SEC issues Final Rule on climate-related disclosure requirements

On March 6, 2024, the SEC issued a Final Rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires all registrants to provide certain climate-related information in their registration statements and annual reports. The Final Rule includes a climate- related disclosure framework similar to the Task Force on Climate-Related Financial Disclosure’s (TCFD’s) recommendations and the Greenhouse Gas (GHG) Protocol. The disclosures under the new rule are intended to address investors’ needs for consistent, comparable, and decision-useful information and to provide registrants with clear reporting requirements.

Key takeaways from the Final Rule

Climate-related risk disclosures and GHG reporting

The Final Rule requires all registrants to disclose the impact of climate-related risks on the business and certain registrants to disclose a quantitative measurement of GHG emissions.

The new rule also requires registrants to disclose certain information about the board of directors’ oversight of climate-related risks, as well as the identified climate-related risks on the company’s strategy, business model, and outlook. If registrants have established climate-related targets or goals, they must disclose specific details about how the goal is being measured and tracked.

In addition, as part of their reporting, large accelerated filers (LAFs) and accelerated filers (AFs) are required to disclose the following GHG emissions, if material:

• Scope 1: Direct GHG emissions from operations owned or controlled by the registrant
• Scope 2: Indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by operations owned or controlled by the registrant

To determine whether GHG emissions are material, the Final Rule considers the perspective of a “reasonable investor.” Registrants, in consultation with legal counsel, will need to assess whether there is substantial likelihood that a reasonable investor would consider GHG emissions important or would view such omission as having significantly altered the total mix of information. Registrants may consider factors like GHG emissions information reported elsewhere, whether GHG emissions represent a transition risk that could materially impact the business, or if disclosure would help an investor understand progress toward targets and goals or transition plans.

Scope 1 and 2 emissions are subject to third-party limited assurance following a three-year phase-in period after initial reporting. LAFs are required to obtain reasonable assurance four years after obtaining limited assurance. Refer to the timeline within the “Disclosure compliance dates” table below.

The Final Rule requires disclosure of Scope 1 and/or Scope 2 emissions separately, each expressed in aggregate as carbon dioxide equivalents (CO2e), and the disaggregated presentation of any individually material constituent GHGs, such as methane. Disclosed emissions will exclude the impact of any purchased or generated offsets.

Disclosures within the footnotes to the financial statements

Registrants are required to include the following information in the footnote disclosures:

• Capitalized costs, expenditures, charges, and losses incurred as a result of severe weather events and other natural conditions (for example, hurricanes, tornadoes, or floods)
• Capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs)
• A description of how financial statement estimates and assumptions were impacted by severe weather events and other natural conditions, if applicable

Timeline for adoption

The following table outlines the disclosure compliance dates, including the requirements for obtaining third-party assurance, for provisions in the Final Rule.