In March, the U.S. Securities and Exchange Commission (SEC) released its long-anticipated proposed rules requiring companies to disclose climate-related risks and opportunities in their registration statements and periodic reports. Adoption of these rules, expected in December 2022, would make climate-related financial disclosures mandatory for public companies trading in U.S. markets for the first time.
The proposal 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," SEC Chair Gary Gensler said in a statement on March 21.
Registrants would be required to report Scope 1 and 2 greenhouse gas (GHG) emissions following The GHG Protocol; for some companies, Scope 3 GHG emission reporting will also be required. Companies who are already tracking, managing, and reporting GHG risks and opportunities under a non-regulatory scheme (GRI, SASB, TCFD, etc.) should now focus on creating verifiable information for submittal to the SEC. Companies who have not been monitoring GHG risks and opportunities should begin to develop GHG accounting programs and, if inclined, management strategies and targets.
The proposed rules would require a registrant to provide further transparency by disclosing:
- How it governs climate-related and its risk-management processes
- How the climate-related risks a company identifies impact its business and consolidated financial statements
- How those risks have affected or are likely to affect the company’s strategy, business model, and outlook
- How climate-related events and related transition activities impact the line items of a company’s financial statements, as well as the estimates and projects included in them
The 60-day public comment period for businesses, investors, and other stakeholders to respond to and offer comments on the proposal ends May 20. Even if the SEC modifies or abandons its proposal, investors will likely now feel empowered to request the type of information required in the proposal’s framework.
For more information about how Barr can help your organization prepare for these changes, contact Andy Polzin at 952-832-2938 or apolzin@barr.com.