The SEC’s Proposed Climate Change Disclosure Rules Are Out and Now Is the Time to Prepare

It’s here. After mounting pressure from investors to standardize ESG reporting, the SEC has finally released the highly anticipated climate-related disclosure ruling. In the SEC’s press release, Chairman Gary Gensler commented, “I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.”

The proposed ruling has been a long time coming. It builds off of guidance issued in 2010 related to corporate disclosures on the impacts of climate change, and follows the SEC’s public consultation regarding potential required climate disclosures last summer. In September, the SEC sent letters to a number of companies requesting more information and reasoning behind current disclosures, or lack thereof.

Based on the feedback received and the standards generally used by both investors and a growing number of companies, the Task Force on Climate-related Financial Disclosures (TCFD) framework has heavily influenced the proposed rules released this week.

The SEC proposed revisions to Regulations S-K and S-X, providing for climate-related disclosures and financial metrics in company filings and financial statements. It encompasses both narrative and quantitative disclosures. Specifically, the proposed rule calls for the following types of disclosure:

  • Board and management oversight of climate-related risks
  • Scope 1 and 2 greenhouse gas (GHG) emissions encompassing direct and indirect emissions from produced and purchased energy expressed as 7 distinct GHG types, aggregated CO2e, and absolute emissions and emissions intensity (per unit of economic output)
    • Large Accelerated Filer: Fiscal year 2023 (filed in 2024) 
    • Accelerated Filer and Non-Accelerated Filer: Fiscal year 2024 (filed in 2025) 
    • SRC: Fiscal year 2025 (filed in 2026)  
  • Scope 3 emissions, resulting from upstream and downstream value chain activities, disclosures if they are material to the company or where companies have preexisting goals or targets
    • Large Accelerated Filer: Fiscal year 2024 (filed in 2025) 
    • Accelerated Filer and Non-accelerated Filer: Fiscal year 2025 (filed in 2026) 
    • SRC: Exempted  
  • Both physical and transitional climate-related risks and their potential material impacts on the business and financials, and how the identified risks affect strategy, business model, and outlook
  • Risk management process for identifying short-, medium-, and long-term risks and how the risks are managed
  • The impact of climate-related events and transition activities within consolidated financial statements
  • Additional climate-related considerations in risk and management processes, in situations where the items are already in place
  • Details and progress on the company’s climate-related targets and goals and transition plan, in situations where the items are already in place
  • An attestation report from a qualified independent service provider covering, at a minimum, Scope 1 and 2 emissions disclosures

The proposed rule is in the 60-day comment period, ending May 20th, 2022. The SEC is expected to finalize the rule by December 2022. For more details on the disclosure requests, along with key dates you need to know, see Clermont Partners’ article, Proposed SEC Rule Tells Corporates to Step Up Their Cybersecurity Game.

Currently, mostly large-cap companies release the proposed climate-related disclosures, leaving small- and mid-cap companies feeling the weight of the work needed to meet the potential reporting requirements. According to a recent report from The Conference Board, Heidrick & Struggles and ESAUGE, 71% of companies in the S&P 500 disclosed GHG emissions data in 2021, while only 28% of companies in the S&P MidCap 400 disclosed GHG emissions data.

How ESG Infinite Can Help You Get Ready for Required Climate-Related Disclosures

While the rules will not be finalized until possibly year-end, companies should still prepare to report some of the items that are likely to pass, including Scope 1 and 2 emissions data, oversight of climate-related risks, and potential impacts climate risks can have on the business.

First thing’s first, know what your peers are already saying. By using ESG Infinite’s peer benchmarking tool, you can quickly see which of your peers have disclosed the following information:

  • TCFD reporting
  • CDP reporting
  • Climate-related metrics
  • Physical risks
  • Transitional risks
  • Climate-related risks in the 10-K

Then, it’s time to start gathering the information you need internally to level up your disclosures. Within ESG Infinite, you can access best practices and guidance on how to approach TCFD and CDP reporting and on incorporating ESG within SEC filings. Whether you are early in your ESG reporting or more advanced, ESG Infinite provides the resources you need to develop and communicate your ESG strategy.

To learn more about how ESG Infinite can help you prepare for the climate-related disclosure requirements, contact us.