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Regulatory Updates

SEC Releases New Proposed Rules Requiring Public Companies to Disclose Climate Risks

Karen Lutz | April 12, 2022

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) issued its proposed rules for The Enhancement and Standardization of Climate-Related Disclosures for Investors which would require public companies in the U.S. to disclose information in their annual financial reports about:

  • Governance and risk management processes related to climate change
  • How any identified climate-related risks have had, or are likely to have, a material impact on the business over the short, medium or long term
  • How any identified climate-related risks have affected or are likely to affect the strategy, business model and outlook
  • Financial impacts of climate-related events (severe weather, wildfires, droughts, etc.) and business transition activities

For the first time in the United States, the rules would require businesses to report their greenhouse gas (GHG) emissions, including GHG emissions from their value chain (e.g., emissions from purchased goods and emissions from products sold to customers). These emissions, known as Scope 3 emissions, would only be reportable if determined to be material to the business or if the company has a Scope 3 commitment in place.

This is one of the more controversial aspects of the proposed rules as methodologies for Scope 3 emissions reporting are not standardized. However, Scope 3 emissions are the largest contributors to climate change and therefore important to include in full risk disclosure. The SEC rules on ESG included a “phase in” period for Scope 3 as well as a generous “safe harbor” to protect companies from liability while their data and methodologies are still emerging.

Other disclosure requirements include:

  • Climate-related targets and goals
  • Performance against climate-related goals
  • Use of renewable energy credits (RECs) and/or offsets to meet climate-related goals
  • Information on internal carbon pricing

In addition, larger companies would be required to have an attestation report from an independent service provider covering direct emissions (Scopes 1 and 2) to promote the reliability of GHG emissions disclosures for investors.

Next Steps

The rules have now entered a 60-day public comment period allowing businesses, investors and other market participants to provide feedback and/or suggested alternatives. While aspects of the rules will certainly be challenged and likely modified, companies should be prepared to disclose their GHG emissions and information on how climate change impacts their financial stability, as investors are increasingly pushing for more consistent, comparable and reliable information to assess investment risk.

The proposed rules follow the guidance established by the Task Force for Climate-Related Financial Disclosures (TCFD), so preparing for public disclosure should align with the TCFD recommendations. TCFD areas of focus include:

  • Governance: Ensure that the Board and Executive Team are engaged in the oversight and governance of climate-related risks. If necessary, consider enhancing the climate knowledge of existing board members. Involve the Finance team early, as they will have a key role in developing investor grade data and compiling financial impact metrics, expenditure metrics and financial estimates and assumptions.
  • Strategy: Assess the impact of climate-related risks and opportunities on the business strategy and test the resiliency of the company’s strategy under different scenarios. For example, “an increase in the global average temperature of 1.5 or 2 degrees Celsius by 2050.”
  • Risk Management: Define the processes for identifying and managing climate risks and opportunities and how those processes integrate in the overall risk management system and processes, including the relative significance of climate-related risks compared to other risks.
  • Metrics and Targets: Compile a comprehensive greenhouse gas emissions inventory. If your company is just starting to collect emissions data, focus on Scope 1 and 2 emissions first, using the Greenhouse Gas Protocol as guidance, and then assess the relevancy of the fifteen Scope 3 emission categories to focus next steps. Consider engaging a third party to verify data and data collection processes for GHG emissions, metrics related to established climate targets and metrics used to assess and manage climate-related risks.

TRC’s Climate Advisory Services team is here to support you in all aspects of climate strategy and reporting, wherever you are in your journey. We will continue to monitor developments as SEC’s climate disclosure proposal moves through consultation stages, and as further announcements by the SEC are made.


Karen Lutz

Karen Lutz has 25 years of consulting experience, working for manufacturing and industrial clients. Areas of expertise include sustainability advising, compliance assurance services, EHS management systems and merger and acquisition support. Karen has developed EHS risk management programs for clients and developed and implemented electronic management information systems to assist clients in meeting their EHS obligations and sustainability objectives. She has also led numerous management system and sustainability strategy facilitation efforts with a focus on linking EHS initiatives to overall business objectives and has assisted clients with external sustainability reporting through the Global Reporting Initiative and Carbon Disclosure Project disclosure frameworks. Contact Karen at

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