Navigating the SEC ESG Disclosure Requirements

Advising on ESG strategies is one way to expand your niche and attract new clients. After all, environmental, social and governance factors may be top of mind for clients who prefer an investment approach that reflects their values. And SEC ESG disclosure requirements specify what information companies are required to share about how climate-related risks are managed. The purpose of this rule is to ensure transparency for investors who add ESG holdings to their portfolios.

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Understanding SEC ESG Disclosure Requirements

In March 2024, the SEC announced that it had finalized a disclosure rule requiring public companies and initial public offerings (IPOs) to provide investors with detailed information about climate-related risks¹. The rule marked an effort by the SEC to “respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks,” as they pertain to a company’s operations and outcomes.

The rule requires companies to disclose:

• Climate-related risks that have had or are likely to have a material impact on business strategy, operational outcomes or financial health
• Actual and potential material impacts of climate-related risks on the business model or outlook
• Quantitative and qualitative descriptions of any costs the business has incurred from activities it’s taken to adapt or mitigate climate-related risks
• Practices or activities the business has undertaken to mitigate climate risks, including transition plans and scenario analysis
• Board oversight of climate-related risks and management roles in assessing those risks
• Internal processes for identifying, assessing and managing material climate-related risks, and how those processes fit into the business’s broader risk management strategy
• Details about climate-related targets or goals that have materially affected the business, or are likely to have an impact
• Information about Scope 1 and Scope 2 emissions (for large accelerated filers and accelerated filers that are non-exempt)
• Capitalized costs and losses resulting from severe weather and climate-related events, including hurricanes, tornadoes and wildfires
• Capitalized costs related to carbon offsets and renewable energy credits, if the business uses either or both to achieve its climate-related goals
• Impacts of material climate-related risks on the business’s estimates or assumptions made in its financial statements

ESG disclosures must be made in a company’s initial filings in the case of an IPO, and in its annual SEC filings if the company is an active registrant. The SEC requires the disclosures to be made through public filings, versus on the company’s website, to ensure that the information investors receive is reliable.

While all of these requirements place additional reporting and disclosure burdens on companies, protecting investors is the goal. The start date for implementing SEC ESG disclosure requirements is tied to the registrant’s reporting status, and whether the company is a²:

• Large accelerated filer (LAF): Companies with a public float of $700 million or more
• Accelerated filer (AF): Companies with a public float of $75 million to $700 million
• Non-accelerated filer (NAF): Companies with a public float of less than $75 million

Larger companies are expected to begin disclosures first, making initial reports in 2025. Smaller companies have until 2028 to begin reporting.

The rule doesn’t specify any penalty for non-compliance. It’s worth noting, however, that the SEC has in recent years been more proactive about enforcing fines and other penalties against registered companies that fail to meet disclosure requirements.

Current Status of the SEC ESG Disclosure Requirements

The new ESG disclosure requirements were the subject of legal challenges brought by states and private parties. Ultimately, those challenges led to a stay in April 2024, which froze implementation of the rules³. In March 2025, the SEC voted to end its defense of the ESG disclosure rules altogether⁴.

In a press release, SEC Acting Chairperson Mark T. Uyeda said, “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.” SEC staff sent a letter withdrawing its defense of the rules and stating that Commission counsel will yield its oral argument time back to the court.

So, what does this mean? Effectively, the ESG disclosure requirements are dead in the water, at least for now. The SEC has not explicitly rolled the rules back, but it has indicated that it won’t push to implement them, either. The latest move in March leaves it to the court to decide how to proceed.

How to Advise Clients on ESG Strategies

Without the SEC’s ESG disclosure requirements being enforced, it’s largely up to companies to decide how transparent they’ll be with investors. State or foreign governments may impose disclosure requirements for climate risk, but that’s not a blanket protection.

That puts you in a challenging position as an advisor, and your clients may have questions about how to choose the right companies to invest in. Using ESG research and analytics tools can help with data collection, and enable you to present a more accurate picture of a company’s stance to clients.

These tools typically rely on historical data and publicly available information to establish risk ratings for individual companies. Some rely on artificial intelligence (AI) to quickly analyze large data sets, ESG news and climate risk trends. The results may not be a 100% accurate indicator of a company’s stance on ESG or its risk profile, but these tools can still be useful when developing financial plans.

As you compare ESG analysis software or platforms, consider how each one suits your approach to environmental, social and governance investing. For instance, some clients may prefer an ESG integration strategy, while others may be focused on excluding certain investments. Understanding what your clients need can help you determine how to shape the advice you offer.

Finally, stay attuned to the news. The ESG regulatory landscape is constantly shifting and evolving. Staying up to date on the latest regulations and rule-making changes puts you in a better position to advise clients on how to manage their portfolios.

Bottom Line

The SEC ESG disclosure requirements were introduced to help investors make more informed decisions about which companies to include in their portfolios. While the rules may be in limbo, you can still apply a proactive approach to help clients decide how to invest in ways that reflect their goals and values.

Tips for Growing Your Advisory Business

• Developing a new service offering or branching your planning services into the ESG sphere may help bring more clients your way. It can take time, however, to see results from those efforts. Partnering with an advisor marketing platform offers another path to client acquisition. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• In addition to disclosure requirements, the SEC passed another ESG rule barring the use of misleading or deceptive environmental, social and governance terminology in fund names. Funds must hold at least 80% of assets in investments that are related to the fund’s name. The rule is intended to prevent companies from engaging in a practice called “greenwashing,” which is effectively a form of deceptive marketing. Companies use ESG terminology to promote themselves as “green” or “sustainable,” but behind the scenes, they do little to address environmental, social and governance issues.

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