What Are the SEC Climate Disclosure Rules?

The SEC Climate Disclosure Rules are regulations adopted by the US Securities and Exchange Commission requiring publicly traded companies to disclose climate-related information in registration statements and annual reports. Finalized in March 2024 after extensive rulemaking, the rules represent the most significant expansion of US climate-related disclosure requirements.

The rules aim to provide investors with consistent, comparable, and reliable information about climate-related risks affecting public companies. The SEC grounds its authority in investor protection—the principle that material risks, including climate risks, belong in securities disclosure so investors can make informed decisions.

Key requirements include disclosure of climate-related risks and their actual or likely material impacts on business, strategy, and outlook; governance processes for overseeing climate-related risks; climate-related targets and goals if material; Scope 1 and Scope 2 greenhouse gas emissions for larger registrants; and information about severe weather events and natural conditions in financial statement notes.

The rules draw heavily on TCFD structure while adapting to US regulatory context. They apply to domestic and foreign private issuers filing with the SEC, with requirements phasing in based on company size over several years beginning with fiscal year 2025.

Why SEC Climate Disclosure Rules Matter for US Companies

For SEC registrants, these rules transform climate disclosure from voluntary best practice to mandatory compliance obligation. Understanding and preparing for the rules is essential for compliance and capital market positioning.

Compliance is mandatory with legal consequences. Unlike voluntary frameworks, SEC rules carry enforcement risk. Material misstatements or omissions can trigger SEC action, shareholder litigation, and reputational damage. Compliance requires the rigor applied to financial disclosure.

The rules standardize what was fragmented. US companies previously faced a patchwork of voluntary frameworks, investor requests, and inconsistent practices. SEC rules establish uniform requirements, enabling comparison across companies and reducing repetitive, inconsistent inquiries.

GHG emissions disclosure becomes required for large companies. Large accelerated filers and accelerated filers must disclose Scope 1 and Scope 2 emissions with third-party attestation. Companies that haven't built emissions measurement capability face urgent infrastructure requirements.

Financial statement integration heightens scrutiny. Requirements to disclose climate-related impacts on financial statements—including costs from severe weather events—bring climate information into audited financials. This integration increases assurance scrutiny and legal exposure.

Governance and risk management processes must be documented. The rules require disclosure of board and management oversight processes for climate risk. Companies need demonstrable governance structures, not just assertions of attention.

Materiality remains the threshold. The rules apply to material climate-related risks. Companies must conduct materiality assessments and document conclusions. Assuming immateriality without analysis creates risk; thorough assessment provides defensible positions.

How SEC Climate Disclosure Compliance Works

1. Assess Applicability and Timeline Determine when requirements apply:

• Large accelerated filers (LAFs): Public float >$700M; earliest compliance beginning FY2025

• Accelerated filers (AFs): Public float $75M-$700M; phased compliance beginning FY2026

• Smaller reporting companies (SRCs) and non-accelerated filers: More limited requirements; later timeline

• Emerging growth companies: Extended transition provisions

Requirements phase in with larger companies first.

2. Identify Material Climate-Related Risks Conduct risk assessment:

• Physical risks: Acute (extreme weather events) and chronic (sea level rise, temperature changes) risks

• Transition risks: Policy, technology, market, and reputational risks from low-carbon transition

• Time horizons: Assess risks across short-term (1 year), medium-term (1-5 years), and long-term (>5 years)

• Materiality determination: Apply securities law materiality standard; document assessment

Material risks trigger disclosure obligations.

3. Prepare Qualitative Disclosures Develop required narrative content:

• Risk descriptions: Nature and extent of material climate-related risks

• Business impact: Actual or likely impacts on strategy, business model, and outlook

• Risk management: Processes for identifying, assessing, and managing climate-related risks

• Governance: Board oversight and management role in climate risk governance

• Targets and goals: Climate-related targets if material, including scope, timeline, and progress

Disclosures appear in 10-K and registration statements.

4. Calculate and Verify GHG Emissions (If Applicable) For LAFs and AFs, prepare emissions disclosure:

• Scope 1: Direct emissions from owned or controlled sources

• Scope 2: Indirect emissions from purchased energy

• Methodology: Use consistent, recognized calculation methodology

• Attestation: Obtain limited assurance (initially), moving to reasonable assurance

• Presentation: Report in CO2-equivalent using appropriate GWP values

Note: Scope 3 emissions are not required under final SEC rules.

5. Assess Financial Statement Impacts Identify climate-related financial information:

• Severe weather costs: Capitalized costs and expenditures expensed from severe weather events and natural conditions

• Carbon offsets and RECs: If material to climate-related targets

• Threshold assessment: Disclosure required if impacts exceed 1% of relevant financial statement line item

Financial statement notes require audit procedures.

6. Establish Controls and Governance Build compliance infrastructure:

• Disclosure controls: Processes ensuring accurate, complete climate disclosure

• Internal controls: Controls over climate-related financial statement information

• Governance documentation: Evidence of board oversight and management processes

• Audit trails: Documentation supporting disclosed information

7. File and Update Execute ongoing compliance:

• Annual reporting: Include climate disclosure in 10-K

• Registration statements: Include climate disclosure as required

• Material changes: Update climate disclosure when circumstances change materially

• Continuous improvement: Enhance processes based on experience and evolving practice

SEC Climate Disclosure vs. Related Frameworks

Common Misconceptions About SEC Climate Disclosure

"The rules require Scope 3 disclosure." Final SEC rules do not require Scope 3 emissions disclosure. This changed from the proposed rule. However, Scope 3 may be disclosed voluntarily, and other frameworks (California laws, CSRD) do require Scope 3.

"Small companies are exempt." Smaller reporting companies face limited requirements but aren't fully exempt. They must disclose material climate-related risks, governance, and risk management even without emissions requirements. "Smaller" doesn't mean "outside scope."

"We can use our existing sustainability report." SEC disclosure has specific formatting, location, and legal requirements different from voluntary sustainability reports. SEC filings carry legal liability and audit requirements that voluntary reports don't. Adaptation is required.

"Climate risk isn't material to our business." Materiality conclusions require documented assessment, not assumption. Physical risks from severe weather affect nearly every company. Transition risks affect most. Dismissing materiality without analysis creates regulatory and litigation risk.

"Compliance is years away." Large accelerated filers begin compliance for FY2025 (reports filed in 2026). Building emissions measurement, governance processes, and disclosure controls takes significant time. Preparation should be underway now.

When SEC Climate Disclosure May Not Apply

If your company is not an SEC registrant—not publicly traded on US exchanges, not filing with SEC—these specific rules don't apply. However, private companies may face investor or customer pressure for similar disclosure.

Foreign private issuers file on different forms but face substantively similar requirements. Non-US companies shouldn't assume exemption based on headquarters location.

If your company genuinely has no material climate-related risks after rigorous assessment, disclosure obligations are limited. However, this determination requires documented analysis that can withstand regulatory and legal scrutiny.

How SEC Climate Disclosure Connects to Broader Systems

SEC rules connect climate and securities law. Climate information enters the body of required disclosure subject to securities regulation, liability standards, and enforcement mechanisms. This legal context changes how companies approach climate disclosure.

Corporate governance must address climate explicitly. Boards need climate risk oversight capability; management needs demonstrated engagement. Governance structures require enhancement to meet disclosure requirements.

Financial reporting incorporates climate through disclosure in financial statement notes. CFO organizations, controllers, and auditors engage climate information with rigor applied to financial data.

Investor relations centers climate disclosure in securities filings. IR teams need climate literacy; climate teams need securities law awareness. Functions must collaborate.

Risk management expands to ensure climate risks receive enterprise risk management attention commensurate with other material risks. Risk functions need climate competency.

Legal and compliance functions incorporate SEC climate requirements into disclosure review and controls processes. Climate disclosure becomes legal compliance matter.

Related Definitions

→ What Is TCFD?

→ What Is CSRD?

→ What Is Climate Risk Assessment?

→ What Is Scope 1 and Scope 2 Emissions?

→ What Is ESG Strategy?