On March 6, 2024, the SEC approved the long-awaited final rules for climate-related disclosure. Pursuant to the final rules, domestic as well as foreign private issuers (primarily through the addition of a new Item 3.E in the Form 20-F that cross-refers to new Items 1500-1507 of Regulation S-K), will be required to provide disclosures with respect to, among other things, the oversight of the board of directors and management of climate-related risks and related matters (Item 1501); the impact of climate-related risks on their strategy, business model, and outlook (Item 1502); the risk management process (Item 1503); various targets and goals for greenhouse gas emissions (GHG) emissions (Item 1504); and Scope 1 and Scope 2 GHG, including expert attestations for larger companies (Items 1505 and 1506).
Similar to the proposed rules, the final rules provide for a delayed and staggered compliance dates that vary according to the filing status of the registrants. This means, in general, compliance with most of the new subpart 1500 of Regulation S-K and the financial statement footnotes will begin in fiscal years beginning in 2025 for large accelerated filers (2026 for accelerated filers (AFs); or 2027 for smaller reporting companies (SRCs), emerging growth companies (EGCs) and non-AF), with the other disclosures, such as Scope 1 and 2 emissions and limited assurances, following over the next several years, starting with fiscal years beginning in 2026 for large accelerated filers.
It is noteworthy that the final rules are less burdensome than the March 2022 proposed rules in several key aspects, including through the elimination of the proposed Scope 3 GHG emissions disclosures (emissions stemming from the companies’ value chain); narrowing the scope of the proposed footnote disclosure in financial statements regarding, among others, the financial impacts of severe weather and other natural conditions; and establishing new safe harbors (Item 1507 of Regulation S-K) for forward-looking disclosures related to transition plans to manage material transition risks (Item 1502(e)), scenario analysis to assess the impact of climate-related risks (Item 1502(f)), internal carbon price (Item 1502(g)), and climate-related targets and goals (Item 1504). However, the final rules still represent a significant change in the reporting requirements in the U.S., and advance preparation is highly recommended.
The SEC’s adoption of these rules is part of a global trend that began with the introduction of NFRD by the EU, followed with the adoption of the CSRD (Corporate Sustainability Reporting Legislation), effective January 5, 2023, that requires EU businesses, including qualifying EU subsidiaries of non- EU companies, to disclose their environmental and social impacts.
In light of the above, companies are advised to carry out a comprehensive and in-depth process, which includes identifying their critical climate risk exposures and formulating a strategic climate risk management plan in order to mitigate those risks.
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Please note that the above is only a general summary of relevant SEC rules.
Readers should seek specific legal advice before taking action with respect to the matters discussed herein. This alert is provided by Goldfarb Gross Seligman & Co. for informational purposes only and should not be construed as a legal opinion.
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For further information, please get in touch with your regular contact at Goldfarb Gross Seligman or with:
Ido Zemach, Partner, International and Hi-Tech Department – [email protected]
Idit Reiter, Co-Head of the Environmental Law and Sustainability Department – [email protected]
Merav Tabib, Co-Head of the Environmental Law and Sustainability Department – [email protected]
