The SEC’s Proposed Rules on Climate-Related Disclosures

March 21, 2022

On March 21, 2022, the U.S. Securities and Exchange Commission proposed rule changes that would require public companies (including foreign private issuers) to include certain climate-related disclosures 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 Rule”). The Proposed Rule would add extensive and prescriptive disclosure items requiring public companies to disclose climate-related risks and greenhouse gas (“GHG”) emissions, and to include certain climate-related financial metrics in a note to companies’ audited financial statements.
Under the Proposed Rules, public companies would be required to disclose, among other things:

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

• how any climate-related risks identified by the company 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;

• how any identified climate-related risks have affected 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 a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statement; and

• information about its direct GHG emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions.

Public companies would be required to (i) provide the climate-related disclosures in a separately captioned section of their registration statement or periodic report, (ii) provide climate-related financial statement metrics addressing the impact of various climate-related events and mitigation and transition expenditures, together with related estimates and assumptions, in a note to the company’s financial statements addressing the impact on line items in companies’ financial statements, (iii) electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL, and (iv) generally file rather than furnish the climate-related disclosure.
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 contemplates phase-in periods based on filer status. If the Proposed Rule is finalized in 2022, it would begin to apply to large accelerated filers with respect to their annual report for fiscal year 2023 in 2024.