Illustration indicating global data and requirements. Credit: metamorworks/Shutterstock.com

A potentially forthcoming climate reporting requirement from the U.S. Securities and Exchange Commission (SEC) has legal experts worried about a looming litigation risk for companies that don’t have a robust team in place for tracking emissions data.

The SEC announced and opened a public comment period for its proposed climate disclosure rule in March 2022. The rule aims to standardize the climate-reporting information required from companies across the board, and is expected to go into effect this April for large public companies and in 2025 for smaller companies.

The proposal requires companies to disclose information on “Scope 1” direct emissions (greenhouse gases) and “Scope 2” indirect emissions (purchased energy), as well as upstream and downstream (“Scope 3”) emissions for some companies. Scope 3 emissions disclosures are the most contentious requirement of the proposal because they require some companies to scrutinize global supply chains and the indirect impact of their products or services.

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