When conducting operations, including developing business strategies and financial plans, investors need information from issuers that is consistent, comparable, and reliable. Particularly, they are looking for information concerning how public companies treat climate-related risks that are material to business operations. The SEC’s proposed rules are designed to address these investor concerns and enhance and standardize currently inconsistent climate-related disclosure practices, thus helping issuers disclose these risks more efficiently. Similar to those currently being proposed, a number of companies already provide disclosures based on widely recognized disclosure structures, including the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. The SEC itself began taking measures in the 1970s to provide material information to both address investors’ concerns and help them make decisions regarding potential environmental risks facing public companies. In 2010, the SEC released related guidance regarding existing disclosure requirements pertaining to climate change issues. The proposed rules are intended to provide greater structure to these myriad reporting approaches.

The rules would require the following climate-related disclosures:

• specific climate-related financial statement metrics and associated disclosures noted in the registrant’s audited financial statements
• the registrant’s greenhouse gas (GHG) emissions, which, for accelerated filers, for large accelerated filers, and for certain emission types, would be conditioned on assurance
• climate-related risks and their actual or potential material impacts on the registrant’s business, strategy, and outlook
• the registrant’s oversight of climate-related risks and applicable risk management processes
• information on climate-related targets and goals, and transition plans

The proposed disclosures would implement new transparency requirements for information related to the following:

• oversight of climate-related risks by the registrant’s board and management
• how climate-related risks identified by the registrant have had or will potentially have a material impact on its business and consolidated financial statements, which may happen over the short-, medium-, or long-term
• if the registrant has adopted a transition plan as part of its climate-related risk management strategy, a description of the plan (such as the relevant metrics and targets used to identify and manage any physical and transition risks)
• the registrant’s method for recognizing, assessing, and managing climate-related risks and whether any such methods are incorporated into the registrant’s overall risk management system or processes
• if a registrant uses an internal carbon price, information regarding the price and how it is determined
• if the registrant uses scenario analysis to evaluate the flexibility of its business strategy to climate-related risks, a description of the scenarios used, as well as the parameters, assumptions, analytical choices, and projected principal financial effect
• the registrant’s direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2), separately disclosed, expressed both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute terms not including offsets and in terms of intensity (per unit of economic value or production)
• the effect of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements and the financial estimates and assumptions used in the financial statements
• indirect emissions from upstream and downstream activities in a registrant’s value chain (Scope 3), if material, or if the registrant has determined a GHG emissions target that includes Scope 3 emissions, in absolute terms not including offsets and in terms of intensity
• if the registrant has publicly set climate-related targets or goals, information about:
  1. the scope of activities and emissions included in the target, the defined time horizon by which the target is intended to be achieved, and any interim targets;
  2. how the registrant intends to meet its climate-related targets or goals,
  3. relevant data to indicate whether the registrant is making progress toward meeting the target or goal and how such progress has been achieved, with updates each fiscal year, and
  4. if carbon offsets or renewable energy certificates (“RECs”) have been used as part of the registrant’s plan to achieve climate-related targets or goals, certain information about the carbon offsets or RECs, including the amount of carbon reduction represented by the offsets or the amount of generated renewable energy represented by the RECs

Should the proposed disclosures be approved, a registrant (including a foreign private issuer) would be required to:

• acquire an attestation report from an independent attestation service provider covering a minimum of Scopes 1 and 2 emissions disclosure if an accelerated or large accelerated filer
• electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL
• include the climate-related disclosure in its registration statements and Exchange Act annual reports, for example on Form 10-K
• submit Regulation S-K mandated climate-related disclosure in a separate, appropriately captioned section of its registration statement or annual report
• provide the Regulation S-X mandated climate-related financial statement metrics and related disclosure in a note to its consolidated financial statements

If the proposed disclosures are approved, the following phase-in periods will occur: (1) for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 emissions disclosure, and (2) for the assurance requirement and the level of assurance required for accelerated filers and large accelerated filers.

Additionally, approval of the amendments would provide such accommodations as:

• safe harbor for liability for Scope 3 emissions disclosure
• exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies
• forward-looking statement safe harbors pursuant to the Private Securities Litigation Reform Act, to the extent that proposed disclosures would include forward-looking statements

See the Fact Sheet for more information about assurances and compliance dates.

The public may submit feedback on the proposed rules during the comment period, which will remain open for 30 days after publication in the Federal Register, or May 20, 2022 (60 days after the date of issuance and publication on sec.gov, whichever period is longer). For instructions on how to respond, see the Proposed Rule on the SEC’s website.

Source:

SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors (sec.gov)

Proposed Rule (sec.gov)

Fact Sheet (sec.gov)