What the SEC Mandatory Climate Disclosures mean for your company

The SEC passes Mandatory Climate Disclosure Requirements

What the SEC Mandatory Climate Disclosures mean for your company

After two years of deliberation, the SEC finally voted in favor of adopting a paired down version of their originally proposed Mandatory Climate Disclosures. The final rules require publicly traded companies to report their climate-related risks along with their governance and processes to manage them.

Companies with revenue over $75M will be required to disclose Scope 1 and Scope 2 emissions when they are deemed material. As there is no hard and fast threshold for materiality, this is seen as a potential loophole and the lack of a Scope 3 emissions disclosure requirement is a significant weakening of the originally proposed rules. For public and private companies with revenue over $1B who operate in California, however, they will still have to report on Scope 3 emissions by 2027 to comply with Senate Bill 253 (SB 253).

The new SEC rules require Scope 1 and 2 emissions disclosures starting in the second quarter report of 2025 while California’s SB 253 will require Scope 1 and 2 emissions disclosures starting in 2026.

The SEC requires companies to report on material expenditures to mitigate risks, achieve annual progress toward targets and goals along with the capital costs, expenses, charges and losses resulting from severe weather events. Already, more than half of S&P 500 companies report their climate risks in their annual report and 71% report their Scope 1 and 2 emissions but, as of 2022, only 28% of S&P MidCap 400 companies disclose their emissions and the vast majority of small business do not. The challenge will be not only for SMEs to report but to achieve emissions reductions.

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