The Securities and Exchange Commission adopted (in a 3-2 vote) final rules related to climate-related disclosures.  These rules had first been proposed in March 2022.  In his opening remarks, SEC Chair Gensler noted that the climate-change related disclosure rules will apply to public companies and to public offerings, and are intended to benefit investors by, among other things, providing comparable information across companies, enhancing consistency of disclosures and providing, for companies, specificity regarding the types of disclosures that are expected.  The Chair quoted President Roosevelt noting that the mission of the securities laws is to ensure that companies provide complete and truthful disclosure.  He noted that the Commission is “merit neutral” and takes no view on climate risk but is focused on disclosures that are material to investors.  To that end, the Chair noted that the climate-related disclosure requirements are grounded in materiality, which is a fundamental building block of securities law disclosure principles.  He noted that the materiality standard that is applicable in this regard has not changed.  Of course, it is reassuring to hear that materiality remains relevant.  The Chair noted that it was important for there to be U.S. requirements and standards for U.S. companies, although there were other international standards.

The final rules do not require Scope 3 disclosures at this time.  The requirements apply to domestic and to foreign private issuers (not MJDS filers).  The disclosure requirements provide for some phase in depending on the registrant status (large accelerated filer, accelerated filer, etc.), provide for some accommodations for smaller reporting companies (SRCs) and emerging growth companies (EGCs) as described below.  The final rules amend Regulation S-K and Regulation S-X.  Companies will be required to disclose or include in filings:

  • Climate-related risks, actual and potential material impacts of these risks on the strategy, business model and outlook, activities taken to mitigate or adapt to material risks;
  • A description of material expenditures incurred and material impacts on financial estimates from mitigation and adaptation;
  • Specified disclosures concerning a registrant’s activities to mitigate or adapt to a material climate-related risk;
  • Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
  • Processes for identifying, assessing, and managing material climate-related risks;
  • Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations or financial condition; and
  • Financial statement note disclosure on capitalized costs of severe weather events, subject to a one percent and de minimis disclosure threshold.

In the case of large accelerated filers (LAF) and accelerated filers (AF) that are not otherwise exempted,

  • information about material Scope 1 emissions and/or Scope 2 emissions; and
  • an assurance report (by an independent firm) at the limited assurance level, which for an LAFA, following an additional transition period, will be at the reasonable assurance level.

The fact sheet provides a summary of the compliance dates under the final rules for disclosure and financial statement requirements, for GHG emissions and assurance requirements and for electronic tagging, with SRCs, EGCs and non-accelerated filers having until 2027 for the disclosure and financial requirements.   The fact sheet also sets out additional accommodations, including, for example, an exemption from the GHG emissions disclosure requirement for SRCs and EGCs, and a safe harbor from private liability for climate related disclosures (excluding historical facts) pertaining to transition plans, scenario analysis, the use of an internal carbon price and targets and goals.

Commissioner Peirce, in her dissent, noted that the SEC had failed to justify why climate issues deserve special treatment and suggested that the rules should have been reproposed for comment, especially given the significant comments generated by the original proposal, the adoption in the interim of other climate-related disclosure rules in Europe and in California, and the changes in these rules versus the proposed rules. Commissioner Peirce also questioned the robustness of the economic analysis. Commissioner Uyeda joined Commissioner Peirce in dissenting. Commissioner Crenshaw was emphatic in her comments that the SEC had authority to adopt rules that were more in line with the proposed rules and that would have, in her view, been more consistent with investor needs. Commissioner Crenshaw seemed to suggest that some notion of substituted compliance be considered in the future if a registrant complied with other climate disclosure standards.

See the SEC’s Fact Sheet and the adopting release.

A detailed alert will follow.