There’s Nothing Weak About the SEC’s “Weakened” Climate Disclosure Mandate

Client Alert

The Securities and Exchange Commission (SEC) released its long-awaited climate disclosure mandate for publicly traded companies (Final Rule). While significant portions of the proposed rule have been scaled back or outright removed, the Final Rule nonetheless thunderously ushers in a new era of data compilation and risk assessment, systems management and oversight, governance accountability and new avenues for shareholder- and activist-driven objectives and agendas. While the Final Rule repeatedly professes that the SEC is “agnostic about whether and how registrants consider or manage climate-related risks,” litigants are already filing or vowing to file challenges alleging the SEC has overstepped its mandate by entering the realm of climate regulation, and the Sierra Club has sued claiming the Final Rule does not go far enough.

Materially Limited Emissions Accounting and Disclosure

Of greatest note arising from the two-year evolution of the proposed rule to the Final Rule is the elimination of Scope 3 emissions accounting and disclosure. Under the Greenhouse Gas Protocol, Scope 3 emissions are a venture’s indirect emissions related to upstream and downstream supply chain sources, employee travel and commute patterns, and emissions related to financial investments, among other things. There are 15 categories of Scope 3 emissions under the Protocol, and it is not uncommon for Scope 3 emissions to comprise more than 90 percent of a given venture’s emissions baseline. The elimination of Scope 3 disclosures leaves only Scope 1—direct emissions from entity operations—and Scope 2—indirect emissions from purchased energy. Even the disclosures of Scope 1 and Scope 2 are now limited to only the largest regulated entities and only when they internally determine such emissions to be “material.”

Spotlight on Climate “Risk” Disclosure

In addition to quantitative emissions disclosures, the other primary disclosure mandate regards climate “risk.” In line with dropping Scope 3 disclosures, which are largely outside the reporting venture’s own base of data and knowledge, the SEC has dropped proposed mandates of reporting risks within the venture’s external “value chain.” Rather, the disclosure mandates focus on matters that the reporting entity, according to the SEC, itself knows or should know.1 Additionally, as with the emissions disclosures, only risks deemed by the reporting entity to be material need be disclosed under the Final Rule. Nonetheless, the reporting obligations are complex, extensive and will be costly to prepare.

The Final Rule defines “climate-related risk to mean the actual or potential negative impacts of climate‑related conditions and events on a registrant’s business, results of operations, or financial condition.” The Final Rule includes both “physical” and “transition” risks as “climate-related risks.” “Physical risks” may be either “acute,” “chronic” or both. “Acute risks” are “event-driven risks and may relate to shorter-term severe weather events, such as hurricanes, floods, tornadoes, and wildfires.” “Chronic risks” are “those risks that the business may face as a result of longer term weather patterns, such as sustained higher temperatures, sea level rise, and drought, as well as related effects such as decreased arability of farmland, decreased habitability of land, and decreased availability of fresh water.” “Transition risks” under the Final Rule are “actual or potential negative impacts on a registrant’s business, results of operations, or financial condition attributable to regulatory, technological, and market changes to address the mitigation of, or adaptation to, climate-related risks” and are distinct from acute and chronic physical risks.

SEC’s Fact Sheet Bottom Line

As summarized in a Fact Sheet provided by the SEC (link below), the Final Rule requires public companies to make the following disclosures in their SEC filings:

  • Climate-Related Material Risks - Public companies will need to disclose (1) any climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition; (2) the actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook; (3) if, as part of its strategy, whether a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities; and (4) specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices.
  • Board and Management Oversight on Climate-Related Risks - Public companies will need to disclose (1) any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks; and (2) any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes.
  • Climate-Related Targets and Goals Disclosure - If applicable, public companies also need to disclose information about the registrant’s climate-related targets or goals, if any, that have materially affected or are likely to materially affect the business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal.
  • Greenhouse Gases (GHG) Emission Disclosures - For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, they need to disclose information about material Scope 1 emissions and/or Scope 2 emissions. In addition, for companies that are required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level.
  • Financial Statement Disclosure - Public companies will need to disclose the capitalized costs, expenditures expensed, charges, and losses (1) incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements; and (2) related to carbon offsets and renewable energy credits or certificates if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements; and (3) A qualitative description of how the estimates and assumptions the registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans.

While the Final Rule’s regime of risk disclosure purports to be grounded in the internationally recognized Task Force for Climate-related Financial Disclosures (TCFD), much of the 900-page Final Rule specifies unique compliance requirements that may or may not track with the TCFD. While the Final Rule purports to rely on the TCFD framework to establish some degree of consistency across multiple and potentially overlapping reporting regimes, the Final Rule repeatedly notes that its reporting requirements are unique to the SEC.

No Good Deed Goes Unpunished

Many commenters on the proposed rule asserted that the rule punishes and likely provides a disincentive on what many consider responsible practices in assessing and managing climate impacts. More specifically, the Final Rule mandates disclosures that only apply if a reporting entity has voluntarily conducted a particular type of interior analysis to proactively assess and manage their climate impact. These include adoption of a transition plan, scenario analysis or identification of an internal price of carbon. While a “safe harbor” provision is included in the Final Rule, critics maintain that the Final Rule will likely dissuade entities from engaging in such progressive analytical approaches if they trigger additional disclosure obligations.

Similarly, critics of the Final Rule also contend that the materiality threshold on Scope 1 and Scope 2 emissions disclosures may actually result in less disclosure. Many entities, critics maintain, voluntarily measure and disclose such emissions already. If the Final Rule requires disclosure of only “material” emissions, however, voluntary disclosures of emissions the reporting entity considers immaterial may be stopped, the reporting entity fearing that disclosure itself is tantamount to a determination of materiality.

California Climate Disclosure Mandates

We have reported extensively on California’s adoption of similar climate disclosure mandates, SB 253 (emissions disclosures) and SB 261 (climate “risk” disclosures). Those alerts and other articles are available here. While both reporting regimes focus on both emissions disclosures and risk disclosures, there are stark differences, including:

  • California’s emissions disclosure mandate includes Scope 3;
  • California’s disclosure mandates include no “materiality” standard or qualifier;
  • California’s risk disclosure mandates are to follow and be fully consistent with TCFD guidelines and any subsequent updates thereto with no additional regulatory modifications; and
  • California’s disclosure mandates apply to both public and private companies above specified annual revenue thresholds that do business in California.


The earliest disclosure deadline is for LAFs and starts as early as the fiscal year beginning in 2025. The Final Rule will become effective 60 days after it is published in the Federal Register, and the SEC Fact Sheet on the Final Rule provides the following timing implementation table:



The Final Rule is available here, and the SEC Fact Sheet on the Final Rule is available here.

Manatt continues to scour the 900-page Final Rule and will have additional updates on compliance efforts, strategic and competitive recommendations, and legal challenges. Please contact the authors with any questions about the SEC’s Final Rule or any climate-related matters.

However, where a value chain risk outside of the venture’s own operations “has materially impacted or is reasonably likely to materially impact the registrant’s business, results of operations, or financial condition,” the Final Rule requires disclosure.



pursuant to New York DR 2-101(f)

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