It’s Here: The SEC’s Proposed Rulemaking on Climate Disclosures

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Treliant Takeaway:

The SEC’s proposed rulemaking on climate disclosures mandates substantial additions to the annual Exchange Act reports and financial statements of public companies. But, emissions are not the only reporting obligation. The rule requires disclosure of a company’s climate-related risk oversight and management process.

Guidance Highlights:

Last March, the Securities and Exchange Commission (SEC) issued a request for public input on climate risk disclosure requirements.  A little over a year later, a much-awaited rulemaking has been proposed.

The rule features several requirements, aimed at increasing the prevalence and standardization of climate-related disclosures for both domestic and international private issuers. The rule demarcates two main avenues for adequate disclosure: one at the process management level, and the other revolving around concrete impacts. Further, there are specific requirements of the presentation and publication of these disclosures, and timeframes of expected compliance based on filing status.

Proposed Rule: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Oversight & Governance Materiality & Impact Presentation Phase-in Periods
  • Process for identifying, assessing, and managing climate-related risks
  • Integration of such processes into the registrant’s risk-management system
  • How any climate-related risks identified by the registrant have had or are likely to have on the business on varied timescales
  • Impact of climate-related events (physical risks) and transition activities on financial statements and expenditures
  • Greenhouse Gas Emissions
  • Separate, “appropriately captioned” disclosure provided in registration statements and Exchange Act annual reports
  • Include a note detailing climate-related disclosures in audited financial statements
  • File rather than furnish the climate-related disclosure.
  • Compliance date depends on registrant’s filing status
  • For large accelerated filers, fiscal year 2023
  • For accelerated and non-accelerated filers, fiscal year 2024
  • For smaller-reporting companies (SRCs), fiscal year 2025

The proposed rule constitutes a significant step in the oversight of public companies. In the words of SEC Chairman Gary Gensler:

“Over the generations, the SEC has stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions. Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures. That principle applies equally to our environmental-related disclosures, which date back to the 1970s.”

In 2010, the SEC hinted further at the materiality of climate change to the market with its interpretive guidance on existing disclosure requirements as they pertain to business or legal developments related to climate change. The proposed rule takes additional steps to ensure that public companies report consistent and comparable information about climate-related risks as part of the provisions of the Exchange Act. Regardless of filing status, prudent organizations should already be integrating climate considerations into their existing risk management frameworks. Treliant’s team of skilled and dedicated risk advisors are available to help at any step of this process.

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