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. 

In addition to losses or capitalized costs, registrants must also disclose recoveries, such as insurance premiums, so that investors can understand the overall effects of the severe weather events to the registrant’s operations.

The SEC acknowledged concerns about attributing expenditures directly to severe weather events since some expenses could be partially related to a severe weather event and partially related to ongoing facility maintenance. Therefore, the final rules require that the entire amount of expenditure or recovery be disclosed whenever the severe weather event or other natural condition is a significant contributing factor in incurring the cost, expenditure, charge, loss or recovery.

In addition to the above, if, as part of its strategy, a registrant has undertaken activities to adapt to a material climate-related risk, a quantitative and qualitative description of the material expenditures should be disclosed. The requirements are intended to capture actual material expenditures made during the fiscal year for the purpose of climate-related risk mitigation or adaptation.

*The expenditure threshold is the lesser of $100,000 or 1% of EBITDA, and the capitalized threshold is the lesser of $500,000 /reporting year or 1% of stockholder equity/deficit.

Translating Requirements to Actions & Support: 

Many companies have already developed governance structures, goals, metrics, and reporting to address physical climate risk. Following their lead as well as the requirements of the new rules, potential responses and support at the property level are suggested below:  

Disclosure Requirement   Action   Associated Support 
Climate-Related Risks & Recoveries: Identify climate risks that have had or are likely to have a material impact on its strategy, operations, or financial condition in the short-term (next 12 months) or long-term (beyond 12 months). For physical risks, registrants must disclose the geographic location and nature of properties, processes, or operations subject to the risk.
  • Forecast short- and long- term acute and chronic hazards in specific geographies where the business has physical assets
  • Track capitalized costs, expenditures, charges, and losses from severe weather and disclose if over threshold
  • Track recoveries related to a severe weather event such as insurance payments
  • Explore and select climate risk modeling tools to identify natural hazards in the short and long-term that may affect assets
  • Evaluate and select value-at-risk estimating tools at the portfolio and property level  
  • Review tracking and assessments of capitalized costs, expenditures, and losses from severe weather including costs to restore operations, relocate or repair assets or otherwise respond to the effect of the severe weather events
Risk Mitigation & Adaptation: describe any processes the registrant has for identifying, assessing, and managing material climate-related risks
  • Integrate climate risk into overall risk management processes (including staff training, updating documents and processes, and data tracking systems)
  • Develop plan to prioritize which risks to address, and whether to mitigate, accept or adapt to those risks
  • Integrate guidelines regarding risk appetite and thresholds requiring further action to mitigate or adapt into other risk management practices
  • Update existing third-party reporting scopes of work to incorporate climate risk so appropriate information can be gathered at the property level*



Property Resilience Assessments (PRAs) are a due diligence tool designed to support climate risk management and disclosure efforts. A PRA provides a property-level evaluation of current and future potential natural hazards, a site inspection to assess building vulnerability and value at risk, and if necessary, the identification of resilience or adaptation measures. Capital planning and facility condition assessments can also be useful in identifying building components or equipment that is nearing the end of its useful life and to take advantage of potential synergies between planned investments, energy efficiency upgrades and resilience/adaptation activities.

Preparing for the New Climate Disclosures:

The SEC’s climate disclosure mandates represent a major development that will require significant preparation by public companies. Notwithstanding the significant level of effort to comply with the rules, the approach is consistent with evolving best practices to manage physical climate risk. To effectively comply with the new rules, registrants should consider taking the following steps:

Assess Current Climate Data and Processes

  • Evaluate existing systems for tracking and reporting climate-related data.
  • Identify gaps in data collection, controls, and documentation processes.
  • Determine if new tools, training, or third-party assistance is needed.

Analyze Material Climate Risks and Opportunities

  • Undertake climate scenario analysis and risk assessments if not already done.
  • Identify transition and physical risks that could materially impact the business.
  • Assess financial implications across operations, expenditures, assets, and strategy.

Inventory Potential Climate Disclosure Impacts

  • Identify expenditures, capitalized costs and charges related to climate events/conditions. 
  • Quantify impacts to financials from severe weather events.
  • Document material climate-related impacts on assets, liabilities, and access to capital.

Review Compliance Timeline and Update Disclosure Controls

  • Establish processes and controls for new disclosure requirements based on phase-in periods. 
  • Implement board and managerial oversight of climate disclosure preparation.
  • Engage with auditors/attestation providers early on GHG emissions assurance.

See The Enhancement and Standardization of Climate-Related Disclosures for Investors for additional information.

Reception of the Rules & Challenges with Implementation:

While the commercial real estate industry digests the implications of the rule, associations and informal peer groups are meeting to work through the rules together including in the banking community. Marty Walters, Recovery Risk, an environmental risk advisor to financial institutions and member of the Environmental Bankers Association (EBA), noted that “many banks in the U.S. that will be required to disclose climate-related risks under this SEC rule did not fall under the umbrella of the principles for climate-related financial risk management issued in October 2023 to large banks with assets over $100 billion. These publicly traded banks will need to integrate the new SEC requirements into their risk framework, governance, and credit quality programs to ensure consistency with both financial soundness and public disclosure requirements.”

Beyond the banking industry, the REIT community and other public entities are preparing to comply. According to Albert Slap, President, RiskFootprint™, “In the area of physical risks, registrants will need to disclose current and estimated future impacts of these physical risks and what the company is doing and planning to do to mitigate those risks. To determine if floods, natural hazards and/or climate impacts pose a material risk to a company’s financial conditions, it will be necessary not only to identify exposures, but also to quantify the vulnerability of core assets and the potential damage and losses that such exposures can cause.”

Jerry D. Worsham II, Environmental and Natural Resources Attorney with Clark Hill PLC, cautions “being able to “quantify” a required disclosure for the Financial Statements under the new Article 14 of Regulation S-X with a “qualitative” description of how the company developed such estimates and assumptions used will be challenging at best.”

Holly Neber, AEI’s CEO and chair of the ASTM Task Group developing the Guide for Property Resilience Assessment, shared her perspective that “while we expect many challenges to these rules, both legal challenges and implementation challenges, incorporating climate risk into standard risk management processes can maximize value and minimize loss at the building level and drive meaningful improvement in climate hazard preparedness. The goal with climate-informed risk management is better decision-making.”

We look forward to continuing the conversation on how the new rules will affect the commercial real estate and due diligence spaces, and welcome additional perspective from our peers, clients, and industry connections. For those not subject to the SEC rules, the rules can still offer a signal of what risks may be considered material for your business and how to best manage and minimize the impacts of those risks.