US adopts watered down climate-related disclosure regime

7 March 2024

New Zealand businesses are unlikely to be able to look to market practice in the United States as a reference for their own climate statements, as the US Securities and Exchange Commission (SEC) adopts a scaled-back climate disclosure regime that is expected to be challenged in the courts.

Many large New Zealand businesses are grappling with the first year of mandatory climate-related disclosure. New Zealand was the first country in the world to pass a law that required mandatory reporting of climate-related risks and opportunities. Legislation was passed in 2021 and we are now well into the implementation phase. 

While we were first, the development of international practice is highly relevant, because New Zealand’s climate disclosure regime is aligned with the framework established by the Task Force on Climate-related Financial Disclosures (the TCFD). The idea is that climate statements will be more comparable across different jurisdictions if countries adopt a broadly similar framework. 

In that context, we have been paying close attention to the progress of the United States’ climate-related disclosure regime. On 6 March, the SEC adopted rules to require certain SEC registered companies to disclose climate-related information in annual reports and initial public offering materials. However, the regime adopted is less ambitious than the SEC had first proposed, which was already a diluted-down version of the TCFD framework. For example, the SEC has now completely dropped the requirement to disclose Scope 3 emissions, which are indirect emissions associated with an organisation’s supply chain and customers. Further, the disclosure requirement in relation to the more direct Scope 1 and 2 emissions has been narrowed to only apply to larger SEC businesses when those emissions are considered ’material’.

Like so many things in the US, climate disclosure has become a partisan issue. The SEC passed the rules by a 3-2 vote, split along party lines with the Democratic SEC commissioners voting in favour and the Republican commissioners voting against. Shortly after the rules were passed, a collection of 10 states announced that they would challenge the rules in court on the basis that they were outside of the scope of the SEC’s delegated powers. What that means for the final form of the rules and the timing of their implementation is hard to say. 

California has tried to forge ahead by itself and last year Democratic Governor Gavin Newsom passed climate disclosure rules that would require large companies to disclose Scope 1-3 emissions data, as well as climate-related threats to their business. However, the Californian regime has encountered problems in implementation and various challenges in court. The rules initially proposed disclosures in 2026/2027, although there has been significant pushback on that implementation timetable. 

So, for now it seems that the evolution of climate reporting in the US is unlikely to provide any helpful guidance for New Zealand climate reporting entities in the near term. However, we will keep a close eye on further developments as they unfold.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.