ESG INTEL
...On How Climate Transparency Creates Web of Requirements
Written by Leslie Wong and Hussein Sayani
Since its release in March, the Securities and Exchange Commission’s (SEC) Climate Change Reporting Rule has dominated climate change disclosure discussions. However, the rule includes pointed deviations from California’s groundbreaking climate change disclosure legislation released in late 2023. These differences have formed one of the biggest disclosure challenges in the United States (e.g., how to align multiple disclosures to cover requirements without creating conflicts). Additionally, New York, Washington, and Illinois are following suit with California by drafting similar regulations. Together, the four states represent 28% of the U.S. GDP, indicating that these regulations will have a similar impact to the SEC Climate Change Disclosure Rule.
Let’s delve deeper into the specifics of these legislative efforts and examine the implications for U.S. companies.
SEC: The Enhancement and Standardization of Climate-Related Disclosures for Investors (17 CFR 210, 229, 230, 232, 239, and 249) Adopted: March 6, 2024 Disclosure Due: Phased from 2025 to 2028 based on filing status Targets: Public companies, with more disclosure required from larger companies Requirements: Mandatory annual disclosure of material scope 1 and 2 GHG emissions, financial impacts of severe weather and natural events, and climate-related risks and risk management strategies. Adherence to GHG Protocol and TCFD is not required. Assurance of Data: Limited assurance initially, progressing to reasonable assurance
California: Climate Corporate Data Accountability Act (Senate Bill [SB] 253) and Climate-Related Financial Risk Act (SB 261) Enacted: October 7, 2023 Disclosure Due: Phased in from 2026 to 2027 Requirements: SB 253 requires mandatory annual disclosure of scope 1, 2, and 3 GHG emissions in alignment with the GHG Protocol for public and private companies doing business in California with a total annual revenue exceeding $1 billion. SB 261 requires public and private companies doing business in California with total annual revenues exceeding $500 million to provide a mandatory biennial disclosure and discussion of climate-related risks in alignment with the Task Force on Climate-Related Financial Disclosures. Assurance of Data: Limited assurance initially, progressing to reasonable assurance
New York, Washington, and Illinois: Emerging Climate Disclosure Regulations Following California’s lead, New York (SB 2023-S897A), Washington (SB 6092), and Illinois (House Bill 4268) have taken significant steps toward enacting their own climate disclosure mandates. The bills are in various stages of active legislative review. While some of the requirements are evolving (e.g., timing and assurance), each proposed bill currently requires mandatory annual disclosure of scope 1, 2, and 3 GHG emissions for public and private companies doing business in the respective state with total annual revenues exceeding $1 billion, in alignment with the GHG Protocol. If all three bills are passed in their current form, this will extend scope 3 reporting requirements to include companies making up over 25% of the U.S. economy.
Moving from GHG Disclosures to Corporate Climate Accountability While much of the ESG discourse has focused on GHG emissions thus far, recent regulations have shifted toward more comprehensive climate disclosures and accountability. The SEC and California require businesses to be transparent about the full extent of climate impacts on their operations, including climate risks, risk management strategies, and how carbon offsetting is used to reach reduction goals. The SEC rule goes a step further, requiring companies to disclose how extreme weather and natural events impact their financial statements—a clear sign that understanding the financial implications associated with climate risks is as critical as the environmental ones.
Implications for Companies As companies navigate the expanding landscape of climate disclosure regulations, they face a complex web of reporting requirements. In addition to state and SEC regulations in the U.S., companies with significant investments/operations in the European Union (EU) will also need to comply with the EU Corporate Sustainability Reporting Directive by 2028.
While these climate disclosure rules specifically target larger companies, the scope 3 GHG emissions reporting requirements will have ripple effects across supply chains. Smaller companies within the value chains of larger companies will need to collect and report their emissions data to meet customer compliance obligations.
Beyond compliance, there is an opportunity for businesses to turn these challenges into competitive advantages. Demonstrating transparently in climate disclosures can enhance a company’s reputation, build trust with stakeholders, and provide valuable insights for managing climate-related risks.
To explore how these regulations might impact your business and/or to transform compliance challenges into opportunities for sustainable growth, contact your Langan Project Manager or Langan’s ESG Advisory practice:
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Leslie Wong
Senior Associate
lwong@langan.com
Hussein Sayani
Senior Project Manager
hsayani@langan.com
Leslie Wong
Senior Associate
lwong@langan.com
Hussein Sayani
Senior Project Manager
hsayani@langan.com