SEC Proposes New Climate Disclosure Rule

A new rule has been proposed by the Securities and Exchange Commission (SEC), which obliges companies that are publicly traded in the US to disclose certain climate-related information.

These include:

• Climate-related risks that are “reasonably likely to have a material impact on their business, results of operations, or financial condition”.

• Greenhouse gas (“GHG”) metrics for direct emissions (Scope 1) and for purchased energy (Scope 2). Indirect emissions data (Scope 3) is due at a later stage.

• Specific climate-related financial statement metrics and related disclosure in a note to their audited financial statements.

• Internal carbon pricing methodology.

• Targets, goals and transition plans.

This proposal essentially requires companies to properly measure and report the risks and impacts of climate change, and how they integrate the risks and opportunities into their business strategy.

Assuming these rules are adopted by the end of 2022, larger companies will be required to start disclosing some metrics by end of 2023, with deadlines for subsequent metrics and for smaller organisations following.

This is a fairly substantial proposal, and it will be interesting to see whether it is enacted as proposed. Although some concern has been voiced at the burden that these disclosures will impose, measuring and reporting climate metrics is an important step towards net zero.

It is somewhat modelled on the Task Force on Climate-Related Financial Disclosures (TCFD), and if enacted will bring further consistency in reporting requirements across global regulators which is ultimately a good thing for investors as well as society in general.

SEC have provided a fact sheet with a summary of the proposal which can be found here.

These requirements will be beneficial to asset managers but are not directly applicable to them. We expect additional consultation from the SEC which may bring asset managers in scope for similar reporting. If you’d like to know more about the proposals and how it might affect you, contact us.