Climate change continues to be a growing concern – one that affects every region of the world, particularly those living in more vulnerable areas. Climate change hazards such as flooding, wildfires, tropical storms, failed crops and severe droughts are putting hundreds of millions of lives at risk, which means we cannot afford to remain stagnant.
Fortunately, there is now a global movement towards a sustainable future with ESG climate policy initiatives, which will have a significant impact on global industry.
With the US rejoining the United Nations Paris Agreement, and committing efforts towards a Net-Zero goal, current US climate change policy will continue to expand and evolve in 2024. Furthermore, as climate-risk disclosure rules continue to become more mainstream and substantive globally, we can expect this trend to continue, regardless of political leadership.
In this article, we explore current US climate change policy, looking at the most recent additions and amendments to climate policies, including SEC rulings, the Clean Competition Act, and California Regulations SB 253 and SB 261. We’ll look at what to expect from the legislation, how it might impact your business, and what information you’ll need to disclose.
So, whether you already collect and report ESG data, or you suspect you will fall under new reporting requirements, we can help you prepare your business for the future of US sustainability.
Let’s get started.
what is the securities & exchange commission (SEC)?
The Securities & Exchange Commission (SEC) is an independent agency in the US federal government that was created to enforce law against market manipulation. It has been active since the Wall Street Crash of 1929, and in recent years, has overseen policy and legislation related to climate-risk activities in the marketplace, including manufacturing and industry.
When it comes to climate disclosure rules, the SEC seeks primarily to unify and standardize ESG reporting requirements because there are so many different ESG frameworks that businesses need to navigate.
Because the SEC is a US entity, it can choose whether or not to recognize international policy standards regarding ESG and climate-risk activities, as has been the case in the March 6, 2024 finalization of The Enhancement and Standardization of Climate-Related Disclosures for Investors.
While initial SEC drafts suggested an alignment with the International Sustainability Standards Board (ISSB), this has not been the case and the SEC has explicitly stated that: “at this time we decline to recognize the use of the ISSB standards as an alternative reporting regime.”
To familiarize yourself with the ISSB regulations, head over here.
what is the enhancement and standardization of climate-related disclosures for investors?
Initially proposed in March 2022, the primary purpose of the ruling is to formalize and harmonize climate disclosures for businesses, their stakeholders, investors, and customers.
Disclosure requirements will apply to all publicly traded companies operating in the US. This includes oil and gas, technology, and retail businesses, encompassing approximately 2,800 US domestic businesses and around 540 foreign businesses with operations in the US.
Compliance dates will depend on the status of the business as either:
- Large accelerated filer (LAF)
- Accelerated filer (AF)
- Non-accelerated filer (NAF)
- Smaller reporting company (SRC)
- Emerging growth company (EGC)
how will the SEC ruling affect US companies?
Ultimately, the SEC ruling will help US companies standardize their ESG reporting and create transparency in climate-risk activities.
In general, the new rules will require you to disclose:
- Potential and actual impacts of all climate-related risks on your operations, including financial impacts over the short-, medium-, and long-term (including climate-related events)
- Rules and responsibilities of corporate governance as it relates to the identification and management of climate-related risks within your organization
- How climate-related risks will impact your operations, theoretically, actually, and historically
- The outlines process of identifying, assessing, and managing climate-related risks
- Scopes 1 and/or scope 2 GHG emission metrics
- All climate-related targets, transition plans, or goals
Note that the final ruling has removed the Scope 3 emissions requirement that was initially proposed and that the first wave of disclosure reporting will be required by the financial year beginning 2025.
For everything you need to know about the SEC’s new disclosure rulings, read our comprehensive guide here.
what is the clean competition act?
Another aspect of expanding US climate change policy is the Clean Competition Act. This is an amendment to the Internal Revenue Code of 1986, which now includes a carbon border adjustment on all energy intensive products.
The Act will require companies to submit reports, starting no later than June 30, 2026, that itemize greenhouse gas emissions produced as a result of industry activity. These reports will be based on products imported or exported into and out of the US, and will include:
- All information eligible under the Greenhouse Gas Reporting Program
- A breakdown of what electricity was used through an electric grid or a dedicated generation source
- Any greenhouse gas emissions associated with the production of electricity must be reported for any electricity not provided through the electric grid
- The total weight (in tons) of each eligible primary good produced at that facility for each facility
Carbon border adjustments will be imposed on all energy intensive imports to incentivize the decarbonization of domestic manufacturing. These adjustments will apply to:
- Fossil fuels and hydrogen
- Refined petroleum products
- Petrochemicals, fertilizers, and adipic acid
- Cement, iron, steel and aluminum
- Glass, pulp and paper, and ethanol
A portion of the fees collected from the border adjustments on these products will be allocated to research and development of clean energy technologies, working towards a Net Zero effort.
how does the clean competition act affect US manufacturers?
The Clean Competition Act is not the only piece of legislation that will affect US manufacturing companies. For some time now, ESG disclosure requirements and regulations – particularly in the manufacturing sectors – have become more commonplace, not just in the US but also abroad.
Historically, the US has been lagging behind in the initiation and enforcement of climate related disclosures, however, companies are now being required to pivot and establish ESG data collection and reporting systems similar to those required for financial data.
In fact, ESG reporting is now required not just by legislation, but by investors, stakeholders, and customers who are increasingly demanding transparency and accountability. The Clean Competition Act is just one example of legislation that reflects all of this.
Although the Act only applies to larger, multi-armed companies, not smaller or family-owned businesses, many manufacturing companies will be impacted by the Clean Competition Act.
Some will already have ESG data collection and reporting systems, however, keeping on top of the latest regulations and requirements might make it necessary to create an in-house ESG rules and regulations committee in order to ensure that all regulations are met.
To learn more about this, read our recent blog post on the Clean Competition Act.
what are California regulations SB 253 and SB 261?
Also known as the Climate Data Accountability Act (the CCDAA) and the Climate-Related Financial Risk Act (the CRFRA) respectively, California Regulations SB 253 and SB 261 are two separate pieces of legislation that have been formally ratified following the SEC’s ruling on The Enhancement and Standardization of Climate-Related Disclosures for Investors in October 2023.
Together, they apply to California-based companies or companies that conduct business inside the State of California, requiring them to disclose their scopes 1, 2, and 3 greenhouse gas emissions along with other climate-related financial risk details.
While intended to work together, SB 253 and SB 261 are two separate entities and as such, we will talk about each individually below.
what is the climate data accountability act?
Beginning in 2026, the CCDAA, or SB 253, will require companies with revenue over $1B to provide “limited assurance” on scope 1 and 2 greenhouse gas emissions, increasing to “reasonable assurance” in 2030.
Companies will be required to provide limited assurance disclosure for scope 3 emissions beginning in 2030, and in 2027, will be subject to review by the California Air Resources Board (CARB).
Any businesses found in violation of the act can be fined by the State up to a maximum of $500,000. The one exception applies to scope 3 emissions, whereby businesses would not be subject to a penalty for misstatements about scope 3 emissions made with reasonable basis.
what is the climate-related financial risk act?
The CRFRA, also known as SB 261, applies to companies doing business within the State of California with revenue over $500M. It requires them to prepare and submit climate-related financial risk reports consistent with the Task Force on Climate-Related Financial Disclosure (TCFD) framework recommendations.
Initial reports will be required by January 1, 2026 and in light of the ongoing transparency that US climate change policy is attempting to achieve, companies will also be required to make these disclosure reports available publicly on their websites.
how do California SB 253 and SB 261 affect US industry?
For the most part, many large companies who fall under the CCDAA and the CRFRA have already begun collecting and reporting climate change data and climate-related financial data. As ESG regulations continue to evolve in 2024 however, companies, both in California and across the US, will need to become more efficient in their data collection process.
If you have not already done so, establishing internal protocols in the form of a charter or governance team is strongly advised. Using some form of ESG data collection and reporting software can also significantly streamline workflows, reducing redundancies and inefficiencies to increase accuracy and save time and money overall.
As the world continues to shift towards a Net Zero goal, countries with rigorous climate policies in place will become strong contenders for positive trade, negotiations, and expansion in the global economy and inevitably, this will trickle down into healthier and more competitive domestic markets.
the future of US climate policy
Thus far, the future of US climate policy is anchored in transparency and disclosure. As investors, shareholders, and customers become more climate aware, and global markets move towards a Net Zero goal, US climate policy is responding.
The current US Administration has rejoined the Paris Agreement, which helps position the US as a global leader, and has established the National Climate Task Force (NCTA) with the following goals:
- The reduction of greenhouse gas emissions to 50-52% below 2005 levels by 2030
- Achieving 100% carbon pollution-free electricity generation by 2035
- Net-zero emissions economy by 2050
- Investing 40% of the benefits from federal investments in climate and clean energy into disadvantaged communities
Despite the fact these goals appear hopeful, it’s worth remembering that the future of US climate policy rests mostly in the hands of elected leaders. For the best chance of success, commitment to reducing climate-risk activities needs to be bipartisan and consistent.
preparing for increased ESG disclosure
While you may have already begun collecting ESG data and making reports available, preparing for the continual evolution of US climate policy requires a systematic approach.
In order to respond to updated US climate policies, you need to identify where your ESG data lives – both qualitatively and quantitatively. From here, workflow systems can be set up to identify, collect, and report all ESG data.
Creating a governance board, along with an ESG data collection and reporting charter can be extremely helpful, particularly for multi-armed companies, with facilities across the country (and even globally). This should outline all current ESG rules and regulations and all personnel involved in the collection and distribution of data, as well as safeguards against errors and what to do in the event of discrepancies.
Finally, continual education on rules and regulations and the importance of remaining vigilant about ESG data collection will help bolster company-wide buy-in.
take action today
No matter how legislation changes, you need to keep up with what is required. Selecting the right ESG software systems can help you do this by automating data collection and tracking your results against known ESG frameworks.
Remember, if your company is already reporting under multiple different regulations, redundancies and errors can occur. Software such as the AMCS Sustainability Platform can be a key tool in optimizing your ESG data collection and reporting workflows.
If your company is likely to fall under any of the current or new reporting requirements, it’s time to take action now. Speak to an AMCS expert for all your ESG data collection, management, and reporting needs.