Original Kelley Drye Client Advisory published by Courtney Kleshinskion March 22
2022.
On March 21, the U.S. Securities and Exchange Commission (“SEC”)
The long-awaited draft has been revealedProposed rulesFor mandatory climate
Disclosures that would align America with other developed countries
Economies, especially the UK and the EU, have emphasized the importance of
Financial disclosures regarding climate change are a useful tactic
to promote environmentally-conscious policies.
In an open meeting, SEC members proposed rules to significantly improve the safety of consumers.
Expand and standardize climate-related disclosures for registrants
Investors. The proposed rules would be mandatory.
Prescriptive disclosures are included in periodic reports and registration
Statements to address topics related greenhouse gas (GHG).
Emissions and global climate change
Companies would be required to disclose their own information under the proposed rules
Scope 1 & Scope 2 are terms used to describe direct and indirect GHG emissions.
emissions. Companies would also be required to disclose GHG under the rules.
Scope 3 emissions are generated by suppliers and partners.
They are either material or included in any company’s emissions targets
Set.
Materiality is still a keystone for most people.
Proposed rules, some disclosures (including GHG)
No matter the circumstances, emissions are now obligatory
These disclosures will need to be incorporated in existing SECs
Filings are not separate climate-focused documents. The SEC
The rules can also be extended (see
Below), with complete compliance not expected for many years.
Safe harbor provisions have been included for certain
Disclosures, especially for Scope 3 GHG emission.
Gary Gensler, SEC chair, said that the agency was responding.
Investor demand consistent information about climate change
Companies they invest in will have an impact on their financial performance.
The proposed rule would require disclosures on Form 10K about the following:
With the company’s governance and risk management
Climate-related risks. The proposal would also include a discussion on climate-related risks.
Ask for disclosure of any company commitments or targets.
Its transition plan and its plans to achieve those goals.
If it has them, plan.
The proposal highlights are listed below.
Public comment.
CLIMATE-RELATED SRISKS
The proposed rule requires U.S. listed companies to disclose
Climate-related risks and their “actually or likely material
“Influences” on the company’s business, strategy, and outlook.
This could include the potential physical risks posed climate change.
Flooding or wildfires, but also the risks that could result.
There are a variety of government policies that aim at mitigating climate risk, including a
Carbon tax or other regulations.
CLIMATE RISK GOVERNANCE
Companies will also need to disclose their governance procedures
Framework for managing climate-related risk, including for
For example, the risk management controls and processes they have in place.
Place; What the board does to oversee these processes; and
“Processes for identifying, assessing and maintaining company’s assets”
Climate-related risk management
GREENHOUSE GAS EMISSIONS
Companies will be required to disclose the information under the proposed rules
They produce GHG emissions directly and indirectly.
Scope 1 is a name for electricity purchased and other forms, which can be referred to as energy.
Scope 1 emissions and Scope 2. They will also need to
Indicate the indirect emissions from upstream or downstream
Scope 3 emissions are activities that occur in value chains.
“If material” or if they emit greenhouse gases
Scope 3 emissions will be included in the target. Smaller companies will be
This exemption is not required.
GHG emissions data are being increasingly used as a quantitative indicator.
This metric is used to assess a company’s exposure toand the
Potential financial consequences of climate-related transition
risks. These risks could include technological, regulatory, and other.
Market risks arising from a transition to lower greenhouse gases
Emissions economy, which could have financial consequences on revenues
Capital outlays and expenditures
In other words, all filers would have to disclose their Scope 1
Scope 2 GHG emissionsemissions that “result”
Directly or indirectly, from facilities or activities
Controlled by a registrant.” The proposal would also be controlled by a registrant.
Scope 3 Phase 3 disclosures after Scopes 2 and 3; a new safe
harbor would be available to Scope 3 disclosures; and smaller
Scope 3 disclosures are exempt for reporting companies.
The core elements of these proposed rules would also be applicable to
International filers on Form 20F
CLIMATE TARGETS, TRANSITION LANGS
Companies that have publicly announced climate-related targets for their companies
Goals should include details, such as “the scope and activities”
Emissions included in the target” the deadline, any
Interim targets and how they plan on meeting them. If the
As part of its transition plan, the company has adopted one.
Climate-related risk management strategy must disclose “a
Description of the plan, with the relevant metrics and goals
Used to identify and manage any transitions or physical issues
risks.”
CLIMATE FINANCIAL RESPORTING
The proposed rules would also require a company disclose
“certain disaggregated climate related financial statement
Metrics derived primarily from financial statements
Line items” in a note to the financial statements. This would be
Include the impact of climate-related events.
Activities on the company’sconsolidated financial statements.
These disclosures would be included with companies’ registration
Statements and annual reports, as also in a note attached to
Financial statements consolidated
PHASE-IN PERIOD
The proposed rules include a phase-in period
Compliance dates depend on the status of the registrant as a filer.
follows:
Large Accelerated Filers
- Fiscal year 2023 (filed 2024) for all disclosures
Scope 3 GHG emissions excluded
- Fiscal year 2024, filed in 2025
Disclosures (if necessary) and (iii) limited assurance attestation
Scope 1 and Scope 2, GHG emissions disclosures
- Fiscal year 2026 (filed 2027) for reasonable assurance
Scope 1 & Scope 2 GHG emissions disclosures attested.
Filters: Accelerated and non-accelerated
- Fiscal year 2024, filed in 2025 for all disclosures
Scope 3 GHG emissions excluded
- Fiscal year 2025 (filed 2026) for (i3) Scope 3 GHG emissions
Disclosures (if required) or (ii) only for accelerated filers
Limited assurance attestation for GHG emissions disclosures
Non-accelerated filers would be exempted from the attestation
These requirements are
- Fiscal year 2027 is for accelerated filers only (filed in 2028).
For reasonable assurance, attestation of GHG emission
disclosures.
Smaller reporting companies:
- Fiscal year 2025 (filed 2026) for all disclosures
Other than Scope 3 GHG emissions disclosures
Scope 3 would not apply to companies.
GHG emissions disclosures or independent attestation
SeeSEC Fact Sheet, Standardization and Enhancement of
Climate-Related Disclosures(March 22, 2022).
CONCLUSION
The proposed rules are based upon our existing rules and guidance.
Climate-related disclosures as well as the Task
International Force on Climate Related Financial Disclosures
Framework that many countries and businesses have already begun to use
Adopt, including Brazil and the European Union, Hong Kong, Japan and New
The United States, Singapore, Switzerland, and Zealand
Kingdom.See, SEC Chair Gensler On Proposed Mandatory Climate
Risk DisclosuresComment, Columbia Law School Blue Sky Blog
(March 22, 2022)
The comment period on the proposed rules will continue to be open.
30 days after publication in Federal Register or 60 days thereafter
The publication date on sec.gov.
It’s longer.
The purpose of this article is to provide a general overview.
guide to the subject matter Expert advice should be sought
Discuss your specific circumstances.
