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SEC announces final rules for climate-related disclosures 

On March 6, 2024, the U.S. Securities and Exchange Commission (SEC) voted to approve final rules for the enhancement and standardization of climate-related disclosures. The final rules require disclosure in annual reports and registration statements, including initial public offerings, and are narrower in scope compared to the 2022 proposed rules, including the notable exclusion of scope 3 emissions reporting. However, they still require companies to meet significant new requirements of climate disclosure. Key takeaways include, among other things: 

Nonfinancial statement disclosures (Regulation S-K) 

  • Disclosure of climate-related risks, strategy and processes: All registrants will be required to disclose risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations or financial condition. Further disclosure regarding the methods used to determine these risks, management's strategies to identify, assess and manage material risks and the extent to which these processes are included within enterprise risk management functions. Companies must also disclose material expenditures directly related to climate-related activities relative to their strategy and transition plans, targets and goals.  
  • Governance disclosures: All registrants will be required to disclose oversight by the board of directors for climate-related risks as well as the role by management in assessing and managing material climate-related risks. This includes details regarding the process for assessing and managing climate-related risks and details around climate-related targets and goals, if such goals have a material effect on the business, operations or financials. 
  • Greenhouse gas (GHG) emissions and assurance: Large accelerated filers (LAFs) and accelerated filers (AFs) will be required to disclose material direct emissions (i.e. scope 1 and 2) over a phased timeline. Smaller reporting companies (SRCs) and emerging growth companies (EGCs) are exempt from GHG emissions disclosures. Additionally, the final rule eliminated the proposed requirement to provide scope 3 emissions disclosure. These disclosures will require assurance from an independent GHG emissions attestation provider that has expertise with performing GHG emissions attest engagements and performs engagements aligned with professional standards. These disclosures can be filed in the second quarter on Form 10-Q in the following fiscal year or may be included as an amendment to the 10-K no later than the 10-Q due date, providing more time for registrants than initially proposed. 

Financial statement disclosures (Regulation S-X):  

Registrants would be required to disclose in a note to the audited financial statements the following: 

  • Capitalized costs, expenses, charges and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, flooding, drought, wildfires, extreme temperatures and sea level rise subject to one percent threshold. 
  • The aggregate amount of carbon offsets and renewable energy credits (RECs) recognized, and the aggregate amount of losses incurred on the capitalized carbon offsets and RECs, if material to a registrant’s plans to achieve its disclosed climate-related targets and goals. 
  • Whether the estimates and assumptions used to produce the financial statements were materially impacted by severe weather events and natural conditions, or any climate-related targets or transition plans. 

This information would be subject to a financial statement audit and the registrants’ internal controls over financial reporting (ICFR). 

The following table summarizes phased requirements across registrant types and rule dimensions:    

Compliance dates under the final rules1
Registrant type Disclosure and financial statement effects audit GHG emissions/assurance Electronic tagging
  All Reg. S-K and S-X disclosures, other than as noted in this table Item 1502(d)(2), Item 1502(e)(2) and Item 1504(c)(2) Item 1505 (Scopes 1 and 2 GHG emissions) Item 1506 - Limited Assurance Item 1506 - Reasonable Assurance Item 1508 - inline XBRL tagging for subpart 15002
Large accelerated filers FYB 2025 FYB 2026 FYB 2026 FYB 2029 FYB 2033 FYB 2026
Accelerated filers (other than SRCs and EGCs) FYB 2026 FYB 2027 FYB 2028 FYB 2031 N/A FYB 2026
SRCs, EGCs and non-accelerated filers (NAFs) FYB 2027 FYB 2028 N/A N/A N/A FYB 2027
  1 As used in this chart, "FYB" refers to any fiscal year beginning in the calendar year listed.

2 Financial statement disclosures under Article 14 will be required to be tagged in accordance with existing rules pertaining to the tagging of financial statements. See Rule 405(b)(1)(i) of Regulation S-T.

Please see the SEC factsheet for further details on the final rule. Note the above summary is not exhaustive and there are other disclosure requirements pertaining to use of carbon pricing, transition planning, use of assumptions and other required reporting elements.  

Impacts for middle market companies  

While the exclusion of scope 3 reporting may minimize the impacts to private and public companies, requirements for climate risk disclosure are likely to impact value chain participants. Affected companies will require detailed assessment of material climate-related risks, likely spanning the assessment of climate impacts on sourcing and supply chain disruptions.  

Private middle market companies should prepare to engage in climate risk assessment exercises and can do so efficiently with a clear process for assessing and managing their own material climate-related risks.  

Public companies subject to these rules should prepare by assessing current climate practices and creating formal processes to determine materiality of climate-related risks, damages and direct emissions as applicable. Integrating this with enterprise risk management procedures will help to improve governance and controls ahead of integration with SEC filings and future state assurance requirements.  

Baker Tilly environmental, social and governance (ESG) and sustainability services  

Our ESG and sustainability services provide support across all dimensions of the proposed rule. This includes:

  • Support companies with assessing material climate-related risks and opportunities aligned with leading standards and frameworks.
  • Support with the integration of climate risk into existing risk functions, including enterprise risk management and board oversight. 
  • Prepare detailed emissions inventories for all scope categories aligned with leading standards and protocols used in global regulatory practices.
  • Prepare inventory management plans and documentation used in assurance procedures. 
  • Provide attestation for both limited and reasonable assurance across all climate disclosures, including scope 1 and 2 as well as review of climate risk procedures.
  • Assist companies with identifying, designing and developing controls to support disclosure requirements including the assessment of internal controls over the data sources, systems, processes and estimates utilized for reporting.
  • Assist companies with quantifying the direct financial impacts of severe weather events and other natural conditions including associated capitalized costs, expenditures and related estimates and assumptions to support the required footnote disclosures.

Explore more CFO advisory services.

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Getting started with the SEC: A checklist for climate-related disclosures

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