SEC proposals to mandate climate disclosures
In response to investor demand for transparency around climate-change risk, the SEC has published a draft rule entitled the “Enhancement and Standardization of Climate-Related Disclosures for Investors”, which is open for consultation for 60 days.
The draft rule proposes the disclosure of:
- information about governance of climate-related risks and relevant risk management processes,
- 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, and
- the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.
Registrants that have adopted a transition plan as part of their climate-related risk management strategy, would be required to provide a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks. If the registrant has publicly set climate-related targets or goals, they would be required to provide information about:
- The scope of 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; and
- 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, 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 SEC intends to (eventually) mandate ‘reasonable assurance’ on Scope 1 & 2 GHG emissions disclosures. However, the SEC’s proposals do not go as far as the more detailed requirements in the TCFD and the ISSB’s Climate-Related Disclosures Prototype. In particular, the TCFD and ISSB go further than the SEC by calling for disclosure of capital deployment, internal carbon prices and the proportion of executive management remuneration affected by climate-related considerations in the current period.
Published 24 March, 2022