April 15, 2024
Written by
Mike Paul

SEC pauses implementation of US corporate climate disclosure rules after legal challenges

Vizibl is committed to bringing you the most up-to-date news on global ESG regulations that are likely to affect procurement teams - and there has been a major update to one set of regulations in particular.

After agreeing and releasing its amended climate disclosure rules in March, the United States Securities and Exchange Commission (SEC) has announced a pause in their implementation while it faces legal challenges. This decision comes after an appeals court ordered a temporary stay blocking the rule's enforcement, despite a previous statement that companies should still prepare for the implementation even if it is challenged. The SEC has stated that it believes the rule is lawful, but wants to focus on defending it against legal challenges before enforcement.

The final version of the rule, proposed in March 2024, mandates public companies to disclose climate risks and report emissions figures. However, critics have attacked the rule, especially its requirements for reporting emissions from supply chains and consumer usage. The SEC has scaled back certain aspects of the rule, including Scope 3 requirements for supply chain-related reporting, but it is still facing lawsuits from states, business groups, and environmental advocates who find the rule flawed or insufficient.

As a result of overwhelming feedback on the originally proposed rules, the SEC's currently-proposed regulations have already changed significantly - one notable aspect being the exemption of Scope 3 emission disclosures, which make up the majority of most Fortune 500 companies' environmental harm. However, this isn't the only significant change in the final rule. The rule also reduces financial statement disclosure requirements and extends implementation timelines. Here are five key changes from the originally proposed rule:

- A materiality threshold is set for Scope 1 and Scope 2 GHG emissions. Companies can delay disclosure until the due date of their second fiscal quarterly report for the following year.

- Companies are given flexibility in determining the organizational boundary for their GHG emissions, with disclosure of any differences from the financial statements.

- The requirement to evaluate financial statements impacts line-by-line is removed, instead requiring disclosure when aggregate amounts exceed certain thresholds.

- Large accelerated filers have extended timelines for providing disclosures, with additional time for GHG emission information.

- Smaller reporting companies, emerging growth companies, and non-accelerated filers are exempt from providing GHG emission disclosures.

Despite these changes, made in an attempt to placate dissenters, the U.S. Chamber of Commerce has sued over the rule, accusing the SEC of overreaching and potentially harming investor confidence. Despite the legal uncertainties, many businesses have been preparing to comply with the rule, which was not scheduled to go into effect until 2026.

In light of these developments, the SEC has chosen to pause the implementation to focus on addressing legal challenges. Meanwhile, other jurisdictions, such as California, have already implemented climate-related reporting requirements for both publicly traded and privately held companies.

For continuing updates on ESG regulations, download Vizibl’s ESG regulation timeline today - and if you haven’t already, sign up for our newsletter to get regular updates whenever any changes are made.

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