SEC Extends Comment Period on Proposed Rules Requiring Robust Climate-Related Disclosures

On May 9, the U.S. Securities and Exchange Commission (“SEC”) announced that it will extend the public comment period on its proposed rules on climate-related disclosures by public companies. The comment period was scheduled to close on May 20, 2022, but given the “significant interest” that the amendments have drawn “from a wide breadth of investors, issuers, market participants, and other stakeholders,” the SEC extended the comment period to June 17, 2022. Indeed, the SEC has already received thousands of comments from individual investors, academics, climate activists, industry groups, professional associations, and corporate entities. Some herald the proposed rules as “a fantastic idea to inform potential investors of what their money will support,” while others express concern that such climate-related disclosures stray too far from the SEC’s mission and authority. Although the final text and effective date of the rule are still unclear, enhanced climate-related disclosures are a priority for the SEC and public companies likely will have to deal with them in the near future.

The SEC’s proposed rule would require public companies to disclose, in reports and registration statements filed with the SEC, information about:

  • their governance of climate-related risks and relevant risk management processes;
  • how any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements, over the short-, medium-, or long-term;
  • how any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook;
  • the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements;
  • the company’s direct greenhouse gas emissions (“Scope 1”) and indirect emissions from purchased electricity of other forms of energy (“Scope 2”), and;
  • greenhouse gas emissions from upstream and downstream activities of third parties related to the company’s operation (“Scope 3”), if those emissions are “material,” or if the company has set emission reduction targets that include Scope 3 emissions. The proposal includes a safe harbor for smaller companies.

This proposed rule raises several interesting questions about the kinds of disclosures the SEC should be allowed to require of companies and whether the traditional lodestar of corporate disclosure—materiality—should be stretched to include information that certain investors may want to know because of interests beyond the purely financial. What other kinds of information could (and should) a company be required to disclose, whether or not it is “material” to the financials of a company? And should all companies across all sectors be subject to the same disclosure regime when it comes to climate-related or other environmental, social and governance (ESG) issues? These are but some of the issues raised by the SEC’s foray into ESG-related rulemaking. 

And while a lot of current attention is focused on the SEC’s proposed new rules, it is worth noting that the SEC has also utilized existing rules and regulations to address ESG issues. For example, on April 28, 2022, the SEC charged Vale S.A., a publicly traded Brazilian mining company, with making false and misleading statements about the environmental risks posed by its dams in its annual Sustainability Reports and other public filings. As the Director of the Enforcement Division, Gurbir S. Grewal, noted: “by allegedly manipulating those disclosures, Vale compounded the social and environmental harm caused by the Brumadinho dam’s tragic collapse and undermined investors’ ability to evaluate the risks posed by Vale’s securities.” 

All in all, there is little doubt that climate and ESG-related issues are top of mind for the SEC and will likely be the subject of SEC exam and enforcement focus going forward, regardless of the form that the final rule on climate-related disclosures takes. Companies should review any current climate-related disclosures to ensure that they do not run afoul of existing regulations and start considering what changes they may have to implement to adapt to the likely changes in climate-related disclosure rules.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.

Ariella E. Muller

Ariella E. Muller
Email | +1 212.746.8658

As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.

Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.