Regulatory updates

On 21 March 2022, the U.S. Securities and Exchange Commission (SEC) released a comprehensive set of proposed rules mandating climate-related risk disclosures for public companies (Proposed Rule).

The proposals would require registrants to include information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.

Comments on the proposal are due within 30 days of publication of this proposed rule in the Federal Register, or 20 May 2022 (60 days after publication on the SEC’s website), whichever is later.

Highlights of the proposal

• Disclosure of climate-related targets or goals: The Proposed Rule requires companies to disclose the climate-related targets or goals and transition plans, if any.
• Greenhouse gasses emissions: The Proposed Rule requires reporting on Scope 1 and Scope 2 emissions. For Scope 3 emissions, reporting would be required if those emissions are material or if the company has set a Green House Gasses (GHG) emissions reduction target or goal that includes its Scope 3 emissions.
  For Scope 1 and 2 emissions attestation report required for accelerated filers and large accelerated filers.
• Climate-related financial statement metrics: Disclosure would be required of certain climate-related financial statement metrics in the company’s audited financial statements, as well as the financial estimates and assumptions used in the financial statements
  Financial statement metrics should be audited by an independent registered public accounting firm and considered within the scope of the company’s Internal Controls Over Financial Reporting (ICFR).
• Other disclosures: Other key disclosures relate to following:
  1. The oversight and governance of climate-related risks by the company’s board and management
  2. 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
  3. The company’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes
  4. If the company uses scenario analysis to assess the resilience of its business strategy to climate-related risks, a description of the scenarios used, as well as the parameters, assumptions, analytical choices, and projected principal financial impacts
  5. If a company uses an internal carbon price, information about the price and how it is set.
• The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 emissions disclosure.