Understand U.S. Policies and Regulations

At both the global and national level, there are several U.S. climate policies that impact companies based in the U.S. At the international level, the United States, under the Biden Administration, has rejoined the Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels. Under this accord, the U.S. has a new goal of achieving a net-zero economy-wide emissions target by 2050. Many other countries have implemented their own climate regulations, which may impact U.S. companies that operate in those regions. For example, Canada has implemented a national carbon pricing scheme, and several provinces and territories have their own regulations as well. Learn more about policies impacting businesses with operations in the European Union and the United Kingdom in the Understand EU Policy and Regulation and Understand UK Policy and Regulation action steps.

At the national level, federal laws such as the Clean Air Act regulate emissions from industrial sources and set standards for greenhouse gas pollutants. Many states have also implemented their own regulations which may apply to businesses within their borders, such as California. Additionally, the Securities and Exchange Commission (SEC) recently released a new rule which will apply to publicly traded companies. Head to the following section to learn about current regulations and explore how you can start acting now to be prepared for upcoming regulation changes.

Unpack the New SEC Rule on Climate Risk Disclosure 

In March 2024, the SEC released a new rule to help investors obtain comparable and specific climate risk information to increase their capacity to manage portfolio-wide climate risks, make decisions and protect the overall health of the financial system.

The SEC now requires climate risk disclosure from publicly traded companies, including material scope 1 and 2 emissions from their operations, environmental risks they are facing, and response measures they are taking. This is similar to what many companies already provide under existing voluntary frameworks, such as the IFRS (previously TCFD), but would improve upon the current state of play with more standardized reporting. To learn more about the existing voluntary reporting landscape, please visit our Understand Voluntary Disclosure Frameworks  action step guide.

Here are some key pieces of the new SEC rule to know for your company:

1. Risk Disclosure: Identifying and disclosing material climate-related risks affecting business strategy, operations, and financial condition.
2. Impact Assessment: Evaluating and disclosing the actual and potential impacts of climate-related risks on the company’s strategy, business model, and outlook.
3. Process: Sharing a process for identifying, assessing and managing risk, including board oversight.
4. Mitigation and Adaptation Details: Quantitatively and qualitatively describing expenditures and impacts from activities mitigating or adapting to material climate-related risks.
5. Emissions and Assurance: Large accelerated filers and accelerated filers disclosing material Scope 1 and/or Scope 2 emissions, accompanied by assurance reporting.
6. Financial Impacts and Targets: Disclosing financial impacts of severe weather events, costs related to carbon offsets and renewable energy credits, and providing a qualitative description of how estimates and assumptions are affected by climate-related risks or targets in financial statements.
7. Safe Harbor: Providing a safe harbor from private liability for forward-looking statements pursuant to the Private Securities Litigation Reform Act, and affirmation that forward-looking disclosures pertaining to transition plans, scenario analysis, the use of an internal carbon price, and targets and goals fall within this protection.  

This rule has a phase-in period to provide companies time to adjust to new requirements and collect and verify the climate information needed (please refer to the SEC Fact Sheet Compliance Dates chart for full details):

• Large accelerated filers to begin certain disclosures for fiscal year beginning (FYB) 2025, with emissions disclosures starting in FYB 2026, and limited assurance disclosures starting in FYB 2029.  
• Accelerated filers to begin certain disclosures for FYB 2026, with emissions disclosures starting in FYB 2028, and limited assurance disclosures starting in FYB 2031.
• Smaller reporting companies and non-accelerated filers to begin reporting non-emissions disclosures in FYB 2027.

Here is how you can begin to prepare to meet these new requirements:

1. Educate teams within your company of these new changes;
2. Measure your company’s emissions;
3. Map out climate-related risks;
4. Integrate climate disclosure into your company’s existing reporting.

State Level Regulation in California

In October 2023, California introduced several new State-level climate regulations mandating large companies to disclose greenhouse gas emissions and climate-related financial risks.

The new laws apply to companies doing business in the state of California. SB 261 applies to companies with annual revenues of at least $500 million a year. Those businesses would be required to disclose information about their climate risk management. SB 253 applies to companies with annual revenues of at least one billion dollars a year, who will also have to disclose their greenhouse gas emissions, including:

1. A company’s direct emissions;
2. A company’s indirect emissions through suppliers and customers.

AB 1305 requires any company operating in California that makes emissions reduction or other climate-related claims to substantiate those claims. It also specifically requires entities that market, sell, or purchase and make claims based on carbon offsets to publicly disclose relevant information about those offsets.

Here are some key questions to guide your company as you prepare to meet requirements:

1. What do these requirements entail for my company’s operations?
2. How do these differ from other regulations?
3. Which departments need to be involved?
4. Has my company made any claim related to climate action or emissions reduction? If yes, on what basis?

Federal Acquisition Regulation Amendment for Federal Contractors 

If you are a company receiving funds from the federal government, then a new proposed amendment from the Biden administration may further impact your climate disclosure requirements.

In November 2022, the Biden Administration proposed to amend the Federal Acquisition Regulation (FAR) to require Federal contractors to disclose their emissions and climate risk, as well as set science-based targets to reduce emissions. This would mean that: 

• Companies that get more than $50 million in annual contracts from the federal government would be required to disclose Scope 1, 2 and 3 emissions and climate risks as well as set science-based targets to reduce emissions.  
• Midsize contractors receiving between $7.5 million but less than $50 million would be required to disclose Scope 1 and 2 emissions without mandatory target setting. 
• Small businesses with over $7.5 million in annual contracts would be required to disclose Scope 1 and 2 emissions. 
• Federal contracts below $7.5 million would be exempt. 

The new rule does not give a specific threshold that companies must achieve for reducing emissions but rather says that the goals must be in line with the goals of the Paris Agreement.

This amendment has yet to come into force, but if you are a company receiving money from the federal government you can start conducting research now to help you prepare to meet future regulatory requirements.