On March 21, 2022, the Securities and Exchange Commission (“SEC”) at a virtual open meeting proposed rules to expand and standardize issuers’ climate-related disclosures. The proposed rules would utilize mandatory, prescriptive disclosures in periodic reports and registration statements to address topics related to greenhouse gas (“GHG”) emissions and global climate change. The Commission acknowledged that in 2010, the SEC required disclosure of climate-related impacts on issuers’ businesses but since then, awareness of climate-related incidents, GHG emissions and climate change has grown and investors are seeking more consistent disclosure from public companies. Additionally, the SEC identified that about one-third of public companies include some degree of climate-related disclosure in their annual reports while a larger portion publish some sort of a sustainability report outside of its public filings that include some degree of climate-related disclosure. The SEC is seeking to standardize the disclosure to create a transparent and consistent climate-related benchmark for investors. Whether or not the SEC finalizes this rule, the demand for climate-related financial risk disclosure is unlikely to subside. As a result, companies may want to begin to think about possible actions to implement, particularly around the processes for gathering and disclosing information regarding GHG emissions.
The proposed rules would require public companies to disclose:
- the company’s oversight and governance of climate-related risks and risk management process;
- the company’s climate-related risk and their actual or likely material impacts on the company’s business, strategy and outlook and on the company’s financial statements over the short, medium and long-terms;
- the impact of climate-related events, such as severe weather events, and climate transition activities on the audited consolidated financial statements at a line-item level, as well as the climate-related estimates and assumptions used in the financial statements;
- the company’s Scope 1 (direct) and Scope 2 (indirect from production of energy used in the business) GHG emissions, with accelerated and large accelerated filers required to obtain, after a phase-in period, independent attestation at a reasonable assurance level of the accuracy of such emission disclosures;
- to the extent material, or if the company has adopted a GHG emissions target or goal that includes Scope 3 (indirect from suppliers and customers) GHG emissions, the company’s indirect Scope 3 GHG emissions from upstream and downstream activities in the company’s value chain (the proposed rule excepts smaller reporting companies from this requirement); and
- details regarding any climate-related targets and goals, climate transition plans, scenario analysis or internal carbon price used by the company in connection with its climate-related risk management, including data on the company’s progress against publicly-stated goals, and any carbon offsets used as part of those plans.
The SEC proposal would require registrants to provide the climate-related disclosures in its Regulation S-K disclosures (i.e., Form 10-K) including an appropriately captioned section of its registration statement or annual report as well as Regulation S-X disclosures (i.e., notes to financial statements). The proposal identified a compliance deadline of early 2024 for fiscal year 2023 disclosures, with phase-in requirements for certain filers and a longer compliance period for Scope 3 emission disclosures.
The SEC proposal passed along party lines. The comment period for the proposed rules will remain open for 30 days after publication in the Federal Register, or May 20, 2022, whichever is longer.
KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.
ADVERTISING MATERIAL.
© 2023 Keating Muething & Klekamp PLL. All Rights Reserved
- Partner
Jim Kennedy practices in the Business Representation & Transactions Group. The focus of his practice is corporate, securities, and financing law, where he has extensive experience in mergers, acquisitions and ...
- Partner
Mark Reuter advocates for business clients in transactions, proceedings and conflicts regulated by federal and state securities laws and stock exchange rules. A partner in the firm’s Business Representation & Transaction ...
- Partner
As a partner in the firm’s Business Representation & Transactions Group, Allie Westfall’s insight and proven analytical skills help translate the complexities of the often-challenging securities laws. Allie’s counsel ...
- Partner
Chris Brinkman practices in the firm's Business Representation & Transactions Group with a concentration in venture capital transactions, start-ups & growth companies, securities, and mergers and acquisitions.
Chris ...
- Associate
Michael Goldman counsels businesses and investors on a broad range of general corporate transactions, with a particular focus on the sports and entertainment industry and commercial transactions involving technology ...
Topics/Tags
Select- Securities Law
- SEC
- Clawback Rules
- Securities Regulation
- SEC Enforcement
- Nasdaq
- Corporate Law
- Coronavirus
- Cybersecurity and Privacy Law
- Mergers & Acquisitions
- Tax Planning
- Dodd-Frank
- Economic Sanctions
- Ohio LLC Act
- IRS
- Paycheck Protection Program
- Corporate Tax
- JOBS Act
- FAST Act
- Proxy Access Rules
- Securities Litigation
- Cybersecurity Regulation
- Corporate Governance
- Consumer Protection Act
- Crowdfunding
- Cryptocurrency
- Hedging
- Conflict Minerals
- Real Estate Law
- Emerging Growth Companies
- Investors
- Taxation
- Private Offerings
- Pay Ratio Disclosure
- Whistleblower
- Intellectual Property
- Technology
- Opportunity Zone
- LIBOR
- Accredited Investors
- Sales Tax
- United States Supreme Court
- Online Trading Platforms
- Executive Compensation
- Health Care Act
- IPO
- Registration Statement
- Wall Street Reform
- Annual Reports
- Ohio Foreclosure Reform
- Director Compensation
- Family-Controlled Entities
- Gift and Estate Transfers
- Board of Directors
- Director Independence
- Cyber Insurance
- Data Breach
- Total Shareholder Return
- Lenders
- Receivership Statute
- Regulation A
- Regulation D
- Compensation Committee Certification
- CDEs
- CDFI Fund
- Community Development Entities
- Community Development Financial Institutions Fund
- Government Shutdown
- New Markets Tax Credit
- NMTC
- NMTC Financing
- Regulation Fair Disclosure
- Social Media
- Benefits
- Healthcare Reform
- Litigation
- Marketing
- Public Company Transition Rules
- Employment Incentives
- HIRE Act
- Social Security Tax
- Tax Credit
Recent Posts
- Effective Date of SEC Clawback Rule Finally In Sight
- SEC Sued Over Newly Adopted Share Repurchase Rules
- SEC Extends Period to Act on Exchange Clawback Rules
- SEC Charges Public Company for Misleading Non-GAAP Disclosures
- NYSE and Nasdaq Propose Clawback Listing Standards: What You Need to Know
- Corporate Transparency Act Update – FinCEN Issues Notice of Proposed Rulemaking
- SEC Amends Insider Trading Rules: New Conditions, Requirements, and Related Disclosures
- SEC Reopens Comment Period for 11 Proposed Rules Due to Technological Error
- Corporate Transparency Act Update—FinCEN Issues Final Rule
- SEC Provides Sample Guidance on Disclosure of Russia-Ukraine Invasion