Time to Act: SEC Issues Final Climate-Related
Disclosure Rules
March 72024

On March 6, 2024, the U.S. Securities and Exchange Commission (SEC) approved its longawaited — and, for many, controversial — new rule, The Enhancement and Standardizationof Climate-Related Disclosures for Investors. The final version of this much-debated anddiscussed regulation in the U.S. will require SEC-listed companies to report on greenhousegas (GHG) emissions and climate goals, as well as on climate-related risks and efforts tomanage those risks. The rule features a phased adoption period whereby the compliance
date is dictated by the registrant’s filer status (pursuant to existing filer status criteria andrules). The earliest filers are required to provide disclosures for the 2025 calendar year or
fiscal year beginning in 2025.
The SEC climate disclosure requirement has been controversial since it was first proposed.
The Commission modified its initial proposal following an extensive comment period, which
included 24,000 public comments, the most in the SEC’s history. In this Flash Report, we
break down the new rule released yesterday and what companies need to do to prepare
themselves to comply.

Why Did the SEC Issue This Ruling?
The SEC has been considering this matter for several years. During his March 2, 2021,
confirmation hearing before the Senate Banking Committee, current SEC chair (thennominee) Gary Gensler expressed his support for additional climate change-related disclosures,
stating, “… there are tens of trillions of dollars of invested assets that are looking for more
information about climate risk.” (And, in fact, a substantial number of public and privatecompanies have been making related disclosures in response to market and stakeholderinterest, even without this new rule.) He also asserted that issuers would benefit fromadditional climate change and risk disclosures. The SEC’s climate-disclosure rule comes
after climate disclosure regulations have already been adopted in Europe, as well as in theU.S. in the State of California.

Internal Audit, Risk, Business & Technology Consulting

What Is in the Final Rule?
Regarding potential material climate-related financial statement risks:
The following information should be disclosed in notes to the financial statements:•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, including
actual and potential material impacts of any identified climate-related risks on theregistrant’s business model and outlook;•Information about a registrant’s climate-related targets or goals, if any, that havematerially affected or are reasonably likely to materially affect the registrant’s business,
results of operations or financial condition, including material expenditures and material
impacts on financial estimates and assumptions as a direct result of the target or goal or
the actions taken to make progress toward meeting such target or goal; and•If the estimates and assumptions a registrant uses to produce the financial statements
are materially impacted by risks and uncertainties associated with severe weather eventsand other natural conditions or any disclosed climate-related targets or transition plans,a qualitative description of the impact on such estimates and assumptions.

Regarding climate disclosure process activities and governance:
The following information should be disclosed pursuant to the risk management disclosuresrequired by new Regulation S-K Item 1503:•Processes the registrant has in place 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 orprocesses;•If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to amaterial 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•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.

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Regarding quantifiable financial statement impacts:
The following information should be disclosed in a note to the financial statements:•Capitalized costs, expenditures expensed, charges taken, and losses incurred due tosevere weather events and other natural conditions, such as hurricanes, tornadoes,flooding, drought, wildfires, extreme temperatures and sea level rise, should be disclosed
in a note to the financial statements, subject to applicable one percent and de minimis
disclosure thresholds; and•

Capitalized costs, expenditures expensed and losses recognized related to carbon offsets
and renewable energy credits or certificates if used as a material component of aregistrant’s plans to achieve its disclosed climate-related targets or goals.

Regarding other financial statement-related items:•For large accelerated filers and accelerated filers that are not otherwise exempt,
information about material direct emissions (Scope 1) and/or indirect emissions frompurchased energy (Scope 2) in the annual report filed under Form 10-K; and•For large accelerated filers and accelerated filers, an assurance report at the limited
assurance level and, ultimately for large accelerated filers, at the reasonable assurancelevel.

Reporting Timelines and Assurance Requirements
The finalized rule includes a phase-in period and certain accommodations based on theregistrant’s filer status and materiality considerations. The table below summarizes thecompliance dates and assurance requirements by type of registrant:
Compliance Dates
Dates are for fiscal year beginning in:Registrant Type

Disclosure andFinancial Statement
Effects Audit

GHG Emissions/Assurance

All Reg. S-K and S-X
disclosures

Scope 1 & 2GHG
emissions

Limitedassurance

Reasonableassurance

Large accelerated filers

2025

2026

2029

2033

Accelerated filers

2026

2028

2031

N/A

Non-accelerated filer,
smaller reporting company
or emerging growthcompany

2027

N/A

N/A

N/A

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These additional disclosure requirements have internal control implications. The financial
statement impact disclosures would be subject to Sarbanes-Oxley (SOX) Section 404,Internal Control Over Financial Reporting, due to their inclusion in the financial
statements. Because many of these disclosures fall outside of the traditional financial
reporting model, it should be noted that, in 2023, COSO provided supplemental guidance on
applying its internal control framework to sustainability reporting. Furthermore, alldisclosures would be subject to SOX Section 302, Disclosure Controls and Procedures.

What is NOT in the Final Rule
The SEC made several meaningful modifications to the initial proposed rule exposed in2022. These changes were likely made not only as a reaction to the comments received on
the proposal, but also to position the rule to survive expected pushback.
The major differences between the SEC’s initial proposal and the final rule are:
•Scope 1 and 2 emissions disclosures are only required if deemed material by theregistrant.

•Scope 3 emissions disclosures were removed entirely from the final rule. The original
rule would have required a phased-in reporting requirement for emissions associatedwith a registrant’s value chain — the supply chain, distribution channels and related
logistics — as well as the end-users of its products. This was the most controversial
aspect of the 2022 proposed rule, in the comment process and in the resulting debate
over the proposal.

•The proposed bright-line threshold of 1% of a consolidated financial statement line item
to disclose the financial impacts from severe weather events, other natural conditions,transition activities and climate-related events has also been removed entirely from thefinal rule, leaving a subjective evaluation of materiality to be used to determine the needfor disclosure.

What Companies Should Be Doing Now
Companies should conduct gap and materiality analyses by assessing the core componentsof their existing sustainability programs and related data-gathering, validation andreporting. They should map these programs to the SEC requirements and design strategies
to achieve compliance by addressing any gaps. Organizations that have operations in Europe

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4and the state of California may already be compliant with parts of the SEC’s final rule byvirtue of filing, or preparing to file, reports in compliance with the EU’s Corporate
Sustainability Reporting Directive (CSRD) and California’s new climate disclosure laws.
In performing gap and materiality analyses, the following steps are relevant to multiple
climate reporting requirements:
1. Review existing sustainability programs. Evaluate the core components of any
sustainability program already in place. In particular, review existing sustainability
program data and supporting artifacts to identify what is already available. Review
the organization’s current financial reporting infrastructure and the reports itproduces. Reports currently being issued pursuant to stakeholder interests anddemands may already address some of the required disclosures or could be extended
to do so.
2. Assess the underlying support for materiality assessments. While Scope 1
and 2 emission disclosures are only required if deemed material by the registrant,relevant and accurate GHG data is required to assess materiality effectively and on
an ongoing basis. To ensure the requisite data is available, companies should identify
the support they need to comply with the new disclosures and compare those needs
to the data, information and documents already present in the organization. They
should evaluate the current GHG data available, the GHG targets the organization
may have already defined, and the current processes and controls to provide acontext for considering the available technologies that would make data-gatheringand validation easier. Finally, review and document existing reporting and data
sources. These activities will facilitate the identification of gaps and articulate theorganization’s remediation needs and the business case for obtaining support for
remediation efforts from senior decision-makers.
3. Roadmap and remediation. Use the identified gaps to develop remediationplans. If there are many gaps, consider prioritizing them based on the urgency,
timetable and effort required to remediate each gap. Group the gaps logically into
separate initiatives, assign owners for each and establish accountability for results.
Develop plans, budgets and timelines for these initiatives, and enact a readinessprogram that incorporates all activity. Align the program scope, priorities andschedule for tracking against the respective SEC disclosure compliance dates.
While the above approach has been encapsulated into three steps, each step admittedly may
require significant effort for most organizations. Conducting and documenting a gap analysis

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as the first step will help executives keep the board, other internal stakeholders and theexternal auditors apprised of climate disclosure reporting goals and needs. More
importantly, it will help management obtain their support for the resources needed to get
the organization into compliance. This process should begin as soon as practicable.

Protiviti Commentary
To bolster the rule’s standing in the event of litigation, the SEC has leaned heavily on theconcept of materiality to inform its disclosure requirements. And while certain information
may or may not be required to be disclosed, based on whether or not it is determined to bematerial, assessing for materiality is not optional. Companies will need to evaluate
materiality using their traditional definitions of assessing whether or not the information isimportant to a reasonable investor when making an investment decision. To that end, even if
a company deems certain potential disclosure requirements to be immaterial, it must go
through the formal exercise of assessing materiality and preserving (in anticipation ofpotentially providing) evidence to demonstrate its decision regarding its conclusion that
disclosure is not necessary.
Legal challenges to the SEC ruling are all but guaranteed from multiple vectors, including
major business groups, the U.S. Chamber of Commerce, both chambers of Congress, state
attorneys general and others, including climate advocates unhappy that the rule does not go
far enough to address their concerns. Potential legal battles aside, the SEC ruling sends yet
another signal to American companies, in addition to the ones they have already received as
the wave of sustainability disclosure requirements sweeps across the globe, that it is timeto act.
Most SEC registrants and large private companies domiciled in the U.S. have a global
presence and may already be subject to broad-reaching regulations such as the CSRD oreven the California laws. And for those not yet under a regulatory regime, sustainability
reporting already is required on some level because their stakeholders demand thatinformation. For those companies, the SEC’s rule is simply a formalization of what they mayalready be doing. The reports they are issuing currently can function as a starting point for
the SEC disclosures.

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6How Protiviti Can Help
Sustainability is a continuous journey, presenting new risks and opportunities. There are no
blueprints or out-of-the-box solutions, and each company needs an individualized andholistic approach to environmental, social and governance (ESG) reporting and operations
to manage its high level of complexity and position the organization for continued, longterm success.
At Protiviti, we leverage our reporting and regulatory expertise and our strategicpartnerships to help clients define and build a seamless sustainability reporting process. We
assist companies with defining and aligning sustainability metrics to strategy and regulatory
expectations, support the reporting process with innovative data and analytics solutions, andfacilitate audit and assurance readiness so they can face a sustainable future withconfidence.

About Protiviti
Protiviti (www.protiviti.com) is a global consulting firm that delivers deep expertise,objective insights, a tailored approach and unparalleled collaboration to help leadersconfidently face the future. Protiviti and its independent and locally owned member firms
provide clients with consulting and managed solutions in finance, technology, operations,data, digital, legal, HR, risk and internal audit through a network of more than 90 offices inover 25 countries.
Named to the 2023 Fortune 100 Best Companies to Work For® list, Protiviti has served
more than 80 percent of Fortune 100 and nearly 80 percent of Fortune 500 companies. The
firm also works with government agencies and smaller, growing companies, including thoselooking to go public. Protiviti is a wholly owned subsidiary of Robert Half Inc. (NYSE: RHI).
Founded in 1948, Robert Half is a member of the S&P 500 index.

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