12 March 2024 

Last week, the US Securities and Exchange Commission (SEC) issued a final rule mandating that registrants provide disclosures on climate risks that are reasonably expected to exert a material impact on a company’s business strategy, operational outcomes, or financial condition. All companies, both domestic and foreign, submitting documents to the SEC will be affected by the new rules. These entities, commonly referred to as registrants, include those engaged in initial public offerings (IPO) and companies that submit periodic reports. 

The final rule reduces the scope of the proposed rule in various significant ways. Notably, companies won’t be required to disclose Scope 3 GHG emission disclosures, the financial statement disclosure requirements will be less comprehensive, and they will be granted additional time to implement the disclosures and related assurance requirements. 

Additionally, some key requirements the SEC rule includes are the following:  

  • Scope 1 and 2 emissions for companies meeting the SEC’s definition of “accelerated filers” with publicly traded shares valued at $75 million or more. 
  • Costs arising from severe weather events and other natural disasters in financial statements. 
  • The actual and potential material impacts of climate-related risks on their strategy, business model, and outlook. The SEC defines “material” as information that investors should be aware of before making share purchases. 
  • Details about expenditures and their impact on financial estimates/assumptions resulting from actions taken to mitigate or adapt to a significant climate-related risk. 
  • The company’s use of carbon offsets to reach climate targets. 

How does the final rule compare to other sustainability disclosure regimes? 

Although there is widespread interest in interoperability, which refers to the capability of using disclosures prepared under another framework to fulfil disclosure requirements, the new rules lack equivalency provisions. The SEC, instead, stated that it will “observe how reporting under international climate-related reporting requirements and practices develops before making any determination about whether such an approach would yield consistent, reliable, and comparable information for investors.”  Therefore, the SEC did not acknowledge alternative standards, such as the IFRS Sustainability Disclosure Standards, for compliance with the final rule. However, Commissioner Caroline Crenshaw recommended that the SEC investigate this possibility in the future. 

International Sustainability Standards Board (ISSB) StandardsIFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, and the EU Corporate Sustainability Reporting Directive (CSRD) broadly cover sustainability and ESG matters, however, the SEC’s final rule specifically focuses on climate-related disclosures.  

Unlike the CSRD, the final rules don’t contain “double materiality” which require companies to assess both their material “impacts” on society as a whole and conventional “financial” materiality. 

In the UK, the Streamlined Energy and Carbon Reporting (SECR) framework requires an estimated 11,900 companies in the UK to disclose Scope 1 and Scope 2 emissions. SECR builds on, without replacing, existing requirements that companies may face such as mandatory GHG reporting for quoted companies, the Energy Saving Opportunity Scheme (ESOS), Climate Change Agreements (CCA) scheme, and the EU Emissions Trading Scheme (ETS). In the US, while the rule doesn’t require companies to disclose Scope 3 emissions, US businesses are already obligated to report Scope 3 emissions disclosures when conducting trade in California and/or the EU due to the California Climate Disclosure laws – S.B. 253 and S.B. 261  as well as the EU’s CSDR. Additionally, the CSRD mandates explicit reporting on climate risks and impacts associated with a company’s value chain, while the SEC omitted explicit references to a company’s value chain in the final rules. 

Given many US companies who do business in the EU will have to comply with the CSRD, they are going to measure Scope 3 anyways, meaning that they need to focus on financed emissions. Overall, measuring Scope 3 emissions will be a key pain point for businesses this year. To support the financial sector, B4NZ’s Perseus programme, alongside Icebreaker One, is automating the sharing of businesses’ activity data (initially half-hourly electricity consumption data from smart meters) with the systems they use for calculating and reporting their emissions. The goal is to pre-competitively enable more accurate and more scalable data access for Scope 3 reporting. 


Elena Pérez Celis 

Head of Policy Public Affairs  

E: elena.perezcelis@bankersfornetzero.co.uk