Preparing For the SEC’s New Climate Disclosure Rules

In March 2022, the Securities and Exchange Commission proposed new rules aimed at requiring SEC reporting companies to provide extensive disclosure of climate-related risks, arguably the most significant expansion of the SEC’s compliance regime in decades. The proposed rules would create a series of new, highly prescriptive disclosure requirements that apply solely to climate-related issues. They would mandate, among other requirements, a new financial statement footnote with disclosure of climate related impacts on each individual line item, greenhouse gas emissions data with third-party assurance, and a discussion of climate-related goals and targets. All information would be included in annual reports and registration statements filed by reporting companies. If the proposed rules are adopted, companies would need to develop new disclosure controls, new internal controls over financial reporting, adopt new accounting policies and develop methods for disclosing greenhouse gas emissions. Many will also need to undertake new or enhanced education efforts, and are likely to strongly consider adding new personnel with relevant expertise. Companies should keep an eye on comments submitted on the proposed rules by significant industry groups, as well as emerging international disclosure requirements (such as the recently published draft International Sustainability Standards Board standards). These will inform the directions the SEC is likely to consider when finalizing the proposed rules