Securities and Capital Markets
On March 21, 2022, the SEC proposed landmark rules regarding climate-related disclosures that would, if finalized, impact both domestic and foreign private issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934. The much-anticipated proposal will elicit discussion regarding the type, amount, and materiality of certain climate-related information that a company could be required to report. The proposal also highlights the significant shift in market expectations globally regarding a company’s oversight of evolving climate-related risks and opportunities. The SEC also published a fact sheet describing the proposed new disclosure requirements, which includes a matrix outlining the proposed phase-in periods and accommodations for the new disclosures. The timing and scope of final rules remains uncertain, but the earliest that certain large accelerated companies would need to comply with the proposed rules if adopted would be 2023 (with the possibility of a filing by 2024).
Below we summarize:
- Background developments that led to the proposal;
- Key provisions of the proposed rules;
- Controversial elements of the proposal that may engender further debate; and
- What companies should be doing now.
Background
In recent years, investors have become increasingly focused on climate-related issues and risks related to a company’s business. This heightened awareness has resulted in the SEC taking various steps to address investor demand for more transparent, comparable, decision-useful climate-related disclosure. For example, in 2010, the SEC released guidance on how companies should apply existing disclosure requirements pertaining to a company’s business operations and exposure to material climate-related matters.[1]
In March 2021, SEC Commissioner and then-Acting Chair Allison Herren Lee requested public input from investors, companies and other market participants on whether current disclosures regarding climate-related opportunities and risks provided adequate information to investors.[2] ESG-related task forces were also established with the purpose of evaluating climate-related disclosures and claims. In July 2021, SEC Chair Gary Gensler announced the SEC would propose mandatory climate-related disclosure rules. In September 2021, the SEC’s Division of Corporate Finance issued a Sample Letter to Companies Regarding Climate Change Disclosures to provide companies with additional guidance regarding climate-related disclosures.
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