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SEC Revises (and Weakens) Climate Disclosure Rules

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by  Patrick Paul; Shawane Lee; John Habib

On March 6, 2024, the U.S. Securities and Exchange Commission (SEC) adopted final climate disclosure rules sparking a range of reactions within the business and environmental communities. These changes represent a significant shift in the regulatory landscape for public companies, particularly regarding the reporting of climate-related risks and emissions. The Final Rules, proposed in March 2022, will significantly impact disclosure requirements for public companies regarding their emissions.

One of the most notable changes in the revised rules is the removal of the requirement for companies to disclose U.S. E.P.A. Scope 3 emissions. This change has been welcomed by many in the business community, who argued that reporting on Scope 3 emissions, which include indirect emissions like those from supply chains, is often complex and resource-intensive. By eliminating this requirement, the SEC has eased the compliance burden on companies, allowing them to focus on more material and actionable disclosures.

Another key change is the move from a principles-based approach to a more prescriptive one. While the original proposal encouraged companies to use frameworks like the Task Force on Climate-related Financial Disclosures as a guide, the final rules specify certain metrics and thresholds that must be reported. This shift has been criticized by some as overly restrictive, but others see it as providing much-needed clarity and consistency in reporting.

Overall, the revised rules have been met with a mixed response from the business community. While some welcome the clarity and reduced burden of compliance, others are concerned that the rules may not provide investors with a complete picture of a company’s climate-related risks and strategies. While pleased with the progress of the landmark climate disclosure rules, environmental groups nevertheless lament the omission of Scope 3 emission reporting from the final rule.

Despite these concerns, the SEC’s revisions represent a step forward in balancing the need for transparency with the practical realities faced by businesses. The SEC maintains that these final rules represent its best efforts at responding to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and the management of those risks while balancing concerns about mitigating the associated costs of the rules.

As the business community continues to adapt to these new disclosure requirements, there is an opportunity for companies to not only meet regulatory obligations but also demonstrate leadership in addressing climate change. By providing meaningful and transparent disclosures, companies can enhance their reputation, build trust with investors, and contribute to a more sustainable future.