SEC’s Climate Risk Disclosure Rule
The proposed US Securities and Exchange Commission’s (SEC) climate disclosure would apply to US 10-K filers, as well as foreign private issuers who file F-20 forms with the SEC. A 500-page guidance is designed to compel companies to report on their climate risks and opportunities, including the methods used to assess and manage them. Within an annual report, they would have to detail their:
- Material climate impacts, including risks from physical climate-related hazards and the proportion of assets exposed to such risks. The SEC rule also asks for disclosure of transition risks over the short- to long-term horizons, as well as governance and risk management processes to remediate these risks.
- GHG emissions. Companies would be required to report audited Scope 1 and Scope 2 emissions, and Scope 3 emissions if they are material or covered by targets. The emissions reporting would need to be in absolute terms (for example per unit of product) and filers would also need to disclose how they arrived at those estimates.
- Targets and transition plans. Companies would be expected to disclose any existing targets around emissions reductions, energy use, or nature conservation. The SEC asks to disclose the transition plans to achieve those targets, including specific information on the use of carbon offsetting or renewable energy.
When would the reporting take effect?
Large companies (market capitalization over $700 million) would have to report most of this information as of fiscal year 2023, so filing year 2024. Smaller companies would have a yearlong grace period. For Scope 3 emissions, the SEC would provide an additional year beyond those deadlines.