SUSTAINABILITY REPORTING
SEC’s Proposed Climate Disclosure Rules
Article Highlights
Draft open for public comment for the next 30 days.
Expected to be finalized later this year.
Climate disclosure must be reliable.
Climate disclosures included in SEC reports.
Company’s climate risk assessment, strategies, and governance required to be included in SEC disclosures. This will require the attention of the board and executive team.
Introduction
It is time to track your greenhouse gas emissions and establish a climate strategy. The US Securities and Exchange Commission’s (SEC) will require companies to disclosure their carbon footprint in reports to the SEC.
On Monday, March 21, 2022, a meeting was held to launch the framework. The US SEC Chair Gary Gensler outlined the support of investor signatories of the United Nations Principles of Responsible Investment (PRI) as the signal towards clear demand for such a framework. Mr. Gensler stated “Companies and investors alike would benefit from the clear rules of the road proposed in this release,” and that “[t]he SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance. Today’s proposal thus is driven by the needs of investors and issuers.”
Some of the key provisions in the SEC proposal would require disclosure of:
Governance - Companies to outline management of climate-related financial risks. This includes the governance and strategies of the board and executive team.
Short, medium and long term climate-related financial risks.
Scopes 1 and 2 greenhouse gas emissions.
Scope 3 greenhouse gas emissions from the value chain where (1) those emissions are considered material or (2) the company has set GHG emission targets that includes Scope 3 emissions. Note that the draft rule exempts smaller reporting companies from being required to disclose Scope 3 emissions.
Accelerated Filers and Large Accelerated Filers are required to obtain an attestation report covering at least Scopes 1 and 2 emissions disclosures from an independent attestation service provider.
A registrant’s transition plan, metrics and targets used to manage climate-related risks.
Targets and goals set by the company.
Description of activities related to the target(s), the plan to meet the target and the progress to attain the target.
Scenario analysis description to assess the resilience of the registrant’s strategy.
A description of climate-related and transition-related impacts on the registrant’s financial condition.
This description is to be reported as a note in the company’s financial statements. Underlying assumptions that contribute to the disclosure must also be noted in the company’s financials.
Suggested Actions Tasks to help you prepare
Create an inventory of your company’s greenhouse gas emissions in accordance with the Greenhouse Gas Protocol. The emissions profile of your organization is the initial step to understand your climate-related risks and opportunities. You can then build strategies to mitigate risk and secure opportunities.
If your company tracks and publishes greenhouse gas information, conduct ‘gap analysis’.
It is essential to use greenhouse gas data tools that are reliable, transparent and verifiable. This will ensure Chief Financial Officers (CFOs), General Counsels and other executives have the confidence to use the information for SEC filings.
Mr. Gensler stated that “Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in these disclosures.”
US SEC Chair Gary Gensler.
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