Regulatory momentum toward mandatory ESG disclosure has been building for several years, and the direction of travel is now clear even if the precise destination remains uncertain. The SEC has proposed climate disclosure rules that would require public companies to disclose material climate-related risks, greenhouse gas emissions data, and the impact of climate events on their financial statements. Parallel developments in the EU and UK are advancing requirements that will affect U.S. companies with operations or investors in those markets.
What the SEC’s Climate Proposal Would Require
Under the proposed rules, large accelerated filers would be required to disclose Scope 1 and Scope 2 emissions as part of their annual reporting, and to provide attestation over those disclosures as the rules phase in. Disclosure of Scope 3 emissions — those produced by a company’s supply chain and customers — would be required where material or where the company has set targets that include Scope 3. The financial statement disclosures would cover the capitalized costs, expenditures, and losses attributable to severe weather events and other climate-related conditions.
Building the Infrastructure for Compliance
Many companies have found that their existing data collection systems are not adequate to support the precision and consistency that mandatory disclosure will require. Building that infrastructure takes time — typically longer than companies expect when they begin the process. Early movers who have invested in emissions tracking, supply chain engagement, and internal governance structures around climate data will be significantly better positioned when rules become final than those who wait.
The Litigation Dimension
Mandatory disclosure creates a public record that plaintiffs’ counsel and activist investors will monitor closely. Companies should approach ESG disclosure with the same rigor applied to financial disclosure — engaging legal counsel in the review process and ensuring that disclosures are accurate, consistent with internal assessments, and not misleading by omission. Snow+Snow’s ESG and securities practice provides integrated advice on disclosure strategy, compliance program design, and litigation exposure.
