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    SEC Finalizes Climate-Related Disclosures Rule

    The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S. The rule aims to enhance and standardize climate-related disclosures for investors, in response to the growing investor demand for more consistent, comparable, and reliable information. This ushers in a new phase of reporting requirements for public companies in the country. The final rule will become effective 60 days after its publication in the Federal Register.

    The SEC rule was reshaped and finalized after considering feedback from over 24,000 comment letters and differs substantially from the rule proposed in March 2022. One significant deviation from the proposed rule is the removal of the requirement for companies to disclose Scope 3 greenhouse gas emissions amid concerns around compliance costs and data consistency and reliability. Another key deviation is the exemption of smaller reporting companies, emerging growth companies, and nonaccelerated filers from the requirement to provide greenhouse gas emission disclosures and related attestations. Under the rule, the companies not only need to disclose risks but they also need to provide a detailed account of their efforts to mitigate or adapt to these climate-related risks. The new rules require publicly listed companies to disclose:

    • qualitative and quantitative descriptions of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities
    • activities to mitigate or adapt to a material climate-related risk including the use of transition plans, scenario analysis, or internal carbon prices
    • ·oversight by the board of directors of climate-related risks and role of management in assessing and managing the material climate-related risks
    • information on processes to identify, assess, and manage climate-related risks as well as how any such processes are integrated into the overall risk management system
    • information about climate-related targets or goals that have materially affected or are reasonably likely to materially affect the business, results of operations, or financial condition
    • information about material Scope 1 and/or Scope 2 emissions, for large accelerated filers and accelerated filers
    • an assurance report at the limited assurance level, which, for a large accelerated filer, following an additional transition period, will be at the reasonable assurance level (for those required to disclose Scope 1 and/or Scope 2 emissions)
    • capitalized costs, expenditures expensed, and losses incurred due to severe weather events as well as related to carbon offsets and renewable energy credits or certificates
    • qualitative information on how the development of estimates and assumptions was impacted, disclosed in a note to the financial statements, if the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans

    In contrast, California enacted a stricter law in October 2023 requiring both publicly listed and privately held firms of a certain size to disclose all of Scope 1, 2, and 3 emissions, with a phase-in period starting from 2026 up until 2030. The compliance dates for the SEC rule, however, will be phased in for all registrants (listed companies) from financial year 2025 to financial year 2033; the stipulated compliance dates depend on the status of the registrant as a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. In addition, the SEC rule mandates companies to include climate risk disclosures in their SEC filings, such as annual reports, while electronically tagging the climate-related disclosures in Inline XBRL format.

     

    Visit Moody’s Analytics Climate and ESG Risk Microsite to learn how you can proactively incorporate climate and ESG insights into your risk assessment process.

     

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    Keywords: Americas, US, Banking, ESG, Climate Change Risk, Reporting, Disclosures, Sustainable Finance, GHG Emissions, Scope3 Emissions, SEC

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