The US SEC Climate-related Disclosure Rules Explained

New US SEC legislation on Climate-Related Disclosure Rules will require large, public companies to disclose information related to climate risks, targets, and management. Phased in on a rolling basis from 2025, companies impacted by the rules will need to understand, measure and report their carbon emissions as a priority — read on to find out if your business will be affected and how you will need to prepare.

What are the US SEC Climate-related Disclosure Rules?

The United States Securities and Exchange Commission (US SEC) Climate-Related Disclosure Rules are a group of requirements for large public companies that include disclosing material climate-related risks, activities to mitigate or adapt to such risks, climate-related targets, and how businesses will manage such activities. 

In March 2024, the US SEC adopted final rules for the climate-related disclosures in a 3-to-2 vote. The purpose of the rules is to inform investors and markets about possible financial risks due to climate-related activities such as greenhouse gas (GHG) emissions.

When do the US SEC Climate-related Disclosure Rules come into effect?

Rules will come into effect on a phase-in period basis, starting in 2025, depending on the filing status of the publicly trading company.

Target-setting and climate-risk disclosures under US SEC

Disclosures related to target setting and climate risks will be due with the company's annual report filing for the year in question.

• Starting in 2025 for Large Accelerated Filers (LAFs) — LAFs will need to provide target-setting and climate-risk disclosures with their annual reports for the year ending December 31, 2025*;
• Starting in 2026* for Accelerated Filers (AFs);
• Starting in 2027* for Small Reporting Companies (SRCs), Emerging Growth Companies EGCs), and Non-accelerated Filers (NAFs)

*Non-calendar-year-end registrants will report their disclosures for their fiscal year beginning in the year in question.

Emissions Reports under US SEC

The first GHG emissions reports will be due in 2027 for LAFs, based on 2026 data.

‍Accelerated Filers (AFs) will deliver GHG reports in 2029, based on 2028 data. 

Which companies will the Rules apply to?

All of the SEC Climate-related Disclosure Rules apply to LAFs and AFs.

SRCs, EGCs, and NAFs do not have to report on GHG emissions, but they are required to disclose information related to climate risks, targets, and management. Failure to comply may lead to future litigation and increased scrutiny from stakeholders.

How will the Rules impact publicly-traded companies?

Publicly-traded domestic companies and foreign private issuers will have to disclose material climate-related impacts beginning on a rolling basis. Impacts may include specific sustainability targets and GHG emissions disclosure.

CarbonChain’s all-in-one Carbon Reporting Hub helps companies manage reporting requirements such as the US SEC rules, helping you streamline carbon accounting and pinpoint meaningful decarbonization efforts to futureproof your business.

How do the US SEC Climate-related Disclosure Rules define climate risk?

Climate-related risks are defined as those likely to have a material impact on a company’s business strategy, operations, and financial performance, which will need to be disclosed. Risks may be physical, such as extreme weather events (hurricanes, floods, wildfires, and tornadoes) or longer term weather patterns (sustained higher temperature, sea level rise, drought, low arability of farmland, decrease habitability of land, decreased fresh water availability). 

How does materiality relate to the Rules?

Whether a company discloses climate-related risks relies on whether those risks are material to a company’s operations, strategy, and financial condition. 

So what counts as 'material'?

‍Materiality is defined by the US SEC as a matter that a reasonable investor would consider important when determining whether to buy or sell securities, or when making voting decisions.

Such a definition requires both qualitative and quantitative analysis and the materiality threshold varies per item in the rules.

What level of carbon emissions disclosure is required by the US SEC?

All reporting companies must disclose Scope 1 emissions (direct) and, if deemed material, Scope 2 emissions (indirect electricity).

Despite being included in the proposed rule, Scope 3 emissions are not required to be disclosed under the final set of rules. The requirement was eliminated, due to the well-known challenges with tracking these emissions upstream and downstream.

However, more and more companies are successfully measuring and reporting their supply chain emissions, which house hidden carbon risks across the value chain. Scope 3 emissions can represent over 90% of a company’s carbon footprint, so if an organization chooses not to disclose them, it's likely to be misrepresenting its true environmental impact and thereby risks accusations of greenwashing.

Solution like CarbonChain mean that Scope 3 accounting doesn't have to be tricky, even for complex metals and energy supply chains.

How do the US SEC's Rules relate to other US climate change legislation?

The US SEC climate-related disclosure rules require LAFs and AFs to report, while currently excluding SRCs, EGCs and NAFs. Whereas, the California climate disclosure laws require both private and public companies to report.

For companies subject to California law SB253, annual revenue should exceed US$1 billion, while companies subject to California law SB261 should have an annual revenue exceeding US$1 million.

Therefore, some companies may have to file reports and face fines under both California laws and US federal laws. California law SB 253 also includes a more extensive scope for GHG emissions disclosure (Scope 1, 2, and 3 emissions are mandatory after 2027).

Managing US SEC climate disclosure with CarbonChain

As regulations like the US SEC’s Climate-related disclosures come into play – and a growing number of governments worldwide seek transparent GHG emissions disclosure – understanding your corporate carbon footprint is paramount.

The risk of reacting last-minute to these regulations is having to rely on estimates of your emissions using broad-based methods. This can hide your business' most important carbon hotspots and lead your company to slip behind competitors who prioritize accurate carbon accounting to differentiate themselves in the market.