The Securities and Exchange Commission (“SEC”) approved new climate-related disclosure rules in March, citing investor demand for information about how those risks might impact the financial performance of public companies.[1] As I wrote in this Law360 article, whistleblowers may be key to the SEC’s efforts to identify and bring enforcement actions for violations of these rules.
The SEC’s new rules[2] require public companies to disclose climate-related risks that have had, or are reasonably likely to have, a material impact on the company’s business, as well as the actual or potential impacts of those risks.[3] Companies also must disclose their efforts to identify, assess, manage, and mitigate climate risks.[4] If a public company has climate-related targets or goals, the company must disclose them if they are reasonably likely to materially affect the company’s business or financial condition (such as if the goal requires material expenditures or operational changes).[5] The new rules extend to internal governance as well – companies must disclose the board of directors’ oversight of climate-related risks and the process used to keep the board informed.[6]
Larger public companies (large accelerated filers and accelerated filers) must disclose information about material greenhouse gas emissions that qualify as Scope 1 emissions (“a registrant’s direct emissions”) and Scope 2 emissions (“indirect emissions largely from the generation of purchased or acquired electricity consumed by the registrant’s operations”).[7] They most also include attestation reports covering these emissions disclosures.[8]
The new rules also require companies to make specific disclosures in their financial statements.[9] This includes a requirement that companies include notes in their financial statements disclosing costs, expenditures, and losses: (1) incurred as a result of severe weather (e.g., hurricanes and tornadoes) and other natural conditions (e.g, wildfires, extreme temperatures, drought, flooding, and sea level rise) if they meet certain thresholds, and (2) related to carbon offsets and renewable energy credits or certificates if material to the company’s plans to achieve climate-related targets or goals.[10] It also includes certain disclosures if estimates and assumptions used to prepare financial statements were materially impacted by risks of severe weather, other natural conditions, or the company’s climate targets or plans. Additionally, companies must report costs and losses resulting from severe weather events and other natural conditions, if those costs meet certain thresholds.
While the full impact of whistleblower contributions to the SEC’s climate and ESG-related enforcement remains to be seen, it will likely be significant.
About the Author
John T. Crutchlow is a former SEC Enforcement Division attorney and a former Assistant United States Attorney with the Department of Justice where he specialized in civil fraud cases under the False Claims Act. He represents whistleblowers before federal whistleblower programs and in qui tam actions filed under the False Claims Act.
[1] https://www.sec.gov/files/rules/final/2024/33-11275.pdf (the “Adopting Release”).
[2] This is only intended to be a general overview of the new rules. For a detailed discussion of each of the final rules, see the Adopting Release.
[3] Adopting Release at p. 73, et seq., and p. 106, et seq.
[4] Adopting Release at pp. 192-198.
[5] Adopting Release at pp. 210-222.
[6] Adopting Release at pp. 168- 172.
[7] Adopting Release at p. 244-261; p. 245 n. 1011 (defining Scope 1 and Scope 2 emissions).
[8] Adopting Release at pp. 262, et seq.
[9] Adopting Release at p. 402, et seq.
[10] Adopting Release at 402, et seq.