SEC Proposes New Climate-Related Disclosure Requirements

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The Securities and Exchange Commission (SEC) recently published proposed rules that would require public companies to include substantial climate-related disclosures in their registration statements...
United States Corporate/Commercial Law
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The Securities and Exchange Commission (SEC) recently published proposed rules that would require public companies to include substantial climate-related disclosures in their registration statements and annual reports on Form 10-K. SEC Chair Gary Gensler stated that the proposal "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." The proposed rules would apply to public companies with reporting obligations under the Securities Exchange Act of 1934 (with certain disclosure exemptions for smaller reporting companies) but, as currently written, would not apply to registered investment companies or business development companies.

As proposed, the rules would require information about a company's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks also would include disclosure of a company's greenhouse gas (GHG) emissions, including an attestation report required for accelerated filers and large accelerated filers. Companies would be required to disclose direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2). Indirect emissions from upstream and downstream activities (Scope 3), if material, would also be disclosed. Certain climate-related financial metrics would also be required in the audited financial statements.

While the proposed rules are supported by certain investors and asset managers who seek consistent and higher-quality data about climate risks in ESG investing, we expect significant opposition from business groups and legislators who have concerns about the SEC's authority to implement the rule and the expense to companies to produce and verify the data required by the proposal. The proposed rules are open for public comment through May 20, 2022.


The proposed rules would require a company to include disclosures regarding, among other matters:

  • Impact of Client-Related Risks on Business and Financials: How any climate-related risks identified by a company have had or are likely to have a material impact on its business and financial condition. "Climate-related risks" are the actual or potential negative impacts of climate-related conditions and events on a company's consolidated financial statements, business operations, or value chains (that is, the upstream and downstream activities related to a company's operations), as a whole. A company would also need to identify and describe any material risks to its business operations related to the physical impacts of climate-related conditions, such as extreme weather events or longer term weather patterns (i.e., physical risks) and any risks related to a potential transition to a less carbon-dependent economy (i.e., transition risks). Physical risks include both acute risks and chronic risks to a company's business operations or the operations of those with whom it does business.
  • Effect of Climate Risks on Strategy, Business Model, and Outlook: How any identified climate-related risks have affected or are likely to affect a company's strategy, business model, and outlook. As proposed, a company would be required to disclose actual and potential impacts on its
    • business operations, including the types and locations of its operations;
    • products or services;
    • suppliers and other parties in its value chain;
    • activities to mitigate or adapt to climate-related risks, including adoption of new technologies or processes;
    • expenditure for research and development; and
    • any other significant changes or impacts, as well as the time horizon for each described impact. The proposed rules would also require a company to discuss how it has considered the identified impacts as part of its business strategy, financial planning, and capital allocation.
  • Governance: Disclosure of the oversight and governance of climate-related risks by the company's board and management.
    • Board of Directors: The proposed rules would require a company to disclose a number of governance items, including identifying any board member or board committee responsible for the oversight of climate-related risks, disclosing whether any board member has expertise in climate-related risks, and describing the processes and frequency by which the board or board committee discusses climate-related risks. The rules would also require disclosure about whether and how the board sets climate-related targets or goals and how it oversees progress against those targets or goals, including the establishment of any interim targets or goals.
    • Management Oversight: A company would be required to disclose, as applicable, whether certain management positions or committees are responsible for assessing and managing climate-related risks and, if so, to identify such positions or committees and disclose the relevant expertise of the position holders or members. The company would also need to disclose the processes by which the responsible managers or management committees are informed about and monitor climate-related risks, and if they report to the board of directors on climate-related risks and how frequently this occurs.
  • Risk Management Systems and Processes: The company's processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the company's overall risk management system or processes.
    • Identifying and Assessing Risks: The company would be required to disclose, as applicable,
      • how it determines the relative significance of climate-related risks compared to other risks;
      • how it considers existing or likely regulatory requirements or policies, such as GHG emissions limits, when identifying climate-related risks;
      • how it considers shifts in customer or counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks; and
      • how it determines the materiality of climate-related risks, including how it assesses the potential size and scope of any identified climate-related risk.
    • Managing Risks: A company would be required to disclose, as applicable:
      • how it decides whether to mitigate, accept, or adapt to a particular risk;
      • how it prioritizes addressing climate-related risks; and
      • how it determines how to mitigate a high-priority risk.
    • Transition Plan: If a company has adopted a "transition plan" to help mitigate or adapt to climate-related risks, the proposed rules would require it to describe its plan, including the relevant metrics and targets used to identify and manage physical and transition risks, among other requirements.
  • Climate-Related Financial Statements: The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company's consolidated financial statements, as well as the financial estimates and assumptions used in the financial statements. The disclosure would be required for the company's most recently completed fiscal year and for the historical fiscal years included in the company's consolidated financial statements in the applicable filing.
  • GHG Emissions: The proposed rules would require a company to disclose its GHG emissions for its most recently completed fiscal year. The proposed rules break down GHG emissions into three categories:
    • Scope 1 emissions, which are direct GHG emissions from operations that are owned or controlled by a company;
    • Scope 2 emissions, which are indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by a company; and
    • Scope 3 emissions, which are all indirect GHG emissions not otherwise included in a company's Scope 2 emissions, which occur in the upstream and downstream activities of a company's value chain.
      • Scope 1 and Scope 2 Emissions: Under the proposed rules, the company would be required to separately disclose its Scope 1 and Scope 2 emissions by disaggregated constituent GHG and in the aggregate and also in absolute and in terms of intensity (per unit of economic value or production).
      • Scope 3 Emissions. A company would be required to disclose Scope 3 emissions if those emissions are material, or if the company has set a GHG emissions target or goal that includes Scope 3 emissions, in absolute and intensity terms.
      • Attestation Report. Under the proposed rules, an accelerated filer or large accelerated filer must include an attestation report covering the disclosure of its Scope 1 and Scope 2 emissions and provide certain related disclosures about the service provider. The attestation report must, at minimum, be at the following assurance level for the indicated fiscal year for the required GHG emissions disclosure:
Limited Assurance Reasonable Assurance
Fiscal Years 2 and 3 after Scopes 1 and 2 emissions disclosure compliance date Fiscal Years 4 and beyond after Scopes 1 and 2 emissions disclosure compliance date


  • Climate-Related Targets and Goals: If the company has publicly set climate-related targets or goals, it must disclose information about, in part,
    • 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;
    • how the company intends to meet its climate-related targets or goals; and
    • relevant data indicating and progress updates regarding the company's process toward meeting the target or goal.


A company must include the new climate-related disclosures in a separate, appropriately captioned section of its registration statement or annual report, or alternatively, incorporate that information in a separate, appropriately captioned reference from another section, such as Risk Factors, Description of Business, or Management's Discussion and Analysis. The new climate-related financial statement metrics and related disclosure will need to be presented in a note to the company's audited financial statements. The climate-related disclosures will be filed, rather than furnished, and will be electronically tagged with Inline XBRL.


The proposed rules have a phase-in period, with compliance dates dependent on filer status. For reference purposes only, if the proposed rules are adopted with an effective date in December 2022 and the filer has a December 31st fiscal year-end, the below compliance dates would apply:

Registrant Type Disclosure Compliance Date
All proposed disclosures, including GHG emissions metrics: Scope 1, Scope 2, and associated intensity metric, but excluding Scope 3 GHG emissions metrics: Scope 3 and associated intensity metric
Large Accelerated Filer Fiscal year 2023 (filed in 2024) Fiscal year 2024 (filed 2025)
Accelerated Filer and Non-Accelerated Filer Fiscal year 2024 (filed in 2025) Fiscal year 2025 (filed 2026)
Smaller Reporting Company Fiscal year 2025 (filed in 2026) Exempted


Filer Type Scopes 1 and 2 GHG Disclosure Compliance Date Limited Assurance Reasonable Assurance
Large Accelerated Filer Fiscal year 2023 (filed in 2024) Fiscal year 2024 (filed 2025) Fiscal year 2026 (filed in 2027)
Accelerated Filer Fiscal year 2024 (filed 2025) Fiscal year 2026 (filed in 2027) Fiscal year 2027 (filed in 2028)

* * * * *

The nearly 500-pages of the SEC's proposing release contain exhaustive details about the disclosure requirements described above, the use of financial statement metrics, GHG emission metrics, attestation requirements and related matters that extend beyond the scope of this Alert. We anticipate that the proposed rules will be subject to significant revisions based on the thousands of comment letters already submitted to the SEC, Congressional pressure, and the potential for legal challenges. We are monitoring these developments and will provide additional information regarding these proposed rules as the process continues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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