Get ready for standardized climate disclosure

The SEC’s climate disclosure rule is an important step forward to better protect retirees, individual investors, and all market participants (see Ceres statement). The rule mandates the disclosure of consistent, comparable, and material information on physical- and transition-related climate risks vital to investment decision-making. Climate information in SEC filings requires a level of scrutiny and diligence from companies that is lacking in voluntary reporting. While it is disappointing that the rule does not include several key provisions from the 2022 proposal, including Scope 3 greenhouse gas (GHG) emissions disclosure, investor demand for that information continues to grow and many companies will be required to disclose this data in other jurisdictions.

See Ceres’ multiple comments on the proposed rule:  

• April 6, 2023: Joint letter with Persefoni on additional details related to costs to issuers and investors, as well as counterarguments to misleading arguments related to the cost-benefit analysis 

• March 28, 2023: Joint letter with Center for Audit Quality on alternatives to proposed Regulation S-X financial statement requirements 

• February 1, 2023: Evidence regarding increased disclosures of emissions data & TCFD-aligned information 

• December 12, 2022: Joint business coalition letter with recommendations on key provisions plus possible amendments 

• December 2, 2022: Data on support for rulemaking, investor use cases, issuers’ support for Scope 1 and 2 disclosure, link to letter by 86 Chief Financial Officers to the International Sustainability Standards Board 

• November 10, 2022: Articles on businesses leading on Scope 3 emissions disclosure/management and risks to investors 

• June 17, 2022: Main comments on proposed rule 

• June 10, 2021: Recommendations in response to request for public input on climate change disclosure 

The rule covers both domestic registrants and foreign private issuers. It applies to large accelerated filers and accelerated filers, which are subject to all of the final rule's provisions. The rule also applies to non-accelerated filers, smaller reporting companies, and emerging growth companies, and these groups are exempt from the emissions disclosure requirements.  

The SEC’s final rule was set to take effect on May 28, 2024. SEC commissioners stayed the rule on April 4, 2024, pending completion of the proceeding in the U.S. Court of Appeals for the Eighth Circuit. Previously, the Commission stated it would continue vigorously defending the rule’s validity in court. However, current SEC leadership has voiced opposition to the rule and notified the Court that it wishes to withdraw its defense of the Rules. 

While the SEC’s rule is currently stayed, there is a clear trend toward climate risk disclosure rules from financial regulators worldwide. The EU Corporate Sustainability Reporting Directive (CSRD) and California’s climate disclosure laws are beginning to impact thousands of U.S. companies. Companies should ensure they have systems in place to collect, analyze and disclose climate risk information, paying particular attention to developments in the areas of assurance and GHG emissions disclosure. 

The CSRD has the most extensive climate disclosure requirements because it requires reporting of both financial impacts to the company from sustainability risks, as well as the company’s impacts on its stakeholders and the broader society, known as double materiality. The CSRD also spans a range of sustainability topics beyond just climate. Aspects of the ISSB standards are more robust than the SEC’s rule, although there is good interoperability between the two.  

The California laws focus on Scopes 1-3 GHG emissions (SB 253) and TCFD- or ISSB-aligned climate risk reporting (SB 261). There is significant overlap between the California laws and the SEC’s final rule, which is similarly underpinned by the TCFD framework and Greenhouse Gas Protocol-aligned emissions reporting. Aspects of the SEC rule, including the disclosure of climate-related financial statement metrics, go beyond the requirements of the California laws. Meanwhile, California’s emissions disclosure law includes Scope 3 emissions, while the SEC rule does not. 

The final state of the CSRD rules may change if the EU Omnibus proposals are adopted, and the California laws require regulatory implementation before companies begin disclosing. The California disclosure laws are also being challenged in court. The ISSB standards become effective through legislation or rulemaking on a country-by-country basis. We expect some variations in the specific rules each country chooses to adopt, as well as variance in the applicability of those rules to U.S.- and other non-EU companies. Thirteen countries have adopted the ISSB Standards on a voluntary or mandatory basis, and 22 other jurisdictions are planning to adopt them in the future. Finally, both the CSRD and ISSB frameworks encompass issues beyond climate change, which will factor into many companies’ decisions about which sustainability issues they assess and disclose. 

Because aspects of these climate disclosure requirements are in flux, we recommend monitoring them and seeking additional advice. The requirements are being assessed by accountants, lawyers and others. The ISSB’s climate disclosure educational materials and sustainability knowledge hub are helpful resources, and their Transition Implementation Group fields questions from preparers and stakeholders about climate risk and sustainability disclosure.  

Ceres has analyzed what has stayed the same and what has changed related to GHG emissions, financial statement footnote disclosure, assurance, timing of disclosures, governance, physical risk disclosure, strategy, business model, and outlook, liability safe harbors, and substituted compliance. See Ceres’ comparison of the proposed and final rule. 

Many companies will continue to use voluntary climate risk disclosure to communicate with their full range of stakeholders. Ceres’ vision for corporate sustainability transparency and disclosure (including climate risks) is included in our Roadmap 2030. We encourage companies to recognize the value of sustainability disclosure and its ability to stimulate ingenuity and strategic thinking, improve sustainability performance, increase competitiveness in a resource-constrained economy and create value for shareholders. We encourage companies to deliver both quantitative and qualitative information in ways that are consistent, decision-useful and comparable, ensuring disclosures are accessible and relevant to shareholders and other stakeholders. For more information, see Ceres Roadmap 2030, Transparency and Disclosure. 

If you would like to learn more about the rules, check out these external resources. 

• Comment: SEC Climate Disclosure Rules: Four potential paths under President Trump

• Amicus brief filled by institutional investors

• Amicus brief filed by the Center for Climate and Energy Solutions, Inc., We Mean Business Coalition, and World Business Council for Sustainable Development

• North America Columbia Law School Blue Sky Blog: Materiality Under the SEC’s Climate Risk Rule

• GreenBiz 2024: A New Era of Corporate Climate Disclosure with Mindy Lubber of Ceres 

• Comment: The new U.S. federal disclosure rule is an important step towards a water-secure future by Kirsten James

• Witness Testimony at the U.S. Senate Meeting of the Senate Climate Change Task Force June 12, 2024 

• Webinar: From Data to Dialogue: Mastering the SEC Climate Rule & Climate Risk Communication  

• Witness Testimony at the U.S. Senate Meeting of the Senate Climate Change Task Force June 12, 2024

• Project Frame Community Meeting: How does the SEC’s climate disclosure rule impact early-stage investors? 

• Volts Podcast “What’s the Deal With “Scope 3” Emissions?” 

• Davis Polk, “Amid Storm of Controversy, SEC Adopts Final Climate Disclosure Rules” 

• Debevoise & Plimpton 

  • (Analysis) “An In-depth Analysis Of The Sec’s Climate Related Disclosure Rule” 

  • (Webinar Recording) “SEC Climate Rule and What Comes Next” 

• Deloitte 

  • (Analysis) “Comprehensive Analysis Of The Sec’s Landmark Climate Disclosure Rule” 

  • (Webinar Recording) “Demystifying the Sec’s New Climate Disclosure Rule” 

• EY,“To The Point - SEC Adopts Rules Requiring Registrants to Disclose Certain Climate-related Information” 

• Holland & Knight, “SEC Adopts Landmark Climate Disclosure Rules” 

• KPMG,  “SEC Mandates Climate Reporting And Assurance” 

• PwC, “Navigating the SEC Climate-related Disclosure Requirements” 

• Sullivan Cromwell, “Key Implications of Sec’s Climate-related Disclosure Rules For Public Companies”