Navigating SEC regulations: What US businesses need to know

Investors, policymakers, and consumers are demanding greater accountability, making climate reporting a critical component of corporate sustainability and financial strategy. The US SEC regulations represent a significant shift in the U.S. regulatory landscape, requiring publicly traded companies to disclose climate risks, greenhouse gas emissions, and financial impacts. 

These rules align with global reporting frameworks, ensuring that corporate sustainability data is consistent, comparable, and investor-relevant. With 92 percent of S&P 500 companies already publishing sustainability reports, standardised reporting is quickly becoming the norm rather than the exception. Keep reading as we dive into the SEC Climate Rules and share tips for navigating them. 

What are the SEC Climate Rules? 

The SEC Climate Rules refer to a set of proposed regulations by the U.S. Securities and Exchange Commission (SEC) that aim to enhance and standardise climate-related disclosures for publicly traded companies in the United States. These rules are intended to improve transparency, consistency, and comparability of climate-related financial risks, helping investors make more informed decisions.

Below are some of the key aspects of the SEC Climate Rules. 

Mandatory climate risk disclosures

Public companies must disclose how climate-related risks impact their business, strategy, and financial performance. Moreover, businesses must explain their approach to identifying, assessing, and managing these risks. 

Greenhouse Gas (GHG) Emissions reporting

Companies must report their Scope 1 and Scope 2 emissions (direct and indirect emissions from operations and energy use). Scope 3 emissions (from supply chains and product use) may be required if they are material or if the company has set emissions reduction targets.

Governance and oversight

Companies must describe how boards and management oversee climate risks. This includes detailing board expertise, climate-related committees, and accountability mechanisms.

Climate impact on financial statements

Businesses must disclose how climate-related risks affect financial performance, expenditures, and revenue. This includes the costs of climate-related mitigation, adaptation, and regulatory compliance.

Alignment with global standards

The SEC rules are influenced by existing frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol. This makes US regulations more comparable with EU standards such as the CSRD and the SFDR.

Who is affected by the SEC regulations? 

The SEC climate regulations primarily impact publicly traded companies in the United States, but their effects extend beyond these firms to investors, private companies, and global markets. Below is a breakdown of who is directly and indirectly affected. 

Publicly traded companies (SEC Registrants)

• Large Accelerated Filers (LAFs): Companies with market capitalisation above $700 million must comply with the full disclosure requirements, including Scope 1 & 2 greenhouse gas (GHG) emissions.
• Accelerated and Non-Accelerated Filers: Companies with a market cap between $75 million and $700 million also need to report climate-related financial risks but may have longer compliance timelines.
• Smaller Reporting Companies (SRCs): Companies with less than $75 million in market cap may have less stringent disclosure requirements or exemptions.

Foreign Private Issuers (FPIs) listed on US Exchanges

Non-U.S. companies traded on US stock exchanges are also subject to SEC rules and regulations, similar to their U.S. counterparts. Many FPIs already comply with EU regulations like CSRD, so the SEC rules increase alignment with global sustainability standards.

Private companies in public supply chains

The SEC’s Scope 3 reporting requirements (if applicable) may impact private companies that supply goods and services to publicly traded firms. Many large corporations will require private suppliers to track and report their emissions to help them comply with disclosure rules. This creates a ripple effect, pushing climate-related disclosure expectations across industries.

Institutional investors and asset managers

Investment firms, hedge funds, and pension funds heavily rely on corporate climate disclosures to assess financial risks tied to climate change. If companies disclose more structured and standardised ESG data, investors can make better-informed decisions. For instance, large asset managers like BlackRock and Vanguard have already pushed for stronger climate risk disclosures from portfolio companies.

Corporate boards and executives

The new rules hold corporate leadership accountable for climate risk management. Boards must ensure oversight of sustainability-related financial risks, integrating climate considerations into corporate governance and strategic planning. With this in mind, companies need dedicated sustainability teams or Chief Sustainability Officers (CSOs) to navigate compliance.

Regulatory and legal entities

SEC enforcement teams will monitor compliance, with potential penalties for misleading or incomplete climate disclosures. Therefore, companies may face litigation risks if investors claim they were misled about climate-related financial risks. The SEC’s move here also aligns the U.S. with global climate disclosure frameworks, influencing regulators in other countries.

How businesses can comply with the SEC regulations 

With the SEC Climate Rules set to introduce mandatory climate-related disclosures, businesses must take proactive steps to ensure compliance. Here are some key strategies to help businesses prepare for and meet the new requirements effectively:

Conduct a climate risk assessment

Businesses must identify both physical and transition risks related to climate change that could impact operations, supply chains, and financial performance. Physical risks include extreme weather events, rising sea levels, and changing climate patterns, while transition risks involve regulatory changes, carbon pricing, and shifting consumer preferences. A robust climate risk assessment should be integrated into Enterprise Risk Management (ERM) frameworks to enable ongoing monitoring and proactive mitigation strategies.

Establish a Greenhouse Gas (GHG) Emissions inventory

A fundamental step in climate reporting is measuring and tracking Scope 1 and Scope 2 emissions. Scope 1 emissions refer to direct emissions from company-owned sources such as facilities and vehicles, while Scope 2 emissions cover indirect emissions from purchased electricity or energy. 

In cases where Scope 3 emissions (value chain emissions) are material to financial performance or the company has emissions reduction targets, they should also be assessed. Businesses should follow recognised reporting frameworks such as the GHG Protocol to ensure accuracy and standardisation in emissions tracking and disclosure.

Align with established climate reporting frameworks

The SEC’s climate disclosure rules align closely with existing international sustainability standards, making it essential for businesses to structure their reporting accordingly. Companies already adhering to the TCFD, the International Sustainability Standards Board (ISSB), or the GHG Protocol will have an advantage in SEC compliance. Additionally, businesses already following EU sustainability regulations like the CSRD may find it easier to align with the SEC’s new requirements.

Strengthen governance and oversight

To ensure climate-related risks and opportunities are properly managed, businesses must integrate climate risk oversight into their corporate governance structures. This includes assigning responsibility for climate risk management to the board of directors or a sustainability committee. Executive teams should be well-informed about how climate risks impact business strategy and leadership should undergo training on climate-related financial risks to support informed decision-making.

Enhance data collection and reporting systems

Accurate climate-related data is critical for compliance and effective decision-making. Businesses should implement technology solutions such as ESG reporting software to ensure reliable data collection, verification, and reporting. 

Scenario analysis should be used to model how climate risks could impact financial performance over time. Ensuring internal teams and external stakeholders have access to standardised, trustworthy climate data is key to meeting disclosure requirements.

Set science-based targets (if applicable)

Companies with net-zero commitments or long-term sustainability goals must ensure their targets align with science-based frameworks. The Science-Based Targets Initiative (SBTi), the Paris Agreement’s 1.5°C pathway, and sector-specific decarbonisation roadmaps provide guidance for businesses to align with global climate objectives. Aligning with these frameworks not only prepares businesses for future regulatory changes but also demonstrates a credible commitment to sustainability.

Prepare for increased scrutiny from investors and regulators

As climate-related financial disclosures become more standardised, investors and regulators will closely evaluate climate reports. Businesses must ensure accuracy, completeness, and transparency in their disclosures, as any misleading claims could result in regulatory penalties and reputational damage. Companies should also be prepared to justify climate-related financial assumptions and scenario analyses, ensuring credibility in their sustainability commitments and risk management strategies.

Engage with legal and compliance experts

Given the evolving nature of climate disclosure regulations, businesses should work with ESG consultants, auditors, and legal teams to ensure full compliance with SEC requirements. Staying updated on legal challenges, regulatory modifications, and industry best practices will help businesses navigate the changing climate reporting landscape and avoid compliance risks.

Conclusion

The SEC Climate Rules mark a turning point in corporate sustainability accountability. As regulations tighten, businesses that invest in climate risk assessment, emissions tracking, and transparent disclosures will gain a competitive edge. Investors, consumers, and regulators will continue to scrutinise climate-related financial risks, making credible and data-driven sustainability reporting a business necessity rather than an option. 

Looking ahead, SEC enforcement will shape corporate climate action, and businesses should anticipate further integration with global reporting standards. With climate regulations becoming the new norm, businesses that act early can mitigate compliance risks, build resilience, attract investors, and drive long-term value.