SEC Proposes Climate Disclosure Rules For Public Companies – Corporate/Commercial Law


United States:

SEC Proposes Climate Disclosure Rules For Public Companies


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On March 21, 2022, the Securities and Exchange Commission
proposed, in a 510-page release, rule changes that would
require registrants to include certain climate-related disclosures
in their registration statements and periodic reports, including
information about climate-related risks that are reasonably likely
to have a material impact on their business, results of operations,
or financial condition, and certain climate-related financial
statement metrics in audited financial statements. The required
information about climate-related risks also would include
disclosure of a registrant’s greenhouse gas emissions. The
commissioners voted on party lines to approve the proposal on a
three to one vote.

SEC Chair Gary Gensler commented that “if adopted, [the
rule changes] 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.” Mr. Gensler believes that the
proposal would help issuers more efficiently and effectively
disclose climate risks and meet investor demand and that
“companies and investors alike would benefit from the clear
rules of the road proposed in the release.”

Republican SEC Commissioner Hester Peirce voted against the
proposal and issued a dissenting statement. “We are here laying
the cornerstone of a new disclosure framework that will eventually
rival our existing securities-disclosure framework in magnitude and
cost, and probably outpace it in complexity,” Ms. Peirce said.
She also warned that the proposed rules will enrich “the
climate-industrial complex” while hurting investors, the
economy and the SEC.

The proposed rule changes would require a registrant to disclose
information about:

  1. the registrant’s governance of climate-related risks and
    relevant risk management processes;

  2. how any climate-related risks identified by the registrant have
    had or are likely to have a material impact on its business and
    consolidated financial statements, which may manifest over the
    short-, medium-, or long-term;

  3. how any identified climate-related risks have affected or are
    likely to affect the registrant’s strategy, business model, and
    outlook; and

  4. the 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.

For registrants that already conduct scenario analysis, have
developed transition plans, or publicly set climate-related targets
or goals, the proposed amendments would require certain disclosures
to enable investors to understand those aspects of the
registrants’ climate risk management.

In what is likely to be a more burdensome and costly disclosure
requirement, the proposed rules also would require a registrant to
disclose information about its direct greenhouse gas (GHG)
emissions (Scope 1), indirect emissions from purchased electricity
or other forms of energy (Scope 2), and GHG emissions from upstream
and downstream activities in its value chain (Scope 3). Disclosure
of Scope 3 emissions would be mandatory only if output of GHG is
material, or significant to investors, or if companies outline
specific targets for them. According to the SEC, these proposals
for GHG emissions disclosures would provide investors with
decision-useful information to assess a registrant’s exposure
to, and management of, climate-related risks, and in particular
transition risks. Adding to the cost of these requirements,
accelerated filers and large accelerated filers would be required
to include an attestation report from an independent attestation
service provider covering Scopes 1 and 2 emissions disclosures.

The proposing release will be open for public comment for a
relatively short period of 30 days after publication in the Federal
Register, or 60 days after the date of issuance and publication on
sec.gov, whichever period is longer.

Disclaimer: This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm’s

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