The Securities and Exchange Commission announced that it has adopted new rules requiring public companies to disclose certain climate-related information to investors.
The SEC said it was taking the action to enhance and standardize these disclosures as a way to provide investors with more consistent, comparable, and reliable information about how companies are dealing with climate-related risks. Firms would have to explain how they are managing those risks while also balancing concerns about mitigating the costs of the rules on their operations.
SEC Chair Gary Gensler said the final rules mandate material climate risk disclosures by public companies and in public offerings and added they “will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.”
The rules set forth a series of disclosures that will be required of companies. These include:
–Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;
–The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;
–If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
–Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;
–Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
–Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes;
–Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition.
The regulations would only require large companies to report greenhouse gas emissions if they are deemed “material” to their business interests. So-called Scope 3 emissions from the products they sell, such as the carbon dioxide produced by a gallon of gasoline, do not have to be reported.
The rules have drawn strong opposition from some business groups since they were first proposed in March 2022. After they were adopted by the SEC by a 3-2 vote, a coalition of ten states announced they would file a legal challenge. The Hill reported that a petition for review was filed in the U.S. Court of Appeals for the 11th circuit. West Virginia Attorney General Patrick Morrisey called the SEC’s action “a backdoor move to undermine the energy industry” and “yet another attempt to advance an agenda without statutory authority.”
The SE said it considered more than 24,000 comment letters before adopting the final rules, which will become effective 60 days after being published in the Federal Register.
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