SEC Finalizes Landmark
Climate-Related Disclosure
Rules

March 7, 2024
(Updated as of April 4, 2024)

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On March 6, 2024, the Securities and Exchange Commission (the “SEC”) voted to adopt its ClimateRelated Disclosure Rule 1 (the “Final Rule”), by a vote of 3-2. Finalized almost two years after the
initial proposed rule 2 (the “Proposed Rule”) garnered over 24,000 comment letters from issuers,
shareholders, interest groups and others—significantly more than any other past piece of SEC
rulemaking—the Final Rule marks the first federal sustainability disclosure requirement in the U.S.
and requires registrants to provide information on Scope 1 and Scope 2 greenhouse gas emissions(“GHG emissions”), severe weather-related financial statement disclosures and climate-related
governance, risks and targets disclosures.
Notably, the Final Rule includes several significant deviations from the Proposed Rule, including:•

The requirement to provide GHG emissions data will only apply to registrants that are
accelerated filers (“AFs”) or large accelerated filers (“LAFs”);•

No registrant will be required to provide Scope 3 GHG emissions data, and Scope 1 and 2 GHG
emissions data is only required by AFs and LAFs, and only if material;•

Assurance requirements with respect to GHG emissions data is subject to an extended phase-in
period, and reasonable assurance will eventually be required only for LAFs;•

No registrant will be required to provide GHG intensity data;•

Registrants will not be required to disclose the financial impacts of severe weather events andtransition activities for each line item in their consolidated financial statements; that said,
registrants will be required to provide financial statement disclosure of severe weather-related

1 See The Enhancement and Standardization of Climate-Related Disclosures for Investors as well as Enhancement and Standardization of Climate-

Related Disclosures Fact Sheet.

2 See The Proposed Enhancement and Standardization of Climate-Related Disclosures for Investors as well as Proposed Rule Enhancement andStandardization of Climate-Related Disclosures Fact Sheet. For a brief overview of the Proposed Rule, see our client memo “SEC Proposed LongAwaited Climate-Related Disclosure Rules,” available here.

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expenditures and capitalized costs and charges if such items exceed or equal 1% of the absolutevalue of income or loss in the relevant fiscal year;•

Disclosure of board and management oversight and governance of climate-related risks
required by the Final Rule is streamlined, and registrants will not need to disclose specificboard members tasked with climate-related oversight or the climate expertise of their board
members;•

The safe harbor for forward-looking statements under the Private Securities Litigation ReformAct (“PSLRA”) is explicitly extended to cover disclosure of targets and goals, transition plans,
scenario analysis and internal carbon pricing; and•Most disclosure requirements in the Final Rule are subject to a materiality threshold.

On the whole, the Final Rule represents a win for detractors of the Proposed Rule given its
significantly scaled-back requirements. The extent to which it ultimately improves transparency andaccountability with respect to long-term business issues relating to climate change, and enables
investors and lenders to better analyze and price climate-related risks, will depend to a large degree
on the volume and value of the disclosure it drives.
Below, we discuss the requirements of the Final Rule, offer a comparison to other climate disclosure
requirements in force, summarize potential (and already-filed) legal arguments challenging the Final
Rule’s enforceability and provide next steps for consideration.

Applicable Filings
The disclosure requirements in the Final Rule pertain to both Securities Act registration statements, including
those for IPOs, and Exchange Act periodic reports. These rules mandate the inclusion of climate-related
disclosures in registration statement Forms 10, S-1, F-1, S-3, F-3, S-4, F-4 and S-11, and periodic filings underForms 10-K 3 and 20-F. The disclosure would be treated as “filed” with the SEC rather than “furnished” andwould be subject to potential liability under Section 18 of the Exchange Act or Section 11 of the Securities Act,
as applicable.

3 A registrant that is required to disclose its Scope 1 and Scope 2 emissions may elect to provide this disclosure in its second quarter Form 10-Q in thefiscal year immediately following the fiscal year to which the relevant emissions relate.

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Form

Rule

Requirements

Securities Act S-1, F-1,
S-3, F-3, S-4, F-4, and S11;

Article 14 – Disclosure of Severe Weather Eventsand Other Information of Regulation S-X

Registrants must disclose information relating to severe weather
events and other natural conditions, including:•

Exchange Act 10; 10-K
and 20-F••

The aggregate amount of expenditures expensed, if theamount equals or exceeds 1% of the absolute value ofincome or loss in a relevant fiscal year, unless thevalue is less than $100,000
The aggregate amount of capitalized costs and charges,
if the amount equals or exceeds 1% of the absolutevalue of stockholders’ equity or deficit at the end of therelevant fiscal year, unless the value is less than
$500,000Financial estimates and assumptions materially
impacted

Registrants must also disclose:••

Items 1500-1506 of Regulation S-K

The aggregate amount of carbon offsets and renewableenergy credits (“RECs”) expensed, if material to theregistrant’s plans to achieve disclosed climate-related
goals
Financial estimates and assumptions materially
impacted by disclosed targets or transition plans

Registrants must disclose information relating to:•Governance (board oversight and management’s rolein assessing and managing climate-related risk)•

Climate-related risks that have materially impacted or
are reasonably likely to have a material impact on theregistrant•

Processes for identifying, assessing and managing
material climate-related risks•

Material expenditures incurred and material impacts
on financial estimates from activities to mitigate/adapt
to climate-related risks•

Plans to mitigate transition risks, including how suchplans impact the registrant’s business and relatedmaterial expenditures•

Information relating to use of scenario analyses andinternal carbon prices, as applicable•

For large accelerated and accelerated filers, GHG
emissions metrics (Scope 1 and 2), if material,
excluding impact of purchased or generated offsets,methodology for calculating the metrics andattestation•

Material climate-related targets and goals (including
GHG emissions reductions targets)

GHG Emissions Metrics
The Final Rule requires Scope 1 (i.e., direct emissions from company-owned or -controlled sources) and/or
Scope 2 (i.e., indirect emissions from the generation of purchased energy, such as electricity) GHG emissions
disclosures, if material, by LAFs and AFs that are not smaller reporting companies (“SRCs”) or emerging
growth companies (“EGCs”). The disclosure is required on a phased-in basis as presented in the table on page 5
below and notably excludes Scope 3 emissions and GHG emissions intensity figures entirely. The requirement
to disclose material Scope 3 emissions (i.e., all indirect emissions that occur both upstream and downstream in
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3the value chain of the reporting company) was one of the most controversial aspects of the Proposed Rule dueto the anticipated calculation costs and challenges associated with the current reliability and robustness of dataassociated with those calculations.
In determining whether Scope 1 and 2 emissions are material, the SEC noted in its adopting release for the
Final Rule (the “Adopting Release”) that traditional notions of materiality (as defined by the SEC and grounded
in longstanding Supreme Court precedent) are intended to apply—a sentiment reiterated throughout therelease. The Adopting Release goes on to provide two examples: (i) where the registrant is subject to transition
risk by virtue of its GHG emissions that is likely to materially impact its business in the short- or long-term and(ii) where the registrant has targets, goals or a transition plan that otherwise requires disclosure under therules.
Under the Final Rule, material Scope 1 and 2 emissions must be reported for the registrant’s most recently
completed fiscal year, and for the historical fiscal year(s) included in the consolidated financial statements
included in the filing, if previously reported. 4
Additionally, for all reported emissions, registrants must comply with the following:•

Disclose Scope 1 and Scope 2 emissions separately, expressed in the aggregate in terms ofCO2e. If any constituent gas of the disclosed emissions is individually material (e.g., methane),disaggregate and disclose that constituent gas.

•

Disclose Scope 1 and/or Scope 2 emissions in gross terms, excluding the impact of any
purchased or generated offsets.

•

Describe organizational and operational boundaries used when calculating Scope 1 and/or
Scope 2 emissions, including the method used to determine such boundaries, whether theorganizational boundaries materially differ from the scope of entities and operations included in theregistrant’s consolidated financial statements, and the method used to determine boundaries in that
scenario.

Registrants must also disclose additional information on the protocol or standard used to report Scope 1 and 2
emissions, including methodology, significant inputs and significant assumptions. Notably, the Final Ruleallows a registrant to use reasonable estimates in disclosing GHG emissions as long as it also provides theassumptions underlying, and its reasons for using, such estimates.
Though the Scope 1 and/or Scope 2 emissions disclosure is required to be included in the registrant’s Form 10K (or 20-F) filing, the Final Rule provides that it may be incorporated by reference from the registrant’s Form
10-Q for the second fiscal quarter in the fiscal year immediately following the year to which the GHG emissions
disclosure relates. For in-scope foreign private issuers (“FPIs”), the Scope 1 and/or Scope 2 disclosures may bedisclosed in an amendment to their annual report on Form 20-F within 225 days after the end of the fiscal year
to which the GHG emissions disclosure relates. This extended timeline, which was not included in the
Proposed Rule, is meant to accommodate reported difficulties in measuring and reporting GHG emissions as of
fiscal year-end by the registrant’s 10-K filing deadline.

Assurance Over GHG Disclosure
Both LAFs and AFs will be required to obtain limited assurance over their GHG emissions disclosures startingin the third fiscal year the registrant is subject to the GHG emissions disclosure requirement. By a LAF’s

4 Requirement will not apply to a registrant that has not previously disclosed its Scopes 1 and 2 emissions in a filing with the SEC for a particular

historical fiscal year. Inclusion in a sustainability report alone would not trigger the requirement.

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seventh fiscal year, it will need to obtain reasonable assurance over these disclosures, but at no time under the
Final Rules will that requirement apply to AFs.
Like the Proposed Rule, the Final Rule sets minimum requirements and standards that the attestation reportand service provider would need to meet. Any service provider that prepares and signs a GHG attestation
report must (i) be an expert in GHG emissions (i.e., have significant experience in measuring, analyzing andreporting GHG emissions) and (ii) be independent from the registrant and any of its affiliates (i.e., be able toprovide objective and impartial judgment). Like the Proposed Rule, the Final Rule does not require theattestation provider to be a registered public accounting firm.
Phased-in compliance dates for both the GHG emissions disclosure and attestation requirements are as
follows:
Filer Type

Scopes 1 and 2 Disclosure

Limited Assurance

Reasonable Assurance

Large Accelerated
Filer

Fiscal Year 2026

Fiscal Year 2029

Fiscal Year 2033

(filed in 2027)(filed in 2030)(filed in 2034)

Accelerated Filer

Fiscal Year 2028

Fiscal Year 2031

N/A

(filed in 2029)(filed in 2032)

Strategy and Risk Disclosure
The Final Rule, in part modeled on the Task Force on Climate-Related Financial Disclosures (“TCFD”)
framework and Greenhouse Gas Protocol (“GHG Protocol”), requires detailed disclosure of climate-relatedrisks that have materially impacted or are reasonably likely to have a material impact on registrants’ strategy,
results of operations or financial condition. While the Proposed Rule put the burden on registrants to define
relevant short-, medium- and long-term time horizons for these risks, the Final Rule simply requires
registrants to disclose whether the identified climate-related risks are likely to manifest in the short term,
meaning the next 12 months, or in the long term, covering any time after 12 months. Among otherrequirements, the Final Rule requires registrants to disclose:•

Whether the risk is a physical or transition risk.
o

For physical risks, whether it is an acute or chronic risk, the nature and the geographic
location (though no requirement to disclose zip codes, as provided in the Proposed Rule) ofproperties, processes or operations subject to such risks.

o

For transition risks, whether it relates to regulatory, technological, market or othertransition-related factors, and the impact of those factors on the registrant; the Final Rule notesthat having operations in a jurisdiction that has made a commitment to reduce GHG emissions
could expose a registrant to a transition risk.

•

The actual and potential material impacts on the registrant’s business strategy, financial planningand capital allocation of any climate-related risks identified above. The Final Rule states that this
could include material impacts on the registrant’s business operations, products or services, suppliers,
activities to adapt to climate-related risks and research and development expenses, though the
Adopting Release emphasizes that this is a non-exclusive list.

•

Information about the material expenditures incurred and material impacts on financial estimatesand assumptions that directly result from (i) activities in which the registrant participates to mitigate oradapt to climate-related risks and (ii) transition plans disclosed.

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In addition, the Final Rule requires disclosure regarding the use of (1) transition plans, (2) scenario analysis
and (3) internal carbon pricing, each to the extent applicable to the registrant. For registrants that haveadopted a transition plan, the Final Rule will require a description of the plan and subsequent updates about
the plan each year. Registrants that use scenario analysis, and determine that a climate-related risk isreasonably likely to have a material impact on its business, must disclose a description of the relatedparameters, assumptions, analytical choices made and the projected material impacts. Finally, registrants thatuse an internal carbon price that is material to how they evaluate climate risk must disclose specified
information including the price in units per metric ton of carbon dioxide equivalent, total carbon price andrationale for internal carbon price.

Financial Statement Metrics
The financial statement metrics contemplated to be disclosed under the Proposed Rule were another key area
where the SEC received substantial comments. In particular, the Proposed Rule would have required
registrants to provide:i.

Financial impact metrics: quantitative disclosure as to the impacts of severe weather events and othernatural conditions and any transition activities on a line item basis in the registrant’s financial
statements (where the impact on the line item exceeded a bright-line 1% threshold of the total line item
for the relevant fiscal year);ii.

Expenditure metrics: quantitative disclosure of expenditures expensed and capitalized costs incurred tomitigate severe weather events and other natural conditions or transition activities (where theaggregate amount of expenditures expensed or capitalized costs exceeded 1% of total expenditure
expensed or total capitalized costs for the relevant fiscal year);iii.

Financial estimates and assumptions: qualitative disclosure on whether estimates and assumptions
used to produce consolidated financial statements were impacted by risks and uncertainties associatedwith, or known impacts from, severe weather events and other natural conditions or any climate-relatedrisks or a potential transition to a lower carbon economy or any climate-related targets disclosed by theregistrant; andiv.

Certain contextual information.

The Final Rule eliminates the proposed financial impact metrics described above and requires registrants toprovide:i.

Capitalized costs, expenditures expensed, charges and losses: quantitative disclosure of the aggregate
amount of capitalized costs, expenditures expensed, charges and losses incurred, excluding recoveries,
during the fiscal year as a result of severe weather events and other natural conditions (subject toapplicable 1% and de minimis thresholds, disclosed in a note to the financial statements); 5ii.

Carbon offsets and RECs: quantitative disclosure of the capitalized costs, expenditures expensed andlosses incurred associated with carbon offsets and RECs, if they have been used as a material

5 For purposes of this and the next disclosure, the attribution principle is applied (i.e., a capitalized cost, expenditure expensed, charge, loss or recovery

results form a severe weather event or other natural condition when the event or condition is a significant contributing factor in incurring thecapitalized cost, expenditure expensed, charge, loss or recovery).

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component of the registrant’s plan to achieve climate-related targets or goals, disclosed in a note to thefinancial statements; 6iii.

Financial estimates and assumptions: where financial estimates and assumptions a registrant uses to
produce financial statements are materially impacted by risks and uncertainties associated with severe
weather events and other natural conditions or disclosed climate-related targets or transition plans,qualitative disclosure on how the development of estimates/assumptions was impacted, disclosed in anote to the financial statements; andiv.

Certain contextual information, including the aggregate amount of any recoveries recognized during the
fiscal year as a result of severe weather events and other natural conditions for which capitalized costs,
expenditures expensed, charges or losses have been disclosed.

The Adopting Release states that FPIs that file consolidated financial statements reconciled to U.S. GAAP
would be required to use U.S. GAAP as the basis for calculating and disclosing these financial metrics, while
FPIs that use International Financial Reporting Standards (“IFRS”) as issued by the International AccountingStandards Board, would apply IFRS.

Governance and Oversight
The Final Rule requires registrants to describe board oversight of, and management’s role in respect of,climate-related risk in less granular detail than the Proposed Rule would have required. With respect to theboard oversight of these risks, the Final Rule requires registrants to disclose:•

Any board committee or subcommittee responsible for climate-related risk, if applicable;•

The processes by which the board or relevant committee or subcommittee is informed about climaterelated risks, if applicable; and•Whether and how the board oversees progress against a disclosed transition plan, climate-related target
or goal, if any.

The SEC noted in the Adopting Release that the Final Rule is not intended to shift governance behaviors andthat disclosure in this section is not required for registrants that do not have responsive information. Given therequirement that a registrant “describe the board of directors’ oversight of climate-related risks,” arguably a
registrant whose board does not oversee those risks would need to state as such.
One of the more prescriptive elements omitted from the Final Rule was the requirement for registrants todisclose whether any board member has expertise in climate-related risks. Commenters cautioned against theindividual “expert” labeling requirement, stating concerns that such disclosure requirements could distort thefocus of the board by overemphasizing climate-related expertise at the expense of other businessconsiderations. The SEC made a similar change in its recent finalization of the Cybersecurity Risk
Management, Strategy, Governance and Incident Disclosure Rule, 7 which required disclosure aboutcybersecurity board expertise when offered in proposed form.
With respect to management’s role in assessing and managing climate-related risks, the Final Rule will require
disclosure of:

6 Registrants required to produce these disclosures must also disclose their accounting policy for carbon offsets and RECs and the beginning and endingbalances of capitalized carbon offsets and RECs on the balance sheet for the fiscal year.

7 For more information, see our client memo “SEC Adopts Final Rules For Public Companies Relating to Cyber Incident Disclosure and Cybersecurity

Risk Management, Strategy and Governance Matters,” available here.

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7•Whether and which management positions or committees are responsible for assessing and managing
climate-related risks, and the relevant expertise of those persons;•

The processes for assessing and managing such risk; and•Whether those positions or committees report to the board or a committee of the board.

Other Disclosures
Targets and Goals
Registrants must disclose any climate-related targets or goals (e.g., GHG emissions reduction goals, water
usage, waste production) they have set, if such target or goal has materially affected or is reasonably likely tomaterially affect the registrant’s business, results of operations or financial condition. This disclosure must
provide any information necessary to understand the impact (or likely impact) of the goal, including adescription of the scope of activities and emissions, unit of measurement, defined time horizon of meetingtargets, relevant baselines and a description of how the registrant intends to meet its stated goals.
Registrants must disclose any progress made on meeting stated targets or goals and must update the disclosure
annually to include relevant actions taken. As with transition plans and actions related to mitigating climaterelated risks, registrants are required to include quantitative and qualitative disclosures of any material
expenditures and impacts on financial estimates and assumptions that are a direct result of a climate-related
target or goal, or actions taken to meet those goals.
Risk Management
Under the Final Rule, registrants are required to disclose any processes they have for identifying, assessing andmanaging material climate-related risks and how such processes are integrated into the registrant’s overall risk
management system. The Final Rule strips away most of the prescriptive requirements under Proposed Rule,but still requires a description of how the registrant:•

Identifies whether it has incurred or is reasonably likely to incur a material climate-related risk
(physical or transition), and•Decides how to prioritize climate-related risks and whether to mitigate, accept or adapt to such risks

Use of Carbon Offsets and Renewable Energy Certificates
In addition to the disclosures required under the Financial Statement Metrics section (above), registrants thatuse carbon offsets or RECs as material component of their emissions reduction strategy are required to disclose
the amount of carbon reduction represented by such offsets/RECs, the nature and source of the offsets/RECs, adescription and location of the underlying projects and any registries or other authentication methods.

Safe Harbor
The Final Rule includes an important new section extending a safe harbor from private liability within the U.S.
jurisdiction for certain forward-looking statements related to climate-related disclosures. Under this new
section, the SEC has exercised its statutory authority under the PSLRA to provide that the safe harbor for
forward-looking statements will apply to disclosures relating to transition plans, scenario analysis, use ofinternal carbon price and climate-related targets and goals. Consistent with the PSLRA, however, statements ofhistorical fact are not covered.

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Notably, the Final Rule does not allow registrants to rely on the safe harbor provision when complying withother climate disclosure requirements or frameworks (e.g., ISSB), to the extent that information reported
pursuant to other requirements or frameworks exceeds the disclosure required by the Final Rule.

Disclosure Obligation Timeline
The below chart reflects the disclosure obligation timeline for in-scope entities, reported as of fiscal year
beginnings.
Disclosure and Financial Statement
Compliance Dates

GHG Emissions/Assurance Compliance Dates

All Reg. S-K and SX disclosures,
other than as
noted

Specified disclosuresrelating to material
expenditures 8

Scopes 1 and 2 GHG
EmissionsDisclosure

LimitedAssurance

Reasonable
Assurance

Large accelerated
filersFYB 2025

FYB 2026

FYB 2026

FYB 2029

FYB 2033

Accelerated filers

FYB 2026

FYB 2027

FYB 2028

FYB 2031

N/A

Non-accelerated
filers, smallerreportingcompanies,
emerging growthcompanies

FYB 2027

FYB 2028

N/A

N/A

N/A

Registrant Type

Legal Challenges
With the heightened level of public scrutiny and interest around this rule, evidenced by the record-breaking
number of comment letters the SEC received in response to the Proposed Rule, legal challenge was a certainty,
notwithstanding the SEC’s protracted consultation with stakeholders prior to rule finalization and thesignificant changes made to its requirements. Indeed, within just a few hours of its adoption, ten states filed a
legal challenge in the U.S. Court of Appeals for the Eleventh Circuit, asking the court to vacate the Final Ruleon the basis that it exceeds the SEC’s statutory authority and is arbitrary, capricious, an abuse of discretion andunlawful. 9 Eight other legal challenges followed, resulting in nine challenges to the Final Rule in six appellate
jurisdictions. The majority of the challenges (including the challenge in the Eleventh Circuit) allege that the
SEC exceeded its statutory authority; two challenges filed by environmental groups allege that the rule does not
sufficiently protect investors, and that the SEC arbitrarily removed key provisions of the Proposed Rule in the
Final Rule (including the Scope 3 emissions reporting requirement). 10
On March 19, the SEC requested that all legal challenges filed be consolidated in one circuit under the U.S.
Multicircuit Petition Statute (28 U.S.C. § 2112), which governs the review of federal agency actions that giverise to petitions for judicial review in multiple federal courts of appeal. On March 21, the Judicial Panel on

8 Items 1502(d)(2), Item 1502(e)(2), and Item 1504(c)(2) require quantitative and qualitative disclosure of material expenditures and material impacts

on financial estimates and assumptions relating to (i) activities to mitigate or adapt to climate-related risks, (ii) transition plans and (iii) climaterelated targets and goals.

9 See Petition for Review filed in the 11th Circuit.
10 See e.g., Sierra Club, Earthjustice Lawsuit Challenges SEC’s Weakened Climate Risk Disclosure Rule and Natural Resources Defense Council Petition

for Review.

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Multidistrict Litigation conducted a lottery that determined that the Missouri-based Eighth Circuit (which
provides appellate review of cases tried in federal courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska,
North Dakota and South Dakota) will hear the case. On April 4, the SEC voluntarily issued a stay 11 on the rule,
explaining that a stay would avoid “potential regulatory uncertainty” that could arise if disclosure requirements
kick in before legal challenges are resolved.
The key arguments relating to whether the Final Rule is lawful will likely focus on the following questions:•

Whether the SEC has authority to adopt the rule. The SEC argues in its Adopting Release that
Congress has granted statutory authority to the SEC to request information that is likely to materially
impact a registrant’s business, results of operations or financial condition, whether they are climaterelated or not. But this argument may not hold if the Supreme Court of the United States were to
dismantle the 40-year-old Chevron 12 doctrine, which sets forth a two-part legal test for determining
when courts should defer to a federal agency’s interpretation of a statute, in a pair of appeals that the
Court heard oral argument on in January, Bright v. Raimondo and Relentless v. Department ofCommerce.

•

Whether the rule is arbitrary and capricious, similar to the Fifth Circuit’s December holding
vacating recently adopted SEC rules regarding stock repurchases. The court held that the SEC had acted
arbitrarily and capriciously in violation of the Administrative Procedure Act when it failed to (i)adequately respond to comments, and (ii) conduct a proper cost-benefit analysis in its adoption of theshare repurchase rule. 13•

Whether the SEC arbitrarily removed key provisions in the Final Rule, based on the need forinvestors to have complete information about a company’s climate-related financial risks.

•Application and interpretation of the “major questions doctrine,” which the Supreme Court relied
on in its 2022 opinion in West Virginia v. Env’t Prot. Agency, limiting the U.S. Environmental
Protection Agency’s authority to regulate GHG emissions. In his prepared remarks on March 6, SEC
Commissioner Mark Uyeda raised the argument that a “colorable textual basis” may not sufficiently
support the SEC’s assertion of regulatory authority for the Final Rule based on Supreme Court
precedent. 14

Other future challenges could allege a violation of the First Amendment as compelled speech, similar toarguments plaintiffs have made against California’s climate disclosure rules. 15

Next Steps for Issuers to Consider•

The Final Rule becomes effective 60 days after its publication in the Federal Register. Legal uncertainty
as a result of challenges filed on the implementation of the rule, and the timeline for implementation,
including whether the Eighth Circuit will issue a stay pending review, present challenges for companies

11 See SEC Order Issuing Stay.
12 Under the Chevron doctrine, a reviewing court must defer to an agency’s interpretation of a congressional statute, if such statute is ambiguous anddoes not demonstrate clear congressional intent. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).

13 See 5th Circuit Share Repurchase Rule Opinion.
14 A Climate Regulation under the Commission’s Seal: Dissenting Statement on The Enhancement and Standardization of Climate-Related Disclosuresfor Investors.

15 See Chamber of Commerce of the United States of America et al. v. California Air Resources Board et al. Additionally, in litigation relating to the

SEC’s U.S. Conflict Minerals Rule, the District Court for the District of Columbia distinguished securities laws mandating disclosure against
determination labels, setting aside as unlawful compelled speech the portion of the rule requiring regulated entities to report to the SEC and to state on
their websites that any of their products “have not been found to be ‘DRC conflict free.’” See National Association of Manufacturers v. SEC.

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in scope, given that challenges may take years to conclude (though noting that at a minimum, certain
aspects of the Final Rule are expected to survive challenge). Separately, questions have been raised as towhat a future SEC would enforce. From a practical perspective, issuers should ensure they understandthe requirements of the Final Rule and prepare to comply accordingly. SEC rules are typically notstayed during pending litigation, unless the SEC voluntarily postpones the effective date of the rule, or afederal court and/or the SEC grants a request to stay. Accordingly, issuers should continue to ensure
their disclosure committees are appropriately informed and build out their disclosure controls andprocedures to ensure they’re sufficiently robust to identify, accumulate and disclose the information
required under the Final Rule. Issuers are encouraged to engage with counsel and other third partyexperts and technology solution providers as necessary to implement a plan for compliance.
•

Although Chair Gensler noted in his remarks the challenge of compliance with differing climate
disclosure laws, he also affirmed the SEC’s view of the importance of having U.S. standards to which
U.S. issuers can point. Therefore companies subject to these various regimes (e.g., CSRD and California
climate disclosure laws) will need to track and strategically reconcile differing compliance dates andrequirements (i.e., materiality standards; whether Scope 3 disclosure is required; differing types ofqualitative risk disclosure) and begin to prepare accordingly.

•

In light of the climate-related governance disclosures required under the Final Rule and recent SEC
enforcement actions 16 related to ESG governance, companies should ensure finance and sustainability
functions are aligned and appropriately equipped, and thoroughly review and update, if necessary,climate-related processes, procedures and frameworks and accounting policies to ensure good
governance practices with respect to oversight of climate risks. Even if the Final Rule is successfully
challenged, there is a strong likelihood that some form of governance disclosures may still stand as
there is increasing federal attention, and investor demand, related to addressing climate-related risks. 17
Further, aside from U.S. laws, registrants may be subject to global regulations that require disclosuresthat align with the TCFD Framework, calling for a thorough assessment of existing company climaterelated governance.

Comparison to Global Climate Disclosure Regimes
While the Final Rule is the SEC’s first disclosure obligation applicable to U.S. registrants, many of thesecompanies will be subject to similar reporting frameworks under California’s climate reporting laws, passed in
October 2023, 18 and/or the EU’s Corporate Sustainability Disclosure Regime (“CSRD”), which will require
reporting for certain entities beginning in 2025. The chart below offers a high-level comparison of the key
similarities and differences between these laws.

16 For more information on ESG-related enforcement actions, see our client memo “Tracking the SEC’s Climate and ESG Task Force,” available here.
17 Federal activity focusing on climate-related risks such as greenwashing and more, include: (i) the interagency guidance, Principles for Climate-Related

Financial Risk Management for Large Financial Institutions, jointly issued by the Office of the Comptroller of the Currency, Board of Governors of theFederal Reserve System and the Federal Deposit Insurance Corporation (ii) the forthcoming update to the Green Guides by the Federal Trade
Commission and (iii) Proposed Guidance Regarding the Listing of Voluntary Carbon Credit Derivative Contracts, issued by the Commodity Futures
Trading Commission.

18 We note the future of the California climate-related laws (e.g. SB 253 and SB 261) remains uncertain due to the recent lawsuit against the California Air

Resources Board and lack of funding. For more information on these laws and California’s Voluntary Carbon Market Disclosures Law (e.g. AB 1305),
see our client memo “Far-Reaching California Climate Disclosure Bills Signed into Law” and “California’s Flurry of ESG Lawmaking,” available here
and here.

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Topics

California
SB 253, SB 261 and AB 1305

SEC Climate-Related
Disclosures

Covered Companies

SB 253 and SB 261:

U.S. registrants

EU “large undertakings,” 19 small andmedium sized EU banks and insurancecompanies, small and medium sized EUlisted companies, as well as non-EU
companies with significant EU nexus

2026: LAFs include all disclosures
excluding GHG emissions andspecified disclosure relating tomaterial expenditures 20 covering
FY20252025: Reporting covering FY 2024 for EU
undertakings subject to NFRD, namely
EU large public interest entities and large
EU-listed companies

Public or private entities doing
business in California, with revenue
above $1 billion and $500 million,
respectively

CSRD

AB 1305:
Public or private entities thatparticipate in the voluntary carbon
market and or make claims
regarding carbon neutrality
Reporting
Implementation
Timeline

SB 253:2026: Report Scope 1 and 2 covering
FY20252027: Report Scope 3 covering
FY2026, due 180 days after Scope 1
and 2 reporting
SB 261:On or before 1/1/2026: Prepare andfile first TCFD report
AB 1305:
Effective January 1, 2024, but thebill’s author noted his intent fordisclosure requirements to begin
January 1, 2025

2027: AFs include all disclosures
excluding GHG emissions andspecified disclosure relating tomaterial expenditures covering
FY2026
LAFs report Scope 1 and Scope 2
and specified disclosure relating tomaterial expenditures covering FY
2026

2026: Reporting covering FY2025 for EU“large undertakings” and EU parent
undertakings of a large group2027: Reporting covering FY2026 for EU
SME public interest entities; EU and nonEU SMEs listed in EU regulated markets
2029: Reporting covering FY2028 for
non-EU companies with significant EU
nexus

2028: Non-accelerated filers, SRCsand EGCs include all disclosures
excluding specified disclosure
relating to material expenditures
covering FY 2027 (excluded fromGHG emissions reporting)
AFs report on specified disclosure
relating to material expenditures
covering FY 2027
2029: AFs report Scope 1 and Scope
2 covering FY2028
Non-accelerated filers, SRCs and
EGCs report on specified disclosure
relating to material expenditures
covering FY 2028

GHG Emissions
Disclosure

Scope 1, 2 and 3 GHG emissions for
all covered companies (subject tophase-in)

Scope 1 and 2 GHG emissions, ifmaterial, for LAFs and AFs (nophase-in period)

Scope 1, 2 and 3 GHG emissions for all
covered companies (subject to phase-in) 21

19 Large undertakings exceed at least two of the following (for at least two consecutive financial years): (i) balance sheet of at least €25m, (ii) net turnoverof at least €50m, and/or (iii) average of 250 employees during the financial year.

20 These disclosures include quantitative and qualitative descriptions of the material expenditures incurred and material impacts on financial estimatesand assumptions directly resulting from (i) activities related to mitigating or adapting to climate-related risk, (ii) transition plans (if any) and (iii)
progress toward meeting a climate-related target or goal.

21 Specified undertakings or groups not exceeding 750 employees may omit Scope 3 emissions disclosures in the first year of sustainability statement

preparation.

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Carbon Offsets
Disclosure (forentities thatpurchase carbon
offsets)

Details regarding the offset
including the seller, project type,identification number, protocol used
to estimate impact, and any
independent third-party verificationof data or claims

If carbon offsets or renewableenergy credits used as a material
component of plan to achievetargets or goals, amount of carbon
reduction represented by offsets,source, description and location ofunderlying projects, registries orother authentication of
offsets/RECs and cost of
offsets/RECs

If carbon credits are used and a net-zerotarget is disclosed, information must
include the scope, methodologies andframeworks applied; an undertaking thathas made public claims of GHG neutralitythat involve use of carbon credits must
explain the credibility and integrity ofcarbon credits used

Climate-Related Risk
Disclosure

TCFD Report

Generally based on TCFD
requirements, but rules set out
additional factors, details andconsiderations to be incorporated

Generally aligns with ISSB (from afinancial materiality perspective) andGRI for the purpose of international
interoperability, but requires broader
disclosures, applying the principle ofdouble materiality

Reporting Standard

Prepare reports in accordance with
the GHG Protocol and TCFD

Incorporates standards of the GHG
Protocol and TCFD, but differs in
key areas, including the scope ofentities within a registrant’s
consolidated group for which
reporting is required

Generally aligns with ISSB and GRI for
the purpose of international
interoperability, but includes a double
materiality standard

Assurance
Requirement

Limited assurance over Scope 1 and2 until 2030 when reasonableassurance is required; limited
assurance over Scope 3 starting by
2030

For LAFs and AFs only, limited
assurance over Scope 1 and 2 for the
3rd filing years following
implementation; for LAFs only,
reasonable assurance required
beginning in the 7th year

Limited assurance over Scope 1, 2 and 3;
reasonable assurance from 2028

Location ofDisclosure

SB 253 and SB 261: Submitted forinclusion in publicly-available
database

Included in registration statements
and 10-K filings

Included in annual management reports

AB 1305: Company website

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For further information regarding this Alert, please contact one of the following authors:
NEW YORK CITY

WASHINGTON, D.C.

Leah Malone

Courtney Kobren

Emily B. Holland+1-212-455-3560+1-212-455-7026+1-202-636-5987

leah.malone@stblaw.com

courtney.kobren@stblaw.com

emily.holland@stblaw.com

Karen Hsu KelleyAngela J. Yu+1-212-455-2408+1-212-455-7039

kkelley@stblaw.com

angela.yu@stblaw.com

Charles Mathes+1-212-455-2258
charles.mathes@stblaw.com

SimpsonThacherWorldwide

The contents of this publication are for informational purposes only. Neither this publication nor the lawyers
who authored it are rendering legal or other professional advice or opinions on specific facts or matters, nordoes the distribution of this publication to any person constitute the establishment of an attorney-client
relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection with the use of thispublication. Please contact your relationship partner if we can be of assistance regarding these importantdevelopments. The names and office locations of all of our partners, as well as our recent memoranda, can beobtained from our website, www.simpsonthacher.com.

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