SEC issues Climate-Related Disclosure Proposal

On March 21, 2022, the U.S. Securities and Exchange Commission issued numerous rule changes imposing new climate-related disclosure requirements on public companies. The disclosures would apply to registration statements as well as periodic reports and inform investors about climate-related risks that are reasonably likely to have a material impact on the company’s business, operations, or financial condition. 

These proposals would require applicable companies to disclose things such as greenhouse gas emissions, risks incurred with severe weather events, and efforts to transition to a lower carbon footprint. Companies will also have to report the metrics of how the climate-related risks were calculated. 

"Investors need reliable information about climate risk to make informed investing decisions," Chair Gary Gensler said. "Today's proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand." 

The SEC's three Democratic members voted yes to the proposed rule changes while the one Republican commissioner, Hester Peirce, voted against. The debate over whether to require more climate-related disclosures has traditionally been deeply divided between Democrats, who have generally favored the rules, and Republicans, who have generally opposed them. Peirce issued a 17-page dissent, arguing that the proposed changes were based on "faulty quantitative analyses." 

However, many see the rule changes as a positive thing. Commissioner Allison Herren Lee, a Democrat, called this a “watershed moment” for investors, adding that the links between climate change and capital market activity are “direct and evident” and these disclosures more necessary than ever. 

This proposal has been a long time coming. The SEC first began its effort to provide investors with information about environmental risks facing public companies in the 1970s. The SEC subsequently provided guidance in 2010, but the most recent rule changes are expected to have a much more substantial effect and mandate the disclosure of this material information to investors. 

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About Cristina M. Paneque

Cristina Paneque's practice is focused on securities litigation. She is an associate in the firm's New York office.

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