Securities and Exchange Commission Proposes Changes to Enhance Climate-Related Disclosures for Investors

The Securities and Exchange Commission on March 21 recommended rule amendments that would compel registrants to incorporate specific climate-associated disclosures in their registration records and periodic accounts. These disclosures pertain to details about climate-related risk that could have a quantifiable effect on their business, outcomes of operations or financial conditions, and certain related financial statement metrics as part of their audited financial statements. Along with this information, a disclosure of a registrant’s greenhouse gas emissions would be required as this has become a commonly used metric to evaluate exposure to climate-associated risks.

The proposal aims to support investors with reliable, comparable, and valuable details for making investment decisions. Furthermore, it will provide coherent and transparent reporting requirements for issuers. Businesses and investors are both expected to benefit from this proposed change and the climate related disclosures will help issuers disclose these risks more competently and effectively.

The intended rule alterations would necessitate a registrant to disclose details regarding its direct greenhouse gas emissions (Scope 1) and indirect emissions from acquired electricity or other types of energy (Scope 2). Moreover, a registrant would be obliged to reveal GHG emissions from upstream and downstream events in its value chain (Scope 3). This information would allow investors with useful data to make decisions and evaluate a registrant’s exposure to and administration of climate related risks.

The planned disclosures are comparable to those that numerous companies already make available based on established disclosure structures, such as the Task Force on Climate Related Financial Disclosures and the Greenhouse Gas Protocol.

The proposal opens a comment period of  30 days after publication in the Federal Register, or 60 days after the date of issuance on sec.gov, whichever is longer.