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Takeaways from Today’s SEC Vote Requiring Climate Disclosure

March 6, 2024

The U.S. Securities and Exchange Commission (SEC) voted today to adopt a long-awaited rule mandating that public companies listed in the U.S. disclose financial risks related to climate change.

The decision came two years later than expected – a period that has seen investor and corporate support for ESG grow and more recently ease amid a political backlash that labeled efforts “woke capitalism.”

The new regulation, effective on May 5, will become a requirement for publicly traded companies.

The SEC rolled back what was perceived as the most onerous part of the rule it proposed: the requirement that companies disclose Scope 3 emissions – those produced by their suppliers and customers.

The new rule requires measurement and disclosure of carbon emissions, as well as reporting about factors like extreme weather events and the clean energy transition that are increasingly impacting public companies’ bottom lines – information the SEC wants investors to have to make investment decisions.

Specifically, the final rule requires companies to disclose:

· Scope 1 and/or Scope 2 greenhouse gas emissions

· Material climate-related risks and activities to mitigate or adapt to such risks

· Information about the company’s board of directors’ oversight of climate-related risks

· Information about management’s role in managing material climate-related risks

· Information on any climate-related targets or goals that are material to the registrant’s business

· Disclosure of the financial statement effects (costs and losses) of severe weather events

Since the SEC proposed the rule in March 2022, it received more than 24,000 public comments – the most in the Commission’s 95-year history.

A lawsuit challenging the rule was filed by 10 states just hours after the vote. Industry groups have threatened to sue to stop the rule from taking effect. The rule will also face challenges from congressional Republicans; it would be unlikely to survive if former President Trump prevails in his bid to return to the White House.

FleishmanHillard’s Public Affairs and global ESG specialists are here to help clients navigate the fractured regulatory landscape and stakeholder expectations in a way that allows them to manage risk and reputation.