SEC Adopts Climate-Related Disclosure Rules

In a historical rulemaking, the US Securities and Exchange Commission (SEC) on March 6 adopted rules that require public companies to disclose certain climate-related information in registration statements and annual reports. While the new rules are significant, there were notable revisions and deviations from the proposed rules in the final rules, and the SEC modified its stance articulated in the proposing release that climate-related disclosure was material for all public companies, regardless of industry or size. The final rules also include a phased compliance runway that is based on a registrant’s filer status and the content of the disclosure.

The SEC initially proposed rules to require registrants to provide climate-related disclosure in registration statements and periodic reports (the proposed rules) on March 21, 2022.[1] The proposed rule marked the first time that the SEC definitively indicated that it viewed climate-related disclosure as material information that all public companies must provide, regardless of industry or size. Additionally, it followed over a decade of increasing focus on climate-related disclosures by the SEC.

For example, the agency published guidance in 2010 that outlined how its existing rules may require narrative climate-related disclosure, including through a discussion of business development, risks, litigation, and results of operations (the 2010 Guidance).[2] In 2021, the then acting chair released a statement soliciting public input on climate change disclosures[3] and, later that year, the SEC’s Division of Corporation Finance, which is tasked with primary oversight of public issuers’ disclosures, published a sample letter to public companies outlining the types of climate-related disclosure issues that public company issuers should consider.[4] The agency also underscored its stance on the materiality of climate and environmental, social, and governance (ESG)–related disclosure through the creation of a Climate and ESG Task Force within its Division of Enforcement.[5]

Today’s final rules, adopted after a nearly two-year waiting period, reflect a clear desire from the SEC to have public companies provide climate risk disclosure that is consistent, reliable and comparable—although it remains to be seen exactly how comparable such disclosures ultimately will be. We also saw an acknowledgment from the SEC as to the time and effort that will be incurred in complying with the final rules, as evidenced by scaled-back disclosures and phased-in compliance dates, as well as the elimination of GHG emission disclosure requirements for smaller reporting companies, emerging growth companies and non-accelerated filers.

Significant Deviations From Proposed Rules

There were a number of significant deviations that culminated in a scaled-back version of the proposed rules. This approach may result in decreased compliance costs for some public companies, although SEC Commissioner Hester Peirce was quick to note during her dissenting statement that she believed the final rules would increase the cost of being a public company by 21%.[6]

Although the following is not intended to be an exhaustive recitation of the revisions that the SEC made in the final rule, we’ve highlighted the following changes from the proposed rules:

• No Scope 3 disclosures: As predicted, the SEC removed the requirement that issuers disclose Scope 3 emissions, which are indirect greenhouse gas (GHG) emissions from upstream and downstream activities in a company’s value chain.
• Not everyone has to disclose Scope 1 and 2, either: In addition, rather than a universal requirement that all issuers need to disclose Scope 1 and Scope 2 GHG emissions, the final rule requires that only large-accelerated and accelerated filers provide material Scope 1 and Scope 2 GHG disclosure. Smaller reporting companies and emerging growth companies will be exempt from any requirement to disclose its GHG emissions or obtain an attestation report, as described in more detail below.
• Annual GHG reporting can be delayed: The final rules will allow impacted issuers to provide Scope 1 and Scope 2 GHG emissions disclosure in their second quarterly report to be filed after their fiscal year-end based on concerns that it would have been too difficult to provide such information by the due date for an annual report. For US issuers, this can be provided in the second quarter Form 10-Q or in an amendment to a Form 10-K.
• Flexibility on placement: The final rules leave the placement of climate-related disclosures, other than the new financial statement disclosures, largely up to each registrant. The proposed rules would have required the attestation report (as described below under “Final Rules”) and relevant disclosures in a separately captioned “Climate-Related Disclosure” section in the applicable filing. Instead, under the final rules, companies will have the flexibility to present the new disclosures either in a separately captioned section or place the majority of the new disclosures in applicable, currently existing parts of a registration statement or the annual report. Where appropriate, registrants should consider the use of cross-references within the report or registration statement to assist in readability. Companies also will be allowed to incorporate by reference some of the climate-related disclosures from previously filed disclosures, as applicable. Notably, however, registrants will not be able to incorporate by reference disclosure required in annual reports on Form 10-K from the proxy statement, as is currently allowed for Part III of Form 10-K information.
• Modified risk disclosures: Similar to the removal of Scope 3 disclosure, the final rules modified climate-related risk disclosure to eliminate discussion of the negative impact on a registrant’s value chain and, thus, registrants can independently determine and disclose, as appropriate, whether negative climate-related impacts on its value chain materially impact or will reasonably materially impact their business, results of operations, or financial condition. The final rules also reflect revisions to disclosure requirements to more closely align with terminology and concepts baked into existing disclosure requirements, such as Item 303 of Regulation S-K.
• Scaled-back governance disclosures: In response to concerns raised by commentators, the SEC also scaled back certain corporate governance disclosures and, similar to the recent cybersecurity disclosure rules, emphasized that the climate rules are not intended to mandate a specific corporate governance structure or risk-management methodology. Rather, the final rules focus on the disclosure of a registrant’s existing or developing climate-related risk governance practices. In particular, companies will not need to identify relevant expertise of board members, the specific board members responsible for climate-related risk, the frequency of reporting climate-related risks to the board, or how the board sets climate-related targets or goals. Registrants will be required to describe whether and how the board oversees progress against disclosed climate-related targets, goals, or transition plans.

The Final Rules

Positioned as a “continuation” of the Commission’s 2010 guidance, the final rules require the following climate-related disclosures by public companies:

Key Compliance Dates

The final rules will become effective 60 days after publication in the Federal Register, and compliance will be phased in gradually based on the size of the issuer and the following specific disclosure requirements. References to “the fiscal year beginning” mean that the disclosure will need to capture that applicable year. Therefore, for US, calendar year end issuers who are also large accelerated filers, the first disclosure requirements will be in effect for Forms 10-K for the fiscal year ended December 31, 2025, to be filed in early 2026.