United States SEC Adopts Finalized Rules for the Enhancement and Standardization of Climate-Related Financial Disclosures for Investors

Summary of the SEC Final Rules: 

The United States Securities and Exchange Commission (SEC) adopted final rules on Wednesday, March 6, requiring SEC registrants to report on climate-related risks likely to have an impact on business operations or financial condition. The overall intention of the final rule, as shared by SEC Committee Chair Gensler, is to “provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.” Gensler went on to advise the final rule will also require inclusion of climate risk disclosures directly in SEC filings. 

The adopted final rules will focus on climate-related disclosures, including: 

1. Climate-related risks that could reasonably have an impact on business strategy, operations, or financial condition 
2. Any oversight by a company’s board of directors of climate-related risks, and any role by management in assessing and managing identified climate risks; 
3. Information about a company’s climate-related targets or goals (if any) that have materially affected or could affect business conditions 
4. Reporting on Scope 1 and/or Scope 2 emissions for those meeting specified thresholds 

The full press release can be found on SEC.gov, along with the posted final rule for The Enhancement and Standardization of Climate-Related Disclosures for Investors.  

A Refresher on Scope Emissions: 

Scope 1 Emissions, or direct emissions, are associated with sources that an organization owns. This could include emissions associated with gasoline use in fleet vehicles, diesel to run on site generators, and other fuel used to power company-owned equipment. 

Scope 2 Emissions, or indirect emissions, are associated with the production of energy an organization purchases such as electricity or steam. 

Additional information concerning Scope 1 and 2 Emissions can be found with the US Environmental Protection Agency (EPA) and the Greenhouse Gas Protocol.  

Though not included under the newly adopted SEC final rule, Scope 3 Emissions are a critical component of an organization’s overall carbon footprint. Scope 3 Emissions, also known as other indirect emissions, encompass 15 activity categories, such as purchased goods and services, business travel, employee commuting and use of sold products.  

The Drive for Scope 3 Emissions Reporting: 

Many businesses have already begun incorporating Scope 3 Emissions calculations into their overall carbon footprints, and many are likely to continue doing so despite not being included in the final rule from the SEC. In addition, other pieces of legislation may still drive Scope 3 Emissions reporting, such as: 

• The European Union Corporate Sustainability Reporting Directive (CSRD), which came into force January 2023 and includes Scope 3 Emissions reporting where relevant for covered companies, which in some cases can still include US-based companies.  
• The California Climate Corporate Data Accountability Act (SB 253), signed into law October 2023, which empowers the California State Resources Board to develop regulations requiring corporations doing business in California that meet a revenue threshold to publicly report on greenhouse gas emissions, with Scope 3 Emission reporting beginning in 2027.  

How can ISN help?  

For organizations pursuing climate reporting that wish to further engage their contractors and suppliers, ISN® has a suite of service offerings available through ISNetworld®’s ESG Assure®, Monarch®’s ESGSight®, and Transparency-One®’s supply chain mapping solutions. Whether looking to confirm environmental practices of contractors and suppliers, gather an estimate of vendors’ Scope 1 and 2 emissions, uncover insight and perception into climate related practices, or map climate impact of products sourced, the ISN team is ready to evaluate your needs and propose solutions.  

For more information on ISN products and services, reach out to your account manager or contact us to get started.