The Climate May be Changing for Public Company Disclosure

On Monday, the Securities and Exchange Commission (the “SEC”) proposed rules to enhance and standardize climate-related disclosure for public companies. The proposed rules would require disclosure of (1) governance and identification of climate-related risks and relevant risk management processes; (2) how identified climate-related risks have had or are likely to have a material impact on a public company’s business and financial statements; (3) how identified climate-related risks have affected or are likely to affect a public company’s business model, outlook, and strategy; and (4) the impact climate-related events (such as severe weather events) can have on the line items of a company’s financial statements, as well as on the financial estimates and assumptions used in the financial statements.

The proposed rules would also require disclosure of certain emission information: greenhouse gas emissions (Scope 1); indirect emissions from purchased electricity or other forms of energy (Scope 2); and greenhouse gas emissions from upstream and downstream activities in a public company’s value chain (Scope 3), if material, or if the public company has set a greenhouse gas emissions target or goal that includes Scope 3 emissions. The proposed rules provide a safe harbor from liability for Scope 3 disclosures and an exemption from Scope 3 disclosures for smaller reporting companies.

If the rules are finalized, there will be a phase-in period based on a public company’s filing status. Assuming the rules become effective in December 2022 and for public companies with a December 31st fiscal year end, the earliest climate-related disclosure compliance deadline would be in 2024 for fiscal year 2023.

The proposed rules are summarized in the SEC’s Fact Sheet. The comment period will remain open for 30 days after publication in the Federal Register, or 60 days after the date of issuance and publication on, whichever period is longer.

We will monitor this proposal and provide updates as appropriate. In the interim, if you have any questions about this proposal, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at 585.232.6500 or 716.853.1616.

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