SEC set to adopt climate disclosure rules on March 6

The wait is almost over! The SEC has published its Sunshine Act Notice for the open meeting at which its climate disclosure rules will be considered.

Proposed almost two years ago in March 2022, the proposed rules include disclosures relating to the following (see our Alert here):

• Oversight and management of climate risk.
• Impacts of climate-related risks on the registrant’s business, financials, strategy, business model and outlook over the short-, medium- and long-terms.
• Processes for identifying, assessing and managing climate-related risks.
• Historical greenhouse gas (GHG) emissions data: Scopes 1 and 2, and in many cases Scope 3. As proposed, third-party assurance of Scope 1 and 2 data would be required, initially limited assurance and then reasonable assurance.
• Climate-related targets and goals, if set.
• Financial statement disclosure on the financial impacts of physical and transition risks.

As we and many others have written about, the proposed rules have been highly contentious. Over 14,000 comment letters were submitted, more that 1,000 of which were substantive, an extraordinarily high number for an SEC rule-making proposal. We analyzed the comment letters in this White Paper.

In addition to philosophical questions concerning the SEC’s authority to adopt the rules, areas of concern in the proposed rules reflected in comment letters included the following:

• The phase-in periods for compliance.
• The granularity of required GHG emissions disclosures.
• Scope 3 emissions disclosure requirements, including the triggers. (Last week, there was a Reuters article citing unnamed sources indicating that Scope 3 disclosures will not be part of the final rules.)
• The timing for filing GHG emissions disclosures.
• Required disclosures around board oversight and qualifications and management practices.
• The extensive and prescriptive nature of the disclosures relating to strategy, business model, outlook and risk management, including relating to targets, goals and transition plans.
• The extensive audited financial statement disclosure requirements and the low thresholds for quantitative disclosures.
• The phase-in period for third-party assurance and the reasonable assurance requirement.
• The lack of a broad-based safe-harbor from liability for historical GHG emissions data, which is often based on estimates, assumptions and methodologies that may be revised in the future.
• The industry-agnostic approach taken by the rules.
• Differences between the rules and voluntary frameworks and/or other climate disclosure requirements.

Stepping back and looking at the bigger picture, two years on, climate disclosure is in a very different place than when the SEC proposed its rules:

• Extensive climate disclosure requirements recently were adopted by California (see our posts, here, here and here); in some respects these go beyond the SEC’s proposal.
• The European Union has adopted the Corporate Sustainability Reporting Directive and a climate European Sustainability Reporting Standard under the CSRD (for some of our more recent posts on the CSRD and the ESRSs, see here, here and here).
• The UK has adopted climate financial disclosure requirements.
• The International Sustainability Standards Board’s climate disclosure standard has been finalized and is under consideration by several jurisdictions.
• Many larger commercial customers have started to require GHG emissions disclosures from their suppliers.

Thousands of U.S.-based companies – including a large number of SEC registrants – are subject to these regulatory and commercial requirements. For these registrants, the question is whether and what incremental requirements will be added by the SEC’s rules?

We will know the answer to these and the many other questions concerning the rules on March 6.