SEC Proposed Climate Disclosures

In March 2022, the SEC unveiled a draft rule to address climate risk disclosures, marking a significant step towards enforcing corporate transparency on the financial and operational impacts of climate change. This initiative drew an overwhelming response, sparking intense discussions on the extent of the rule, the SEC’s regulatory authority, and the fundamental changes required by corporations.

Despite expectations for a final rule in the fall of 2023, the volume and nature of the feedback led to a postponement, with the new rule now slated for release in the second quarter of 2024. This rule is set to mandate both domestic and international companies to integrate climate-related information within their registration statements and annual reports.

A summary of proposed points includes: (from the SEC FACT SHEET on Enhancement and Standardization of Climate-Related Disclosures)

• Climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;
• The registrant’s governance of climate-related risks and relevant risk management processes;
• The registrant’s greenhouse gas (“GHG”) emissions, which, for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance;
• Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and
• Information about climate-related targets and goals, and transition plans, if any.

This proposed regulation represents a transformative approach to corporate responsibility and climate accountability in the US. It would set a new standard for transparency in the face of climate challenges.

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California’s Climate Disclosure Laws

By the close of 2024, businesses affected by California’s Climate Corporate Data Accountability Act (SB253) and Climate-Related Financial Risk Act (SB261) must prepare to audit their 2025 emissions for 2026 reporting.

In October 2023, Governor Newsom signed into law California Senate Bill 253 (“SB 253”), the Climate Corporate Data Accountability Act, and Senate Bill 261 (“SB 261”), the Climate-Related Financial Risk Act, which together comprise the core of California’s “Climate Accountability Package.”  Both laws aim to increase transparency and accountability for companies operating within the state.

The passage of these two laws marks the first time that large corporations—whether publicly-traded or privately-held—are going to be required to make public their impact on the environment, including their Scope 3 supply chain emissions.

California’s climate disclosure laws align with global initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB), which aim to standardize reporting and increase transparency around climate risk and impact reporting.

The Climate Corporate Data Accountability Act requires the reporting of Scopes 1, 2, and 3 greenhouse gas emissions. Scope 1 involves emissions from sources that a business directly owns or controls. Scope 2 is any emissions from electricity and energy sources that a company purchases, and Scope 3, which is often the hardest to measure and usually the largest proportion of a company’s greenhouse gas footprint, is emissions from the supply chain. Scope 3 emissions are from indirect sources that the business does not own or control.

For the Climate-Related Financial Risk Act, the disclosures involve what are considered material risks to the company’s immediate and long-term financial outcomes as set out by the Task Force on Climate-Related Financial Disclosures. Companies will need to report on such material risks as well as any measures that have been adopted to reduce or adapt to them.

The Climate Corporate Data Accountability Act impacts any business with over a billion dollars in revenue that does business in California. The Climate-Related Financial Risk Act impacts any business with over 500 million dollars in revenue that does business in California. So if a company’s impacted by the Climate Corporate Data Accountability Act, they’ll also be impacted by the Climate-Related Financial Risk Act.

FTC Green Guides Update

The long-awaited updates to the US Federal Trade Commission Green Guides are expected to be announced in 2024. The guides help marketers understand how to avoid misleading environmental claims, also sometimes known as “greenwashing.”

From FTC.gov: “The Green Guides were first issued in 1992 and were revised in 1996, 1998, and 2012. The guidance they provide includes: 1) general principles that apply to all environmental marketing claims; 2) how consumers are likely to interpret particular claims and how marketers can substantiate these claims; and 3) how marketers can qualify their claims to avoid deceiving consumers.”

The FTC has been collecting public comments in preparation for the upcoming revisions. Food companies should expect “new guidance on marketers’ use of product certifications and seals of approval, claims about materials and energy sources that are “renewable,” and “carbon offset” claims.”

Learn how HowGood’s sustainability intelligence platform, Latis, helps leading brands, retailers, suppliers and restaurants to measure, manage, and report their environmental and social impact.

Schedule a time to meet with our team for a customized walk-through of how you can streamline your regulatory reporting requirements.