The S.E.C.'s Proposed Rule For Climate Disclosures

---

The Securities and Exchange Commission ("S.E.C.") has proposed a Rule, "The Enhancement and Standardization of Climate-Related Disclosures for Investors," that would require public companies to disclose in their public S.E.C. filings detailed information about climate-related risks.  Such disclosures would enable value-conscious investors to obtain information concerning a company's climate-related business issues, including emissions, carbon transition plans, and other sustainability factors. The Rule would also provide disclosures about material climate-related risks and costs that could impact the profitability of a company and thus investment returns. This proposed Rule echoes recent efforts in Japan, the European Union, and the United Kingdom and also aligns generally with guidelines the  International Sustainability Standards Board [ISSB] is developing.

The S.E.C.'s proposed Rule would require disclosures in three sustainability-focused areas:

1. Climate impacts;
2. Greenhouse-gas emissions; and
3. Transition plans.

As for climate impact disclosures, the Rule would require public companies to disclose material climate-related risks, including assets subject to climate-related damage. This could include, for example, assets at risk of flooding due to sea level rise or erosion, as well as myriad other potential risks.  With respect to greenhouse-gas emissions, companies would have to disclose the emissions related to the companies' business.  This could include not only the emissions generated directly by that company, but also those generated by the entire supply chain of that company as well as any and all downstream emissions.  The disclosures relating to transition plans would include information about efforts to reduce emissions, costs associated with conservation and sustainability endeavors, and transitions to reduce carbon usage and output.  Under the proposed Rule, the scope of disclosures would vary based on the size of the reporting entity.

The Rule would go into effect commencing with annual disclosures filed in 2024 that disclose information about 2023, with smaller companies have an additional grace period of one year to comply with the disclosure requirements.

April 2022