On March 21, 2022, the Securities and Exchange Commission proposed amendments to certain rules under the Securities Exchange Act of 1934 that would require domestic and foreign registrants to make certain climate-related disclosures in their registration statements and periodic reports, such as Form 10-K (collectively, the “Proposed Rules”).1 The Proposed Rules are intended to enhance and standardize climate-related disclosures for public companies.
Among other things, the Proposed Rules would require registrants to disclose information about: (i) the registrant’s governance and monitoring of climate-related risks by its board and management; (ii) how any identified climate-related risks have had or are likely to have a material impact on its business and consolidated financial statements; (iii) how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; and (iv) the impact of climate-related events and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements. Further, if a registrant has publicly set climate-related targets or goals, the Proposed Rules would require additional disclosures, including how the company intends to meet these targets or goals, the defined time horizon by which a target is intended to be met as well as any interim targets, and relevant data to indicate whether and how progress has been achieved, with annual updates.
The Proposed Rules would also require a registrant to disclose its greenhouse gas (“GHG”) emissions for its most recently completed fiscal year. Separate disclosure would be required for a registrant’s direct GHG emissions (“Scope 1 emissions”), its indirect GHG emissions from purchased electricity and other consumed energy (“Scope 2 emissions”) and, if material, its indirect GHG emissions generated by its suppliers and customers, with exceptions for certain issuers (“Scope 3 emissions”). Accelerated filers and large accelerated filers would further be required to include an attestation report from an independent service provider covering their disclosures regarding Scope 1 emissions and Scope 2 emissions.
The Proposed Rules would include a phase-in period for all registrants, and the compliance date would depend on the registrant’s filer status (e.g., large accelerated filer, smaller reporting company). There would be an additional one-year phase-in period for Scope 3 emissions disclosure.
The public comment period for the Proposed Rules will remain open until the later of May 20, 2022 or 30 days following publication in the Federal Register. If adopted, the Proposed Rules could provide investors with more consistent information regarding issuers and allow them to better monitor their investments with respect to climate-related risks.
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If you have any questions regarding the information discussed above, please contact your Investment Management Group attorney at Seward & Kissel LLP.