SEC Issues Long-Awaited Climate Disclosure Rule

Today, after nearly two years of anticipation, the SEC finally enacted a climate disclosure rule on a 3-2 party-line vote by the SEC Commissioners.  As described by SEC Commissioner Lizarrage, “[b]y requiring registrants to provide standardized climate risk-related disclosures in Commission filings, market participants will benefit from being able to more efficiently analyze information that will be integrated with other important disclosures, such as a full description of the company, other disclosed risks, and the company's financial statements.”   

Certain key aspects of the climate disclosure rule include:

• Companies must disclose climate-related risks. 
• Scope 1 and Scope 2 greenhouse gas emissions will be reported, with assurance requirements phased in over time. 
• Smaller reporting companies are exempt from being required to disclose Scope 1 and Scope 2 GHG emissions. 
• The financial statement effects of severe weather events and other natural conditions must be reported. 

The rule is subject to a phase-in period, with large accelerated filers subject to the earliest deadline of FY 2025.  And the disclosure of Scope 1 and Scope 2 GHG emissions will not be required for large accelerated filers until FY 2026.  (The timeline for accelerated filers is further delayed.)

Notably, there are critical differences between this climate disclosure rule and the one proposed in March 2022.  Perhaps most notably, as stated by SEC Chairman Gensler, “[b]ased upon public feedback, [the SEC] [is] not requiring Scope 3 emissions disclosure at this time.”  Additionally, “today's final rules are grounded in materiality,” which was not the case in the draft climate disclosure rule.   

Notably, both Republican SEC Commissioners leveled considerable criticism against the climate disclosure rule.  Commissioner Pierce described the rule as “forcing individual public companies to operate in a conduct-altering disclosure regime that may have no direct relevance to their situation.”  Commissioner Uyeda echoed this criticism, stating that “[t]oday's rule is the culmination by various interests to hijack and use the federal securities laws for their climate-related goals.”  Indeed, Commissioner Uyeda went beyond criticism to articulate potential challenges to the climate disclosure rule--notably, that he believed that it violated “the major questions doctrine” and also raised “concerns about [the SEC's] statutory authority” and that “the Commission conducted a flawed process.”  A legal challenge to the SEC's climate disclosure rule--likely brought by the Chamber of Commerce or similar organizations--should be expected, and will likely rely on the legal theories identified by these internal dissenters at the SEC. 

But the climate disclosure rule was not fully embraced by the Democratic SEC Commissioners.  Significantly, Commissioner Crenshaw expressed displeasure with the adjustments made to the climate disclosure rule during the SEC's internal processes (following public comment), which diminished the impact of the rule, saying that the rule “does not have my unencumbered support.”  She argued that the climate disclosure rule did not extend far enough, stating that “[w]hile these are important steps forward, they are the bare minimum.”  These criticisms will likely be echoed by a number of environmental and civil society organizations, as well as left-wing politicians, who would have preferred a more robust climate disclosure rule (e.g., including Scope 3 emissions).     

Although this SEC climate disclosure rule has been long-awaited, this is merely one step--albeit a significant one--in the process.  The SEC climate disclosure rule will be subject to legal challenge, and it is unclear whether the rule will survive.  So, despite the fact that the contents of the SEC climate disclosure rule are now apparently final, the ultimate impact on how corporate filings with the SEC will adjust to reflect this new climate disclosure rule remains uncertain.