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Proposed Climate Change Disclosure Rule for Public Companies

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  • On: 10/28/2022 19:01:59
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By Rachel A. Avan, Saxena White P.A.

In March 2021, the U.S. Securities and Exchange Commission voted to implement a new rule that requires public companies to disclose climate-related risks, greenhouse gas emissions, and carbon footprints.  While the rule would ensure disclosure of information relevant to many investors' decisions, it is also controversial both with regard to its subject matter and its disclosure regime and remains subject to review.   

This is an excerpt from NCPERS Fall 2022 issue of PERSist, originally published October 13, 2022.

Regulators are finally beginning to recognize the materiality investors assign to the environmental practices of public companies.  On March 21, 2022, the U.S. Securities and Exchange Commission voted 3 to 1 to implement sweeping rule changes that require companies to disclose climate-related risks, greenhouse gas emissions, and carbon footprints—metrics that were, until now, only reported voluntarily and without standardization. 

Pursuant to the proposed rule,1 companies will need to disclose information about: (1) their governance of climate-related risks and related risk management processes; and (2) any actual or likely “material impact[s]” of climate risks on their business, strategy, expenditures, and outlooks.  The rule would require that a company report direct and indirect emissions if they are deemed material to investors or if a company has pledged to reduce emissions going forward.  These include “Scope 1” and “Scope 2” emissions, which are generated from a company's own operations and purchases of energy, and for larger companies, “Scope 3” emissions, which are generated by a company's supply chain.  The SEC's Acting Chief Accountant, Paul Munter, has noted that the rule would also require an attestation report from an independent provider, which would offer an “additional degree of reliability” about emissions and provide the “key assumptions” and data informing a company's analysis.

The proposed rule was originally scheduled to be subject to public comment for 60 days, but due to significant public interest, the comment period was extended to June 17, 2022.  Perhaps unsurprisingly, both sides of the aisle have criticized the rule.  For example, Rep. Patrick McHenry (R-NC) claimed the rule mandated disclosure of information that “is not material for most companies,” and Sen. Sheldon Whitehouse (D-RI) took issue with the rule's failure to require disclosures about “climate-related lobbying and influencing activities . . . the single most material disclosures a company could make to achieve climate safety.”  Then, in early April, a group of 40 members of Congress joined other Republicans in arguing the rule is “extremely burdensome,” presents insurmountable compliance challenges, and exceeds the SEC's authority.  In response, SEC Chair Gary Gensler emphasized that the SEC has “over the generations” always been a “disclosure-based” regulator that “step[s] in when there's a significant need for the disclosure of information relevant to investors' decisions.”  Gensler further noted that the proposed rule would benefit both investors and public companies by offering “consistent [and] comparable . . . information” for investors and “provid[ing] consistent and clear reporting obligations for issuers.”  

By the end of the comment period, the SEC received more than 14,000 comment letters, many more than the Commission typically receives upon announcing proposed rules.  Given the volume of public feedback, the politically charged subject of the rule, and likely court challenges, the final rule may ultimately differ, perhaps substantially, from the proposed rule. 

Rachel A. Avan is an attorney in Saxena White P.A.'s New York office.  She specializes in representing public pension funds and other institutional investors in securities class action litigation.  
1“SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors” (Mar. 21, 2022), available at; see also Release Nos. 33-11042, 34-94478.



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