SEC Proposes Landmark Standardized Disclosure Rules on Climate-Related Risks

David Cifrino is counsel and Jacob Hollinger is partner at McDermott Will & Emery LLP. This post is based on their MWE memorandum.

Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID, by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.

The US Securities and Exchange Commission (SEC) proposed new climate change disclosure rules on March 21, 2022. The proposed rules (Release Nos. 33-11042; 34-99478) draw heavily on the “four pillar” disclosure framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD) and are significantly more prescriptive and granular than the SEC’s 2010 guidance on climate change-related disclosures. The rules would apply to disclosures by domestic and foreign companies that file periodic reports or registration statements with the SEC (collectively, registrants). Among other key features, the proposed rules include the following provisions:

  • Registrants would be required to provide detailed information about their handling of climate change issues, including climate-related governance, strategy, risk management and metrics and goals (the four TCFD pillars).
  • Registrants would be required to measure and disclose greenhouse gas (GHG) emissions in accordance with the GHG Protocol methodology, the most widely known and used international standard for calculating GHG emissions.
  • Larger registrants would be required to have the data they disclose regarding their direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2) attested to by independent “GHG emissions attestation providers.”
  • Larger registrants would be required to disclose data regarding their Scope 3 emissions (those that are the result of activities from assets not owned or controlled by the registrant, but that the registrant indirectly impacts in its upstream or downstream value chains through its activities) if material to them, or if they have set a GHG emissions reduction target or goal that includes its Scope 3 emissions.
  • Registrants would be required to add a note to their financial statements that provides disaggregated metrics and related disclosure concerning climate-related impacts included in line items of the financial statements required under existing financial statement requirements.

The rule proposal, which was approved for issuance by a 3-1 vote by the SEC, is subject to a comment period that ends 30 days after the date of publication of the proposed rules in the Federal Register or May 20, 2022 (60 days after issuance of the proposed rules), whichever period is longer. The SEC’s proposing release includes 201 specific requests for comment covering virtually all aspects of the rule proposal.

In Depth


The issuance of the SEC’s proposal is a notable landmark in the accelerating trend in capital markets worldwide for more and better corporate sustainability disclosures concerning “environmental, social and governance” (ESG) matters. Investors have sought information about the present and possible future impacts of climate change on companies, which has led many registrants to significantly increase their disclosure of information—often outside of SEC filings—regarding climate risks, uncertainties, impacts and opportunities. Investors have questioned, however, whether current voluntary climate disclosures are adequate. The new rules proposed by the SEC are intended to increase the sufficiency, reliability, consistency and comparability of material climate-related disclosures by registrants.

Significantly, issuance of the SEC’s proposed rules follows an extensive period of prior public comment solicited by the SEC, including a formal request for input issued March 15, 2021, that generated approximately 600 unique comment letters and more than 5800 form letters. Consequently, the new comment period will be a second bite of the apple for many commenters who are expected to renew strongly held views on an array of issues, such as:

  • The SEC’s authority to mandate climate-related disclosures
  • Whether the SEC has (or can) develop the expertise to monitor climate-related disclosures
  • The cost/benefits of mandated disclosures
  • The standards for disclosures to be adopted
  • The qualitative and quantitative information required to be disclosed
  • Reliance on third-party standards
  • The assurance of disclosed information
  • Liability standards for climate-related disclosures
  • The types of companies to which the new disclosure requirements should apply to and to what extent.

The SEC previously provided guidance on climate-related disclosures in an interpretative letter issued in 2010 (2010 Guidance), advising registrants on how the SEC’s existing disclosure requirements apply to climate change matters in periodic reports and registration statements. The 2010 Guidance focused on two issues: the impact of climate change regulations and the impact of changing climate conditions. The 2010 Guidance also noted that the SEC’s regulations provided a framework for disclosures concerning those two topics, and that, depending on the circumstances, information about climate change-related risks and opportunities might be required in a registrant’s disclosures related to its Description of Business (Regulation S-K, Item 101); Legal Proceedings (Regulation S-K, Item 103); Risk Factors (Regulation S-K, Item 105 [1]) and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Regulation S-K, Item 303). The SEC has cited a review of S&P 500 registrant’s filings, which found that in the several years after the 2010 Guidance was issued registrants did not quantify risks or past impacts relating to climate change and stated that registrants tended to use “boilerplate language of minimal utility to investors.”

Since the issuance of the 2010 Guidance, both the science and law regarding climate change have evolved significantly. Scientifically, there is even greater, more widely accepted information each day about the potential harmful impacts of changing climate conditions. In the Paris Climate Agreement reached in December 2015, more than 190 countries agreed on climate change targets including, among other goals, limiting increases in the global average temperature to less than 2 degrees Celsius from pre-industrial levels and achieving by the end of this century a balance between human caused GHG emissions by sources and removals by sinks of GHG. By some accounts, however, the reported threat of dire climate change in this century remains stark. Even when accounting for existing national pledges to mitigate carbon emissions, Earth is on track to warm about 2.5 degrees Celsius (4.5 degrees Fahrenheit), according to a recent report of United Nations scientists.

Legally, there are now many more programs regulating climate change in the United States and globally. In December 2009, the US Environmental Protection Agency (EPA) issued an “endangerment and cause or contribute finding” for GHG emissions under the Clean Air Act, which enabled the EPA to craft rules to directly regulate GHG emissions. On January 1, 2010, for the first time, the EPA began requiring large emitters of GHG to collect and report data with respect to their GHG emissions. In parallel to these regulatory changes, a robust market for carbon offsets has developed as most larger companies (e.g., 92% of the S&P 100) have or plan to set GHG emission reduction goals, often including “net zero” commitments and other climate pledges.

Additionally, since the issuance of the 2010 Guidance, the Financial Stability Board—at the request of the G20 finance ministers and central bank governors—convened the TCFD to address physical, liability and transition risk of climate change. In 2017, the TCFD released recommendations for climate change disclosures, organized under four broad thematic categories: governance, strategy, risk management and metrics and targets. The TCFD framework reflects a belief that disclosing climate-related risks, opportunities and financial impacts is critical for a company’s reputation, ensures compliance with regulations and promotes the management and assessment of potential business strategy effects. The SEC’s proposed rules do not adopt or incorporate the TCFD’s disclosure recommendations but portions of the proposed rules are closely modeled on them.

The SEC noted in its proposing release that the TCFD and the GHG Protocol (which has become the most widely used GHG accounting standard) have developed concepts and a vocabulary that are commonly used by companies when providing climate-related disclosures in their sustainability or related reports. The SEC’s proposed rules incorporate some of these concepts and vocabulary, which it believes are familiar to many registrants and investors.

A Detailed Summary of the Proposed Rules

As proposed, the new rules would amend the SEC’s Regulation S-K and Regulation S-X to add the following requirements:

  • The oversight and governance of climate-related risks by the registrant’s board and management
  • How any climate-related risks identified by the registrant have had, or are likely to have, a material impact on its business and consolidated financial statements, which may manifest over the short-, medium- or long-term
  • How any identified climate-related risks have affected, or are likely to affect, the registrant’s strategy, business model and outlook
  • If the registrant adopted a transition plan as part of its climate-related risk management strategy and a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks
  • If the registrant used scenario analysis to assess the resilience of its business strategy to climate-related risks and a description of the scenarios used, including the parameters, assumptions, analytical choices and projected principal financial impacts
  • If a registrant used an internal carbon price, information about the price and how it is set
  • The registrant’s processes for identifying, assessing and managing climate-related risks and whether any such processes are integrated into their overall risk management system or processes
  • The impact of climate-related events (such as severe weather events and other natural conditions, as well as physical risks identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items of a registrant’s consolidated financial statements, as further discussed below
  • Scopes 1 and 2 GHG emissions metrics, separately disclosed, expressed both by disaggregated constituent GHG and in the aggregate, in absolute and intensity terms
  • Scope 3 GHG emissions and intensity, if material, or if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions, in absolute terms, not including offsets and in terms of intensity
  • The registrant’s climate-related targets or goals and transition plan (if any)
  • If the registrant has publicly set climate-related targets or goals, including information about:
    • The scope of the activities and emissions included in the target, the defined time horizon by which the target is intended to be achieved and any interim targets
    • How the registrant intends to meet its climate-related targets or goals
    • Relevant data to indicate whether the registrant is making progress toward meeting the target or goal and how such progress has been achieved, with updates each fiscal year
    • If carbon offsets or renewable energy certificates (RECs) have been used as part of the registrant’s plan to achieve climate-related targets or goals and certain information about the carbon offsets or RECs, including the amount of carbon reduction represented by the offsets or the amount of generated renewable energy represented by the RECs.

The proposed rules provide for detailed presentation requirements under which registrants would have to adhere to the following mandates:

  • Provide climate-related disclosures in registration statements under the Securities Act of 1933 and annual reports under the Securities Exchange Act of 1934
  • Provide the Regulation S-K mandated climate-related disclosure in a separate, appropriately captioned section of its registration statement or annual report or incorporate that information in the separate, appropriately captioned section by reference from another section, such as Risk Factors, Description of Business or Management’s Discussion and Analysis of Financial Condition and Results of Operations
  • Provide the Regulation S-X mandated climate-related financial statement metrics and related disclosure in a note to the audited financial statements
  • Electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL
  • “File” rather than “furnish” climate-related disclosures, except disclosures made by “foreign private registrants” on Form 6-K.

The proposed rules would also require an “accelerated filer” or a “large accelerated filer” to include in the relevant filing an attestation report covering, at a minimum, the disclosure of its Scope 1 and Scope 2 emissions and provide certain related disclosures about the service provider. The proposed rules would provide minimum attestation report requirements, minimum standards for acceptable attestation frameworks and require an attestation service provider to meet certain minimum qualifications. The proposed rules would not require an attestation service provider to be a registered public accounting firm. “Non-accelerated filers” and “smaller reporting companies” would not be required to provide an attestation report.

The new rules would be phased in with compliance dates dependent on the registrant’s filer status. For example, if the rules are adopted in 2022, a year-end reporting large accelerated filer would be required to make its first disclosure under the new rules in 2024 for Fiscal Year 2023, while accelerated filers and non-accelerated filers would have an additional year to make the new disclosures and “smaller reporting companies” two additional years. Each category of registrant would have an additional one-year period after its initial compliance date to comply with disclosure of Scope 3 emissions (“smaller reporting companies” would be exempt from this requirement).

As proposed, the attestation engagement would phase in the level of assurance required to be provided by the independent GHG emissions attestation provider from limited to reasonable over a five-year period after each registrant’s compliance date. Reasonable assurance would be equivalent to the level of assurance provided in an audit of a registrant’s consolidated financial statements included in a Form 10-K. Limited assurance would be equivalent to the level of assurance (commonly referred to as a “review”) provided over a registrant’s interim financial statements included in a Form 10-Q.

Emissions Calculations

Many large industrial companies in the United States are already required to report their GHG emissions to the EPA. There is no perfect overlap between the EPA’s reporting requirements and the SEC’s proposed disclosure requirements. Most importantly, the EPA’s GHG reporting rule (40 C.F.R. Part 98) is generally facility-specific with some limited exceptions. The SEC’s proposed rule is focused on “organizational” emissions, with the organization defined by reference to all entities that are included in the registrant’s consolidated financial statements. Thus, a registrant who collected all the information necessary to comply with the EPA’s requirements may have to collect additional emissions-related information to comply with the SEC’s proposed GHG emission disclosure requirements.

Line Item Disaggregation of Risks

The proposed rule requiring a note to financial statements that discloses disaggregated climate-related financial statement metrics would mandate disclosure under three categories of information: financial impact metrics, expenditure metrics and financial estimates and assumptions. Similar to the TCFD’s recommendation regarding financial impacts, the proposed financial statement metrics have the objective of increasing the transparency of how climate-related risks impact a registrant’s financial statements. The TCFD framework identifies two broad categories of actual and potential financial impacts driven by climate-related risks and opportunities—financial performance (income statement focused) and financial position (balance sheet focused)—and includes suggested metrics, such as the amount of capital expenditure deployed toward climate-related risks and opportunities, which are similar to the SEC’s proposed financial statement metrics.


In its rules proposal, where certain disclosures are required only when “material,” the SEC reaffirmed adherence to the definition of materiality set forth in both its rules and past Supreme Court of the United States opinions: Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would significantly alter the total mix of available information to investors. [2] Accordingly, as materiality for purposes of the proposed rules (as with SEC disclosures generally) is to be viewed from the perspective of reasonable investors in the registrant, the proposed rules reject the request of some commenters to expand the definition of materiality to encompass company-induced impacts occurring external to the company, including those in the economy, the environment, people, the so-called “double materiality” standard adopted in Europe and other jurisdictions for corporate sustainability disclosures. The SEC did emphasize the dynamic nature of materiality determinations that registrants must make under US securities laws, particularly with regard to potential future events.

Liability Issues

The proposed rules do not provide a broad liability safe harbor for the new climate-related disclosures, but they do include a targeted safe harbor for Scope 3 emissions data in light of concerns that registrants might have about liability for information that would be derived largely from third parties in a registrant’s value chain. The proposed safe harbor would provide that disclosure of Scope 3 emissions by or on behalf of the registrant would not be deemed a fraudulent statement unless it is shown that said statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith. The safe harbor would also extend to any statement regarding Scope 3 emissions that is disclosed pursuant to the proposed rules and made in a document filed with the SEC.

The SEC noted that to the extent the proposed climate-related disclosures constitute forward-looking statements, including, for example, information regarding a registrant’s internal carbon pricing or scenario analysis disclosure, the forward-looking statement safe harbors pursuant to the Private Securities Litigation Reform Act for such statements would apply, subject to the limitations and conditions specified in those safe harbor provisions of that act.

Continuing SEC Climate-Related Disclosure Guidance

Many commenters in the 2021 input process suggested that the SEC expand upon its 2010 Guidance. In September 2021, the SEC referenced the 2010 Guidance in providing a sample comment letter to illustrate comments it might make regarding climate change disclosures, or lack thereof, in SEC filings. While the proposed new rules are pending and prior to their phase-in compliance date if adopted, registrants should continue to carefully consider the 2010 Guidance, as augmented by the discussion in the release of the proposed rules, and the 2021 sample comment letter in preparing climate change-related disclosure.

As a general matter, the sample comment letter indicates that the SEC might request an explanation as to why a registrant provides more extensive climate-related disclosures in a corporate social responsibility, sustainability or ESG report than it does in its SEC filings. More specifically, although actual comments from the SEC are typically tailored to each registrant, the sample comment letter indicates that SEC staff expects the following disclosures (to the extent they are applicable and material to the registrant):

  • The effects of transition risks related to climate change, such as policy and regulatory changes, or market trends that may alter business opportunities, credit risks or technological changes
  • Litigation risks related to climate change
  • Developments in federal and state legislation and regulation and international accords regarding climate change
  • Pending or existing climate change-related legislation, regulations and international accords
  • Past or future capital expenditures for climate-related projects
  • Indirect consequences of climate-related regulation or business trends, such as
    • Decreased demand for goods or services that produce significant GHG emissions or are related to carbon-based energy sources
    • Increased demand for goods that result in lower emissions than competing products
    • Increased competition to develop innovative new products that result in lower emissions
    • Increased demand for generation and transmission of energy from alternative energy sources
    • Any anticipated reputational risks resulting from operations or products that produce material GHG emissions.
  • Physical effects of climate change on operations and results, including:
    • Severity of weather, such as floods, hurricanes, sea levels, arability of farmland, extreme fires and water availability and quality
    • Quantification of weather-related damages to your property or operations
    • Potential for indirect weather-related impacts that have affected, or may affect, major customers or suppliers
    • Decreased agricultural production capacity in areas affected by drought or other weather-related changes
    • Any weather-related impacts on the cost or availability of insurance.
  • Increased compliance costs related to climate change
  • Purchases or sales of carbon credits or offsets.

Evolving Global Climate Change and Other Sustainability Disclosure Requirements

Globally, the United States has not been a leader in adopting mandatory climate change disclosure rules. Many countries already require disclosure in accordance with the TCFD’s recommendations, and the United Kingdom was the first G20 country to enshrine mandatory climate change risk and opportunity disclosures into law. Starting April 6, 2022, more than 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis—in line with recommendations from the TCFD. This will include many of the United Kingdom’s largest traded companies, banks and insurers, as well as private companies with more than 500 employees and £500 million in annual revenues.

In 2019, the European Commission (EC) published new climate reporting guidelines for companies. (A summary of the EC guidelines is available here.) The guidelines on reporting climate-related information are a supplement to the non-binding guidelines on non-financial reporting published by the EC in 2017. They are consistent with the requirements of the EC’s Non-Financial Reporting Directive and integrate the TCFD’s recommendations. They also provide guidance for companies on how to report the impacts of their business on the climate and the impacts of climate change on their business.

More broadly, there is a rapidly accelerating consolidation of the most internationally significant existing global sustainability disclosure frameworks and standards currently underway. Last fall, the International Financial Reporting Standards (IRFS) Foundation (which administers the IFRS Accounting Standards that is used in most jurisdictions other than the United States) formed a new International Sustainability Standards Board (ISSB) that will develop a comprehensive global baseline of sustainability disclosure standards. The ISSB is expected to complete the consolidation of the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) in 2022, which itself resulted from the 2021 merger of the Integrated Reporting Framework and the Sustainability Accounting Standards Board.

The ISSB developed prototype climate and general disclosure requirements resulting from joint efforts of the CDSB, the International Accounting Standards Board (IASB), the TCFD, the VRF and the World Economic Forum, supported by the International Organization of Securities Commissions (IOSCO) regulators. The ISSB intends to sit alongside and work closely with the IASB, ensuring connectivity and compatibility between IFRS Accounting Standards and the ISSB’s standards, to be known as the IFRS Sustainability Disclosure Standards. The extent to which the SEC participates in the development or application of ISSB standards or develops its own standards for registrants remains to be seen. The SEC’s proposed rules suggest that it is unlikely to adopt international sustainability standards in lieu of developing its own disclosure requirements in the foreseeable future. However, as in the case of the TCFD’s influence on its current climate change rule proposal, the SEC is expected to take further international developments into consideration.

Anticipated SEC Rulemaking Regarding Other ESG Issues

Although the SEC solicited input in 2021 on the disclosure of other ESG issues and whether a comprehensive ESG disclosure framework might be appropriate, the proposed rules only concern climate-related risks. Additional SEC rulemaking is anticipated in the near future for other ESG issues, including with respect to workforce issues such as wage quality and equity, diversity and family and other benefits.


1Previously codified in Item 503(c) of Regulation S-K.(go back)

2Basic v. Levinson, 485 U.S. 224 (1988) and TSC Industries v. Northway, 426 U.S. 438 (1976).(go back)

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