On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) issued final Rules requiring covered companies to disclose “material” climate change risk impacts from their operations (“the Rule”). The text of the Rule, which will be published in the Federal Register shortly, can be found at https://www.sec.gov/files/rules/final/2024/3311275.pdf.
The Rule was adopted in final form after a two year public comment period on the proposed rule, which resulted in significant changes in the final Rule. The Rule is very lengthy and complex and a detailed analysis is beyond the scope of this Alert. However, some of the key elements of the new Rule “require a registrant to disclose, among other things: material climate-related risks; activities to mitigate or adapt to such risks; information about the registrant’s board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition”. See the Fact Sheet to the SEC Rule: https://www.sec.gov/files/33-11275-fact-sheet.pdf.
Larger companies, as that category is defined in the Rule by annual revenues, must also disclose both the direct emissions of greenhouse gases from their operations (“Scope 1 Emissions”) and indirect emissions by their energy provider (“Scope 2 Emissions”). Smaller companies as defined in the Rule are exempt from these emission disclosures. In a significant change from the proposed rule, covered companies are not required to disclose emissions from upstream suppliers and downstream users, purchasers, etc., as is required under the EU Corporation Sustainability Reporting Directive, the State of California and the International Sustainability Standards Board. Note: Companies covered by the Final SEC Rule also may be covered by different international and other (e.g. California) climate disclosure rules and it is yet to be determined how the interaction between these different sets of requirements will play out in real terms.
As is typical of significant federal rulemaking in the U.S., this Rule is already the subject of litigation both by parties concerned about the burdens of the Rule and environmental advocates concerned the Rule is not sufficiently strong. These parties may seek to stay the enforcement of the Rule and thus the true efective date of the Rule and whether it will be vacated or modified is up in the air.
Disclaimer: This Alert is not intended to and shall not be considered legal advice and readers with a legal question based on a specific set of facts and circumstances should consult a competent attorney for advice. Further, this Alert may be considered as legal advertising in some jurisdictions.
