SEC Proposes First-Ever Climate Risk Disclosures for Public Companies

The Securities and Exchange Commission today proposed a much-anticipated set of requirements for public companies to disclose information about climate risks affecting them, their greenhouse gas footprints and any emissions-reduction plans they may have adopted. The proposed rule—for which comments are due by May 20 or 30 days after publication in the Federal Register, whichever is longer—has varying compliance dates, with deadlines for large accelerated filers coming as soon as 2024 for fiscal years ending in 2023, while smaller reporting companies will face their earliest deadlines in 2026 for FYs ending in 2025.

The proposal requires disclosure of a registrant’s direct GHG emissions (scope 1), indirect emissions from purchased energy (scope 2) and indirect emissions from activities upstream and downstream in a registrant’s “value chain,” if material (scope 3, which would include “financed emissions” in a bank’s lending portfolio). SRCs would be exempt entirely from scope 3 disclosures, and due to their complexity scope 3 disclosures would phase in after scope 1 and 2 for larger registrants and also be subject to a safe harbor. Accelerated and large accelerated filers would need to obtain independent attestation reports for their disclosures of scopes 1 and 2 emissions.

Under the proposal, SEC registrants’ registration statements and periodic reports like Form 10-K would be required to disclose: how their boards and managers are overseeing climate-related risks; the material effects of climate-related risks on business plans, strategies and financial statements over various terms; how companies identify and manage climate-related risks; and any transition plans, scenario analyses or internal carbon pricing used by the registrant. There will also be a new requirement to disclose the effect of climate-related severe weather and other conditions within a registrant’s financial statements.

If a registrant has made a so-called net-zero commitment or adopted a plan to reduce its GHG footprint or exposures, it would be required to disclose the scope of covered activities, how it intends to achieve these goals, progress toward achieving them and the use of carbon offsets toward those goals.