Navigating the Proposed SEC Rules for Climate Disclosures


The SEC issued a long-anticipated proposed rule on March 21, 2022, surrounding the potential standardization of requirements for climate-related disclosures in registration statements and annual reports of public filers. The intent of the proposed rule is to add disclosure of climate-related risks so that investors have the information they need to make informed investment decisions in this area. The proposed rule would require information about a registrant’s climate-related risks that are “reasonably likely to have a material impact on its business, results of operations, or financial condition”, measurement and disclosure of a registrant’s greenhouse gas emissions, and inclusion of climate-related financial metrics in audited financial statements. The proposed rule is open for public comment through May 20, 2022. If finalized during 2022, the proposed rule would become effective for fiscal year 2023 for large accelerated filers, fiscal year 2024 for accelerated and non-accelerated filers, and fiscal year 2025 for smaller reporting companies. Adoption dates for public filers are delineated in the table below:

Registrant Type All Disclosures (Including Scope 1 and Scope 2 GHG Emissions), Except Scope 3 Scope 3 GHG Emissions Disclosures Attestation on Scope 1 and Scope 2 GHG Emissions Disclosures
Large accelerated filer 2023 2024 Limited assurance — 2024

Reasonable assurance — 2026

Accelerated filer 2024 2025 Limited assurance — 2025

Reasonable assurance — 2027

Non-accelerated filer 2024 2025 Not required
Smaller reporting companies 2025 Exempt Not required

Disclosure of Scope 1 and Scope 2 emissions will eventually require an attestation report from a third-party service provider, however, accelerated and large accelerated filers will have the benefit of a one-year phase-in period to achieve limited assurance attestation over these metrics, plus an additional two-year phase-in period to achieve reasonable assurance attestation. While the exact structure of the proposed rule is subject to change and there is uncertainty surrounding the final requirements that companies will face, it is clear that some form of climate-related disclosure will be required for public filers in the near future.

What are the new disclosure requirements?

As they are presented in the proposed rule, these new disclosure requirements will generally require significant effort and planning from public filers, as well as outreach and coordination with supply chain partners and foreign subsidiaries. To comply with the proposed disclosure requirements, companies will need to consider the vast implications of gathering, reporting and obtaining attestation over the disclosed information and metrics.

The SEC has listed the following items that would be required under the proposed rule:

  • Describe how management and the company’s board of directors conduct oversight and governance of a company’s climate-related risks;
  • Describe how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements;
  • Describe how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook;
  • Describe the registrant’s processes for identifying, assessing and managing climate-related risks;
  • Quantify and disclose the impact of climate-related events (severe weather events, etc.) and transition activities to lower carbon products, practices and services (including transition risks) triggered by changes in regulations, consumer preferences, availability of financing, technology and other market forces on the company’s financial statements, and disclose the financial estimates and assumptions impacted by such climate-related events and transition activities;
  • Discussion of the registrant’s climate-related targets or goals, and transition plan, if any;
  • Quantify and disclose Scope 1 and Scope 2 metrics, disaggregated by constituent greenhouse gases, as well as in absolute and intensity terms; and
  • Quantify and disclose Scope 3 greenhouse gas emissions and intensity.
Definitions of Scope 1, 2 and 3 emissions

  • Scope 1 emissions are direct GHG emissions from operations that are owned or controlled by a registrant.
  • Scope 2 emissions include all indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat or cooling that is consumed by operations owned or controlled by a registrant.
  • Scope 3 emissions are all indirect GHG emissions not otherwise included in a registrant’s Scope 2 emissions, which occur in the upstream and downstream activities of a registrant’s value chain.
  • Upstream emissions include emissions attributable to goods and services that the registrant acquires, the transportation of goods (for example, to the registrant), and employee business travel and commuting.
  • Downstream emissions include the use of the registrant’s products, transportation of products (for example, to the registrant’s customers), end-of-life treatment of sold products, and investments made by the registrant.

Questions to consider

  • What are my company’s greenhouse gas emissions goals?
  • What are the short-term and long-term climate-change risks for my company, and are they material?
  • Which disclosures are material to my company and its industry?
  • What new processes and controls should my company implement in order to deal with the operational impacts of climate change, as well as the related financial reporting obligations?
  • How will my company quantify direct greenhouse gas emissions, including indirect greenhouse gas emissions from suppliers and other third parties?
  • How will my company (and auditors) obtain comfort that our greenhouse gas emissions data is complete and accurate?
  • How must my company’s quarter-end and year-end financial close processes be updated to accommodate these proposed regulations?

How can I prepare?

We understand that navigating existing and emerging financial reporting requirements can be a complex and time-intensive process. Companies should continue to monitor developments related to the proposed rule and follow the SEC’s current guidance on climate-related disclosures. CFGI is prepared to help you conform to these new requirements. Our team of experienced professionals will support your capacity to assemble disclosures and draft filings that comply with the new rules. Reach out to us today to learn more.

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