In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed a climate disclosure rule that would require publicly traded companies to disclose their climate-related risks and greenhouse gas (GHG) emissions. With the SEC’s final vote expected in October, there has been much discussion on requirements and operational impact.

While timing is uncertain, it is possible that the rule could come into effect on Jan. 1, 2024, which would require companies to file climate disclosures for fiscal year 2024.

To prepare, let’s take a look at some commonly asked questions about the pending disclosure requirements.

Why is the SEC requiring climate information?

Public disclosures were first required as part of the Securities Act of 1933. The basis of the act is that investors, who assume risk by supporting a company with their capital, should be granted information that allows them to reliably gauge risk in their investments.

“Today, investors increasingly want to understand the climate risks of the companies whose stock they own or might buy. … Investors are looking for consistent, comparable, and decision-useful disclosures so they can put their money in companies that fit their needs.”
SEC Chair Gary Gensler, Prepared Remarks Before the Principles for Responsible Investment “Climate and Global Financial Markets” Webinar

Initially, required disclosures were limited to financial performance (revenue and profit) and the identities of key company officers. More recently, these disclosures have been expanded to include litigation and other costs associated with environmental compliance. Ultimately, SEC’s proposed rule is addressing investors’ demands for consistent and comparable disclosure information that would allow them to assess a company’s climate risk.

What information would need to be disclosed?

The proposed disclosure framework draws upon existing frameworks and reporting standards, including the Task Force on Climate-Related Financial Disclosure (TCFD) and GHG Protocol. The proposed rule would require companies to disclose the following information:

How will this new rule be implemented?

If adopted, the required publicly traded companies will have to disclose GHG emissions. The compliance dates are dependent on the status of a company as a large accelerated filer, accelerated or non-accelerated filer, or smaller reporting company (SRC). There is a phase-in period for some requirements:

• One fiscal year to transition providing limited assurance for Scope 1 and 2 GHG disclosures and, if required, for Scope 3 emissions disclosures.
• Two additional fiscal years to transition providing reasonable assurance for Scope 1 and 2 GHG disclosures.

The bottom line: Don’t wait!

Early action can help your business in this evolving regulatory climate. Given the pending final rule, now is the time to prepare for SEC’s Climate Change Disclosure requirements to allow you to comply with future regulations, meet investor expectations, mitigate business risk, and plan for the long term.

Here are some actions you can take now to prepare:

• Explore existing frameworks. Understanding the frameworks and standards, TCFD and GHG Protocol, that are the basis of disclosure requirements will help you hit the ground running. If applicable, check out the supplemental guidance for certain sectors (energy; transportation; materials & buildings; agriculture, food and forest products).
• Quantify your emissions. Compiling the data necessary to prepare an emissions inventory takes time and being proactive will pay dividends.
• Review existing public disclosures. Voluntarily provided climate-related disclosures have been published by many companies in past years and existing disclosure formats may already satisfy certain proposed requirements.