A landmark decision for climate disclosure requirements

Overview

On March 6, 2024, the SEC issued a final rule that requires registrants to provide climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2025, for calendar-year-end, large accelerated filers. The final rule scales back the proposed rule in several key ways. For example, companies will not have to provide scope 3 greenhouse gas (GHG) emission disclosures, company financial statement disclosure requirements will be less extensive, and companies will have more time to implement the disclosures and related assurance requirements.

Disclosures required outside of the financial statements include:

• For large accelerated filers and accelerated filers, material scope 1 and scope 2 GHG emissions, subject to assurance requirements that will be phased in.
• Governance and oversight of material climate-related risks.
• The material impact of climate risks on the company’s strategy, business model, and outlook.
• Risk management processes for material climate-related risks.
• Material climate targets and goals.

In the footnotes to the financial statements, registrants must disclose financial statement impacts and material impacts on their financial estimates and assumptions due to severe weather events and other natural conditions. Companies will also need to disclose a roll-forward of carbon offsets and renewable energy credits or certificates (RECs) in the notes to the financial statements if carbon offsets and RECs are a material component of meeting their climate-related targets and goals.

In his statement about the final rule, SEC Chair Gary Gensler noted that the final rule will provide “investors with consistent, comparable, decision-useful information, and issuers with clear reporting requirements.”