An In-Depth Review Of The SEC Proposed Climate Change Disclosure Rule

Key takeaways:

• The U.S. Securities and Exchange Commission (the "SEC") released its long-awaited proposed rule on the "Enhancement and Standardization of Climate-Related Disclosures for Investors" (the "Proposed Rule"), which is intended to require "consistent, comparable, and decision-useful information" on climate-related disclosures, on March 21, 2022. The Proposed Rule would apply to SEC registrants, including all public companies.
• Under the Proposed Rule, there would be new, often prescriptive, climate-related disclosure requirements added to Regulation S-K, which primarily governs qualitative disclosures, and Regulation S-X, which governs financial statements and other financial disclosures. In general, these disclosures would address various climate-related risks to the registrant's business, operations and financial condition, including disclosure of a registrant's greenhouse gas emissions and its management of physical and transition risks.
• The Proposed Rule largely reflects expectations but, in some areas, is more expansive than many predicted. For example, for certain registrants, the Proposed Rule would require the disclosure of greenhouse gas (the "GHG") emissions by all entities in a registrant's value chain and the submission of attestation reports regarding GHG emissions.
• The SEC has requested comment on the Proposed Rule by May 20, 2022. The Proposed Rule is expected to receive hundreds, if not thousands, of comments, and there may be legal challenges after the final rule is adopted.

The U.S. Securities and Exchange Commission ("SEC") released its long-awaited proposed rule on the "Enhancement and Standardization of Climate-Related Disclosures for Investors" ("Proposed Rule") on March 21, 2022. The Proposed Rule would apply to all SEC registrants, including public companies, and is intended to require "consistent, comparable, and decision-useful information" on registrants' climate-related disclosures. If adopted, the Proposed Rule would constitute one of the most dramatic changes ever to SEC disclosure requirements, though it likely will generate a large number of comments, both in favor and in opposition, and may ultimately face legal challenges. The SEC has requested comment on the Proposed Rule by May 20, 2022.

Under the Proposed Rule, there would be new, often prescriptive, climate-related disclosure requirements added to Regulation S-K, which primarily governs qualitative disclosures, and Regulation S-X, which governs financial statements and other financial disclosures. In general, these disclosures would address various climate-related risks to registrants' business, operations and financial condition, including disclosure of registrants' greenhouse gas ("GHG") emissions. The Proposed Rule draws heavily from the Task Force on Climate-Related Financial Disclosures ("TCFD") framework, a widely-adopted, voluntary climate-related reporting framework, and the Greenhouse Gas Protocol ("GHG Protocol"), which the SEC identifies as the leading accounting and reporting standard for GHG emissions.

This Debevoise In Depth provides a detailed analysis of the Proposed Rule's key provisions, questions on which the SEC requested comment, and related policy and legal issues. As discussed in further detail below, the Proposed Rule largely reflects expectations, but, in some areas, is more expansive than many predicted. For example, for certain registrants, the Proposed Rule would require the disclosure of GHG emissions by all entities in a registrant's value chain and the submission of attestation reports regarding GHG emissions.

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