He The Securities and Exchange Commission (SEC) adopted the final rules require companies to disclose material climate-related information in registration statements and annual reports. Material is defined as information that investors should know before purchasing shares.
SEC Chairman Gary Gensler said, "These final rules build on previous requirements by requiring public companies and public offerings to disclose material climate risks."
It aims to provide transparent, consistent and comparable data primarily for institutional investors: companies or organizations that invest on behalf of others.
The final rules include many disclosure requirements, the main ones being:
- Weather-related risks that have or are reasonably likely to have a material impact on the business strategy, results of operations or financial condition.
- The actual and potential material impacts of any identified climate-related risks.
- Material expenses incurred and material impacts on financial estimates and assumptions resulting from activities to mitigate or adapt to a material climate-related risk.
- Specific disclosures about a registered entity's activities to mitigate or adapt to a material climate-related risk, including the use of transition plans, scenario analyzes or internal carbon pricing.
- Any board oversight of climate-related risks and any management role in assessing and managing the registrant's material climate-related risks.
- Any processes the registrant has to identify, assess and manage material climate-related risks and whether and how such processes are integrated into the registrant's overall risk management system or processes.
- Information about a registrant's climate-related goals or objectives that have materially affected or are reasonably likely to materially affect the registrant's business, results of operations or financial condition.
- Information on Scope 1 material emissions and/or Scope 2 emissions.
- For those required to disclose Scope 1 and/or Scope 2 issuances, an assurance report at the limited assurance level, which, for large accelerated filers, will be at the reasonable assurance level after a transition period.
- Capitalized costs, expenses, charges and losses incurred as a result of severe weather events and other natural conditions.
The timeline for Scope 1 and 2 emissions reporting begins in fiscal year 2028 and expires in 2029.
However, material risks must be reported beginning in fiscal year 2025 and expire in 2026.
Although Scope 3 emissions were not mentioned in this ruling, companies should be aware that institutional investors may also be seeking this information.
A company must report these disclosures in its registration statements as well as in annual Exchange Act reports filed with the Commission. You must also provide the climate-related information required by Regulation SK.
Keep in mind that compliance with SEC rules does not exempt anyone from other requirements, such as those of the European Union. Corporate Sustainability Reporting Directive or California state climate disclosure laws.
Because of these multitude of disclosure standards, companies must carefully define and record their material risks.
The SEC has published both the complete final rules and a fact sheet.
