On March 6, the U.S. Securities and Exchange Commission (SEC) released long-awaited final “Climate Disclosure Rules” that establish federal regulations for registered companies to disclose climate-related financial risks and opportunities. The Real Estate Roundtable has prepared a fact sheet summarizing “What CRE Should Know” about the new SEC rules.

Overview of the SEC Rules

• The rules require certain registrants to report “material” financial impacts to address storms, wildfires, sea level rise, and other events attributable to climate change (SEC news release, March 6)

• Certain climate-related expenses and costs must be quantified and disclosed in audited financial statements filed annually as part of Form 10-K.

• The rules also expand disclosures in narrative “items” included in a 10-K, such as descriptions of “physical” and “transition” risks from extreme weather and related events.

• Required disclosures include third-party assured calculations of Scope 1 “direct” emissions and Scope 2 emissions attributable to the purchase of electricity, steam, and gas to power buildings.

• The SEC’s final rules impose no requirements to report Scope 3 emissions from sources in a company’s “value chain” – following the position advocated by the Roundtable in 2022 comments. (Roundtable Weekly, June 10, 2022)

• “The SEC’s decision to drop proposed Scope 3 reporting was the right move,” said Roundtable President and CEO, Jeff DeBoer. “It would have imposed onerous financial and paperwork burdens for commercial real estate owners and failed to produce reliable and useful emission information for investors.”

• The Climate Disclosure Rules phase-in and ramp-up over time. The largest companies (in terms of the amount of shares held by public investors) must start complying in 2025. (RER Fact Sheet)

Impacts on CRE 

• CRE registrants should become familiar with the new rules if they voluntarily set corporate “targets” to reduce emissions in their buildings or portfolios, or own assets located in cities or states with building performance mandates.

• Companies that purchase renewable energy certificates (RECs) or carbon offsets may also be subject to SEC disclosures.

• CRE owners and financial firms with “lifecycle” cap ex investment plans for building electrification may also be subject to new reporting.

• The SEC’s rules do not preempt similar state requirements. For example, companies regulated by California’s climate disclosure laws passed in 2022 must satisfy those rules in addition to SEC rules. (Roundtable summary of the California legislation and Roundtable Weekly, Sept. 22)

• The courts may ultimately decide the legality of the SEC’s actions. Institutional investors might move the market toward the SEC’s rules even if they are stalled or struck in court.

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to assess the implications of the SEC’s rules and convene our members to develop industry standards and practices for compliance.

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