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On March 6, 2024, the US Securities and Exchange Commission (SEC) adopted new rules that, per the SEC press release, will “enhance and standardize climate-related disclosures by public companies in public offerings.”
The rules will take effect 60 days following publication in the Federal Register and require publicly-traded companies in the US to disclose climate-related risks that may have a “material impact” on business strategies, finances, and/or operations. Companies must also disclose:
direct and indirect emissions (i.e., scope 2 emissions);
processes they have for identifying climate-related risks;
mitigation or planned mitigation efforts;
climate-related targets and goals; and
costs and losses incurred as a result of extreme weather and other “natural conditions”.
The SEC also contemplated requiring scope 3 emission disclosures. These pertain to supply chain and end-customer emissions, and tend to form a substantial part of a company’s carbon footprint. However, these requirements proved too controversial and vulnerable to legal challenge, resulting in their ultimate exclusion from the final rules.
Notwithstanding efforts to make the rules more amenable to affected corporations, ten states have already announced a coalition to challenge the new disclosure rules in court, claiming that emission disclosure requirements are “illegal and unconstitutional”. On the other hand, from environmentalists’ point of view, the disclosure requirements do not go far enough. Climate advocates claim that up to “60% of US-based public companies will be exempt from the rules,” and that in their watered-down state, the rules may not amount to much beyond greenwashing.
Whether or not the SEC’s capitulation on scope 3 emissions will help safeguard the rules against legal challenge remains an open question. The current conservative-weighted SCOTUS has proven generally hostile to regulation and indifferent to climate concerns. Accordingly, the new rules are forecast by many, including writers for Harvard and Columbia Law, to face challenges overcoming the “major questions doctrine” – a recent Supreme Court invention maintaining federal agencies may only regulate “major issues” with explicit congressional authorization.
In the meantime, Canada’s equivalent proposed rules have been stuck in regulatory limbo for roughly two years, presumably waiting for the SEC rules to drop first. The consultation period for Canadian Securities Administrators’ proposed National Instrument 51-107 Disclosure of Climate Related Matters, published October 2021, closed on January 17, 2022. Since then, there’s been no further movement on the subject matter.
Please contact our firm at 647-725-4308 or info@greeneconomylaw.com for legal assistance in connection with climate and/or securities law matters.