top of page

Decoding the SEC’s Final Rules on Climate-Related Disclosures

Published on March 6, 2024, the Securities and Exchange Commission’s (SEC) final rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors (hereafter referred to as the Final Rule) has elicited a mixed response from the market. While there is broad support for the standardization it introduces, there is also cautious optimism due to its perceived limited ambition (e.g., removed requirements for Scope 3 GHG emission disclosures) and concerns over the associated compliance costs.

Starting in FY2025, large accelerated filers (LAFs) are required to report on climate risks, with GHG emissions reporting beginning as soon as FY2026.


The Final Rule mandates that a registrant disclose several key aspects:

  • Material climate-related risks.

  • Actions taken to mitigate or adapt to these risks.

  • The role of the registrant’s board of directors in overseeing climate-related risks and management’s role in managing material climate-related risks.

  • Any climate-related targets or goals that significantly impact the registrant’s business, operational results, or financial condition.

To aid investors in assessing certain climate-related risks, the Final Rule also requires:

  • Disclosure of Scope 1 and/or Scope 2 greenhouse gas (GHG) emissions by certain larger registrants when these emissions are material on a phased-in basis.

  • Submission of an attestation report covering the required disclosure of such registrants’ Scope 1 and/or Scope 2 emissions on a phased-in basis.

  • Disclosure of the financial statement effects of severe weather events and other natural conditions, including, for example, costs and losses.


The final rules will require a registrant (including a foreign private issuer) to:

  • File the climate-related disclosure in its registration statements and Exchange Act annual reports filed with the Commission;

  • Provide the Regulation S-K mandated climate-related disclosures either in a separate, appropriately captioned section of its registration statement or annual report or in another appropriate section of the filing, such as Risk Factors, Description of Business, or Management’s Discussion and Analysis, or by incorporating such disclosure by reference from another Commission filing as long as the disclosure meets the electronic tagging requirements of the final rules;

  • Electronically tag climate-related disclosures in Inline XBRL.


Compliance Dates under the Final Rules:

Notes on key terms (from SEC):

  • FYB: refers to any fiscal year beginning in the calendar year listed.

  • Subpart 1500: Financial statement disclosures under Article will be required to be tagged following existing rules on the tagging of financial statements. See Rule(405(b)(1)(i) of Regulation S-T.

  • Item 1502(d)(2): disclosure concerning requirements on describing quantitatively and qualitatively the material expenditures incurred and material impacts on financial estimates and assumptions that, in management’s assessment, directly result from activities to mitigate or adapt to climate-related risks disclosed pursuant to Item 1502(b)(4).

  • Item 1502(e)(2): disclosure about material expenditures and material impacts on financial estimates and assumptions that directly result from actions taken under a transition plan (e.g., material expenditures made for climate-related research and development).

  • Item 1504(c)(2): disclosure concerning requirements on any progress toward meeting the target or goal and how such progress has been achieved.

  • Large accelerated filers (LAFs): Public float of $700 million or more

  • Accelerated filers (AFs): Public float between $75 million and $700 million

  • Smaller reporting company (SRC): Annual revenues of less than $100 million and either no public float or a public float of less than $700 million

  • Emerging growth company (EGC): Total annual gross revenues of less than $1.235 billion during the most recently completed fiscal year and no prior sale of common equity securities under a registration statement

  • Non-accelerated filer (NAF): refers to companies that do not meet the criteria for accelerated or large accelerated filer status

  • Public Float. All reporting companies calculate their public float annually as of the last business day of their second fiscal quarter. A company calculates its public float by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity.

  • Revenues. A reporting company that does not qualify under the “public float” test would determine whether it qualifies as a SRC based on its annual revenues in its most recent fiscal year completed before the last business day of the second fiscal quarter.


The Final Rule is generally perceived by investors and market participants as a progressive move towards enhanced transparency. It caters to the escalating demand for uniform and trustworthy data on climate-related risks and their financial implications on businesses. While some stakeholders express cautious optimism, they acknowledge the necessity for standardized disclosures and underscore the importance of striking a balance with the compliance costs for companies. Undoubtedly, ‘Materiality’ has emerged as the pivotal term in the context of the Final Rule. And as per the policymaker’s perspective:

Materiality is the benchmark; it is the investors get to make the investment decision based upon the material disclosures. In this case, climate risk is something investors want to know about. Hundreds of companies are already making such information available, but this will give it more reliability.” Said SEC chair Gary Gensler

Navigating the complexities of Climate and Sustainability-Related Materiality Assessment can be challenging. It involves identifying and prioritizing the sustainability issues that are most relevant to an organization and its stakeholders.

This process requires a deep understanding of the organization’s operations, the industry it operates in, and the sustainability-related factors that could impact its performance.

Additionally, Climate and Sustainability-Related Materiality Assessment requires engagement with various stakeholders to understand their concerns and expectations. Despite its complexity, it is a crucial step in integrating sustainability into an organization’s strategy and operations. It helps the organization focus its resources on the most significant issues, manage risks, and seize opportunities related to sustainability.

Leveraging our growing research capacities and expert network in sustainability, GC Insights stands ready to assist your business in evaluating the sustainability-related materiality of your business activities and streamline the reporting processes for compliance-ready sustainability strategies.

bottom of page