The time has arrived for large accelerated filers (LAFs) – those with a public float of $700 million or more – to begin updating their S-K (outlines the requirements for non-financial information) and S-X (sets the rules for the preparation and presentation of financial statements) disclosures with detailed climate-related risks, activities to mitigate or adapt to such risks, information regarding board of directors oversight of these risks, and any information on any climate-related targets or goals. Starting in fiscal year 2026, these LAFs must quantify their Scope 1 and 2 Greenhouse Gas (GHG) emissions using eXtensible Business Reporting Language (XBRL). Accelerated Filers (AFs) will need to update their S-K and S-X disclosures beginning in fiscal year 2026 and report Scope 1 and 2 GHG emissions starting in fiscal year 2028. Although this task may seem daunting, we will outline key steps to achieve compliance. The SEC’s rule is not a one-size-fits-all mandate; disclosures should be tailored to each company’s unique risk profile
Key Steps to Achieve Compliance:
- Assess Material Climate Risks and Opportunities
Conduct a thorough evaluation of your business’ climate-related risks and opportunities relevant to your supply chain, operations, and markets. This assessment should include both physical risks (e.g., severe weather events such as hurricanes, flooding, drought, and sea-level rise) and transition risks, such as regulatory changes. To ensure a comprehensive view, both internal (risk management teams and sustainability officers) and external (consultants) stakeholders should be involved.
- Establish Governance and Oversight
The SEC emphasizes the importance of board oversight regarding climate-related risks, as well as management’s role in assessing and managing material climate risks. Clear governance structures should be established that are kept informed with regular internal reporting mechanisms. Document these structures and processes thoroughly, as they form an essential part of required disclosures.
- Develop Internal Processes for Data Collection and Reporting
Reliable and accurate data is the foundation of effective disclosure for SEC filing. Data collection can be time-consuming and error-prone, often requiring multiple revisions. Begin by mapping existing data sources related to emissions, energy usage, and climate risk exposure. Given that these data sources may reside across multiple platforms, allow sufficient time for consolidation and review. Scrutinize your data carefully for gaps or inaccuracies, and consider leveraging third-party providers or climate-risk modeling tools (e.g., CLIMADA, catastrophe models, Modelscape) to identify any deficiencies.
- Quantify Your Greenhouse Gas (GHG) Emissions
Starting in fiscal year 2026, disclosure of Scope 1 and 2 GHG emissions will be mandatory. Establish clear methodologies for calculating emissions, ensuring adherence to recognized standards such as the GHG Protocol. Integrate emissions tracking into ERP systems or sustainability management platforms wherever feasible. The GHG Protocol offers comprehensive standards, guidance, tools, resources, and e-learning opportunities to support accuracy and consistency in emissions reporting.
- Integrate Climate Disclosures into SEC Filings
Climate-related information collected must be integrated directly into your annual SEC filings rather than maintained in standalone reports. Climate-related disclosures will be in the registration statements and Exchange Act annual reports filed with the Commission. The Regulation S-K mandated climate-related disclosures will be provided within your registration statement or annual report. These disclosures must be electronically tagged in Inline XBRL. While integrating these disclosures ensure they are consistent across all documents, determinations are backed by documentation, and required metrics along with qualitative descriptions are included.
- Prepare for Scrutiny
You should always be prepared for both internal and external audits of your climate-related disclosures. Detailed records of all methodologies, data sources, and assumptions should be maintained. Conduct scenario analyses to validate risk assessments. It also wouldn’t be a bad idea to engage independent auditors early, before filing, to resolve any potential issues that may arise from an external audit.
- Stay Up to Date with Evolving Regulations
The SEC’s rule is only one part of an evolving global landscape regarding climate disclosure regulations. Even the SEC’s rule is being done in a phased in approach that will change compliance regulations with each passing fiscal year. Other disclosure regulations that may impact you include two Acts passed in California that affect any business with revenues exceeding $500 million and that is “doing business” in California, and the EU’s Corporate Sustainability Reporting Directive.
Conclusion: Turning Compliance into an Advantage
While this guide outlines how to achieve regulatory compliance, your climate-related initiatives should not end here. Leverage these disclosures to benchmark your business against industry peers and emerging best practices to secure a competitive advantage. Acting swiftly and decisively will position your company effectively, foster investor trust, and help navigate an increasingly complex regulatory landscape.
—Matt Harned, St. Onge Company
