On March 6, 2024, the Securities and Exchange Commission (SEC) adopted, by a 3-2 vote, final rules regarding the enhancement and standardization of climate-related disclosures. The final rules are available here.

The final rules are the culmination of almost two years of work since the proposed rules were issued in October 2022. They represent a compromise between the goals of shareholder and environmental advocates, on the one hand, and reporting issuers, on the other. Shareholder and environmental advocates will appreciate the significant expansion of mandated disclosures regarding climate-related matters, which according to SEC Chair Gary Gensler will promote the consistency, comparability and reliability of those disclosures. Issuers will appreciate many of the changes made by the SEC in the final rules, which pare back significantly some of the more onerous requirements that had initially been proposed.

Here are some initial takeaways from the new rules:

No Scope 3 Disclosures. Most notably, the final rules will not require disclosure of Scope 3 greenhouse gas (GHG) emissions, as we suggested might happen in an earlier post. In presenting the final rules, Chair Gensler noted that adoption of Scope 3 emissions disclosures had been "deferred," implying that the SEC may take action to adopt such disclosure requirements at a later date.

Exemptions from GHG Emissions Disclosures. Smaller reporting companies (SRCs), emerging growth companies (EGCs) and non-accelerated filers (NAFs) will be exempt from the requirements to disclose Scope 1 and Scope 2 GHG emissions (and related attestation reports). They will otherwise be subject to the remaining climate-related disclosures, subject to a longer phase-in period than will apply to large accelerated filers (LAFs) and accelerated filers (AFs).

General GHG Materiality Threshold. LAFs and AFs (other than SRCs and EGCs) will have to disclose information about Scope 1 and Scope 2 GHG emissions to the extent material. This change from the proposed rules may offer additional issuers the ability to determine that no Scope 1 or Scope 2 GHG emissions disclosures are required.

Extended GHG Phase-In Periods. The final rules extend the phase-in periods for providing disclosures regarding Scope 1 and Scope 2 GHG emissions. LAFs must provide Scope 1 and Scope 2 disclosures for fiscal years beginning in 2026, and AFs must provide these disclosures for fiscal years beginning in 2028. LAFs and AFs must provide attestation reports to a "limited assurance" level beginning three years after their initial Scope 1 and Scope 2 GHG emissions disclosures, and LAFs must provide attestation reports at the higher "reasonable" assurance level after an additional four years (i.e., fiscal years beginning in 2033).

Deferred Reporting. Instead of requiring disclosures regarding Scope 1 and Scope 2 GHG emissions in annual reports, the final rules permit companies to make these disclosures in their quarterly reports on Form 10-Q for the second fiscal quarter after the end of the reporting year (or an amended annual report filed by the same deadline). Foreign private issuers must file their GHG emissions disclosures by the same deadline that would apply to a domestic registrant. This change will give companies several months of additional time to prepare these disclosures.

General Phase-In Periods. For new climate-related disclosures other than GHG emissions disclosures, the final rules will phase in more quickly. LAFs must comply with most other climate-related disclosures for fiscal years beginning in 2026. Accelerated filers will have one additional year to comply, and SRCs, EGCs and NAFs will have two additional years. A few disclosures, including quantitative and qualitative disclosures regarding material expenditures and material impacts on financial estimates and assumptions that result from efforts to mitigate or adapt to climate-related risks or to achieve climate-related targets or goals, may be delayed for one additional year.

The SEC's Fact Sheet regarding the new rules provides a helpful summary and is available here.

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