In the absence of comprehensive federal action, states and regulators are enacting legislation and issuing guidance requiring climate-related disclosures, stepping in to fill the void left by the U.S. Securities Exchange Commission’s (SEC) delay on a climate risk disclosure rule.

Last spring, Minnesota stepped in with its 2023 Commerce Omnibus Finance Bill (SF 2744). The law, amending the state’s regulation of consumer loans and financial institutions, includes a little-noticed provision that requires banks and credit unions with more than $1 billion in assets to submit an annual climate risk disclosure survey to the Commissioner of Revenue (Commissioner) by July 30 each year, beginning in 2024. The law provides for the Commissioner to issue the reporting form, but he has not yet done so.

The Minnesota law does not include any details about what information banks and credit unions will be required to disclose, and until the state issues some guidance or the applicable reporting form, the impact of this bill is impossible to predict. As the Minnesota Bankers Association noted in a letter to the Minnesota Senate Commerce Committee, “The [bill’s] language gives no details, or limitations, as to what the survey will entail or how burdensome it may be to complete. We do not know if compliance will take banks one hour, ten hours or hundreds of hours of staff time. We don’t know if we can have someone internally collect this information or if we’ll need to hire an external expert.”

California also mandated corporate disclosures of climate risk. As discussed here, California enacted two landmark greenhouse gas emission and climate risk disclosure laws last fall. California Senate Bill (SB) 253 requires all companies that do business in the state and that generate more than $1 billion in revenue to report their greenhouse gas emissions annually, and SB 261 requires any company with total annual revenues exceeding $500 million doing business in California to disclose climate-related financial risks. While implementing regulations were slated to be promulgated in 2024 with reporting to begin as early as 2026 (on 2025 data), it is not clear whether California will be able to enforce the law anytime soon. Governor Newsom’s proposed 2024 state budget includes a “pause” on funding for the implementation of these new reporting laws, and in a statement to the California legislature he expressed concern that the implementation timeline is unfeasible and pledged to work with the legislature on appropriate amendments.

Furthermore, federal and state regulators have issued guidance indicating their intent to solicit climate risk data and disclosures even in the absence of legislation. In December 2023, the New York Department of Financial Services (NYDFS) issued guidance on how New York State-regulated banking and mortgage institutions should manage financial and operational risks associated with climate change. The NYDFS stated that it will issue a request for information to regulated organizations in 2024 regarding the steps they are taking, or plan to take, to assess and manage those risks.

At the federal level, in October 2023,the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly issued “Principles for Climate-Related Financial Risk Management for Large Financial Institutions.” The principles target large financial institutions with $100 billion or more in total assets.

This action is taking place without the anticipated guidance from the SEC. As discussed here, in early 2022, the SEC announced a proposed rule that would require registrants to disclose their greenhouse gas emissions and include climate-related disclosures in their filings, including information about climate-related risks that are reasonably likely to have a material impact on their business or financial condition. The SEC received more than 5,000 comments on the proposed rule, and many observers expect that the final SEC rule, now anticipated in the first quarter of 2024, may be less ambitious in scope to better withstand challenges. Whether the SEC rule will supersede state disclosure laws and regulatory guidance remains to be seen. As state legislatures convene for their 2024 sessions, we may see more proposals requiring disclosures. There is little doubt that litigation will ensue challenging the SEC rule and the various state laws.

While there are many uncertainties as to what exactly companies will be required to disclose concerning climate related risks, and when and where such disclosures must be made, climate disclosures are likely inevitable. Now is a good time for all companies to think about how they will track and manage climate risks so they are prepared to report that data. Additionally, companies should stay apprised of ongoing legislative and regulatory efforts, and we will continue to provide updates on the same.

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