US SEC Climate Disclosure Rules Formally Adopted

AUTHORS – Dr. Richard Tipper and Vanessa Boudreau-Sannier

Widely anticipated US SEC’s climate disclosure rules have been formally adopted today

The widely anticipated US SEC’s climate disclosure rules were formally adopted today (6th March 2024) with a 3 to 2 vote. It is a sign that the systemic risk of climate change and the direction of travel to a clean, low carbon future is now formally appreciated at the highest levels within the oversight institutions of the global economy.

There has been some heated debate about the inclusion or exclusion of Scope 3 emissions. The SEC’s focus on the reporting of Scope 1 and 2 emissions is unsurprising, given the trickiness of defining boundaries of Scope 3 (value chain) emissions when applied to a wide range of business types. Our experience with the rollout of mandatory carbon reporting within the UK showed the importance of data quality over breadth.

Although some startups have developed tools to estimate Scope 3 emissions using extrapolation and AI, focusing on audited, financial grade Scope 1 and 2 data is likely more effective, after all – one company’s Scope 3 emissions are another company’s Scope 1 or 2 emissions.

Another aspect of the requirements, less discussed, has been the need to consider the direct and indirect physical risks of climate change on the business and to report on a company’s resilience in the face of extreme weather events and long-term changes in temperatures and water availability. However, the agency decided to keep the climate disclosures legally binding, a step that opens up companies to legal liability if they misstate their emissions.

While the rule was subject to much debate and might face legal challenges once adopted, it is one of the many new regulatory disclosure requirements drafted or enacted worldwide in recent years with the aim to provide more comparable and transparent information on companies’ impacts and risks. With similar rules adopted in California and Europe, it sends a strong signal to markets worldwide and may mark the beginning of a new era of mandatory ESG disclosures in North America.

Customers of our Sustainability Reporting software can rest assured that the US SEC regulations and related disclosures are fully covered. Our solution includes advanced audit-ready outputs on scope 1, 2 and 3 greenhouse gas emissions; automated physical climate risk analysis; ESG reporting; and can connect directly to Environmental, Health, and Safety (EHS) systems needed to manage risks and protect lives on the ground.

For an overview of the regulatory and voluntary disclosure requirements that your business may be subject to, visit our free Sustainability Compliance Navigator.

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Date Published: March 6, 2024

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TLDR:

The US Securities and Exchange Commission (SEC) finally finalised their climate disclosure rules on March 6th, 2024. This marks a new era in the United States for sustainability, ESG and climate disclosures.

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