New SEC proposal would ramp up climate-change disclosures

By Ken Tysiac

SEC registrants would be required to include specific climate-related disclosures in their public filings and would need to have attestation performed on certain disclosures under a proposal the SEC voted 3–1 to issue Monday.

Under the proposal, companies would be required to disclose:

  • Information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition in their registration statements and periodic reports; and
  • Certain climate-related financial statement metrics in a note to their audited financial statements.

The required information about climate-related risks also would include disclosure of a registrant's greenhouse gas emissions.

Climate change has become an increasing area of focus in the business environment and the accounting profession as investors have expressed increasing interest in companies' risks and disclosures amid global warming.

Last year, the European Commission proposed sustainability disclosure regulations for certain companies, and the IFRS Foundation created a new International Sustainability Standards Board to establish consistent, reliable reporting on climate change and other issues.

The SEC's proposals are similar to those that many companies currently provide under frameworks created by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol.

If approved, the SEC's proposed rule changes would require a registrant to disclose information about:

  • The registrant's governance of climate-related risks and relevant risk management processes;
  • How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short, medium, or long term.
  • How any identified climate-related risks have affected or are likely to affect the registrant's strategy, business model, and outlook; and
  • The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant's consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

For registrants that already conduct scenario analysis, have developed transition plans, or publicly set climate-related targets or goals, the proposed amendments would require certain disclosures to enable investors to understand those aspects of the registrants' climate risk management.

Under the proposal, a registrant would be required to disclose information about its direct greenhouse gas emissions (known as Scope 1 emissions) as well as indirect emissions from purchased electricity or other forms of energy (Scope 2 emissions).

A registrant also would be required to disclose greenhouse gas emissions from upstream and downstream activities in its value chain (Scope 3 emissions) if material or if the registrant has set a greenhouse gas emissions target or goal that includes Scope 3 emissions.

The proposal would provide a safe harbor from liability for Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.

CPAs in public accounting should be aware that they may be requested to perform additional services for large companies under the proposal, as accelerated filers and large accelerated filers would be required to include an attestation report from an independent service provider covering Scope 1 and Scope 2 emissions disclosures.

Hester Peirce was the lone SEC commissioner to vote against issuing the proposal, saying the proposed requirements don't adequately consider materiality and would exceed the commission's mandate as a securities regulator.

The SEC is seeking public comment on the proposal during a comment period that will remain open for 30 days after publication in the Federal Register or 60 days after the date of publication on the SEC's website, whichever period is longer.

— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at

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