SEC Finalizes Climate Risk Disclosure Rules for Public Companies
The SEC finalized sweeping rules requiring public companies to standardize climate-risk disclosures, dropping the proposed Scope 3 reporting and adding materiality qualifiers; the rules are now stayed pending judicial review.
On March 6, 2024, the SEC finalized its long-awaited climate-risk disclosure rules, aiming to standardize reporting for investors. However, the final rules are significantly narrower than the 2022 proposal. In a major concession, the requirement for companies to report Scope 3 (supply chain) greenhouse gas emissions was removed entirely. Disclosures for Scope 1 (direct) and Scope 2 (energy use) emissions are now required only when a company deems them material. The rules also introduce numerous other materiality qualifiers and extend the phase-in periods, with full compliance not required until 2033 for all filers.
Sophisticated counsel and their public-company clients care because this creates a new, complex disclosure regime, even in its scaled-back form. The most immediate development to watch is the litigation challenging the rule. Numerous lawsuits were consolidated in the Eighth Circuit Court of Appeals, and in response, the SEC issued a rare voluntary stay, pausing implementation pending the outcome of judicial review. The future of these rules now rests with the court, creating significant uncertainty for issuers' long-term planning.