{"id":52966,"date":"2022-11-21T14:00:13","date_gmt":"2022-11-21T14:00:13","guid":{"rendered":"https:\/\/klaclaw.com\/?p=52966"},"modified":"2022-11-21T14:04:41","modified_gmt":"2022-11-21T14:04:41","slug":"sec-proposes-new-climate-related-risk-disclosure-rule","status":"publish","type":"post","link":"https:\/\/klaclaw.com\/index.php\/2022\/11\/21\/sec-proposes-new-climate-related-risk-disclosure-rule\/","title":{"rendered":"SEC PROPOSES NEW CLIMATE-RELATED RISK DISCLOSURE RULE"},"content":{"rendered":"

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Posted on March 23, 2022 by Karen Aldridge Crawford<\/strong><\/header>\n
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On Monday, March 21, 2022, the U.S. Securities and Exchange Commission announced issuance of a proposed new climate-related financial risk reporting rule in a public webcast.\u00a0 The Commission\u2019s chair and some members and staffers argued the proposed risk disclosure requirements would help issuers more efficiently and effectively disclose such risks to investors who need reliable information about climate risk to make informed investing decisions.\u00a0 Comments on this proposed rule are due either 30 days following publication in the Federal Register or May 20, 2022, whichever provides the longer comment period.<\/p>\n

The\u00a0<\/span>510-page announcement<\/a>, titled \u201cThe Enhancement and Standardization of Climate-Related Disclosures for Investors,\u201d includes the proposed rule (which starts on page 469).\u00a0 The proposed rule sets forth three categories of emissions which would require reporting.\u00a0 Public companies would be required to report on Scope 1 and Scope 2 emissions linked to direct and indirect emissions which result from the company\u2019s operations and energy purchases, respectively, while Scope 3 emissions related to those of the reporting companies\u2019 suppliers and customers who use the companies\u2019 products would also be required to be reported by some public companies. The proposed rule provides for exemptions for smaller companies from Scope 3 reporting requirements and a safe harbor from liability associated with Scope 3 reporting.<\/p>\n

The introduction to the proposed rule states the required disclosures would
\nProvide consistent, comparable, and reliable \u2013 and therefore decision-useful- information to investors to enable them to make informed judgements about the impact of climate-related risks on current and potential investments.<\/em><\/p>\n

And, citing Section 7 of the Securities Act, went on to state that
\nThe Commission has broad authority to promulgate disclosure requirements that are \u201cnecessary or appropriate in the public interest or for the protection of investors.\u201d<\/em><\/p>\n

The Commission determined that, after consideration of this statutory standard, disclosure of information about climate-related risks and metrics would be in the public interest and would protect investors.\u00a0 The Commission also stated that it considered whether the proposed disclosures \u201cwill promote efficiency, competition, and capital formation\u201d as required by the Securities Act.<\/p>\n

In the rule summary, Scope 1 emissions are described as direct GHG emissions that occur from sources owned or controlled by the company, such as emissions from company-owned or controlled machinery or vehicles, or methane emissions from petroleum operations. Scope 2 emissions are described as those emissions primarily resulting from the generation of electricity purchased and consumed by the company, such as emissions derive from the activities of another party (the power provider), which are considered indirect emissions. Scope 3 emissions are described as all other indirect emissions not accounted for in Scope 2 emissions that are a consequence of the company\u2019s activities but are generated from sources neither owned nor controlled by the company, \u00a0such as emissions associated with the production and transportation of goods supplied by third parties, employee commuting or business travel, and the use of the reporting company\u2019s products.<\/p>\n

The very prescriptive proposed climate-related disclosure rule\u2019s framework is modeled, at least in part, on the Task Force on Climate-Related Financial Disclosure\u2019s (TCFD) recommendations, and also draws upon the GHG Protocol. In particular, the proposed rules would require a company to disclose information about:<\/p>\n