SEC Proposes Expanded Climate-Related Disclosure
Mar 24 2022
On March 21, the SEC proposed rules1 on the enhancement and standardization of climate-related disclosures in reporting companies’ registration statements and annual reports. The proposed rules build on guidance2 provided in 2010 on climate change-related disclosures. If adopted, the proposed rules would require extensive new quantitative and qualitative disclosure for reporting companies via Regulations S-K and S-X. The proposed rules are segmented into three parts: (1) disclosures to address reporting companies’ climate-related risk factors and associated governance practices; (2) a multi-layered calculation and reporting scheme for greenhouse gas (“GHG”) emissions; and (3) consistent standards for publicly-stated climate-related goals and targets. If adopted, the disclosure requirements would be phased-in starting in fiscal year 2023 based on filer status.
Content of Proposed Disclosures
Climate-Related Disclosures:
If adopted, the proposed rules would require specific disclosures about a registrant’s climate-related risk factors and their likely or actual material impact on the business as well as the registrant’s associated governance and risk management practices to address those risk factors. Specific required disclosures under the proposed rules include:
GHG Emissions Disclosures:
In perhaps its most onerous segment, the proposed rules would require reporting companies to disclose additional information about their GHG emissions, independent of material or foreseeable risk to the company’s operations or financial condition. The definition and metrics for GHG emissions disclosure would largely borrow from pre-existing TCFD and EPA concepts, but are additional and independent requirements. Depending on a reporting company’s filer status, these disclosures could involve direct, indirect, upstream, and downstream emissions and may require accompanying attestation reports. Specific disclosures would address:
Climate-Related Targets and Goals:
If a reporting company has publicly stated climate-related targets or goals (such as those related to GHG emissions, water usage, energy usage, or conservation or ecosystem restoration), the proposed rules would require a description of those targets and/or goals in subsequent SEC disclosures, including:
Implementation:
The proposed rules would require a registrant to:
Phase-In Periods and Applicability:
|
Large Accelerated Filer |
Accelerated Filer |
Non-Accelerated Filer |
Smaller Reporting Company |
All Proposed Disclosures |
||||
All proposed disclosures |
Fiscal year 2023 (filed in 2024) |
Fiscal year 2024 (filed in 2025) |
Fiscal year 2024 (filed in 2025) |
Fiscal year 2025 (filed in 2026) |
GHG Disclosures |
||||
Scopes 1 and 2 GHG |
||||
|
Fiscal year 2023 (filed in 2024) |
Fiscal year 2024 (filed in 2025) |
Fiscal year 2024 (filed in 2025) |
Fiscal year 2025 (filed in 2026) |
|
Fiscal year 2024 (filed in 2025) |
Fiscal year 2025 (filed in 2026) |
Exempted |
Exempted |
|
Fiscal year 2026 (filed in 2027) |
Fiscal year 2027 (filed in 2028) |
Exempted |
Exempted |
Scope 3 and associated intensity metric |
Fiscal year 2024 (filed in 2025) |
Fiscal year 2025 (filed in 2026) |
Fiscal year 2025 (filed in 2026) |
Exempted |
Next Steps
The proposed rules are subject to a comment period of at least 60 days. In light of the proposed rules, reporting companies should consider how their business is impacted by climate risk factors and if their governance and risk-management processes adequately address those risks. They should also assess whether and how their business activities generate GHG emissions and better familiarize themselves with GHG reporting protocols developed by the TCFD and EPA. In addition, reporting companies should assess their pre-existing public statements on climate-related goals and targets with an eye towards the reporting requirements they may generate if the proposed rule is adopted.
1See The Enhancement and Standardization of Climate-Related Disclosures for Investors, available at https://www.sec.gov/rules/proposed/2022/33-11042.pdf, (March 21, 2022).
2See Commission Guidance Regarding Disclosure Related to Climate Change, available at https://www.sec.gov/rules/interp/2010/33-9106.pdf (February 2, 2010).