SEC Announces Landmark Financial Climate Reporting requirements, Drops Scope 3 Requirements

March 6, 2024

Portland, Ore – Earlier today the Securities and Exchange Commission (SEC) issued its final rule on climate disclosure, “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” This rule represents the culmination of over two years of work by SEC staff to determine how best to capture and disclose information about climate impacts and goals for publicly traded companies in the United States.

“Today’s issuance of a final rule on climate disclosures by the SEC marks an important milestone in the US conversation about how to appropriately track, measure, and disclose the progress companies are making toward lowering their carbon emissions,” said Vicki Worden, GBI President & CEO. “GBI looks forward to continuing to work with companies who are trying to better understand their emissions and environmental impact, while working toward improving our built environment’s impact on climate and society.”

The final rule, which is expected to be published in the Federal Register by the end of this week and goes into effect 60 days following publication, follows SEC review and deliberation of over 24,000 comments received since publication of its initial proposed rule over a year ago. In a notable difference from the proposal, the final rule establishes guardrails for the reporting of climate-related risks that have already, or are likely to, impact a company’s operations and eliminates Scope 3 reporting requirements. The SEC cited comments concerning compliance costs, and the reliability of accurate Scope 3 emissions data for removal from the final ruling. While the ruling aims to provide company climate impact to stakeholders, the ruling further highlights the necessity for a universally accepted definition and parameters for Scope 3 emissions.

The SEC will be asking companies to provide information via annual reports, or their registration statements on climate-related risks that have materially impacted or are reasonably likely to have a material impact on its business strategy, results of operations, or financial condition. However, the SEC will not require companies to make proactive determinations on whether an incident was directly the result of “climate change,” instead asking them to disclose severe weather or climate impacts on company operations or finances.

Larger registrants and accelerated filers will also need to disclose Scope 1 and Scope 2 (those directly produced from sources owned by a company and indirect emissions from purchased utilities) or when those emissions are material to a company’s operations and finances. These companies will also have to disclose via attestations key metrics and assumptions about how they determine their emissions, including disclosure of Renewable Energy Credits (RECs) and offsets used to achieve their stated corporate climate-related goals. In today’s hearing, the SEC recognized that some of its requirements will differ from those mandated in other jurisdictions such as Europe, but Chairman Gensler noted that the SEC strongly felt that it was important to establish US standards based on US law.

Today’s climate rule vote by the SEC board passed by a vote of 3-2. Given the significant changes made between the proposed rule, and the final rule, as well as the large scope of this rule and its potential impacts on many publicly traded corporations, Green Building Initiative (GBI) expects that several legal challenges will be brought.

“Given the continued interest of investors, and the competing rules and requirements being set in other parts of the world, we expect that this rule will be the foundation for further conversations about how companies across our enormous economy work to reduce their climate impacts, and how they transparently and uniformly share their progress with US investors,” said Jenna Morgan Hamilton, GBI’s VP of National Affairs. “It’s a highly complex issue, and we know the final outcome will inevitably be influenced by the court system.”