The SEC’s recent decision to halt its defence of mandatory corporate climate disclosures has been widely viewed as a setback. However, the reality is more nuanced.
- The US Securities and Exchange Commission (SEC) has moved to roll back climate disclosure rules[i], but Osmosis believes the impact on large listed US entities will likely be limited.
- Osmosis found the US to have high levels of corporate carbon reporting even prior to the mandate.
- Climate risks will continue to be a significant contributing factor in corporate decision-making, regardless of regulatory shifts.
- Investors continue to provide a last line of defence, holding the world’s largest organisations to account.
- Aligning with global disclosure frameworks will be critical in maintaining US corporate competitiveness.
The Evolution and Reversal of US Climate Disclosure Rules
In March 2024, under the Biden administration, the SEC implemented climate disclosure rules requiring US public companies to report on climate-related risks. These rules were designed to help standardise reporting on physical and transition risks associated with climate change, focusing primarily on greenhouse gas (GHG) emissions.
However, these rules faced significant resistance and legal challenges from the start, particularly from business organisations and Republican political figures[ii]. By the time they were established in 2024, the rules had been significantly diluted from the original 2022 proposal. They were limited to covering only Scope 1 and 2 emissions, and omitted Scope 3. Further, other environmental aspects like water usage and waste management were never considered for inclusion in the mandate. This made them considerably less comprehensive than international standards such as the EU’s Corporate Sustainability Reporting Directive (CSRD).
Criticism of the regulations’ diluted nature has come from multiple fronts. Business groups and Republican state officials have deemed them an example of regulatory overreach, while advocates for more robust climate policies argue that the scaled-back rules fall short of their intended purpose and could potentially enable greenwashing[iii].
More recently, these rules have been subject to rollback under the Trump administration[iv]. Acting SEC Chairman Mark Uyeda criticized them as “deeply flawed” and a threat to the health of the capital markets and the broader economy[v].
Investor-Led Demand for Environmental Data Remains Strong
Fortunately, investor-led demand is not dictated by political trends, but by economic reality.
Transition and reputational concerns mean listed US firms will likely continue to disclose carbon even without federal regulations. High-quality environmental data is an essential tool for investors seeking to manage risk and optimise capital allocation. Large asset managers and institutional investors are increasingly demanding comprehensive climate-related disclosures to assess environmental risks accurately across portfolios that span multiple regulatory jurisdictions.
Further, despite the political and regulatory headwinds, the market for sustainable investments continues to grow, with a significant portion of US assets now governed by stewardship policies focused on sustainable criteria. Osmosis found that US firms in the MSCI World Index had a weighted carbon disclosure rate of 96.7% in February 2024, prior to the emissions disclosure mandate.
State and Regional Regulations Will Continue to Drive Disclosure
At a time when federal efforts are hampered by legal and political hurdles its important not to forget the role of individual states in driving climate accountability.
Some US states are implementing their own climate-related disclosure laws. California now mandates that companies with over $1 billion in revenue disclose their GHG emissions, including Scope 3, with the law including strict penalties for non-compliance after the first year of reporting[vi][vii]. Given its economic size, this will have significant implications for corporate reporting.
Other states, such as New York and Illinois, are also developing their climate reporting laws, which similarly focus on comprehensive emissions reporting for businesses exceeding certain revenue thresholds and emphasise the necessity of external verification[viii].
The need to align with global frameworks
As large US businesses operate across multiple jurisdictions, aligning with global disclosure frameworks, such as those below, is crucial for maintaining their competitive edge and ensuring compliance with international reporting standards.
- The EU’s CSRD mandates that US companies with operations in Europe adhere to strict environmental disclosure standards[ix][x][xi]. It is thought that approximately 3,000 US companies will fall under the reporting scope[xii].
- Singapore now requires listed and large non-listed companies to provide climate-related disclosures that align with International Sustainability Standards Board (ISSB) standards, including US companies operating there[xiii].
- In both the UK and Japan, climate-related disclosure is mandated as a listing requirement on both the London Stock Exchange (LSE) and the Tokyo Stock Exchange (TSE). These rules also apply to listed overseas entities[xiv][xv].
Furthermore, voluntary frameworks such as the International Sustainability Standards Board (ISSB) and the Carbon Disclosure Project (CDP) are popular among investors, encouraging US companies to voluntarily maintain high standards of disclosure to attract global investment.
[i] https://tax.thomsonreuters.com/news/trumps-sec-takes-first-step-to-rescind-climate-disclosure-rule/#:~:text=Trump’s%20SEC%20Takes%20First%20Step%20to%20Rescind%20Climate%20Disclosure%20Rule,-Soyoung%20Ho%20Senior&text=In%20a%20move%20that%20was,of%20the%20climate%20disclosure%20rule.
[ii] https://www.reuters.com/sustainability/sec-chief-says-new-california-law-could-change-baseline-coming-sec-climate-rule-2023-09-27/
[iii] https://www.theguardian.com/business/2024/mar/06/us-sec-climate-change-emissions-disclosure
[iv] https://www.linklaters.com/en/knowledge/publications/alerts-newsletters-and-guides/2023/september/20/california-legislature-passes-landmark-climate-disclosure-laws
[v] https://www.reuters.com/world/us/us-market-watchdog-aims-pause-lawsuit-over-climate-disclosures-2025-02-11/
[vi] https://www.velaw.com/insights/california-provides-flexibility-on-greenhouse-gas-emissions-reporting-law/
[vii] https://www.linklaters.com/en/knowledge/publications/alerts-newsletters-and-guides/2023/september/20/california-legislature-passes-landmark-climate-disclosure-laws
[viii] https://www.esgtoday.com/states-to-drive-mandatory-climate-reporting-forward-in-u-s-in-absence-of-sec-rules-sustainable-fitch/
[ix] https://normative.io/insight/csrd-explained/#:~:text=Though%20it’s%20an%20EU%20directive,subsidiaries%20is%20in%20the%20EU.
[x] https://watershed.com/en-GB/blog/csrd-carbon-reporting-a-guide-for-eu-companies
[xi] https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
[xii] https://www.celsia.io/blogs/when-to-report-on-the-csrd-as-an-american-company#:~:text=Around%2050%2C000%20EU%20companies%20will,including%20approximately%203%2C000%20US%20companies
[xiii] https://sustainablefutures.linklaters.com/post/102j46m/mandatory-climate-reporting-for-listed-and-large-non-listed-companies-in-singapor#:~:text=In%20a%20nutshell%3A,Board%20(ISSB)%20standards%3B%20and
[xiv] https://www.debevoise.com/insights/publications/2022/02/fca-extends-requirements-on
[xv] https://www.ey.com/en_jp/insights/sustainability/whats-next-for-japanese-sustainability-disclosure-standards
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