On March 6, 2024, the Securities and Exchange Commission (SEC) issued final rules mandating climate risk disclosures for certain types of filers. The Real Estate Roundtable and Commercial Real Estate Finance Council (CREFC) recently shared these helpful summaries:
Through these rules, the SEC is asserting that climate risk is business risk. Severe weather events stand as a clear illustration of how climate hazards directly impact commercial real estate assets and business operations. The new rules require losses related to events such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise be disclosed along with expenditures associated with restoring operations, relocating assets or operations, repairing affected assets, or otherwise responding to these events or conditions.
The SEC noted the list of hazards is intended to be illustrative not exclusive, and that registrants are not required to make a determination of whether an extreme weather event or condition was caused by climate change. Registrants are provided the flexibility to determine what constitutes a severe weather event or natural condition based on the particular risks related to the geographic location or other considerations of the business and operations.
In order to understand whether disclosure is required, registrants will need to determine if the costs incurred or capitalized due to severe weather or other natural conditions are greater than the referenced one percent and de minimis disclosure thresholds.* Relocation of critical equipment due to flooding, replacing roofing due to a tornado or losing insurance coverage due to sea level rise or wildfires are examples provided in the Real Estate Roundtable brief.