SEC Climate Disclosure Rule

What Is the SEC Climate Disclosure Rule?

The Securities and Exchange Commission adopted its final climate-related disclosure rule in March 2024, establishing mandatory climate disclosure requirements for US publicly traded companies. The rule requires registrants to disclose climate-related risks, governance, strategy, targets, and greenhouse gas emissions in annual reports and registration statements.

The rule represents the most significant expansion of SEC disclosure requirements in decades, bringing climate information into the regulated financial reporting framework for the first time.

Who It Applies To

The rule applies to all SEC registrants (companies that file with the SEC), with phased implementation based on filer status:

• Large accelerated filers (public float >$700M): First phase
• Accelerated filers (public float $75M-$700M): Second phase
• Non-accelerated filers and smaller reporting companies: Third phase, with reduced requirements

Foreign private issuers that file with the SEC are also covered.

Key Requirements

Governance: Describe board oversight of climate-related risks and management's role in assessing and managing them.

Strategy: Disclose climate-related risks that have materially impacted or are reasonably likely to materially impact the company's business, strategy, or financial condition. This includes:

• Description of material climate risks (physical and transition)
• Actual and potential material impacts on strategy, business model, and outlook
• Climate scenario analysis (if used)
• Transition plans (if adopted)

Risk management: Describe processes for identifying, assessing, and managing material climate-related risks, and how they integrate with overall risk management.

GHG emissions: Disclose:

• Scope 1 and Scope 2 emissions (with attestation for large filers)
• Scope 3 emissions if material or if the company has set a Scope 3 target
• Methodology and assumptions

Financial statement impacts: Disclose the financial impacts of severe weather events and other natural conditions, and expenditures related to climate risk mitigation in a note to audited financial statements.

Timeline

The rule's effective date has been impacted by legal challenges:

• March 2024: Rule adopted by SEC
• April 2024: SEC voluntarily stayed implementation pending Eighth Circuit review
• 2025-2026: Litigation ongoing
• Expected phased compliance once stays are lifted:
  • Large accelerated filers: 2 years after effective date
  • Accelerated filers: 3 years
  • Others: 4 years

Companies should continue preparing regardless of litigation outcomes.

Compliance Steps

1. Assess current state: Review existing climate disclosures, data systems, and governance
2. Governance structure: Ensure board and management roles in climate oversight are clearly defined and documented
3. GHG inventory: Build or enhance Scope 1, 2, and 3 measurement capabilities using GHG Protocol
4. Risk assessment: Conduct TCFD-aligned climate risk assessment covering physical and transition risks
5. Financial impact analysis: Quantify climate-related financial impacts for the notes to financial statements
6. Internal controls: Establish disclosure controls and procedures for climate information (similar rigor to financial reporting)
7. Attestation preparation: For large filers, engage an attestation provider for GHG emissions data
8. Integration with 10-K: Prepare climate disclosures for inclusion in annual report filings

Penalties

As an SEC regulation, non-compliance carries standard securities enforcement mechanisms:

• SEC enforcement actions
• Civil monetary penalties
• Restatement requirements
• Officer and director liability
• Shareholder litigation risk
• Securities fraud exposure for material misstatements

How Council Fire Can Help

Council Fire helps SEC registrants prepare for climate disclosure requirements — from GHG inventory development and climate risk assessment through disclosure drafting and attestation readiness. Contact us for SEC climate rule compliance support.