SEC Climate-Related Disclosure Rules

What the SEC Climate Disclosure Rules Are

In March 2024 the U.S. Securities and Exchange Commission (SEC) adopted rules requiring public companies to disclose certain climate-related information in their registration statements and periodic reports. The rules exist to give investors consistent, comparable, and decision-useful information about climate-related risks that could materially affect a company's business, results, or financial condition. They focus on material risks, governance, and the financial effects of severe weather and other climate events.

The rules have a contested history: they were scaled back from earlier proposals, faced litigation, and were subject to a voluntary stay and ongoing legal and policy review. Companies should track the rules' current legal status, but the underlying disclosure concepts remain influential.

Who It Applies To

The rules apply to SEC registrants, including domestic public companies and many foreign private issuers, that file registration statements and periodic reports. Requirements and timelines are phased and scaled, with larger accelerated filers facing earlier and more extensive obligations than smaller reporting companies, some of which receive exemptions.

Key Requirements

• Material climate risks — Disclose climate-related risks that have had or are reasonably likely to have a material impact.
• Governance and strategy — Describe board and management oversight of climate risks and their integration into strategy.
• Risk management — Explain processes for identifying, assessing, and managing material climate risks.
• Financial statement effects — Disclose certain effects of severe weather events and other conditions in the financial statements, subject to thresholds.
• Targets and transition — Disclose climate targets or transition plans where they are material to the business.
• Controls — Apply disclosure controls and procedures to climate information.

Penalties for Non-Compliance

As with other SEC disclosure obligations, non-compliance or materially misleading disclosures can lead to SEC enforcement, civil penalties, and required restatements, as well as private securities litigation. Inaccurate climate disclosures carry the same liability exposure as other material misstatements in SEC filings.

How to Comply

Assess which climate-related risks are material to the business and establish governance and risk management processes that can be described credibly. Build data collection and internal controls so climate disclosures are accurate and supportable, and integrate relevant effects into financial reporting where thresholds are met. Monitor the rules' legal status and phase-in schedule, and prepare disclosures with the same diligence applied to other material SEC filings.