Executive Summary of the SEC’s Proposed Rule on Climate Disclosure
by Emily Abraham, Doug Rand,
Laura McCracken, Kristen Sullivan, and John Wilde, Deloitte & Touche LLP
On March 21, 2022, the SEC issued a proposed
rule1 that would enhance and standardize the climate-related disclosures provided by
public companies. As SEC Chair Gary Gensler noted in his statement about the proposed rule, “[t]oday, investors
representing literally tens of trillions of dollars support climate-related
disclosures because they recognize that climate risks can pose significant financial
risks to companies, and investors need reliable information about climate risks to
make informed investment decisions.”
Under the proposed rule, a registrant would be required to provide disclosures about
greenhouse gas (GHG) emissions (with attestation for Scope 1 and Scope 2
disclosures), certain financial statement disclosures, and qualitative and
governance disclosures within its registration statements and annual reports (e.g.,
Form 10-K). Comments on the proposed rule are due 30 days after its publication in
the Federal Register or May 20, 2022, whichever is later.
The proposal arrives approximately one year after then Acting SEC
Chair Allison Herren Lee issued a request for input on climate-change disclosures as a prelude to
rulemaking. Chair Gensler has similarly focused on climate risks and climate-related
disclosures during his tenure. For example, in testimony before the U.S. Senate Committee on Banking, Housing,
and Urban Affairs, he noted that “[c]ompanies and investors alike would benefit from
clear rules of the road” and that he had directed the SEC staff to consider economic
analysis and public comment in developing the requirements related to such
Key Components of the Proposed Climate Disclosure Requirements
In the proposing release, the SEC noted that certain aspects of
the disclosures registrants would be required to provide are similar to those
that some companies provide under existing disclosure frameworks and standards,
such as the Financial Stability Board’s Task Force on Climate-Related Financial
Disclosures (TCFD) and the Greenhouse Gas Protocol.
Registrants would be required to provide the following types of disclosures:
Financial statement footnote disclosures:
The impact on financial statement line items
related to severe weather events and other natural
conditions (e.g., impairment charges, increased loss
reserves) and transition activities (e.g., changes in
salvage values or useful lives of assets) if such amount
exceeds 1 percent of the related line item.
The expenditures related to mitigating the
risk of severe weather events and other natural conditions
and transition activities if such amount exceeds 1 percent
of the total amount expensed or capitalized.
How severe weather events and other natural
conditions and transition activities affected estimates and
assumptions reflected in the financial statements.
GHG emission disclosures:
Scope 1 and Scope 2 GHG emissions (i.e.,
from a registrant’s owned or controlled operations and
purchased or acquired electricity, steam, heat, or cooling,
respectively), which would need to be separately disclosed
on a disaggregated (by each GHG) and aggregated basis. This
disclosure would be required on a gross basis (before
consideration of any offsets) and relative to intensity
(e.g., tons of carbon dioxide per dollar of revenue).
Scope 3 GHG emissions (i.e., from indirect
upstream and downstream activities) in gross terms (before
consideration of any offsets) and relative to intensity, if
the registrant has set a GHG emissions target or goal that
includes Scope 3 emissions or if Scope 3 emissions are
material. Scope 3 GHG emission disclosures would be subject
to securities law safe harbor provisions.
How climate-related risks have (1) had or
are likely to have a material impact on the business and its
financial statements as well as (2) affected or are likely
to affect the registrant’s “strategy, business model, and
The registrant’s processes for detecting,
evaluating, and managing climate-related risks and whether
those processes are integrated into the registrant’s broader
risk management program.
If a registrant uses an internal carbon
price, the registrant’s internal carbon price and how such
price is determined.
If the registrant uses a scenario analysis
to assess its business in the context of climate-related
risks, a description of the scenarios, assumptions, and
projected financial impacts.
If a registrant has adopted a climate
transition plan, a description of such plan as well as
relevant targets and metrics.
If the registrant has publicly disclosed
climate-related targets or goals:
The scope of activities
encompassed, the time horizon envisioned, and any
interim targets established.
How the registrant plans to
achieve its targets or goals.
An update each year of how the
registrant is progressing relative to its targets
or goals and how such progress has been
If carbon offsets or renewable
energy certificates (RECs) have been used as part
of the plan to achieve climate-related targets or
goals, information about the carbon offsets or
RECs, including how much of the progress made is
attributable to offsets or RECs.
Governance disclosures — How the registrant’s board of directors
and management oversee climate-related risks, the risk management
process, and the registrant’s response.
Location, timing, and applicability of the required
disclosures — Under the proposed rule, a registrant would
provide the disclosures in its registration statements as well as its
annual reports filed under the Securities Exchange Act of 1934. The
disclosures outlined in the financial statement footnote
disclosures section above would be required in the
financial statements, whereas the remaining disclosures, including GHG
emissions, would be required in a newly created section of Form 10-K
(Item 6) immediately before MD&A. The disclosures would be due at
the same time as a registrant’s annual report and would be required for
both domestic and foreign registrants. As discussed below, smaller
reporting companies would be exempt from Scope 3 GHG emission disclosure
Attestation requirements — The financial
statement footnote disclosures would be subject to existing financial
statement audit requirements. The Scope 1 and Scope 2 GHG emission
disclosures would be subject to limited assurance during a phase-in
period, followed by reasonable assurance.
Phase-in period of the proposed rule — If the
proposed rule’s requirements become effective in December 2022, the
mandatory compliance date for their adoption for a registrant with a
calendar year-end would be as follows:
All Disclosures Except Scope 3
GHG Emission Disclosures
Scope 3 GHG Emission
Attestation on Scope 1 and
Scope 2 GHG Emission Disclosures
Large accelerated filer
Limited assurance — 2024
Reasonable assurance —
Limited assurance — 2025
Reasonable assurance —
Smaller reporting companies would be exempt from
Scope 3 GHG emission disclosures and would have an additional year
of transition (i.e., all other disclosures would be required in
For a comprehensive analysis of the proposed rule, see
Deloitte’s March 29, 2022, Heads Up.
Questions to Consider
The proposed rule would significantly change the climate-related
disclosure requirements for public companies. For most companies the effort
needed to comply with the disclosure requirements will be substantial, and the
time to begin preparing is now.
In a recent Deloitte survey of 300 finance, accounting, sustainability,
and legal executives at public companies with over $500 million in revenue, more
than half (57 percent) indicated that data availability (access) and data
quality (accuracy or completeness) remain their greatest challenges with respect
to environmental, social, and governance (ESG) data for disclosure. Less than a
quarter (21 percent) of respondents currently have an ESG council or working
group focused on ESG topics; however, more than half (57 percent) are actively
working to establish one. A strong majority (82 percent) also believe that they
will need additional resources to generate ESG disclosures that meet the
information needs of critical stakeholders.
Given the challenges expressed by survey respondents and in anticipation of the
final rule, companies may wish to begin preparing now by using the proposed rule
as a framework and by considering the following questions:
With whom does the oversight responsibility for climate-related or
other ESG risks and opportunities reside? What involvement does
finance, internal audit, the audit committee, or the board of
directors have? What policies and procedures are in place to govern
What climate-related information is currently gathered and available?
What level of assurance is currently obtained over this information?
What additional information (if any) would need to be developed or
gathered (including for disclosure in the audited financial
How does the company evaluate the materiality of climate-related
disclosures? Are there systems and processes in place for gathering
the necessary information for determining whether such disclosures
What disclosure controls and procedures are in place to address the
proposed rule’s disclosure requirements, and what internal controls
over financial reporting are in place to address the disclosure that
would be required in the audited financial statements?
When is climate-related information currently prepared and reviewed?
How does that timing compare with the reporting deadlines proposed
by the SEC? What resources (e.g., people, processes, technologies)
would the company need to meet the proposed reporting deadlines?
As noted above, the SEC has indicated that the proposed rule is consistent with
existing frameworks or standards, such as those recommended by the TCFD and the
GHG Protocol. Therefore, registrants that already provide such disclosures may
be better positioned to implement the proposed rule’s requirements.
In addition to the resources discussed above, Deloitte resources such as the
following may help companies assess their approach to climate-related
SEC Proposed Rule Release No. 33-11042, The Enhancement and
Standardization of Climate-Related Disclosures for Investors.
Heads Up is prepared by members of Deloitte's National Office as developments warrant. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
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