The long-awaited final SEC Climate-Related Disclosure Rule may have been scaled back from their proposed rule – but that doesn’t mean companies are off the hook for disclosure requirements.

On March 6, the Securities and Exchange Commission finalized rules that require applicable public companies to disclose specific climate-related information in their registration statements and annual reports in an effort to provide consistent, comparable, and reliable information about the financial effects of climate-related risks.

What it means for public companies

The SEC’s Climate-Related Disclosure Rule mandates that public companies disclose the following:

• Climate-related risks. Public companies must disclose information, including scenario analysis, about climate-related risks that have materially impacted or are reasonably likely to impact their business strategy, financial condition, or results of operations within or beyond a 12 month timeline.
• Severe weather events. Disclosures of capitalized costs, expenditures, charges, and losses incurred as a result of severe weather events and other natural conditions are required in audited financial statements.
• Targets and transition plans. Climate-related targets or transition plans should also be disclosed.
• GHG emissions. Applicable companies must separately disclose their total Scope 1 (direct emissions from sources that are controlled or owned by an organization) and Scope 2 (indirect emissions associated with the purchase of electricity, steam, heat, or cooling) greenhouse gas (GHG) emissions. Scope 3 emissions (indirect emissions across value chain) are not required for disclosure at this time. Note: Nonaccelerated filers, smaller reporting companies, and emerging growth companies are exempt.

Other regulatory bodies in the United States and beyond have implemented or are drafting their own – often more stringent – climate-related disclosure regulations.

Beyond the SEC

In addition to federal requirements, other regulatory bodies in the United States and beyond have implemented or are drafting their own – often more stringent – climate-related disclosure regulations. Notably, California has enacted the following:

• SB 253 – GHG emissions reporting: Applicable to public and private companies doing business in California with revenues in excess of $1 billion, this regulation requires reporting of Scope 1 and Scope 2 emissions (2026) and Scope 3 emissions (2027). This Scope 3 requirement will drive the need for GHG accounting for companies that fall within these value chains that may not otherwise be required to report under Scope 1 or Scope 2.
• SB 261 – climate financial risk disclosure: Applicable to public and private companies doing business in California with revenues in excess of $500 million, companies are required to disclose their climate-related financial risks and their management measures.
• AB 1305 – carbon claims disclosure: Applicable to public and private companies doing business in California (no revenue minimum) that make net zero, carbon neutral, or other emissions claims, companies must disclose how they determined the accuracy of the claim, how they will measure progress, and information on carbon offsets (if relied upon for the claim).

Bottom line

Sustainability practices are no longer optional; they are increasingly becoming a strategic necessity. Companies must consider how sustainability practices influence major strategic and capital decisions to thrive in an evolving business climate.

Don’t go it alone

Brown and Caldwell’s Climate Change and Resilience Team is ready to help you navigate the evolving requirements. Connect with our experts to start a conversation!