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SEC's Proposed Climate-Related Disclosures

The Securities and Exchange Commission (SEC) proposed rule on climate-related disclosures aims to enhance transparency by requiring SEC registrants to include climate-related information in their registration statements and periodic reports.
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The Securities and Exchange Commission (SEC) has proposed new rules that would require SEC registrants to include climate-related disclosures in their registration statements and periodic reports. This change aims to provide investors with consistent, comparable, and decision-useful information for making informed investment decisions. In this article, we will discuss what companies will need to disclose, who is subject to the SEC Climate-Related Disclosures, and when companies will have to start reporting.

The SEC's Climate-Related Disclosures Proposal

On 21 March 2022, the SEC proposed rule changes that would require companies in scope to include information about climate-related risks likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics. These proposed disclosures are similar to those many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

What will have to be disclosed?

Companies will be required to disclose the following:

  • Climate-related risks and their actual or likely material impacts on the registrant’s business and strategy
  • The registrant’s governance of climate-related risks and relevant risk management processes;
  • The registrant’s greenhouse gas emissions, including Scope 1 and 2 for all, and Scope 3 emissions if material or if the registrant has set a GHG emissions reduction target that includes Scope 3 emissions;
  • Certain climate-related financial statement metrics and related disclosures in a note to the registrant’s audited financial statements;
  • Information about climate-related targets and goals and transition plan, if any.

Who is subject to the SEC Climate-Related Disclosures?

The SEC Climate-Related Disclosure Rules will be applicable to all SEC registrants. In the United States, there are around 12,000 companies registered with the SEC, all of whom will be expected to comply.

Note: Registrant is a term used in reference to any company that files documents with the Securities and Exchange Commission (SEC). The term applies to companies conducting initial public offerings (IPO) and companies that file periodic reports.

When will companies have to start reporting?

The proposed rules have not yet been finalised or implemented. After the SEC published their proposal on 15 March 2021, they opened it for public comments. The comment period ended on 24 June 2021. Due to the amount of public comments, the SEC had to let go of the original implementation timeline of a phased-in approach that would have started in 2024 for the financial year 2023 for large accelerated filers. The SEC has not yet announced a timeline for when the final rules will be released or when they will become effective.

The SEC's proposed climate-related disclosures aim to provide investors with vital information to make informed investment decisions. Companies should start preparing for these changes by familiarising themselves with the proposed disclosures and assessing their current reporting practices to ensure they are ready when the final rules are implemented.

Further readings

For more information, refer to the official proposal by the SEC and the SEC’s factsheet.

The SEC's proposed climate-related disclosure rules have the potential to significantly impact the way companies report on climate-related risks and opportunities. Investors stand to benefit from more consistent, comparable, and decision-useful information, enabling them to make better-informed investment decisions. As we await the finalization and implementation of these proposed rules, companies should start assessing their current climate-related disclosures and consider the potential implications of the new requirements.

Don't wait for the final rules to take action. Book a demo with Plan A today to discover how our innovative sustainability management platform can help you stay ahead of the curve, streamline your climate-related disclosures, and proactively manage your environmental impact. Embrace the future of sustainable business practices – your stakeholders, the planet, and your bottom line will thank you.

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