USA finalises climate disclosure rules

USA finalises climate disclosure rules without Scope 3 emissions

On 6 March 2024, the Securities and Exchange Commission (SEC) in the United States adopted final rules to require climate disclosures in registration statements and annual reports.

The final rules are a watered down version of the original proposals, which have been on the boil since March 2022, and do not require quantification of Scope 3 emissions.

What’s in?

While the final rules run to 886 pages, the SEC summary fact sheet highlights disclosures registrants will be required to disclose, including:

Information about climate-related risks that have or are reasonably likely to have a material impact on its business strategy, results of operations, or financial condition
Actual and potential material impacts of any identified climate-related risks on its strategy, business model and outlook
Activities undertaken to mitigate or adapt to a climate-related risk – a quantitative and qualitative description of material expenditure incurred, and material impacts on financial estimates and assumptions that result directly from these activities
Information about activities, if any, to mitigate or adapt to a material climate-related risk, including the use of transition plans, scenario analysis or internal carbon prices
How the board oversees climate-related risks and details of who in management has a role in assessing and managing its material climate-related risks
The processes for identifying, assessing and managing material climate-related risks – and if the registrant is managing those risks – whether and how such processes have been integrated into its overall risk management system or processes
Information about climate-related targets and goals, if any, that have materially affected, or are reasonably likely to materially affect its business, results of operations or financial condition
Scope 1 and Scope 2 emissions – this applies only to large accelerated filers and non-exempt accelerated filers

Limited assurance must be provided for Scope 1 and Scope 2 emission disclosures, transitioning to reasonable assurance over a period of time as shown below.

Details of capitalised costs, expenditures, charges and losses incurred as a result of the effects of severe weather events and other natural conditions such as hurricanes, tornadoes, floods, drought, wildfires, extreme temperatures and sea level rises (this should be disclosed in a note to the financial statements and is subject to the applicable one per cent and de minimis disclosure threshold)
Details of capitalised costs, expenditures and losses related to carbon offsets and renewable energy certificates (RECs) if used as a material component of its plans to achieve a disclosed climate-related target or goal (this should be disclosed in a note to the financial statements)
Estimates and assumptions used to produce financial statements that were materially affected by risks and uncertainties relating to severe weather events, other natural conditions, disclosed climate-related targets or transition plans require a qualitative description of how such estimates and assumptions were impacted (this should be disclosed in a note to the financial statements).

What’s out?

The final rules have been watered down from the original proposals as follows:

No requirement to describe board members’ climate expertise
No requirement for all registrants to disclose Scope 1 and Scope 2 emissions:
- Scope 1 and Scope 2 emission disclosure is only required for large-accelerated filers (LAFs) and accelerated filers (AFs), on a phased in basis, and only when those emissions are material and with the option to provide the disclosure on a delayed basis
- Smaller reporting companies (SRCs) and emerging growth companies (EGCs) are exempt from the Scope 1 and Scope 2 emissions disclosure requirement
Most notably, no requirement to provide Scope 3 emissions disclosure for any registrants
No requirement to disclose the impact of severe weather events and other natural conditions and transition activities on each line item of a registrant’s consolidated financial statements
- Instead, notes to the financial statements to include disclosure of the financial statement effects on capitalised costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions.

Effective date

The final rules become effective sixty days after they are published in the Federal Register and are phased-in as follows:

The information in the table has been extracted and adapted from the SEC’s summary fact sheet (page 4).

Registrant type	Disclosure and financial effects audit		GHG emissions/assurance			Electronic tagging
	All Reg. S-K and S-X disclosures other than as noted in this table	Item 1502(d)(2), Item 1502(e)(2) and Item 1504(c)(2)	Item 1505 (Scopes 1 and 2 GHG emissions)	Item 1506 – Limited assurance	Item 1506 – Reasonable assurance	Item 1508 – Inline XBRL tagging for subpart 1500
LAFs₁	Fiscal year beginning during calendar year 2025	Fiscal year beginning during calendar year 2026	Fiscal year beginning during calendar year 2026	Fiscal year beginning during calendar year 2029	Fiscal year beginning during calendar year 2033	Fiscal year beginning during calendar year 2026
AFs² (other than SRCs³ and EGCs⁴)	Fiscal year beginning during calendar year 2026	Fiscal year beginning during calendar year 2027	Fiscal year beginning during calendar year 2028	Fiscal year beginning during calendar year 2031	N/A	Fiscal year beginning during calendar year 2026
SRCs³, EGCs⁴ and NAFs⁵	Fiscal year beginning during calendar year 2027	Fiscal year beginning during calendar year 2028	N/A	N/A	N/A	Fiscal year beginning during calendar year 2027
Notes 1: Large accelerated filers 2: Accelerated filers 3: Smaller reporting companies 4: Emerging growth companies 5: Non-accelerated filers

Where to report climate disclosures?

Registrants will be required to file climate-related disclosures in their registration statement and Exchange Act annual reports filed with the SEC. They must also electronically tag these disclosures in Inline XBRL within the timeframes noted on the above table.

The Regulation S-K mandated climate-related disclosures must be presented either:

In a separate, appropriately captioned section of the registration statement or annual report
In another appropriate section of the filing, such as in the Risk Factors, Description of Business, or Management’s Discussion and Analysis
By incorporating it by reference from another SEC filing (and the information cross-referenced must also meet the electronic tagging requirements).

More information

Our latest International Sustainability Reporting Bulletin includes information on sustainability reporting developments in various jurisdictions.

How BDO can help

If your organisation operates in the USA, our sustainability reporting experts can help you to understand how this might be important for your sustainability reporting efforts.