Factbox-The U.S. SEC’s proposed new climate risk disclosure requirements

FILE PHOTO: A wind farm is shown in Movave, California
FILE PHOTO: A wind farm is shown in Movave, California, U.S., November 8, 2019. REUTERS/Mike Blake

March 21, 2022

By Katanga Johnson and Michelle Price

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission on Monday unveiled a landmark proposal requiring public companies to disclose their greenhouse gas emissions and other climate change-related risks in their periodic filings, such as annual reports.

Here are the highlights of the proposal, which is subject to public comment and will likely be finalized later in the year.

CLIMATE-RELATED RISKS

Overall, the rule requires U.S.-listed companies to disclose climate-related risks and their “actual or likely material impacts” on the company’s business, strategy and outlook.

That could include the physical risks posed by climate change, such as flooding or wildfires, but also risks that may result from government policies aimed at mitigating climate risks, such as a carbon tax or other new regulations.

CLIMATE RISK GOVERNANCE

Companies will also have to disclose their governance processes and framework for managing climate-related risks.

That would include, for example, the risk-management controls and processes they have in place; what the board is doing to oversee those processes; and the company’s “processes for identifying, assessing, and managing climate-related risks.”

GREENHOUSE GAS EMISSIONS

Companies will have to disclose the greenhouse gas emissions they generate both directly and indirectly from purchased electricity and other forms of energy, known as Scope 1 and Scope 2 emissions, respectively.

Companies will also have to disclose the indirect emissions from upstream and downstream activities in their value chains, known as Scope 3 emissions, “if material” or if they have a greenhouse gas emissions target that includes Scope 3 emissions. Smaller companies will be exempt from this requirement.

CLIMATE TARGETS, TRANSITION PLANS

Companies that have publicly declared climate-related targets or goals must provide details, including “the scope of activities and emissions included in the target,” the deadline, any interim targets, and how they plan to meet their goals.

If the company has adopted a transition plan as part of its climate-related risk management strategy, it must disclose “a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks.”

CLIMATE FINANCIAL REPORTING

The disclosures would be included in companies’ registration statements and annual reports, as well as in a note appended to consolidated financial statements.

(Reporting by Katanga Johnson and Michelle Price in Washington; Editing by Matthew Lewis)