Contract documents

April 3, 2024

What are the SEC’s climate rules?

Over the past several years, there has been an increased regulatory focus on climate risks, including a push for transparency related to corporate climate impacts.  Many of these issues and risks can be addressed through Environmental, Social and Governance (ESG) frameworks.  Previous articles related to ESG can be found here (Environmental, Social and Corporate Governance – the Basics) and here (ESG as a business driver for contractors).

In 2023, the Securities and Exchange Commission, or SEC, issued proposed rules related to the prevalence of ESG disclosures in the marketplace.  The proposed rules, aptly named The Enhancement and Standardization of Climate-Related Disclosures, are largely designed to mandate and standardize certain climate and carbon-related disclosures for companies that fall under the SEC’s purview.

On March 6, 2024, after an extended public comment period, the SEC approved a final version of the rules.  A fact sheet, summarizing those rules, is available here.

Various lawsuits ensued, and as of the writing of this article (early April, 2024), the rules are currently stayed and the litigation has been consolidated into the US Court of Appeals for the Eighth Circuit.

What should you do? 

While there are many opinions on, and nuances related to, the SEC’s rules, the design and construction industries will be impacted by broader requirements, and shifting market expectations, related to climate risk, carbon disclosures, and a variety of other issues that broadly fall under the umbrella of “ESG”.

For companies that fall under the SEC’s jurisdiction, any applicable requirements must obviously be met.  That said, many practitioners and business owners in the design and construction industries are wondering:  what are some of the broader impacts to the market and the industry, and what should we do next?

Even though the rules are currently stayed, and even if your company is not directly subject to SEC’s rules, you may be receiving requests for information from your clients related to Environmental, Social and Governance metrics.  Or, your company may want to improve its performance on ESG metrics as a market differentiator, or to better align with corporate values.

Start somewhere:

Many companies understandably get analysis paralysis when it comes to tracking and reporting ESG metrics.  The important point:  start small, start somewhere, just start.

Generally speaking, most companies should be actively working to understand, track, and reduce their Scope 1 and 2 emissions, and at least begin developing (and implementing) a plan for their Scope 3.  Many companies will choose to voluntarily report this information due to market demand or corporate values, or they may be subject to state or other legislation that requires it, such as California’s SB 253 and 261.

Leverage key resources:

There are a variety of free and paid resources, and consulting firms, available to help companies track, disclose, and manage their emissions and the reporting processes.

• If these terms are new to you, you can learn more about Scopes 1, 2 and 3 via various resources, including this website from the Environmental Protection Agency.
• Additionally, companies can look to industry leaders that publish their reports online – these can be great starting points.

Do the work:

Tracking and reporting are critical for compliance, because “you can’t manage what you don’t measure.”  That said, it is also important to continue to focus on meaningful climate work, and invest in climate reduction strategies.  Gather input from key stakeholders and focus on areas where your company can have impact, and that are important to your business, customers, and industry.

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.

Save time and minimize risk with the most trusted contracts in the construction industry – powered by AIA Contract Documents’ next-generation platform, Catina. Request a Demo Here

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.