March 6: Today, the US Securities and Exchange Commission (SEC) finalized a rule on climate-related financial disclosures which can help investors to understand the risks to companies from climate change, and how companies will seek to address them, by requiring that this information is included in mainstream filings.
The rule is a long-anticipated step by the SEC which responds to investor demands for consistency and comparability in relation to climate disclosures, and puts the US on a path that broadly aligns with international disclosure standards. However, the rule faces challenges in both the US Congress and its courts. Any resulting delays could cause the US to fall behind other countries, as well as spurring unilateral action by states.
The final rule is less ambitious than originally proposed. It is also less ambitious than comparable new requirements on EU companies, which will also be binding for thousands of US companies and entities that operate in Europe. However, it does follow the thrust of emerging international norms, including disclosure standards issued by the International Sustainability Standards Board (ISSB) which many countries are now in the process of adopting.1
Under the new rule, companies may disclose climate transition plans but are not required to do so. Key changes between the draft and final versions of the rule relate to the reporting of greenhouse gas emissions by companies. Large companies must now report their direct emissions only if they consider them material, and are not required to disclose their indirect emissions, such as those created by the products that they sell.
Members of Congress are expected to pass a resolution that would stop the SEC from implementing the rule, and the Chamber of Commerce is expected to challenge the SEC’s authority to issue the rule in federal court. Meanwhile, California has already mandated companies to disclose the full range of greenhouse gas emissions that they are responsible for. These California statutes are also being challenged in court, but may be replicated by other US states.
Despite the significant progress made by the SEC today to bring the US to the same level as other jurisdictions, it is possible that investors may still not end up with the consistent and comparable disclosures they are demanding and that the authority of the US as an internationally leading regulator will recede.
Quotes
Kate Levick, Associate Director, Finance and Resilience at E3G, said:
“Finalization of the SEC’s climate disclosure rule is a big achievement, but the US is still behind the curve internationally. What has been achieved today must be preserved in the face of political and legal challenges, for the US to maintain its global authority as a climate leader.”
Elizabeth Jacobs: Senior Specialist, Sustainable Finance at E3G, said:
“The SEC and its staff should be commended for getting to the finish line. If nothing else, the two years and 24,000 consultation responses have resulted in a massively successful US capacity-building exercise. Climate related financial disclosure standards are rapidly accelerating. This is due to investor demand and the support of authorities around the world, such as Brazil, which holds the G20 leadership this year. The SEC needs to be a strong, worldwide partner in the implementation of climate related financial standards – and where appropriate, enforcement of these disclosure standards as well.”
Jurei Yada, Programme Lead, EU Sustainable Finance, said:
“The long-awaited publication of the SEC climate disclosure rules sends a clear signal to investors: climate-related financial risks must be transparently reported and addressed in the US, EU and every jurisdiction. As European companies will gradually be required to disclose climate-related financial information from 2025 onwards, the timely finalisation and implementation of the SEC rules would ensure a level-playing field for global investors and prevent a race to the bottom of investment flows.”
Available for comment
Elizabeth Jacobs, (EN), Senior Specialist, Sustainable Finance
m: 202-921-8187 | elizabeth.jacobs@e3g.org
Notes to Editors
- The Taskforce for Climate-Related Financial Disclosures, which was previously the key international reference point for climate-related corporate disclosures, has now been absorbed into the International Sustainability Standards Board.
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
- For further enquiries email press@e3g.org or phone +44 (0)7783 787 863.
