As investor demand in the financial risks of climate change continues to grow, the U.S. Securities and Exchange Commission (SEC) has finalized a rule requiring publicly traded companies to include climate-related disclosures in their annual reports and registration statements. If enacted, this rule will bring U.S. reporting requirements closer in line with global standards, underscoring the importance of robust data management across supply chains.
As of March 11, 2025, the ultimate status of the Climate Rule remains uncertain due to ongoing litigation and potential policy changes under the new administration. Despite the current uncertainty, companies are advised to continue preparing for potential compliance, as some aspects of the rule may still come into effect depending on the outcome of the legal challenges and regulatory review. Numerous other states, such as New York, Colorado, New Jersey and Illinois are introducing their own bills mandating that companies with more than $1 billion in annual revenue doing business in the state to report their greenhouse gas emissions every year.
To help fashion brands prepare, we’re breaking down the key details of the SEC Climate Disclosure and what that could mean for your business if the rule, or a variation thereof, is implemented.
The Securities and Exchange Commission, which strives to protect investors and ensure a fair market, finalized “The Enhancement and Standardization of Climate-Related Disclosures for Investors” in March 2024. A month later, the ruling was put on hold in response to numerous lawsuits claiming the SEC does not have authority to impose these rules. Suffice to say, even disregarding the current political climate, this ruling has been contentious from the start.
Essentially, the SEC Climate Disclosure requires publicly traded companies in the US to provide investors with information on how climate change will impact a company’s financial performance and the steps they are taking to mitigate that risk. In some ways, it is similar to the EU’s Corporate Sustainability Reporting Directive’s (CSRD) outside-in perspective in its double materiality assessment, as well as California’s climate legislation. The primary difference is that while other reporting requirements factor in a broad spectrum of ESG data, the SEC is only focused on climate.
Despite potential setbacks on this ruling, and others, the push for climate transparency and accountability won’t vanish. At the state level, California has shown significant influence as a critical counterbalance, as we’ve seen previously with its fuel efficiency standards on automakers.
Additionally, the largest of U.S. fashion brands operating internationally will still face reporting requirements under the CSRD, though this is due to be simplified (or as some say, “deregulated”) under the new EU Omnibus proposal. In its current iteration, already reported on by a few leading brands such as Adidas, CSRD requires extensive climate and sustainability disclosures for multinational firms operating in Europe. Even without federal backing, the private sector will still find climate reporting on the agenda.
Simply put, any clothing company, domestic or international, that is SEC-registered will be required to disclose their climate risks. The specifics of these reporting requirements are staggered, as follows:
Because the timeline will roll out over the next six years (depending on how this ruling progresses now), it’s important to pay attention to how your company’s filing status affects your reporting requirements. For example, if indeed implemented this year, Large Accelerated Filers, will start reporting on the 2025 fiscal year. Check out the below chart to see where your company falls on the reporting timeline.
Via narrative disclosure, emissions data, and financial statements, companies will need to provide a detailed picture of the financial impact climate change may have on their business. We’ve broken this down into categories of the top disclosure requirements fashion brands should be aware of:
If your company has already conducted a double-materiality assessment for CSRD, it will come in handy for SEC reporting. The disclosure of climate-related financial impacts will focus on material costs associated with mitigation, adaptation, and implementing transition plans to achieve climate goals. Under the SEC's final rules, companies must report aggregated expenditures and losses resulting from severe weather events and other natural conditions if they equal or exceed 1% of the absolute value of pretax income or loss (with a minimum threshold of $100,000). Additionally, for capitalized costs and charges, disclosure is required if the aggregate amount equals or exceeds 1% of the absolute value of stockholders' equity or deficit (with a minimum threshold of $500,000). These thresholds ensure that significant climate-related financial impacts are clearly reflected in financial statements while simplifying compliance for reporting companies.
For footwear and apparel brands, climate-related financial impacts could include potential supply chain disruptions, such as flooding affecting raw material production, or the cost of transitioning warehouses to clean energy.
The final SEC ruling requires Large Accelerated Filers and Accelerated Filers to report only on Scope 1 and Scope 2 GHG emissions, even though the original proposal included Scope 3 as well. These numbers must be reported before any offsets.
Fashion and textile brands are required to disclose how their board of directors and management oversee the assessment and management of climate-related risks, including progress toward any disclosed climate-related targets, goals, or transition plans. Additionally, they must outline the processes used to identify, evaluate, and manage these risks and clarify whether these processes are integrated into their broader risk management framework.
For fashion brands, this might involve describing how leadership monitors initiatives such as reducing emissions in supply chains or assessing risks from material scarcity.
In addition to how climate-related risks impact your company’s financial health, the SEC also emphasizes the need to detail how risks and related mitigation activities affect your business model and strategy. If you have set climate-related targets or goals, you’ll need to disclose how these objectives will affect business operations, including the associated expenditures and impacts on financial assumptions. This includes any mitigation or adaptation measures taken in response to climate risk.
The ruling requires fashion companies to disclose information about their use of carbon offsets and renewable energy credits (RECs) if they are a material part of their climate strategy. This includes reporting the capitalized costs, expenditures, and losses associated with these tools. Companies must explain how offsets and RECs are used to achieve their disclosed climate-related targets or goals, providing transparency into their reliance on these mechanisms for emissions reductions or compliance with sustainability commitments.
If your apparel brand is setting climate targets or goals, whether voluntarily or to comply with other climate regulations, you must disclose how these commitments will impact your business, operations, or financial condition. The SEC will require details about your plan to achieve these goals, including the timeline and the specific activities involved. If carbon offsets or RECs are part of your strategy, you should also report how these tools contribute to meeting your objectives.
In both the U.S. and EU, climate disclosure regulations are facing political shifts – from the uncertain future of the SEC’s Climate Rule to the EU Omnibus law’s potential impact on CSRD requirements. Yet, the direction of travel is clear: brands will continue to be held to higher standards of transparency and accountability. Whether through state-level mandates, international reporting obligations, or evolving customer and stakeholder expectations. Fashion and footwear brands that act now will be better positioned to navigate changes, regulatory or otherwise, and meet the growing demand for credible climate reporting.
No matter the simplification, changes or setbacks to oncoming legislation, brands everywhere are feeling the pressure of evolving climate disclosure requirements. That's where Carbonfact steps in, delivering accurate Scope 1 and 2 emissions data, comprehensive supply-chain mapping, and GHG Protocol-compliant reporting so you can track, measure, and report your climate impacts with genuine confidence.
With Carbonfact's fashion-specific tools, you'll develop climate strategies that work, set targets grounded in accurate, scientific data, and easily monitor your progress. Our standardized approach ensures consistency across all reporting frameworks – from SEC requirements to state-level mandates and evolving international standards like the CSRD.
We’ll help you get ahead of regulatory changes by getting your data in order, automating tedious reporting, and enabling you to satisfy potential requirements while advancing your broader sustainability vision.