U.S. Securities and Exchange Commission Approves Climate Change Reporting Rule for Companies

The SEC is set to publish final rule enacting new requirements for publicly traded companies to disclose climate-related information in annual filings.

On 6 March 2024, the U.S. Securities and Exchange Commission (SEC) approved a final rule regarding climate change reporting by publicly traded companies. The SEC approved the rule with a 3-2 party-line vote among the commissioners. This rule, once enacted, would require companies to begin phasing in reporting climate-related information in registration statements and annual reports, including Scope 1 and Scope 2 greenhouse gas emissions disclosures by larger companies. 

This rule was first proposed by the SEC in 2022, and WERC, in coordination with its Sustainability Advisory Council and Compliance Policy Forum, submitted a comment letter to the agency responding to the rule. The SEC received over 24,000 comment letters from individuals, companies, and organizations regarding the proposed rule during the 2022 comment period, and several significant changes advocated for by WERC and other petitioners were incorporated into the final rule. 

These changes include:

• The final rule provides relief to publicly traded companies, and most importantly small and medium sized businesses, by not including the proposed Scope 3 reporting requirements related to vendors as part of the new reporting requirements. This was the area of most significant concern for many WERC members and their organizations in the 2022 proposed rule, and dropping Scope 3 in the final rule is a major change that will reduce this rule’s impact on the overall talent mobility industry.
• Stretching out the implementation timeline with a phase-in of requirements providing large, accelerated filers until their annual report ending 31 December 2025 to meet disclosure and financial statement requirements and their 2026 report to include disclosures about material expenditures and impacts and Scope 1 and 2 emission disclosures. Accelerated filers get another year for each category in which to meet the requirements, and nonaccelerated filers get another year respectively and do not have to disclose Scope 1 and 2 emissions.

While the SEC’s final rule references the ability of companies to voluntary report additional information beyond required disclosures, it did not address the ability of other submissions, such as the forthcoming European Union Corporate Sustainability Reporting Directive or reporting requirements passed into law in the U.S. state of California, to meet the SEC requirements. The requirements set to go into effect in the E.U. and California also include elements, most notably related to Scope 3 downstream reporting, that are either not covered under the SEC rule or apply differing requirements.

The SEC’s rule still needs to be published in the Federal Register, and the rule’s effective date will be 60 days after publication. This rule will also face legal hurdles, as at least 10 states have announced that they would challenge the final rule in court. 

WERC will continue to monitor this final rule and share updates as available. 
 
Michael T. Jackson is the vice president of member engagement and public policy at WERC.

Tristan North is WERC’s government affairs adviser.