How the Proposed New SEC Rules On Climate-Related Disclosures Will Impact Your Organization

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Learn the broad impact on organizations and their finance functions.

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The proposed new rules by the Securities and Exchange Commission (SEC) to disclose greenhouse gas (GHG) emissions and other climate-related metrics are expected to have a broad impact on many organizations, some of which may have very little experience with climate reporting. 

The proposed new rules are expected to also require registrants to disclose their climate-related risks, targets and goals and how the board of directors and management intend to oversee climate-related risks. As currently drafted, the proposal will require registrants to quantify the effects of certain climate-related events and transition activities in their audited financial statements.

The proposed new rules are expected to require many companies and finance teams to accelerate the maturation of their environmental, social and governance (ESG) reporting processes, even those that are already publishing ESG metrics. Here are a few highlights of what organizations may need to consider if the proposed rules are adopted. 

Who will it impact?

While certain smaller entities may be given some relief from reporting, the proposed rules are expected to have a widespread effect on many companies, from emerging growth companies to foreign private issuers. The proposed rules will also apply to companies entering the US capital markets for the first time by initial public offering, as well as the acquisition targets of public companies.

As companies assess, comment on and work toward potential implementation of the proposal, they have a broad range of factors to consider. For example, many organizations will not only need to consider the potential cost and complexity of implementing the proposal from a compliance perspective, but they may also need to take a closer look at how their efforts to enhance climate-related disclosures more broadly impact the entire external reporting infrastructure.

Prior ESG reporting experience can help, to a point

Even companies with a history of disclosing detailed climate-related information may still have significant work to do to meet the new requirements. Some companies already report, usually outside of their regulatory filings, climate-related information under frameworks that are, at least in part, aligned with the Task Force on Climate-related Financial Disclosures (TCFD) and GHG Protocol, and leverage certain aspects of each (the proposed specific amendments to Regulations S-K and S-X do not make explicit mention of the TCFD or the GHG Protocol). While companies that already voluntarily follow such frameworks could have an advantage in compiling the required information to comply with the proposal, other far-reaching impacts need to be considered, among them:

  • Partial application — While the TCFD recommendations and GHG Protocol are widely understood and provide considerations for measuring and reporting climate-related information, many companies today may only apply certain portions of such frameworks. Companies that partially report under those frameworks would need to reevaluate their disclosures based on the explicit requirements under the proposal, which may differ from the frameworks in some cases.
  • Boundaries — The proposal will align the reporting boundary for GHG emissions with a registrant’s consolidated financial statements. Registrants that currently report emissions voluntarily under the more flexible GHG Protocol should evaluate how this might impact their reporting (e.g., considering their proportionate share of emissions generated by equity method investments). To that end, the registrant should not assume that the reporting boundaries used for today’s Scope 1, Scope 2 and Scope 3 reporting will be the same under the SEC proposal.
  • Assurance — The proposal will require large-accelerated filers and accelerated filers to obtain assurance over the GHG-related disclosures on Scope 1 and 2 emissions. The proposal calls for a phased approach to obtaining assurance for these filers. At first, no assurance would be required, followed by limited assurance the next year and reasonable assurance the following year. The proposal also specifies certain required disclosures about the assurance provider and the attestation standards used. In addition, companies that voluntarily obtain assurance may need to comply with the assurance requirements at an earlier date. Companies should pay attention to any updates to the proposal to clarify requirements related to voluntary assurance.
  • Climate-related goals and targets — The proposal will require registrants to provide certain information about climate-related targets or goals that have been set, including a description of the scope of targeted activities or emissions, the intended time horizon and process, and progress toward meeting the target. In addition, the proposal would require disclosure of Scope 3 GHG emissions and intensity if the registrant has set a GHG emissions target that includes these emissions. Registrants that have already set climate-related targets or goals should consider whether incremental disclosures are required and how these disclosures might impact how the registrant sets and measures progress against such goals in the future.

Reevaluation of existing processes for footnote disclosure

To implement the proposal, registrants may need to reconsider their existing processes for determining materiality. While the proposal does not explicitly redefine materiality as compared to other SEC requirements, it would require registrants to disclose quantitative metrics about climate-related events, transition activities and expenditures in a note to audited financial statements for each line item, unless the aggregate impact would be less than 1% of the total line item. As such, organizations may need to create or formalize processes to identify climate-related events and transactions. Given the specific threshold, and provided the final rules align with the proposals, companies may need to track information at a more granular level than they do for most financial statement disclosures.

Opportunity for improved ESG reporting

Climate is just one part of ESG reporting, and ESG reporting overall has evolved significantly over the last several years. Apart from limited required disclosures such as the existing SEC guidance on climate change and human capital, ESG reporting has largely been voluntary, driven by companies’ desire to meet investor demands and also share the story of their sustainability journey.

Some companies have used ESG reporting to provide a broader picture of the long-term value of their business. Companies with less mature ESG reporting functions may not have had the opportunity to develop clear messages on how to integrate climate and other ESG topics with their strategy, governance and risk management. The new proposals give these companies an opportunity to rethink how they approach ESG reporting and integrate it into their strategic, governance and risk management decisions. This will likely help them better meet investors’ expectations.

Even though the new requirements will likely result in additional effort for companies, they also provide an opportunity to reset their thinking on how they approach and report on ESG topics. Overall, this is expected to provide greater clarity for investors and stakeholders seeking to evaluate companies based on ESG-related performance.

This is a two-part series from Ernst & Young LLP on the SEC’s proposed climate-related disclosures rules. For more information, visit

Marc Siegel is Corporate & ESG Reporting Thought Leader, Ernst & Young LLP. Brian Tomlinson is Managing Director, Finance Accounting Advisory Services (FAAS), Ernst & Young LLP. Eloise Wagner is FAAS Technical Accounting Advisory Group Leader, Ernst & Young LLP.