Securities and Exchange Commission Advances ESG Proposed Rules

On March 21, 2022, the Securities and Exchange Commission (SEC) voted in favor of a proposed set of rules for climate-related disclosure statements for all SEC-registered companies. Details on the SEC ESG changes have been the subject of one of our previous articles. The SEC’s greenhouse gas ruling will dramatically change the way companies conduct business practices and disclose information to shareholders and the public. The changes also underscore the incredible importance of taking a measured approach to all types of advertising, marketing, ESG statements or other information disclosures that touch on environmental (“E”) factors, including emissions. greenhouse gases (GHGs). Companies can take several steps now to prepare for the likely passage of SEC greenhouse gas rules, which we detail below.

SEC ESG Changes

The SEC’s proposed rule requires companies registered with the SEC to include certain climate-related information in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations or finances. and certain climate-related financial statement measures in a note to their audited financial statements. Required climate risk disclosures would also include disclosure of a registrant’s greenhouse gas emissions.

Specifically, the proposed rules would require the following information disclosures:

  1. Board and management oversight and governance practices related to climate risks;

  2. Which climate-related risks identified by the company have had or will have a “significant impact” on the activity, whether in the short, medium or long term;

  3. How climate-related risks have or will affect the company’s strategy, business model or forecast;

  4. Identification of company processes for identifying, assessing and managing climate-related risks and whether the processes are integrated into the company’s overall risk management system or processes;

  5. The impact of climate-related events and climate transition activities on the company’s financial statements and associated expenses, as well as an estimate of the financial impact of such events or activities;

  6. Measurements of Scope 1 and Scope 2 GHG emissions expressed in aggregate and also disaggregated;

  7. Scope 3 GHG emissions measurements, or if the company has set a GHG emissions reduction goal or target that includes its Scope 3 emissions. The proposed rule also creates a safe harbor for liability for Scope 3 emissions disclosures and an exemption from Scope 3 emissions disclosure for small businesses; and

  8. Corporate climate-related targets or objectives and transition plan, if applicable.

The SEC ESG amendments would include a phase-in period for all companies, with the compliance date dependent on the company’s reporting status, and an additional phase-in period for disclosure of scope emissions. app 3.

Preparations businesses can make now

Companies can take several steps now to prepare for the likely SEC ESG changes to come.

First, companies should review any statements or information that may already exist regarding the climate. Some companies voluntarily disclose metrics related to greenhouse gases and other climate-affecting factors, but those metrics may not conform to the disclosures that the SEC will require in the future. Understanding past disclosures and how that information was determined within the business will provide a key starting point for identifying ways to adapt internal processes and procedures for stricter reporting. These steps are often referred to as a climate audit and are key to understanding the changes in business practices that will need to be made to comply with SEC requirements.

Second, now examine the scope of your company’s scope 3 emissions. A starting point is to determine which Scope 3 emissions the SEC would review are, in fact, “significant”, since only material Scope 3 emissions would need to be reported under the SEC’s proposed rule. SEC, unless the company chooses to set its own Scope 3 emissions targets. Many companies that choose to undertake the carbon accounting process must rely on their supply chain to provide essential information for these determinations, which is not always easy. However, due diligence remains the best course of action, if only to potentially take advantage of the proposed rule’s safe harbor provision. This provision states that only disclosures made without reasonable basis or in bad faith will be deemed fraudulent by the SEC. It will be an essential defense tool for companies that find themselves under the scrutiny of the SEC.

Third, companies must ensure that their C-suite or their boards have the appropriate tools to oversee corporate decisions regarding climate impacts. Companies should consider whether special committees should be created to provide clear governance boundaries on this important topic. It will also be essential to determine whether the committee members, or any other executive responsible for ESG-related decision-making, have the necessary knowledge to enable them to make sound decisions for the future of the company. Determine ways to provide leaders with training on critical ESG topics or consider hiring outside consultants or advisors as a resource for leaders.


The proposed disclosure requirements will add an increased level of control over companies that are not as advanced in climate control measures and data collection as other companies. This will in turn increase oversight and accountability of board members for non-delivery of measured results against competitors. It could also make the SEC the lead agency for climate disclosure enforcement actions.

While any SEC final rule on GHG disclosures may be challenged in court, companies should nonetheless prepare now for changes that are, at least for now, likely in the coming months. . Failure to do so would not only impact the SEC’s targeting of enforcement, but could also lead to governance disruption by disgruntled shareholders due to board or management inaction. direction.

©2022 CMBG3 Law, LLC. All rights reserved.National Law Review, Volume XII, Number 116

Aurora J. William