SEC adopts final rule requiring public companies to disclose climate risks

The Securities and Exchange Commission (SEC) adopted rules this week to require public companies to disclose certain climate-related information in registration statements and annual reports.

The rule was first proposed two years ago in March 2022 and has been amended since then in response to public feedback. The SEC considered more than 24,000 comment letters, including more than 4,500 unique letters.

This marks the first time that public companies will be required to report climate-related information in a detailed and standardized way to investors. The rule comes in response to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a company’s operations and how it manages those risks.

“The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements,” SEC Chair Gary Gensler said.

“Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today.”

The final rule will require reporting to start on a sliding scale dependent on the filer type and data, beginning in 2025 and going through 2033. The final rules will require a registrant to disclose: climate-related risks that have had an impact on business strategy, results, operations or outlook; information about material Scope 1 emissions and/or Scope 2 emissions, capitalized costs, expenditures, and losses incurred as a result of severe weather events and other natural conditions, and many other provisions.

The final rule eliminated a proposal to require larger companies to report on Scope 3 emissions, which stem from activities from assets not owned or controlled by the reporting organization. That move allayed some concerns that stakeholders held about the rule, but not all.

“While the SEC did make some positive changes over the original proposed rule such as removing the Scope 3 reporting requirement and improving the materiality standard, there are still significant concerns regarding the legality and scope of this rule,” said Energy Workforce President Tim Tarpley. “The ruling will put additional costs on reporting and data collection for public companies without necessarily leading to a reduction in emissions. Overall, we believe emissions reporting should be voluntary and driven by market forces, not a government mandate.”

The Edison Electric Institute (EEI), which represents all U.S. investor-owned electric companies, noted its members already are reporting emissions information to investors.

“Our members have been utilizing EEI’s voluntary reporting template for greenhouse gas emissions and other ESG-related information for years to meet the needs of the investor community,” Richard McMahon, chief ESG officer at EEI, said. “While we still are reviewing the final rule, we appreciate that the SEC appears to have prioritized Scope 1 and Scope 2 emissions reporting, which are most relevant for investors, over Scope 3 emissions due to inherent accuracy and reporting challenges for these emissions,” he said.

The American Council on Renewable Energy (ACORE), which is also reviewing the final rule, said it appreciates the SEC’s objectives to help investors access climate-related information.

“Clean energy stands at the heart of efforts to address climate change, and we believe renewable generation, use, provision, and investment are important material considerations in corporate climate disclosures,” said Lesley Hunter, SVP of policy and engagement at ACORE.

The leaders of the U.S. House Sustainable Energy and Environment Coalition (SEEC) also weighed in, releasing a statement in support of the rule.

Noting that climate-related disasters totaled $92.9 billion in the United States last year, the committee members said climate change poses a significant financial risk to the nation’s businesses and economy. “Today represents another critical step towards providing the American public with comprehensive and rigorous information on the ways in which climate change poses a risk to our communities and economy,” the committee leaders said.

The U.S. Chamber of Commerce, however, was more critical and raised its ongoing concerns about the climate disclosure rule.

“While it appears that some of the most onerous provisions of the initial proposed rule have been removed, this remains a novel and complicated rule that will likely have significant impact on businesses and their investors. The Chamber will continue to use all the tools at our disposal, including litigation if necessary, to prevent government overreach and preserve a competitive capital market system.”

The final rule will become effective 60 days after the rule is published in the Federal Register.