Private Companies Face New Requests Under SEC Climate Disclosure Rules

By  Julien Gervreau, Director of Sustainability Implementation & Climate Action Planning for Sensiba

Nearly two years after its initial proposal, the U.S. Securities and Exchange Commission (SEC) adopted final climate disclosure rules on March 6, 2024. The new rules require registrants to disclose certain climate-related information in their registration statements and annual reports.

SEC Ruling Overview

The final rules require a registrant to disclose, among other things:

  • Material climate-related risks.
  • Climate risk mitigation or adaptation activities.
  • Board oversight of climate risk.
  • Management’s role in managing material climate-related risks.
  • Information on climate-related targets material to the registrant’s business, results of operations, or financial condition.
  • Material Scope 1 and/or Scope 2 greenhouse gas (GHG) emissions (on a phased-in basis by certain larger registrants).
  • Financial statement effects of severe weather events and other natural conditions.

Gradual Implementation Timeline

Large accelerated filers with calendar year-end reporting will begin financial disclosures in annual reports for the year ending December 31, 2025, with the start of GHG emissions and related assurance ranging from 2026 to 2033.

Accelerated filers will begin financial disclosures after December 31, 2026, with limited GHG emissions starting in 2028.

Non-accelerated filers, smaller reporting companies, and emerging growth companies will begin financial disclosures after December 31, 2027. They will not be required to make GHG-related disclosures.

Scope 1 and 2 emissions, if deemed material by a registrant, will need to be disclosed on Form 10-Q for the second fiscal quarter following the year to which the GHG emission disclosure relates.

The rules also face legal challenges that could affect their ultimate implementation date.

Reasons for the New Disclosure Rules

The SEC adopted the new rules in response to growing investor interest in climate-related risk and the financial implications for public companies. SEC Chair Gary Gensler said 90% of the companies in the Russell 1000 stock market index currently provide climate-related disclosures, predominately in annual sustainability reports. Climate-related disclosures may also appear in quarterly and annual SEC filings and registration statements.

Erik Gerding, director of the SEC’s Division of Corporation Finance, said because climate-related risks can affect a company’s performance and share price, investors are interested in the potential effects on the registrant’s strategy, results, and financial condition. Despite this interest, climate disclosures are often inconsistent, and can be difficult to find and compare across entities.

Elliot Staffin, special counsel in the SEC’s Office of Rulemaking, said registrants will be required to disclose any climate-related risks that have had, or reasonably will have, a material impact on registrants, as well as the mitigation processes companies have integrated into their risk management systems.

Supply Chain Implications for Privately Held Entities

In its final rules, the SEC omitted the required disclosure of Scope 3 GHG emissions from registrants’ value chains (aka indirect emissions). The omission came in response to registrants’ comments to the initial proposal that collecting the required data would be challenging and cumbersome.

Even without an SEC mandate, private companies will surely face increasing requests from their public-company business partners to provide their sustainability- and climate-related risks and opportunities.

The regulatory landscape, however, goes beyond the federal level. In June 2023, the International Sustainability Standards Board (ISSB) issued requirements for companies reporting under IFRS to disclose the impacts of industry-specific sustainability issues and climate-related risks. Further, In October 2023, California enacted two laws mandating Scope 1, 2, and 3 reporting by companies operating in the state that report more than $1 billion in revenue. As a result, certain retailers and distributors have now made it “table stakes” to report greenhouse gas emissions and other ESG-related information to do business with them.

Beyond regulatory considerations, more companies are examining Scope 3 emissions as part of comprehensive reviews of their supply chains and the associated risks. Small and medium-sized businesses can expect additional questions about topics such as their manufacturing practices, including chemicals and byproducts, and their labor sources.

As large companies compare and select suppliers, they understand that choosing a partner with more sustainable manufacturing practices often leads to lower costs and reduces the reputational risk of being associated with suppliers with undesirable behaviors.

To learn more about the new SEC requirements or effective sustainability- and climate-related disclosures and reporting, contact Sensiba.


About the Author:

With nearly 20 years of experience, Director of Sustainability Implementation & Climate Action Planning Julien Gervreau specializes in the development of sustainability and climate action strategies. He works with executive leadership teams to assess their ESG baselines and implement business strategies that foster healthy, more resilient entities and drive operational savings. Julien draws from a deep bench of experience as a sustainability professional. In his most recent role as Vice President of Sustainability at Jackson Family Wines, he spearheaded initiatives that resulted in over $29 million in cost savings. Julien is well–recognized for his achievements in the sustainability space. He has received multiple EPA Green Power Leadership and California Green Medal Awards, has been named to Environmental Leader’s Environment + Energy Leader 100 and North Bay Business Journal’s 40 under 40 lists. Julien received his MBA in sustainable management from Presidio Graduate School. He also holds a Lean Six Sigma Black Belt certification focused on the intersection of sustainability and operational process improvement through the Management and Strategy Institute.