The Securities and Exchange Commission today adopted rules to improve and standardize climate-related disclosures by public companies and in public offerings. The final rules reflect the Commission's efforts to respond to investor demand for more consistent, comparable, and reliable information about the financial impact of climate-related risks on a registrant's business and how it manages those risks, while addressing mitigation concerns the associated costs offset the rules.
“Our federal securities laws establish a basic business. Investors can decide what risks they want to take as long as companies raising public money make what President Franklin Roosevelt called “full and truthful disclosure,” SEC Chairman Gary Gensler said. “Over the past 90 years, the SEC has from time to time updated the disclosure requirements underlying this fundamental agreement and, as necessary, provided guidance regarding those disclosure requirements.”
Chairman Gensler added: “These final rules build on previous requirements by requiring disclosure of material climate risks by public companies and in public offerings. The rules will provide investors with consistent, comparable and useful information and issuers with clear reporting requirements. In addition, they will provide specific details about what companies must disclose, which will provide more useful information than what investors see today. They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements, rather than on company websites, which will help make them more reliable.”
Specifically, the final rules require a registrant to disclose:
- Climate-related risks that have had or are likely to have a material impact on the registrant's business strategy, results of operations or financial condition;
- The actual and potential material impact of any identified climate-related risks on the registrant's strategy, business model and prospects;
- If a registrant has taken actions to mitigate or adapt to a material climate-related risk as part of its strategy, a quantitative and qualitative description of the material expenses incurred and material impacts on financial estimates and assumptions that arise directly 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 of transition plans, scenario analyzes or internal carbon prices (if any);
- Any board oversight of climate-related risks and any role of management in assessing and managing the registrant's material climate-related risks;
- Any processes the registrant has in place to identify, assess and manage material climate-related risks and, if the registrant manages those risks, whether and how such processes are integrated into the registrant's overall risk management system or processes;
- Information about a registrant's climate-related goals or objectives, if any, that have materially affected or are likely to materially affect the registrant's business, results of operations or financial condition. Disclosures include material expenditures and material impacts on financial estimates and assumptions as a direct result of the goal or objective or actions taken to make progress toward achieving that goal or objective;
- For large accelerated filers (LAFs) and accelerated filers (AFs) not otherwise exempt, information on significant Scope 1 emissions and/or Scope 2 emissions;
- For those required to disclose Scope 1 and/or Scope 2 emissions, a safety report at the limited assurance level, which for a LAF will be at the reasonable assurance level after an additional transition period;
- Capitalized costs, recognized expenses, charges and losses incurred as a result of severe weather events and other natural conditions such as hurricanes, tornadoes, floods, droughts, wildfires, extreme temperatures and sea level rise are subject to the applicable one percent de minimis disclosure thresholds, disclosed in a note to the financial statements;
- The capitalized costs, recognized expenses and losses associated with carbon offsets and renewable energy credits or certificates (RECs), when used as an integral part of a registrant's plans to achieve its disclosed climate-related objectives, will be disclosed in a note to the financial statements Testify; And
- If the estimates and assumptions that a registrant uses in preparing the financial statements have been materially affected by risks and uncertainties associated with severe weather and other natural conditions or disclosed climate-related goals or transition plans, a qualitative description of the development of those estimates and assumptions, as set forth in disclosed in a note to the annual financial statements.
Prior to adopting the final rules, the Commission reviewed more than 24,000 comment letters, including more than 4,500 individual letters submitted in response to the publication of the proposed rule issued in March 2022.
The adoption notice will be posted on SEC.gov and published in the Federal Register. The final rules will be effective 60 days after publication of the adoption clearance in the Federal Register, and compliance dates for the rules will be phased in for all registrants, with the compliance date depending on the registrant's filing status.