The holiday season has officially started. As 2024 draws to a close, corporate boards across the United States are evaluating their priorities for the upcoming year. Top of mind are regulatory changes introduced or finalized by the U.S. Securities and Exchange Commission (SEC) in 2024 and those that will shape boardroom decisions in 2025 and beyond. Staying ahead of these regulatory shifts is essential for maintaining compliance, managing risk, and meeting shareholder expectations.

In this two-part series, we’ll break down the key SEC developments that boards must prepare for as they head into the new year.

Enhanced ESG Disclosures

Environmental, Social, and Governance (ESG) issues remain a central focus for the SEC. The SEC rules seek to expand corporate disclosure requirements for human capital management, calling for more detailed reporting on workforce diversity, employee development, and other related metrics. Additionally, climate-related disclosure rules, addressing greenhouse gas emissions and the financial risks of climate change, are expected to influence reporting in 2025. The enhanced ESG disclosure rules will require large, accelerated filers to include detailed climate-related information in annual reports for fiscal years beginning in 2025.

Among the most significant changes introduced by the SEC is the emphasis on increased transparency for ESG practices, aiming to help investors better understand how companies address climate risks, social equity, and governance challenges.

The SEC's final rules on climate-related disclosures, effective since May, 2024, mandate that registrants provide specific information in their registration statements and annual reports. Key requirements include:

• Climate-Related Risks: Disclose climate-related risks that have materially impacted, or are reasonably likely to materially impact, the registrant’s business strategy, results of operations, or financial condition.
• Governance and Risk Management: Provide information about the registrant’s governance and risk management processes related to climate-related risks, including the role of the board of directors and management in assessing and managing these risks.
• Metrics and Targets: Disclose the metrics used to assess and manage climate-related risks, including greenhouse gas (GHG) emissions, and any climate-related targets or goals, along with progress toward achieving them.

Organizations face challenges navigating a complex regulatory environment where climate-related disclosure requirements vary across jurisdictions. For instance, California has enacted laws mandating climate-related reporting for businesses based in or operating within the state. Similarly, the European Union’s Corporate Sustainability Reporting Directive (CSRD) requires over 3,000 U.S.-based companies with EU operations to comply with extensive sustainability reporting standards.

What Boards Should Prioritize in 2025:

• Director Education: Ensure board members are knowledgeable about ESG-related issues and have access to relevant expertise.
• Strategic Integration: Embed ESG considerations into corporate strategy and risk management frameworks.
• Board-Level Oversight: Form or strengthen committees dedicated to monitoring ESG compliance and ensuring accountability.

The SEC’s evolving ESG disclosure framework reflects the growing demand for transparency and accountability in corporate governance. As companies adapt to these regulatory shifts, proactive preparation and alignment with ESG priorities will be essential to stay ahead of compliance requirements.

Stay tuned for the second part of this series, where we’ll explore the continuing impact of the Cybersecurity Disclosure Rule, Shareholder Proposal Rules, the continuing impact of Universal Proxy Rules, and practical steps boards can take to prepare for 2025.

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