SEC Final Climate Disclosure Rule

The final rule adopted on March 6, 2024, requires public companies to disclose information in three key areas: (1) climate-related financial risks, (2) GHG emissions, and (3) any climate-related targets or transition plans.

With respect to the first category, registrants must disclose climate-related risks that are reasonably likely to have a material impact on the registrant’s business strategy, operational results, or financial condition. Firms must also disclose the actual and potential material impacts of any identified climate-related risks on their strategy, business model, and outlook. Any board oversight, processes and management related to climate-related risks must also be disclosed. However, any board area expertise with respect to climate need not be disclosed, a requirement that was included in the March 2022 proposed rule but does not appear in the final version.

Registrants must also disclose several financial impacts incurred as a result of severe weather events and other natural conditions, subject to a 1% change threshold in a note to financial statements. If the estimates or assumptions the corporation uses to produce their financial statements were materially impacted by climate risks, a qualitative description must be included. And, if a registrant has undertaken any climate mitigation efforts, then those efforts must be disclosed as well, including a quantitative and qualitative description of material expenditures, plus any material impacts on financial estimates and assumptions that stem from those mitigation efforts.

With respect to GHG emissions disclosure, large accelerated filers (LAFs) and accelerated filers (AFs) – meaning, companies with a publicly traded equity value of $75 million or more – must file information about their material Scope 1 and 2 emissions. These disclosures are subject to progressively stronger audit requirements, first to limited assurance and eventually reasonable assurance.

Finally, registrants must disclose any targets or goals related to climate change that materially affect the registrant’s business. Included in this requirement are any material expenditures and impacts on financial estimates and assumptions that result from the target or goal. Additionally, filers must include financial impacts related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material part of their disclosed climate-related targets or goals. Relatedly, the rule also mandates disclosure of a registrant’s use (if any) of transition plans, scenario analysis, and internal carbon pricing.

The rule will be phased in over an extended period. LAFs must comply with most disclosures for fiscal year beginning (FYB) 2025, FYB 2026 for GHG emissions and the remaining required disclosures, and reach limited assurance for their GHG emissions disclosures for FYB 2029. In practice, this means initial disclosures under the regime will be filed in 2026. AFs and other registrants will follow suit as required on a more delayed timeline. While most disclosures are due in annual reports, reporting of GHG emission information can be delayed to the second quarter of the fiscal year after the emissions occurred.

The rule also includes a “safe harbor” provision that protects issuers from private liability for forward-looking climate-related disclosures pertaining to transition plans, scenario analysis, carbon pricing, and any stated climate goals. This “safe harbor” addresses opponents’ concerns about legal liability for forward-looking statements about climate-related issues.

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by Chloe Field and Cynthia Hanawalt|Published March 11, 2024, Columbia Law School