In March 2024, the Securities and Exchange Commission (SEC) approved a long-awaited final rule that requires significant details about an SEC registrant’s climate-related risks, with phased-in requirements starting in fiscal year 2025. 

While the SEC issued a stay on April 4, 2024, pausing the implementation of the rule due to judicial review, the agency plans to vigorously defend the rule. The stay does not mean that adoption dates will be pushed back, therefore preparing for adoption is advised as it takes time to implement these reporting processes and controls.

Accounting departments will likely be involved in complying with these disclosures since they will be included on 10-Ks and other SEC filings. The SEC expects the first year of compliance to cost more than $1 million.

The final rule adds new sections to both Regulation S-K and Regulation S-X; see the table below for details. The Regulation S-X disclosure requirements include a financial statement footnote of expenditures and capitalized costs and charges related to severe weather, subject to a 1% disclosure threshold. Accounting departments will likely be asked to track this data.

As well, the new rule requires that SEC registrants disclose in a single financial statement footnote whether the estimates and assumptions used to produce the consolidated financial statements were materially impacted by exposures to risks and uncertainties associated with – or known impacts from – any severe weather events and other natural conditions, disclosed climate-related targets, or transition plans.

If so, the registrant would be required to provide a qualitative description of how such events have impacted the development of the estimates and assumptions used when preparing financial statements.

See the article, "Key Details on SEC’s New Climate Disclosure Rule" for more information, or contact Steve Wilkerson.

Steve Wilkerson, CPA, CFSA, is a Denver-based senior manager on FORVIS’ ESG and Climate Risk Team. He is an FSA Credential Holder and serves on the COCPA ESG Working Group. For more information on the ESG Working Group, contact Stephanie Bass at stephanie@cocpa.org.