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The SEC Climate-Related Disclosure Rules

26 March 2024

Nicole Balarezo, Associate and Hunter Gowans, Senior Consultant

After nearly two years of anticipation, the Securities and Exchange Commission (“SEC”) voted in support of the long- awaited Climate-Related Disclosure Rules on Wednesday, March 6 2024, by a margin of 3-2 votes. In fulfilling its role of protecting investors, the Commission approved a rule designed to produce reliable and comparable climate-related information material for investors’ decision-making and voting processes. The final version of the rule is narrower in scope than the original draft and integrates feedback gathered from over 24,000 comments, balancing the market´s demand for uniform climate-related financial information and widely voiced concerns about compliance costs.

The Enhanced and Standardization of Climate-Related Disclosures for Investors” will require US registrants —domestic and foreign private issuers— to disclose information on climate-related risks that are reasonably likely to have a material impact on their business strategy, results of operations, or financial conditions. Registrants will be required to disclose information on those risks’ actual and potential impacts, on activities and expenditures undertaken to mitigate or adapt to them, on the board’s oversight and processes in place for managing such risks, and information on any existing climate-related targets or goals. Compliance dates allow for a flexible phase-in period, with the largest registrants being required to start reporting on climate risk information for the fiscal year beginning 2025. 

Additionally, the final version of the rule also includes provisions for certain registrants —large accelerated filers (“LAF”) and accelerated filers (“AF”)— to report on a their Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions, when those emissions are deemed material. The compliance date for these requirements will be the fiscal year beginning 2026 for LAFs and 2028 for AFs, and limited assurance will be required after a 3-year phase-in period in both cases. Reasonable assurance level requirements will only apply to LAFs, starting in 2033.  

Disclosure requirements on Scope 3 emissions —indirect emissions stemming from the supply chain and end users—, which were one of the most contentious items throughout the approval process, have been entirely scrapped from the final version of the rule. The decision to exclude Scope 3 requirements comes following pushback from some stakeholders arguing against what they perceived as a burdensome process, and following hesitancy on the accuracy of the information that could be produced. Although the exclusion of this source of emissions will partly reduce the associated compliance efforts, Scope 3 emissions will remain a key input for investors’ climate assessments and many in-scope registrants will still need to report on them, in compliance to the impending California Climate-Related Disclosures requirements (SB 261 and SB 253), and the already present European Corporate Sustainability Reporting Directive (“CSRD”). 

The rule is also introducing disclosure requirements on capitalised costs, expenditures expensed, charges, and losses incurred that result from severe weather events and other natural conditions, and from the use of carbon offsets and renewable energy credits (“RECs”) that are part of the climate-related targets. These will need to be disclosed as a note to the financial statements. 

In Holtara, we welcome the SEC’s decision and are fully prepared to help our clients navigate the upcoming reporting requirements, through a unique combined offering of Advisory and Platform services. In our experience, companies that understand and manage their climate-related risks and carbon footprint are better positioned to engage with domestic and international investors, de-risk their operations and find value creating opportunities. We are certain that the newly approved and upcoming climate-related regulations will inject new life to financial markets and are looking forward to supporting our client’s contribution to this transformative journey. 

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