Plan Your Response to the Anticipated U.S. Securities and Exchange Commission Rule

This article describes topics and activities law firms can discuss with their clients pertaining to the anticipated final rule on Environmental, Social and Governance disclosures.

By Carly Mitchell, Ted Kowalsky, Kate Sylvis

The U.S. Securities and Exchange Committee’s (SEC’s) forthcoming climate disclosure rule represents a historic moment in efforts to encourage publicly traded companies to reflect on risks that the climate can pose to their operations. However, owing to the integrated nature of carbon accounting, the SEC’s rule has the potential to influence nearly every company in the economy. As public companies gather and analyze data across their enterprise, they will source information from all manner of companies, inclusive of even small businesses and private firms. This could have a knock-on effect: even non-SEC regulated firms may begin to reflect on what climate-related risks mean to their own companies and take action.

The SEC rulemaking also comes at a high stake’s moment. On one hand, global efforts to reduce greenhouse gas emissions, promote the energy transition, and increase reporting have accelerated as never before. International investment has also reached historic heights; Bloomberg Green reports that annual global investment in the energy transition exceeded $1 trillion for the first time in 2022. Yet, there is a corresponding tension with those who believe such concerns — reducing greenhouse gas emissions, setting science-based targets, accounting for transition risk — are not core to a company’s bottom line. This counter movement has grown more vocal in efforts to scale back such ambitions. This is seen in a recent lawsuit by 25 state attorneys general against the Department of Labor’s recent rule to permit retirement plan sponsors to consider Environmental, Social, and Governance (ESG) factors when screening investments. The SEC rulemaking will also come into effect following the 2022 Supreme Court ruling in West Virginia vs. Environmental Protection Agency1, which curtailed the ability of a federal regulator to oversee emissions from utility companies in relation to climate change.

In spring 2022, the SEC finally released2 the proposed text of its climate disclosure rule with a stated aim: to enhance and standardize climate-related disclosures from nearly all large, publicly traded firms. At nearly 500 pages, the draft rule would represent the longest rulemaking issued by the SEC on a single topic. Yet since its publication, the draft rule has been the subject of a robust process of public comment and debate. Exactly which disclosure provisions ultimately survive to the final version remains a topic of rampant speculation, even as the SEC aims to finalize its rule sometime in the fall of 20233. This is the first in a series where Guidehouse experts will provide our point of view on topics law firms can discuss with their clients to prepare for the upcoming SEC Rule. This series will also present strategies for how organizations might incorporate ESG thinking into their strategies to enhance resilience.

Below are a set of initial steps that law firms can discuss with their impacted clients to prepare for the SEC Rule.

Initiate and Educate — While climate change and ESG have been much talked about topics for decades, most companies are relatively immature in their ESG acumen, strategy, and governance. Law firms may be receiving many threshold-level questions from clients on whether the new rule will impact them.  These initial discussions offer an opportunity to probe more deeply how “ready” the company may be for the anticipated reporting. Readiness is not only a function of whether or not the necessary data and reporting systems are available. Instead, readiness starts at the top.

For affected client companies, specifically “domestic and foreign registrant firms,” a first step is to encourage a conversation about the rule itself at the executive governance level. Such a conversation should include a primer on climate risk and its primary vernacular. The purpose of such briefings is to help a client organization’s leadership understand what is coming and what their responsibilities will likely be — as an organization and personally in their respective executive roles. For many executives, this may mean learning a new taxonomy to discuss climate risk and how it relates to a company’s mission, operations, and stability.

This begs the question: Who should be educated and engaged as part of these initial discussions? A good starting point for a basic stakeholder analysis is to review the company’s risk management processes and governing bodies, since, as per SEC draft guidance, these groups will be responsible for enabling ESG disclosures. Reviewing the flow of information and which individuals are involved in reviewing and approving a company’s financial statements is a complementary check. One possible outcome of this analysis is an updated Responsible, Accountable, Consulted, and Informed chart, inclusive of climate risk and disclosures under the anticipated rule.

"SEC's proposed rule is not just a compliance exercise, it's a catalytic opportunity for companies to evaluate their climate strategies and how they materialize through their operations."           

—Carly Mitchell, Public Sector Financial Services Partner

Reflect on Current “Climate” Climate — Many law firms are hearing from their clients a general hesitation to do much related to the SEC’s pending rulemaking, as the rule is not yet final.  However, even though the draft rule will undoubtedly go through some revision, we are confident that the final rule will still require some manner of more robust disclosure related to climate-related risks. Recognizing this, the question then shifts to “what specific steps should companies take now to ensure they are disclosure-ready when the final rulemaking is published?” We suggest law firms talk to their clients about the gaps they will have to overcome to comply with the SEC rule, once finalized. Asking questions like those below can help assess the degree of change a company will need to make once the rule is in effect:

  • What ESG reporting is the company doing today? Are there systems in place to facilitate ESG reporting?
  • Are existing governance structures fit-for-purpose to include governance over ESG disclosures?
  • Does the company use ESG and climate terminology today or will it need to adopt a new climate taxonomy?

In our next article, we will talk more about these steps and what companies can and should do today to prepare for the SEC’s final rule.

Define Future Strategy — The incorporation of climate risk disclosures in financial filings to increase transparency for investors is an indication of expectations that ESG topics are considered and included in organizational strategy. For organizations that have not yet considered how these topics are included in their strategy, now is the time to think about the impact on current strategy and operations. Specifically, companies need to consider how and if the organizational strategy should change to enhance resiliency, what role the board of directors must play in governance of these topics, as well as what changes to governance, policies, procedures, technology, data, and stakeholder engagement will be needed to best address the shift in the investing environment.

With a strategic framework in place, law firms can encourage companies to shift to more tactical activities to prepare their clients for climate disclosure reporting under the SEC’s anticipated rule. These activities can take some time and may require refinements to governance processes, changes to systems, as well as the acquisition of data for calculations, new models, and the implementation of new controls. Companies that get a head start in advance of the rule will be better positioned to report to the SEC and their stakeholders. This will also give those firms more time and resources to focus on the execution of their ESG strategy itself.

Our next article, Key Steps for Environment, Social and Governance Disclosure Reporting Readiness in Advance of the Final Rule, will focus on the key tactical activities law firms can encourage their clients to take now to prepare for ESG reporting under the anticipated rule.


SEC Proposed Rule - Guidehouse Summary


1  “West Virginia et Al. V. Environmental Protection Agency et Al.” Supreme Court of the United States, 30 June 2022.
2  U.S. Securities and Exchange Commission. “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors.”, 21 Mar. 2022,
3  “Climate Change Disclosure .” Office of Information and Regulatory Affairs, 2023,

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