Suzanne Ogle, President and CEO of the Southern Gas Association, is at the forefront of the discussion surrounding the newly implemented SEC climate rule. After two years and 24,000 comment letters, the SEC voted to require registrants to disclose certain climate-related information in registration statements and annual reports. SEC Chair Gary Gensler stated that the rule will provide investors with consistent, comparable, decision-useful information and issuers with clear reporting requirements. Legal challenges to the rule began immediately upon its release, with a federal appellate court imposing a temporary stay on March 15, 2024, pending judicial review of the new rules. This showcases the challenge companies face in adapting quickly to manage the risks associated with changing regulations.
The final SEC climate rule, known as The Enhancement and Standardization of Climate-Related Disclosures for Investors, mandates that public companies provide climate-related disclosures, including information on the company’s climate risk governance. In simple terms, this involves who oversees the company’s strategy regarding greenhouse gas emissions at both the board and management levels. This is crucial for business leaders as climate risk is becoming increasingly important within companies, and understanding the internal controls and governance structure needed is crucial if the rule goes into effect.
Breaking down the specifics of the climate rule, it is noted that Scope 3 disclosure requirements have been eliminated in the final rule. Scope 3 required companies to report emissions from their supply chain or portfolio, which posed significant reporting concerns. However, it is important to be aware that Scope 3 requirements are included in state-specific rules like California’s, and other states are in the early stages of implementing similar reporting requirements. The final rule preserved three main components – weather, attestation, and footnotes – that public companies must address in their disclosures.
Governance is highlighted as a team effort in compliance with the SEC’s final climate rule. Companies must disclose information about their board of directors’ oversight of climate-related risks and management’s role in managing these risks. Companies must identify any board committee responsible for overseeing climate-related risks and describe the processes by which the board is informed of these risks. The final rule does not require specific board members to be responsible for climate risk oversight or to declare their expertise in climate-related risk.
Next steps for companies include assessing their ability and readiness to comply with the SEC’s new requirements. Companies should identify the most significant challenges presented by the ruling and address any gaps in their record-keeping and reporting capabilities. This preparation is essential for both public and private companies, as compliance with the rule could impact a company’s attractiveness and valuation. Companies should evaluate their data tracking and reporting, risk management processes, and ensure accountability for identifying and managing climate-related risks.
Overall, despite potential hurdles such as lawsuits and future elections, now is the time for companies to assess their climate strategy and readiness to comply with the SEC’s new requirements. Leveraging disclosure as a competitive advantage can benefit both public and private companies in the long run. The importance of understanding and meeting the SEC’s climate rule requirements cannot be understated, and companies must prioritize compliance to adapt effectively to evolving regulations.
