On March 6, 2024, the US Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. The commission’s adoption of the rules is two years in the making. The original proposed rules, issued in March 2022, aimed to ensure consistency in how publicly traded companies provided climate-related information to investors.
These new rules join existing regulations in both the US and around the world requiring companies to make climate-related disclosures and provide other ESG-related metrics. In California, for example, legislation passed in late 2023 requires Scope 3 emissions disclosures, while the European Union’s Corporate Sustainability Reporting Directive—which mandates disclosures on a range of sustainability issues—was adopted earlier in the year.
Per the new SEC rules, companies will be required to disclose:
Climate-related risks and costs
- Climate-related 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;
- The actual or potential material impacts of any identified climate-related risks on the registrant’s business model, outlook and strategy;
- The capitalized costs, expenditures expensed, charges and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures and sea level rise, subject to applicable one percent and de minimis disclosure thresholds disclosed in a note to the financial statements;
Mitigation and oversight efforts
- If a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
- Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis or internal carbon prices;
- Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
- Any processes the registrant has for identifying, assessing and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes;
- Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal;
Emissions information
- For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions;
- For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for a LAF, following an additional transition period, will be at the reasonable assurance level;
Where will the disclosures be made?
The SEC is requiring that required climate-related disclosures be included in companies’ filings with the commission, such as registration statements and annual reports.
When will companies be required to begin disclosures?
The new rules will take effect 60 days after they’re published in the federal register. However, there will be a phase-in period for compliance, with the largest companies reporting, as required, on climate-related risks by fiscal year 2025 and on emissions by 2026. Compliance dates for smaller companies range between 2026 and 2028, depending on their registrant type.
How can IBM help?
IBM offers products that help organizations track and report their environmental impact, and their exposure to climate risk. The IBM Envizi ESG Suite provides a single system of record for ESG data, GHG emissions calculations and reporting tools that organizations can use to help them manage their disclosures.
IBM Consulting Sustainability Services can assist organizations in addressing the SEC’s climate disclosure regulations through a comprehensive approach that includes data curation, gap analysis, strategy development and reporting services. Together, with IBM’s broader sustainability solutions portfolio, we help clients operationalize their reporting to drive business value and turn their sustainability goals into action.
Explore IBM Envizi ESG Suite today
The client is responsible for ensuring compliance with all applicable laws and regulations. IBM does not provide legal advice nor represent or warrant that its services or products will ensure that the client is compliant with any law or regulation.
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