SEC proposes landmark climate disclosure rules

March 25, 2022

SEC wants listed companies to tell investors how climate-related risks could impact their business and publish GHG emissions

New rules requiring US-listed companies to disclose various climate-related risks have been proposed by the country’s financial regulator.

The Securities and Exchange Commission (SEC) has proposed rule changes that would require the majority of listed firms to include information about climate-based risks that could have a material impact on their business, including disclosing their greenhouse gas emissions.

This move by the US regulator comes after it said it wanted to see clear criteria and underlying data published by the $3 trillion US environmental, social and governance fund market.

The new announcement proposes that listed US companies would need to disclose their direct and indirect greenhouse gas emissions, known as Scope 1 and Scope 2 respectively. It would also require some firms – smaller companies would be exempt – to disclose the emissions produced by their supply chain (known as Scope 3) if these were “material”, or if a company had set a greenhouse gas emission target.

Gary Gensler, SEC chair, said if adopted, the rules would provide investors with “consistent, comparable and decision-useful information for making their investment decisions”.

“Investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” he said.

Listed firms with a public float of more than $75 million will be required to secure a third-party verification of their climate-related disclosures and greenhouse gas reduction targets, after a phase-in period, with an additional phase-in period for Scope 3 emissions disclosures.

For instance, the largest listed firms could have to disclose Scope 1 and 2 emissions in their 2023 fiscal results (filed in 2024) and their Scope 3 emissions in fiscal 2024 (filed in 2025), if the proposed new rules became effective in December.

Firms have until 30 days after the date of publication on the Federal Register to respond, or by May 20, whichever is later.