The SEC’s final climate disclosure rules are said to reflect the Commission’s efforts to respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on operations. However, SEC commissioner Caroline A. Crenshaw sees a major flaw in the omission of Scope 3 emissions and said it is not the rules she would have written.

Crenshaw declared: “While these are important steps forward, they are the bare minimum. Ultimately today’s rule is better for investors than no rule at all, and that is why it has my vote.

“But, while it has my vote, it does not have my unencumbered support. And, although I am loath to leave for future Commissions those obligations that I see as our responsibilities today, I’m afraid that is precisely what we are doing.”

Crenshaw also highlighted that important disclosures remain absent from the this final rule, including more robust greenhouse gas emissions reporting requirements and Scope 3.

The commissioner added: “Today we remove any Scope 3 requirement – even one with a safe harbour that would have shielded issuers from liability for good faith estimates in reporting. Indeed, comments from investment advisers, pension funds, and the SEC’s Investor Advisory Committee, among many others, highlight that Scope 3 remains an invaluable metric for investors. It is a comparable, quantitative metric that allows investors to measure that risk across companies, sectors, and their portfolios.”

The final rules will become effective 60 days after publication of the adopting release in the Federal Register. Compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status.

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SEC chair Gary Gensler maintained the new rules will provide “specificity on what companies must disclose, which will produce more useful information than what investors see today”.

Gensler added: “They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.”

The chair also highlighted the final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings.

Gensler said: “The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.”

However, Gensler admitted in an official statement: “While many investors today are using Scope 3 information in their investment decision making, based upon public feedback, we are not requiring Scope 3 emissions disclosure at this time.”

Large public apparel companies will need to disclose the following under the new rules

  • Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition
  • The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook
  • If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities
  • Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices
  • Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks
  • Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes
  • Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal
  • For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions
  • For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level
  • The capitalised costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements
  • The capitalised costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements
  • If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.

In June 2022 the American Apparel & Footwear Association (AAFA) urged the US SEC to push back certain elements of its proposal requiring climate-related company disclosures.

At the time, AAFA said its members would support actions to measure and report emissions but wanted to delay disclosure of Scope 3 emissions and targets until reporting of Scopes 1 and 2 greenhouse gas emissions was more widespread to level the playing field.