The wait is over: SEC issues final climate-related disclosure rules

On March 6, 2024, the Securities and Exchange Commission (SEC) voted to adopt its long-awaited climate-related disclosure rules. The final rules require both quantitative and qualitative disclosures in annual reports and registration statements, including initial public offerings. Until we read and digest the 886-page rule, here are some highlights.

Disclosure outside of the financial statements (Regulation S-K):

• Climate-related governance, strategy, risks, and targets. Details on a registrant’s climate risk identification, risk management, and board oversight practices; how any identified risks affect the company’s strategy, business model, and outlook; and quantitative and qualitative information about climate-related risks, mitigation activities, targets, and goals that are reasonably likely to have a material effect on a registrant’s business, financial condition, or results of operations.
• GHG emissions. Material Scope 1 and Scope 2 greenhouse gas (GHG) emissions metrics for large accelerated filers (LAFs) and accelerated filers (AFs), with an accompanying attestation requirement. The attestation requirement will begin after a transition period at a limited assurance level and, for LAFs, move to reasonable assurance after an additional transition period. Smaller reporting companies (SRCs) and emerging growth companies (EGCs) are exempt from GHG emissions disclosures. In a departure from the proposed rules, Scope 3 emissions disclosures are not required, and any required GHG emissions disclosures can be filed in the registrant’s second quarter Form 10-Q or via a 10-K amendment based on the 10-Q due date.
• Transition plans. Information on a registrant’s transition plans or scenario analysis, if any, to address climate-related risks.

Disclosures inside the financial statements (Regulation S-X):

• Severe weather and other natural conditions. Within the notes to the financial statements and subject to certain quantitative thresholds, disaggregated information about the effect of severe weather and other extreme natural conditions, including capitalized costs, expenses, and losses.
• Carbon offsets. Disaggregated information on capitalized costs, expenses, and losses related to carbon offsets or renewable energy credits incurred to meet the registrant’s climate-related goals, if material to reaching a climate-related target or goal.
• Estimates and assumptions. Qualitative information about how severe weather, other natural conditions, or climate-related goals or targets materially affected the estimates and assumptions used to produce the financial statements.

Compliance dates are phased in based on registrant size and disclosure content:

• LAFs must provide disclosures other than GHG emissions earliest, starting with fiscal years beginning in 2025, followed by AFs in 2026 and then SRCs and EGCs in 2027. Certain quantitative and qualitative disclosures about transition plans and activities related to climate-related targets or goals are not required until the second year.
• LAFs must provide material Scope 1 and Scope 2 GHG emissions disclosures for fiscal years beginning in 2026 with limited assurance required in 2029 and reasonable assurance in 2033. AFs will provide these disclosures for fiscal years beginning in 2028 with limited assurance beginning in 2031.
• XBRL tagging is required for LAFs and AFs in 2026 with SRCs and EGCs following in 2027.

The SEC’s vote was split 3-2 to adopt the final rules, with Chair Gary Gensler and Commissioners Caroline A. Crenshaw and Jaime Lizárraga voting in favor, and Commissioners Hester M. Peirce and Mark T. Uyeda voting against.

As we process the final rules, we look forward to providing you further insights.