Comprehensive Guide to U.S. Climate Reporting Frameworks
In March of 2022, the U.S. Securities and Exchange Commission (SEC) passed a law that required companies to disclose climate-related risks, greenhouse gas (GHG) emissions, and climate-related financial metrics in their registration statements and annual reports. The rule applies to publicly traded companies that ultimately depends on the size of the company that is required to partake in mandatory climate reporting.
The requirements apply to:
–Large Accelerated Filers (LAFs): Companies with a public float of $700M+
–Accelerated Filers (AFs): Companies with a public float between $75M and $700M
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All companies in this category are required to disclose any material climate-related risks in their annual reports, along with Scope 1 emissions (direct emissions) and Scope 2 emissions (indirect emissions from electricity, heating, cooling, etc.). 1 To ensure consistency and provide valuable information for investors, the SEC encourages companies to structure their climate risk disclosures using the Task Force on Climate-related Financial Disclosures (TCFD) framework, as many organizations are already familiar with its guidelines.
A state that is ahead of the curve when it comes to climate reporting is the state of California and have taken matters into their owns hands to create a law California’s SB 253, also known as the “Climate Corporate Data Accountability Act“, mandating that any corporations that is worth more than $1 billion must publicly disclose their greenhouse gas emissions (scope 1, 2 and even scope 3 emissions)2 if they are doing business in the state of California. The greenhouse gas emissions must be disclosed in alignment with the GHG Protocol standards.
SB 261, the Climate Related Financial Risk Act, requires US-based entities with more than $500 million in annual revenue doing business in California to biennially report any climate-related financial risks they have identified and any measures they have adopted to reduce and adapt to those risks.
The consequences of non – compliance vary such as:
A. Financial Penalties
- The California Air Resources Board (CARB) is responsible for enforcing both laws.
- SB 253: Fines up to $500,000 per reporting year for non-compliance.
- SB 261: Fines up to $50,000 per year for failure to submit climate risk reports.
B. Legal & Regulatory Risks
- Increased scrutiny from regulators and potential lawsuits for failing to disclose climate-related risks.
- Possible expansion of federal enforcement if the SEC strengthens climate disclosure rules.
C. Reputational & Business Risks
- Investors, customers, and business partners may view non-compliance as a red flag, leading to divestment, loss of contracts, or damaged brand trust.
- Non-compliance could affect ESG ratings and climate risk assessments by financial institutions.
The landscape of climate reporting in the United States is still not a mandatory situation. Ultimately – the push to report to voluntary climate reporting frameworks is from the investors and financial market pressures. In this case, the pressure to align with industry trends can be beneficial. Studies have shown that companies that have a strong commitment to climate disclosures, transparency and overall highly ranked CDP scores – they are more likely to secure funding and favorable lending terms. Here are some of the most common voluntary climate reporting frameworks in the United States that companies have chosen to report to in the United States:
Climate reporting is at the core of corporate sustainability efforts, providing valuable insight into how climate strategies are implemented at the business level—not just within nonprofits or grassroots initiatives.