Tag: climate disclosure regulation

SEC extends comment period for climate disclosure proposal

Yesterday, the SEC announced that it had extended or reopened the public comment period on three proposals, including the proposed rulemaking to enhance and standardize climate-related disclosures. (See this PubCo post, this PubCo post and this PubCo post.) The comment period was originally scheduled to close on May 20, 2022, but will now be extended until June 17, 2022. (And rumor has it that the SEC will often accept comments submitted within a reasonable time after the deadline.) According to SEC Chair Gary Gensler, the proposal had “drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders….Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.” For example, in April, 36 trade and industry associations asked the SEC to provide a 180-day comment period, contending that, “given the size, scope, complexity, and ramifications of the rule,“ the time period allowed for comment was “woefully inadequate for the magnitude of this rule, which runs to 506 pages, contains 1,068 footnotes, references 194 dense academic and governmental reports, imposes a $10.235 billion cost on society, and seeks answers to 196 discrete questions.“ While the extension will certainly be welcome, will it be considered sufficient?

SEC’s Small Business Capital Formation Advisory Committee discusses climate disclosure and SPAC proposals

On Friday, the SEC’s Small Business Capital Formation Advisory Committee held a virtual meeting to discuss two of the SEC’s recent rulemaking initiatives: climate disclosure and SPACs, particularly as those proposals, if adopted, would impact smaller public companies and companies about to go public. The committee heard several presentations, including summaries of the proposals from SEC staff members, and voiced concerns about a number of challenges presented by the proposals. The committee also considered potential recommendations that it expects to make to the SEC.

SEC proposes new rules on climate disclosure [UPDATED—PART II—GHG emissions]

[This post is Part II of a revision and update of my earlier post that primarily reflects the contents of the proposing release. Part I (here) covered the background of the proposal and described the SEC’s proposed climate disclosure framework, including disclosure of climate-related risks, governance, risk management, targets and goals, financial statement metrics and general aspects of the proposal. This post covers GHG emissions disclosure and attestation.]

So, what are the GHG emissions for a mega roll of Charmin Ultra Soft toilet paper? That was the question I asked to open this PubCo post.  According to this article in the WSJ, the answer was 771 grams, a calculation performed by the Natural Resources Defense Council.  But how did they figure that out?  How public companies could be required to calculate and report on their GHG emissions is one of the major issues addressed by the SEC in its proposal on climate-related disclosure regulation issued last week. The proposal was designed to require disclosure of “consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” Drawing on the Greenhouse Gas Protocol, the proposal would, in addition to the disclosure mandate discussed in Part I of this Update, require disclosure of a company’s Scopes 1 and 2 greenhouse gas emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 data for large accelerated filers and accelerated filers. The disclosure would be included in registration statements and periodic reports in the section captioned “Climate-Related Disclosure.” At 510 pages, the proposal is certainly thoughtful, comprehensive and stunningly detailed—some might say overwhelmingly so. If adopted, it would certainly require a substantial undertaking for many companies to get their arms around the extensive and granular requirements and comply with the proposal’s mandates. How companies would manage this enormous effort remains to be seen.

SEC (finally) proposes new rules on climate disclosure [UPDATED—PART I]

[This post is Part I of a revision and update of my earlier post primarily reflecting the contents of the proposing release. This post covers background and describes various aspects of the proposal other than the sections on GHG emissions disclosure and attestation, which will be covered in a separate post early next week.]

The SEC describes it modestly as a proposal to “enhance and standardize registrants’ climate-related disclosures for investors.” The WSJ called it “the biggest potential expansion in corporate disclosure since the creation of the Depression-era rules over financial disclosures that underpin modern corporate statements,” and Fortune said it “could be the biggest change to corporate disclosures in the U.S. in decades.” But now you can judge for yourself, after the SEC voted earlier this week, three to one, to propose new rules on climate disclosure regulation. The proposal was designed to require disclosure of “consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” The proposal would require public companies to disclose information about climate-related risks that are reasonably likely to have a material impact on their businesses, results of operations or financial condition, as well as information about the effect of climate risk on companies’ governance, risk management and strategy. The disclosure, which would be included in registration statements and periodic reports, would draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. Compliance would be phased in, with reporting for large accelerated filers due in 2024 (assuming an—optimistic—effective date at the end of this year). The proposal would also mandate disclosure of a company’s Scopes 1 and 2 greenhouse gas emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 data for large accelerated filers and accelerated filers. The proposal would also require disclosure of certain climate-related financial metrics in a note to the audited financial statements. At 510 pages, the proposal is certainly thoughtful, comprehensive and stunningly detailed—some might say overwhelmingly so. If adopted, it would surely require a substantial undertaking for many companies to get their arms around the extensive and granular requirements and comply with the proposal’s mandates. How companies would manage this enormous effort remains to be seen.

SEC (finally) proposes new rules on climate disclosure

“Highly anticipated” is surely an understatement for the hyperventilation that has accompanied the wait for the SEC’s new proposal on climate disclosure regulation. The proposed rulemaking has been a subject of conjecture for many months, and internal squabbles about where the proposal should land have leaked to the press. (See this PubCo post.) As one of those hyperventilators, I’ve been speculating for months about what it might include, what it might exclude. Would it require disclosure of Scope 3 GHG emissions? Would a particular framework be selected or endorsed? Would the framework sync up with international standards or, if not, how would they overlap or conflict?  Would the framework be industry-specific? Would scenario analyses be mandated? Would companies be required to obtain third-party attestation or other independent assurance? Would reporting be scaled? There were a lot of questions.  Now, we finally know at least some of the preliminary answers: yesterday, the SEC voted, three to one, to propose new rules requiring public companies to disclose information about the material impact of climate on their businesses, as well as information about companies’ governance, risk management and strategy related to climate risk. The disclosure, which would be included in registration statements and periodic reports, would draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. Compliance would be phased in, with reporting for large accelerated filers due in 2024 (assuming an—optimistic—effective date at the end of this year). The proposal would also mandate disclosure of a company’s Scopes 1 and 2 greenhouse gas emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 for large accelerated filers and accelerated filers. The proposal would also require disclosure of certain climate-related financial metrics in a note to the audited financial statements.  For some, a sigh of relief, for others, not so much.

SEC’s climate proposal—SCOOP!

According to exclusive reporting from Bloomberg, the SEC’s new proposal for climate disclosure regulation—scheduled for a vote and release on Monday—will include a requirement to disclose some Scope 3 emissions, that is “greenhouse gases that are generated by other firms in [a company’s] supply chain or by customers using [its] products.”  It’s widely believed that Scope 3 emissions “make up the bulk” of most companies’ emissions.  It’s unclear whether the proposed requirement would apply to all public companies or just larger ones, or whether the requirement might be phased in. As discussed below, whether or not to require disclosure of Scope 3 emissions has been a subject of heated internal debate at the SEC, and, the article suggests, the proposal appears to reflect some compromise.

Gensler discusses potential elements of climate risk disclosure rule proposal

In remarks yesterday on a webinar, “Climate and Global Financial Markets,” from Principles for Responsible Investment, SEC Chair Gary Gensler offered us some clues about what to expect from the SEC’s anticipated climate disclosure requirements by analogizing to the Olympics:  there are rules to measure performance and the “scoring system is both quantitative and qualitative,” which “brings comparability to evaluating” performance among athletes and over time. In addition, as with the components of public company reporting generally, the types of sports included in the Olympics change over time—there was no Olympic women’s surfing competition 100 years ago, but interests and demand have changed.  So with disclosure requirements, which have gradually expanded to include disclosure about management, MD&A, compensation and risk factors, some hotly debated topics in their time.  Now, investors are demanding disclosure about climate risk, and it’s time for the SEC to “take the baton.” To that end, Gensler has asked the SEC staff to “develop a mandatory climate risk disclosure rule proposal for the Commission’s consideration by the end of the year.”  In his remarks, he outlines some of the concepts that are being considered for inclusion in that proposal. 

SEC debate on climate disclosure regulation gets heated

On Thursday, January 30, the SEC proposed amendments designed to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. (See this PubCo post.) Although the SEC did not hold an open meeting to consider the proposal, several of the Commissioners issued statements that addressed, for the most part, not what was in the proposal, but rather, what wasn’t—standardized disclosure requirements related to climate change.  These statements allow us a peek into an apparently heated debate among the Commissioners on the issue of climate disclosure.