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

2024-09-27 01:14:07

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) released a draft rule ("Proposed Rule") requiring public companies, including foreign private issuers, to disclose climate change-related information in their registration documents (Forms S-1, S-3, F-1, and F-3) and periodic reports (Forms 10-K, 10-Q, and 20-F). The Proposed Rule would introduce a significant number of standardized climate change-related disclosure items, mandating 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 Rule, 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-term, medium-term, or long-term performance;

• How any identified climate-related risks affect or may 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 company's consolidated financial statement items 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 these are material to the company or if the company has set greenhouse gas emission targets that include Scope 3 emissions.

Public companies would be required to (i) provide climate-related disclosures under a separate heading in their registration documents or periodic reports, (ii) present climate-related financial statement metrics addressing various climate-related events and mitigation impacts, as well as transition expenditures and related estimates and assumptions, in the notes to their financial statements, explaining the impact on items in the company's 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 Rule will end on the later of May 20, 2022, or 30 days after the proposal is published in the Federal Register. The Proposed Rule is to be implemented in phases based on the filer's status. If the Proposed Rule is finalized in 2022, it would first apply to the annual reports for the fiscal year 2023 of large accelerated filers, starting in 2024.