The largest U.S.-listed companies will be required to publish their material operational and energy-related greenhouse gas (GHG) emissions and other climate-related financial information annually under new rules adopted by the Securities and Exchange Commission (SEC).[1] The measures are designed to standardize disclosure of climate-related information available to investors.
The long-awaited rules will require so-called large accelerated filers (LAFs) to publish their material Scope 1 and 2 emissions and climate-related risks, as well as any processes they use to identify, assess and manage those risks.[2] Companies will also be required to detail capitalized costs and total expenditures expensed as a result of severe weather events. The rules do not require companies to disclose emissions stemming from their value chain (Scope 3).
Mind the disclosure gap
The rules may help narrow a gap in transparency between U.S.-listed firms and listed companies globally in disclosing both their emissions and financially relevant climate risks. U.S.-listed companies constitute roughly two-thirds (63%) of the total value of global equity markets.[3] As the exhibit below details, of the nearly 2,400 companies in the MSCI USA Investable Market Index (IMI), less than half (45%) disclose their Scope 1 and 2 emissions, and only 29% disclose some (and not necessarily the most-material) Scope 3 emissions, which make up the lion’s share of emissions for most companies.[4]
US-listed companies lag in disclosing GHG emissions
GHG emissions contribute to the systemic risks of climate change. Listed companies globally could see their costs of adapting to extreme heat, for example, quadruple to USD 4 trillion, if average global temperatures were to rise 3°C (5.4°F). The U.S. alone registered a record number of billion-dollar disasters in 2023, which marked the hottest calendar year on record globally.[5] In that context, it may not be surprising that transparency is in great demand — more than 80% of investors who commented on the SEC’s proposed climate disclosure rules supported them.[6]
The requirement will not, however, catch all companies off guard. A majority of U.S.-listed companies in emissions-intensive sectors like utilities, materials and energy are already disclosing their Scope 1 and 2 emissions, as are companies in consumer staples, as our next exhibit shows.[7] The SEC’s rules would standardize the obligation to disclose such emissions sector-wide but could also help to bring consistency and comparability to those disclosures.
Scope 1 and 2 GHG emissions disclosure in the US by sector
The information below summarizes key provisions of the final rules, which the SEC modeled in part on the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) — a global baseline for corporate climate disclosure — with the goal of reducing the reporting burden for companies and maintaining predictability for investors.
Largest companies impacted
The rules apply to the largest companies with SEC reporting requirements. That includes both LAFs and accelerated filers as well as large non-U.S. companies with U.S.-traded shares. Companies covered by the rules would be required to include climate-related disclosures in their registration statements and annual 10-K report.
While the rules do not apply to unlisted companies, those that are planning to go public may need to include climate-related disclosures in the registration statements they file with the SEC ahead of an initial public offering.
Summary of the rules
Companies covered by the rules would be required to include in their annual financial filings with the SEC:
- Material Scope 1 and 2 GHG emissions in absolute terms
- Disclosure of climate-related physical and transition risks that are reasonably likely to have a material impact on the company in the short or long term, including how the company oversees and manages those risks
- The company’s climate-related targets, goals, use of scenario analysis and transition plans, including material expenditures incurred and impacts on financial estimates and assumptions as a direct result of the actions taken to achieve them
- The impact of severe weather events and other natural conditions such as hurricanes, extreme heat, wildfires and sea-level rise, including expenditures related to such events that will need to show as a stand-alone line item in their financial statements
- Information about an internal price on carbon, if the company uses one that is financially relevant to how the company manages climate-related risk
- Capitalized costs and other information about the use of carbon credits or renewable energy certificates if used as a material component of a company’s climate plan
Companies will be required to attest to the accuracy of their GHG emissions disclosures, which can be determined using industry-standard methods. The rules would also require companies to obtain the attestation of an independent auditor beginning in the third fiscal year after their first GHG emissions disclosure; and a statement of reasonable assurance in the seventh year after the compliance date (both safeguards against material misstatements and greenwashing).
The rules are slated to be phased in for LAFs starting with annual reports that include financial information for fiscal year 2025. Companies will be able to disclose their emissions in the second quarter following the end of the fiscal year in which the emissions occur, an accommodation to the lag between the end of companies’ financial years and the availability of data about their emissions.