March 7, 2024

The SEC Climate Disclosure: New Expectations 2024

The SEC Climate Disclosure: New Expectations 2024

The U.S. Securities and Exchange Commission (SEC) has put forward a proposal for new regulations to improve and standardize the reporting of climate-related information for the benefit of investors. Originally introduced in March 2022, these regulations were finalized March 6, 2024.

This article provides the latest insights into the SEC Climate Disclosure Rules, detailing essential aspects you need to understand and identifying the entities affected by these rules. It also includes an SEC Climate Disclosures timeline to help you prepare for your submission deadlines and offers strategies for effectively navigating this requirement.

What is the SEC Climate Disclosure?

The SEC climate disclosure has been drawn from the Task Force on Climate-related Financial Disclosures (TCFD), which has been the standard requirement used across the globe. The Financial Stability Board (FSB) created the TCFD to develop recommendations about the kind of information that businesses would have to disclose to support investors, lenders, and insurance underwriters in accurately assessing and pricing a specific set of risks that are related to climate change. There are four main themes recommended that include: governance, strategy, risk management, and metrics and targets.

onion diagram of the 4 themes of disclosure recommendations TCFD

SEC Climate Disclosure Rule overview

  • Facilitating the disclosure of climate-related risks and greenhouse gas emissions
  • Establishing standardized emissions reporting for enhanced comparability and transparency
  • Assisting investors in gaining a comprehensive understanding of their climate-related risks.

At its core, the proposed rule comprises numerous essential elements. One of these is the concept of ‘narrative disclosures’, defined by the SEC as financial statement disclosures about the company’s climate-related financial risks, which include physical risks and transition risks to their business and their consolidated financial statements. This allows investors to gain a deeper understanding of the company’s potential vulnerabilities and strategic responses to climate change.

Key aspects of the proposed SEC Climate Rules include:

Greenhouse Gas Emissions Reporting: The rules mandate disclosure of a registrant’s greenhouse gas emissions, including both direct emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). At the moment, there is no requirement for disclosing Scope 3 emissions, which pertain to upstream and downstream activities in a company's value chain. Whether these emissions are included or not, adding Scope 3 data will give assurance to ESG investors and other stakeholders that data has been recorded and accounted for responsibly. This is key in proving your company’s traceability and that of other entities in your value chain. In parallel, the EU’s CSRD (Corporate Sustainability Reporting Directive) is making Scope 3 disclosures mandatory for its registrants.

Governance and Risk Management: Disclosures will need to include details about climate-related risks that are reasonably likely to materially impact their business, operations, or financial condition. Companies would need to report on their governance of climate-related risks and relevant risk management processes. This includes how identified climate-related risks have or are likely to impact the company's strategy, business model, and outlook, as well as the impact of climate-related events and transition activities on financial statements.

Comparability with International Standards: The SEC's proposal is generally in line with climate disclosure standards in the UK and the EU, and the IFRS's first draft of the ISSB (International Sustainability Standards Board) requirements. However, the SEC's scope is somewhat narrower, and it places greater emphasis on financial metrics.

Challenges and Implications: The rule poses challenges, particularly around Scope 3 emissions which the SEC has now taken out of the requirements.

Impact on Companies and Investors: These rules aim to provide investors with consistent, comparable, and meaningful information for making investment decisions. Companies would benefit from clear reporting obligations, while investors would gain reliable information about climate risks.

Transition Periods: The SEC is expected to include transition periods in the final rules, although details on these periods will be provided only once the rules are officially adopted.

Not only is the SEC Climate Disclosure inevitable, but recording precise ESG data will serve as a fundamental building block to your company’s success in being a transparent player in your industry.

According to PwC’s 2022 Executive Pulse Survey, 6 in 10 investors agreed that prioritizing ESG data would from now on be integral in long-term planning.

The delay in the adoption of these rules follows the SEC's pattern of facing challenges and pushbacks in implementing new regulations, and the rules' finalization and implementation might still evolve. The SEC is also working on other regulatory actions related to environmental, social, and governance factors, indicating a broader shift towards more comprehensive ESG reporting requirements for companies​

Related Content

To learn more about carbon emissions, managing, and reporting them, please explore our blog:

GHG Reporting: Everything You Need to Know
How Are Carbon Emissions Measured?
Article: Scope 3 Emissions: 10 Myths Debunked

Who do the SEC Climate Rules apply to?

  • Publicly traded US companies which are already required to report to the SEC, will be additionally required to disclose certain climate-related information in their registration statements and periodic reports. 
  • Foreign companies listed in US stock markets; those who file 20-F forms with the SEC.
  • Companies that care about their burgeoning reputation in the green economy should be keen on adopting these rules and disclosing their climate-related journey so they can thrive in a market that has been going in the sustainability direction and moving faster every day. Businesses that take into consideration investor attention and want that competitive edge to drive sales and increase revenue should start collecting and reporting on their ESG data before they are required to. 

Large accelerated filers

Large accelerated filers, characterized by the SEC as companies boasting a cumulative worldwide public float exceeding $700 million, will be the pioneers in complying with the SEC Climate Disclosure Rule. They had been allotted a minimum of two years to make necessary preparations for the mandated disclosures as per the new SEC Climate Disclosure Rule.

As per the SEC Climate Disclosure Rule, large accelerated filers must incorporate an attestation report from an external auditor, addressing the disclosure of Scope 1 and 2 emissions. These companies will be the trailblazers in the implementation of this rule, setting the stage for other companies to follow suit.

Smaller reporting companies

Conversely, smaller reporting companies are afforded extra time to gear up for the SEC Climate Disclosure Rule. This additional time allows smaller companies to:

  • Learn from the experiences of larger companies
  • Gain a thorough understanding of the proposed rule changes
  • Focus on disclosing information about the governance of climate-related risks
  • Provide comprehensive reporting of GHG emissions

Additionally, smaller reporting companies are advised to consider the following strategies:

  • Obtain a thorough understanding of the SEC’s proposal on climate-related financial disclosures, with a specific focus on greenhouse gas emissions.
  • Identify potential opportunities arising from climate change.
  • Ensure comprehensive disclosures regarding their management of climate-related risks and opportunities at the board level.

Thus, while smaller companies have a longer timeline, the preparation and planning needed for compliance with the SEC Climate Disclosure Rule are just as intensive.

The SEC Climate Disclosure filing deadlines

a chart of the SEC Climate Disclosure Filing Dates

The SEC Climate Disclosure timeline

The timeline for the SEC's climate disclosure rules has undergone several changes. Here's a brief overview:

  1. March 2021: The SEC initially announced its focus on climate-related disclosures.
  2. March 2022: The SEC proposed new rules for enhancing and standardizing climate-related disclosures for investors.
  3. 2022 - 2023: The period following the proposal saw discussions, feedback, and further development of the rules.
  4. December 2023: It was announced that the finalization of these rules would be delayed. The expected adoption of the final climate disclosure rules was moved to spring 2024.
  5. March 2024: The finalization of the final climate disclosure rules.
  6. Fiscal year beginning (FYB) 2025: Larger companies will have to start reporting their climate-related data in their 2025 10K filing, in 2026.
  7. 2026: Submission of first report and phase-ins to continue thereafter.

This timeline indicates the SEC's ongoing process to formalize climate disclosure requirements, reflecting its response to evolving discussions and feedback from various stakeholders. The final implementation date and details of the rules could still be subject to change based on regulatory processes and further developments​

Net0: Getting you ready for the SEC Climate Disclosure 

Understanding market dynamics is crucial, especially when observing the transformative shift this decade brings across various sectors, including infrastructure, investment, construction, planning, transportation, and procurement, as they align with the energy transition toward a sustainable economy. This shift underscores the urgency of carbon reporting as an indispensable practice, with no room for delay.

Net0 adheres to both local and international standards, ensuring businesses can meet the SEC's carbon reporting requirements without complication. Through the automation of data entry and report generation, Net0 guarantees the accuracy and regulatory compliance of carbon data in real time. Moreover, its platform empowers businesses to monitor their emissions closely, facilitating the identification of opportunities for reducing environmental impact, thus contributing significantly to sustainable business practices.

Book a demo with Net0 today to explore a comprehensive climate action platform designed to simplify the processes of emissions management. Discover how our platform enhances reporting and certification efforts, ensuring your business continues to advance toward a climate-neutral future. Experience firsthand how Net0 can facilitate your company's transition to sustainable business practices, providing the tools and insights needed for effective climate management.

Written by:

Kristin Irish

As a content writer for Net0, Kristin harnesses her expertise and enthusiasm for carbon emissions reduction, merging it with her other passion: the B2B SaaS industry. Her global outlook and dedication enrich the sustainability sector with insightful perspectives.
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