SEC proposes mandatory climate-related disclosure and governance rules

Earlier today, at an open meeting, the Securities and Exchange Commission (SEC) proposed, by a 3-1 vote, rules to significantly expand and standardize registrants’ climate-related disclosures for investors. The proposed rules would utilize mandatory, 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 SEC’s latest effort to advance the climate agenda of the Biden Administration, which describes climate change as “a systemic risk to our economy and financial system.”

The proposed rules would require registered domestic and foreign issuers to disclose:

• The registrant’s oversight and governance of climate-related risks and risk management process
• The registrant’s climate-related risks and their actual or likely material impacts on the registrant’s business, strategy and outlook and on the registrant’s financial statements over the short, medium and long terms
• The impact of climate-related events, such as severe weather events, and climate transition activities on the registrant’s audited consolidated financial statements at a line-item level, as well as the climate-related estimates and assumptions used in the financial statements
• The registrant’s scope 1 (direct) and scope 2 (indirect from production of energy used in business) GHG emissions, with accelerated and large accelerated filers required to obtain, after phase-in periods, independent attestation, at a reasonable assurance level, of the accuracy of such emission disclosures
• If material, or if the registrant has adopted a GHG emissions target or goal that includes scope 3 GHG emissions, the registrant’s indirect scope 3 GHG emissions from upstream and downstream activities in the registrant’s value chain (the proposed rules include a safe harbor for liability in connection with disclosures regarding scope 3 GHG emissions and exempt smaller reporting companies from this requirement) and
• Details regarding any climate-related targets and goals, climate transition plans, scenario analysis, or internal carbon price used by the registrant in connection with its climate-related risk management, including data on the registrant’s progress against publicly stated goals and on carbon offsets used as part of those plans.

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

• Large Accelerated 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 attestation of scope 1 and scope 2 GHG emissions disclosures and
• Fiscal year 2026 (filed in 2027) for reasonable assurance attestation of scope 1 and scope 2 GHG emissions disclosures.

• Accelerated and Non-Accelerated Filers:

• 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 filers only, limited assurance attestation of GHG emissions disclosures (non-accelerated filers would be exempt from the attestation requirements) and
• For accelerated filers only, fiscal year 2027 (filed in 2028) for reasonable assurance attestation of GHG emissions disclosures.

• Smaller Reporting Companies:

• Fiscal year 2025 (filed in 2026) for all proposed disclosures other than scope 3 GHG emissions disclosures (smaller reporting companies would be exempt from the requirements to provide scope 3 GHG emissions disclosures or independent attestation).

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 sec.gov, whichever period is longer.

Learn more about the proposed SEC rulemaking by contacting any of the authors or your DLA Piper relationship partner. 

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