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The Enhancement and Standardization of Climate-Related Disclosures for Investors rules (2024)

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The Enhancement and Standardization of Climate-Related Disclosures for Investors rules are a collection of final rules published by the Securities and Exchange Commission (SEC) on March 6, 2024, that standardized disclosure requirements for climate-related risks that, in the view of the agency, materially affect public companies. These rules require public companies to disclose their climate-related risks, relevant environmental governance processes, and the financial impacts of severe weather events. They also require certain public companies to disclose direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions but not emissions from their supply chain partners (Scope 3). The previously proposed rule would have required disclosure for all three scopes.[1]

The SEC issued the rules pursuant to its authority under the Securities Exchange Act of 1934 and the Securities Act of 1933, arguing that the regulations were necessary to protect investors and ensure the smooth functioning of the securities markets.[1]

The agency paused implementation of the rules on April 4, 2024, while courts considered lawsuits challenging the regulations. The agency announced in 2025 it would no longer defend the rules in court.

HIGHLIGHTS
  • Name: The Enhancement and Standardization of Climate-Related Disclosures for Investors
  • Code of Federal Regulations: 17 CFR 210, 229, 230, 232, 239, and 249
  • Action: Final rules
  • Type of significant rule: Economically significant rule

    • Timeline

    The following timeline details key rulemaking activity:

    • April 4, 2024: The SEC paused implementation of the final rules while the Eight Circuit reviewed lawsuits challenging the regulations.[2]
    • March 21, 2024: Nine lawsuits against the Securities and Exchange Commission’s final rule were consolidated and assigned to the U.S. Court of Appeals for the Eighth Circuit through a lottery process.[3]
    • March 6, 2024: The SEC published the final rules. An effective date was not yet available, as the rule was not yet published in the Federal Register.[1]
    • May 20, 2022: The comment period closed.[1]
    • April 11, 2022: The SEC published the proposed rules and opened the comment period.[1]

    Background

    Environmental, social, and corporate governance
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    The Securities Exchange Act of 1934 and the Securities Act of 1933 require the Securities and Exchange Commission (SEC) to make policies that protect investors and ensure the smooth functioning of the securities markets. The SEC argued in the final rules that climate-related risks can significantly affect a company’s financial performance. The agency claimed many investors, investment advisers, and asset management companies "seek information to assess how climate-related risks affect a registrant’s business and financial condition" and argued relevant disclosures would help "inform their investment and voting decisions."[1]

    The SEC published proposed climate disclosure rules on April 11, 2022, which proposed requiring companies to disclose information on climate-related risks to help investors access information the SEC considered necessary for making informed investment decisions. The proposed rule included a requirement that public companies disclose carbon emissions from their supply chain partners (Scope 3 emissions).[1]

    The Enhancement and Standardization of Climate-Related Disclosures for Investors final rules made changes to the proposed rules based on comments—including the removal of the Scope 3 emissions disclosure requirement—and finalized the disclosure rules.[1]

    Summary of the rule

    The following is a summary of the rule from the published rules' text:

    “ The Securities and Exchange Commission ('Commission') is adopting amendments to its rules under the Securities Act of 1933 ('Securities Act') and Securities Exchange Act of 1934 ('Exchange Act') that will require registrants to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in a registrant’s audited financial statements.[1][4] ”

    Summary of provisions

    The following is a summary of the provisions from the published rules' text:[1]

    “

    In general terms, the final rules will elicit enhanced and more consistent and comparable disclosure about the material risks that companies face and how companies manage those risks by requiring:

    • A description of any climate-related risks that have materially impacted or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, and financial condition, as well as the actual or potential material impacts of those same risks on its strategy, business model, and outlook;
    • Specified disclosures, regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk or use of transition plans, scenario analysis or internal carbon prices to manage a material climate-related risk;
    • Disclosure about any oversight by the registrant’s board of directors of climate-related risks and any role by management in assessing and managing material climate-related risks;
    • A description of any processes the registrant uses to assess or manage material climaterelated risks; and
    • Disclosure about any targets or goals that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition.

    In addition, to facilitate investors’ assessment of particular types of risk, the final rules require:

    • Disclosure of Scope 1 and/or Scope 2 emissions on a phased in basis by certain larger registrants when those emissions are material, and the filing of an attestation report covering the required disclosure of such registrants’ Scope 1 and/or Scope 2 emissions, also on a phased in basis; and
    • Disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses.[4]
    		 ”

    Significant impact

    See also: Significant regulatory action

    Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.

    Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]


    The text of the rule did not include a discussion of the rule's significant impact. This section will be updated once the rule is published in the Federal Register.

    Text of the rule

    The full text of the rule is available below:[1]

    Responses

    The following sections provide a selection of responses to the final rules issued by the SEC:

    Support for the rule

    SEC Chair Gary Gensler argued in a press release that the final rules promoted greater transparency and would help inform investor decision-making:[5]

    “ These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings. The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.[4] ”


    California Public Employees’ Retirement System CEO Marcie Frost argued in a statement that the rules would help the pension system make better investment choices and help reduce carbon emissions:[6]

    “ Climate risk is investment risk. CalPERS has long been a proponent of enhanced disclosure, particularly in regards to Scope 1 and Scope 2 emissions, because it is crucial in making investments on behalf of our two million members. While any progress is a victory for investors, there is still more work to do. Transparency is vital to the success of CalPERS’ sustainable investment plan and the transition to a lower-carbon economy.[4] ”

    Opposition to the rule

    West Virginia Attorney General Patrick Morrisey (R) argued that the final rules were unconstitutional, beyond the SEC's authority, and too subjective:[7]

    “ [W]hile the administration and SEC has made some changes to the proposed rule, what they’ve released today is still wildly in defect and illegal and unconstitutional. ... How is a company supposed to know if greenhouse gas emissions will affect its finances? How many trucks will be too many? How much coal do you use versus natural gas or other forms of energy?[4] ”


    Sierra Club Executive Director Ben Jealous argued that the rules did not do enough to create transparency around emissions data and criticized the removal of Scope 3 disclosure requirements:[7]

    “ While a positive step, this rule falls significantly short of what’s needed. ... Greenhouse gas emissions are a critical measure of a company’s handling of climate risk and Scope 3 emissions represent the vast majority of emissions from most companies.[4] ”

    Noteworthy events

    SEC pauses implementation of climate rule

    The SEC paused the implementation of the disclosure rules on April 4, 2024, while the Eight Circuit reviewed lawsuits challenging the regulations. The agency argued the rules were legal and said it would continue defending the regulations from legal challenges. An SEC statement argued the pause would help prevent regulatory uncertainty during the court's review.[8]

    Suits against SEC consolidated and assigned to Eighth Circuit

    Nine lawsuits against the Securities and Exchange Commission’s final rule on climate disclosures for publicly traded companies were consolidated on March 21, 2024, and assigned to the U.S. Court of Appeals for the Eighth Circuit through a lottery process. Sixteen of the court’s 17 justices were appointed under Republican presidents at the time of the consolidation.[9]

    Appeals court pauses implementation of SEC climate rule

    The U.S. Court of Appeals for the Fifth Circuit on March 15, 2024, temporarily blocked the implementation of the SEC’s 2024 final rules on emissions data reporting through March 22 in response to lawsuits opposing the regulations.[10]

    Sierra Club and NRDC sue over SEC climate disclosure rules

    The National Resource Defense Council filed a lawsuit on March 12, and the Sierra Club filed a lawsuit on March 13, 2024, against the agency's final regulations requiring publicly traded companies to submit standardized climate risk and carbon emissions disclosures, which were not as strict as the proposed rules. The organizations argued the SEC was not doing enough to protect investors and give them information about climate risks.[11]

    Both organizations withdrew their lawsuits on May 31, 2024.[12]

    State attorneys general sue over SEC climate disclosure rules

    State attorneys general in 10 states, led by West Virginia Attorney General Patrick Morrisey (R) and Georgia Attorney General Chris Carr (R), filed a lawsuit against the SEC after the agency released regulations requiring publicly traded companies to submit standardized climate risk and carbon emissions disclosures. The suit alleged the regulations were not clearly tied to the SEC's statutory authority and possibly violated the First Amendment.[7]

    See also

    External links

    Footnotes

    1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 Securities and Exchange Commission, "The Enhancement and Standardization of Climate-Related Disclosures for Investors," March 6, 2024
    2. ↑ Bloomberg Law, "SEC Freezes Climate Rules After Challengers Pushed for Pause," accessed April 8, 2024
    3. ↑ Bloomberg Law, "SEC Climate Rule Suits Head to Eighth Circuit After Lottery," accessed March 27, 2024
    4. ↑ 4.0 4.1 4.2 4.3 4.4 4.5 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    5. ↑ U.S. Securities and Exchange Commission, "SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures for Investors," March 6, 2024
    6. ↑ Institutional Investor, "The Aftermath of the SEC’s Climate Disclosure Rule," accessed March 10, 2024
    7. ↑ 7.0 7.1 7.2 Bloomberg Law, "Ten States Sue to Block the SEC’s Emissions Disclosure Rules (3)," accessed March 10, 2024
    8. ↑ Bloomberg Law, "SEC Freezes Climate Rules After Challengers Pushed for Pause," accessed April 8, 2024
    9. ↑ Bloomberg Law, "SEC Climate Rule Suits Head to Eighth Circuit After Lottery," accessed March 27, 2024
    10. ↑ Bloomberg Law, "SEC Climate Disclosure Regulations Paused by Fifth Circuit," accessed March 21, 2024
    11. ↑ Reuters, "Sierra Club sues US SEC for weakening climate risk disclosure rules," accessed March 21, 2024
    12. ↑ CFO Dive, "Sierra Club, NRDC drop legal challenges to SEC climate rule," accessed December 7, 2024
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