On March 6, 2024, the SEC issued a final rule requiring registrants to disclose climate-related information in their registration statements and annual reports. See additional details in the alert, SEC Finalizes Climate Disclosure Rule, published March 12, 2024.
Climate-related risks have financial consequences that investors in public companies consider when making investment and voting decisions. Driven by investor demand for consistent and comparable information regarding an issuer’s climate-related risks, the SEC issued proposed rule 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
The proposed rule would add Subpart 1500 to Regulation S-K, which would require both domestic and foreign registrants to disclose certain climate-related information in their registration statements and annual reports, including:
The amendments would also add Article 14 of Regulation S-X that would require certain climate-related financial statement metrics and related disclosure to be included in a note to the audited financial statements.
Comments on the proposed rule are due May 20, 2022, or 30 days after publication in the Federal Register, whichever is later.
The SEC’s proposed climate disclosures are similar to those many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.
The proposed amendments to Regulation S-K would require disclosure, in registration statements and annual reports, about climate-related risks that are reasonably likely to have a material impact on a registrant’s business or financial statements over the short, medium, and long-term.
Registrants would be required to describe the actual and potential impacts of those risks on its strategy, business model, and outlook.
The term climate-related risks would be defined as the actual or potential negative impacts of climate-related events on a registrant’s financial statements—including severe weather events and other natural conditions, and transition activities.
In particular, the proposed disclosure requirements of domestic or foreign registrants include the following climate-related information:
As noted above, under the proposed amendments to Regulation S-K, the required information about climate-related risks would also include disclosure of a registrant’s GHG emissions. Quantitative GHG emissions data can enable investors to assess a registrant’s exposure to climate-related risks—including regulatory, technological, and market risks driven by a transition to a lower-GHG intensive economy.
The proposed rules would define greenhouse gases as carbon dioxide, methane, nitrous oxide, nitrogen trifluoride, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
In particular, the proposed rules would require a registrant to disclose the following information on a disaggregated and aggregated basis:
Accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures.
However, an attestation service provider wouldn’t be required to be a registered public accounting firm.
The proposed amendments to Regulation S-X would require a registrant to include a new note to the audited financial statements providing disaggregated information about the impact of climate-related events and transition activities on the financial statements.
In particular, the proposed rules would require the following types of disclosures for climate-related events:
The financial statement metrics would be subject to audit by an independent registered public accounting firm and within the scope of the registrant’s internal control over financial reporting.
In summary, the proposed rules would require a registrant, including a foreign private issuer, to:
To promote the reliability of the climate-related disclosures for investors, the proposed rules would include a phase-in period for all registrants, including:
*These tables assume that the effective date of the proposed rules occurs in December 2022, and that the registrant has a December 31 fiscal year-end.
For more insight on what these proposed rule amendments could mean for your company, contact your Moss Adams professional.
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