The SEC's new climate disclosure rule will require all companies to report Scope 1 and Scope 2 emissions. Scope 3 emissions are required if investors would consider it "material" or if it is part of a company's climate targets, with small companies exempt.
The proposed rules are intended to help issuers more efficiently and effectively disclose climate Scope 1 and Scope 2 risks, which would benefit both investors and issuers.
Clients who may be subject to new disclosure requirements should familiarize themselves with these updates.

On Monday, the U.S. Securities and Exchange Commission (SEC) issued proposed rule amendments requiring climate disclosures by public companies. Current disclosure practices are largely voluntary, and therefore fragmented and inconsistent. In summary, the rule would require periodic disclosure of climate-related information in its statements and reports (such as Form 10-K), including:

  • Climate-related risks and their actual or likely material impacts on the business, strategy and outlook;
  • Governance of climate-related risks and relevant risk management processes;
  • Scope 1 and Scope 2 greenhouse gas (GHG) emissions, and, for some companies, Scope 3 estimates;
  • The impact of severe weather events and related disclosures in notes to audited financial statements; and
  • Information about climate-related targets and goals and a transition plan, if any.


The SEC began its efforts to provide investors with material information about environmental risks facing public companies in the 1970s, and most recently provided related guidance in 2010. Many investors are concerned about the potential impacts of climate-related risks to individual businesses. As a result, investors increasingly have been seeking additional information about the effects of climate-related risks on a company’s business. Some investors also have expressed a need for more consistent, comparable and reliable information about how a registrant has addressed climate-related risks when conducting its operations and developing its business strategy and financial plan. Many U.S. public companies have already adopted voluntary disclosure frameworks from the Task Force on Climate-related Financial Disclosures (TCFD) and the GHG Protocol, a global standardized framework for measuring and managing greenhouse gas emissions from private and public sector operations, value chains and mitigation actions.

The SEC’s proposed rules are based on the above voluntary disclosure frameworks and are intended to enhance and standardize climate-related disclosures. Many issuers currently provide this information to meet investor demand, but current disclosure practices are fragmented and inconsistent. In 2021, a group of 587 institutional investors managing over $46 trillion in assets signed a statement calling on governments to undertake five priority actions to accelerate climate investment, including implementing mandatory climate risk disclosure requirements aligned with the TCFD recommendations and ensuring comprehensive disclosures that are consistent, comparable and decision-useful. The proposed rules purportedly would help issuers more efficiently and effectively disclose these risks.

Summary of Proposed Disclosures

The proposed rules would require a registrant to disclose information about:

  • The oversight and governance of climate-related risks by the registrant’s board and management;
  • 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;
  • The registrant’s processes for identifying, assessing and managing climate-related risks, and whether any such processes are integrated into the registrant’s overall risk management system or processes;
  • If the registrant has adopted a transition plan as part of its climate-related risk management strategy and a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks;
  • If the registrant uses scenario analysis to assess the resilience of its business strategy to climate-related risks and a description of the scenarios used, as well as the parameters, assumptions, analytical choices and projected principal financial impacts;
  • If a registrant uses an internal carbon price, information about the price and how it is set;
  • 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 the financial estimates and assumptions used in the financial statements;
  • The registrant’s direct GHG emissions (Scope 1) and indirect GHG emissions from purchased electricity and other forms of energy (Scope 2), separately disclosed, expressed both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute terms, not including offsets, and in terms of intensity (per unit of economic value or production);
  • Indirect emissions from upstream and downstream activities in a registrant’s value chain (Scope 3), if material, or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions, in absolute terms, not including offsets, and in terms of intensity; and
  • If the registrant has publicly set climate-related targets or goals, information about:
    • The scope of activities and emissions included in the target and the defined time horizon by which the target is intended to be achieved and any interim targets;
    • How the registrant intends to meet its climate-related targets or goals;
    • Relevant data to indicate whether the registrant is making progress toward meeting the target or goal and how such progress has been achieved, with updates each fiscal year; and
    • If carbon offsets or renewable energy certificates (RECs) have been used as part of the registrant’s plan to achieve climate-related targets or goals, certain information about the carbon offsets or RECs, including the amount of carbon reduction represented by the offsets or the amount of generated renewable energy represented by the RECs. When responding to any of the proposed rules’ provisions concerning governance, strategy and risk management, a registrant may also disclose information concerning any identified climate-related opportunities.

The proposed rules would require a registrant (including a foreign private issuer) to (i) provide the climate-related disclosure in its registration statements and Exchange Act annual reports; (ii) provide the Regulation S-K mandated climate-related disclosure in a separate, appropriately captioned section of its registration statement or annual report; (iii) provide the Regulation S-X mandated climate-related financial statement metrics and related disclosure in a note to its consolidated financial statements; (iv) electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL; and (v) if an accelerated or large accelerated filer, obtain an attestation report from an independent attestation service provider covering, at a minimum, Scopes 1 and 2 emissions disclosure.

Timing for Compliance

The SEC’s proposed rules include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 emissions disclosure. Assuming the SEC adopts the proposed rule later this year and a filer has a December 31 fiscal year-end, these climate-related disclosures would be required under the following deadlines:

Pillsbury’s Energy Transition and ESG Capabilities

Pillsbury is at the center of the energy transition. Our global cross-disciplinary Energy Industry, Sustainable Finance, ESG, and Environmental & Natural Resources teams focus on utilizing cutting-edge developments and advising our clients across all industries on how to achieve decarbonization and pioneer first-to-market transactions, while also helping navigate the business, legal and regulatory challenges in the ESG space.

Pillsbury leverages its extensive 100+ year history of trailblazing for energy clients across fuel lines (dating back to the incorporation of Chevron’s predecessor in 1900) with its market-leading Renewable Energy, Nuclear Energy and Hydrogen practices, to deliver holistic advice to clients in crafting and implementing their energy transition strategies.

That energy industry leadership is coupled with our Sustainable Finance practice, with our lawyers at the forefront of developing innovative solutions and advising on unique strategies, from sustainability-linked debt products to carbon credits and impact investing structures.

Our energy transition work also utilizes our compliance capabilities, featuring one of the first and broadest Environmental & Natural Resources practices in the U.S. and a premier team of Securities Litigation & Enforcement (SEC) attorneys, to deliver practical guidance to companies regarding regulators’ evolving priorities in regulating and enforcing ESG compliance.

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