SEC Update: Climate-Related Disclosure Rule

June 15, 2022

Rae Oliver

On 21 March 2022, the US Security and Exchange Commission (SEC) proposed a new set of draft rules. These rules require all public trading corporations to provide detailed, in-depth reports for investors regarding greenhouse gas emissions and the risks climate change poses to their business. 

The climate-related disclosure rule is driven by a call for greater transparency between public trading corporations and their investors. The reports will be required to contain factual information about climate-related risks to business processes, effects of operations, and climate-related financial statement metrics. 

The reports will also need to contain carbon disclosure of the registered corporation’s greenhouse gas emissions. These emissions are now being commonly used as a metric for defining long-term exposure to climate-related risks. 

While the SEC climate change disclosure proposal won’t stop the climate crisis, it does signify a major step forward for the relationship between corporations and strategic action against global warming.

Let’s take a closer look at these important climate disclosure regulations and how you can be prepared for them.

Who Is SEC?

SEC is the acronym for the Security and Exchange Commission. Based and founded in the US, the SEC is an independent federal government agency deemed responsible for protecting investors, facilitating capital formation, and regulating the just and organized functioning of the securities markets. The SEC stands by an ethos of full public disclosure and shielding investors from being manipulated by fraudulent practices within the market.

Even though the SEC operates independently, it is still an official US government agency. It has the power to bring civil actions against lawbreakers, sometimes working with the Justice Department on certain criminal cases. 

Any broker-dealers, asset managers, advisory firms, financial services firms, as well as their official representatives, must first register with the SEC before conducting business. 

What Is The New SEC Proposal?

The new SEC climate change disclosure proposal covers a wide range of different metrics pertaining to climate-related risks and impacts. Its primary purpose is to provide investors with full transparency around the short and long-term effects of the climate on any corporation they are investing in. 

With this SEC proposal, investors will be able to garner a much better idea of a business’ environmental and financial risks over the coming years.

They can use the carbon disclosure to inform their investment decisions and choose corporations whose climate metrics best align with international standards. This can also incentivize corporations to commit to more sustainable means of operations. The new SEC proposal is projected to require information about: 

  • Climate-related risks and their current or potential material impacts on the registrant’s business, strategy, and outlook
  • The registrant’s governance of climate-related risks and relevant risk management processes
  • The registrant’s greenhouse gas emissions, which, for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance
  • Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements
  • Information about climate-related targets and goals
  • A transition plan for businesses with no prior climate action strategy 

These proposed disclosures are based on internationally accepted frameworks such as the Green Gas Protocol and Task Force on Climate-Related Financial Disclosures

Being Prepared For The Future Of SEC Climate-Related Disclosure

The recent updates mandated by the SEC significantly affect the information needed for approval. Any corporation eager to meet the climate-related disclosure requirements needs to familiarize itself with the new disclosure structure. 

All updates made to the SEC climate change disclosure requirements are based on data gathered from around the world regarding current greenhouse gas emissions and future environmental outlooks. Climate change is constantly unfolding, and these updates must be made regularly in order to adapt. 

Being prepared for the new disclosure regulations first entails registering with the SEC. Once a corporation has been successfully registered with the SEC, it can then put forward its report for assessment, and hopefully, approval. Updated metric requirements for corporations in 2022 include: 

  • Direct and indirect greenhouse gas emissions (from purchased electricity and other forms of energy)
  • Validity of carbon offsets or renewable energy certificates
  • Relevant data indicating current actions and steps towards reducing emissions 
  • Transition risk planning: how they intend to meet their climate-related targets or goals over the coming years 
  • Disclosing financial impact of climate related risks
  • Information about their internal carbon price

The main aim of these updates is to provide factual, data-centric assurance for investors. Without proof of action, corporations will not be held liable for luring investors based on inaccurate or misleading projections about the climate crisis. 

Fully transparent disclosure and strict regulations are the only way to ensure that corporations stay on track to hit global decarbonization targets. The SEC releases this proposal in the hopes that it will encourage large-scale corporations to take climate change more seriously and commit to strategies that actively reduce global greenhouse gas emissions. 

How SINAI Can Help

SINAI exists to provide consultation support, data analysis, and guidance for corporations seeking efficient, cost-effective strategies for reaching their climate-related targets. 

SINAI can help you collect data and insights around every key metric requirement for SEC disclosure - from GHG emissions to setting an internal carbon price.   Our platform provides decarbonization intelligence tools for transition risk scenario analysis and planning, and mitigation option modeling and evaluation.

Over time, climate-related disclosure will become an increasingly important part of long-term corporation survival. SINAI is here to equip businesses with the tools and information they need to consistently meet carbon emission targets, and understand the costs associated each step of the way.

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