SEC adopts final rules on climate disclosures with no Scope 3 requirement

March 7th, 2024

The Securities and Exchange Commission (SEC) has finalised its climate disclosure rules after more than a year wrestling over the requirements.

The final rules will require registrants to disclose certain climate-related information in registration statements and annual reports but will not include their Scope 3 emissions.

Scope 3 emissions include those generated by a company’s supply chain and customers.

The SEC’s original proposal for climate disclosure rules included requirements for larger companies to disclose their Scope 3 emissions if material.

The rules were first proposed in March 2022 and the SEC planned for the rules to come into effect in December 2022, however this date was consistently postponed due to concerns over the requirements.

The SEC delayed the finalisation of the rules for the last time in December 2023 until April 2024 amid criticism from anti-ESG campaigners in the US and the fossil fuel industry, which claimed Scope 3 emissions are too difficult to track and the requirement to monitor them imposes a financial burden on businesses.

The final rules require registrants to disclose material climate-related risks, and activities to mitigate or adapt to such risks. It also includes information about the registrant's board of directors' oversight of climate-related risks and management’s role in managing material climate-related risks.

They also require disclosure of Scope 1 and/or Scope 2 greenhouse gas (GHG) emissions on a phased-in basis if material.

Some experts were hopeful that Scope 3 emissions would be included in the requirements after California’s governor passed new legislation in October requiring large companies to disclose their Scope 3 emissions, regardless of materiality.

The SEC chair Gary Gensler said the Californian law “may change the baseline” for disclosure reporting in testimony to the House Financial Services Committee.

Despite the finalised rules dropping the Scope 3 requirements, the SEC was met almost immediately with a lawsuit from the attorneys general of 10 Republican-led states, including West Virginia and Georgia, Law 360 reports.