On March 6, 2024, the Securities and Exchange Commission (SEC) adopted new rules mandating registrants to disclose certain climate-related information within registration statements and annual reports. Initially proposed on March 21, 2022, these rules aim to enhance transparency around the financial impacts of climate-related risks on companies.
The final rules include the disclosure of material climate-related risks, efforts to mitigate or adapt to these risks, the involvement of the board of directors and management in overseeing these risks, and the impact of climate-related targets or goals on the company's operations and financial status. Companies will also be required to disclose information about the financial impacts of severe weather events and other natural conditions.
Additionally, the rules include the disclosure of Scope 1 and Scope 2 greenhouse gas emissions (GHG) by accelerated filers, which are companies with publicly traded shares worth $75 million or more. While the initially proposed rules included disclosures of Scope 3, this has been dropped in the final rules.
Implementation of these rules will be phased in, with compliance dates varying based on the registrant's filer status and the specifics of the required disclosures. The earliest filing is for large accelerated filers (LAFs) to provide disclosures for fiscal year 2025 to be reported in 2026.
Implications for CRE Companies
The proposed regulations will affect a wide array of activities, including operations, underwriting, due diligence, acquisitions, decisions by investment committees, and the disposition of properties.
It is imperative for property owners, managers, and developers to assess climate-related risks to their assets and adopt resilience strategies early in order to meet the expectations of investors and lenders now that the regulations are adopted. For CRE companies that are accelerated filers, they will also need to begin benchmarking their GHG emissions in the next year by collecting utility data.
In addition to the SEC rules, certain public companies that conduct business in California will also need to meet California's Climate Corporate Data Accountability Act or Senate Bill (SB) 253, and Climate-Related Financial Risk Act (SB 261). These two laws will require companies with revenue of $1 billion or more in the prior fiscal year to report on their greenhouse gas emissions, and companies with revenue of $500 million or more to disclose climate-related financial risks.
Next Steps
Now that the SEC's rules have passed, companies that have not put in place processes to collect GHG emissions data and assess climate-related risks should begin to do so. Additionally, it is imperative for CRE companies to also conduct physical assessments of the properties to assess how potential future climate hazards will impact their investments. After physical assessments of the assets are completed, companies can then move on to implement measures that will ensure their properties are resilient. The amount of data to be collected is extensive and may seem daunting, so it is advantageous to engage an independent sustainability consulting firm like Partner Energy that is well-versed in the disclosure frameworks in order to aid in data collection and report preparation, ensuring compliance.
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Tony Liou
Tony Liou is the founder and President of Partner Energy, a division of Partner Engineering and Science that offers helps its clients improve their properties’ energy, water, and carbon efficiency, as well as property resilience and sustainability. Tony frequently shares his insights and discusses best practices at speaking engagements and through industry publications. He has presented at conferences including MBA CREF, NAREIM Meetings, CREFC Annual Conference, Environmental Banker Association (EBA) Annual Meeting, and IMN ESG Forums.
