Update on the SEC Climate Disclosure Rule

As we previously reported, the SEC Climate Disclosure Rule, spearheaded by the United States Securities and Exchange Commission (SEC) initially in 2022, was slated to come into effect sometime in 2024.

In a landmark move on March 6, 2024 the SEC adopted the Climate Disclosure Rule, yet with substantial amendments that some climate activists deem too scaled back from previous proposals. However, amidst legal challenges and debates, the SEC has now temporarily halted the rule’s implementation pending court review.

SEC RULE SOPE AND FRAMEWORK

Guided by established frameworks, such as the Greenhouse Gas Protocol and the Task Force on Climate-Related Financial Disclosures (TCFD), the SEC’s Climate Disclosure Rule presented a methodical approach to climate-related disclosures. The guidelines concentrate on companies’ direct emissions (Scope 1) and their indirect emissions from energy use (Scope 2).

However, they notably do not mandate disclosures for the broader, indirect emissions in a company’s value chain (Scope 3). This decision, which deviates from earlier drafts, aligned with the current trend of prioritizing materiality and manageability in disclosures.

SEC RULE REQUIREMENTS

In another shift towards a more flexible approach compared to earlier SEC Climate Disclosure Rule drafts, the revised guidelines permit major public corporations to assess for themselves if the emissions from their activities and the energy they consume are essential for investor decision-making.

Other parts of the ruling state that businesses must include the following information in their annual reports:

Climate-related goals and targets that have a material impact on their strategies and business models
How climate-related risks are identified, assessed, managed and integrated within their overall risk management systems
Activities to reduce or adapt to material climate-related risks
Financial statement disclosures regarding the costs and losses associated with severe weather events and other natural conditions.

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SEC RULE IMPLICATIONS AND NEXT STEPS

Originally, the Rule was set to take effect 60 days after the publication in the Federal Register. However, the SEC has now decided to pause the implementation of the rule to facilitate a judicial resolution of the challenges and to avoid uncertainty during pending cases. As a result, some companies remain at a crossroads, while others have already begun preparations for compliance, especially considering that institutional investors continue to prioritize integrated financial and ESG data.

With the shifting regulatory landscape and ongoing changes in climate disclosure requirements, companies may benefit from partners like OPTEL Group. Our expertise in GHG emission data capture, analysis, and reporting, allows us to offers tailored solutions to help businesses meet compliance requirements and enhance their sustainability initiatives. Contact us for more information.

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