On March 21, 2022, the U.S. Securities and Exchange Commission (the “SEC”) published the proposed rule entitled the “Enhancement and Standardization of Climate-Related Disclosures” that would require registered public companies to disclose certain climate-related information in registration statements and periodic reports.[1] The proposed rule and amendments, “would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers,” said SEC Chair Gary Gensler.[2]
Background
Climate change has become a topic of importance and concern to investors and regulators. Over the years, the SEC has addressed these concerns by providing guidance and recently, emphasized the importance of environmental, social, and governance disclosures. In 2010, the SEC published an interpretive guidance on disclosures related to climate change.[3] The guidance recommended that registrants disclose material information in their periodic reports related to climate change such as, the impact of pending or existing climate change related legislation and impacts of climate change. The guidance was meant to reinforce the longstanding principle that registrants disclose information that would be considered material to investors. However, the guidance did not create any disclosure requirements.
More recently, the SEC has focused on environmental, social, and governance (“ESG”) disclosures. On February 24, 2021, Acting Chair Allison Herren Lee directed the Division of Corporation Finance to enhance its focus on climate-related disclosures.[4] On March 4, 2021, the SEC announced the creation of the “Climate and ESG Task Force” in the Division of Enforcement.[5] Amongst the task force’s responsibilities are the development of initiatives to identify ESG-related misconduct, identification of any material misstatements in registrants’ disclosures of climate risks, and coordinating the effective use of Division resources.[6] Additionally, on March 15, 2021, Acting Chair Allison Herren Lee released a number of questions for public comment from investors, registrants and other market participants on climate change disclosure.[7]
Proposed Amendments
The proposed amendments would require certain climate-related disclosures, including[8]:
- Governance of climate-related risks and relevant risk management processes and oversight;
- Risk management processes for identifying, assessing and managing climate-related risks;
- Climate-related risks identified by the registrant that have had or are likely to have a material impact on its business and consolidated financial statements;
- Climate-related risks that have affected or are likely to affect the registrant’s strategy, business model, and outlook;
- Material impact or likely impact of identified climate-related risks on business and the consolidated financial statements, over the short-, medium- or long-term.
- Material impact 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, as well as on the financial estimates and assumptions used in the financial statements.
- Greenhouse Gas Emissions Disclosure: Scope 1: direct greenhouse gas emissions (“GHG”); Scope 2: the indirect GHG emissions from purchased electricity or other forms of energy; Scope 3: GHG emissions from upstream and downstream activities in its value chain if material, or if the registrant has set a GHG emission target or goal that includes Scope 3 emissions.
- Attestation of Scope 1 and Scope 2 Emissions Disclosure if an accelerated or large accelerated filer.
- Financial statement metrics and related narrative disclosure in the notes of a registrant’s audited financial statements.
Timing
The proposed rules include a phase-in period for all registrants and compliance dates are dependent on filer status. Additionally, there will be a separate phase-in period for Scope 3 emission disclosures.
Assuming that the proposed rules will be adopted and effective as of December 2022 and the registrant has a December 31 fiscal year-end, compliance dates will be as follows[9]:
| Disclosure | Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller Reporting Company |
| All proposed disclosure, including Scope 1 and Scope 2, but excluding Scope 3 | FY 2023 | FY 2024 | FY 2024 | FY 2025 |
| Scope 3 GHG emissions metrics | FY 2024 | FY 2025 | FY 2025 | Exempted |
For Large Accelerated Filers and Accelerated Filers, the Scope 1 and Scope 2 GHG disclosures will require attestations as follows[10]:
| Filer Status | Scope 1 and Scope 2 GHG Disclosure Compliance Data | Limited Assurance | Reasonable Assurance |
| Large Accelerated Filer | FY 2023 | FY 2024 | FY 2026 |
| Accelerated Filer | FY 2024 | FY 2025 | FY 2027 |
Comment Period
The SEC is seeking comments by either, the 30th day after the release’s 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.
[1] See proposed rule, https://www.sec.gov/rules/proposed/2022/33-11042.pdf
[2] See SEC press release, https://www.sec.gov/news/press-release/2022-46
[3] SEC Guidance Regarding Disclosure Related to Climate Change, https://www.sec.gov/rules/interp/2010/33-9106.pdf
[4] See SEC statement, https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure
[5] See SEC press release, https://www.sec.gov/news/press-release/2021-42?utm_medium=email&utm_source=govdelivery
[6] Id.
[7] See SEC statement, https://www.sec.gov/news/public-statement/lee-climate-change-disclosures
[8] See SEC Fact Sheet, https://www.sec.gov/files/33-11042-fact-sheet.pdf
[9] Id.
[10] Id.