Socious
← Back to Blog
Compliance

The Compliance Guide on SEC's Climate-Related Disclosures: 10 Steps to Mastery

Socious Team
The Compliance Guide on SEC's Climate-Related Disclosures: 10 Steps to Mastery

Overview

On March 6, 2024, the U.S. Securities and Exchange Commission adopted a pivotal final rule requiring comprehensive climate-related information from registrants, including foreign private issuers. The rule aims to provide investors with complete, reliable, and decision-useful insights into the impacts of climate-related risks on companies’ operations.

This guide divides the Final Rule into 10 key steps for achieving compliance mastery.

Step 1: Verify Organizational Compliance Requirements

Before implementing compliance measures, determine whether your organization falls under SEC requirements. The rule applies to:

  • Large Accelerated Filers (LAFs): Public float of $700 million or more
  • Accelerated Filers (AFs): Public float between $75-$700 million
  • Non-Accelerated Filers (NAFs): Public float below $75 million
  • Smaller Reporting Companies (SRCs): Specific revenue and float thresholds
  • Emerging Growth Companies (EGCs): Less than $1.235 billion in annual revenues

Step 2: Understand Emissions Scope

The rule requires disclosure of two types of greenhouse gas emissions:

  • Scope 1: Direct emissions from company-controlled sources (vehicles, manufacturing)
  • Scope 2: Indirect emissions from purchased electricity and utilities
  • Scope 3: Not required; exemption granted due to data reliability concerns

Organizations must assess materiality thresholds and understand phased compliance deadlines based on filer status.

Step 3: Navigate Compliance Timelines

Compliance operates on a phased schedule:

  • Different deadlines apply to LAFs versus AFs versus smaller entities
  • Initial attestation requirements phase in over multiple years
  • Minimum assurance levels escalate over time

Step 4: Master Key Requirements

Organizations must address multiple disclosure categories:

  • Scope 1 and Scope 2 GHG emissions with attestation support
  • Climate risk impacts on business and financial statements
  • Qualitative descriptions of identified climate risks
  • Risk management processes and governance structures
  • Climate-related targets, scenario analyses, carbon pricing mechanisms
  • Forward-looking statements eligible for PSLRA safe harbor protections

Step 5: Execute GHG Emissions Disclosure

Effective emissions reporting requires:

  • Identifying and assessing all emission sources
  • Establishing materiality thresholds
  • Incorporating data into annual and periodic reports
  • Providing contextual analysis alongside raw figures
  • Considering third-party verification for credibility

Step 6: Prepare for Attestation Requirements

Organizations should:

  • Understand phased compliance based on company classification
  • Recognize minimum assurance levels (initially “limited”)
  • Engage qualified attestation service providers
  • Gather precise emissions data
  • Implement robust internal controls
  • Monitor regulatory developments

Step 7: Address Risk Management and Governance Disclosure

Effective disclosure involves:

  • Comprehensive assessment of climate-related risks (physical and transition)
  • Evaluation of risk significance to operations and finances
  • Integration into existing risk management frameworks
  • Board and management oversight documentation
  • Transparent communication about identified risks and mitigation strategies

Step 8: Handle Climate Policy-Specific Disclosures

Organizations must address (when material):

  • Climate-related targets and goals
  • Scenario analyses assessing future impacts
  • Internal carbon pricing mechanisms
  • Transition plans for adaptation and mitigation
  • Carbon offset and renewable energy certificate usage

Step 9: Understand Safe Harbor Protections

The Private Securities Litigation Reform Act (PSLRA) safe harbor protects forward-looking statements regarding:

  • Transition plans
  • Scenario analyses
  • Internal carbon pricing
  • Climate targets and goals

Companies must ensure statements are made in good faith with appropriate cautionary language.

Organizations should:

  • Track regulatory updates and legal developments
  • Understand specific disclosure requirements
  • Identify potential legal risks
  • Implement robust internal controls and governance
  • Seek expert legal guidance on environmental and securities law
  • Proactively adapt policies to align with evolving standards