This year, the U.S. Securities and Exchange Commission (SEC) introduced a new proposal for the enhancement and standardization of climate-related disclosures for investors that would require public companies to report their greenhouse gas emissions for the first time and, in some cases, provide that information for their suppliers and customers. Some companies would also include in their SEC filings additional details about their long-term climate-related strategies and ongoing efforts to address potential climate risks. We wrote about it here.
Since then, this proposed rule has been the subject of lively debate within the industry. The comment period was originally scheduled to close on May 20, 2022 but given the “significant interest” it has drawn from members within the investment, corporate and issuer community, the SEC extended the comment period to June 17, 2022. You can read these comments here. The SEC, following long standing precedent, will now review the comments, which can take months or longer, before issuing the final rules.
As a leader in ESG issues, and a trusted resource on ESG reporting and regulatory changes, DFIN already supports clients on their ESG journeys. We can help prepare for any/all regulatory changes and help clients create a “fit for purpose” reporting and stakeholder communications plan.
Implications of the SEC Climate Disclosure Rule
The new SEC climate disclosure rule is a significant change from the existing guidelines, which had not been updated since 2010. Under the proposed new climate disclosure rule, reporting guidelines are much more intricate and no longer rely only on the materiality standards. The new proposed standards for climate-related disclosures likely will require extensive line-item disclosures of climate-related matters. Among the many requirements that are proposed is the mandate that public companies report risks related to climate that total 1% or more of a total line item in the relevant financial year statements. This is expected to result in increased time and resource commitments from the Board of Directors to the C-Suite and likely require subject matter experts across all functions of corporations.
Timeline for Adoption
According to many legal experts, the final adoption of the SEC’s proposed climate disclosure rule is expected to take place by the end of 2022 or in early 2023 The SEC is also working together with the International Sustainability Standards Board, (ISSB) on a global set of climate related disclosures designed to form a baseline of financial reporting. These standards are also scheduled to be released in early 2023. While we have the SEC climate related disclosures in our crosshairs many large multi-national companies re also watching the UK and EU as they implement mandatory climate related disclosure in the next 12-24 months.
DFIN will continue to provide you with the latest updates to ensure that you are prepared and ready for whatever comes next.