How To Present Climate-Related Risks Disclosure to SEC

June 15, 2022

Rae Oliver

On March 22, 2022, the United States Securities and Exchange Commission, or SEC, released a proposed climate risk disclosure rule relating to emissions reduction protocols and organizational reporting; the Enhancement and Standardization of Climate-Related Disclosures for Investors. The proposed rule’s 60-day comment period ended on May 20, 2022.

The SEC will require its registrants to disclose specific climate-related information. This includes data about climate-related risks that are likely to have measurable impacts on a business or consolidated financial statements and greenhouse gas emissions metrics. The new rule will help investors in assessing these risks and transitioning towards a net-zero economy.

What Are The Proposed Disclosures?

The SEC’s proposed rule amendments will require both domestic and foreign registrants to include certain climate-related details in their registration statements and regular reports, including on Form 10-K. The proposed disclosures include:

  • Climate-related risks and their likely and true impacts on a registrant’s business, outlook, and strategy
  • Each registrant’s governance of climate-related risks and pertinent risk management processes
  • Each registrant’s greenhouse gas emissions. These would be subject to assurance in the case of accelerated and large accelerated filers
  • Specific climate-related financial statement metrics and pertinent disclosures in a note on audited financial statements
  • Data about climate-related goals, targets, and transition plans. 

The proposed disclosures are similar to the disclosures that many organizations already provide. These are based on widely respected frameworks like the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

What Information Do Companies Need To Provide?

The SEC’s proposed climate risk disclosure rules would require registrants to disclose a wide range of information pertaining to climate-related risks and emissions data. This includes information about the oversight, management, and governance of climate-related risks by each registrant’s board and management teams. As well as the inclusion of climate-related information on registration statements and periodic reports. Climate-related risks and their likely and true material impacts on the registrant’s operations, outlook and strategy should be disclosed. As should the registrant’s governance of climate-related risks and greenhouse gas emissions. 

Registrants must share certain climate-related financial statement metrics and relevant disclosures in notes on their audited financial statements. They need to disclose data about climate-related goals, targets and transition plans, and how climate risks identified by each registrant have had or may have, a material impact on its business in the short, medium or long term.

Furthermore, registrants must disclose information about how identified risks have affected or could affect, the registrant’s business model and strategies. Along with their process for identifying and managing climate-related risks and whether these processes have been integrated into a risk management system or protocol. A description of any transition plans, including relevant targets and metrics to identify physical and transition risks must be included.

The SEC will query whether or not a registrant has used scenario analyses to gauge the resilience of its business strategy against climate risks. They’ll request a description of the scenarios used, parameters, analytical options, assumptions, and projected principal financial impacts

Information about internal carbon prices and how they are set will be included. Registrants will be required to disclose their direct Scope 1 emissions and indirect Scope 2 emissions separately, expressed in both aggregated and dis-aggregated forms, not including offsets. Scope 3 emissions should be disclosed if material. Or if the registrant has set an emissions target that includes these emissions.

Registrants that have publicly set climate-related goals and climate risk disclosure targets will also need to provide data about the scope of activities and emissions included in these targets. They’ll also need to supply the defined time horizons by which the targets must be achieved and how they intend to meet these targets. Any relevant data indicating whether or not a registrant is making progress towards meeting goals should be disclosed and updated annually. As should carbon offsets and renewable energy certificate data, if relevant.

Notably, registrants must disclose information about any identified climate-related opportunities when responding to any provisions laid out by the proposed rules.

How To Present Climate-Related Risks Disclosure

The SEC’s proposed climate risk disclosure rules will require each registrant to disclose climate-related risks in its registration statements and Exchange Act annual reports. They will demand that registrants provide Regulation S-K mandated climate-related disclosures in separate, titled sections of their registration statements and annual reports. Alternatively, this data can be included in a separate, appropriately titled section by reference from another section, such as Managers Discussion and Analysis, Risk Factors, or Business Description.

Moreover, registrants will need to provide the Regulation S-X mandatory climate-related financial statement metrics and disclosures in a note on their audited financial statements. Both quantitative and narrative climate-related disclosures should be electronically tagged in Inline XBRL.

There are numerous methods and tools that businesses can use to present the proposed disclosures in a way that aligns with the proposed SEC climate risk disclosure rules and requirements. GHG inventories, as offered by SINAI, measure and report on Scope 1-3 emissions, and can be used together with set carbon budgets and climate trajectory models to present climate-related risks. Climate-related financial metrics can also be included in an organization’s audited statements to ensure transparency and accuracy throughout the process of disclosure.

Harness the Power of Decarbonization Intelligence

SINAI provides companies with the tools they need to effectively disclose their relevant climate-related information. Our platform offers a wide range of quantifying and reporting, strategy building, GHG inventory automation, and pathway prediction features. We’ll help you consolidate environmental and financial data across departments and simplify SEC climate risk disclosure significantly. 

Our software streamlines the collection, quality control, modeling and calculation of key risk and opportunity metrics. This enables collaboration to bridge functional silos and unlock dynamic insights that support risk management and reporting.

Request a demo with us today to see how our decarbonization solutions can help you adhere to the latest climate disclosure and reporting obligations.

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