United States: SEC proposes mandatory climate-related disclosures
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On March 21, 2022, the Securities and Exchange Commission (“SEC”) issued a long-awaited notice Proposed rule which proposes to require public companies to disclose climate-related risks in their registration statements and annual reports filed with the SEC. The proposed rule, titled Improving and standardizing climate-related information for investorswill mark a watershed moment for ESG transparency and corporate compliance if finalized.
Under the proposed rule, the following climate-related information would be required to be included in registration statements and periodic reports filed with the SEC:
- Climate-related risks and their real or probable significant impacts on the declarant’s activities, strategy and prospects;
- the registrant’s climate risk governance and relevant risk management processes;
- the declarant’s greenhouse gas emissions;
- Certain climate-related financial statement parameters and related disclosures in a note to its audited financial statements; and
- Information on climate-related targets and objectives and transition plan, if applicable.
In justifying its proposal, the SEC says it is “concerned that existing climate-related risk disclosures do not adequately protect investors” because the information is inconsistently reported, difficult to compare, and unreliable. The SEC says the proposed disclosures would provide “information to investors that will enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” Notably, the proposed rule subjects climate-related disclosures to potential liability by requiring registrants to include the information in their filings with the SEC. The SEC believes that, as a result, registrants may prepare and review their climate-related information more carefully than they otherwise would when presenting the information outside of their SEC filings.
The SEC Fact sheet summarizes the content of the proposed disclosure requirements. The proposed rule establishes a transition period for registrants to comply, the timing of which is based on filing status. Compliance timelines are not yet officially established as the proposed rule is not final. The proposed rule indicates that the effective date could occur in December 2022, which could trigger reporting obligations as early as 2024 for some filers.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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