March 22, 2022

Securities and Exchange Commission Proposes Rule on Climate Disclosure

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The United States Securities and Exchange Commission (SEC) has issued a proposed rule to require companies with reporting obligations pursuant to Securities and Exchange Act Section 13(a) or Section 15(d), and companies filing Securities Act or Securities and Exchange Act registration statements, to make enhanced disclosures regarding climate matters (“The Enhancement and Standardization of Climate-Related Disclosures for Investors”). The proposal would require registrants to disclose material climate-related risks, a registrant’s greenhouse gas emissions, and to include climate-related financial metrics in a registrant’s audited financial statements.

The proposal would require registrants to “Describe any climate-related risks reasonably likely to have a material impact on the registrant, including on its business or consolidated financial statements, which may manifest over the short, medium, and long term. If applicable, a registrant may also disclose the actual and potential impacts of any climate-related opportunities when responding to any of the provisions in this section.”

The proposed rule would impose specific metrics for registrants to include when making public filings with audited financial statements; these metrics relate to matters such as “Financial impacts of severe weather events and other natural conditions;” “Expenditure to mitigate risks of severe weather events and other natural conditions;” and “Impact of identified climate-related risks,” etc.

However, “Disclosure of the financial impact on a line item in the registrant’s consolidated financial statements. . .  is not required if the sum of the absolute values of all the impacts on the line item is less than one percent of the total line item for the relevant fiscal year” and “Disclosure of the aggregate amount of expenditure expensed or the aggregate amount of capitalized costs incurred … is not required if such amount is less than one percent of the total expenditure expensed or total capitalized costs incurred, respectively, for the relevant fiscal year.”

Since registered companies are already required to report material risks under existing law, these thresholds for exemption from disclosure requirements can be seen as a proxy for a materiality determination.

The proposed rule also requires public companies to disclose their greenhouse gas emissions, and, in the case of all but certain smaller companies, those of their suppliers. Specifically, the proposal requires disclosure of Scope 1 emissions (those of a registrant and all of its related companies); Scope 2 emissions (indirect emissions from the generation of purchased or acquired electricity, steam, heat, or cooling by a registrant and its related entities); and Scope 3 emissions (“which occur in the upstream and downstream activities of a registrant’s value chain”). The Scope 1 and 2 filings must be accompanied by an attestation report in the case of certain large and more sophisticated filers.

The proposed rule is likely to have significant compliance costs for registered companies. The proposal is open for public comment until May 22, 2022, or 30 days after the proposal is published in the Federal Register, whichever is longer. For those wishing to learn more about the proposal or submit comments, attorneys at Jordan Ramis PC are ready to provide assistance.

Gregory Zerzan is a shareholder at Jordan Ramis PC. He previously served in senior roles at the U.S. Department of the Treasury, the U.S. Department of the Interior and multiple congressional committees.

Tags: Governmental Services


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