Proposed Climate Rules Have Arrived – and They Are Comprehensive
The SEC released proposed rules on March 21, 2022 that would impose climate-related disclosure requirements on public companies, along with a related press release and fact sheet. The proposed rules would require disclosure in registration statements and annual reports regarding, among other things, the role of the company’s board and management in oversight and governance of climate-related risks, how such risks have impacted or are likely to impact the company, and other details relating to the company’s processes for identifying, assessing, and managing climate risks.
The proposed rules also would require companies to report “Scope 1” and “Scope 2” emissions, which are direct and indirect GHG emissions tied to the company’s operations and purchases of energy, respectively, and, if material, “Scope 3” emissions, which are indirect emissions tied to a company’s suppliers and customers. In addition, the SEC has proposed to add a new article to Regulation S-X that would require certain climate-related financial statement metrics and disclosure to be included in a note to a registrant’s audited financials, making the disclosures subject to audit and within the scope of the company’s internal control over financial reporting. The SEC also included in the proposal a requirement for accelerated and large accelerated filers to obtain an attestation report from an independent attestation provider regarding the Scope 1 and Scope 2 emissions disclosures.
As proposed, the climate disclosures would be phased in depending on filer status, and smaller reporting companies would be exempt from Scope 3 disclosures. The proposed rules also provide that, to the extent that required climate disclosures include forward-looking statements, such statements would be eligible for the PSLRA safe harbor. The comment period will remain open for 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on sec.gov, whichever period is longer.
