The US Securities and Exchange Commission (SEC) has approved today (6 March) its long-awaited and divisive climate disclosure rule in a three in favor and two against vote.
After corporate pushback on the regulation over the last two years, reporting requirements have been scaled back from the initial proposal and Scope 3 disclosures removed altogether.
Chair Gary Gensler cast the deciding vote at the online meeting as the other four Commissioners were divided on the rule: Democrats Caroline Crenshaw and Jaime Lizarraga voted in favour, and Republicans Hester Peirce and Mark Uyeda voted against.
After the vote, Gensler said: "This is an important step forward for investors to get more comparable, consistent and decision, useful information. This is a step forward but there'll be more work to be done in the future."
Large Accelerated Filers (LAFs) [see table] will be required to disclose climate-related financial information from 2025 and report their direct (Scopes 1 and 2), if material, emissions from 2026.
Mandatory limited assurance on emissions disclosures will be introduced for LAFs from FY 2029, and reasonable assurance will be required from 2033.
Requirements will be phased in for smaller Accelerated Filers (AFs) [see table], who will have to publish information on their climate-related risks from 2026, disclose their Scope 1 and 2 emissions from 2028. AFs will be then required to obtain reasonable assurance from 2028, but will not have to transition to reasonable assurance.
Smaller Reporting Companies (SRCs) and Emerging Growth Companies (ECGs) will have to start reporting climate-related financial information from 2027, and are exempt from reporting their emissions.
After the applicable compliance date, companies will be required to disclose climate risks assessments, climate-related targets and goals, a description of board oversight of climate-related risks, and costs and losses associated with carbon offsets.
These disclosures would be filed with the SEC annually, either as a section of a registration statement or annual report, or as separate filing.
Crucially, listed companies will not be obliged to report their indirect (Scope 3) emissions under the rule. Scope 3 requirements were included in the original 2022 proposal for the rule but have been removed "based upon public feedback", Gensler said.
The regulator received a record 24,000 comment letters in response to its consultation on the rule. In their responses, corporate lobby groups, including the US Chamber of Commerce and the National Association of Manufacturers, argued that Scope 3 would impose costs and administrative burdens on small businesses.
In addition to removing Scope 3, other measures have been introduced to alleviate corporate concerns over the requirements. Notably, a safe harbour has been added which will protect companies from private liability for forward-looking disclosures on transition plans, scenario analysis, targets and goals, and internal carbon pricing.
An accommodation has also been included to allow companies to delay the filings of their emissions disclosures to the following year.
Despite these accommodations, the SEC is expected to face legal challenges. Republican lawmakers and business associations argue that the regulator is acting beyond its mandate in issuing the rule, and continue to point to the costs reporting will impose on companies.
Moreover, it has been reported that the regulator could face lawsuits from environmental activists, who argue it has failed to protect investors by failing to mandate Scope 3 emissions disclosures.
The final rule will be sent to the Federal Register in the coming days and posted on the SEC website later today.
