The Securities and Exchange Commission (SEC) today announced the adoption of rules to standardize and elevate climate-related disclosures both in public companies as well as public offerings. The new rules, according to the SEC, “respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules.”
More than 24,000 comment letters were considered in response to the rules’ proposal issued two years ago. The rule was adopted by a 3-2. vote, with SEC Chair Gary Gensler voting in the affirmative, joined by Commissioners Caroline Crenshaw and Jaime Lizárraga, while Commissioners Hester Peirce and Mark Uyeda voted no.
Gensler said in the release that the purpose of the rules is to equip investors with consistent disclosure rules that enable them to “decide which risks they want to take so long as companies raising money from the public make ...complete and truthful disclosure” via SEC filings rather than only on company websites.
Response to the new rules has been mixed. Erik Mohn, vice president of global sustainability delivery services at Schneider Electric, said to CFO in an email, “It’s encouraging to see the SEC acknowledging that climate risk is also financial risk. These standards deliver the apples-to-apples comparison for climate disclosures the private sector has so desperately needed by delivering more certainty to the market.”
The U.S. Chamber of Commerce’s response is more measured. Executive Vice President Tom Quaadman said in a press release: “The U.S. Chamber of Commerce has raised significant concerns about the scope, breadth, and legality of the SEC’s climate disclosure efforts... While it appears that some of the most onerous provisions of the initial proposed rule have been removed, this remains a novel and complicated rule that will likely have significant impact on businesses and their investors.”
New required disclosures will include:
- Climate-related risks that have had or are reasonably likely to have a material impact on business strategy, operations, or financial condition;
- Actual and potential material impacts on strategy, business model, or outlook;
- A quantitative and qualitative description of material expenditures and material impacts if a registrant has undertaken mitigation efforts toward climate-related risk;
- Any oversight by the board of directors of climate-related risks and by management in its assessment;
- Any processes implemented for identifying, assessing, and managing material climate-related risks;
- Information about climate-related targets or goals that may materially affect the business;
- An assurance report for those companies required to disclose Scope 1 or Scope 2 emissions or both. As reported by ESG Dive, Scope 3 was removed from the final rule due to a large number of comments received about the cost of compliance, consistency, and reliability of the data;
- The capitalized costs, expenditures, charges, and losses incurred from severe weather events and other natural conditions; and
- The capitalized costs, expenditures, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of plans to achieve climate-related targets or goals.