U.S. Securities and Exchange Commission's Proposed Rules on Climate-Related Disclosures

2024-09-10 13:18:08

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) released proposed rules ("Proposed Rules") requiring public companies, including foreign private issuers, to disclose climate-related information in their registration statements (Forms S-1, S-3, F-1, and F-3) and periodic reports (Forms 10-K, 10-Q, and 20-F). The Proposed Rules would significantly expand mandatory climate-related disclosures, requiring public companies to disclose climate-related risks and greenhouse gas emissions, and include certain climate-related financial metrics in the notes to their audited financial statements.

Under the Proposed Rules, public companies would be required to disclose:

• Their oversight and governance of climate-related risks and related risk management processes;

• How any identified climate-related risks have or are likely to have a material impact on their business and consolidated financial statements, as well as their potential short-, medium-, or long-term performance;

• How any identified climate-related risks affect or are likely to affect the company's strategy, business model, and outlook;

• The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of the company's consolidated financial statements and the financial estimates and assumptions used in the financial statements; and

• Information on their direct greenhouse gas emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). Additionally, companies would be required to disclose greenhouse gas emissions from upstream and downstream activities in their value chain (Scope 3) if such emissions are material or if the company has set greenhouse gas emissions targets that include Scope 3 emissions.

Public companies would be required to (i) provide climate-related disclosures under a separate caption in their registration statements or periodic reports, (ii) include climate-related financial metrics addressing various climate-related events and their impacts, as well as transition expenditures and related estimates and assumptions, in the notes to their financial statements, (iii) electronically tag climate-related narrative and quantitative disclosures in Inline XBRL, and (iv) generally "file" rather than "furnish" climate-related disclosures.

The comment period for the Proposed Rules will end on the later of May 20, 2022, or 30 days after the proposal is published in the Federal Register. The Proposed Rules would be implemented in phases based on filer status. If the Proposed Rules are finalized in 2022, they would first apply to large accelerated filers for fiscal year 2023 annual reports, beginning in 2024.