SEC Climate Disclosure Rule

Written By Claire Siegrist

In March 2022, the SEC Climate Disclosure Rule proposed new rules for disclosing climate-related financial risks in SEC filings. Public companies will be required to discuss their climate risk management and disclose greenhouse gas emissions in their registration statements and annual reports. While not yet effective, these rules mark a significant step towards mandatory reporting in the US.

In March 2022, the US Securities and Exchange Commission (SEC) proposed new rules for certain climate-related disclosures in their registration statements and reports. The rules would require companies to discuss financially material climate-related risks and disclose their greenhouse gas (GHG) emissions. With this announcement, the SEC joins the growing number of financial institutions that recognize the impact of climate change on finance, with SEC Chair Gary Gensler saying, “[the rules] would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.”


What is in the proposal?


The proposed rules have two parts: 1) Climate risk discussion, and 2) GHG emission disclosure.

In their SEC filings, companies would be required to discuss climate-related risks that could impact the business, including:

  1. The company’s  climate risk management processes
  2. How the risks identified would impact the financial statements and business model in the short and long term
  3. How these risks are being managed and mitigated
  4. If the company performs scenario analysis, has transition plans, and/or has publicly set climate-related goals

Additionally, companies would be required to disclose their GHG emissions – both direct (Scope 1) and indirect (Scope 2). Upstream and downstream emissions (Scope 3) would also be required if the company has set an emissions target or if Scope 3 emissions are material. For all scopes, emissions should be reported as both gross emissions (e.g., before offsets) and GHG intensity (e.g., emissions per economic output such as production units or revenue).

The SEC proposed rules are guided by the Task Force on Climate-Related Financial Disclosures (TCFD) and GHG Protocol as well as the SEC’s standard definition of materiality, so companies can apply the same methodologies for existing reporting frameworks.

As for how this information should be disclosed, the SEC has proposed that companies include climate-related disclosure in existing registration statements and annual reports required by the Securities Exchange Act, such as the Form 10-K. Climate-related disclosure would be included in a separately captioned section by that name. As such, climate-related disclosure would be due the same time as the registration statements and annual reports.


To which companies will the rule apply?

The proposed rules would apply to all companies listed on exchanges in the US, including both domestic registrants and foreign private issuers (FPIs).


Will third party assurance be required?

As disclosures would be included in SEC filings, the climate-risk discussions would be subject to existing financial statement audit requirements.

Additionally, scope 1 and 2 GHG emission disclosures would require limited assurance over a phase-in period, as described below.


Now what?

With the rules proposed, the SEC has opened a public comment period for at least 30 days. From there, the timeline depends on the volume of comments and the degree to which the rules are updated. 

To illustrate the timeline, the SEC has proposed the following, although the start date remains undetermined:

SEC climate disclosure proposal

Source: SEC Factsheet

The rules will continue to evolve as the SEC considers public feedback, but companies should begin preparing for upcoming disclosure requirements, how they fit into existing reporting processes, and which gaps need to be addressed.


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