SEC proposes mandatory climate-related disclosure and governance rules | Knowledge

Earlier today, in a public meeting, the Securities and Exchange Commission (SEC) proposed, by a 3-1 vote, rules to significantly expand and standardize climate filers’ disclosures for investors. The proposed rules would use mandatory and prescriptive disclosures in periodic reports and registration statements to address a myriad of topics related to greenhouse gas (GHG) emissions and global climate change. These proposed rules represent the latest effort by the SEC to advance the Biden administration’s climate agendawhich describes climate change as “a systemic risk to our economy and our financial system”.

the proposed rules would require listed domestic and foreign issuers to disclose:

  • Oversight and governance by the declarant of climate-related risks and the risk management process
  • The registrant’s climate-related risks and their real or probable material impacts on the registrant’s activities, strategy and outlook and on the registrant’s financial statements in the short, medium and long term
  • The impact of climate-related events, such as severe weather, and climate transition activities on the registrant’s audited consolidated financial statements at the line item level, as well as the climate-related estimates and assumptions used in the statements financial
  • Scope 1 (direct) and Scope 2 (indirect from the production of energy used in the business) GHG emissions, with Accelerated Filers and Large Accelerated Filers required to obtain, after phase-in periods, independent attestation, at a reasonable level of assurance, of the accuracy of such emissions disclosures
  • If material, or if the declarant has adopted a GHG emissions target or objective that includes Scope 3 GHG emissions, the declarant’s indirect Scope 3 GHG emissions from activities upstream and downstream of the reporter’s value chain (proposed rules include a safe harbor for liability in scope 3 GHG emissions disclosures and exempt small business reporters from this requirement ) and
  • Details regarding climate-related targets and objectives, climate transition plans, scenario analysis or internal carbon price used by the reporter in its climate-related risk management, including data on progress of the declarant in relation to the publicly declared objectives and on the carbon offsets used within the framework of these plans.

The proposed rules would include a phase-in period with compliance dates depending on the registrant’s reporting status as follows:

  • Expedited Large Filers:
  • Fiscal year 2023 (filed in 2024) for all proposed disclosures excluding Scope 3 GHG emissions
  • Fiscal Year 2024 (filed in 2025) for (i) Scope 3 GHG Emissions Disclosures (if required) and (ii) Limited Assurance Certification of Scope 1 and Scope 2 GHG Emissions Disclosures and
  • Fiscal Year 2026 (filed in 2027) for the Reasonable Assurance Attestation of Scope 1 and Scope 2 GHG Emissions Disclosures.
  • Accelerated and non-accelerated applicants:
  • Fiscal year 2024 (filed in 2025) for all proposed disclosures excluding Scope 3 GHG emissions
  • Fiscal Year 2025 (filed in 2026) for (i) Scope 3 GHG Emissions Disclosures (if required) and (ii) for Accelerated Reporters Only, Limited Assurance Certificate of GHG Emissions Disclosures (Reporters non-accelerated would be exempt from certification requirements) and
  • For expedited filers only, fiscal year 2027 (filed in 2028) for the reasonable assurance attestation of GHG emissions disclosures.
  • Small reporting companies:
  • Fiscal year 2025 (filed in 2026) for all proposed disclosures other than scope 3 GHG emissions disclosures (small business reporters would be exempt from the requirement to provide scope 3 GHG emissions disclosures or certification independent).

The comment period for the proposed rules will remain open for 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on, whichever is longer.

Learn more about the SEC’s regulatory proposal by contacting one of the authors or your DLA Piper relationship partner.

For more information, please visit our Environmental Social Governance and Sustainability Portal.

Helen D. Jessen