SEC Releases Scaled Back Climate Disclosure Rule

As readers of Connecting the Dots are aware, for nearly two years the U.S. Securities and Exchange Commission (SEC) has been developing a new regulation that would enhance and standardize the climate-related disclosures that must be issued by public companies and outlined in public offerings. Last week, the SEC released  its final version of that rule, and while it will not be as burdensome for companies as the SEC’s initial draft would have been, companies in the metals industry and in the wider manufacturing industry still will face new cost burdens.

The good news: the SEC dropped its onerous Scope 3 emissions mandate that would have forced public companies to divulge information about emissions coming from anywhere in their supply chains, including from small and family-owned businesses with whom they work.

The SEC also exempted smaller public companies from Scope 1 and Scope 2 emissions reporting and will give all companies longer to comply with the regulation. Additionally, the final rule is more narrowly focused on so-called “material” information, or data that investors truly need to know in order to make informed decisions.

In the announcement link above, the SEC provides a dozen bullet points explaining what public companies must disclose. Among these items are:

• Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;
• The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook; and
• If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates, and assumptions that directly result from such mitigation or adaptation activities.

Again, those requirements are not the complete list of items companies must disclose. Find a complete list at this link. Find more information about when these requirements take effect in this fact sheet.

The SEC’s final rule already is being challenged in court. Republican attorneys general from at least 10 states have filed a lawsuit and business groups, including the U.S. Chamber of Commerce, also are expected to launch legal challenges. These forces are not the only ones who were unhappy with the SEC’s final regulation, however. Environmental groups and Democrats in Congress criticized the SEC for scaling back its proposal. These legal proceedings could take years to address and, in the meantime, judges may halt implementation while the courts cases move forward. Stay tuned to Connecting the Dots as news develops.

In the meantime, read more about the SEC’s final rule here and here.