March 8, 2024

Final Climate Rules: Key Changes from the Proposed Form

As Dave highlighted following the cybersecurity adopting release, the Commission clearly considered the concerns of commenters on many important issues and modified final cyber rules as a result of key comments. The same can be said of the final climate disclosure rules. The significant changes from the proposing release are detailed beginning on page 31 of the adopting release. During the open meeting, the Staff summarized those changes by highlighting that the final rules differ from the proposed by:

– Adopting a less prescriptive approach to certain of the final rules, including risk disclosure, board oversight disclosure and risk management disclosure
– Qualifying the requirement to provide certain disclosures based on materiality, including for expenses, impacts of climate-related risk and use of scenario analyses and internal carbon prices
– Eliminating the requirement to disclose board-level climate-related expertise
– Limiting the requirement to disclose Scopes 1 and 2 GHG emissions to only large-accelerated filers and certain accelerated filers, and only when material
– Exempting smaller reporting companies and emerging growth companies from the requirements to disclose Scopes 1 and 2 GHG emissions
– Omitting the proposed requirement to provide Scope 3 emissions for any registrant
– Removing the requirement to disclose the impact of weather events, natural conditions and transition activities on line items in the financial statements
– Including the requirement to disclose certain material expenditures related to the registrant’s climate-related strategy, transition plan, targets or goals under Reg. S-K rather than Reg. S-X
– Extending the PSLRA to certain forward-looking statements pertaining to transition plans, scenario analyses, carbon pricing and targets and goals
– Eliminating the proposed requirement for a private company party to a business combination registered on Form S-4 or F-4 to provide the S-K or S-X disclosures
– Eliminating the proposed requirement to disclose any material changes to the disclosures in Form 10-Qs

The Staff also highlighted key changes in compliance timing. First, recognizing the difficulty registrants face measuring and reporting GHG emissions by the 10-K deadline, the final rules provide an accommodation allowing GHG emissions for the most recently completed fiscal year to be reported in the Form 10-Q for the second quarter of the next fiscal year (which the 10-K would incorporate by reference) or in an amendment to the Form 10-K due at the same time as the second quarter Form 10-Q (with comparable delay permitted for FPIs). The final rules also provide extended and additional phase-in periods depending on filer status and the contents of the disclosure. 

The final rule release acknowledges major developments in climate-related disclosure requirements in other jurisdictions since the proposed rules — specifically in California and the EU. I’m sure much ink will be spilled about how much additional effort the SEC rules will require of public companies that may be required to report under California and/or EU standards.

During the open meeting, Commissioner Peirce asked the SEC Staff whether the final rules preempt the requirements in California. The Staff highlighted that nothing in the rule expressly preempts any state law and, on the issue of whether there is implied preemption, that would be determined by a court in a future judicial proceeding that would come up under the specific facts and circumstances of that proceeding, including how the state laws would be applied and enforced.

Meredith Ervine