SEC Finalizes Climate Disclosure Rules: Enhancement and Standardization of Climate-Related Disclosures for Investors
March 11, 2024
Contributor: Gabriela Payne, CPA
On March 6, 2024, the U.S. Security Exchange Commission (SEC) released final rules on new climate disclosure requirements for public companies. The rules require registrants to provide climate-related information in their registration statements and annual reports.
The new climate disclosure rules aim to improve and standardize disclosures about climate issues. The rules will be enforced 60 days after they are published in the Federal Register. Companies will have different deadlines to follow the rules, depending on their status as a filer. The earliest effective date would be fiscal year 2025, meaning compliance adherence beginning in early 2026 for calendar-year filers.
The new rules require companies to disclose the climate-related risks they face and how they manage them. This helps investors understand how climate-related risks may impact the company and includes required disclosure of transition plans, scenario analysis or internal carbon prices to manage a material climate-related risk.
A company must share its climate-related targets, plans to reach them and progress each year, if such goals have been set. Companies are required to disclose their spending on climate risk reduction efforts. They must also disclose their plans and goals for transitioning to a more sustainable future as part of the rules outlined in Regulation S-K.
The rules will require large, accelerated filers and accelerated filers, to disclose:
- Direct emissions, also known as Scope 1 emissions
- Indirect emissions associated with energy purchases required for operation, known as Scope 2
Registrants must file an attestation report with their Scope 1 and 2 emissions. At this time, companies will not be required to report Scope 3 emissions, or indirect emissions released due to a supply chain.
The final rules also require important financial statement footnote disclosures on expenditures resulting from severe weather events. Companies must disclose capitalized costs, expenses, charges and losses resulting from such events. These disclosures will help investors understand the current financial status of companies. They will also provide context for future disclosures in Regulation S-K.
The full list of disclosure requirements can be found in the official press release from the SEC.
How We Can Help
Cherry Bekaert’s Sustainability and Environmental, Social and Governance (ESG) group can help companies track and report their carbon emissions and analyze data to determine if disclosure in footnotes is needed. We help companies develop a system to measure, track and report their carbon emissions. This is necessary to comply with new laws on greenhouse gases. We help companies understand the financial risks of climate change and understand ways to reduce these risks.