Contract documents

November 8, 2023

What are climate disclosure regulations?

Generally speaking, climate disclosure regulations require certain entities to publicly disclose climate risks, and potentially outline strategies to manage those risks.  This is a relatively new type of legislation, driven by the increasing scope and scale of the impacts of a rapidly changing climate.  At a high level, these types of disclosure mandates force companies to identify and evaluate climate-related risks, while also providing investors and other key stakeholders with the information they need to make more informed decisions.

Context and examples

Climate disclosure regulations can be implemented at various levels of government.  The following examples provide context and outline how these regulations may impact building design and construction firms, and related industries.  There are many examples of climate disclosure laws that have been proposed or implemented. Here we will focus on two:  those proposed by the Securities and Exchange Commission, and two recent examples from California.

Federal level:  Securities and Exchange Commission (SEC)

SEC:  The Enhancement and Standardization of Climate-Related Disclosures for Investors

First proposed in March, 2022, this rule would, among other things, “require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.”  The proposed rule has garnered numerous public comments, and as of the date of this article, a final rule has not yet been issued. [1]  Among other things, there has been significant dialogue and commentary regarding the proposed rule’s handling of Scope 3 emissions.  Even though the rule is not yet final, it has arguably already impacted the market; publicly-traded US companies have begun to pay closer attention to climate disclosures, and many have started collecting some data that is expected to be relevant for this and other legislation.

State level:  California and climate-related disclosures

SB 253:  The Climate Corporate Data Accountability Act

This Act requires both public and private businesses “operating in California” with revenue that exceeds $1B to report Scopes 1, 2 and 3 emissions.  Three key aspects of this Act, from a climate standpoint, are (1) the inclusion of private companies, (2) reporting of Scope 3, and (3) third-party data assurance.  The California Air Resources Board (CARB) has been tasked with developing the implementing regulations, which will provide additional detail and guidance for impacted companies.

SB 261:  Greenhouse Gases:  Climate-Related Financial Risks

This Act requires certain companies to generate a report that discloses their climate-related financial risks (based on the framework of the Task Force on Climate Related Financial Disclosures), and outline the steps they are taking to mitigate and adapt to those risks.

What are the impacts and what can you do?

Harvard’s Environmental and Energy Law Program provides a good summary of the issues and evolving market and regulatory demands regarding climate data, “Regardless of the final SEC climate disclosure rule, companies will need to continue to respond to the call from a range of stakeholders including investors and consumers for increased transparency about climate commitments and climate risks as well as new regulations and litigation risks.”

From a practical standpoint, as the impacts of these regulations flow down the supply chain, there are a few things designers and builders can expect and start preparing for:

• Increasing requests for various data points. Unfortunately, these requests can take many different formats, and are not (yet) standardized.
• Begin the process of collecting and tracking relevant data points. There are a number of free tools in the marketplace (including this toolkit created by Salesforce and Stok) and a growing number of paid tools and consulting firms that provide these services.
• Attempt to reduce administrative time and costs by developing a standard response, based on the types of requests you receive and the metrics and frameworks that are most relevant to your industry.
• Data can be challenging, and the quality of data will come under increased scrutiny. Try to avoid getting overwhelmed; focus on starting somewhere and progressing forward, and enlist the help of experts, if needed.

[1] As of November, 2023, the SEC’s Climate-Related Disclosures rule remains pending.  Review the SEC’s website to check for updates and the current status.

Nicole DeNamur is an attorney and sustainability consultant, based in Seattle, WA.  Her company, Sustainable Strategies, helps clients identify and manage the risks of sustainable innovation so they can pursue robust sustainability goals.  She is also an award-winning contributing author and has developed and taught graduate-level courses at the University of Washington and Boston Architectural College. Nicole was named Educator of the Year by the International WELL Building Institute, and Sustainable Strategies hosts an online course, Accelerated WELL AP Exam Prep.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.