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Article | Executive Pay Memo North America

SEC issues final rule on climate-related disclosures 

By Grace Youell , Holly Teal , Steve Seelig and Kenneth Kuk | March 13, 2024

The final SEC rule will require listed companies to measure and disclose material climate-related business risks and expenditure. 
Climate|Environmental Risks|Executive Compensation
Climate Risk and Resilience|managing-complex-organizational-risks

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.

Key requirements

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.

In annual reports or registration statements

Greenhouse gas (GHG) emissions

  • Material Scope 1 emissions and/or Scope 2 emissions for large, accelerated filers (LAFs) and non-exempt accelerated filers in a limited assurance level report
  • For LAFs, this will transition to the reasonable assurance level following an additional period


  • How climate-related risks factor into the board’s oversight of business strategy, risk management and financial management
  • The extent to which the board sets management goals for assessing and managing material climate-related risks, and the specifics of the goals

Strategy, business model and outlook

  • Climate-related risks that have or are likely to have a material impact on the registrant’s strategy, operations or financial condition
  • Use of internal carbon price to evaluate climate-related risk, including price and other information
  • The registrant’s actions, if applicable, to mitigate or adapt to a significant climate-related risk, including details on utilization, if any, of transition plans, scenario analysis or internal carbon pricing

Risk management

  • The processes adopted by the registrant for identifying, assessing and managing material climate-related risks
  • Whether and how such processes are integrated into the overall risk management system or procedures

Targets and goals

  • If climate-related targets or goals (e.g., net-zero commitments) will materially affect the business, results of operations or financial condition, information about such targets or goals, including scope of activities, time horizons, baseline against which progress will be tracked, and how the registrant plans to achieve targets or goals

Material expenditures and impacts

  • Incurred material expenditures and the material impacts on financial estimates and assumptions directly stemming from mitigation or adaptation activities, disclosed transition plans, and actions taken to progress climate-related targets and goals

In financial statements

Increased details and footnotes for:

Capitalized costs, expensed expenditures, charges and losses

  • Incurred from severe weather events and other natural conditions including hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures and sea-level rise (subject to relevant 1% and de minimis disclosure thresholds)
  • Resulting from carbon offsets and renewable energy credits or certificates if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals (e.g., net-zero commitment)
  • If the assumptions and estimates used to develop the financial statement were materially impacted by severe weather events, natural conditions or disclosed climate-related targets or transition plans, a qualitative description of how they were affected

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).

Table 1. Description of disclosure requirements in effect as early as 2025 for large, accelerated filers; accelerated filers; and nonaccelerated filers
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

Changes from the original proposal

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:

  • Companies will not be required to disclose scope 3 (i.e,, greenhouse gas emissions from upstream and downstream in the value chain). Smaller filers such as SRCs and EGCs will be exempted from emissions disclosure.
  • Companies will only have to disclose expenditures associated with extreme weather events that exceed 1% of pretax income, rather than evaluating impacts of climate-related risk on all relevant line items of financial statements.
  • The disclosure of board level climate-related risk expertise is no longer required.
  • Adoption timing has been extended, allowing large accelerated filers two years to prepare, three years to disclose greenhouse gas (GHG) emissions and six years to obtain limited assurance.

How the SEC rule compares

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
  • 2026 for companies ‘doing business’ in California
  • Emissions: Companies with annual revenue at least $1 billion
  • Climate-related risks: companies with annual revenue at least $500m
Emissions scopes Scopes 1 and 2 if deemed material in 2026 for larger filers
  • 2026 onwards: Scopes 1 and 2
  • 2027 onwards: Scopes 1, 2 and 3
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

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
  • >50,000 companies
  • 2025 for those already subject to NFRD
  • 2026 for large EU business/subsidiary
  • 2027 for small EU business/subsidiary
  • 2029 for third-country parent
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

Legal challenges expected

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.

Next steps

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.


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