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Note: Enforcement of the SEC’s climate disclosure rule was issued an administrative stay by the Fifth Circuit Court of Appeals, temporarily halting implementation of the disclosure regulation until further court rulings. The lawsuits have now been consolidated and, per lottery, are being heard in the Eighth Circuit Court of Appeals. The Fifth Circuit has dissolved its temporary stay; it remains to be seen if the Eighth Circuit will pause the regulations again.

On March 6, 2024 the SEC voted with a 3-2 approval on the Enhancement and Standardization of Climate-Related Disclosures for Investors. The initial proposed rule was first introduced in 2022 and ignited a highly contentious debate from the market, resulting in over 24,000 comments from a wide array of people and perspectives. The final rule mandates climate risk disclosure in regulatory filings by thousands of public companies and in public offerings. The SEC believes that investors should have an understanding of, or at the very least access to information on, the impacts of climate change on financial performance and risks that affect their investments. According to a recent survey, 90% of investors agree that reporting regulations enable them to make more informed investment decisions.

This 3-part article series will explore the key elements of the final rule, implementation timelines, legal challenges already facing the rule, and much more. In this piece, we will break down the major components of the rule and important disclosure dates to keep in mind so that your business can be compliant. 

Affected Parties

The final rule applies to both domestic SEC-registered companies and foreign private issuers. All categories of SEC registrants are required to make a narrative disclosure on climate-related risks. Categories of registrants are defined by the SEC here and include: 

  • large accelerated filers (companies with public floats of $700M or more)
  • accelerated filers (companies with public floats of $75M to $700M)
  • companies that don’t meet these public float thresholds (smaller reporting companies and emerging growth companies). 

Major Components of the Final Rule

Narrative Disclosures:

All categories of SEC registrants are required to discuss their identification, oversight, and management of climate-related risks (in alignment with the TCFD framework). This is an update to Regulation S-K that will mean reporting on:

  • Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, financial condition, business model, and outlook.
  • Activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices.
  • Climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal.
  • Oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks.
  • Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management systems.

GHG Emissions and Attestation:

The final rule requires large accelerated filers (LAFs) and accelerated filers (AFs) to disclose Scope 1 and 2 GHG emissions, if determined to be material (i.e. information that an investor would want to know when making investment decisions). This will also include disclosing the key data, assumptions, and other related information for measuring emissions.

For the materially disclosed scope 1 and 2 emissions, limited assurance will be required and following a transition period, reasonable assurance will be required for LAFs. Notably, smaller reporting companies (SRCs) and emerging growth companies (EGCs) are exempted from disclosing their emissions.

Financial Impact Statements:

The final rule updated Regulation S-X to require a footnote on financial statements for companies to disclose: the capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, subject to a 1% threshold (at the end of the relevant fiscal year, impact is greater than 1% of the absolute value of stockholders’ equity or deficit). Companies will also need to disclose the financial impact related to carbon offsets and renewable energy credits or certificates (RECs), if used as a material component of disclosed climate-related targets or goals.

If severe weather events and other natural conditions materially impacted estimates and assumptions a registrant used to produce the financial statements, companies will also need to include a qualitative description on the impact as a footnote.

Key Disclosure Dates

The final rule becomes effective 60 days after publication in the Federal Register. Disclosure requirements are phased-in depending on a regulated company’s filing category. Material risk reporting begins for financial statements that cover FY 2025. The first scope 1 and 2 emissions disclosures are required for data covering FY 2026.  

Compliance Dates for the Final Rule1
Registrant Type2Disclosure + FInancial Statement Effects AuditGHG Emissions / AssuranceElectronic Tagging
TCFD-aligned climate-related risk disclosure and financial statements related to severe weather events or natural conditionsMaterial expenditures and financial impacts from activities associated with transition plans, scenario analysis, and/or carbon pricing, expenditures for mitigating or adapting to climate-related risks, and expenditures or impacts associated with meeting climate targets or goalsScope 1 and 2 GHG emissionsLimited AssuranceReasonable AssuranceXBRL Tagging3
LAFsFYB 2025FYB 2026FYB 2026FYB 2029FYB 2033FYB 2026
AFs (other than SRCs and EGCs)FYB 2026FYB 2027FYB 2028FYB 2031N/AFYB 2026
SRCs, EGCs, and NAFsFYB 2027FYB 2028N/AN/AN/AFYB 2027
1 In this table, FYB refers to any fiscal year beginning in the calendar year listed.2 Large accelerated filers (LAFs), accelerated filers (AFs), smaller reporting companies (SRCs), emerging growth companies (EGCs), non-accelerated filers. SEC definitions located here.3  Financial statement disclosures under Article 14 will be required to be tagged in accordance with existing rulespertaining to the tagging of financial statements. See Rule 405(b)(1)(i) of Regulation S-T.Source: The Enhancement and Standardization of Climate-Related Disclosures: Final Rules Fact Sheet

Read part 2 in this 3-part series diving deep into the SEC’s new disclosure rule as we highlight the major elements that did (and didn’t) make the final rule and the legal challenges it is already facing. 

If your business is one of the thousands impacted by the final climate disclosure rule, Climate Vault is here to help you simplify carbon accounting and meet disclosure obligations with confidence. Built on years of measurement and reduction experience, we free your business to spend more time on what really matters: creating and implementing climate action strategies. Get in touch today to learn how we can help.

Note: Climate Vault is not offering legal advice. While the information in this article pertains to legal issues, it is not intended as legal advice or as a substitute for the particularized advice of your own counsel.