On March 6, the SEC released its long-awaited climate rule. The final rule, which will affect some 2,800 US and 540 non-US companies, has been scaled back from the proposal the SEC put out in March 2022. But, at 800+ pages, it’s still plenty robust.
Perhaps the most notable change from the proposal is the elimination of the requirement to report Scope 3 emissions, or emissions produced by a company’s supply chain. Now, only large accelerated filers and accelerated filers will need to disclose information about their emissions, and only about their Scope 1 and/or Scope 2 emissions, or those emissions they directly produce and those related to their energy consumption.
All companies subject to the SEC rule will need to disclose information about climate risks, including natural events such as wildfires and periods of extreme heat, if they determine these risks are material. Companies must report on the actual and projected costs of climate risks they face, including the cost of mitigating such risks; their processes for and strategies and governance around handling such risks; and how such risks have affected estimates and assumptions made on their financial statements. They must also disclose information about certain costs associated with climate transitions or with attaining their climate goals, such as carbon offsets.
More visibility. The SEC rule will ultimately provide investors and other stakeholders with a more “holistic” picture of companies’ climate risks, Wes Bricker, vice chair and US trust solutions co-leader at PwC, told CFO Brew. It “takes the topic of climate risk disclosure and more comprehensively incorporates” it from business outlook, scenario planning, and risk management through to outcomes as captured in financial statements, he said. That allows stakeholders to “see the connection from risk to financial effect,” he said.
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Not so much. Some critics have charged that the final rule is weak. SEC Commissioner Caroline Crenshaw referred to it as a “bare minimum,” the AP reported. Bricker, however, believes the changes made to the previous proposal reflect the fact that the SEC listened to businesses’ concerns. The agency received more than 24,000 comment letters on the rule. “This process over the past few years has yielded a rule that provides good direction on content in the financial statements,” Bricker said.
In some ways, the SEC rule isn’t as stringent as other jurisdictions’ climate regulations: The Corporate Sustainability Reporting Directive (CSRD) in the EU and the California climate rule, for instance, both require companies to report on Scope 3 emissions. In terms of disclosures on financial statements, though, the SEC rule “goes further” than the CSRD, according to Bricker, and is “designed to provide users of the financial [statements]” with a clearer view of the connection between climate-related events and their financial impacts.
The SEC has given what Bricker describes as “ample” time for companies to comply with the rule. Timelines vary by company size and disclosure type, but large accelerated filers must first disclose financial statement impacts for fiscal year 2025 and GHG emissions for FY 2026.
Now that there’s clarity around what the rule entails, “it’s a good time for business leaders to do an assessment of where they are today” on climate and what they need to do to move forward, Bricker said.