The U.S. Securities and Exchange Commission (SEC) proposed the rules to enhance and standardize climate risk disclosures for investors as well as the rules on cybersecurity risk management, strategy, governance, and incident disclosure by public companies.
The comment period for both the aforementioned proposals is 30 days after their respective publication in the Federal Register, or 60 days after the date of issuance and publication on the SEC website, whichever period is longer. The proposed rules on climate risk disclosures require registrants to provide certain climate-related information in their registration statements and annual reports, including information about climate-related financial risks and financial metrics in their financial statements and disclosure of registrants greenhouse gas emissions. The proposed climate-related disclosure framework is modeled in part on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations and draws on the Greenhouse Gas (GHG) Protocol. The proposed rules would require a registrant to disclose information about:
- governance of climate-related risks and relevant risk management processes
- how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short, medium, or long-term
- how any identified climate-related risks have affected or are likely to affect the registrant’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 registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements
- direct greenhouse gas emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2)
- greenhouse gas emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a greenhouse gas emissions reduction target or goal that includes Scope 3 emissions
- climate-related targets or goals, and transition plan, if any
For registrants that already conduct scenario analysis, have developed transition plans, or publicly set climate-related targets or goals, the proposed amendments would require certain disclosures to enable investors to understand those aspects of the registrants’ climate risk management. The proposals for greenhouse gas emission disclosures would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks. The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 emissions disclosures. If adopted this year, the rules are expected to apply beginning with the 2023 annual report.
- Press Release on Climate Risk Disclosures
- Proposed Rule on Climate Risk Disclosures (PDF)
- Press Release on Cyber Risk Disclosures
- Proposed Rule on Cyber Risk Disclosures (PDF)
Keywords: Americas, US, Banking, ESG, Climate Change Risk, Disclosures, Transition Risk, TCFD, TCFD Recommendations, Cyber Security, Cyber Risk, SEC, Headline
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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