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SEC Proposed Mandatory Climate Disclosure Rules – Part 2

On March 21, 2022, the SEC proposed rules that would require publicly reporting companies to include certain climate-related disclosures in their registration statements and periodic reports.  Among other information, the new disclosures would require information about climate-related risks that are reasonably likely to have a material impact on a company’s business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to its audited financial statements.

The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 emissions disclosure.

The proposed rules, which are heady and complex, initially only allotted for a 39-day comment period.  Considering the size (490-page rules release), scope, complexity and ramifications, the marketplace pushed back on such a short window. On May 9, 2022, the SEC extended the comment period through June 17, 2022.

In last week’s blog, I provided some background and an introduction to the rules (see HERE.)  This week, I will provide a high-level summary and next week will begin a granular discussion of the proposed requirements.

Summary of the Proposed Rules

The SEC is proposing to add new Subpart 1500 to Regulation S-K that would require a company to disclose certain climate-related information, including information about its climate-related risks that are reasonably likely to have material impacts on its business or consolidated financial statements. The proposed rule changes would require a company to disclose information about:

(i) The oversight and governance of climate-related risks by the company’s board and management;

(ii) How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short, medium, or long term;

(iii) How any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook;

(iv) The company’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the company’s overall risk management system or processes;

(v) The impact of climate-related events (severe weather events and other natural conditions as well as other physical risks identified by the company) and climate transition activities on the line items of a company’s consolidated financial statements and related expenditures, as well as on the financial estimates and assumptions used in the financial statements;

(vi) Scopes 1 and 2 GHG emissions metrics, separately disclosed: (a) both by disaggregated constituent greenhouse gas emissions and in the aggregate, and (b) in absolute and intensity terms;

(vii) Scope 3 GHG emissions and intensity, if material, or if the company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions; and

(viii) The company’s climate-related targets or goals, and transition plan, if any.

A company may also voluntarily disclose any climate-related opportunities.

The proposed rules also would require a company to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions.  The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.  The SEC believes the proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

Under the proposed rule changes, accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures.  Initially the attestation would require limited assurance with a phase-in over time to require reasonable assurance.

The SEC is also proposing to add new Article 14 to Regulation S-X that would require certain climate-related financial statement metrics and related disclosure to be included in a note to a company’s audited financial statements.  The proposed financial statement metrics would consist of disaggregated climate-related impacts on existing financial statement line items. These would include climate-related financial impact and expenditure metrics as well as a discussion of climate-related impacts on financial estimates and assumptions, all of which would be presented in a footnote to the audited financial statements.  As part of the registrant’s financial statements, the financial statement metrics would be subject to audit by an independent registered public accounting firm and come within the scope of the registrant’s internal control over financial reporting (“ICFR”).

The financial statement requirements have been the subject of significant pushback and debate with the resounding view that the proposed new rules are extremely difficult to understand and, as such, even more problematic to implement.

Presentation of the Proposed Disclosures

Information regarding GHG emissions, climate-related risks and opportunities, climate risk management processes, climate targets and goals, and governance and oversight of climate-related risks will be provided separately under a caption “Climate-Related Disclosure” immediately preceding the MD&A.  In addition, climate-related disclosures may be included in other sections of a company’s registration statements or reports such as description of business, risk factors or MD&A.  Where appropriate, to avoid repetitive disclosure, reference and links can be provided to other sections of the registration statement or report.

All reporting companies (domestic and foreign) will be required to include climate-related disclosures in its registration statements and Exchange Act periodic reports.  Companies will be required to electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL.  Climate disclosures are “filed,” not “furnished.”

Although not part of the financial statements, the climate-related disclosures will be included in the Sarbanes-Oxley (“SOX”) CEO and CFO certifications required with all 10-Q and 10-K filings for domestic issuers (see HERE) and will be subject to a company’s SOX Rule 404(a) disclosure control and procedures requirements (see HERE).

In addition, climate-related financial statement metrics and related disclosures must be included in the notes to financial statements.  These would include climate-related financial impact and expenditure metrics including severe weather events and other natural conditions and climate transition activities.

Attestation on Scope 1 and Scope 2 GHG Emission Disclosures

As noted, the proposed rules would require an accelerated filer or a large accelerated filer to include an attestation report covering, at a minimum, the disclosure of its Scope 1 and Scope 2 emissions and to provide certain related disclosures about the service provider.  The proposed rules would provide minimum attestation report requirements and minimum standards for acceptable attestation frameworks, and would require an attestation service provider to meet certain minimum qualifications. The proposed rules would not require an attestation service provider to be a registered public accounting firm.

Compliance Phase-in Schedule

The disclosure requirements have a phase-in schedule depending on the size of the company, as illustrated in the table below:

Registrant Type All Disclosures Except Scope of 3 GHG Emission Disclosures (Reports for FYE) Scope 3 GHG Emission Disclosures (Reports for FYE) Attestation on Scope 1 and Scope 2 GHG Emission Disclosures
Large Accelerated Filer 2023 2024 Limited Assurance – 2024

Reasonable Assurance – 2026

Accelerated Filer 2024 2025 Limited Assurance – 2025

Reasonable Assurance – 2027

Non-accelerated Filer 2024 2025 Not Required
Smaller Reporting Company 2025 Not Required Not Required


In addition, the proposed rules would have a provision permitting a company, if actual reported data is not reasonably available, to use a reasonable estimate of its GHG emissions for its fourth fiscal quarter, together with actual, determined GHG emissions data for the first three fiscal quarters, as long as the company promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the estimated fourth fiscal quarter.

The Author

Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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