New SEC Climate-Related Disclosure Rule
On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted amendments to the disclosure rules under the Securities Act of 1933 and the Securities Exchange Act of 1934. Although the final rule is a scaled-back version of the proposal published on March 21, 2022, the new rule will require many publicly traded companies to disclose both their direct and indirect emissions, also known as “Scope 1” and “Scope 2” emissions, provided the emissions are material. Companies must also disclose to investors their climate-related risks, including information about financial harm caused by severe weather events and other natural events. The new rule will be phased in beginning with the filing of annual reports for the year ending December 31, 2025.
Of significance to the business community is the SEC’s decision to exclude the requirement to report Scope 3 emissions which would have required businesses to disclose all indirect greenhouse gas (“GHG”) emissions not otherwise included in a registrant’s Scope 2 emissions that occur in the upstream and downstream activities of the registrant’s value chain. In deciding to eliminate the requirement to report Scope 3 emissions, the SEC observed that “Scope 3 emissions typically result from the activities of third parties in a registrant’s value chain and, thus, collecting the appropriate data and calculating these emissions would potentially be more difficult than for Scopes 1 and 2 emissions.”
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