Unpacking the SEC Ruling on Climate Disclosure
By: Wendy Schlett
After over a year of delays and debates, the Securities and Exchange Commission voted 3-2 to enforce disclosures of Scope 1 & 2 GHG emissions and climate risks. This rule follows the finalization of the European Union’s CSRD mandate and California’s Climate Laws.
Why is this important?
The SEC Climate Disclosure ruling is crucial for providing investors with a common reporting framework, making it easier to compare companies, evaluate risk, and future-proof our economy.
The rule will require companies to assess and report the material risks climate change poses to their operations and their own environmental impact. This includes the expected costs of transitioning away from fossil fuels, risks related to extreme weather (i.e., storms, droughts, hurricanes), and increasing global temperatures.
SEC Chair Gensler stated, “…..The rules will provide investors with consistent, comparable, and decision-useful information and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements, rather than on company websites, which will help make them more reliable.”
Ultimately, investors want to know you are measuring and managing the risks associated with our changing planet and have a plan for reducing the associated risks of your business model.
Who does it impact?
The SEC is the governing body of publicly traded companies in the USA. Specifically, mandates apply to public companies that are Large Accelerated Filers and (LAF) and Accelerated Filers (AF) who deem climate as material to their business. LAF and AF companies are worth more than $75million on the public market. To see if you meet the criteria, head here.
For private companies in the supply chain, your customers will likely be coming to you (if they haven’t already) for key sustainability metrics.
What is required of companies?
Companies must do the following:
Define if climate risk is material to their business (with transparency about their materiality methodology)
Disclose Scope 1 & 2 greenhouse gas emissions, along with any offsets or RECs
Implement 3rd party verification/assurance on the GHG calculations.
How should companies respond?
Complete a Materiality Assessment: This step will determine if climate is material to your organization. Your methodology must be documented, and risks identified.
Collect & Calculate Scope 1 & 2 GHG Emissions following the WRI’s GHG Protocol: Your Scope 1 & 2 GHG Emissions are direct emissions within your control. If you’d like to learn more about GHG Management, here are some resources:
GHG Data Collection & Reporting
What’s the difference between Scope 1, 2, and 3 GHG emissions?
Best Practices in Carbon Accounting
Best Practices in Carbon Accounting
Report GHG Emissions: This will be required in a company’s SEC filings, such as annual reports and registration statements.
Pursue 3rd-Party Verification/Assurance: Much like financial assurance, your calculations can be audited by your accounting firm or preferred partner.
When does action need to be taken?
The final rules go into effect 60 days after being published in the Federal Register, and compliance dates will be phased in for all registrants depending on their filer status.
The largest companies will start reporting emissions for fiscal year 2026, while smaller companies will have to disclose some information for fiscal year 2027, but not yet emissions.
How does the SEC ruling overlap with CSRD?
CSRD is a more stringent directive than the SEC ruling. If you are pursuing compliance with CSRD, your efforts will also cover the SEC ruling.
How can Foresight help?
We can help your organization:
Assess materiality and climate risk
Document methodology, approach, and determinations
Support your organization through the GHG verification process.
Foresight’s Scope 1&2 GHG inventories follow the WRI GHG Protocol, which the SEC recognizes as the framework. The inventories provided to our clients are ready for assurance/3rd party verification from your accounting firm or preferred partner.
Ready to get started?
If you’re already a Foresight client, email your client advisor. If you’re new to Foresight, contact us.
