In March of 2022, the Securities and Exchange Commission (SEC) has introduced significant regulatory changes to tackle climate-related issues. These changes, collectively referred to as the SEC Climate Rules, have far-reaching implications for businesses and investors alike. In this blog post, we will break down the SEC Climate Rules, explore who is affected, what is required for reporting, and the potential timeline for implementation.
What Are the SEC Climate Rules?
The SEC Climate Rules, officially known as the "SEC's Enhanced Climate-Related Disclosures Proposal", represent a series of regulations aimed at enhancing disclosure requirements related to climate change. The SEC is the primary regulatory body responsible for overseeing and regulating the U.S. securities industry. These rules seek to address the growing concern among investors about the impact of climate change on their investments, and they also aim to facilitate the transition to a more sustainable and climate-conscious financial market.
Since being introduced, the commission has delayed a final action several times and has faced some pushback by public companies against some of the disclosure requirements. Now the proposal is presumably set to be finalized in the spring of 2024 according to the rule making agenda published in December.
Who Is Affected?
The SEC Climate Rules have a broad reach, potentially affecting a wide range of market participants, impacting primarily publicly traded companies. These rules are applicable to all companies that are registered with the SEC and listed on U.S. stock exchanges. This means that virtually every publicly traded company in the United States is subject to these regulations.
Many large public companies already provide voluntary sustainability reports however, the SEC proposal if applied, could mean standardized requirements and a significant change in reporting practices for public companies.
What's Required to Report?
The SEC Climate Rules require traded companies to report specific information related to climate change. Key reporting requirements include:
1. Climate-Related Risks: Companies are expected to disclose their assessment of material climate-related risks that could impact their business operations, financial condition, and future prospects.
2. Emissions Data: Companies will be required to report their direct and indirect greenhouse gas emissions (scopes 1, 2 and 3). This includes emissions from their own operations, as well as emissions associated with their supply chains.
3. Targets and Strategies: Companies must outline their climate targets and strategies for reducing emissions and transitioning to a low-carbon economy.
4. Board Oversight: Reporting should include information about how boards of directors oversee climate-related risks and opportunities.
5. Disclosure Framework: Companies will need to follow a standardized framework for climate-related disclosures, allowing for consistency and comparability across different organizations.
What Is the Timeline for Implementation?
As currently proposed in the SEC's climate disclosure requirements, as soon as the disclosure rule is adopted, large companies will likely be required to begin reporting their scope 1 and 2 emissions for the previous fiscal year.
As of now, according to a rule making agenda published in December 2023, the long-awaited finalizing of the proposal is expected to occur in April 2024. Smaller companies will most likely have more time to prepare before they are required to comply to the SEC climate rules.
Companies required to report according to the California Climate Bills that were recently signed into law in last October, will most likely be more prepared to report by the SEC rules once applied, since some disclosures could have similarities.
The timeline for implementation is still uncertain. However, it's crucial for businesses and investors to stay informed and prepare for the potential impact of these rules on their operations and investment strategies. By doing so, they can contribute to a more resilient and climate-aware financial market.
How ESGgo software can help with the SEC Climate Rules?
ESGgo software plays a crucial role in helping businesses navigate the complexities of the SEC Climate Rules. It streamlines data collection, analysis, reporting, and stakeholder engagement, all while supporting long-term sustainability goals. As regulatory requirements continue to evolve, having the right ESG software can provide a competitive edge by ensuring companies meet their ESG commitments and build a sustainable, responsible, and resilient future.
*Disclaimer: This summary is for general education purposes only and may be subject to change. ESGgo, Inc., and its affiliates (the “Company”, “ESGgo”, “we”, or “us”) cannot guarantee the accuracy of the statements made or conclusions reached in this summary and we expressly disclaim all representations and warranties (whether express or implied by statute or otherwise) whatsoever.
