SEC Climate Disclosure Rules

Overview

The SEC has proposed landmark climate disclosure rules that would require public companies to report climate-related information. While implementation is pending legal challenges, it signals the direction of US climate reporting.

Current Requirements

Existing SEC Rules

• MD&A disclosure of material risks
• Form 10-K risk factors
• Management discussion and analysis
• Description of business (environmental)

GHG Emissions

• No current mandatory GHG reporting
• SEC interpretive guidance (2010)
• Many companies voluntarily report

Proposed Rules (2022)

Scope of Disclosure

Public companies must disclose:

• Climate risks: Material risks and strategy
• GHG emissions: Scope 1, 2, significant Scope 3
• Targets and goals: If any
• Transition plan: Climate transition strategy
• Financial impact: Quantified effects

Timeline

• Large accelerated filers: First year after adoption
• Accelerated filers: Year 2
• Non-accelerated filers: Year 3

Safe Harbor

• Safe harbor for forward-looking statements
• Limited safe harbor for GHG data

Key Requirements

Governance

• Board oversight of climate risks
• Management's role in risk assessment

Strategy

• Climate risks and opportunities
• Business impact
• Transition plan

Risk Management

• Risk identification process
• Risk assessment methodology

Metrics

• GHG emissions (Scope 1, 2, material Scope 3)
• Climate-related targets
• Progress against targets

Legal Challenges

State Actions

• Multiple states sued to block rules
• Challenges on SEC authority
• Scope of disclosure

Current Status

• Rules finalized but stayed
• Supreme Court impact (major questions doctrine)
• Implementation uncertain

State-Level Developments

California

• SB 253: Climate Corporate Data Accountability Act
• SB 261: Climate-related Financial Risk Act
• Both require GHG emissions disclosure
• Apply to large US companies

Other States

• New York climate legislation
• Various disclosure requirements
• State-by-state approach

Practical Guidance

For Companies

1. Monitor: Legal developments
2. Prepare: Data collection systems
3. Assess: Current readiness
4. Engage: With auditors
5. Consider: Voluntary disclosure

Regardless of SEC Rules

• California requirements
• Investor expectations
• Global standards

Key Takeaways

• SEC rules signal direction of US disclosure
• Legal challenges create uncertainty
• State requirements provide alternative
• GHG emissions likely required
• Supply chain (Scope 3) material for many
• Preparation recommended regardless