Overview

On March 6, 2024, the SEC issued a final rule that requires registrants, including foreign private issuers, to provide climate-related disclosures in their annual reports and registration statements.

The final rule does not apply to Canadian companies that report under the multijurisdictional disclosure system (MJDS).

Disclosures required outside of the financial statements include:

• For large accelerated filers and accelerated filers, material Scope 1 and Scope 2 GHG emissions, subject to assurance requirements that will be phased in.
• Governance and oversight of material climate-related risks.
• The material impact of climate risks on the company’s strategy, business model, and outlook.
• Risk management processes for material climate-related risks.
• Material climate targets and goals.

In the footnotes to the financial statements, registrants must disclose financial statement impacts and material impacts on their financial estimates and assumptions due to severe weather events and other natural conditions. Companies will also need to disclose a rollforward of carbon offsets and renewable energy credits or certificates (RECs) in the notes to the financial statements if carbon offsets and RECs are a material component of meeting their climate-related targets and goals.

Registrants must provide disclosures other than those related to Scope 1 and Scope 2 GHG emissions in annual reports at the time of the filing. Domestic registrants may disclose emission information in their second-quarter Form 10-Q3 for the year after the year to which the emission disclosures are related. Foreign private issuers may provide the disclosures in an amendment to their annual report on Form 20-F due 225 days after the end of their fiscal year. For registration statements, the GHG emission disclosures would be required for the most recent fiscal year for registration statements filed 225 days after the end of the fiscal year, whereas all other disclosures would be required for the fiscal years presented in the annual financial statements of the filing. 

Except for the financial statement disclosures, domestic registrants must present other information, including GHG emissions, in a newly created section of Form 10-K (Item 6) immediately before MD&A or in another appropriate section of the filing (e.g., risk factors, MD&A). Foreign private issuers must present it in Form 20-F (Item 3.E).

The financial statement disclosures will be subject to existing financial statement audit requirements and management’s internal control over financial reporting (ICFR). For large accelerated filers and accelerated filers that are not emerging growth companies (EGCs), the independent registered public accounting firm’s audit of ICFR will similarly assess controls over these disclosures. All disclosures outside the financial statements will be subject to management’s disclosure controls and procedures (DCPs), which the registrant’s principal executive officer and principal financial officer must periodically assess and certify. The Scope 1 and Scope 2 GHG emission disclosure will be subject to limited assurance for large accelerated filers and accelerated filers (other than smaller reporting companies (SRCs) and EGCs) and, following a phase-in period, reasonable assurance for large accelerated filers.

The final rule follows on the heels of numerous recent voluntary and mandatory climate and ESG-related disclosure requirements that have been issued or adopted in the last two years, including the IFRS® Sustainability Disclosure Standards, the E.U. Corporate Sustainability Reporting Directive (CSRD) and related European Sustainability Reporting Standards, and the California climate legislation. Like this other guidance, the SEC’s final rule leverages existing disclosure frameworks such as those established by the GHG Protocol and the Task Force on Climate-Related Financial Disclosures (TCFD). However, while the IFRS Sustainability Disclosure Standards and the CSRD broadly address sustainability and ESG matters, the SEC’s final rule only addresses climate-related disclosures. The SEC did not recognize other standards (e.g., the IFRS Sustainability Disclosure Standards) as an alternative to the disclosures required by the final rule.

In Canada, the Canadian Securities Administrators (CSA) issued proposed climate-disclosure regulation, National Instrument 51-107 Disclosure of Climate-related Matters in 2021. The comment period expired in February 2022. In January 2023, following the issuance of the ISSB’s standards, the CSA has stated that they intend to adopt disclosure standards based on the ISSB Standards, modified to the Canadian context.

Recent developments