In 2022, the Securities and Exchange Commission (SEC) proposed a rule change which would make it mandatory for companies to disclose climate-related information.
Although it’s currently in the proposal stage, it’s a strong signal that there will be greater enforcement coming for businesses in terms of their environmental impact and their plans to transition to a lower carbon business model.
This article will cover everything you need to know about the proposed SEC climate disclosure rule in the US:
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Plus, for an overview of current and upcoming corporate climate disclosure regulations across the world, head to our legislation overview blog – we keep it up to date with all the latest on sustainability-related legislation for businesses.
In March 2022, the US Securities and Exchange Commission (SEC) made a proposal for rules making it mandatory for companies to disclose climate-related information.
The proposed rule came about largely due to increased pressure from investors, who want to be able to assess climate risk in their portfolios and new investments.
Importantly, the proposal letter highlights that many companies have already made green transition plans and targets, and that this reporting is necessary to ensure that these targets are being worked towards.
Before this proposal, the last guidance from the SEC was in 2010, in an ‘‘interpretive release to provide guidance to public companies regarding the Commission’s existing disclosure requirements as they apply to climate change matters’. This guidance gave companies a large amount of discretion about what climate-related disclosures they needed to include in their reporting, and it was mostly through voluntary frameworks such as publishing an annual impact report.
So, if this rule is adopted, it represents a huge change in how companies in the US report on their environmental impact.
The proposed rule would apply to US 10-K filers as well as foreign private issuers who file 20-F forms with the SEC – i.e. all companies registered with the SEC.
The proposed rule would come into effect for the financial year 2023 – with first reports due in 2024. But, there would be a phased introduction:
If adopted, the SEC rule would require companies to disclose detailed reporting of their climate-related risks, emissions, and net-zero transition plans.
The SEC highlights that reporting would be across 4 areas:
And the rule as a whole is building on the recommendations from the Taskforce for Climate-related Financial Disclosures (TCFD) – but aims to go above and beyond the TCFD recommendations in scope.
As it’s currently only a proposed rule, there are likely to be changes in the details – but based on this information so far, we can expect it to be a rigorous, robust piece of legislation.
For the full details, go to page 40-46 of the proposed rule PDF.
If your company is included in those that will need to comply with the SEC climate disclosure rule, we’d recommend starting to get everything in order sooner rather than later – there’s a lot to do. Plus, beyond the legislation, there’s a very strong business case for working on sustainability anyway – from risk management to customer loyalty to employee satisfaction and more.
Luckily, there are plenty of actions to get started with to put you in good stead for upcoming changes:
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Legislation requiring companies to report on sustainability – their environmental impact and the risks and opportunities facing the business – is upcoming across the globe, from the EU Corporate Sustainability Reporting Directive to the US proposed SEC climate disclosure rule.