The SEC's new climate rule

While a step in the right direction, it does not go far enough. But even this incremental progress might be too much for the courts to accept.

Ever since Biden entered office in 2021, the US Securities and Exchange Commission (SEC) has been thinking about how to address climate change within its scope as the financial regulator in the US. After originally proposing new requirements back in 2022, last week the SEC finally adopted new climate-related disclosures for public companies in the United States. The rule, known as ‘The Enhancement and Standardization of Climate-Related Disclosures for Investors’, was approved in a 3-2 vote along party-lines.¹

AI generated: ‘Climate rule’

The approved rule requires companies disclose:

1. Their material climate-related risks,

2. “Actual and potential” material impacts of these risks on the company,

3. Climate goals and targets that could be material,

4. If they use an internal carbon price and how it impacts climate risk, and

5. A company’s material use of carbon credits.

Disclosures and materiality

US public companies (and foreign companies registered in the US) will be required to report climate-related disclosures if deemed financially material to investors. The Chairman of the SEC, Gary Gensler, noted that by “ground[ing it] in materiality” the rule was “consistent with this agency’s disclosure rules over the decades”.