SEC Climate Disclosure Rules Explained
Comprehensive overview of the SEC's climate-related disclosure requirements for US public companies.
1. Rule Overview
In March 2024, the US Securities and Exchange Commission (SEC) adopted final rules requiring public companies to disclose climate-related risks, greenhouse gas emissions, and climate governance practices. These rules represent the most significant climate disclosure mandate for US companies to date.
Important Note:
The SEC climate disclosure rules have faced legal challenges. Companies should monitor ongoing litigation and regulatory updates that may affect implementation timelines and requirements.
2. Who Must Comply
The rules apply to all SEC-registered companies, including:
Domestic Registrants
US public companies filing annual reports (Form 10-K) and registration statements.
Foreign Private Issuers
Non-US companies listed on US exchanges filing Form 20-F.
Smaller Reporting Companies
Subject to scaled disclosure requirements with certain exemptions (e.g., Scope 3 emissions).
3. Required Disclosures
Climate-Related Risks
Companies must disclose material climate-related risks that have had or are reasonably likely to have a material impact on business, strategy, or financial condition. This includes:
- Physical risks: Acute events (hurricanes, floods) and chronic changes (sea-level rise, temperature shifts)
- Transition risks: Policy changes, technological shifts, market dynamics, and reputational considerations
- Time horizons: Short-term, medium-term, and long-term risk assessments
Governance and Risk Management
- Board oversight of climate-related risks
- Management's role in assessing and managing climate risks
- Processes for identifying, assessing, and managing climate risks
- Integration with overall risk management
GHG Emissions (Scoped Requirements)
Scope 1 & 2 Emissions
Large accelerated filers and accelerated filers must disclose Scope 1 (direct) and Scope 2 (indirect from purchased energy) GHG emissions when material, subject to third-party attestation.
Scope 3 Emissions
Required only if material or if the company has set a GHG emissions reduction target that includes Scope 3. Smaller reporting companies are exempt from Scope 3 disclosure.
Climate Targets and Transition Plans
If a company has publicly set climate-related targets or goals (e.g., net-zero commitments), it must disclose the scope, timeframe, baseline, and progress toward achieving those targets.
Financial Statement Impacts
Disclosure of material climate-related impacts on financial statement line items (e.g., impairments, restructuring costs) when impacts exceed 1% of the line item.
4. Compliance Timeline
The rules follow a phased implementation based on filer status:
Fiscal Year 2025 (Large Accelerated Filers)
Climate risk disclosures, governance, and qualitative information (filed in 2026).
Fiscal Year 2026 (Accelerated Filers)
Climate risk disclosures begin; Large Accelerated Filers add Scope 1 & 2 emissions (limited assurance).
Fiscal Year 2027-2028
Accelerated Filers add Scope 1 & 2; transition to reasonable assurance for Large Accelerated Filers.
Smaller Reporting Companies
Delayed compliance (FY 2027+) with exemptions from GHG emissions disclosure and attestation.
5. Implementation Steps
1. Assess Materiality
Conduct climate risk assessments to determine which risks and emissions are material to your business and require disclosure.
2. Establish Data Systems
Build or enhance systems to collect, calculate, and verify GHG emissions data across operations and, if applicable, value chain.
3. Strengthen Governance
Formalize board and management oversight of climate risks, document processes, and integrate with enterprise risk management.
4. Engage Assurance Providers
Select and engage qualified third-party attestation providers for GHG emissions verification (if required for your filer category).
5. Draft and Review Disclosures
Prepare draft disclosures, conduct legal and technical reviews, and coordinate with financial reporting teams for integration into Form 10-K.