SEC Misses Yet Another Deadline To Finalize Its Climate Rule, Likely Aligns Timeline With California

Eighteen months ago, the SEC announced – to much fanfare – that it proposed to “enhance and standardize climate-related disclosures for investors”. An initial deadline to publish the final rule in October 2022 was missed, in large part because the SEC received more than 14,000 comment letters. The self-imposed target date to publish the final rule was then pushed to the end of April 2023. That deadline came and went without comment from the SEC. Roll on to October 31, 2023, and the regulatory horror show continues for the US climate community. The final rule has not been published and nothing has been communicated. So much for regulatory clarity.

What are the implications of this information void for managers responsible for climate change strategy and disclosures at listed equities in the US, you may ask. With this new delay, the SEC’s climate disclosure rule cannot possibly come into effect until January 1, 2025. This will be two months after the Presidential election takes place, creating yet more regulatory uncertainty. If the SEC rule does come into effect on January 1, 2025, this will align with the recently signed Californian climate disclosure rule. Entities covered by the Californian disclosure rule will need to submit reports by January 2026 for fiscal 2025 data. The California Air Resources Board (CARB) is obliged to adopt regulations before January 1, 2025. Compliance leaders at entities impacted by the Californian climate regulation and/or the SEC proposed rule should use 2024 to develop their climate governance, carbon data management and reporting processes in time for full implementation in 2025.

Continued regulatory unpredictability in a soft economy is a net negative for the legions of climate solution providers who have been gearing up to deliver digital systems and to provide assurance since rumours of the proposed SEC rule began circulating in 2021. In a best-case scenario, we’re now looking at a period of 2 years and 9 months from the announcement of the draft rule to the effective date for the first reporting year. This delay is an irritation for the US member firms of the Big Four. Services revenues in the $915 million market for carbon emissions data and disclosures will not grow as fast as forecasted in 2024 and 2025. The SEC’s unpredictability is a big drag on the growth prospects of US-based climate tech platforms in an environment characterized by down rounds, a focus on capital efficiency and shrinking headcount to achieve profitability. By 2025 we’ll find out which of the 55 carbon management software providers assessed by Verdantix earlier this year survive the market shake out. Winners will definitely include firms that focus on the EU market in 2024.

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David Metcalfe

David is the CEO of Verdantix and co-founded the firm in 2008. Based on his 20 years of experience in technology strategy and research roles he provides guidance on digital strategies to C-level executives at technology providers, partners at private equity firms and function heads at large corporations. His current focus is on helping clients understand their market opportunity tied to ESG investment trends and their impact on corporate sustainability strategies. During his 12 years running Verdantix – including 4 leading the New York office – he has helped dozens of clients grow their businesses through fund raising, acquisitions and international growth. David was previously SVP Research at Forrester and Head of Analysis & Forecasting at BT. He holds a PhD from Cambridge University and also worked as a Research Associate at the Harvard Business School.