ThinkTWENTY20

On March 21, 2022, SEC chair Gary Gensler said the Commission is considering a proposal to mandate climate-risk disclosures by public companies.” I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions and would provide consistent and clear reporting obligations for issuers.”

Today, Gensler said, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.

The SEC’s proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do. One report found that nearly two-thirds of companies in the Russell 1000 Index, and 90 percent of the 500 largest companies in that index, published sustainability reports in 2019 using various third-party standards, which include information about climate risks. “SEC staff, in reviewing nearly 7,000 annual reports submitted in 2019 and 2020, found that a third included some disclosure related to climate change,” Gensler pointed out. 

The proposed rules would require disclosures about a company’s governance, risk management, and strategy with respect to climate-related risks. Moreover, the proposal would require disclosure of any targets or commitments made by a company, as well as its plan to achieve those targets and its transition plan, if it has them.

“To the extent that the proposed disclosures would include some forward-looking statements,” Gensler said, “such as projections of future risks or plans related to targets or transitions, the forward-looking statement safe harbors pursuant to the Private Securities Litigation Reform Act would apply, assuming certain conditions were met.”

The proposed rules also would require a company to disclose “certain disaggregated climate-related financial statement metrics that are mainly derived from existing financial statement line items” in a note to its financial statements. This would include the impact of the climate-related events and transition activities on the company’s consolidated financial statements.

The proposal also addresses disclosure of greenhouse gas emissions. Greenhouse gas emissions data are increasingly being used as a quantitative metric to assess a company’s exposure to – and the potential financial effects of – climate-related transition risks. Those risks could include regulatory, technological, and market risks driven by a transition to a lower greenhouse gas emissions economy, with potential financial impacts on revenues, expenditures, and capital outlays. All filers would disclose their Scope 1 and Scope 2 greenhouse gas emissions – emissions that “result directly or indirectly from facilities owned or activities controlled by a registrant.” Thus, these data should be reasonably available to issuers.

For the fine details of the proposals, go to SEC.gov | Statement on Proposed Mandatory Climate Risk Disclosures.