of severe weather events and other natural conditions on their financial statements, including the impact on estimates and assumptions.
• Transition Plans and Targets: If a company has set climate-related targets or goals, disclosures about these targets, the plans to achieve them, and progress towards them are required.

Applicability and Compliance Timeline

The rules apply to all public companies registered with the SEC, including foreign private issuers. The compliance dates are staggered based on the registrant’s filer status:

• Large Accelerated Filers: Fiscal year 2025 (filings in 2026).
• Accelerated Filers: Fiscal year 2026 (filings in 2027).
• Non-Accelerated Filers and Smaller Reporting Companies: Fiscal year 2027 (filings in 2028).

However, due to ongoing litigation, the SEC has stayed the implementation of these rules pending judicial review.

Comparison with Other Reporting Frameworks

The SEC’s climate disclosure rules align with global efforts to standardize climate-related financial disclosures. Notably, they draw from the Task Force on Climate-related Financial Disclosures (TCFD) framework, which emphasizes governance, strategy, risk management, and metrics and targets.

However, unlike the European Union’s Corporate Sustainability Reporting Directive (CSRD), the SEC’s rules do not mandate Scope 3 emissions disclosures, reflecting a more conservative approach to climate reporting.

Legal Challenges and Current Status

Following the adoption of the climate disclosure rules, several states and industry groups filed lawsuits challenging the SEC’s authority to mandate such disclosures. In response, the SEC stayed the implementation of the rules to facilitate judicial review. As of March 2025, the SEC has voted to end its defense of the climate disclosure rules, citing concerns about the associated costs and intrusiveness.

Preparing for Compliance

Despite the current legal uncertainties, companies should proactively prepare for potential compliance requirements:

• Assess Material Climate Risks: Identify and evaluate climate-related risks that could impact business operations and financial performance.
• Enhance Governance Structures: Establish clear oversight responsibilities for climate-related risks at the board and management levels.
• Develop Emissions Inventory: Begin measuring and tracking Scope 1 and Scope 2 GHG emissions to facilitate future disclosures.
• Integrate Climate Risks into Financial Planning: Consider the financial implications of climate-related risks and incorporate them into financial statements and planning processes.
• Stay Informed on Regulatory Developments: Monitor updates from the SEC and other regulatory bodies to stay abreast of changes in disclosure requirements.

Conclusion

The SEC’s climate disclosure rules represent a significant step towards enhancing transparency around climate-related financial risks. While the future of these rules remains uncertain due to legal challenges, companies are encouraged to begin preparing for potential compliance to meet investor expectations and align with global reporting standards.