On Monday, March 21, 2022, the U.S. Securities and Exchange Commission (SEC) issued highly anticipated proposed rules that would require the disclosure of climate-related information by domestic and foreign public companies in their registration statements and periodic SEC filings.  At present, members of the public have 60 days to submit comments to the SEC on the proposed rule. The SEC will then consider public comments in formulating the final disclosure rules.  If the new rules take effect this year, the largest public companies will need to begin disclosing climate risks in their 2023 fiscal year reports.

Modelled in part on existing disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol, the SEC’s proposed rules would require registrants to provide information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, including their Scope 1 and 2 greenhouse gas (GHG) emissions and, in certain circumstances, their Scope 3 GHG emissions.

Scope of Disclosure

The proposed rules require the disclosure of information regarding:

  • The oversight and governance of climate-related risks by the registrant’s board and management;
  • How climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term;
  • How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook;
  • The registrant’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes;
  • The impact of climate-related events (severe weather events and other natural conditions as well as physical risks identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items of a registrant’s consolidated financial statements and related expenditures, and disclosure of financial estimates and assumptions impacted by such climate-related events and transition activities.
  • Scope 1 and Scope 2 GHG emissions metrics, separately disclosed, expressed both:
    • by disaggregated constituent greenhouse gases and in the aggregate, and
    • in absolute and intensity terms;
  • Scope 3 GHG emissions and intensity if:  (i)  material; or (ii) if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions; and
  • The registrant’s climate-related targets or goals, and transition plan, if any.

Where a registrant has publicly set climate-related targets or goals, the rules would require the disclosure of specific information concerning these targets and goals, such as the scope of activities and emissions included in the target, the defined time horizon by which the target is intended to be achieved and plans for any interim targets, how the registrant intends to meet its climate-related targets, relevant data indicating whether the registrant is making progress toward its targets, and information about the amount of carbon offsets or renewable energy certificates if they have been used to achieve company targets.

Proposed Safe Harbor For Scope 3 Statements

The SEC also proposed a targeted safe harbor from liability for disclosures related to Scope 3 emissions data.  This means that a statement regarding Scope 3 emissions that is disclosed pursuant to the rules would be deemed not to be a fraudulent statement for purposes of securities laws and regulations, unless the statement lacked a reasonable basis or was not disclosed in good faith.

Compliance Date Phase-In

The SEC has proposed to phase in the new rules over the next few years, with the compliance date dependent upon the status of the registrant as a large accelerated filer, accelerated/non-accelerated filer, or smaller reporting company.  An additional phase-in period applies for Scope 3 emissions disclosures, except for smaller reporting companies which are exempt from the Scope 3 disclosure requirement.

For more information about this topic, including advice during the comment period, please contact our authors or your usual Herbert Smith Freehills contact.

Benjamin Rubinstein
Benjamin Rubinstein
Partner, New York
+1 917 542 7818

Tom O'Neill
Tom O'Neill
Partner, London
+44 20 7466 2466

Silke Goldberg
Silke Goldberg
Partner, London
+44 20 7466 2612

Michael Jones
Michael Jones
Senior Associate, New York
+1 917 542 7852

Michael Kelly
Michael Kelly
Senior Associate, New York
+1 917 542 7819

Dinesh Banani
Dinesh Banani
Partner, London
+44 20 7466 2042

Xavier Amadei
Xavier Amadei
Partner, Singapore
+65 6868 8007

Jin Kong
Jin Kong
Registered Foreign Lawyer, New York
+852 21014116


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