BiGS Actionable Intelligence:
BOSTON — As part of its campaign to roll back environmental regulations, the Trump administration is eliminating climate disclosure rules approved by the United States Securities and Exchange Commission (SEC) under former President Joe Biden.
But that does not mean climate-related disclosure will disappear. Other jurisdictions are filling the void.
California — the fourth-largest economy on the planet — is moving forward with disclosure laws, and may be joined by New York, Illinois, New Jersey and Washington state. In addition, 35 nations around the world, including 27 in the European Union (EU), are either developing, refining, or implementing climate disclosure requirements for large companies that operate in their countries.
As a result, about half of the corporations that would have been covered by SEC climate regulations will have to comply with rules imposed by other jurisdictions, according to Ceres, a nonprofit that advocates for strict disclosure policies.
“Major companies are going to wind up in the business of disclosure, and many are already doing some type of reporting,” said Ethan Rouen, a professor at Harvard Business School who has done research on corporate environmental disclosures. “The concern is that instead of reliable, comparable disclosures, there will be a patchwork due to regulatory requirements that apply to different companies in different ways. For investors and others who care about data, it will make it harder to get solid information that can be analyzed and compared.”
The fate of national climate rules
The SEC climate disclosure rules would have required companies to disclose the impact of climate change on their business strategy, their process for mitigating climate-related risks, their climate goals, and their greenhouse gas emissions. Environmentalists contend this is essential information that will inform investors about how a company will perform as extreme weather events, such as floods and fires, become more common and more severe.
“Investors believe the more information they have about companies they invest in, the better investments decisions they can make,” Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, told The BiGS Fix.
Many business leaders opposed these rules, saying compliance is time-consuming, expensive and requires companies to take resources away from core business operations. The rules, they argue, amount to micro-managing.
Climate disclosure rules normally require disclosing emissions from a company’s operations, known as Scope 1, and emissions from the generation of power a company uses, known as Scope 2. More stringent regulations require disclosing Scope 3 emissions, which are caused by a business’s suppliers and consumers when they use a company’s roduct.
Last year, the SEC, under chairman Gary Gensler, appointed by Biden, passed climate disclosure rules that would have required publicly traded companies to report Scope 1 and Scope 2 emissions, but not from Scope 3.
Shortly after the rules were approved in 2024, a coalition of Republican state attorneys general, the United States Chamber of Commerce, and other businesses challenged the rules in court, contending they fell outside the authority of the SEC. In response, the SEC paused enforcement until the litigation could be resolved.
Recently the SEC, under Republican control, decided against defending the rules in court. In a news release, Mark Uyeda, a Republican appointee who was interim chair of the commission, called the climate change disclosure rules “costly and unnecessarily intrusive.”
The court may strike the law down, or the Republican-controlled commission may rescind it. Either way the disclosure rules would not take effect.
California’s rules demand more
Stricter rules than those from the SEC are coming in both California and the European Union (EU).
Unlike the SEC, California’s rules apply to both public and private companies. In addition, they require the companies covered by the law to disclose Scope 3 emissions, the largest category for most businesses. Ceres estimates California’s law will cover more than 3,000 companies.
California has two main laws. The Climate Corporate Data Accountability Act applies to companies with $1 billion in revenues and mandates them to report all three emission types. The Climate-Related Financial Risk Act requires companies with more than $500 million in revenues to report climate-related financial risks and threats each year.
Both apply to companies that conduct business in California, but state officials have yet to define what that means. Consequently, enforcement of the law has been delayed for at least a year.
Authors of California’s legislation urged state administrators to move more rapidly, given the likelihood that federal rules would be scuttled. “It is critical that this landmark piece of legislation proceed in a robust and timely manner to preserve California’s historic role as a leader and a backstop in the fight against climate change,” wrote state Senators Scott Weiner and Henry Stern.
Business interests challenged California’s laws in federal court. These laws, they argued, could create chaos because liberal-leaning states might require more disclosures, while conservative-leaning states could do the opposite: impose liability on companies that follow California’s laws.
“Because of California’s actions, the U.S. is now on the precipice of seeing individual states weaponize environmental regulations and corporate disclosure laws against one another, with companies and investors stuck in the middle,” wrote Tom Quaadman, a senior vice president at the U.S. Chamber of Commerce.
A judge’s ruling allowed the California laws to take effect, while also leaving open the possibility of future legal challenges.
European Union moves forward, but more slowly
In January, French President Emmanual Macron asked the European Union to slow down the implementation of disclosure regulations, calling for a “massive regulatory break” to reduce compliance work for European companies and help them become more competitive.
In response, the European Union has exempted about 80% of the companies that would have been required to disclose climate and other information and has pushed back reporting deadlines for most companies still subject to the rules.
The requirements apply to non-E.U. entities that have significant revenues in the E.U.; subsidiaries that meet certain revenue thresholds; or entities listed on an exchange regulated by the E.U. That amounts to about 3,000 companies, according to an estimate by the Wall Street Journal.
The E.U.’s disclosure rules include the Corporate Sustainability Reporting Directive (CSRD). It requires companies to disclose information about environmental, social and governance (ESG) policies, including labor practices, diversity initiatives, energy consumption, and greenhouse gas emissions.
Like California, the E.U.’s reporting requirements apply to large private companies and mandate disclosure of Scope 3 emissions. In addition, the rules require a “double materiality” analysis. That means companies must describe not only how climate change is affecting them, but also how they are impacting climate change.
Climate disclosure already occurring
No matter what regulators do, many companies already disclose greenhouse gas emissions. Indeed, some investors demand it.
CalSTRS, the pension for California teachers and the second largest in the country, expects all companies it invests in to disclose emissions that come from the company’s operations and the generation of power it uses, said Mindy Tirapelle, media relations officer for the pension fund.
“We expect all portfolio companies . . . to help effectively manage the risks and opportunities associated with climate change,” she wrote, in an email.
Deloitte, in its 2024 Sustainability Action Report, published results of a survey showing that 74% of respondents said their companies disclose Scope 1 emissions and 53% said they disclose Scope 2 emissions. Only 15% said their companies disclose Scope 3 emissions. The survey was completed by 2,100 executives from 27 countries.
Respondents said disclosures help enhance their brand reputation, increase trust from stakeholders, attract talent, and reduce their risk from climate change. But they also said that disclosing climate information was difficult, with 76% saying the top challenge was gathering accurate and complete data.
Virtually all respondents said they are preparing for more stringent requirements in the future.
Rothstein said that, despite the SEC’s position, disclosure requirements are going to expand in the long-term. As he put it, “There is an inevitable march toward more information.”