The U.S. Securities and Exchange Commission recently released final rules on corporate climate disclosures, requiring companies to outline their internal carbon pricing if it’s significant to their business. These rules aim to provide investors with better information on climate risks and how companies are addressing them. The rules, which are almost 900 pages long, are part of the SEC’s efforts to streamline climate disclosure frameworks and make information more accessible to investors.
The finalized rules saw significant changes from the proposed ones, with provisions for reporting greenhouse gas emissions being watered down. The internal carbon pricing provision is particularly important for the tax community, as companies are now required to disclose their estimated cost of carbon emissions used internally. Companies must disclose the price per metric ton of carbon dioxide and the total carbon pricing, with exceptions for companies using multiple pricing strategies.
Despite the perceived ease of compliance with the finalized rules, they have faced significant opposition from the business community. Companies are concerned about the burden and costs of compliance, as well as potential violation of their free speech rights. Some argue that the rules require disclosure of confidential information that could pose risks to their business. These concerns have led to a historic amount of feedback, with about 5,000 comments received by the SEC during the rulemaking process.
A safe harbor within the rules protects companies from liabilities arising from forward-looking statements related to internal carbon pricing. This protection allows companies to freely disclose their pricing strategies without fear of litigation, as they face increasing scrutiny from investors, consumers, and states over their climate policies. Internal carbon pricing is seen as a key data point for assessing how well companies are managing climate risks, making capital investment decisions, and planning for potential costs in the event of a national carbon price.
Reactions from the business community to the finalized rules have been mixed, with nearly 20 states suing the SEC over the rules. Some argue that the rules are too burdensome and could harm supply chains, while others believe they do not provide enough information for informed decision-making. Lawsuits have been filed by fracking companies, state attorneys general, business interest groups, and environmental organizations, creating uncertainty around the implementation of the rules. The Eighth Circuit will be taking on the state lawsuits, while the rules remain in operation despite facing legal challenges.
Moving forward, the fate of the climate disclosure rules remains uncertain. The rules could be narrowed, struck down, remain the same, or potentially even be expanded in response to feedback from stakeholders. Starting around 2026, public companies will be required to disclose their internal carbon prices and greenhouse gas emissions data, providing investors with a clearer picture of their climate risks and mitigation strategies. The evolving landscape of climate disclosure regulations will continue to be a significant issue to monitor in the coming years.
