SEC Releases Long-Awaited Proposed Climate Disclosure Rules

ESG Collaborative Update

Date: March 22, 2022

Climate Disclosure Proposal

On March 21, 2022, the SEC released its long-awaited climate disclosure proposal, which is modeled, in part, on the Task Force on Climate-related Financial Disclosures (TCFD) framework. Among other things, the proposed rules would require a company to disclose in its annual report on Form 10-K information regarding:

  • Climate-related risks;
  • Direct greenhouse gas (GHG) emissions (Scope 1 emissions), indirect GHG emissions resulting from purchased energy (Scope 2 emissions), and, if material or if the company has set a target or goal including such emissions, all other indirect GHG emissions occurring in its value chain, both upstream and downstream (such as emissions generated by purchased goods and services, transportation and distribution, processing or use of the company’s products by third parties, employee commuting or business travel, or investments) (Scope 3 emissions); and
  • The financial impact of climate-related events and transition activities.

Notably, larger companies would also be required to provide a third-party attestation report from an independent attestation service.

The climate-related disclosures would need to be included in a company’s annual report on Form 10-K (with material changes to such disclosures included in quarterly reports on Form 10-Q) and in registration statements and tagged in inline XBRL. Most of the required disclosures would be provided for in a new Item 1500 in Regulation S-K. The forward-looking statement safe harbors would apply to portions of the proposed disclosures.

The proposed rules also include proposed phase-in periods for disclosure and some exemptions for smaller reporting companies.

What Do These Proposed Rules Mean for Companies?

The proposal is an expansive rulemaking, requiring, among other things, companies to collect, verify, and report their GHG emissions. While reporting of Scope 3 emissions is qualified by a materiality standard for companies that do not include Scope 3 in their public GHG reduction commitments, the release includes a soft mention of 40% as a threshold that could potentially be material. For many companies, Scope 3 emissions would exceed that threshold. Then there is, of course, a question of determining materiality, which, in itself, requires companies to collect data to measure the significance of Scope 3 emissions to the company, supplier challenges, expenses, and the likely need for additional internal or external resources.

The requirement to include these disclosures in annual reports accelerates timelines for many of the companies that currently include these disclosures in ESG reports or standalone TCFD reports, during a time that is already very busy for financial professionals in finalizing audits and annual report disclosures. Third-party verification requirements impose a further constraint on the timing. And that is only discussing GHG emissions, let alone the proposed financial statement disclosures and other disclosures.

A substantial number of comment letters, litigation and other challenges to the proposed rules, are likely. Regardless, compliance with the final rules is expected to be a significant undertaking.

For those companies that have been waiting to see the SEC’s proposed rulemaking before implementing ESG programs and governance structures, the time to act is now. Companies that already have an ESG program should assess such program, with the goal of aligning the program with the SEC’s proposed requirements, as well as the company’s investor and other stakeholder expectations, which could be a lengthy task.


If you intend to comment, comments are due on or before June 17, 2022. The proposal is likely to generate a substantial number of comment letters.

Disclosure of Climate-Related Risks and Their Impact

Defining the Risks

The new rules would require disclosures regarding climate-related risks that are reasonably likely to have a material impact on a company, including its business or financial statements. Companies would need to describe their assessment of the materiality of such risks over the short-, medium- and long-term, as well as how they define such time horizons, including how they account for or reassess the expected useful life of assets and the time horizons for their climate-related planning processes and goals. 

Climate-related risks” would mean the actual or potential negative impacts of climate-related conditions and events on a company’s consolidated financial statements, business operations, or value chains (the upstream and downstream activities related to a company’s operations), as a whole. Both physical and transition risks would need to be identified as such and disclosed.

  • “Physical risks” would include risks to a company’s business operations, or the operations of those with which it does business, including (i) acute risks, or event-driven risks related to shorter-term, extreme weather events (such as hurricanes, floods, and tornadoes) and (ii) chronic risks, or risks resulting from longer-term weather patterns and related effects (such as sustained higher temperatures, rising sea levels, drought, increased wildfires, decreased arability of farmland, decreased habitability of land, and decreased availability of fresh water).

A company would need to describe the nature of the physical risk, whether it is acute or chronic, and, if the risk has had, or is likely to have, a material impact on the company’s business or financial statements, the location (i.e., zip code or similar postal zone) of properties, processes, or operations subject to the risk. Companies subject to material risks relating to flooding or high water stress would be required to disclose additional information relating to those risks.

  • “Transition risks” would include the actual or potential negative impacts on a company’s financial statements, business operations, or value chains attributable to regulatory, technological, and market changes to address the mitigation of, or adaptation to, climate-related risks.

A company would need to disclose the nature of the transition risk, including whether the risk relates to regulatory, technological, market (including changing consumer, business counterparty, and investor preferences), liability, reputational, or other transition-related factors, and how such factors impact the company. For example, transitions risks could include increased costs attributable to climate-related changes in law or policy, reduced market demand for carbon-intensive products leading to decreased sales, prices, or profits for such products, the devaluation or abandonment of assets, risk of legal liability and litigation defense costs, competitive pressures associated with the adoption of new technologies, reputational impacts that might trigger changes to market behavior, changes in consumer preferences or behavior, or changes in a company’s behavior.

Impacts of Such Risks and Related Disclosures

In addition to describing climate-related risks, companies would need to describe each of the following in the short-, medium- and long-term (using the same time horizons as for the climate-related risk disclosures):

  • The actual and potential impacts of such risks on their strategy, business model, and outlook and the time horizon for such impacts, including the impacts on (i) business operations (including types and locations of operations), (ii) products or services, (iii) suppliers and other parties in their value chain, (iv) activities to mitigate or adapt to climate-related risks, including adoption of new technologies or processes, (v) expenditure for research and development, and (vi) any other significant changes or impacts;
  • If and how companies have considered the identified impacts as part of their business strategy, financial planning, and capital allocation, including current- and forward-looking disclosures (including how resources are being used to mitigate climate-related risks) and how their climate-related financial metrics, GHG emissions, or any public climate-related targets or goals (each as described below) relate to their business model or strategy;
  • If and how the climate-related risks have affected, or are reasonably likely to affect, their financial statements, including the climate-related financial metrics (similarly to disclosures included in management’s discussion and analysis);
  • If carbon offsets or renewable energy credits or certificates (RECs) (a credit or certificate representing each purchased megawatt-hour (1 MWh or 1000 kilowatt-hours) of renewable electricity generated and delivered to a company’s power grid) are used as part of companies’ net emissions reduction strategy, the role played by such offsets or RECs in their climate-related business strategy, including the risk that the availability or value of offsets or RECs might be negatively impacted by regulation or changes in the market;
  • If using an internal carbon price (an estimated cost of carbon emissions used internally within an organization), information about the price (both in units of dollars per metric ton of carbon dioxide equivalent and total price) and how it was determined, as well as how it is used to evaluate and manage climate-related risks;
  • The resilience of companies’ business strategy in light of potential future changes in climate-related risks; and
  • Any analytical tools, such as a scenario analysis (a process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty), used in assessing the impact of climate-related risks on a company or to support the resilience of its strategy and business model in light of foreseeable climate-related risks, including certain quantitative and qualitative information about any such tool or scenario analysis (such as parameters, assumptions, and analytical choices, and the projected principal financial impacts on the company’s business strategy under each scenario).
Risk Governance and Management

Companies would be required to describe their risk governance, including the board’s oversight of climate-related risk and management’s role in assessing and managing such risks, as well as whether and how climate-related risks are integrated into their overall risk management system or processes (for instance, how a board or management committee responsible for assessing and managing climate-related risks interacts with the board or management committee governing risks). Although some companies currently include this type of information in their proxy statements or in reports using the TCFD framework, the proposed disclosure requirements are quite expansive, including proposed disclosures regarding individual directors’ qualifications and management’s internal organization in assessing and managing climate-related risks.

Board Oversight

Companies would need to disclose, among other things: (i) any board members or committees responsible for the oversight of climate-related risks; (ii) whether any directors have expertise in climate-related risks (and, if so, how they obtained such expertise); (iii) how management provides the board with information regarding climate-related risks; (iv) how frequently the board or relevant committee considers climate-related risks; (v) if and how the board or committee considers climate-related risks as part of its business strategy, risk management, and financial oversight (for example, in relation to the review and oversight of business strategy, risk management policies, performance objectives, budgets, and major purchases, sales, and expenditures); and (vi) if and how the board sets climate-related targets and goals and oversees progress against those targets or goals, including any interim targets or goals.

Management’s Role

Companies would also be required to disclose (i) whether certain management positions or committees are responsible for assessing and managing climate-related risks, and identifying any such positions or committees; (ii) the relevant expertise of such individuals; (iii) how such managers or committees are informed about, and monitor, climate-related risks (such as whether specific positions or committees are responsible for monitoring and assessing specific climate-related risks and the extent to which management relies on in-house staff and/or third-party consultants to evaluate climate-related risks and implement related plans of action); and (iv) if and how often the responsible positions or committees report to the board or relevant board committee on climate-related risks.

Internal Processes

In addition, companies would need to include information regarding their processes for identifying, assessing, and managing climate-related risks and how such processes are integrated in their overall risk management system or processes.

With respect to processes for identifying and assessing such risks, required disclosures would include: (i) how the relative significance of climate-related risks compared to other risks is determined; (ii) how existing or likely regulatory requirements or policies, such as GHG emissions limits, are considered when identifying climate-related risks; (iii) how shifts in customer or counterparty preferences, technological changes, or changes in market prices are considered in assessing potential transition risks; and (iv) how the materiality of climate-related risks is determined, including how the potential size and scope of any identified climate-related risk is assessed.

With respect to processes for managing such risks, companies would need to describe how they decide whether to mitigate, accept, or adapt to a particular risk, prioritize addressing climate-related risks, determine how to mitigate a high priority risk, and, to the extent material, use any insurance or other financial products to manage exposure to climate-related risks.

Transition Plans

Companies would be required to describe any transition plan (a strategy and implementation plan to reduce climate-related risks) they may have in place, which could include a plan to reduce GHG emissions in line with their commitments or commitments of jurisdictions in which they have significant operations. Such description should include the relevant metrics and targets used to identify and manage physical and transition risks, plans to mitigate or adapt to any identified physical risks (such as moving operations vulnerable to rising sea levels) or transition risks (including, among other things, laws, regulations, or policies restricting GHG emissions or products with high GHG footprints and changing demands or preferences of consumers, investors, employees, and business counterparties), and steps taken during the prior fiscal year to achieve the transition plan’s targets or goals.

GHG Emissions Disclosures and Attestation Report

Companies would also be required to provide information regarding their GHG emissions.  

Definitions of GHG and Direct and Indirect Emissions

The definitions of GHG and the scope of emissions would be generally consistent with the definitions under the GHG Protocol standards.

  • “GHG” would include carbon dioxide, methane, nitrous oxide, nitrogen trifluoride, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
  • “GHG emissions” would mean (i) direct emissions, or GHG emissions from sources owned or controlled by a company, and (ii) indirect emissions, or GHG emissions resulting from activities of a company that occur at sources not owned or controlled by the company. More specifically:

- Scope 1 emissions: direct GHG emissions from operations that are owned or controlled by a company.

- Scope 2 emissions: indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by a company.

- Scope 3 emissions: all indirect GHG emissions not otherwise included in a company’s Scope 2 emissions that occur in the upstream and downstream activities of a company’s value chain. Upstream emissions include emissions attributable to goods and services that a company acquires, the transportation of goods to the company, and employee business travel and commuting. Downstream emissions include the use of the company’s products, transportation of products to customers, end-of-life treatment of sold products, and investments made by the company.

Because the foregoing definitions match those used by the U.S. Environmental Protection Agency in its GHG emissions reporting program, companies that provide GHG emissions data under the program would be able to use such information in providing required disclosures under the proposed rules.

Disclosure Requirements – Scope of Emissions

  • Scope 1 and Scope 2 emissions: required to be disclosed separately, after calculating such emissions from all sources included in the company’s organizational and operational boundaries (as described below).
  • Scope 3 emissions: required to be disclosed separately if (1) the emissions are material to the company or (2) the company has set a GHG emissions reduction target or goal that includes its Scope 3 emissions. If required to be disclosed, companies would need to (i) identify the categories of upstream and downstream activities included in the calculation of such emissions; (ii) separately disclose Scope 3 emissions data for each category; (iii) disclose the total Scope 3 emissions; and (iv) describe the data sources used to calculate such emissions, including (a) emissions reported by parties in the company’s value chain, and whether such reports were verified by the company or a third party, or unverified, (b) data concerning specific activities, as reported by parties in the company’s value chain, and (c) data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a company’s value chain, including industry averages of emissions, activities, or economic data.

Notably, if Scope 3 emissions are not material, or a company determines that only certain categories are material, the proposed rules suggest that companies consider disclosing the basis for such determinations.

The proposed rules would include a safe harbor for Scope 3 emissions from certain forms of liability under the securities laws. In addition, smaller reporting companies would be exempt from the Scope 3 emissions disclosure requirements.

Determining Materiality of Scope 3 Emissions

The SEC noted that, “given their relative magnitude,” for many companies, Scope 3 emissions could be material “to help investors assess the [companies’] exposure to climate-related risks, particularly transition risks, and whether they have developed a strategy to reduce their carbon footprint in the face of regulatory, policy, and market constraints.” In assessing whether Scope 3 emissions are material, companies should consider the following:  

  • Quantitative Factors: Whether Scope 3 emissions make up a “relatively significant portion” of their overall GHG emissions; while the SEC did not propose a specific quantitative threshold for determining materiality, it noted that some companies use a 40% threshold in assessing the materiality of Scope 3 emissions.
  • Qualitative Factors: Where Scope 3 emissions represent a significant risk, are subject to significant regulatory focus, or a reasonable investor is substantially likely to consider them important, such emissions will likely be material, even if they represent a smaller portion of a company’s overall GHG emissions.
  • Future Impacts: Where the materiality analysis requires a determination of future impacts, such as a transition risk yet to be realized, companies should consider both the probability of the event occurring and its magnitude; even if probability is low, if the magnitude is high, then the information may be material.

These materiality determinations will not be easy. In addition, as noted above, if Scope 3 emissions are not material, or a company determines that only certain categories are material, the proposed rules suggest that companies consider disclosing the basis for such determinations.

Disclosure Requirements – Information to be Provided

For each type of emissions data required to be disclosed (as described above), companies would need to include certain additional information for the most recently completed fiscal year and for the historical fiscal years included in their financial statements, to the extent such information is reasonably available.

  • Gross Emissions Data: Companies would need to describe the gross emissions data (excluding the use of any purchased or generated offsets) in terms of carbon dioxide equivalent, both (i) aggregated by each constituent GHG and (ii) in the aggregate.
  • GHG Intensity: Companies would be required to disclose the sum of Scope 1 and 2 emissions and, separately, Scope 3 emissions (if required to be disclosed), in terms of GHG intensity. “GHG intensity” would mean a ratio that expresses the impact of GHG emissions per unit of economic value or per unit of production; under the proposed rules, GHG intensity would be reported in terms of metric tons of carbon dioxide equivalent per unit of total revenue and per unit of production (which should be relevant to the company’s industry).
  • Methodology: Companies would also need to describe the methodology, significant inputs, and significant assumptions used to calculate their GHG emissions metrics, as well as any material change to the methodology or assumptions underlying GHG emissions disclosures from the prior fiscal year. Such description would include the following:

- Organizational boundaries, or the boundaries that determine the operations owned or controlled by a company for the purpose of calculating its GHG emissions, determined using the same scope of entities, operations, assets, and other holdings within its business organization as those included in, and based upon the same set of accounting principles applicable to, its consolidated financial statements (thereby allowing a company to exclude emissions from investments that are not consolidated, are not proportionately consolidated, or that do not qualify for the equity method of accounting).

- Operational boundaries, or the boundaries that determine the direct and indirect emissions associated with the business operations owned or controlled by a company (including identifying emissions sources within its plants, offices, and other operational facilities that fall within its organizational boundaries, and then categorizing the emissions as either direct or indirect). Direct emissions may result from stationary equipment, transportation, manufacturing processes, or fugitive emission sources, among other factors.

- Calculation approach, which could include (i) direct measurement of GHG emissions by monitoring concentration and flow rate or (ii) the application of published emission factors (multiplication factors allowing actual GHG emissions to be calculated from available activity data or, if no activity data is available, economic data, to derive absolute GHG emissions) to the total amount of purchased fuel consumed by a particular source, including identifying the factors used and their source.

- Any calculation tools used.

  • Reasonable Estimates: The proposed rules would allow companies to use reasonable estimates when disclosing their GHG emissions, as long as they also describe the assumptions underlying, and their reasons for using, the estimates. In addition, if no actual reported data is reasonably available for the fourth fiscal quarter, companies may use a reasonable estimate of their GHG emissions for the fourth fiscal quarter, together with actual GHG emissions data for its first three fiscal quarters, when disclosing their GHG emissions for the most recently completed fiscal year, so long as they promptly disclose in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter.
  • Other Disclosures: The proposed rules contain several other disclosure provisions, including the use of any third-party data when calculating GHG emissions; any gaps in the data required to calculate GHG emissions; including GHG emissions from outsourced activities that were previously conducted as part of the company’s operations, as reflected in the financial statements included in the filing, when determining Scope 3 emissions; any significant overlap in the categories of activities producing Scope 3 emissions; and permitting disclosure of Scope 3 emissions in terms of a range, as long as the company discloses its reasons for using the range and the underlying assumptions.

Third-Party Assurance Report

Significantly, the proposed rules would require larger companies (accelerated filers and large accelerated filers) to provide an attestation report meeting certain minimum standards from an independent attestation service provider, covering the disclosure of their Scope 1 and Scope 2 emissions. These companies would also be required to provide certain related information about the service provider, who would be required to meet certain minimum qualification and independence requirements. The proposed rules would not require a third-party assurance over Scope 3 emissions.

The SEC did not prescribe a particular framework to be used for the report; instead, the report would be required to be provided pursuant to standards publicly available at no cost, established by a body or group that followed due process procedures, including the broad distribution of the framework for public comment. The SEC indicated that the attestation standards of the PCAOB, American Institute of Certified Public Accountants (AICPA), and International Auditing and Assurance Standards Board (IAASB) would meet the due process requirement.

Such reports would initially be required at the “limited assurance” level, which would phase in to the “reasonable assurance” level. The service provider would be required to provide their consent, which would be filed as an exhibit.

  • Limited Assurance: The service provider would express a conclusion, in the form of negative assurance, about whether it is aware of any material modifications that should be made to the subject matter (e.g., the Scope 1 and Scope 2 emissions disclosure) in order for it to be fairly stated or in accordance with the relevant criteria (e.g., the methodology and other disclosure requirements specified in proposed Item 1504 of Regulation S-K).
  • Reasonable Assurance: The service provider would express an opinion on whether the subject matter is in accordance with the relevant criteria, in all material respects, and provide positive assurance that the subject matter is free from material misstatement. This is the level of assurance provided in the audit of the financial statements.

Companies that are not otherwise subject to the attestation report requirements and that obtain third-party attestation or verification of their GHG emissions disclosures will be required to provide certain information regarding such assurance or verification.

The proposed rules do not include any requirement to obtain an attestation report covering the effectiveness of internal control over GHG emissions disclosure; however, the SEC indicated the current proposals were “appropriate first steps,” leaving open the possibility that such requirement could someday be mandated.

Climate-Related Metrics in Financial Statements – Financial Impact Metrics, Expenditure Metrics and Estimates and Assumptions

The proposed rules would add a new Article 14 – Climate Related Disclosure to Regulation S-X, requiring disclosure of certain climate-related metrics in the notes to the financial statements in Form 10-K filings. Such metrics would generally be disclosed for each year included in the financial statements. These disclosures would be subject to audit and within the scope of a company’s internal control over financial reporting.

For each type of financial statement metric, companies would be required to disclose how the metric was derived, including significant inputs and assumptions used, and, if applicable, policy decisions made to calculate the specified metrics, as well as the impact of any identified climate-related risks, including physical risks and transition risks, on any of the metrics.

Companies could also optionally disclose the impact of any climate-related opportunities on such financial statement metrics, subject to certain disclosure requirements.

Financial Impact Metrics

Subject to a threshold requirement (described below), companies would be required to disclose the financial impacts of severe weather events and other natural conditions (such as flooding, drought, wildfires, extreme temperatures, and rising sea levels) and transition activities on any relevant line items in their financial statements, as well as the financial impact of any identified climate-related risks. (Identified physical risks are referred to together with severe weather events and other natural conditions as “climate-related events”.) Positive impacts and negative impacts relating to climate-related events or transition activities would each need to be disclosed separately on an aggregated, line-by-line basis. The SEC provided the following chart as an example and noted that additional disclosures could include the company’s decision to include the impact from opportunities, the specific events that were aggregated, and, if applicable, the estimation methodology used to disaggregate the amount of impact on the cost of revenue among the climate-related events, transition activities, and other factors:


F/S line-item

Total negative impact from climate-related events

Total positive impact from climate-related events

Total negative impact from climate-related transition activities

Total positive impact from climate-related transition activities and climate-related opportunities

Cost of Revenue

(Debit) $300,000

(Credit) $70,000


(Credit) $90,000

*As discussed earlier, a registrant may elect to include the impact of climate-related opportunities when calculating its climate-related financial impact metrics. This example illustrates a situation where the registrant has elected to include impacts from transition opportunities.

Financial impacts relating to severe weather events and other natural conditions could include changes to revenues or costs from disruptions to business operations or supply chains; impairment charges and changes to the carrying amount of assets due to assets being exposed to severe weather and other natural conditions; or changes to loss contingencies or reserves, or to total expected insured losses, due to severe weather events, flooding, or wildfire patterns.

Financial impacts related to transition activities could include changes to revenue or cost due to new emissions pricing or regulations resulting in the loss of a sales contract; changes to operating, investing, or financing cash flows from changes in upstream costs, such as transportation of raw materials; changes to the carrying amount of assets due to a reduction of an asset’s useful life or a change in an asset’s salvage value by being exposed to transition activities; and changes to interest expense driven by financing instruments, such as climate-linked bonds issued where the interest rate increases if certain climate-related targets are not met.

Such disclosures would not be required for a particular line item if the aggregated impact of the severe weather events and other natural conditions, transition activities, and identified climate-related risks is less than 1% of the total line item for the relevant fiscal year. In determining whether this threshold is met, companies would need to aggregate the absolute value of the positive and negative impacts on a line-by-line basis. The SEC provided the following example:

  • Cost of revenue was impacted negatively by Events A and B by $300,000, driven by increased input costs impacted by severe weather events that strained the company’s main supplier;
  • Cost of revenue was impacted positively by Event C by $70,000, driven by technology that improved the company’s ability to manage the impact of severe heat on certain raw materials, which resulted in more efficient production; and
  • Cost of revenue was impacted positively by Transition Activity D, which reduced production costs for certain products by $90,000 through advanced technology that improved energy efficiency during the production process.

For purposes of determining whether such impacts would trigger the disclosure threshold requirements, the company would perform the following analysis:


F/S line-item

F/S balance (from
consolidated financial statements)

of Events
A and B

Impact of

Activity D

value of

Percentage impact

Cost of revenue







Because the absolute value of the aggregate impacts of the climate-related events and transition activities exceeded 1% of the cost of revenue, the company would be required to include disclosure for such line item. 

Expenditure Metrics

Companies would need to separately disclose the aggregate amounts of both expenditures expensed and capitalized costs incurred toward (i) positive and negative impacts associated with the climate-related events (i.e., severe weather events and other natural conditions and identified physical risks) and (ii) transition activities (specifically, to reduce GHG emissions or otherwise mitigate exposure to transition risks, including identified transition risks).

The SEC provided the following table as an example for potential disclosure and noted that additional disclosure could include the specific climate-related events and transition activities that were aggregated for purposes of determining the impacts on the capitalized or expensed expenditure amounts and, if applicable, policy decisions made in determining the amount of climate-related events or transition activities categorized as expenditure capitalized versus expenditure expensed or whether impacts from pursuing any climate-related opportunities are included in the analysis, as well as the composition of the total expenditure expensed and total expenditure capitalized used to calculate whether the disclosure threshold was met and, if applicable, a discussion of the estimation methodology used to disaggregate the amount of impact between the climate-related events, transition activities, and other factors, including if an event or an activity impacted both capitalized and expensed cost:



Expenditure incurred for climate-related events

Expenditure incurred for climate-related transition activities

Capitalized costs



The expenditure metrics would be subject to the same disclosure threshold as the financial impact metrics; in determining whether the threshold is met, companies may separately determine the amount of expenditure expensed and the amount of expenditure capitalized, but would be required to aggregate expenditure related to climate-related events and transition activities within each such category.

The SEC provided the following example: assume a company capitalized $200,000 of expenditure incurred related to Event D; capitalized another $100,000 of expenditure incurred related to Activity E; and expensed $25,000 of expenditure incurred related to Event F (which is an identified transition risk). The company would determine whether the disclosure requirements were triggered based on the proposed thresholds, as shown below:


Expenditure category

Current fiscal year balances (from consolidated 
financial statements)



Event F


Capitalized (total)
incurred during
the year that was capitalized)






Expense (total)
incurred during
the year that
year that was






Because the amount of capitalized costs exceeded 1%, the company would be required to disclose such category of expenditure. No disclosure would be required for the expenditure incurred that was expensed (related to Event F above) because it was below the 1% threshold.

Financial Estimates and Assumptions

A company would also be required to include a description of how (if at all) the financial estimates and assumptions used to prepare its financial statements were impacted by exposure to risks and uncertainties associated with, or known impacts from, severe weather events and other natural conditions, transition activities, or identified climate-related risks, or a potential transition to a lower carbon economy or any climate-related targets disclosed by the company.

Publicly Disclosed Targets and Goals   

A company that has publicly disclosed any climate-related targets or goals would be required to provide certain information regarding such targets or goals, including, among other things, (i) how and when it intends to meet its targets or goals, and the scope of activities and emissions included; (ii) any interim targets or goals; (iii) the defined baseline time period and baseline emissions against which progress will be tracked; and (iv) data demonstrating whether the company is making progress toward achieving the target or goal, and how such progress has been achieved, which disclosures would need to be updated annually.

In addition, to the extent a company has used carbon offsets or RECs as part of its plan to achieve its climate-related target or goals, it would need to discuss certain related information, including the amount of carbon reduction represented by such offsets or amount of generated renewable energy represented by such RECs and the source and cost of such offsets or RECs.

Climate-Related Opportunities

The proposed rules would also permit disclosure of actual or potential impacts of any “climate-related opportunities,” or the actual or potential positive impacts of climate-related conditions and events on a company’s consolidated financial statements, business operations, or value chains, as a whole, subject to certain requirements. Such opportunities could include cost savings associated with the increased use of renewable energy, increased resource efficiency, the development of new products, services, and methods, access to new markets caused by the transition to a lower carbon economy, and increased resilience along a company’s supply or distribution network related to potential climate-related regulatory or market constraints. Companies could disclose information about such opportunities when disclosing their climate-related risk governance, strategy, and management.

Where to Disclose

The climate change-related disclosures would be disclosed under Part II, Item 6. Climate-Related Disclosure of Form 10-K (replacing the current “Reserved” heading). Companies may incorporate the disclosure by reference from another section within the Form 10-K, such as the risk factors or management’s discussion and analysis. Any material changes to such disclosures during the fiscal year would need to be disclosed in new Part II, Item 1B. Climate-Related Disclosure of Form 10-Q. Registration statements on Forms S-1, S-11 and S-4 would also be amended to require the climate-related disclosures, and Form S-3 would also be impacted.

Phase-In Periods

The SEC has included phased-in compliance dates for the proposed rules, which would apply to all companies, with compliance based on filer status, and an additional phase-in period for Scope 3 emissions disclosure. The following table assumes that the proposed rules will be adopted with an effective date in December 2022 and that the filer has a December 31st fiscal year end:

Filer Type

Disclosure Compliance Date

Financial Statement Metrics Audit Compliance Date


All proposed disclosures, including GHG emissions metrics: Scope 1, Scope 2, and associated intensity metric, but excluding Scope 3

GHG emissions metrics: Scope 3 and associated intensity metric


Large Accelerated Filer

Fiscal year 2023

(filed in 2024)

Fiscal year 2024

(filed in 2025)

Same as the disclosure compliance date

Accelerated Filer

Non-Accelerated Filer

Fiscal year 2024

(filed in 2025)

Fiscal year 2025

(filed in 2026)


Fiscal year 2025

(filed in 2026)


Companies with a different fiscal year-end date that results in their fiscal year 2023 commencing before the effective date of the rules would not be required to comply with the proposed rules until the following fiscal year. (For example, a large accelerated filer with a March 31 fiscal year-end would not be required to comply with the proposed climate disclosure rules until its Form 10-K for fiscal year 2024, filed in June 2024.)

The third-party attestation report would be subject to the following phase-in periods:

Filer Type

Scopes 1 and 2 GHG Disclosure Compliance Date

Limited Assurance

Reasonable Assurance

Large Accelerated Filer

Fiscal year 2023

(filed in 2024)

Fiscal year 2024

(filed in 2025)

Fiscal year 2026

(filed in 2027)

Accelerated Filer

Fiscal year 2024

(filed in 2025)

Fiscal year 2025

(filed in 2026)

Fiscal year 2027

(filed in 2028)


For more information, please contact:

Jurgita Ashley

Julia Miller

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