SEC Releases Anticipated Climate Disclosure Proposal

The SEC released its highly anticipated proposed rule on issuer disclosure of climate-related information. The proposal would require public company issuers to disclose on an annual basis potential risks and risk management processes from climate-related events (such operations facing risks from rising sea levels), how any climate-related risks identified by the registrant have or are likely to have a material impact on its business, as well as disclosure of any climate-related commitments and the issuer’s plan to achieve those targets.

Additionally, the proposed rule would require public companies to disclose annually their greenhouse gas (GHG) Scope 1 (direct emissions) and Scope 2 (indirect emissions) data.  The proposal would require large issuers to assess whether Scope 3 (those with indirect impact on the issuer’s value chain) GHG emissions data are material to investors while creating a safe harbor for smaller issuers from disclosure of Scope 3 data. The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status.

In his remarks supporting the release, SEC Chairman Gary Gensler stated that since the 1930s, “investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” adding that this principle also applies to “environmental-related disclosures, which date back to the 1970s.” In her dissenting statement, Commissioner Hester Peirce stated the proposed rule turns the materiality standard of corporate disclosure “on its head,” and instead requires issuers to “pull into Commission filings much of this non-investor-oriented information that is either immaterial or keyed to a distended notion of materiality that seems to turn on an embellished guess at how the company affects the environment.”

The release of the proposed rule comes just over one year after Commissioner Allison Herren Lee (who is set to roll off the Commission this summer) announced the SEC’s Call for Input on Climate-Related Disclosures which received over 600 comments from investors and interested parties.

The proposal’s comment period will remain open for 30 days after it is published in the Federal Register, or 60 days after it is posted on the SEC’s website, whichever is longer.

Click here to read the Commission’s statement on the proposed climate disclosure rule.