Climate-Related Disclosures | SEC Adopts Rules

SEC Releases

Introduction

The SEC announced on March 6th, 2024, that final rules have been adopted that require Firms to provide disclosures for information related to climate impact in registration statements and annual reports.

The rules have a phased-in compliance period for all registrants.

For the compliance date, this will depend on one’s status as a Large Accelerated Filer (LAF), an Accelerated Filer (AF), a Non-Accelerated Filer (NAF), a Smaller Reporting Company (SRC), or Emerging Growth Company (EGC).

This adoption could be considered unexpected, as it was not listed in the 2024 Examination Priorities. We have gone through the key parts of the newly adopted rule below.

Important New Rule Requirements

• Climate-related disclosures will be filed in registration statements and Exchange Act annual reports filed with the Commission.
  • Regulation S-K mandated disclosures could be in a separate section of the registration statement, annual report, or other appropriate section of the filing.
• Registrants will now be required to disclose:
  • Identified actual or potential material impacts of climate-related risks on the Firm’s business and results.
  • Any activities to mitigate or adapt to material risks, along with a quantitative and qualitative description of the expenditures, and how these affect financial estimates and assumptions.
  • Any activities including transition plans, scenario analysis, or internal carbon pricing.
  • If the Board of Directors provides any oversight for climate-related risks, along with any role management plays in the assessment and mitigation of climate-related risk.
  • If the Firm has any processes for identifying, assessing, and managing these risks along with how these processes integrate in general risk management.
  • Any climate-related targets or goals that could have material impact on the Firm’s business, results, or financial condition.
  • Material Scope 1 and/or Scope 2 emissions if the Firm is a LAF or AF.
    • A limited assurance level report will be required for LAFs and AFs.
    • A reasonable assurance level report will be required for LAFs.
  • The costs, expenditures, charges, and losses due to severe weather vents and other natural causes.
  • The costs, expenditures, charges, and losses due carbon offsets and renewable energy credits if a material part of a Firm’s planning to achieve climate targets or goals.
  • A qualitative description if any estimates and assumptions used for financial statements were impacted by risks and uncertainties due to severe weather events, natural conditions, climate targets, or transition plans.
• There is a safe harbor from private liability for climate-related disclosures pertaining to transition plans, scenario analysis, the use of internal carbon price, targets, and goals.
  • The safe harbor excludes historical facts.

Effective Dates for the New Rule

• All Reg, S-K, and S-X disclosures not otherwise noted.
  • For LAFS = Fiscal Year Beginning 2025
  • For AFs other than SRCs and SGCs = Fiscal Year Beginning 2026
  • SRCs, EGCs, and NAFs = Fiscal Year Beginning 2027
• Item 1502(d)(2), Item 1502(e)(2), and Item 1504(c)(2)
  • For LAFS = Fiscal Year Beginning 2026
  • For AFs other than SRCs and SGCs = Fiscal Year Beginning 2027
  • SRCs, EGCs, and NAFs = Fiscal Year Beginning 2028
• Scopes 1 and 2 GHG Emissions
  • For LAFS = Fiscal Year Beginning 2026
  • For AFs other than SRCs and SGCs = Fiscal Year Beginning 2028
  • SRCs, EGCs, and NAFs = N/A
• Item 1506 – Limited Assurance
  • For LAFS = Fiscal Year Beginning 2029
  • For AFs other than SRCs and SGCs = Fiscal Year Beginning 2031
  • SRCs, EGCs, and NAFs = N/A
• Item 1506 – Reasonable Assurance
  • For LAFS = Fiscal Year Beginning 2033
  • For AFs other than SRCs and SGCs = N/A
  • SRCs, EGCs, and NAFs = N/A
• Item 1508 – Inline XBRL tagging for subpart 1500
  • For LAFS = Fiscal Year Beginning 2026
  • For AFs other than SRCs and SGCs = Fiscal Year Beginning 2026
  • SRCs, EGCs, and NAFs = Fiscal Year Beginning 2027

SEC Chair and Commissioner Comments

• SEC Chair, Gary Gensler, stated that the grounding for the rules adopted is materiality, and materiality is a fundamental building block of all disclosure requirements.
• Commissioner, Caroline Crenshaw, stated that this rule is better than no rule at all and considers these rules to be a bare minimum.
• Commissioner, Hester Peirce, argues that this rule forces climate issues to receive special attention and a “disproportionate space” in disclosures and “managers’ and directors’ brain space”.
• Commissioner, Mark Uyeda, insists that the public does not read the marketing surrounding the new rule; instead by reading into the full 886-page release Uyeda argues it is obvious this rule is intended to be climate regulation.
• Commissioner, Jaime Lizárraga, noted that the industry is already providing disclosures about climate-risks in many formats and discusses how this rule is standardizing disclosures for the benefit of investors.

Vigilant’s Conclusion

With the compliance dates easily accessible, it is time for compliance departments to assess and plan for how these rules will need to be integrated.

It can be tempting to see these compliance dates as far in the future or hope that further changes may occur down the road. However, successful compliance relies on being proactive.

Reach out to us today to discuss how these new rules may impact your business, so we can help you prepare for the changes that will be required.

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