What is SEC Climate Rule?

What is SEC Climate Rule?

The SEC's climate-related disclosure rule, formally titled "The Enhancement and Standardization of Climate-Related Disclosures for Investors," was adopted by the Securities and Exchange Commission in March 2024 after two years of public comment on a 2022 proposal. The final rule requires public companies to disclose material climate-related risks, governance and risk management processes, climate-related financial statement effects, GHG emissions (Scope 1 and 2 for large accelerated filers), and climate targets and transition plans when material. The rule applies within SEC registration statements and annual reports (Forms 10-K and 20-F), embedding climate disclosure within existing securities reporting rather than creating a separate reporting channel.

Why It Matters

The SEC climate rule marks the first time the United States federal securities regulator has mandated standardized climate disclosure for all public companies. While the EU moved first with the CSRD and various countries adopted TCFD or ISSB requirements, the U.S. securities market's size—over $45 trillion in listed equity—makes SEC action globally consequential. Non-U.S. companies listed on U.S. exchanges through ADRs or dual listings also fall within scope, extending the rule's reach internationally.

The rule faced immediate legal challenge. A coalition of states and industry groups filed suit in the Eighth Circuit Court of Appeals, and the SEC voluntarily stayed the rule pending judicial review. This legal uncertainty has not diminished the rule's practical importance—companies and their advisors continue preparing for compliance because the stay is expected to be temporary and the underlying investor demand for climate disclosure persists regardless of the rule's legal fate. Major accounting firms, law firms, and consulting firms all recommend continued preparation.

The final rule was significantly narrowed from the 2022 proposal. Most notably, the SEC dropped mandatory Scope 3 emissions disclosure—the most controversial element—and limited Scope 1 and 2 disclosure to large accelerated filers (companies with $700 million+ public float) subject to third-party attestation. The rule also raised the materiality threshold, requiring climate risk disclosure only when risks are "material" under established securities law standards rather than requiring disclosure of all identified climate risks. These concessions reflect political and legal pragmatism but still represent a substantial expansion of required climate disclosure for U.S. public companies.

For companies already reporting under TCFD, ISSB, or CSRD, the SEC rule adds a specific U.S. compliance dimension. The rule's requirements overlap significantly with these frameworks but include SEC-specific elements: climate-related financial statement disclosures (a footnote requirement unique to the SEC rule), specific quantitative thresholds for capitalized costs and expenditures from severe weather events, and integration with existing MD&A and risk factor disclosure requirements. Companies need to ensure their global climate reporting program addresses SEC-specific requirements rather than assuming international framework compliance satisfies U.S. obligations.

How It Works / Key Components

The rule's requirements fall into four categories. First, governance and risk management: companies must describe board oversight of climate-related risks, management's role in assessment and management, and how climate risk management integrates with overall risk management processes. These requirements align closely with TCFD and ISSB governance pillars.

Second, climate-related risks: companies must disclose material climate-related risks, including both physical risks (acute and chronic) and transition risks (regulatory, technological, market, and reputational). For each material risk, companies describe its nature, whether it's a current or forward-looking risk, its actual or potential effects on strategy, business model, and outlook, and how it has affected or is likely to affect financial performance. Companies must also describe activities to mitigate or adapt to material risks, including transition plans and scenario analysis when used.

Third, GHG emissions: large accelerated filers must disclose Scope 1 and Scope 2 emissions separately, including both gross and net emissions, using the GHG Protocol or a comparable methodology. These disclosures require third-party attestation—limited assurance initially, transitioning to reasonable assurance over a phased timeline. Accelerated filers and smaller companies face reduced or no emissions disclosure requirements under the final rule's scaled approach.

Fourth, financial statement disclosures: the rule requires a financial statement footnote disclosing the capitalized costs, expenditures, charges, and losses incurred from severe weather events and other natural conditions, as well as costs from carbon offsets and renewable energy credits if material to financial statements. This footnote requirement—subject to audit by the company's financial statement auditor—represents the most novel element of the SEC rule and creates a direct link between climate events and audited financial data.

Council Fire's Approach

Council Fire helps U.S.-listed companies and foreign private issuers prepare for SEC climate rule compliance by assessing materiality of climate-related risks under SEC standards, building GHG inventory capabilities that meet attestation requirements, developing financial statement footnote processes for severe weather impacts, and integrating SEC-specific requirements into global climate reporting programs that also satisfy ISSB, CSRD, and CDP obligations.

Frequently Asked Questions

Is the SEC climate rule currently in effect?

As of early 2026, the SEC voluntarily stayed the rule pending resolution of legal challenges in the Eighth Circuit Court of Appeals. The stay means compliance deadlines are paused, but the rule has not been vacated or withdrawn. Legal experts generally advise companies to continue preparing because: the stay may be lifted with limited additional transition time, the underlying data requirements overlap with frameworks that are already mandatory (CSRD, ISSB), and investor expectations for climate disclosure continue regardless of the rule's legal status. Companies that pause preparation risk being caught unprepared if the stay is lifted.

How does the SEC rule compare to the CSRD and ISSB standards?

The SEC rule is narrower in scope than both. It covers only climate (not broader ESG), requires only Scope 1 and 2 emissions (no mandatory Scope 3), applies single materiality under U.S. securities law standards, and applies only to SEC registrants. CSRD/ESRS covers all ESG topics with double materiality for ~50,000 companies. ISSB covers all sustainability topics material to enterprise value. However, the SEC rule uniquely requires audited financial statement footnotes on climate impacts and specific severe weather cost disclosures—requirements not found in CSRD or ISSB. Companies subject to multiple regimes need an integrated approach that addresses each framework's unique elements.

Do I need third-party assurance for my emissions data under the SEC rule?

Large accelerated filers (public float ≥$700 million) must obtain third-party attestation of Scope 1 and Scope 2 emissions, starting with limited assurance and transitioning to reasonable assurance over the phased timeline. The attestation provider must meet independence, competence, and quality management requirements specified by the SEC. Accelerated filers face a delayed timeline, and non-accelerated filers and smaller reporting companies are exempt from emissions attestation. Companies should begin building assurance-ready emissions data processes now—implementing internal controls, documentation, and data governance that can withstand external verification—regardless of current filing status, as requirements may expand and best practice is moving toward universal assurance.