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- State-Level Initiatives Drive Change: Illinois and New York introduce significant climate disclosure regulations.
- Federal Supplier Rule Adds Momentum: New federal rule will require GHG emissions reporting from suppliers.
- Broader Implications for Corporates: Thousands of entities may face new mandatory disclosure requirements.
Despite pushback against Environmental, Social, and Governance (ESG) initiatives, US climate disclosure is gaining momentum through state-level and federal supplier requirements, even as the SEC’s climate rule faces delays.
State-Level Leadership:
States like Illinois and New York are stepping up with significant climate disclosure regulations. These rules are crucial given recent limitations on federal agencies’ ability to enforce environmental policies. The state-level rules will expand mandatory climate disclosure requirements to thousands of entities, including those doing business in the US.
Illinois and New York’s proposed bills (HB 4268 and SB S897A) require businesses with annual revenues over $1 billion to disclose Scope 1, 2, and 3 greenhouse gas (GHG) emissions. These states join California, which has already adopted similar regulations with its Climate Corporate Data Accountability Act (SB 253). State actions are increasingly significant in the absence of federal leadership.
Federal Supplier Rule Impact:
The Federal Supplier Climate Risks and Resilience Rule, set to be finalized this year, will impose GHG emissions reporting requirements on federal suppliers. This rule, introduced in 2022 under the US Federal Acquisition Regulation (FAR), is pivotal due to the US government’s role as the world’s largest single buyer of goods and services. The reach of the FAR climate rule is immense, potentially transforming disclosure practices across various industries.
The rule mandates GHG emissions inventories and climate-related financial risk disclosures for significant and major contractors. Significant contractors (those with $7.5 million to $50 million in federal contracts) must disclose Scope 1 and 2 emissions, while major contractors (over $50 million in contracts) must also report Scope 3 emissions and develop science-based GHG reduction targets. The rule exempts small businesses, educational institutions, and certain non-profits.
Related Article: ECB Reports Significant Reduction in Carbon Emissions from Monetary Policy Portfolios and Expands Climate Disclosures
Implications for Corporates:
These new regulations are expected to bring thousands of additional entities under mandatory disclosure requirements. The proposed state and federal rules will have a sweeping impact on corporate disclosure practices. Illinois’s regulation is planned to take effect in 2025, while New York’s could be effective by 2026.
As individual states and federal regulations advance, companies must adapt to a rapidly evolving landscape of climate disclosure requirements. This movement signifies a substantial shift toward greater transparency and accountability in corporate environmental practices, despite the broader pushback against ESG initiatives.