New laws and regulations at the state and federal levels in the U.S. are anticipated to create mandatory requirements for thousands of companies to provide climate-related reporting, in areas including value chain emissions and climate-related risks, even in the potential absence of climate reporting rules from the Securities and Exchange Commission (SEC), according to a new report by Fitch Group’s sustainability-focused analytics business Sustainable Fitch.

The report comes as a new rule recently passed by the SEC creating mandatory climate-related reporting requirements for public companies in the U.S. faces a series of challenged in its path to implementation.

The SEC announced the release and adoption of the new rules in March 2024, 2 years following the Commission’s initial draft release, establishing for the first time requirements for public companies in the U.S. to provide disclosure on climate risks facing their businesses, plans to address those risks, the financial impact of severe weather events, and, in some cases, greenhouse gas emissions originating from their operations.

Since its release, however, the rule has faced a series of challenges, including a lawsuit filed by ten U.S. states aimed at blocking its implementation, describing it as “arbitrary, capricious, an abuse of discretion, and not in accordance with law,” and asking the court to strike down the rule as unlawful, in addition to a petition filed by oilfield services company Liberty Energy, and frac sand company Nomad Proppant, partly owned by Liberty, which has led the Fifth Circuit U.S. Court of Appeals to grant an administrative stay temporarily halting the new climate disclosure rule.

More recently, adding to the federal-level challenges in taking climate action, the June 2024 US Supreme Court ruling in Loper Bright Enterprises v. Raimondo ending the ‘Chevron deference,’ “is widely expected to scale back the ability of federal agencies to implement regulation on environmental matters,” according to the Sustainable Fitch report.

The report notes, however, that as barriers to climate action and mandatory disclosure have continued at the federal level, “individual states have stepped in and now play a significant role.”

Most notably, in 2023, California passed SB 253, the “Climate Corporate Data Accountability Act,” which will introduce requirements for companies with revenues greater than $1 billion that do business in California to report annually on their emissions from all scopes, including direct emissions (Scope 1), emissions from purchase and use of electricity (Scope 2), and indirect value chain emissions (Scope 3). The law will also require companies to obtain third party assurance for their emissions reporting.

The report also notes that New York and Illinois are also in the process of developing their own mandatory climate reporting laws, which, similar to the California law, would require companies with greater than $1 billion in revenues which do business in the states to disclose Scope 1, 2, and 3 emissions and will also require external verification on the disclosures.

Sustainable Fitch notes that New York and Illinois proposals “are positioned to expand mandatory climate disclosure requirements to thousands of US entities and entities doing business in the US, beyond what has already been achieved since the passing of California’s climate rules.”

In addition to the state-level initiatives, the report also highlights the impact of the Biden administration’s proposed Federal Supplier Climate Risks and Resilience Rule, introduced in 2022, which would require all federal contractors with over $7.5 million in annual contracts to report Scope 1 and 2 emissions, contractors with over $50 million in annual to disclose relevant categories of Scope 3 emissions as well as climate-related financial risks, and contractors with greater than $50 million in contracts to also set science-based emissions reduction targets. The report did note, however, that while the rule is set to be finalized this year, it would be vulnerable to repeal if the current U.S. administration is replaced in 2025.

In the report, Sustainable Fitch said:

“We consider state-level rules especially significant, given the recent scaling back on the ability of federal agencies to laws and implement related policies and regulations. Rules being proposed in the states of Illinois and New York are positioned to expand mandatory climate disclosure requirements to thousands of US entities and entities doing business in the US, beyond what has already been achieved since the passing of California’s climate rules.”

Click here to access the report.