The U.S. Securities and Exchange Commission (SEC) last week issued final rules mandating and standardizing climate-related disclosures made by public companies. The requirements also emphasize the board's role in climate governance — the oversight of their companies' climate risks and opportunities.
The requirements are intended to respond to investors’ requests for more uniform and trustworthy information on the material impact of climate-related risks, and the rule requires that climate-risk disclosures be included in a company’s SEC filings. These include annual reports and registration statements rather than company websites only.
Following are key disclosure provisions as well as the key changes between the proposed rule, first introduced in 2022, and the final rule, which took effect March 6, as well as an explanation of how the final rule compares to other major climate-disclosure requirements globally.
The final rule requires SEC registrants to disclose specific information in the footnotes of financial statements as well as quantitative and qualitative information outside the audited financial statements in certain filings.
Greenhouse gas (GHG) emissions
Governance
Strategy, business model and outlook
Risk management
Targets and goals
Material expenditures and impacts
Increased details and footnotes for:
Capitalized costs, expensed expenditures, charges and losses
Disclosure requirements will be in effect as early as 2025 for large, accelerated filers, with one- to two-year extensions for smaller reporting companies (SRCs) and emerging growth companies (EGCs). Additional time is granted for emissions and material expenditures/impact disclosures as well as attestation of emissions (see Table 1).
| Large, accelerated filers | Accelerated filers (excluding SRCs and EGCs) | Nonaccelerated filers, SRCs and EGCs | |
|---|---|---|---|
| Financial statement disclosures and all other disclosures* | 2025 | 2026 | 2027 |
| Scope 1 and 2 GHG emissions | 2026 | 2028 | Not required |
| Attestation on GHG emissions | • 2029: Limited assurance • 2033: Reasonable assurance |
2031: Limited assurance | Not required |
| Material expenditures/impacts | 2026 | 2027 | 2028 |
*Except GHG emissions and material expenditures and impacts
The final rule is less ambitious and allows for more discretion than the proposed rule in 2022. Notable rollbacks are in the areas of emissions reporting, financial statement impact, governance and timing. Specifically:
For the Board of companies with global operations, the SEC rule represents the latest of several climate reporting rules from global entities, including California SB 253 and 261, the EU’s Corporate Sustainability Reporting Directive (CSRD) and International Sustainability Standards Board’s (ISSB) IFRS S1 and S2. Here’ a quick look at how these rules compare:
| U.S. SEC Rule | California | |
|---|---|---|
| Issued by | United States Securities and Exchange Commission (SEC) | State of California |
| Topics covered | Single climate standard | Climate only: 1) emissions and 2) climate-related financial risk |
| Applies to | Initially only large accelerated listed entities (<10,000), with smaller companies phased in 2026-2028 |
|
| Emissions scopes | Scopes 1 and 2 if deemed material in 2026 for larger filers |
|
| Scenario analysis | Not required, unless conducted and deemed material by the filer | Required based on TCFD recommendations |
| TCFD alignment | Aligned to the four TCFD pillars with recommendations structured differently | Aligned with TCFD recommendations |
| Executive compensation | Does not require disclosure of exec comp linked to climate | Does not require disclosure of exec comp linked to climate |
| ISSB IFRS S1 and S2 | EU CSRD | |
|---|---|---|
| Issued by | International Financial Reporting Standards Foundation (IFRS) | European Financial Reporting Advisory Group (EFRAG) |
| Topics covered | Broader sustainability in IFRS S1, climate-specific disclosures in IFRS S2 | Two general sustainability, 5 environmental, 4 social, and 1 governance standard |
| Applies to | Public and private entities, with adoption subject to local jurisdictions |
|
| Emissions scopes | Scopes 1, 2 and 3 | Scopes 1, 2 and 3 – with specific disclosures depending on financial/impact materiality |
| Scenario analysis | Required to assess the resiliency of the business strategy | Required to assess the resiliency of the business strategy |
| TCFD alignment | IFRS S2 direct successor of TCFD, builds on depth and guidance | ESRS E1 (Climate Change) is aligned with TCFD recommendations but structured differently |
| Executive compensation | Requires disclosure of exec comp linked to climate | Requires disclosure of exec comp linked to climate |
Despite the changes to some controversial provisions in the proposed rule, the final rule will likely continue to be a subject of debate amongst business leaders, the legal community, and political leaders. Some have argued that the SEC does not have the regulatory authority to even promulgate disclosure and attestation rules for GHG emissions and climate-related risk. Others have argued that specific provisions like the one requiring attestation of GHG emissions by independent third parties go too far. Litigations or congressional actions may cause delay to implementation or invalidate certain provisions of the final rule.
Nevertheless, with multiple climate disclosure rules looming, organizations should start planning for compliance with these rules, and look for opportunities to streamline and align climate risk activities internally, including disclosure preparation, risk management and financial planning, ensuring efficiency, consistency and alignment to strategy. Crucially, disclosures are not just about compliance; they are also about positioning your business to investors and other stakeholders as a proactive and responsible entity in the face of climate change and climate-related risk.
