At an unprecedented 534-pages and 737 questions in 201 requests for comment the SEC climate disclosure proposal release is one of the longest SEC proposals to date. To help you better understand the most important aspects of the proposal and the process going forward we have distilled the key takeaways and processes from the document to save your time.
Key Elements
The key elements of the SEC climate disclosure proposal are largely in line with the guidance in the Task Force for Climate-Related Disclosures. With disclosure requirements related to climate risk, strategy, governance, and greenhouse gas emissions, as well as climate targets, goals, and transition plans. Most of the proposed disclosure requirements will, if adopted, affect all public reporting companies, however, disclosure of Scope 3 greenhouse gas emissions (where applicable) and attestation of Scopes 1 and 2 emissions will only apply to accelerated and large accelerated filers.
Governance
All companies:
Required disclosure of the company’s oversight and governance of climate-related risks at the board and senior management levels.
Risk and strategy
All companies:
Required disclosure of climate-related risks, their risk management processes, and the actual or likely material impacts on the company’s business, strategy, and outlook over the short, medium, and long term.
The company’s processes for identifying, assessing, and managing climate-related risks and whether those processes are integrated into the company’s overall risk management system or processes.
Greenhouse Gas Emissions
All Companies:
Scopes 1 and 2 GHG emissions, by constituent greenhouse gasses and in the aggregate, in absolute terms and in terms of intensity.
Accelerated Filers and Large Accelerated Filers only (Not smaller reporting companies):
Assurance of Scopes 1 and 2 GHG emissions. Note that this assurance does not necessarily need to be performed by a CPA firm. Rather, the assurance can be provided by another assurance provider, as long as such provider meets specified requirements related to independence and experience.
Disclosure of Scope 3 GHG emissions if material or if the company has set GHG reduction goals that include Scope 3. These disclosures need not be subjected to audit or assurance. No Scope 3 disclosure would be required of smaller reporting companies and no audit or assurance of Scope 3 emissions disclosures would be required.
Targets, Goals, and Transition Plans
All companies:
- Disclosure of information about climate-related targets and goals, scenario analysis, internal carbon price, and transition plans, if the company has used these tools. The proposal does not require companies to set goals, do scenario analysis, or use an internal carbon price. Rather it proposes that companies disclose these if they have implemented them.
- If the company has publicly disclosed climate-related targets or goals, it would be required to disclose information about
- the scope of activities included in the targets
- the time horizon for the targets
- How the company plans to meet its goals
- Annual reporting to show whether and how the company is making progress toward its targets and how the progress
- Any use of offsets or RECs
Financial Statement Disclosures
All companies:
- Disclosure in a note to the financial statements of the impacts of climate change (physical and transition impacts) on the line items of the company’s consolidated financial condition.
- Because this disclosure appears in the financial statements, it is subject to a reasonable assurance audit by a registered public accounting firm.
Process
Now the proposal has been released, it will go through a comment period. If adopted, the rules will then go through a phase-in period that would require disclosures in filings made as early as 2024 for information in the 2023 fiscal year.
Comment Period
- The proposed rule amendments are subject to a public comment period that runs for 30 days from the date the proposals are published in the Federal Register or 60 days after their issuance, whichever is later.
- The comments will be available on the SEC’s website with the proposal at SEC.gov | SEC Proposed Rules.
- The Commission will consider all the commentary, adjust the proposal as necessary in accordance with the comments, and discuss the public comments in the final rules.
Phase-In Periods
The proposing release provides illustrative phase-in periods assuming the final rules are adopted in December 2022, and apply to companies with a December 31 fiscal year end.
Keep in mind that these dates will be later if the Commission does not adopt final rules by December 2022 and for companies with fiscal years that don’t coincide with the calendar year.
