The U.S. Securities and Exchange Commission (SEC) has backed away from implementing national climate disclosure rules, but that doesn’t mean climate-related reporting is off the table. California, the European Union (EU), and other jurisdictions are moving ahead with their own mandatory disclosure laws, signaling that transparency around climate risks is becoming the global standard, even without federal backing in the U.S.

The SEC’s proposed rules, introduced under President Biden, would have required publicly traded companies to report how climate change affects their business, outline climate-related risks, and disclose greenhouse gas emissions, specifically Scope 1 and Scope 2. However, facing legal opposition from business groups and Republican-led states, the SEC paused enforcement in 2024. Now under Republican leadership, the commission has decided not to defend the rules in court, making it likely they will be repealed or struck down entirely.

Despite this reversal, experts argue that climate disclosure isn’t going away; it’s just being decentralized.

States Fill the Federal Void

California has passed two landmark climate disclosure laws. One mandates that companies with more than $1 billion in revenue disclose all three types of emissions, i.e., Scope 1 (direct), Scope 2 (energy-related), and Scope 3 (supply chain and product use). Another requires firms with over $500 million in revenue to report climate-related financial risks.

These laws apply to both public and private companies that do business in California, a definition yet to be finalized. While legal challenges have delayed enforcement by at least a year, a judge has allowed the laws to proceed for now. Lawmakers argue that California must act as a climate disclosure backstop, given the rollback at the federal level.

Other states like New York, Illinois, New Jersey, and Washington may follow suit, potentially increasing the regulatory complexity for companies operating nationwide.

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The EU’s Expanding Framework

The European Union is also pressing forward, albeit more cautiously. Under the Corporate Sustainability Reporting Directive (CSRD), large EU-based and non-EU companies operating in the bloc must disclose not only emissions but broader ESG (Environmental, Social, Governance) data. The CSRD includes a “double materiality” clause, meaning companies must report both the impact of climate change on their business and their impact on the environment.

Recent political pressure has led the EU to delay and scale back some reporting deadlines, but around 3,000 companies will still be affected, including major U.S. firms with EU operations.

Companies Already Disclosing

Despite regulatory uncertainty, many corporations have voluntarily begun climate disclosures. A 2024 Deloitte survey of over 2,000 executives across 27 countries found that 74% already report Scope 1 emissions, and 53% disclose Scope 2. Only 15% report Scope 3, which is the most complex and the most significant category for many businesses.

Executives cited brand reputation, stakeholder trust, talent attraction, and climate risk mitigation as reasons for adopting disclosures. However, 76% pointed to data collection as the biggest challenge.

Institutional investors, too, are demanding more transparency. CalSTRS, the second-largest U.S. pension fund, expects all companies in its portfolio to disclose their operational emissions and energy usage.

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The Long-Term Outlook

As Harvard professor Ethan Rouen notes, companies are “already in the business of disclosure.” The concern is that without a unified federal rule, the U.S. will face a fragmented landscape of climate laws, making it harder for investors to compare data across companies and markets.

Steven Rothstein of Ceres, an organization pushing for robust climate reporting, calls the momentum toward disclosure “inevitable.” While national regulations may have hit a roadblock, the global shift toward climate accountability is marching on.

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Source: Harvard Business School