The U.S. SEC has finalised its climate-related disclosure rules for public companies, a pivotal development in corporate sustainability reporting.
According to ESG Today, this regulatory shift mandates that U.S. public companies disclose information on climate risks, strategies for risk mitigation, the financial repercussions of severe weather events, and greenhouse gas emissions from their operations. However, in a significant retreat from its initial proposal, the SEC has decided against requiring companies to report on Scope 3 emissions, those emissions that are a part of a company’s value chain but beyond their direct operations.
This pared-back approach underscores a balancing act by the SEC, attempting to integrate climate risk into financial reporting without imposing overwhelming compliance costs. For large filers, only material Scope 1 and 2 emissions—those directly produced by the companies and those resulting from their energy consumption—need to be reported. Moreover, the new regulations delay the timing of these disclosures to 2026 and relax assurance requirements.
SEC Chair Gary Gensler articulated the rationale behind these changes, noting the extensive feedback received from various stakeholders. With over 24,000 comments on the draft proposal, the revisions aim to align more closely with the concerns and suggestions of companies, investors, and other interested parties. Gensler emphasised the rule’s intent to furnish investors with “consistent, comparable, and decision-useful information” while setting clear guidelines for issuers.
Despite the scale-back, the SEC’s rules represent a critical step towards greater transparency in corporate climate reporting. Gensler pointed out that, although some companies are exempt from Scope 3 reporting under the SEC rule, many will need to disclose these emissions to comply with regulations in other jurisdictions, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and California’s recent legislation on full value chain emissions disclosure.
In his statement, Gensler highlighted the advantages of the new framework: “These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings… They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.”
This landmark ruling by the SEC marks a significant moment in the movement towards integrated sustainability and financial reporting, even as it navigates the complex terrain of regulatory requirements, corporate capabilities, and stakeholder expectations.
Keep up with all the latest FinTech news here.
Copyright © 2024 FinTech Global
