Climate Change Reporting: Basic Requirements Under SEC’s Proposed Rule | Lippes Mathias LLP
Climate-related physical and transition risks
The proposed rule would require a company to disclose:
- The impact of physical climate-related risks, including extreme weather events and conditions such as wildfires, hurricanes and drought, both acute and chronic, on company operations and assets and on its consolidated financial statements and the financial estimates and assumptions used in the financial statements.
- How these risks have had or are likely to have a significant impact on the company’s activities and consolidated financial statements in the short, medium or long term;
- How the risks have affected or are likely to affect strategies, business models and prospects; and
- Transition risks (i.e. the impacts associated with transitioning to meet carbon commitments and requirements).
The proposed rule would also require companies to disclose information on direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity or other forms of energy (Scope 2). ). Companies would be required to disclose Scope 1 emissions separately from Scope 2 emissions, and disclose both in disaggregation (that is to say, by each constituent greenhouse gas) and the aggregate (in CO2 equivalent). Companies would also be required to disclose Scope 3 GHG emissions, which are emissions from activities up and down their value chains, if those emissions are material or if the company has set one or more GHG emissions targets that include these emissions. The proposed rule would provide a safe harbor for liability for Scope 3 disclosures and an exemption for small businesses.
Governance, monitoring and management of climate-related risks
Finally, the proposed rule would require disclosure of corporate climate risk governance, oversight and management in particular, including: (i) any risk assessment and management efforts by corporate management; company regarding climate-related risks and the role of the board of directors in monitoring these risks; (ii) which committee or board members are involved in oversight; and (iii) any individual on the board who has expertise in a climate-related area.
Compliance with the proposed rule will be through a phased approach, with disclosures other than Scope 3 GHG emissions disclosures followed by Scope 3 disclosures, if required, submitted first by large expedited companies, then by accelerated and non-accelerated filers and small businesses. .
The SEC accepts comments until May 20, 2022 or 30 days after publication in the Federal Register, whichever is later.