Enhancement and Standardization of Climate-Related Disclosures

On March 6, 2024, the SEC adopted the long-awaited Enhancement and Standardization of Climate-Related Disclosures: Final Rules. According to the SEC press release, “The final rules reflect the Commission’s efforts to respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules.” The rules are intended to “provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements” and will require “that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.” The final rules require SEC registrants to disclose, among other things:

  • Climate-related risks that are likely to impact strategy, operations, or financial condition
  • Related material impact on the registrant’s business strategy, business model, and outlook
  • Activities to mitigate or adapt to a material climate-related risk
  • The use, if any, of transition plans, scenario analysis, or internal carbon prices
  • Oversight by the company’s board of directors and the role of management in assessing and managing material climate-related risks
  • Processes for identifying, assessing, and managing material climate-related risks as part of a company’s risk management system or processes
  • Information about a registrant’s material climate-related targets or goals, if any

The final rule provides a phase-in schedule for climate-related disclosures according to the organization’s size classification, including:

  • Accelerated filers (AFs) or market cap (common shares times the market price) between $75 million and $700 million
  • Large-accelerated filers (LAFs) or market cap of greater than $700 million
  • Non-accelerated filers (NAFs) or larger filers that have transitioned to NAFs or market cap of $60 million and $560 million, respectively
  • Smaller reporting companies (SRCs) or market cap less than $75 million
  • Emerging growth companies (EGCs) or total annual gross revenues less than $1 billion

The rules require disclosure and financial statement effect audits, GHG emissions and assurance, and electronic tagging per existing rules in accordance with a schedule based on the company’s fiscal year beginning (FYB), or any FYB in the calendar year. LAFs must disclose Scope 1 and 2 greenhouse gas (GHG) emissions by FYB 2026, provide limited assurance (i.e., negative form of conclusion such as “no evidence to suggest GHG emissions statement(s) are not materially correct and not a fair representation” by 2029), and reasonable assurance (e.g., “positive form of conclusion such as ”GHG emission statements are materially correct and a fair representation”) by 2033.

AFs (other than SRCs and EGSs) must provide Scope 1 and 2 GHG emissions by FYB 2028 and limited assurance by 2031 but will not be required to provide reasonable assurance. SRCs, EGSs, and NAFs will not be required to disclose Scope 1 and 2 GHG emissions or provide limited or reasonable assurance. There is a schedule for LAFs to provide electronic tagging reports beginning in 2026 with smaller organizations to follow.

The final rule becomes effective 60 days after publication in the Federal Register.

Questions? For additional information or to discuss what you need to do to prepare, please contact Bob Pickert.

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