The Securities & Exchange Commission Adopts Final Rules on Climate-Related Disclosures

As buyers grow more climate-aware, and as the global need for sustainability in manufacturing grows, the Securities & Exchange Commission has finally adopted a set of rules on climate-related disclosures. To protect consumers, investors, and the planet, businesses will now need to disclose important information about climate-related risks and beyond. 

Let’s dive into the reason behind why the SEC has passed these rules and what it means for your brand.

Why did the Securities & Exchange Commission decide to require climate-related disclosures?

As time has passed, it’s become clear that climate-related disclosures are a necessary part of ensuring that businesses operate in a sustainable manner. The March 6, 2024 decision is a “landmark” ruling, and it doesn’t just protect the planet—it has a business impact, as well.

In fact, in “The Enhancement and Standardization of Climate-Related Disclosures: Final Rules” fact sheet, the SEC cited the investor impact as one of the major reasons for the disclosures. The article states:

“The importance of climate-related disclosures for investors has grown as investors, companies, and the markets have recognized that climate-related risks can affect a company’s business and its current and longer-term financial performance and position.” 

Between environmental reasons, changes in consumer buying preferences, and business needs, the climate-related disclosures check a lot of boxes.

What will you have to disclose?

The full content of your disclosures can be found on the above fact sheet, but a summary of the disclosures requires businesses to report climate-related risks, actual/potential impacts of the risks, and any activities a registrant has taken to mitigate those risks or impacts. 

Other disclosures include:

• “Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
• Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes; 
• Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal; 
• For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions; 
• For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level; 
• The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements; 
• The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements; and
• 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, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.”

Estimated timeline for climate-related disclosure implementation

The disclosures are detailed and expansive and will require specific planning to execute well. Thankfully, implementation isn’t immediate. The following phase-in schedule outlines the expected timeline according to the registrant type:

Source: SEC Fact Sheet

While the implementation of disclosures isn’t immediate, it also isn’t far off. Organizations will need to get to work preparing for this shift promptly.

Charming Trim’s impact

Our goal at Charming Trim is to keep you ahead of the curve when it comes to sustainability rules, regulations, and expectations. While we can’t prepare your disclosures for you, we help organizations adapt to new laws by providing up-to-date tools and technology to integrate responsible practices into your brand.

From high-quality labels to Charming’s digital product passport, you’ll be ready to rise to the challenge of increasing sustainability legislation. To learn more about Charming’s offerings, schedule a free consultation with our team today. Charming is good for your business—and the world.

Editor’s note: This content was originally published on April 15, 2024 but was revamped for relevancy on October 1, 2024.