An Investor Guide to the SEC Rule on Climate-Related Disclosures
An Investor Guide to the SEC Rule on Climate-Related Disclosures
A new SEC climate-related disclosure rule will help investors assess financial risk and strengthen the health and stability of the US financial system.
On March 6, 2024, the Securities and Exchange Commission (SEC) issued a final rule for “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” The rule requires covered companies to disclose certain types of climate-related information, bringing climate risk disclosure on par with other financial reporting requirements for publicly traded companies.
The SEC requirements will be phased in over several years and will replace inconsistent, voluntary reporting of climate risk exposure with clear and consistent standards. The rule marks an essential step forward in enhancing investors’ capacity to manage portfolio-wide climate risks, protecting the overall health of the financial system.
This investor guide provides investors with an overview of the rule and its key components, summarizes the implications of the rule, puts it into context with other international frameworks, and maps out next steps towards implementation.
This rule represents a crucial step forward in climate-related financial risk reporting and will strengthen the overall health and stability of the financial system. We recommend that investors – the direct beneficiaries of this rule – publicly voice their perspectives on climate risk disclosure to help inform and support the rule’s implementation.
Transparency around the scope and scale of climate risk is fundamental to healthy investment markets. Climate change adds risk to the financial system through physical climate risks, such as extreme weather events that damage companies’ assets and operations, and transition risks to companies’ business models linked to shifts in policy, technology, and consumer demand. These risks are distributed unequally across regions, sectors, and individual businesses.
- Climate risk is financial risk.
- Investors need better information to make more informed investment decisions.
- The rule brings disclosure of climate-related financial risks level with the disclosure of other forms of financial risk.
- Climate disclosure rules are rapidly becoming the norm.
What comes next
Rigorous, standardized climate risk disclosures are essential for investors to accurately price risks and allocate capital prudently, which is why investors have supported the need for a mandatory disclosure framework offering comparable, specific, and decision-useful information about climate risk.
Investors can help ensure that the rule successfully goes into effect by supporting it publicly and otherwise. This can include restating previous endorsements, issuing new statements of support, engaging with professional membership organizations to encourage support for (and discourage opposition to) the rule, and participating directly in litigation over the rule. When implemented, the SEC rule will improve the quality and quantity of climate risk information available to investors in the U.S. market.
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Investor Guide to the SEC Rule on Climate-Related Disclosures
Authors: Stephanie Jones, Andrew Howell, CFA, Guillaume Morauw, Marie Li, Maximilian Schreck, Elle Stephens
A new SEC climate-related disclosure rule will help investors assess financial risk and strengthen the health and stability of the US financial system.
