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On March 6, 2024, the Securities and Exchange Commission (the “SEC”) voted to adopt its Climate-Related Disclosure Rule (the “Final Rule”), by a vote of 3-2. Finalized almost two years after the initial proposed rule (the “Proposed Rule”) garnered over 24,000 comment letters from issuers, shareholders, interest groups and others—significantly more than any other past piece of SEC rulemaking—the Final Rule marks the first federal sustainability disclosure requirement in the U.S. and requires registrants to provide information on Scope 1 and Scope 2 greenhouse gas emissions (“GHG emissions”), severe weather-related financial statement disclosures and climate-related governance, risks and targets disclosures.

Notably, the Final Rule includes several significant deviations from the Proposed Rule, including:

• The requirement to provide GHG emissions data will only apply to registrants that are accelerated filers (“AFs”) or large accelerated filers (“LAFs”);
• No registrant will be required to provide Scope 3 GHG emissions data, and Scope 1 and 2 GHG emissions data is only required by AFs and LAFs, and only if material;
• Assurance requirements with respect to GHG emissions data is subject to an extended phase-in period, and reasonable assurance will eventually be required only for LAFs;
• No registrant will be required to provide GHG intensity data;
• Registrants will not be required to disclose the financial impacts of severe weather events and transition activities for each line item in their consolidated financial statements; that said, registrants will be required to provide financial statement disclosure of severe weather-related expenditures and capitalized costs and charges if such items exceed or equal 1% of the absolute value of income or loss in the relevant fiscal year;
• Disclosure of board and management oversight and governance of climate-related risks required by the Final Rule is streamlined, and registrants will not need to disclose specific board members tasked with climate-related oversight or the climate expertise of their board members;
• The safe harbor for forward-looking statements under the Private Securities Litigation Reform Act (“PSLRA”) is explicitly extended to cover disclosure of targets and goals, transition plans, scenario analysis and internal carbon pricing; and
• Most disclosure requirements in the Final Rule are subject to a materiality threshold.

On the whole, the Final Rule represents a win for detractors of the Proposed Rule given its significantly scaled-back requirements. The extent to which it ultimately improves transparency and accountability with respect to long-term business issues relating to climate change, and enables investors and lenders to better analyze and price climate-related risks, will depend to a large degree on the volume and value of the disclosure it drives.

Below, we discuss the requirements of the Final Rule, offer a comparison to other climate disclosure requirements in force, summarize potential (and already-filed) legal arguments challenging the Final Rule’s enforceability and provide next steps for consideration.