On March 6, 2024, the Securities and Exchange Commission (SEC) adopted its final rules requiring the disclosure of certain climate-related information in filings with the SEC, including registration statements and annual reports. This was almost a year after initially proposing the rules and after receiving more than 20,000 public comments in response. These rules stem from a growing interest by the SEC in how companies provide climate-related information to their investors. The SEC stated that “the markets have recognized that climate-related risks can affect a company's business and its current and longer-term financial performance and position.” Moreover, the final rules are “a continuation of the commission’s efforts to respond to investor need for more consistent, comparable and reliable information about the financial effects of climate-related risks on a registrant’s business, as well as information about how the registrant manages these risks.”
While many companies already include climate-related information disclosures in some form in their SEC filings and reports, these final rules mandate significant disclosure content. Specifically, the final rules require disclosure of the following types of information: “material climate-related risks; activities to mitigate or adapt to such risks; information about the registrant’s board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations or financial condition.”
In addition, the final rules require certain larger registrants to disclose what are known as Scope 1 and Scope 2 greenhouse gas (GHG) emissions “when those emissions are material.” Scope 1 emissions are direct GHG emissions that occur from sources that are controlled or owned by a company (such as furnaces or vehicles). Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling. Depending on the size of the registrant, these disclosure requirements are to begin in 2025 for larger filers and as late as 2028 for smaller companies.
Relating to agriculture
Importantly for those in agriculture, the final rules eliminated a controversial portion of the proposed rules, which would have required registrants to disclose information related to Scope 3 GHG emissions, which are known as “value chain emissions.” These emissions are the result of activities from assets not necessarily owned or controlled by the reporting company, but that indirectly affect the company’s supply chain. Since many in agriculture provide products that end up in the supply chain of larger companies, the potential burden that might be placed on these indirect parties would have been incredible – in essence requiring small ag-related businesses in a large company’s value chain to estimate and disclose their own emissions. While the final rules have exempted Scope 3 for now, many environmental groups and other climate proponents have complained about the omission of Scope 3 from the final rules and suits have been filed challenging the exclusion of Scope 3.
Since the final rules were adopted by the SEC in the first week of March, several lawsuits have already been filed to stop the disclosure requirements entirely. The attorneys general for Alabama, Alaska, Georgia, Indiana, New Hampshire, Oklahoma, South Carolina, Virginia, West Virginia and Wyoming have filed a petition with the U.S. Court of Appeals for the 11th Circuit to block the rules from taking effect. In separate actions, Louisiana, Mississippi and Texas and two energy industry companies have challenged the rules in the U.S. Court of Appeals for the 5th Circuit.
As with other agency rulemaking and resulting litigation, time will tell how courts will view and address the SEC’s rulemaking, as well as how the SEC will enforce these new climate disclosure rules. But the existence of the proposed rules and the magnitude of the fight over them strongly suggest that climate regulation will remain at the forefront for U.S. businesses, including the agricultural industry.
