Knowledge

ESG update in the United States

February 6, 2024

Sector: ESG

Experts in our ESG committee assess the development of ESG in North America, examining the effects of new legislation and how it is changing doing business in the region during the early months of 2024.

SEC proposed rule–The enhancement and standardisation of climate-related disclosures for investors

In March 2022, the SEC proposed rules to enhance and standardise climate-related disclosures for investors that would apply to all SEC registrants.  Issuance of the final rule has been delayed multiple times due to the large amount of critical feedback received during the comment period, and is now expected by April, 2024.

Climate-related disclosure  

Disclosures included in this new section on Form 10-K would address:

  • Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions (based on the Greenhouse Gas Protocol).
  • Climate-related risks and opportunities.
  • Climate risk management processes.
  • Climate targets and goals.
  • Governance and oversight of climate-related risks.

Footnotes to the audited Financial Statements

Disclosures in the in a footnote to the financial statement would provide financial statement metrics for climate-related events (e.g., severe weather) and transition activities (e.g., efforts to reduce GHG emissions).  Such disclosures would also be subject to a registrant’s internal control over financial reporting (ICFR) and external audit.

SEC proposed rule–Human capital management disclosures

Included on the SEC’s Rule Agenda for October 2023 is a proposed rule to enhance registrant disclosure regarding human capital management and is expected to explain what information companies need to include in Form-10K when discussing topics such as safety and diversity. 

SEC–Corporate Board diversity proposed rule

Included on the SEC’s Rule Agenda for April 2024 is a proposed rule to enhance registrant disclosure about the diversity of board members and nominees.

Proposed climate disclosure rule for federal contractors

Under the proposed rule by the Federal Acquisition Regulation, federal contractors would be required to disclose their greenhouse gas (“GHG”) emission levels and set science-based reduction targets.  There is no set date for the final rule; it could potentially be late 2023 or early 2024.

Contractors receiving between $7.5MM and $50MM in federal contracts (significant contractors) will be required to disclose their Scope 1 and 2 GHG emissions.  Compliance timeline for reporting is one year from the final rule effective date.

Contractors receiving more than $50MM in federal contracts (major contractors) will be required to disclose their Scope 1 and 2 emissions and “relevant” Scope 3 emissions.  Compliance timeline for reporting Scope 1 and Scope 2 emissions is one year from the final rule effective date and for Scope 3 emissions, two years from the final rule effective date.  Additionally, major contractors will be required to disclose its climate-related financial risk factors and to develop science-based emissions targets.  Compliance timeline is two years from the final rule effective date.

California climate disclosure bills

California issued three pieces of legislation into law in October 2023 that imposes climate-related disclosure obligations on companies with certain ties to California.

Voluntary Carbon Market Disclosures Act (AB 1305)

AB 1305 is focused on voluntary carbons offsets (“VCOs”) and related net zero claims. AB 1305 applies to entities that operate and make emissions claims within California or buy/sell VCOs within California, regardless of size or revenues.

  • Companies making claims regarding net zero emissions or carbon neutral status will be required to disclose how it determined the accuracy of such claims.
  • Companies making emissions claims and buying or using VCOs will be required to disclose detailed information about the VCOs.
  • Companies marketing or selling VCOs will be required to disclose details regarding the carbon offset project.

The effective date of AB 1305 is January 1, 2024, with information updated at least annually. 

Climate Corporate Data Accountability Act (SB 253)

SB 253 is focused on greenhouse gas (“GHG”) emissions reporting in compliance with the Greenhouse Gas Protocol (“GHG Protocol”).  SB 253 applies to public and private U.S. companies with total annual revenue, regardless of where the revenue was generated (including revenue generated outside the United States) greater than $1 billion that “do business in California”. 

Scope 1 and Scope 2 emissions

Companies will be required to publicly disclose its annual Scope 1 and Scope 2 GHG emissions in 2026 (on prior fiscal year information, i.e., 2025).  Limited assurance is required initially, and reasonable assurance is required for 2029 information (filed in 2030). 

Scope 3 emissions

Companies will be required to publicly disclose its annual Scope 3 GHG in 2027 (on prior fiscal year information, i.e., 2026). 

Scope 3 emissions reporting will not be due until 180 days after Scope 1 and Scope 2 information is publicly disclosed.  Limited assurance on Scope 3 emissions will be required beginning in 2030 (on 2029 information) but is subject to change pending further guidance. 

Greenhouse gases: Climate-related Financial Risk (SB 261)

SB 261 is focused on climate-related financial risk reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures.  SB 261 applies to public and private U.S. companies with total annual revenue, regardless of where the revenue was generated (including revenue generated outside the United States) greater than $500 million that “do business in California”. 

Companies meeting the reporting requirements of SB 261 are required to biennially prepare and publicly disclose a report detailing climate-related financial risks and measures adopted to mitigate climate-related financial risk.

There are no assurance requirements for SB 261. A company must make its report publicly available on its website by January 1, 2026, and biennially thereafter.

For more information on ESG, click here to view Kreston Global’s Sustainability Hub.