SEC proposes new climate change disclosures

Many investors have expressed concern about the potential impacts of climate-related risks on individual businesses and informed investment decision-making.  While many entities have voluntarily provided this information to meet investor demand, the disclosures are often inconsistent.  The Securities and Exchange Commission (SEC) recently proposed rule amendments requiring registrants to include certain climate-related information in both registration statements and annual reports (e.g., Form 10-K) in a phased-in approach. 

The proposed disclosures include the following:

• Climate-related risks and their likely or actual material impact on business, strategy, and outlook.  These impacts may manifest in the consolidated financial statements over the short, medium, or long term.
• Governance and management of climate-related risks, including the processes integrated into an overall risk management strategy to include identifying, assessing, and managing these relevant risks.
• Greenhouse gas (GHG) emissions are separately disclosed for those that are direct and indirect (i.e., purchased electricity or other energy sources).  Disclosures will be in absolute terms of intensity (e.g., per unit of economic value or production), not including offsets.
• Material indirect GHG emissions from upstream and downstream activities in a registrant’s value chain will also be disclosed.
• Climate-related targets, metrics, and goals. If publicly set, additional information is required to give proper details and context. 
• A description of any transition plans.   
• A description of ay scenarios used to assess the resilience of relevant business strategy.  This includes relevant parameters, assumptions, analytical choices, and projected principal financial impacts.
• Information about how any internal carbon price is set.
• The impact of any climate-related events (e.g., severe weather) and the assumptions used to communicate the financial statement effect.

Investors have expressed the need for more consistent, comparable, and reliable information about how a registrant has addressed climate-related risks.  Therefore, the SEC has proposed that accelerated and large accelerated filers would be subject to assurance on certain GHG emissions disclosures.

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