On March 21, 2022, the Securities and Exchange Commission (“SEC”) issued a highly-anticipated Proposed Rule that proposes to require public companies to disclose climate-related risks in their registration statements and annual reports filed with the SEC. The Proposed Rule, titled The Enhancement and Standardization of Climate-Related Disclosures for Investors, will mark a watershed moment for ESG transparency and corporate compliance if finalized.
Under the Proposed Rule the following climate-related information would be required to be included in registration statements and periodic reports filed with the SEC:
- Climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;
- The registrant’s governance of climate-related risks and relevant risk management processes;
- The registrant’s greenhouse gas emissions;
- Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and
- Information about climate-related targets and goals, and transition plan, if any.
In justifying its proposal, the SEC states that it is “concerned that the existing disclosures of climate-related risks do not adequately protect investors” because information is inconsistently reported, difficult to compare, and unreliable. The SEC states that the proposed disclosures would provide “information to investors that will enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” Notably, the Proposed Rule subjects climate-related disclosures to potential liability by requiring registrants to include the information in their SEC filings. The SEC reasons that, as a result, registrants may prepare and review their climate-related information more carefully that they otherwise would have when presenting the information outside of their SEC filings.
The SEC’s Fact Sheet distills the content of the proposed disclosure requirements. The Proposed Rule establishes a phase-in period for registrants to comply, the timing of which is based on filer status. Compliance time frames are not yet formally established as the proposed rule is not final. The Proposed Rule indicates that the effective date could occur in December 2022, which could trigger filing obligations as early as 2024 for some filers.