As per ESG Today, U.S. public firms are required under this regulation shift to report data on climate risks, risk mitigation methods, the financial impact of severe weather occurrences, and greenhouse gas emissions from their activities. But the SEC has opted against making companies report on Scope 3 emissions—that is, emissions that are part of a company's value chain but outside of its direct operations—in a major reversal from its original plan.

This more conservative strategy highlights the SEC's attempt to strike a balance between integrating climate risk into financial reporting and avoiding onerous compliance requirements. Only substantial Scope 1 and 2 emissions—those that come from the companies' direct production and energy consumption—need to be declared by major filers. Furthermore, the new rules lessen the assurance standards and postpone the date of these disclosures until 2026.

The justification for these adjustments was explained by SEC Chair Gary Gensler, who also mentioned the substantial input from a range of stakeholders. The changes are an attempt to better reflect the concerns and recommendations made by businesses, investors, and other interested parties in response to the more than 24,000 comments received on the draft proposal. While outlining precise rules for issuers, Gensler emphasized the goal of the rule, which is to provide investors with "consistent, comparable, and decision-useful information."

Even with the reduction, the SEC's regulations are an important step in the direction of more corporate climate reporting openness. While some companies are exempt from the SEC rule's Scope 3 reporting requirements, Gensler noted that many will have to disclose these emissions in order to comply with laws in other jurisdictions, like the EU's Corporate Sustainability Reporting Directive (CSRD) and the recent legislation on full value chain emissions disclosure in California.

Gensler outlined the benefits of the new framework in his statement, saying, "By requiring major climate risk disclosures by public businesses and in public offerings, these final rules improve on earlier requirements... In order to increase their credibility, they will also mandate that climate risk disclosures appear in a business's SEC filings, such as annual reports and registration statements, rather than on company websites.

Even though it negotiates the tricky terrain of regulatory requirements, company capabilities, and stakeholder expectations, this historic decision by the SEC represents a critical turning point in the push towards integrated sustainability and financial reporting.