What to expect about the SEC climate rule in 2024

What a difference a year makes.

In early 2023, the SEC climate rule was hotly anticipated. The proposal brought in almost 15,000 comment letters—and received serious pushback, especially around the area of Scope 3 emissions. Some groups threatened to sue.

But this year, other jurisdictions released new regulations that have stolen some of the SEC’s thunder. While the SEC rule is still consequential, it’s not the looming behemoth it once was. Wes Bricker, vice chair and US trust solutions co-leader at PwC, spoke with CFO Brew about the timing of the climate rule, how it differs from other regulations, and what CFOs should do when it’s released.

The ides of . . . April? We can likely expect the climate rule to appear by April. That’s because 2024 is an election year, Bricker said. Each incoming Congress has the opportunity to examine—and perhaps overturn—any final regulatory actions passed by federal agencies in the six months before it was seated. The SEC will want to finalize the climate rule ahead of that lookback period, Bricker said.

The SEC got lapped: Other jurisdictions, including California and the EU, have beaten the SEC to the punch, releasing their own climate regulations that cover much of the same ground. “The prominence of the SEC proposal 18 months ago was that it was sort of up ahead of everyone else,” Bricker said. “And now everyone else has caught up and in some places surpassed it.”

The California and EU regulations apply to most of the companies that will need to comply with the SEC rule—California, for instance, is the world’s fifth-largest economy, and its climate rule applies to any company, private or public, with $1 billion or more in revenue that does business within its borders.

As a result, many companies will have done the heavy lifting before the SEC rule comes out. “The marketplace still cares about the SEC rule,” but companies have fulfilled the “core burden” of compiling and analyzing their climate data, Bricker said. Other jurisdictions’ rules have “reduced the focus on the costs and burdens” of the SEC rule and “sharpened the discussion to the content within corporate disclosures,” he said.

Additionally, the other climate rules may make it less likely the SEC will be sued. The risks accompanying a lawsuit are higher: Even if an organization won against the SEC, it’d still have to comply with the other jurisdictions’ legislations, Bricker pointed out, and the suit would leave the regulatory landscape more “fragmented.” And such an action could hurt its chances of “being able to engage with the SEC on interpretations that may be needed.”

New wrinkles in the SEC rule: The SEC's proposed rule has unique aspects that don’t appear in the same form in other climate rules, Bricker said. For instance, it requires the highest level of assurance—reasonable assurance—whereas the other rules require limited assurance. The SEC rule will also mandate that companies integrate their climate disclosures with their “financial and corporate governance disclosures, with liability [for] material errors or omissions.” (Other rules require some integration, but “not as comprehensively” as the SEC rule, Bricker said.)

Your climate resolutions for ’24: CFOs should be aware that the climate regulations will integrate climate reporting with executive compensation, Bricker said. There can be severe penalties for misreporting climate data, including clawbacks of executive compensation—all the more reason to bring “real rigor” to ensuring “the completeness and accuracy of information.”

CFOs must also pay close attention to the environmental records of companies they plan to acquire, partner with, or purchase from. Acquiring a company with weak ESG fundamentals or working with suppliers “who are “lagging on their own [climate] transformation” could be “dilutive to the corporate carbon footprint,” Bricker said.

Procurement and M&A decisions, which “CFOs drive,” get at the greater purpose behind the climate regulations, Bricker said. “That’s where we’ll get from promises to performance,” he observed, “when CFOs and other executives take the data and the commitments and turn it into action.”