SEC Climate Disclosure Rule For Public Companies

The US Securities and Exchange Commission hopes to implement new climate change disclosure rules by the end of 2022.

It will likely be a long and contentious haul over the next few years before registered public companies must enhance the way they report climate-related financial risks and metrics to the US Securities and Exchange Commission.

The federal agency’s proposed climate-related disclosure rule, issued on March 21, follows its 2021 request to at least 43 companies for details on the significant risks emerging from the changing climate. Those inquiries—the most over the past 14 years, asked about a range of risks—from hurricanes to litigation to regulatory compliance costs. It followed the federal agency’s September 2021 publication of a list of requests it sent to executives related to a 2010 guidance document on climate-change disclosures.

Companies and industry associations will have at least until May 20 to lay out their concerns—whether on costs, feasibility or liabilities—with the requirements laid out in the giant 506-page document. If the rule kicks in by year’s end, as the agency wants, the first company reports would be due in 2024, covering data from the 2023 fiscal year.

Yet legal challenges are expected once the rule is finalized, particularly on the agency’s statutory authority to enact comprehensive climate disclosure regulations without approval from Congress.

In the proposal, the SEC notes that disclosures related to climate change have generally increased over the past dozen years. Yet the content, detail and location vary, whether in official reports filed with the commission or sustainability reports found on company websites. The current disclosure system is not turning out consistent, comparable and reliable information. 

Amber Fairbanks, portfolio manager at Mirova US, a sustainable-investment manager affiliated with Natixis Investment Managers, says investors are helped by comprehensive disclosure requirements that make it easier to compare data across companies. “We think it is important that there be regulation to standardize ESG data,” she says, “particularly given the amount of greenwashing that’s prevalent at the moment.”