SEC Climate Risk Disclosure: What You Need to Know

 On January 20th, US President Donald Trump revoked an executive order made by his predecessor that required federal agencies to take steps to assess climate-related risks to the country’s economy. With the replacement of its chairman,  the SEC said it will no longer defend the disclosure rule in the ongoing court proceedings, indicating the rule might be withdrawn.

The US Securities and Exchange Commission (SEC) introduced the climate disclosure rule in March 2024, mandating organizations to disclose their climate-related risks, greenhouse gas (GHG) emissions, and financial impacts from extreme weather events.

However, regulatory developments, recent legal challenges, and political shifts have created uncertainty around federal climate disclosure mandates. For example, Trump has revoked an executive order introduced by the Biden Administration that required federal agencies to assess climate-related risks to the US economy.

What is the SEC Climate Disclosure Rule?

The SEC climate disclosure rule mandates that publicly traded organizations include comprehensive climate-related information in their annual reports and registration statements. The rules reflect the SEC’s efforts to respond to increased investor demand for consistent, comparable, and reliable information about the financial effects of climate-related risk on corporate operations and how those risks are being managed. This rule requires public organizations to disclose:

• Governance & Risk Management: Organizations must outline how their board and executives oversee and integrate climate-related risks into business operations, strategy, and financial planning.
• GHG Emissions Reporting: Organizations must report Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased electricity), with specific disclosure requirements based on materiality for large accelerated filers.
• Financial Statement Impacts: Organizations must disclose climate-related costs, including carbon offset purchases, renewable energy credits, and financial losses due to extreme weather events.

SEC Climate Disclosure Rule And Scope 3 Reporting

Although Scope 3 (supply chain) emissions are excluded from the rule, primarily due to industry opposition surrounding potential compliance complexities, the SEC maintains that organizations must still disclose material supply chain risks if they have a “significant impact” on financial performance. What constitutes a significant impact has not been defined.

Why the SEC Disclosure Rule Matters for Businesses

The SEC climate disclosure rule is more than just another compliance requirement. It’s a strategic regulatory shift that seeks to bring the US in line with global ESG reporting standards, such as the EU Corporate Sustainability Reporting Directive (CSRD), which are shaping corporate disclosure worldwide.

Beyond regulatory alignment, the rule aims to improve investor confidence. Standardized disclosures enable investors to assess climate-related risks across industries, compare organizations more effectively, and make informed capital allocation decisions. The knock-on effect of this is reduced greenwashing concerns and more corporate accountability for climate commitments.

SEC Rule Legal Challenges and Trump’s Revocation

Since its adoption in March 2024, the SEC CRDR has been subject to several legal challenges and, ultimately, a judicial stay. Instead, individual states are stepping up. New York, New Jersey, Colorado, and Illinois are introducing laws requiring large businesses to report greenhouse gas emissions. Meanwhile, a federal judge has upheld California’s climate disclosure laws, SB 253 and SB 261, which were signed into law in October 2024.

Ongoing Legal Challenges

Shortly after the SEC finalized the CRDR in March 2024, several business groups, industry associations, and Republican-led states filed lawsuits challenging its legality. These lawsuits concerned two main arguments:

• Regulatory Overreach: Opponents argued that the SEC exceeded its authority by mandating climate-related disclosures, contending that Congress should determine such requirements, rather than an independent regulatory agency.
• Economic Burden on Organizations: Business groups claimed that climate disclosures impose high compliance costs, particularly for mid-sized organizations and industries reliant on carbon-intensive operations.

In response to these challenges, the Eighth Circuit Court of Appeals issued a temporary stay, blocking enforcement of the rule pending further judicial review. Later, the SEC voluntarily extended this stay, citing procedural complexities and a desire to avoid regulatory uncertainty for businesses preparing their disclosures.

This legal uncertainty has left organizations in a difficult position: While the federal mandate remains in limbo, state and international regulations still demand climate-related disclosures, requiring organizations to be agile in their climate reporting strategies.

Impact of the Trump Administration

Shortly after assuming office, President Trump revoked an executive order by his predecessor that required federal agencies to take steps to assess climate-related risks to the US economy. This move, alongside withdrawing the US from the Paris Climate Agreement, aligns with Trump’s plans to distance the administration from Biden’s environmental goals via a deregulatory agenda and increase US oil production.

As part of this wider plan, the SEC’s leadership shifted significantly, with Acting Chair Mark Uyeda assuming control in early 2025. On February 11, Uyeda took several decisive actions that signaled a retreat from mandatory climate disclosures:

• He paused the SEC’s legal defense of the rule, making legal challenges likely.
• He questioned the SEC’s authority to impose climate-related reporting requirements.
• He signaled his support for the Trump Administration’s broader deregulatory agenda.

These moves illustrate obvious hostility towards federal climate disclosure mandates and suggest they may be significantly weakened, if not rescinded altogether. While this might lead to a more complex and fragmented regulatory environment, any future rollbacks will not mean an end to reporting requirements. Instead, without a national framework, organizations will need to manage a mixture of state, global, and voluntary reporting standards. This could mean higher costs and operational inefficiencies for multi-jurisdictional organizations.

Compliance With the SEC Climate Disclosure Rule

Despite the uncertainty around the SEC rule, organizations should not delay preparing for climate-related disclosures. Many investors, stakeholders, and state-level regulations already enforce stricter climate reporting standards, making proactive compliance essential.

Align with International and State-Level Standards

Even if the SEC rule remains stalled at the federal level, businesses must still comply with climate disclosure regulations at the state and international levels. A growing number of jurisdictions are implementing strict climate reporting requirements, forcing organizations to adopt more transparent and standardized sustainability practices.

California’s SB 253 and SB 261, for example, mandate GHG emissions reporting for large organizations operating in the state. Notably, SB 253 requires Scope 3 emissions disclosure, covering indirect emissions from supply chains and downstream operations, which were excluded from the SEC rule.

Meanwhile, EU CSRD requires detailed climate risk assessments and sustainability disclosures from organizations with significant EU operations, regardless of where they are headquartered. The CSRD goes beyond the SEC’s requirements, enforcing double materiality assessments that evaluate both financial risks and environmental impacts of corporate activities.

Enhance GHG Emissions Tracking

Even though the SEC Climate Risk Disclosure Rule excludes Scope 3 emissions, businesses cannot afford to overlook the full extent of their carbon footprint. Investors, customers, and global regulators are increasingly demanding comprehensive emissions reporting. Organizations must focus on building GHG emissions tracking processes that go beyond basic compliance and align with international best practices.