Executive Summary of the SEC’s Landmark Climate Disclosure Rule (March 6, 2024; Last Updated April 8, 2024)

In addition, the final rule requires registrants to provide quantitative and qualitative disclosures outside the audited financial statements in certain SEC filings as follows:

Except for the financial statement disclosures outlined in the table above, domestic registrants must present other information, including GHG emissions, in a newly created section of Form 10-K (Item 6) immediately before MD&A or in another appropriate section of the filing (e.g., risk factors, MD&A). Foreign private issuers must present it in Form 20-F (Item 3.E) or in another appropriate section of the filing.

The final rule states that the definition of materiality used by a registrant should be consistent with that established by the U.S. Supreme Court; namely, “a matter is material if there is a substantial likelihood that a reasonable investor would consider it important when determining whether to buy or sell securities or how to vote or such a reasonable investor would view omission of the disclosure as having significantly altered the total mix of information made available.” The final rule also emphasizes that materiality is based on facts and circumstances and takes into account qualitative and quantitative factors.

In addition, the final rule provides a safe harbor to protect registrants from liability for disclosures related to transition plans, scenario analysis, internal carbon pricing, and targets and goals, other than disclosures that relate to historical facts.

All disclosures outside the financial statements will be subject to management’s disclosure controls and procedures (DCPs), which the registrant’s principal executive officer and principal financial officer must periodically assess and certify. The Scope 1 and Scope 2 GHG emission disclosure will be subject to limited assurance4 for large accelerated filers and accelerated filers (other than SRCs and EGCs) and, following a phase-in period, reasonable assurance for large accelerated filers.

The final rule was scheduled to become effective May 28, 2024; however, the SEC has voluntarily stayed the rule's effective date pending judicial review. Depending on when the legal challenges are resolved, the mandatory compliance dates noted below may be retained or delayed. For a registrant with a calendar year-end, the mandatory compliance dates are as follows:

Non-calendar-year-end registrants would provide these disclosures for the fiscal year beginning in the calendar years shown above. For example, a large accelerated filer with a June 30 year-end would be required to first provide all disclosures except disclosures about material expenditures and impacts and GHG emission disclosures for its annual report for the year ending June 30, 2026, because that fiscal year began in calendar year 2025.

On April 4, 2024, the SEC voluntarily stayed the effective date of the final rule pending judicial review of petitions challenging it, which have been consolidated for review by the U.S. District Court of Appeals for the Eighth Circuit. The SEC stated that it “will continue vigorously defending the [climate rule’s] validity in court” but issued the stay to “facilitate the orderly judicial resolution of” challenges presented against the climate rule and to avoid “potential regulatory uncertainty if registrants were to become subject to the [climate rule’s] requirements” before the legal challenges were settled. The stay does not reverse or change any of the final rule’s requirements nor does it affect the SEC’s existing 2010 interpretive release on climate-change disclosures. Since the outcome of the litigation is unknown and the review may take several months or longer, it is uncertain whether the SEC will retain or extend the final rule’s existing mandatory compliance dates. Irrespective of this uncertainty, companies will need to make decisions related to implementing the rule’s requirements.

Currently, many SEC registrants voluntarily disclose climate information, and beginning in 2025, certain companies will be subject to the E.U. CSRD and the California climate legislation. Beginning with their first year of reporting, companies subject to the E.U. CSRD will need to provide more extensive disclosures than they would under the SEC climate rule, including obtaining assurance over all their climate disclosures rather than only those pertaining to GHG emissions. If the SEC climate rule is ultimately delayed, many SEC registrants will disclose climate-related information in E.U. CSRD or California reports before having to provide comparable disclosures in their SEC filings. Therefore, as they prepare for reporting under the E.U. CSRD or the California climate legislation (or provide voluntary disclosures), companies should consider their data, governance, processes, and controls over climate-related information given that they may need to disclose the same or similar information in future SEC filings.

In a manner similar to the adoption of other significant accounting or reporting changes, successful implementation of the final rule’s requirements starts with a clear, well-developed plan. Companies should consider taking action related to the following:

• Establish or refine climate governance — Educate the board of directors, management, and employees about the final rule and build organizational capacity. Establish or refine board and management oversight, and define clear roles, responsibilities, and charters.
• Understand the current state of climate disclosure and information — Inventory climate-related information that has already been gathered or disclosed and understand the data, processes, and controls over this information.
• Identify disclosure and control gaps — Identify and assess gaps related to data, controls, and reporting, including disclosures both in and outside the financial statements.
• Assess reporting and data management — Consider resources (e.g., people, processes, technologies) needed for meeting reporting deadlines.
• Prepare for attestation (if applicable) — Understand attestation requirements and develop plans to provide sufficient support.
• Develop an action plan — Create a detailed action plan for implementing the final rule and integrate it with plans for applying other climate reporting requirements (e.g., the CSRD) that are already underway (if applicable).
• Execute — Begin executing each step of the action plan while adapting it for future developments.