Navigating the SEC’s new climate disclosure rule

By Kristen Sullivan and Laura McCracken, Audit & Assurance partners, Deloitte & Touche LLP

Talking points

• Last week, the Securities and Exchange Commission (SEC) officially adopted its long-awaited final climate regulations, which signify a shift from voluntary to mandatory climate reporting for public companies.
• Now that the rule is final, we'll explore what has changed from the SEC's previously proposed rule and which companies are impacted.
• As companies prepare, they may need to consider the global regulatory environment, as the SEC rule is one of many that could apply to US companies.

The SEC's new climate disclosure rule is here, and it’s poised to change how public companies in the United States disclose their climate-related activities. Understandably, the proposed disclosure requirements have prompted a lot of questions from business leaders seeking to understand the potential impact these changes may have on their respective organizations. What does the final scope include? Which organizations are affected? How should we prepare?  For a more in-depth understanding, Deloitte created this Heads Up issue summarizing the key provisions of the final rule. Here’s the basic information you should know.

The new regulatory landscape

The landmark SEC climate rule brings about an important shift from a voluntary reporting system to a largely mandatory one, significantly changing how most US public companies report on climate. The regulation requires certain disclosures in registration statements and annual reports, including financial impact and climate-related impact metrics—in other words, reporting on how an organization has an impact on the natural environment and how changes in the environment are impacting business operations and performance.

What does the regulation entail?

The new rule calls for greater transparency around the risks companies face related to climate and how they are managing those risks through their risk management, reporting and disclosure processes and the roles of management and the board. If an organization has committed to targets and goals that materially affect or are reasonably likely to materially impact the business and results, reporting on their progress will now be required.

Certain publicly listed companies will be required to disclose material Scope 1 and Scope 2 greenhouse gas emissions. They will also be required to provide disclosures in their financial statements on capitalized costs, expenses and losses incurred as a result of severe weather events and other natural conditions subject to certain thresholds along with other required disclosures. These financial statement disclosures will be subject to the organization’s Internal Control over Financial Reporting (ICFR) and the financial statement audit.

These changes aim to provide investors with more consistent, comparable, and reliable information about the effects of climate-related risks. In the SEC rule, private companies remain exempt, except those undergoing an IPO or SPAC merger.

What can you do to prepare?

Don’t wait to prepare: For most companies, the final rule could significantly increase the breadth and depth of climate disclosures in SEC filings. Beginning preparations is important as many key parts of the rule will go into effect starting January 2025 for certain companies.

Successful implementation starts with a well-developed plan that understands the current state and new requirements while helping close the gaps. Many companies are not starting from scratch and have been preparing for broader environmental, social, and governance (ESG) regulatory requirements. These companies can leverage their ESG preparation to extend to the SEC requirements in an integrated manner that drives efficiency and manages risk.

Deloitte can provide insights and advice as you navigate this rapidly changing environment.  Learn more about climate regulation and view the replay of our Dbriefs webcast from March 21, "Demystifying the SEC’s new climate disclosure rules."  Feel free to contact us, Kristen Sullivan, or Laura McCracken, with any questions.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

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