The Securities and Exchange Commission adopted final rules on March 6 to enhance and standardize climate-related disclosures by public companies and in public offerings.
The final rules, proposed two years ago, are in response to “investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules,” the SEC said in a press release.
“The final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings,” SEC Gary Gensler said in the release. “The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.”
This information must now be included in a company’s SEC filings, including annual reports and registrations statements, and not just posted on its website, he noted.
But the new rules put fewer demands on businesses than the March 2022 proposal did, the New York Times reported.
For example, the original proposal called for large companies to disclose not only their own greenhouse gas emissions but also the emissions generated by their “value chain” — suppliers providing them with parts and services. Now companies will only have to disclose the emissions they produce, and only if they are “material,” the New York Times noted.
New Steps
Here are many of the factors the final rule spells out that registrants must disclose:
Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition.
The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model and outlook.
Activities undertaken (if any) to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred, and material impacts on financial estimates and assumptions directly resulting from such activities.
Specified disclosures regarding activities taken, if any, 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.
Any processes the registrant has for identifying, assessing and managing material climate-related risks and, whether and how these processes are integrated into the registrant’s overall risk management system or processes.
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.
For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions;
For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report.
Registrants may also have to disclose capitalized costs, expenditures expensed and losses resulting from severe weather events and other natural conditions, depending on certain threshholds.
The Commission considered more than 24,000 comment letters before adapting the final rules. The final rules will become effective 60 days following publication of the adopting release in the Federal Register.
