SEC Adopts Final Rules on Climate-Related Disclosures


The SEC today adopted final rules to require public companies to disclose certain climate-related information. The vote was 3-2, with Commissioners Peirce and Uyeda opposing the new rules.

The SEC published the original rule proposal titled “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” on March 21, 2022. In an open meeting today to approve the new rules, Chair Gensler indicated the Commission received more than 24,000 comment letters on the proposal.

The SEC Fact Sheet summarizes the new, 886-page rules as follows:

“The final rules require a registrant to disclose, among other things: material climate-related risks; activities to mitigate or adapt to such risks; information about the registrant’s board of directors’ oversight of climate-related risks and management’s role in managing material climate-related risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition.

Further, to facilitate investors’ assessment of certain climate-related risks, the final rules require disclosure of Scope 1 and/or Scope 2 greenhouse gas (GHG) emissions on a phased-in basis by certain larger registrants when those emissions are material; the filing of an attestation report covering the required disclosure of such registrants’ Scope 1 and/or Scope 2 emissions, also on a phased-in basis; and disclosure of the financial statement effects of severe weather events and other natural conditions including, for example, costs and losses.

The final rules include a phased-in compliance period for all registrants, with the compliance date dependent on the registrant’s filer status and the content of the disclosure.

The final rules will require a registrant to disclose:

  • Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition; The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;
  • If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
  • Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;
  • Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
  • Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes;
  • Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal;
  • For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions;
  • For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level;
  • The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements;
  • The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements; and
  • If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.”

In its June 2022 comment letter, NIRI advocated for streamlining the original rule proposal because the “one-size-fits-all” nature of the proposed disclosure regime overlooked the fact that climate change risks and impacts differ significantly among companies and depend largely on their business or industry sector. NIRI recommended that the SEC not mandate climate change disclosures unless such disclosures involve material
climate-related risks and impacts.

NIRI also recommended that Scope 3 emissions reporting should be completely voluntary, as the data will not be sufficiently accurate or useful for investment decision-making. Additionally, the costs of collecting and measuring Scope 3 emissions data currently exceed the benefits derived.

Both of these NIRI recommendations were included in the SEC’s final rules.

NIRI also indicated that it is premature to require all companies to engage in third-party attestation of Scope 1 and Scope 2 emissions disclosures, as envisioned in the original proposal. NIRI recommended that the SEC expand its voluntary attestation proposal to all public companies, including large accelerated and accelerated filers. While the SEC did not completely agree with this recommendation, it did relax the requirements and provide extended compliance dates for registrants subject to third-party attestation.

The new rules will become effective 60 days after publication in the Federal Register. Compliance dates will be phased in depending on each company’s filer status as summarized in a table in the related Fact Sheet.

Despite the modifications that were made to the 2022 rule proposal, NIRI still expects that there will be litigation challenging these final rules by one or more business associations.

NIRI members are encouraged to read the Fact Sheet and Final Rule and share them internally with their Disclosure Committees to determine the new disclosure implications for each company’s unique situation. NIRI plans to host a webinar soon to review the new rules and will provide webinar access information separately.

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About NIRI: The Association for Investor Relations
Founded in 1969, NIRI is the professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts, and other financial community constituents. NIRI is the largest professional investor relations association in the world with members representing over 1,500 publicly held companies and $12 trillion in stock market capitalization.