In a landmark move for the US, the country’s Securities and Exchange Commission (SEC) recently finalised the first climate disclosure rules that will apply nationwide.
The move comes amid rising pressure on companies to cut greenhouse gas (GHG) emissions from both their direct and indirect operations and marks a significant step from the US towards prioritising corporate transparency in the era of Assurance 4.0 – the new era of risk management.
Although the finalised rules are scaled back from what was previously proposed, the development marks a pivotal moment in environmental accountability for the US, as investors continue to push for standardised requirements for companies.
Key points of the new rules
The new SEC rules mandate in-scope companies (all domestic SEC registrants) to disclose various aspects related to climate-related risks, aimed to provide investors with information needed to evaluate the impact of climate change on businesses. The required disclosures include:
- Climate-related risks that are likely to impact the company’s business strategy, operations, or financial condition.
- Actual and potential material impacts of these climate-related risks on the business.
- Processes for identifying, assessing, and managing material climate-related risks, integrated into the overall risk management system.
- Information about any climate-related targets or goals significantly affecting the company’s business, results of operations, or financial condition.
- The financial costs related to severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise.
- The financial costs related to carbon offsets and Renewable Energy Credits or Certificates (RECs) if used as a material component of an organisation’s plans to achieve its disclosed climate-related targets or goals.
The final rules are set to become effective 60 days after publication in the Federal Register, with compliance phased in from 2025.
The final rules are set to become effective 60 days after publication in the Federal Register, with compliance phased in from 2025. This timeline provides companies with an opportunity to prepare for the new reporting requirements and align their strategies accordingly.
Competitive advantage through improved transparency
The finalised SEC rules require some in-scope companies to disclose Scope 1 and Scope 2 emissions with an assurance report. Third-party assurance for Scope 1 and Scope 2 emissions plays a crucial role in enhancing the credibility, transparency, and accountability of emissions reporting and helps companies provide stakeholders with reliable information to make informed decisions and better understand an organisation’s environmental impact from its operations.
Third-party assurance can improve stakeholder confidence in a company's performance and, by undergoing independent verification, companies demonstrate their commitment to transparency and accountability, fostering trust among investors and other key stakeholders.
A data-driven approach is critical to navigating both the challenges and opportunities within the era of Assurance 4.0.
Supply chain integrity as the new standard
While the final rules represent a groundbreaking step for the US in climate disclosure, they also include scale backs compared to the original proposal. The finalised rules now only pertain to large public companies and Scope 3 emissions disclosure has been dropped, which accounts for the majority of a company’s carbon footprint.
However, it is still in clients’ best interests to include Scope 3 in their reporting as part of their due diligence processes and wider efforts to demonstrate trust and transparency for stakeholders. Other US regulations – such as California’s SB 253 in the US and the Corporate Sustainability Reporting Directive (CSRD) in the EU – coupled with heightened media scrutiny and growing investor pressure, means Scope 3 emissions remain a priority.
As the regulatory landscape continues to evolve, companies must remain vigilant and proactive in adapting to emerging requirements and demonstrating their commitment to sustainability and transparency. LRQA supports materiality, science-based targets, strategy, training and improvement services, while understanding how to monitor and track both human and environmental impacts in your supply chain.
A data-driven approach is critical to navigating both the challenges and opportunities within the era of Assurance 4.0. Through data-driven insights, LRQA supports clients to increase visibility, enhance risk management and activate supplier engagement to ensure the due diligence process is well-rounded and robust. We also assess and verify data, information and reports to drive credibility and confidence with the people who matter most to you. Reach out to one of our experts to get started in enhancing your emissions tracking and supply chain due diligence.
