The U.S. Securities and Exchange Commission Looks at Regulating Environmental Performance of Publicly Traded Companies

In a proposed plan unveiled by the Securities and Exchange Commission (SEC) Monday March 21, 2022, U.S. stock exchange listed companies would be mandated to disclose their greenhouse gas emissions (GHG) and how their financials are impacted by climate risks.  

In the 510-page proposed plan, the SEC outlines, in detail, how domestic or foreign companies must include climate-related information in their registration documents and periodic reports. Below are key takeaways directly from the SEC’s Fact Sheet Enhancement and Standardization of Climate-Related Disclosures which companies will be required to release if the plan is passed:

• Climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;

• The registrant’s governance of climate-related risks and relevant risk management processes;

• The registrant’s greenhouse gas (“GHG”) emissions, which, for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance;

• Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements; and

• Information about climate-related targets and goals, and transition plan, if any.

More specifically, there are three areas the SEC would require registrants to disclose: Scope 1—their own direct greenhouse gas emissions; Scope 2—indirect GHG emissions from purchased electrical and alternative energy sources; Scope 3—GHG emissions from partners and suppliers upstream and downstream in their production chain.

The new proposal demonstrates that climate change is a priority for the SEC, and its intent is to provide investors with insight into a company’s exposure and management of climate related risks. According to the Washington Post, the public will have 60 days to submit comments once the proposal is published in the Federal Register. A final rule by the agency’s four commissioners is expected this fall.