21334 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

1 15 U.S.C. 77a et seq. 

2 15 U.S.C. 78a et seq. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 210, 229, 232, 239, and 249 

[Release Nos. 33–11042; 34–94478; File No. 

S7–10–22] 

RIN 3235–AM87 

The Enhancement and Standardization 

of Climate-Related Disclosures for 

Investors 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

proposing for public comment 

amendments to its rules under the 

Securities Act of 1933 (‘‘Securities Act’’) 

and Securities Exchange Act of 1934 

(‘‘Exchange Act’’) that would require 

registrants to provide certain climaterelated information in their registration 

statements and annual reports. The 

proposed rules would require 

information about a registrant’s climaterelated risks that are reasonably likely to 

have a material impact on its business, 

results of operations, or financial 

condition. The required information 

about climate-related risks would also 

include disclosure of a registrant’s 

greenhouse gas emissions, which have 

become a commonly used metric to 

assess a registrant’s exposure to such 

risks. In addition, under the proposed 

rules, certain climate-related financial 

metrics would be required in a 

registrant’s audited financial statements. 

DATES: Comments should be received on 

or before May 20, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm). 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

xx–xx on the subject line. 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–10–22. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. The 

Commission will post all comments on 

the Commission’s website (https://

www.sec.gov/rules/proposed.shtml). 

Comments are also available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549 

on official business days between the 

hours of 10 a.m. and 3 p.m. Operating 

conditions may limit access to the 

Commission’s Public Reference Room. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on our website. To ensure direct 

electronic receipt of such notifications, 

sign up through the ‘‘Stay Connected’’ 

option at www.sec.gov to receive 

notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Elliot Staffin, Special Counsel, Office of 

Rulemaking, at (202) 551–3430, in the 

Division of Corporation Finance; or 

Anita H. Chan, Professional Accounting 

Fellow or Shehzad K. Niazi, Acting 

Deputy Chief Counsel, in the Office of 

the Chief Accountant, at (202) 551– 

5300, U.S. Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: We are 

proposing to add 17 CFR 210.14–01 and 

14–02 (Article 14 of Regulation S–X) 

and 17 CFR 17 CFR 229.1500 through 

1506 (subpart 1500 of Regulation S–K) 

under the Securities Act 1 and the 

Exchange Act,2 and amend 17 CFR 

239.11 (Form S–1), 17 CFR 239.18 

(Form S–11), 17 CFR 239.25 (Form S– 

4), and 17 CFR 239.34 (Form F–4) under 

the Securities Act, and 17 CFR 249.210 

(Form 10), 17 CFR 249.220f (Form 20– 

F), 17 CFR 249.306 (Form 6–K), 17 CFR 

249.308a (Form 10–Q), and 17 CFR 

249.310 (Form 10–K) under the 

Exchange Act. 

Table of Contents 

I. Introduction 

A. Background 

B. The March 2021 Request for Public 

Input 

C. The Growing Investor Demand for 

Climate-Related Risk Disclosure and 

Related Information 

1. Major Investor Climate-Related 

Initiatives 

2. Third-Party Data, Voluntary Disclosure 

Frameworks, and International 

Disclosure Initiatives 

D. Development of a Climate-Related 

Reporting Framework 

1. The Task Force on Climate-Related 

Financial Disclosure 

2. The Greenhouse Gas Protocol 

E. Summary of the Proposed Rules 

1. Content of the Proposed Disclosures 

2. Presentation of the Proposed Disclosures 

3. Attestation for Scope 1 and Scope 2 

Emissions Disclosure 

4. Phase-In Periods and Accommodations 

for the Proposed Disclosures 

II. Discussion 

A. Overview of the Climate-Related 

Disclosure Framework 

1. Proposed TCFD-Based Disclosure 

Framework 

2. Location of the Climate-Related 

Disclosure 

B. Disclosure of Climate-Related Risks 

1. Definitions of Climate-Related Risks and 

Climate-Related Opportunities 

2. Proposed Time Horizons and the 

Materiality Determination 

C. Disclosure Regarding Climate-Related 

Impacts on Strategy, Business Model, 

and Outlook 

1. Disclosure of Material Impacts 

2. Disclosure of Carbon Offsets or 

Renewable Energy Credits if Used 

3. Disclosure of a Maintained Internal 

Carbon Price 

4. Disclosure of Scenario Analysis, if Used 

D. Governance Disclosure 

1. Board Oversight 

2. Management Oversight 

E. Risk Management Disclosure 

1. Disclosure of Processes for Identifying, 

Assessing, and Managing ClimateRelated Risks 

2. Transition Plan Disclosure 

F. Financial Statement Metrics 

1. Overview 

2. Financial Impact Metrics 

3. Expenditure Metrics 

4. Financial Estimates and Assumptions 

5. Inclusion of Climate-Related Metrics in 

the Financial Statements 

G. GHG Emissions Metrics Disclosure 

1. GHG Emissions Disclosure Requirement 

2. GHG Emissions Methodology and 

Related Instructions 

3. The Scope 3 Emissions Disclosure Safe 

Harbor and Other Accommodations 

H. Attestation of Scope 1 and Scope 2 

Emissions Disclosure 

1. Overview 

2. GHG Emissions Attestation Provider 

Requirements 

3. GHG Emissions Attestation Engagement 

and Report Requirements 

4. Additional Disclosure by the Registrant 

5. Disclosure of Voluntary Attestation 

I. Targets and Goals Disclosure 

J. Registrants Subject to the ClimateRelated Disclosure Rules and Affected 

Forms 

K. Structured Data Requirement 

L. Treatment for Purposes of Securities Act 

and Exchange Act 

M. Compliance Date 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21335 

3See, e.g., Section 7 of the Securities Act [15 

U.S.C. 77g] and Sections 12, 13, and 15 of the 

Exchange Act [15 U.S.C. 78l, 78m, and 78o]. 

4See, e.g., Section 2(b) of the Securities Act [15 

U.S.C. 77b(b)] and Section 3(f) of the Exchange Act 

[15 U.S.C. 78c(f)]. 

5S&P Global, Seven ESG Trends to Watch in 2021 

(Feb. 7, 2021), available at https://

www.spglobal.com/en/research-insights/featured/ 

seven-esg-trends-to-watch-in-2021. This study 

found that approximately 90% of S&P 500 

companies publish sustainability reports but only 

16% include any reference to ESG factors in their 

Commission filings. 

III. General Request for Comments 

IV. Economic Analysis 

A. Baseline and Affected Parties 

1. Affected Parties 

2. Current Regulatory Framework 

3. Existing State and Federal Laws 

4. International Disclosure Requirements 

5. Current Market Practices 

B. Broad Economic Considerations 

1. Investors’ Demand for Climate 

Information 

2. Impediments to Voluntary ClimateRelated Disclosures 

C. Benefits and Costs 

1. Benefits 

2. Costs 

D. Anticipated Effects on Efficiency, 

Competition, and Capital Formation 

1. Efficiency 

2. Competition 

3. Capital Formation 

E. Other Economic Effects 

F. Reasonable Alternatives 

1. Requirements Limited to Only Certain 

Classes of Filers 

2. Require Scenario Analysis 

3. Require Specific External Protocol for 

GHG Emissions Disclosure 

4. Permit GHG Emissions Disclosures To 

Be ‘‘Furnished’’ Instead of ‘‘Filed’’ 

5. Do Not Require Scope 3 Emissions for 

Registrants With a Target or Goal Related to 

Scope 3 

6. Exempt EGCs From Scope 3 Emissions 

Disclosure Requirements 

7. Eliminate Exemption for SRCs From 

Scope 3 Reporting 

8. Remove Safe Harbor for Scope 3 

Emissions Disclosures 

9. Require Large Accelerated Filers and 

Accelerated Filers To Provide a Management 

Assessment and To Obtain an Attestation 

Report Covering the Effectiveness of Controls 

Over GHG Emissions Disclosures 

10. Require Reasonable Assurance for 

Scopes 1 and 2 Emissions Disclosures From 

All Registrants 

11. Require Limited, Not Reasonable, 

Assurance for Large Accelerated Filers and/ 

or Accelerated Filers and/or Other Filers 

12. In Lieu of Requiring Assurance, 

Require Disclosure About Any Assurance 

Obtained Over GHG Emissions Disclosures 

13. Permit Host Country Disclosure 

Frameworks 

14. Alternative Tagging Requirements 

G. Request for Comment 

V. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

B. Summary of the Proposed Amendments’ 

Effects on the Collections of Information 

C. Incremental and Aggregate Burden and 

Cost Estimates for the Proposed 

Amendments 

D. Request for Comment 

VI. Initial Regulatory Flexibility Act Analysis 

A. Reasons for, and Objectives of, the 

Proposed Action 

B. Legal Basis 

C. Small Entities Subject to the Proposed 

Rules 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

E. Duplicative, Overlapping, or Conflicting 

Federal Rules 

F. Significant Alternatives 

VII. Small Business Regulatory Enforcement 

Fairness Act 

VIII. Statutory Authority 

I. Introduction 

We are proposing to require 

registrants to provide certain climaterelated information in their registration 

statements and annual reports, 

including certain information about 

climate-related financial risks and 

climate-related financial metrics in their 

financial statements. The disclosure of 

this information would provide 

consistent, comparable, and reliable— 

and therefore decision-useful— 

information to investors to enable them 

to make informed judgments about the 

impact of climate-related risks on 

current and potential investments. 

The Commission has broad authority 

to promulgate disclosure requirements 

that are ‘‘necessary or appropriate in the 

public interest or for the protection of 

investors.’’ 3 We have considered this 

statutory standard and determined that 

disclosure of information about climaterelated risks and metrics would be in 

the public interest and would protect 

investors. In making this determination, 

we have also considered whether the 

proposed disclosures ‘‘will promote 

efficiency, competition, and capital 

formation.’’ 4

We are proposing to require 

disclosures about climate-related risks 

and metrics reflecting those risks 

because this information can have an 

impact on public companies’ financial 

performance or position and may be 

material to investors in making 

investment or voting decisions. For this 

reason, many investors—including 

shareholders, investment advisers, and 

investment management companies— 

currently seek information about 

climate-related risks from companies to 

inform their investment decisionmaking. Furthermore, many companies 

have begun to provide some of this 

information in response to investor 

demand and in recognition of the 

potential financial effects of climaterelated risks on their businesses. 

We are concerned that the existing 

disclosures of climate-related risks do 

not adequately protect investors. For 

this reason, we believe that additional 

disclosure requirements may be 

necessary or appropriate to elicit 

climate-related disclosures and to 

improve the consistency, comparability, 

and reliability of climate-related 

disclosures. With respect to their 

existing climate-related disclosures (to 

the extent registrants are already 

disclosing such information), registrants 

often provide information outside of 

Commission filings and provide 

different information, in varying degrees 

of completeness, and in different 

documents and formats—meaning that 

the same information may not be 

available to investors across different 

companies. This could result in 

increased costs to investors in obtaining 

useful climate-related information and 

impair the ability to make investment or 

voting decisions in line with investors’ 

risk preferences. Also, companies may 

not disclose certain information needed 

to understand their existing climaterelated disclosures, such as the 

methodologies, data sources, 

assumptions, and other key parameters 

used to assess climate-related risks. To 

the extent companies primarily provide 

this information separate from their 

financial reporting, it may be difficult 

for investors to determine whether a 

company’s financial disclosures are 

consistent with its climate-related 

disclosures.5 In addition, the 

information provided outside of 

Commission filings is not subject to the 

full range of liability and other investor 

protections that help elicit complete and 

accurate disclosure by public 

companies. 

Investors need information about 

climate-related risks—and it is squarely 

within the Commission’s authority to 

require such disclosure in the public 

interest and for the protection of 

investors—because climate-related risks 

have present financial consequences 

that investors in public 


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21336 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

6See Financial Stability Oversight Council 

(‘‘FSOC’’), Report on Climate-Related Financial Risk 

2021 (Oct. 2021) (‘‘2021 FSOC Report’’), available 

at https://home.treasury.gov/system/files/261/ 

FSOC-Climate-Report.pdf (detailing the myriad 

ways that climate-related risks pose financial 

threats both at the firm level and financial system 

level). See also Managing Climate Risk in the U.S. 

Financial System, Report of the Climate-Related 

Market Risk Subcommittee, Market Risk Advisory 

Committee of the U.S. Commodity Futures Trading 

Commission (2020), available at https://

www.cftc.gov/sites/default/files/2020-09/9-9- 

20%20Report%20of%20the%20Subcommittee%20

on%20Climate-Related%20Market%20Risk%20- 

%20Managing%20Climate%20Risk%20in%20the

%20U.S.%20Financial%20System%20

for%20posting.pdf (‘‘CFTC Advisory Subcommittee 

Report’’) (stating that climate-related risks pose a 

major risk to the stability of the U.S. financial 

system and to its ability to sustain the American 

economy). 

7See, e.g., letters from Amalgamated Bank (June 

14, 2021); and Norges Bank Investment 

Management (June 13, 2021). 

8See, e.g., letter from Principles for Responsible 

Investment (PRI) (Consultation Response) (June 11, 

2021). 

9See, e.g., id. (stating that broadly diversified 

investors evaluating any individual asset for 

addition to a portfolio need to consider its risk and 

return characteristics not in isolation, but in terms 

of the asset’s effect on the portfolio as a whole, and 

providing CalPERS as an example of an asset owner 

holding a diversified growth-oriented portfolio that 

has integrated climate risk assessment into its 

investment process); see also letter from 

Amalgamated Bank (stating that the principal 

mitigant of investment risk is diversity of exposure 

and indicating that comprehensive climate 

disclosures help investors assess systemic risk); and 

Norges Bank Investment Management (stating that 

for sustainability information to support investment 

decisions, risk management processes, and 

ownership activities across a diversified portfolio, 

it must be consistent and comparable across 

companies and over time). 

10 In 2020 alone, a record 22 separate climaterelated disasters with at least $1 billion in damages 

struck across the United States, surpassing the 

previous annual highs of 16 such events set in 2011 

and 2017. See NOAA, National Center for 

Environmental Information, Billion Dollar Weather 

and Climate Disasters: Summary Stats (3rd Quarter 

release 2021), available at https://

www.ncdc.noaa.gov/billions/summary-stats/US/ 

2020. In 2021, the United States experienced 20 

separate billion-dollar climate-related disasters. See 

NOAA, U.S. saw its 4th-warmest year on record, 

fueled by a record-warm December (Jan. 10, 2022), 

available at https://www.noaa.gov/news/us-saw-its4th-warmest-year-on-record-fueled-by-record-warmdecember. 

11See 2021 FSOC Report, Chapter 1: From 

Climate-Related Physical Risks to Financial Risks; 

From Climate-related Transition Risks to Financial 

Risks. We discuss climate-related physical risks and 

climate-related transition risks in greater detail in 

Section II.B.1. 

12See 2021 FSOC Report, Chapter 1: An Emerging 

Consensus Framework for Climate-related Financial 

Risks (stating that these effects would likely 

propagate through the financial sector, which may 

experience credit and market risks associated with 

loss of income, defaults and changes in the values 

of assets, liquidity risks associated with changing 

demand for liquidity, and operational risks 

associated with disruptions to infrastructure). See 

also Financial Stability Board (‘‘FSB’’), The 

Implications of Climate Change for Financial 

Stability (Nov. 2020) (stating that climate-related 

effects may be far-reaching in their breadth and 

magnitude, and could affect a wide variety of firms, 

sectors and geographies in a highly correlated 

manner, indicating that the value of financial 

assets/liabilities could be affected either by the 

actual or expected economic effects of a 

continuation of climate-related physical risks, 

which could lead to a sharp fall in asset prices and 

increase in uncertainty, or by risks associated with 

a transition towards a low-carbon economy, 

particularly if the transition is disorderly, which 

could have a destabilizing effect on the global 

financial system). See also Basel Committee on 

Banking Supervision, Climate-related Risk Drivers 

and Their Transmission Channels (Apr. 2021), at 

https://www.bis.org/bcbs/publ/d517.pdf. 

13See, e.g., The Editors, Don’t Drag Banks Into 

the Culture Wars, The Washington Post (Mar. 7, 

2022) (‘‘No doubt, all companies—including those 

in the financial sector—must do more to manage 

social and environmental risks, in particular those 

related to climate change. To that end, the 

Securities and Exchange Commission is rightly 

working on climate-risk disclosure rules, so 

investors will have the information they need to 

make the best possible decisions and to hold public 

companies accountable.’’). 

14See, e.g., 2021 FSOC Report, Chapter 1: From 

Climate-related Physical Risks to Financial Risks. 

15See, e.g., Why the automotive future is electric, 

McKinsey & Company (Sept. 7, 2021), at https://

www.mckinsey.com/industries/automotive-andassembly/our-insights/why-the-automotive-futureis-electric (attributing the shift toward lower 

emissions forms of transportation, such as electric 

vehicles, to a combination of regulation, consumer 

behavior and technology); A Fifth Of World’s 

Largest Companies Committed To Net Zero Target, 

Forbes (Mar. 24, 2021), at https://www.forbes.com/ 

sites/dishashetty/2021/03/24/a-fifth-of-worldslargest-companies-committed-to-net-zero-target/ 

?sh=2a72640f662f; See also, More than 1,000 

companies commit to science-based emissions 

reductions in line with 1.5 °C climate ambition, 

Joint Press Release by the United Nations Global 

Compact and the Science Based Targets Initiative 

(Nov. 9, 2021), at https://finance.yahoo.com/news/ 

more-1-000-companies-commit-000800027.html 

(1,045 companies with more than $23 trillion in 

market capitalization are setting 1.5 °C aligned 

science based targets). See also, Why Engage 

Suppliers on GHG Emissions?, EPA Center for 

Corporate Climate Leadership, at https://

www.epa.gov/climateleadership/why-engagesuppliers-ghg-emissions (‘‘As organizations commit 

to reduce the carbon footprints of the products and 

services they provide, they look to their suppliers 

to align their efforts with the organization’s 

sustainability goals’’). 

16See, e.g., World Economic Forum, First Movers 

Coalition is tackling the climate crisis, at https://

www.weforum.org/our-impact/first-moverscoalition-is-tackling-the-climate-crisis/#:∼:

text=The%20First%20Movers%20

Coalition%2C%20which%20was%20launched%20

at,companies%20that%20use%20steel%20to

%20build%20wind%20turbines (‘‘The World 

Economic Forum is partnering with the US Special 

Presidential Envoy for Climate John Kerry and over 

30 global businesses to invest in innovative green 

technologies so they are available for massive scaleup by 2030 to enable net-zero emissions by 2050 

at the latest.’’); COP26 made net zero a core 

principle for business. Here’s how leaders can act, 

McKinsey & Company (Nov. 12, 2021), at What 

COP26 means for business | McKinsey, at https:// 

www.mckinsey.com/business-functions/ 

sustainability/our-insights/cop26-made-net-zero-acore-principle-for-business-heres-how-leaders-canact (‘‘The net-zero imperative is no longer in 

question—it has become an organizing principle for 

business . . . leaders who put convincing net-zero 

plans in place can distinguish their companies from 

peers. To put that another way: the basis of 

competition has changed, and there is now a 

premium on sound net-zero planning and 

execution.’’); see also S&P Dow Jones Indices 

Launches Net Zero 2050 Climate Transition and 

Paris-Aligned Select Indices (Nov. 22, 2021), at 

https://finance.yahoo.com/news/p-dow-jonesindices-launches-090000812.html (The index is 

designed to ‘‘bring greater transparency in 

measuring climate-related risks’’ and help market 

participants ‘‘achieve their goals in the path to net 

zero by 2050’’). 

companies consider in making 

investment and voting decisions.6

Investors have noted that climaterelated inputs have many uses in the 

capital allocation decision-making 

process including, but not limited to, 

insight into governance and risks 

management practices,7 integration into 

various valuation models, and credit 

research and assessments.8 Further, we 

understand investors often employ 

diversified strategies, and therefore do 

not necessarily consider risk and return 

of a particular security in isolation but 

also in terms of the security’s effect on 

the portfolio as a whole, which requires 

comparable data across registrants.9

While climate-related risks implicate 

broader concerns—and are subject to 

various other regulatory schemes—our 

objective is to advance the 

Commission’s mission to protect 

investors, maintain fair, orderly and 

efficient markets, and promote capital 

formation, not to address climate-related 

issues more generally. In particular, the 

impact of climate-related risks on both 

individual businesses and the financial 

system as a whole are well 

documented.10 For example, the 

Financial Stability Oversight Council’s 

(‘‘FSOC’s’’) Report on Climate-Related 

Financial Risk 2021 found that 

businesses, financial institutions, 

investors, and households may 

experience direct financial effects from 

climate-related risks, and observed that 

the costs would likely be broadly felt as 

they are passed through supply chains 

and to customers and as they reduce 

firms’ ability to service debt or produce 

returns for investors.11 As a result, these 

climate-related risks and their financial 

impact could negatively affect the 

economy as a whole and create systemic 

risk for the financial system.12 SECreporting companies and their investors 

are an essential component of this 

system.13

Climate-related risks can affect a 

company’s business and its financial 

performance and position in a number 

of ways. Severe and frequent natural 

disasters can damage assets, disrupt 

operations, and increase costs.14

Transitions to lower carbon products, 

practices, and services, triggered by 

changes in regulations, consumer 

preferences,15 availability of financing, 

technology and other market forces,16


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21337 

17See, e.g., Juan C.Reboredo and Luis A. Otero, 

Are investors aware of climate-related transition 

risks? Evidence from mutual fund flows, 189 

Ecological Economics (Nov. 2021), available at 

https://www.sciencedirect.com/science/article/abs/ 

pii/S0921800921002068#!; and BlackRock, Climate 

risk and the transition to a low-carbon economy, 

available at https://www.blackrock.com/corporate/ 

literature/publication/blk-commentary-climate-riskand-energy-transition.pdf. 

18See Antony J. Blinken, Secretary of State, The 

United States Officially Rejoins the Paris 

Agreement, Press Statement, (Feb. 19, 2021). 191 

countries plus the European Union have now 

signed the Paris Climate Agreement. The central 

aim of the Paris Climate Agreement is to strengthen 

the global response to the threat of climate change 

by keeping a global temperature rise this century to 

well below 2 °Celsius above pre-industrial levels 

and to pursue efforts to limit the temperature 

increase even further to 1.5 ° degrees Celsius. See 

Paris Agreement (Paris, Dec. 12, 2015) (entered into 

force Nov. 4, 2016). Moreover, at the UN Climate 

Change Conference (COP 26), the United States 

committed to become net zero by 2050, China by 

2060, and India by 2070. Further, over 100 

countries formed a coalition to reduce methane 

emissions by 30 percent by 2030. See 

Environment+Energy Leader, COP26 Net Zero 

Commitments will Speed Energy Transition, 

Increase Pressure on Industries, According to 

Moody’s Report (Nov. 17, 2021). 

19See, e.g., OCC announcement: Risk 

Management: Principles for Climate-Related 

Financial Risk Management for Large Banks; 

Request for Feedback | OCC (treas.gov), available at 

https://www.occ.treas.gov/news-issuances/ 

bulletins/2021/bulletin-2021-62.html; and 

Principles for Climate-Related Financial Risk 

Management for Large Banks (treas.gov) (Dec. 16, 

2021), available at https://www.occ.treas.gov/newsissuances/bulletins/2021/bulletin-2021-62a.pdf. 

20See infra Section I.C.2. 

21See Commission Guidance Regarding 

Disclosure Related to Climate Change, Release No. 

33–9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8, 2010)]. 

We discuss the 2010 Guidance in greater detail in 

Section I.A. below. 

22See, e.g., supra notes 6, 10, and 12. 

23See, e.g., Larry Fink, A Fundamental Reshaping 

of Finance, 2020 Letter to CEOs, at https://

www.blackrock.com/corporate/investor-relations/ 

2020-larry-fink-ceo-letter, available at https://

www.blackrock.com/corporate/investor-relations/ 

2020-larry-fink-ceo-letter (stating that climate risk is 

investment risk and asking the companies that 

BlackRock invests in to, among other matters, 

disclose climate-related risks in line with the 

recommendations of the Task Force on Climaterelated Financial Disclosures); see also Climate 

Action 100+, at https://www.climateaction100.org/. 

Climate Action 100+ is an investor-led initiative 

composed of 615 investors who manage $60 trillion 

in assets (as of Nov. 2021), who aim ‘‘to mitigate 

investment exposure to climate risk and secure 

ongoing sustainable returns for their beneficiaries.’’ 

See also Glasgow Financial Alliance for Net Zero 

(GFANZ), at https://www.gfanzero.com/, a global 

coalition of leading financial institutions focused 

on promoting the transition to a net zero global 

economy. Formed in Apr. 2021, its membership as 

of Nov. 2021 included over 450 financial firms 

controlling assets of over $130 trillion. Further, 

more than 500 investor signatories with assets 

under management of nearly $100 trillion are 

signatories to the CDP climate risk disclosure 

program, https://cdn.cdp.net/cdp-production/ 

comfy/cms/files/files/000/004/697/original/2021_

CDP_Capital_Markets_Brochure_General.pdf. We 

discuss the growing investor demand for climaterelated information in greater detail in Section I.C 

below. 

24See Acting Chair Allison Herren Lee Public 

Statement, Public Input Welcomed on Climate 

Change Disclosures (Mar. 15, 2021), available at 

https://www.sec.gov/news/public-statement/leeclimate-change-disclosures. See also, e.g., Concept 

Release: Business and Financial Disclosure 

Required by Regulation S–K, Release No. 33–10064 

(Apr. 16, 2016), [83 FR 23915 (Apr. 22, 2016)] and 

related comments, available at https://www.sec.gov/ 

rules/concept/conceptarchive/ 

conceptarch2016.shtml. 

25See infra Section II.M. 

26See Section II.G.3. 

27See id. 

28See Securities Act Section 27A [15 U.S.C. 77z– 

2] and Exchange Act Section 21E [15 U.S.C. 78u– 

5]. We discuss the application of the existing 

forward-looking statement safe harbors to the 

proposed climate-related disclosures primarily in 

Sections II.C.3–4, II.E, II.G.1, and II.I. 

can lead to changes in a company’s 

business model.17 Governments around 

the world have made public 

commitments to transition to a lower 

carbon economy, and efforts towards 

meeting those greenhouse gas (‘‘GHG’’) 

reduction goals have financial effects 

that may materially impact registrants.18

In addition, banking regulators have 

recently launched initiatives to 

incorporate climate risk in their 

supervision of financial institutions.19

How a company assesses and plans for 

climate-related risks may have a 

significant impact on its future financial 

performance and investors’ return on 

their investment in the company. 

Consistent, comparable, and reliable 

disclosures on the material climaterelated risks public companies face 

would serve both investors and capital 

markets. Investors would be able to use 

this information to make investment or 

voting decisions in line with their risk 

preferences. Capital allocation would 

become more efficient as investors are 

better able to price climate-related risks. 

In addition, more transparency and 

comparability in climate-related 

disclosures would foster competition. 

Many other jurisdictions and financial 

regulators around the globe have taken 

action or reached similar conclusions 

regarding the importance of climaterelated disclosures and are also moving 

towards the adoption of climate-related 

disclosure standards.20

This proposal builds on the 

Commission’s previous rules and 

guidance on climate-related disclosures, 

which date back to the 1970s. In 2010, 

in response to increasing calls by the 

public and shareholders for public 

companies to disclose information 

regarding how climate change may 

affect their business and operations, the 

Commission published guidance (‘‘2010 

Guidance’’) for registrants on how the 

Commission’s existing disclosure rules 

may require disclosure of the impacts of 

climate change on a registrant’s business 

or financial condition.21 Since that time, 

as climate-related impacts have 

increasingly been well-documented and 

awareness of climate-related risks to 

businesses and the economy has 

grown,22 investors have increased their 

demand for more detailed information 

about the effects of the climate on a 

registrant’s business and for more 

information about how a registrant has 

addressed climate-related risks and 

opportunities when conducting its 

operations and developing its business 

strategy and financial plans.23 It is 

appropriate for us to consider such 

investor demand in exercising our 

authority and responsibility to design an 

effective and efficient disclosure regime 

under the federal securities laws. 

In developing these proposals, we 

have considered the feedback we have 

received to date from a wide range of 

commenters, including comments from 

investors as to the information they 

need to make informed investment or 

voting decisions, as well as concerns 

expressed by registrants with regard to 

compliance burdens and liability risk.24

While our proposals include disclosure 

requirements designed to foster greater 

consistency, comparability, and 

reliability of available information, they 

also include a number of features 

designed to mitigate the burdens on 

registrants, such as phase-in periods for 

the proposed climate-related disclosure 

requirements,25 a safe harbor for certain 

emissions disclosures,26 and an 

exemption from certain emissions 

reporting requirements for smaller 

reporting companies.27 In addition, the 

existing safe harbors for forward-looking 

statements under the Securities Act and 

Exchange Act would be available for 

aspects of the proposed disclosures.28

Although the various requirements we 

are proposing are supported by 

overlapping rationales, we emphasize 

that the different aspects of the proposal 

serve independent, albeit 

complementary, objectives. In addition, 

we have carefully considered how to 

craft this proposal to best advance 

investor protection and the public 

interest, consistent with the 

Commission’s disclosure authority and 

regulatory mission, and we welcome 

comments on how we can further 

achieve that goal. 

A. Background 

The Commission first addressed the 

disclosure of material environmental 

issues in the early 1970s when it issued 

an interpretive release stating that 

registrants should consider disclosing in 

their SEC filings the financial impact of 


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29See Release No. 33–5170 (July 19, 1971) [36 FR 

13989]. The Commission codified this interpretive 

position in its disclosure forms two years later. See 

Release 33–5386 (Apr. 20, 1973) [38 FR 12100] 

(‘‘1972 Amendments’’). 30See Interpretive Release No. 33–6130 (Sept. 27, 

1979) [44 FR 56924], which includes a brief 

summary of the National Environmental Policy Act 

of 1969 and the legal and administrative actions 

taken with regard to the Commission’s 

environmental disclosure during the 1970s. See 

also NRDC v. SEC, 606 F.2d 1031, 1036–42 (DC Cir. 

1979) (discussing this history). More information 

relating to the Commission’s efforts in this area is 

chronicled in Release No. 33–6315 (May 4, 1981) 

[46 FR 25638]. 

31See Release No. 33–6383 (Mar. 3, 1982) [47 FR 

11380] (‘‘1982 Release’’) (adopting 17 CFR 229.103, 

which requires a registrant to describe its material 

pending legal proceedings, other than ordinary 

routine litigation incidental to the business, and 

indicating that administrative or judicial 

proceedings arising under federal, state, or local law 

regulating the discharge of materials into the 

environment or primarily for the purpose of 

protecting the environment, shall not be deemed 

‘‘ordinary routine litigation incidental to the 

business’’ and must be described if meeting certain 

conditions). The 1982 Release also moved the 

information called for by the 1973 Amendments to 

17 CFR 229.101(c)(1)(xii), which, as part of a 

registrant’s business description, required the 

disclosure of the material effects that compliance 

with Federal, State and local provisions regulating 

the discharge of materials into the environment, or 

otherwise relating to the protection of the 

environment, have had upon the registrant’s capital 

expenditures, earnings and competitive position, as 

well as the disclosure of its material estimated 

capital expenditures for environmental control 

facilities. In 2020, the Commission amended 17 

CFR 229.101(c)(1) to require, to the extent material 

to an understanding of the business taken as a 

whole, disclosure of the material effects that 

compliance with government regulations, including 

environmental regulations, may have upon the 

capital expenditures, earnings, and competitive 

position of the registrant and its subsidiaries. See 

Modernization of Regulation S–K Items 101, 103, 

and 105, Release No. 33–10825 (Aug. 26, 2020) [85 

FR 63726 (Oct. 8, 2020)] (‘‘2020 Release’’). 

32See Release No. 33–9106, Section III. 

33See Release No. 33–9106, Section I. 

34The 2010 Guidance also applies to 

corresponding disclosure requirements in Form 20– 

F by foreign private issuers. 

35Our recent amendments to Item 105 of 

Regulation S–K discourage the presentation of 

generic risks that could apply generally to any 

registrant or offering. The fact that climate risks are 

broad-based does not, in our view, cause them to 

be generic. For example, thousands of companies in 

Houston were impacted by Hurricane Harvey. 

However, (1) their flood risk varied and some 

companies may have been far more impacted than 

others (and would be more vulnerable to future 

catastrophic storms); (2) their operations were 

different and some may have been more disrupted 

as a result than others—e.g., a services business on 

the 10th floor of a building may have experienced 

just a few days of disruption while an oil refinery 

may have been shut down for weeks; and (3) their 

risk management processes may have been 

different—two similarly situated companies may 

have different continuity of operations plans or may 

have taken steps to mitigate those types of risks. In 

sum, while the source of the risk may be common 

to many companies, the impact is not. 

36See Acting Chair Allison Herren Lee Public 

Statement, Public Input Welcomed on Climate 

Change Disclosures. 

37The comment letters are available at https://

www.sec.gov/comments/climate-disclosure/ 

cll12.htm. Except as otherwise noted, references to 

comments in this release pertain to these 

comments. 

38See, e.g., letters from BlackRock (June 11, 2021) 

($9T); Ceres (June 10, 2021) (representing Investor 

Network on Climate Risk and Sustainability) 

($37T); Council of Institutional Investors (June 11, 

compliance with environmental laws.29

Throughout the 1970s, the Commission 

continued to explore the need for 

specific rules mandating disclosure of 

information relating to litigation and 

other business costs arising out of 

compliance with federal, state, and local 

laws that regulate the discharge of 

materials into the environment or 

otherwise relate to the protection of the 

environment. These topics were the 

subject of several rulemaking efforts, 

extensive litigation, and public 

hearings, all of which resulted in the 

rules that now specifically address 

disclosure of environmental issues.30

After almost a decade of 

consideration, the Commission adopted 

rules in 1982 mandating disclosure of 

information relating to litigation and 

other business costs arising out of 

compliance with federal, state, and local 

laws that regulate the discharge of 

materials into the environment or 

otherwise relate to the protection of the 

environment.31 In addition to these 

specific disclosure requirements, the 

Commission’s other disclosure rules 

requiring, for example, information 

about material risks and a description of 

the registrant’s business, could give rise 

to an obligation to provide disclosure 

related to the effects of climate 

change.32

In its 2010 Guidance, the Commission 

observed that, in response to investor 

demand for climate-related information, 

many companies were voluntarily 

reporting climate-related information 

outside their filings with the 

Commission. The Commission 

emphasized that ‘‘registrants should be 

aware that some of the information they 

may be reporting pursuant to these 

mechanisms also may be required to be 

disclosed in filings made with the 

Commission pursuant to existing 

disclosure requirements.’’ 33

Specifically, the 2010 Guidance 

emphasized that climate change 

disclosure might, depending on the 

circumstances, be required in a 

company’s Description of Business, Risk 

Factors, Legal Proceedings, and 

Management’s Discussion and Analysis 

of Financial Condition and Results of 

Operations (‘‘MD&A’’).34 The 2010 

Guidance further identified certain 

climate-related issues that companies 

may need to consider in making their 

disclosures, including the direct and 

indirect impact of climate-related 

legislation or regulations, international 

agreements, indirect consequences of 

business trends including changing 

demand for goods, and the physical 

impacts of climate change. 

The proposals set forth in this release 

would augment and supplement the 

disclosures already required in SEC 

filings. Accordingly, registrants should 

continue to evaluate the climate-related 

risks they face and assess whether 

disclosures related to those climaterelated risks must be disclosed in their 

Description of Business, Risk Factors, 

Legal Proceedings, and MD&A as 

described in the 2010 Guidance. These 

disclosures should be based on the 

registrant’s specific facts and 

circumstances. While climate risks 

impact many issuers across industries, 

the impacts of those risks on a particular 

registrant and how the registrant 

addresses those risks are fact-specific 

and may vary significantly by 

registrant.35 The disclosures required by 

our existing rules should reflect these 

company-specific risks. 

B. The March 2021 Request for Public 

Input 

On March 15, 2021, Acting Chair 

Allison Herren Lee requested public 

input on climate disclosure from 

investors, registrants, and other market 

participants.36 The Acting Chair 

solicited input on several issues, 

including how the Commission could 

best regulate disclosure concerning 

climate change in order to provide more 

consistent, comparable, and reliable 

information for investors, whether the 

Commission should require the 

disclosure of certain metrics and other 

climate-related information, the role 

that existing third-party climate-related 

disclosure frameworks should play in 

the Commission’s regulation of such 

disclosure, and whether and how such 

disclosure should be subject to 

assurance. 

The Commission received 

approximately 600 unique letters and 

over 5800 form letters in response to the 

Acting Chair’s request for public 

input.37 We received letters from 

academics, accounting and audit firms, 

individuals, industry groups, investor 

groups, registrants, non-governmental 

organizations, professional climate 

advisors, law firms, professional 

investment advisors and investment 

management companies, standardsetters, state government officials, and 

US Senators and Members of the House 

of Representatives. 

Many of these commenters, including 

investors with trillions of dollars of 

assets under management collectively,38


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2021) ($4T); Investment Adviser Association (June 

11, 2021) ($25T); Investment Company Institute 

(June 4, 2021) ($30.8T); PIMCO (June 9, 2021) ($2T); 

SIFMA (June 10, 2021) ($45T); State Street Global 

Advisors (June 14, 2021) (3.9T); and Vanguard 

Group, Inc. (June 11, 2021) ($7T). 

39See, e.g., letters from AllianceBernstein; 

Amalgamated Bank; Boston Common Asset 

Management (June 14, 2021); Calvert Research and 

Management (June 1, 2021); Ceres; the Committee 

on Mission Responsibility through Investment by 

Presbyterian Church (June 10, 2021); Katherine 

DiMatteo (June 1, 2021); Domini Impact 

Investments (June 14, 2021); Felician Sisters of 

North America (June 8, 2021); Friends Fiduciary 

(June 11, 2021); Melanie Bender (May 26, 2021); 

Miller/Howard Investments (June 11, 2021); Mercy 

Investment Services, Inc. (June 4, 2021); Parametric 

Portfolio Associates, LLC (June 4, 2021); San 

Francisco City and County Employees’ Retirement 

System (June 12, 2021); Seventh Generation 

Interfaith, Inc. (May 20, 2021); State Street Global 

Advisors; Sustainability Accounting Standards 

Board (SASB) (May 19, 2021); the Sustainability 

Group (June 4, 2021); and Trillium Asset 

Management (June 9, 2021). 

40Several commenters referred to various reports 

by the Intergovernmental Panel on Climate Change 

(‘‘IPCC’’) to demonstrate that there is scientific 

consensus that climate change is the result of global 

warming caused by human-induced emissions of 

greenhouse gases and poses significant global risks. 

See, e.g., letters from Better Markets (June 14, 2021); 

Center for Human Rights and Environment (June 9, 

2021); Commonwealth Climate and Law Initiative 

(June 13, 2021); Charles E. Frye (Apr. 3, 2021); 

Interfaith Center on Corporate Responsibility (June 

14, 2021); and Mike Levin and 23 other Members 

of Congress (June 15, 2021). IPCC’s latest report is 

IPCC, AR6 Climate Change 2021: The Physical 

Science Basis (Aug. 7, 2021), available at https://

www.ipcc.ch/report/ar6/wg1/. 

41See letter from SASB. 

42See, e.g., letters from Amalgamated Bank; Bank 

of Finland (June 1, 2021); Blueprint Financial (June 

11, 2021); Canadian Coalition of Good Governance 

(June 9, 2021); Center for Climate and Energy 

Solutions (June 12, 2021); Clean Yield Asset 

Management (June 11, 2021); Coalition for Inclusive 

Capitalism (June 14, 2021); Felician Sisters of North 

America; First Affirmative Financial Network (June 

2, 2021); William and Flora Hewitt Foundation 

(June 9, 2021); Impact Investors, Inc. (June 2, 2021); 

Impax Asset Management (June 9, 2021); Institute 

of International Bankers (June 8, 2021); Investment 

Company Institute; Investment Consultants 

Sustainability Working Group (June 11, 2021); 

Miller/Howard Investments; Norge Bank Investment 

Management (June 13, 2021); Parametric Portfolio 

Associates; Praxis Mutual Funds and Everence 

Financial (June 10, 2021); PRI (Consultation 

Response); Salesforce.com Inc. (June 11, 2021); San 

Francisco City and County Employees’ Retirement 

System; SASB; Seventh Generation Interfaith, Inc.; 

S&P Global (June 11, 2021); Trillium Asset 

Management; World Business Council for 

Development (WBCSD) (June 11, 2021); Vanguard 

Group, Inc.; and US Impact Investing Alliance (June 

14, 2021). 

43See, e.g., letters from American Enterprise 

Institute (June 10, 2021); CO2 Coalition (June 1, 

2021); the Heritage Foundation (June 13, 2021); 

Steve Milloy (June 1, 2021); Berkeley T. RulonMiller (Apr. 9, 2021); and the Texas Public Policy 

Foundation (June 11, 2021). 

44See, e.g., letters from American Enterprise 

Institute; the Cato Institute; the Heritage 

Foundation; and Texas Public Policy Foundation. 

45See, e.g., letters from the Institute for Free 

Speech (June 10, 2021); Patrick Morrisey, West 

Virginia Attorney General (Mar. 25, 2021); and 

Texas Public Policy Foundation. 

46The staff of the Division of Corporation Finance 

has developed a sample comment letter for 

registrants to elicit improved disclosure on some of 

the deficient areas noted in their review of filings. 

See Climate Change Disclosure-Sample Letter, 

available at https://www.sec.gov/corpfin/sampleletter-climate-change-disclosures. 

47See, e.g., letter from Pricewaterhouse Coopers. 

48See 17 CFR 240.13a–15 and 17 CFR 240.15d– 

15. 

49We note that the liability provisions of Section 

10(b) and Rule 10b–5 of the Exchange Act can apply 

to statements made in filings with the SEC or 

elsewhere, such as in sustainability reports or on 

company websites. See, e.g., SEC v. Stinson, No. 

10–3130, 2011 U.S. Dist. LEXIS 65723, 2011 WL 

2462038, at 12 (E.D. Pa. June 20, 2011) (finding 

defendants liable under Section 10(b) when they 

communicated material misstatements and 

omissions in direct solicitations via email, a 

webinar, and various websites). As such, registrants 

should scrutinize and ensure the accuracy of such 

statements whether or not filed with the 

Continued 

supported implementation of climaterelated disclosure rules. A number of 

commenters 39 stated that mandated 

disclosures are necessary because 

climate change poses significant 

financial risks to registrants and their 

investors.40 According to one of the 

commenters, 68 out of 77 industries are 

likely to be significantly affected by 

climate risk.41 Many commenters 

criticized the current disclosure 

practice, in which some issuers 

voluntarily provide climate disclosures 

based on a variety of different thirdparty frameworks, because it has not 

produced consistent, comparable, 

reliable information for investors and 

their advisors, who otherwise have 

difficulty obtaining that information.42

Other commenters, however, 

questioned whether climate change 

posed a risk to companies or their 

investors. These commenters stated 

their belief that the assumptions 

underlying the assessment of the impact 

of climate change were too uncertain to 

permit companies to ascertain the real 

risks to their operations and financial 

condition caused by climate change.43

These commenters stated that they 

opposed implementation of climaterelated disclosure rules, and argued that 

such rules would exceed the 

Commission’s statutory authority. Some 

of these commenters also argued that 

such rules are not necessary because 

registrants are already required to 

disclose material climate risks, or that 

such rules would be more costly than 

the current ‘‘private ordering’’ of climate 

disclosures.44 Some commenters also 

argued that mandated climate disclosure 

rules could violate First Amendment 

rights.45

As noted above, we have considered 

these comments and other feedback 

received from the public in formulating 

the current proposal. As part of its filing 

review process, the Commission staff 

also assessed the extent to which 

registrants currently disclose climaterelated risks in their Commission 

filings. Since 2010, disclosures related 

to climate change have generally 

increased, but there is considerable 

variation in the content, detail, and 

location (i.e., in reports filed with the 

Commission, in sustainability reports 

posted on registrant websites, or 

elsewhere) of climate-related 

disclosures. The staff has observed 

significant inconsistency in the depth 

and specificity of disclosures by 

registrants across industries and within 

the same industry. The staff has found 

significantly more extensive information 

in registrants’ sustainability reports and 

other locations such as their websites as 

compared with their reports filed with 

the Commission. In addition, the 

disclosures in registrants’ Forms 10–K 

frequently contain general, boilerplate 

discussions that provide limited 

information as to the registrants’ 

assessment of their climate-related risks 

or their impact on the companies’ 

business.46

We are also mindful of the benefits to 

investors of requiring climate-related 

information in SEC filings. Providing 

more extensive climate-related 

disclosure in sustainability reports, 

while excluding such relevant 

information from Forms 10–K, may 

make it difficult for investors to analyze 

and compare how climate-related risks 

and impacts affect registrants’ 

businesses and consolidated financial 

statements. The inclusion of climaterelated disclosures in SEC filings should 

increase the consistency, comparability, 

and reliability of climate-related 

information for investors. The 

placement of climate-related 

information in different locations can 

make it difficult for investors to find 

comparable climate-related disclosures, 

whereas inclusion in a registrant’s Form 

10–K or registration statement should 

make it easier for investors to find and 

compare this information.47 Further, 

information that is filed with the 

Commission in Exchange Act periodic 

reports is subject to disclosure controls 

and procedures (‘‘DCP’’), which help to 

ensure that a registrant maintains 

appropriate processes for collecting and 

communicating the necessary 

information by which to formulate the 

climate-related disclosures.48 Moreover, 

information filed as part of a registrant’s 

Form 10–K carries certain additional 

potential liability, which itself can 

cause registrants to prepare and review 

information filed in the Form 10–K 

more carefully than information 

presented outside SEC filings.49


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Commission. In addition, information filed in a 

Form 10–K is subject to Section 18 of the Exchange 

Act. Further, information filed in an annual report 

on Form 10–K (and other current and periodic 

reports) can be incorporated by reference in certain 

Securities Act registration statements, such as those 

filed on Form S–3, and thereby become subject to 

the liability provisions of the Securities Act. See 

Securities Act Section 11 (15 U.S.C. 77k) and 

Section 12 (15 U.S.C. 77l). See infra Section II.C.3– 

4, II.E, II.G.1, and II.I regarding the application to 

forward-looking climate disclosures of the safe 

harbor for forward-looking statements that was 

added to the Securities Act and Exchange Act 

pursuant to the Private Securities Litigation Reform 

Act of 1995. 

50See supra note 42 and accompanying text. 

51See letters from Jill E. Fisch and 18 other law 

professor signatories (June 11, 2021) (referencing 

Sections 7, 10, and 19(a) of the Securities Act; and 

Sections 3(b), 12, 13, 14, 15(d), and 23(a) of the 

Exchange Act); and Natural Resources Defense 

Council (June 11, 2021). 

52See letters from Eni SpA (June 12, 2021); Jill. 

E. Fisch et al; Natural Resources Defense Council; 

SASB; and Value Balancing Alliance (June 28, 

2021); see also infra Section IV. 

53See, e.g., letter from SASB (stating that through 

the ‘‘multiple voluntary disclosure frameworks (i.e., 

the ‘‘alphabet soup’’ decried by companies) . . . 

and numerous direct requests to companies for 

information through surveys, the current private 

ordering-led system has increased the burden on 

companies—and investors—while still leaving 

many companies uncertain as to whether they are, 

in practice, providing the decision-useful 

information required by investors.’’); see also letters 

from Americans for Financial Reform Education 

Fund and Public Citizen (June 14, 2021) (stating 

that ‘‘the proliferation of differing frameworks has 

increased compliance complexities and costs for 

companies’’); Eni SpA (stating that the 

fragmentation of data fostered by the proliferation 

of reporting frameworks has multiplied the efforts 

of companies in satisfying all their requirements); 

and BSR (June 11, 2021) (providing that ‘‘a 

fragmented environment is limiting the impact of 

reporting and creating undue confusion and cost on 

the part of reporters.’’). 

54Providing a more standardized framework for 

climate-related disclosures would be consistent 

with the Recommendation from the Investor-asOwner Subcommittee of the SEC Investor Advisory 

Committee Relating to ESG Disclosure (May 14, 

2020) (‘‘IAC Recommendation’’), available at 

https://www.sec.gov/spotlight/investor-advisorycommittee-2012/recommendation-of-the-investoras-owner-subcommittee-on-esg-disclosure.pdf. The 

term ‘‘ESG’’ refers to environmental, social, and 

governance matters, of which climate-related 

disclosures is a part. The IAC Recommendation 

focused on the inadequacies of ESG disclosures 

broadly, and not just on those involving climate. 

The IAC Recommendation stated that, to the extent 

that SEC reporting obligations would require a 

single standard of material, decision-useful ESG 

information, as relevant to each issuer, and based 

upon data that issuers already use to make their 

business decisions, such an approach would level 

the playing field between well-financed large 

issuers and capital constrained small issuers. 

55See supra note 23. 

56There is some overlap in the signatories to the 

listed initiatives. 

57See United Nations Climate Change, 631 

Institutional Investors Managing More than USD 37 

Trillion in Assets Urge Governments to Step up 

Climate Ambition (Dec. 9, 2019), available at 

https://unfccc.int/news/631-institutional-investorsmanaging-more-than-usd-37-trillion-in-assets-urgegovernments-to-step-up. 

58See The Investor Agenda, 2021 Global Investor 

Statement to Governments on the Climate Crisis 

(Oct. 27, 2021), available at https://

theinvestoragenda.org/wp-content/uploads/2021/ 

09/2021-Global-Investor-Statement-toGovernments-on-the-Climate-Crisis.pdf. 

59PRI was created by a UN-sponsored small 

group of large global investors in 2006. A stated 

core goal of the PRI is to help investors protect their 

portfolios from climate-related risks and to take 

advantage of climate-related opportunities 

associated with a shift to a low-carbon global 

economy. See PRI, Climate Change, available at 

https://www.unpri.org/climate-change. 

60See PRI, CEO quarterly update: Celebrating 

4000 signatories and supporting the evolution of 

PRI (July 13, 2021), available at https://

www.unpri.org/pri-blog/ceo-quarterly-updatecelebrating-4000-signatories-and-supporting-theevolution-of-ri/8033.article. 

Having considered the public 

feedback and the staff’s experience with 

climate-related disclosures, we believe 

that the current disclosure system is not 

eliciting consistent, comparable, and 

reliable information that enables 

investors both to assess accurately the 

potential impacts of climate-related 

risks on the nature of a registrant’s 

business and to gauge how a registrant’s 

board and management are assessing 

and addressing those impacts.50 The 

Commission has broad authority to 

promulgate disclosure rules that are in 

the public interest or for the protection 

of investors and that promote efficiency, 

competition, and capital formation.51 In 

light of the present and growing 

significance of climate-related risks to 

registrants and the inadequacies of 

current climate disclosures, we are 

proposing to revise our rules to include 

climate-related disclosure items and 

metrics to elicit investment decisionuseful information that is necessary or 

appropriate to protect investors. 

We also believe that enhanced climate 

disclosure requirements could increase 

confidence in the capital markets and 

help promote efficient valuation of 

securities and capital formation by 

requiring more consistent, comparable, 

and reliable disclosure about climaterelated risks, including how those risks 

are likely to impact a registrant’s 

business operations and financial 

performance.52 The proposed 

requirements may also result in benefits 

to registrants, given existing costs to 

registrants that have resulted from the 

inconsistent market response to investor 

demand for climate-related 

information.53 In this regard our 

proposal would provide registrants with 

a more standardized framework to 

communicate their assessments of 

climate-related risks as well as the 

measures they are taking to address 

those risks.54 At the same time, we are 

open to exploring ways in which 

registrants could be afforded flexibility 

in making the necessary disclosures 

while still providing appropriate 

consistency and comparability, and are 

seeking comment in that regard. 

C. The Growing Investor Demand for 

Climate-Related Risk Disclosure and 

Related Information 

1. Major Investor Climate-Related 

Initiatives 

As the Commission recognized in 

2010 and earlier, there has been 

significant investor demand for 

information about how climate 

conditions may impact their 

investments. That demand has been 

increasing in recent years. Several major 

institutional investors, which 

collectively have trillions of dollars in 

investments under management, have 

demanded climate-related information 

from the companies in which they 

invest because of their assessment of 

climate change as a risk to their 

portfolios, and to investments generally, 

and also to satisfy investor interest in 

investments that are considered 

‘‘sustainable.’’ As a result, these 

investors have sought to include and 

consider climate risk as part of their 

investment selection process.55 These 

institutional investors have formed 

investor initiatives to collectively urge 

companies to provide better information 

about the impact that climate change 

has had or is likely to have on their 

businesses, and to urge governments 

and companies to take steps to reduce 

investors’ exposure to climate risks. 

Among these initiatives:56

• In 2019, more than 630 investors 

collectively managing more than $37 

trillion signed the Global Investor 

Statement to Governments on Climate 

Change urging governments to require 

climate-related financial reporting; 57

• This investor initiative continued as 

the Investor Agenda’s 2021 Global 

Investor Statement to Governments on 

the Climate Crisis, which was signed by 

733 global institutional investors, 

including some of the largest investors, 

with more than US $52 trillion in assets 

under management in the aggregate. 

This Statement called for governments 

to implement a number of measures, 

including mandating climate risk 

disclosure.58

• The UN Principles for Responsible 

Investment (‘‘PRI’’) 59 has acquired over 

4,000 signatories who, as of July 13, 

2021, have, in the aggregate, assets 

under management exceeding $120 

trillion as of July 13, 2021; 60

• The Net Zero Asset Managers 

Initiative, which was formed by an 

international group of asset managers, 

has 128 signatories that collectively 


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61See Net Zero Asset Managers Initiative, Net 

Zero Asset Managers initiative announces 41 new 

signatories, with sector seeing ‘net zero tipping 

point’ (July 6, 2021), available at https://

www.netzeroassetmanagers.org/net-zero-assetmanagers-initiative-announces-41-new-signatorieswith-sector-seeing-net-zero-tipping-point. 

62See Climate Action 100+, About Climate Action 

100+, available at https://www.climate

action100.org/about/ (indicating that the initiative 

is engaging companies on strengthening climaterelated financial disclosures). 

63See GFANZ, About Us, available at https://

www.gfanzero.com/about/. Another organization, 

the CDP, provides a means for investors to request 

that companies provide climate-related disclosures 

through the CDP. In 2021, over 590 investors with 

$110 trillion in assets under management requested 

that thousands of companies disclose climate 

related information to them through the CDP. See 

CDP, Request Environmental Information, available 

at https://www.cdp.net/en/investor/requestenvironmental-information#d52d69887a88f63

e15931b5db2cbe80d. 

64We discuss the TCFD in greater detail in 

Section I.D.1 below. 

65See Climate Action 100+, About Climate Action 

100+. Further, commenters noted their fiduciary 

obligations to consider climate-related risks. See, 

e.g., letters from PRI (Consultation Response); and 

California Public Employee Retirement System 

(CalPERS) (June 12, 2021). 

66According to one publication, two-thirds of 

S&P 500 companies had set a carbon reduction 

target by the end of 2020. See Jean Eaglesham, 

Climate Promises by Businesses Face New Scrutiny, 

The Wall Street Journal (Nov. 5, 2021). 

67See Global Survey Shows Race to 

Decarbonization is on: Johnson Controls finds 

Delivering Growth and Competitive Advantage are 

Main Drivers for Companies to Commit to Net Zero 

(Dec. 1, 2021), available at https://ih.advfn.com/ 

stock-market/NYSE/johnson-controls-JCI/stocknews/86696470/global-survey-shows-race-todecarbonization-is-on#:∼:

text=Global%20Survey%20Shows%20Race%20to

%20Decarbonization%20is%20

on%3A,December%2001%202021%20- 

%2007%3A01AM%20PR%20

Newswire%20%28US%29; and COP26 made net 

zero a core principle for business. Here’s how 

leaders can act, McKinsey (Nov. 12, 2021), available 

at https://www.mckinsey.com/business-functions/ 

sustainability/our-insights/cop26-made-net-zero-acore-principle-for-business-heres-how-leaders-canact. 

68See, e.g., letters from Ceres; Investor Adviser 

Association (June 11, 2021); SIFMA Asset 

Management Group (June 10, 2021); Trillium Asset 

Management; and T. Rowe Price (June 11, 2021); see 

also letters from Boston University Impact 

Measurement and Allocation Program (June 7, 

2021); CDP (June 11, 2021); Christopher Lish (June 

12, 2021); and Pricewaterhouse Coopers (June 10, 

2021). 

69See supra note 42. 

70See IAC Recommendation. The IAC 

Recommendation noted that more than 125 thirdparty ESG data providers, including ESG ratings 

firms, have emerged to try to meet the informational 

demands of investors. According to the IAC 

Recommendation, these data providers are limited 

in their ability collectively to provide investors 

with comparable and consistent information as they 

use different information sources and different— 

frequently opaque—methodologies to conduct their 

analyses, which compromises the usefulness and 

reliability of the information. This current 

heterogeneity in practices and disparate demands 

from investors and ratings firms places a significant 

burden on companies asked to provide this 

information in a variety of formats. The IAC 

Recommendation further observed that many 

companies feel compelled to respond to the 

multiple surveys of ESG rating firms because 

ignoring them or refusing to respond can lead to a 

low rating, which can adversely affect stock price 

and access to capital. While the proposed rules 

would not necessarily eliminate third-party 

questionnaires, they would help to provide 

standardized information to all investors and might 

reduce the need to obtain the information obtained 

through questionnaires. 

71See GRI, About GRI, available at https://

www.globalreporting.org/about-gri/. 

72See CDP, About Us, available at https://

www.cdp.net/en/info/about-us. In 2018, CDP 

revised its questionnaire to companies so that it 

aligns with the TCFD recommended framework. See 

letter from CDP. 

73See CDSB, About the Climate Disclosure 

Standards Board, available at https://www.cdsb.net/ 

our-story. 

74See Value Reporting Foundation, 

Understanding the Value Reporting Foundation, 

available at https://www.valuereporting

foundation.org/. 

75See TCFD, About, available at https://www.fsbtcfd.org/about/. 

76For example, according to the CDP, over 3,000 

companies have provided climate-related 

disclosures through the CDP’s platform by 

responding to the CDP’s questionnaires that are 

aligned with the TCFD’s disclosure 

recommendations. See letter from CDP. The TCFD 

Continued 

manage $43 trillion in assets as of July 

2021; 61

• The Climate Action 100+, an 

investor-led initiative, now comprises 

617 global investors that together have 

more than $60 trillion in assets under 

management; 62 and 

• The Glasgow Financial Alliance for 

Net Zero (‘‘GFANZ’’), a coalition of over 

450 financial firms from 45 countries, 

responsible for assets of over $130 

trillion, that are committed to achieving 

net-zero emissions by 2050, reaching 

2030 interim targets, covering all 

emission scopes and providing 

transparent climate-related reporting.63

Each of these investor initiatives has 

emphasized the need for improved 

disclosure by companies regarding 

climate-related impacts. Each of these 

initiatives has advocated for mandatory 

climate risk disclosure requirements 

aligned with the recommendations of 

the Task Force on Climate-Related 

Financial Disclosures (‘‘TCFD’’) 64 so 

that disclosures are consistent, 

comparable, and reliable. The investor 

signatories of Climate Action 100+ 

emphasized that obtaining better 

disclosure of climate-related risks and 

companies’ strategies to address their 

exposure to those risks is consistent 

with the exercise of their fiduciary 

duties to their respective clients.65

At the same time, many companies 

have made commitments with respect to 

climate change, such as commitments to 

reduce greenhouse gas emissions or 

become ‘‘net zero’’ by a particular 

date.66 Companies may make these 

commitments to attract investors, to 

appeal to customers that prioritize 

sustainability, or to reduce their 

exposure to risks posed by an expected 

transition to a lower carbon economy.67

In response to these commitments, 

investors have demanded more detailed 

information about climate-related 

targets and companies’ plans to achieve 

them in order to assess the credibility of 

those commitments and compare 

companies based on those 

commitments.68

These initiatives demonstrate that 

investors are using information about 

climate risks now as part of their 

investment selection process and are 

seeking more informative disclosures 

about those risks. As an increasing 

number of investors incorporate this 

information, in particular GHG 

emissions, into their investment 

selection or voting decisions, this may 

in turn create transition risks for 

companies that are seeking to raise 

capital. 

2. Third-Party Data, Voluntary 

Disclosure Frameworks, and 

International Disclosure Initiatives 

Despite increasing investor demand 

for information about climate-related 

risks and strategies, many investors 

maintain that they cannot obtain the 

consistent, comparable, and material 

information that they need to properly 

inform their investment or voting 

decisions.69 In 2020, the Commission’s 

Investor Advisory Committee (‘‘IAC’’) 

noted the fragmentation of information 

that has resulted from a rise in thirdparty data providers that have emerged 

to try to meet the informational 

demands of investors.70 The IAC 

recommended that the Commission take 

action to ensure investors have the 

material, comparable, consistent 

information about climate and other 

ESG matters that they need to make 

investment and voting decisions. 

In addition, a diverse group of third 

parties has developed climate-related 

reporting frameworks seeking to meet 

investors’ informational demands. 

These include the Global Reporting 

Initiative (‘‘GRI’’),71 CDP (formerly the 

Carbon Disclosure Project),72 Climate 

Disclosure Standards Board (‘‘CDSB’’),73

Value Reporting Foundation (formed 

through a merger of the Sustainability 

Accounting Standards Board (‘‘SASB’’) 

and the International Integrated 

Reporting Council (‘‘IIRC’’)),74 and the 

TCFD.75

To some extent, the development of 

these disparate frameworks has led to an 

increase in the number of companies 

that are providing some climate-related 

disclosures.76 However, because they 


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has similarly reported growth in the number of 

companies and countries supporting its climaterelated disclosure recommendations. See TCFD, 

2021 Status Report (Oct. 2021), available at https:// 

assets.bbhub.io/company/sites/60/2021/07/2021- 

TCFD-Status-Report.pdf (stating that, as of Oct. 6, 

2021, the TCFD had over 2,600 supporters globally, 

including 1,069 financial institutions responsible 

for assets of US $194 trillion). 

77See supra note 42. 

78 Dr. Rodney Irwin, Alan McGill, Enhancing the 

Credibility of Non-Financial Information, the 

Investor Perspective, WBCSD and PwC (Oct. 2018). 

79 Yale Initiative on Sustainable Finance, Toward 

Enhanced Sustainability Disclosure: Identifying 

Obstacles to Broader and More Actionable ESG 

Reporting (Sept. 2020), available at https://

pages.fiscalnote.com/rs/109-ILL-989/images/ 

YISF%20ESG%20Reporting%20White%20Paper.

pdf. 

80See, e.g., TCFD, 2021 Status Report (indicating 

that there is a need to improve companies’ climaterelated disclosures, particularly regarding 

governance and risk management, to better align 

with the TCFD’s recommendations). 

81See CDP, ANALYSIS OF CA100+ COMPANY 

DATA (2020), available at https://cdn.cdp.net/cdpproduction/cms/reports/documents/000/005/312/ 

original/Analysis_of_CA100__Data_for_CDP_

Investor_Signatories_v5.pdf?1596046258. 

82See KPMG, The Time Has Come-The KPMG 

Survey of Sustainability Reporting 2020 (Dec. 2020), 

available at https://assets.kpmg/content/dam/kpmg/ 

xx/pdf/2020/11/the-time-has-come.pdf. 

83See TCFD 2020 Status Report (Sept. 2020), 

available at https://assets.bbhub.io/company/sites/ 

60/2020/09/2020-TCFD_Status-Report.pdf. 

84See Ernst & Young, How can climate change 

disclosures protect reputation and value?-The 2019 

EY Global Climate Risk Disclosure Barometer (Apr. 

2020), available at https://www.ey.com/en_us/ 

climate-change-sustainability-services/how-canclimate-change-disclosures-protect-reputation-andvalue. 

85For example, the TCFD report found that the 

average level of disclosure across the TCFD’s 11 

disclosure categories was 40% for the energy sector, 

30% for the materials and building sector, 18% for 

the consumer goods sector and 13% for the 

technology sector. The level of disclosure varied 

among categories with only 4% or reporting 

companies disclosing the resilience of their 

strategies in North America and 50% reporting their 

risks and opportunities (the category with the 

highest level of disclosure). The Ernst & Young 

report found many companies in industries 

considered to have high exposure to climate-related 

risks lack high quality climate disclosures. The 

Ernst & Young report graded the average quality of 

the disclosures at 27 out of 100. 

86See, e.g., The SEC’s Time to Act, Center for 

American Progress (Feb. 19, 2021) (‘‘[T]here is a 

lack of standardization of the data, assumptions, 

and methodologies companies use to meet the 

standards, with much of this information being 

opaque. Clearly, the current path of climate 

disclosure will not provide the transparency that an 

increasing number of investors are seeking and, 

indeed, a properly functioning market requires— 

consistency of disclosures across time, 

comparability of disclosures across companies, and 

reliability of the information that is disclosed.’’) 

See, also, Andy Green and Andrew Schwartz, 

Corporate Long-Termism, Transparency, and the 

Public Interest (Oct. 2, 2018) (‘‘[C]orporate 

disclosure available today is insufficient, not 

comparable, and unreliable’’); and Managing 

Climate Risk in the U.S. Financial System, Report 

of the Climate-Related Market Risk Subcommittee, 

Market Risk Advisory Committee of the U.S. 

Commodity Futures Trading Commission (2020) 

(‘‘Large companies are increasingly disclosing some 

climate-related information, but significant 

variations remain in the information disclosed by 

each company, making it difficult for investors and 

others to understand exposure and manage climate 

risks.’’). 

87The IFRS Foundation refers to the International 

Financial Reporting Standards Foundation, which 

was established to develop a single set of ‘‘highquality,’’ enforceable, and globally accepted 

accounting standards. See IFRS—Who we are, 

available at https://www.ifrs.org/about-us/who-weare/. The IFRS Foundation was formed in 2010 and 

succeeded the International Accounting Standards 

Foundation, which was formed in 2001. 

88 IFRS Foundation, IFRS Foundation Trustees’ 

Feedback Statement on the Consultation Paper on 

Sustainability Reporting (Apr. 2021), available at 

https://www.ifrs.org/content/dam/ifrs/project/ 

sustainability-reporting/sustainability-consultationpaper-feedback-statement.pdf. 

89 IOSCO refers to the International Organization 

of Securities Commissions, of which the 

Commission is a member. 

90 IOSCO, Report on Sustainability-related Issuer 

Disclosures, Final Report (June 2021) available at 

https://www.iosco.org/library/pubdocs/pdf/ 

IOSCOPD678.pdf. 

are voluntary, companies that choose to 

disclose under these frameworks may 

provide partial disclosures or they may 

choose not to participate every year. In 

addition, the form and content of the 

disclosures may vary significantly from 

company to company, or from period to 

period for the same company. The 

situation resulting from these multiple 

voluntary frameworks has failed to 

produce the consistent, comparable, and 

reliable information that investors 

need.77 Instead, the proliferation of 

third-party reporting frameworks has 

contributed to reporting fragmentation, 

which can hinder investors’ ability to 

understand and compare registrants’ 

climate-related disclosures. An analysis 

conducted by the World Business 

Council for Sustainable Development 

found that investors had difficulty using 

existing sustainability disclosures 

because they lack consistency and 

comparability.78 In addition, a 2020 

study by the Yale Initiative on 

Sustainable Finance found that the 

proliferation of reporting frameworks 

may have made reporting more difficult 

for issuers.79 Moreover, given the 

voluntary nature of these third-party 

frameworks, there may not be sufficient 

incentives or external disciplines to 

ensure that companies are providing 

complete and robust disclosure under 

those frameworks.80

The staff has reviewed more than a 

dozen studies of climate-related 

disclosures conducted by third parties, 

such as the CDP,81 KPMG,82 TCFD 83, 

and Ernst & Young,84 which assessed 

the adherence of the climate-related 

disclosures to various third-party 

frameworks, such as the TCFD. These 

studies have reinforced the staff’s 

observations from their review of filings 

that there is significant variation across 

companies and industries with regard to 

the content of current climate 

disclosures.85 Further, much of this 

climate-related information, particularly 

GHG emissions and targets, appears 

outside of Commission filings, in 

sustainability reports, and on corporate 

websites. Other analyses of current 

climate reporting have found a lack of 

transparency and standardization with 

regard to the methodologies companies 

apply in disclosing climate-related 

information.86

The increased fragmentation of 

climate reporting resulting from the 

proliferation of third-party reporting 

frameworks has motivated a number of 

recent international efforts to obtain 

more consistent, comparable, and 

reliable climate-related information for 

investors. For example: 

• A consultation paper published by 

the IFRS Foundation 87 Trustees in 2020 

noted the broad range of voluntary 

sustainability reporting frameworks that 

have increased complexity and cost to 

preparers without improving the quality 

of the information available to 

investors; 88

• Based on the response to the IFRS 

Foundation consultation paper, the 

IFRS Foundation took steps toward the 

establishment of an International 

Sustainability Standards Board (‘‘ISSB’’) 

operating within the existing 

governance structure of the IFRS 

Foundation; 

• In 2021, following two roundtables 

hosted by its Sustainable Finance Task 

Force, IOSCO 89 issued a report that 

concluded that companies’ current 

sustainability disclosures do not meet 

investors’ needs, and the proliferation of 

voluntary disclosure frameworks has led 

to inconsistency in application of the 

frameworks and, in some cases ‘‘cherry 

picking’’ of information that might not 

present an accurate picture of 

companies’ risks.90

• A Technical Experts’ Group of 

IOSCO worked with a Technical 

Readiness Working Group of the IFRS 

Foundation to assess and fine-tune a 

prototype climate-related financial 

disclosure standard (‘‘Prototype’’) 

drafted by an alliance of prominent 

sustainability reporting organizations 

and designed as a potential model for 


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91See CDP, CDSB, GRI, IIRC and SASB, Reporting 

on enterprise value Illustrated with a prototype 

climate-related financial disclosure standard (Dec. 

2020), available at https://

29kjwb3armds2g3gi4lq2sx1-wpengine.netdnassl.com/wp-content/uploads/Reporting-onenterprise-value_climate-prototype_Dec20.pdf; and 

IFRS Foundation, IFRS Foundation announces 

International Sustainability Standards Board, 

consolidation with CDSB and VRF, and publication 

of prototype disclosure requirements, available at 

https://www.ifrs.org/news-and-events/news/2021/ 

11/ifrs-foundation-announces-issb-consolidationwith-cdsb-vrf-publication-of-prototypes/. 

92See IFRS Foundation, IFRS Foundation 

announces International Sustainability Standards 

Board, consolidation with CDSB and VRF, and 

publication of prototype disclosure requirements 

(Nov. 3, 2021), available at https://www.ifrs.org/ 

news-and-events/news/2021/11/ifrs-foundationannounces-issb-consolidation-with-cdsb-vrfpublication-of-prototypes/. At the same time, the 

IFRS Foundation announced the planned 

consolidation of the Climate Disclosure Standards 

Board and the Value Reporting Foundation into the 

ISSB during 2022. The ISSB is expected to develop 

reporting standards using the Prototype as a starting 

point and engaging in rigorous due process under 

the oversight of the IFRS Foundation Trustees’ Due 

Process Oversight Committee. 

93 Id. 

94Proposal for a DIRECTIVE OF THE EUROPEAN 

PARLIAMENT AND OF THE COUNCIL amending 

Directive 2013/34/EU, Directive 2004/109/EC, 

Directive 2006/43/EC and Regulation (EU) No 537/ 

2014, as regards corporate sustainability reporting 

(Apr. 2021), available at https://eur-lex.europa.eu/ 

legal-content/EN/TXT/?uri=CELEX:52021PC0189. 

In proposing revised corporate sustainability 

reporting requirements, the EU explained that there 

exists a widening gap between the sustainability 

information, including climate-related data, 

companies report and the needs of the intended 

users of that information, which may mean that 

investors are unable to take sufficient account of 

climate-related risks in their investment decisions. 

95See IOSCO, Report on Sustainability-related 

Issuer Disclosures, Final Report (June 2021) (noting 

progress in several jurisdictions, including Hong 

Kong, India, Japan, New Zealand and the United 

Kingdom, to incorporate TCFD’s disclosure 

recommendations into their legal and regulatory 

frameworks). 

96A number of registrants recommended basing 

the Commission’s climate-related disclosure rules 

on the TCFD framework. See, e.g., letters from 

Adobe; Alphabet Inc. et al.; BNP Paribas (June 11, 

2021); bp; Chevron (June 11, 2021; ConocoPhilips; 

and Walmart. Similarly, numerous investors and 

investor groups recommended the TCFD 

framework. See letters from Alberta Investment 

Management Corporation; BlackRock; CalPERS; 

CALSTRS (June 4, 2021); Impact Investors, Inc.; and 

San Francisco Employees Retirement System. See 

also infra Section II.A.1 for further discussion of the 

many commenters that recommended basing the 

Commission’s climate-related disclosure rules on 

the TCFD framework. 

97See, e.g., letter from Natural Resources Defense 

Council (stating that most companies providing 

climate-related information do so using the threepart (scope) framework developed by the GHG 

Protocol and noting other organizations, such as the 

CDP, that use the GHG Protocol’s framework and 

methodology); see also GHG Protocol, Companies 

and Organizations, available at https://

ghgprotocol.org/companies-and-organizations 

(stating that 92% of companies responding to the 

CDP in 2016 used the GHG Protocol’s standards and 

guidance). 

98See infra Section II.A.1 and notes 145 through 

149. 

99See TCFD, 2020 Status Report (Oct. 2020). The 

Group of 20 (‘‘G20’’) is a group of finance ministers 

and central bank governors from 19 countries, 

including the United States, plus the European 

Union, which was formed in 1999 to promote global 

economic growth, international trade, and 

regulation of financial markets. According to the 

G20, its members represent more than 80% of world 

GDP, 75% of international trade, and 60% of the 

world population. See G20, About the G20, 

available at https://g20.org/about-the-g20/. 

100See TCFD, Recommendations of the Task 

Force on Climate-related Financial Disclosures 

(June 2017), available at https://assets.bbhub.io/ 

company/sites/60/2020/10/FINAL-2017-TCFDReport-11052018.pdf. 

101See, e.g., Climate Action 100+, The Three 

Asks, available at https://

www.climateaction100.org/approach/the-threeasks/ (requiring participating investors to ask the 

companies with which they engage to provide 

enhanced corporate disclosure in line with the 

TCFD’s recommendations; and CDP, How CDP is 

aligned to the TCFD, available at https://

www.cdp.net/en/guidance/how-cdp-is-aligned-tothe-tcfd (explaining how the CDP has aligned its 

questionnaires to elicit disclosures aligned with the 

TCFD’s recommendations). 

102See TCFD, TCFD_Booklet_FNL_Digital_March2020.pdf (bbhub.io) (Mar. 2021), available at 

Continued 

standards that an ISSB might eventually 

develop; 91

• In November 2021, the IFRS 

Foundation announced the formation of 

the ISSB.92 The ISSB is expected to 

engage in standard setting to build on 

the Prototype, including developing 

climate-specific disclosure standards 

based on the recommendations of the 

TCFD.93

• Several jurisdictions, including the 

European Union,94 are developing or 

revising their mandatory climate-related 

disclosure regimes to provide investors 

with more consistent, useful climaterelated financial information, including 

associated assurance requirements and 

data tagging to facilitate the use of the 

information.95

These international developments 

show an increasing global recognition of 

the need to improve companies’ 

climate-related disclosures, which the 

proposed rules would help address, as 

well as the convergence of investors and 

issuers around the TCFD as a useful 

framework for communicating 

information about climate-related risks 

that companies may face. 

D. Development of a Climate-Related 

Reporting Framework 

In recent years, two significant 

developments have occurred that 

support and inform the Commission’s 

proposed climate-related reporting 

rules. The first involves the TCFD, 

which has developed a climate-related 

reporting framework that has become 

widely accepted by both registrants and 

investors.96 The second involves the 

Greenhouse Gas Protocol (‘‘GHG 

Protocol’’), which has become a leading 

accounting and reporting standard for 

greenhouse gas emissions.97 Both the 

TCFD and the GHG Protocol have 

developed concepts and a vocabulary 

that are commonly used by companies 

when providing climate-related 

disclosures in their sustainability or 

related reports. As discussed in greater 

detail below, the Commission’s 

proposed rules incorporate some of 

these concepts and vocabulary, which 

by now are familiar to many registrants 

and investors. 

1. The Task Force on Climate-Related 

Financial Disclosure 

Our proposed climate-related 

disclosure framework is modeled in part 

on the TCFD’s recommendations. A goal 

of the proposed rules is to elicit climaterelated disclosures that are consistent, 

comparable, and reliable while also 

attempting to limit the compliance 

burden associated with these 

disclosures. The TCFD framework has 

been widely accepted by issuers, 

investors, and other market participants, 

and, accordingly, we believe that 

proposing rules based on the TCFD 

framework may facilitate achieving this 

balance between eliciting better 

disclosure and limiting compliance 

costs.98

In April 2015, the Group of 20 

Finance Ministers directed the Financial 

Stability Board (‘‘FSB’’) to evaluate 

ways in which the financial sector could 

address climate-related concerns.99 The 

FSB concluded that better information 

was needed to facilitate informed 

investment decisions and to help 

investors and other market participants 

to better understand and take into 

account climate-related risks. The FSB 

established the TCFD, an industry-led 

task force charged with promoting 

better-informed investment, credit, and 

insurance underwriting decisions.100

Since then, the framework for climaterelated disclosures developed by the 

TCFD has been refined and garnered 

global support as a reliable framework 

for climate-related financial 

reporting.101

In 2017, the TCFD published 

disclosure recommendations that 

provide a framework by which to 

evaluate material climate-related risks 

and opportunities through an 

assessment of their projected short-, 

medium-, and long-term financial 

impacts on a registrant. The TCFD 

framework establishes eleven disclosure 

topics related to four core themes that 

provide a structure for the assessment, 

management, and disclosure of climaterelated financial risks: Governance, 

strategy, risk management, and metrics 

and targets.102


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https://assets.bbhub.io/company/sites/60/2020/10/ 

TCFD_Booklet_FNL_Digital_March-2020.pdf. 

103According to the TCFD, ‘‘[for] companies, 

support is a commitment to work toward their own 

implementation of the TCFD recommendations.’’ 

https://www.fsb-tcfd.org/support-tcfd/ 

104See TCFD, 2021 Status Report. A recent survey 

by Moody’s of over 3,800 companies worldwide 

indicated that the global average disclosure rate of 

companies that reported across all 11 TCFD’s 

recommendations increased to 22% in 2021 from 

16% in 2020. See Moody’s State of TCFD 

Disclosures 2021, available at https://assets.websitefiles.com/5df9172583d7eec04960799a/ 

616d36184f3e6431a424b9df_BX9303_MESG_

State%20of%20TCFD%20Disclosures%202021.pdf. 

In addition, according to a recent report by the 

Governance & Accountability Institute, Inc., 70% of 

companies in the Russell 1000 Index published 

sustainability reports in 2020, and of those 

reporters, 30% mentioned or aligned their 

disclosures with the TCFD framework, and 40% 

responded to the CDP questionnaires, which are 

aligned with the TCFD. See Governance & 

Accountability Institute, Sustainability Reporting in 

Focus, 2021, available at https://www.gainstitute.com/fileadmin/ga_institute/images/ 

FlashReports/2021/Russell-1000/G_A-RussellReport-2021-Final.pdf?vgo_ee=

NK5m02JiOOHgDiUUST7fBRwUnRnlmwiuCIJkd9

A7F3A%3D. We discuss the findings of this report, 

and other similar findings, in greater detail in 

Section IV.A.5.c below. 

105See TCFD, 2021 Status Report. 

106See id. 

107See Climate-related Disclosures Prototype, 

Developed by the Technical Readiness Working 

Group, chaired by the IFRS Foundation, to provide 

recommendations to the International Sustainability 

Standards Board for consideration (Nov. 2021). 

108HM Treasury, G7 Finance Ministers and 

Central Bank Governors Communique—Policy 

Paper (June 2021), available at https://www.gov.uk/ 

government/publications/g7-finance-ministersmeeting-june-2021-communique/g7-financeministers-and-central-bank-governors-communique 

(stating their support of mandatory climate-related 

financial disclosures based on the TCFD framework 

because of investors’ need for high quality, reliable, 

comparable climate-risk data). 

109See, e.g., letters from Calvert Research and 

Management (June 1, 2021); Ceres et al (June 10, 

2021); NY State Comptroller (June 8, 2021); and 

SASB (May 19, 2021). 

110See infra Section II.G.1 and note 412. 

111See, e.g., letters from Apple, Inc. (June 11, 

2021); bp (June 11, 2021); Carbon Tracker Initiative 

(June 14, 2021); Consumer Federation of America 

(June 14, 2021); ERM CVS (June 11, 2021); Ethic 

Inc. (June 11, 2021); First Affirmative Financial 

Network; Regenerative Crisis Response Committee; 

MSCI, Inc. (June 12, 2021); Natural Resources 

Defense Council; New York State Society of 

Certified Public Accountants(June 11, 2021); 

Paradice Investment Management (June 11, 2021); 

Stray Dog Capital (June 15, 2021); and Huw Thomas 

(June 16, 2021). 

112See, e.g., letters from ERM CVS; and Natural 

Resources Defense Council; see also Greenhouse 

Gas Protocol, About Us | Greenhouse Gas Protocol, 

available at https://ghgprotocol.org/about-us. 

113See, e.g., EPA Center for Corporate Climate 

Leadership, Scope 1 and Scope 2 Inventory 

Guidance, at https://www.epa.gov/ 

climateleadership/scope-1-and-scope-2-inventoryguidance. 

114See Greenhouse Gas Protocol, About Us | 

Greenhouse Gas Protocol (ghgprotocol.org), 

available at https://ghgprotocol.org/about-us. 115See id. The Kyoto Protocol, adopted in 1997, 

implemented the United Nations Framework 

Convention on Climate Change by obtaining 

commitments from industrialized countries to 

reduce emissions of the seven identified gasses 

according to agreed targets. See United Nations 

Climate Change, What is the Kyoto Protocol?, 

available at https://unfccc.int/kyoto_protocol. The 

EPA includes these seven greenhouse gases in its 

greenhouse gas reporting program. See, e.g., EPA, 

GHGRP Emissions by GHG, available at https://

www.epa.gov/ghgreporting/ghgrp-emissions-ghg. 

116See World Business Council for Sustainable 

Development and World Resources Institute, The 

Greenhouse Gas Protocol, A Corporate Accounting 

and Reporting Standard REVISED EDITION, 

available at https://ghgprotocol.org/corporatestandard. 

117 Id. 

Support for the TCFD’s 

recommendations by companies and 

other reporting frameworks has grown 

steadily since the TCFD’s formation.103

As of October 2021 more than 2,600 

organizations globally, with a total 

market capitalization of $25 trillion 

have expressed support for the TCFD.104

Further, 1,069 financial institutions, 

managing assets of $194 trillion, also 

support the TCFD.105 In recognition of 

the widespread adoption by companies 

of TCFD reporting, a number of 

countries, including the United 

Kingdom, New Zealand, and 

Switzerland, and the European Union 

that have proposed mandatory climaterisk disclosure requirements have 

indicated an intention to base disclosure 

requirements on the TCFD 

framework.106 Further, the TCFD’s 

recommendations have been adopted 

by, and incorporated into, other 

voluntary climate disclosure 

frameworks such as the CDP, GRI, 

CDSB, and SASB frameworks. The 

TCFD also forms the framework for the 

Prototype that the IFRS Foundation 

provided to the ISSB as a potential 

starting point for its standard setting 

initiative.107 The G7 Finance Ministers 

and Central Bank Governors have also 

endorsed the TCFD.108 As a result, 

although the reporting landscape is 

crowded with voluntary standards that 

seek different information in different 

formats, the TCFD framework has been 

widely endorsed by U.S. companies and 

regulators and standard-setters around 

the world. 

2. The Greenhouse Gas Protocol

Quantitative greenhouse gas (‘‘GHG’’)

emissions data can enable investors to 

assess a registrant’s exposure to climaterelated risks, including regulatory, 

technological, and market risks driven 

by a transition to a lower-GHG intensive 

economy.109 This data also could help 

investors to assess the progress of 

registrants with public commitments to 

reduce GHG emissions, which would be 

important in assessing potential future 

capital outlays that might be required to 

meet such commitments. For these 

reasons, many investors and other 

commenters recommended that we 

require disclosure of a registrant’s GHG 

emissions.110 Many commenters also 

recommended that we base any GHG 

emissions disclosure requirement on the 

GHG Protocol.111 These commenters 

indicated that the GHG Protocol has 

become the most widely-used global 

greenhouse gas accounting standard.112

For example, the Environmental 

Protection Agency (‘‘EPA’’) Center for 

Corporate Climate Leadership references 

the GHG Protocol’s standards and 

guidance as resources for companies 

that seek to calculate their GHG 

emissions.113

The GHG Protocol was created 

through a partnership between the 

World Resources Institute and the 

World Business Council for Sustainable 

Development, which agreed in 1997 to 

collaborate with businesses and NGOs 

to create a standardized GHG 

accounting methodology.114 The GHG 

Protocol has been updated periodically 

since its original publication and has 

been broadly incorporated into 

sustainability reporting frameworks, 

including the TCFD, Value Reporting 

Foundation, GRI, CDP, CDSB, and the 

IFRS Foundation’s Prototype. 

The GHG Protocol’s Corporate 

Accounting and Reporting Standard 

provides uniform methods to measure 

and report the seven greenhouse gasses 

covered by the Kyoto Protocol—carbon 

dioxide, methane, nitrous oxide, 

hydrofluorocarbons, perfluorocarbons, 

sulfur hexafluoride, and nitrogen 

trifluoride.115 The GHG Protocol 

introduced the concept of ‘‘scopes’’ of 

emissions to help delineate those 

emissions that are directly attributable 

to the reporting entity and those that are 

indirectly attributable to the company’s 

activities.116 Under the GHG Protocol, 

Scope 1 emissions are direct GHG 

emissions that occur from sources 

owned or controlled by the company. 

These might include emissions from 

company-owned or controlled 

machinery or vehicles, or methane 

emissions from petroleum operations. 

Scope 2 emissions are those emissions 

primarily resulting from the generation 

of electricity purchased and consumed 

by the company.117 Because these 

emissions derive from the activities of 

another party (the power provider), they 

are considered indirect emissions. 

Scope 3 emissions are all other indirect 

emissions not accounted for in Scope 2 

emissions. These emissions are a 

consequence of the company’s activities 

but are generated from sources that are 

neither owned nor controlled by the 


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118The Scope 3 emissions standard was 

developed over a three-year period with 

participation by businesses, government agencies, 

academics, and NGOs to help companies 

understand and manage their climate-related risks 

and opportunities in their upstream and 

downstream value chains. See Greenhouse Gas 

Protocol, Corporate Value Chain (Scope 3) 

Accounting and Reporting Standard, Supplement to 

the GHG Protocol Corporate Accounting and 

Reporting Standard (Sept. 2011), available at 

https://ghgprotocol.org/sites/default/files/ 

standards/Corporate-Value-Chain-AccountingReporing-Standard_041613_2.pdf. This standard 

identified eight upstream and seven downstream 

emission categories that can give rise to Scope 3 

emissions. The GHG Protocol is developing 

additional guidance that may impact Scope 3 

emissions related to land use and land sector 

activities. See Greenhouse Gas Protocol, Update on 

Greenhouse Gas Protocol Carbon Removals and 

Land Sector Initiative (July 8, 2021), available at 

https://ghgprotocol.org/blog/update-greenhousegas-protocol-carbon-removals-and-land-sectorinitiative. 

119See Section II.G.1, below, for a more extensive 

discussion of Scope 3 categories and emissions. 

120See id. 

121See infra Sections II.B through E and II.G 

through I. 

122See 17 CFR 240.12b–2 (defining ‘‘accelerated 

filer’’ as an issuer after it first meets the following 

conditions as of the end of its fiscal year: (i) The 

issuer had an aggregate worldwide market value of 

the voting and non-voting common equity held by 

its non-affiliates of $75 million or more, but less 

than $700 million, as of the last business day of the 

issuer’s most recently completed second fiscal 

quarter; (ii) the issuer has been subject to the 

requirements of Section 13(a) or 15(d) of the 

Exchange Act for a period of at least twelve 

calendar months; (iii) the issuer has filed at least 

one annual report pursuant to Section 13(a) or 15(d) 

of the Exchange Act; and (iv) the issuer is not 

eligible to use the requirements for SRCs under the 

SRC revenue test). 

123See 17 CFR 240.12b–2 (defining ‘‘large 

accelerated filer’’ as an issuer after it first meets the 

following conditions as of the end of its fiscal year: 

(i) The issuer had an aggregate worldwide market 

value of the voting and non-voting common equity 

held by its non-affiliates of $700 million or more, 

as of the last business day of the issuer’s most 

recently completed second fiscal quarter; (ii) the 

issuer has been subject to the requirements of 

Section 13(a) or 15(d) of the Exchange Act for a 

period of at least twelve calendar months; (iii) the 

issuer has filed at least one annual report pursuant 

to Section 13(a) or 15(d) of the Exchange Act; and 

(iv) the issuer is not eligible to use the requirements 

for SRCs under the SRC revenue test). 

124See infra Section II.H. 

125See infra Section II.F. 

126See infra Sections II.F.2 and 3. 

127See infra Section II.D. 

128See infra Sections II.B and C. 

129See infra Section II.C. 

130See infra Section II.E. 

131See infra Sections II.F.2 and 3. 

132See infra Sections II.F.4. 

133See infra Section II.G.1. 

134See infra Section II.I. 

135As defined by Commission rules, a foreign 

private issuer is any foreign issuer other than a 

foreign government except an issuer meeting the 

following conditions as of the last business day of 

its most recently completed second fiscal quarter: 

More than 50% of the outstanding voting securities 

of such issuer are directly or indirectly owned of 

record by residents of the United States; and either 

the majority of its executive officers or directors are 

United States citizens or residents, more than 50% 

of the assets of the issuer are located in the United 

States, or the business of the issuer is administered 

principally in the United States. See 17 CFR 

230.405 and 17 CFR 240.3b–4. 

136See infra Section II.A.2. 

company.118 These might include 

emissions associated with the 

production and transportation of goods 

a registrant purchases from third parties, 

employee commuting or business travel, 

and the processing or use of the 

registrant’s products by third parties.119

We have based our proposed GHG 

emissions disclosure requirement 

primarily on the GHG Protocol’s 

concept of scopes and related 

methodology.120 By basing this 

requirement on an established GHG 

emissions reporting framework, we 

believe the compliance burden would 

be mitigated, especially for those 

registrants that are already disclosing or 

estimating their GHG emissions 

pursuant to the GHG Protocol. 

E. Summary of the Proposed Rules 

We are proposing to add a new 

subpart to Regulation S–K, 17 CFR 

229.1500–1507 (‘‘Subpart 1500 of 

Regulation S–K’’) that would require a 

registrant to disclose certain climaterelated information, including 

information about its climate-related 

risks that are reasonably likely to have 

material impacts on its business or 

consolidated financial statements, and 

GHG emissions metrics that could help 

investors assess those risks.121 A 

registrant may also include disclosure 

about its climate-related opportunities. 

The proposed new subpart to Regulation 

S–K would include an attestation 

requirement for accelerated filers 122 and 

large accelerated filers 123 regarding 

certain proposed GHG emissions 

metrics disclosures.124

We are also proposing to add a new 

article to Regulation S–X, 17 CFR 

210.14–01 and 02 (‘‘Article 14 of 

Regulation S–X’’) that would require 

certain climate-related financial 

statement metrics and related disclosure 

to be included in a note to a registrant’s 

audited financial statements.125 The 

proposed financial statement metrics 

would consist of disaggregated climaterelated impacts on existing financial 

statement line items. As part of the 

registrant’s financial statements, the 

financial statement metrics would be 

subject to audit by an independent 

registered public accounting firm, and 

come within the scope of the registrant’s 

internal control over financial reporting 

(‘‘ICFR’’).126

1. Content of the Proposed Disclosures 

The proposed climate-related 

disclosure framework is modeled in part 

on the TCFD’s recommendations, and 

also draws upon the GHG Protocol. In 

particular, the proposed rules would 

require a registrant to disclose 

information about: 

• The oversight and governance of 

climate-related risks by the registrant’s 

board and management; 127

• 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; 128

• How any identified climate-related 

risks have affected or are likely to affect 

the registrant’s strategy, business model, 

and outlook; 129

• The registrant’s processes for 

identifying, assessing, and managing 

climate-related risks and whether any 

such processes are integrated into the 

registrant’s overall risk management 

system or processes; 130

• The impact of climate-related 

events (severe weather events and other 

natural conditions as well as physical 

risks identified by the registrant) and 

transition activities (including transition 

risks identified by the registrant) on the 

line items of a registrant’s consolidated 

financial statements and related 

expenditures,131 and disclosure of 

financial estimates and assumptions 

impacted by such climate-related events 

and transition activities.132

• Scopes 1 and 2 GHG emissions 

metrics, separately disclosed, expressed: 

Æ Both by disaggregated constituent 

greenhouse gases and in the aggregate, 

and 

Æ In absolute and intensity terms; 133

• Scope 3 GHG emissions and 

intensity, if material, or if the registrant 

has set a GHG emissions reduction 

target or goal that includes its Scope 3 

emissions; and 

• The registrant’s climate-related 

targets or goals, and transition plan, if 

any.134

When responding to any of the 

proposed rules’ provisions concerning 

governance, strategy, and risk 

management, a registrant may also 

disclose information concerning any 

identified climate-related opportunities. 

2. Presentation of the Proposed 

Disclosures 

The proposed rules would require a 

registrant (both domestic and foreign 

private issuers): 135

• To provide the climate-related 

disclosure in its registration statements 

and Exchange Act annual reports; 136


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137See id. 

138See infra Section II.F. 

139See infra Section II.K. 

140See infra Section II.L. 

141See infra Section II.H. 

142See infra Section II.H.1 (providing further 

details on the proposed timing of the minimum 

attestation requirements). 

143See infra Section II.G.3. The Commission’s 

rules define a smaller reporting company to mean 

an issuer that is not an investment company, an 

asset-backed issuer, or a majority-owned subsidiary 

of a parent that is not a smaller reporting company 

and that: (1) Had a public float of less than $250 

million; or (2) had annual revenues of less than 

$100 million and either: (i) No public float; or (ii) 

a public float of less than $700 million. See 17 CFR 

229.10(f)(1), 230.405, and 17 CFR 240.12b–2. 

144See infra Section II.M. 

145See, e.g., letters from Alphabet Inc., 

Amazon.com Inc., Autodesk, Inc., eBay Inc., 

Facebook, Inc., Intel Corporation, and 

Salesforce.com, Inc. (June 11, 2021) (‘‘Alphabet Inc. 

et al.); the Aluminum Association (June 11, 2021); 

Amalgamated Bank; Apple, Inc.; Bank of Finland; 

BNP Paribas; Boston Common Asset Management; 

Ceres and other signatories representing NGOs, 

academics, and investors (Ceres et al.) (June 11, 

2021); Certified B Corporations (June 11, 2021); 

Chevron; Clean Yield Asset Management; Climate 

Advisers (June 13, 2021); Climate Governance 

Initiative (June 12, 2021); Committee on Financial 

and Capital Markets (Keidenren) (June 13, 2021); 

Commonwealth Climate and Law Initiative; Crowe 

LLP (June 11, 2021); E2 (June 14, 2021); ERM CVS; 

Eumedion (June 11, 2021); Fossil Fuel Divest 

Harvard (June 14, 2021); Impact Investors, Inc.; 

Impax Asset Management; Information Technology 

Industry Council (June 11, 2021); Institutional 

Limited Partners Association (June 11, 2021); 

Japanese Bankers Association (June 11, 2021); 

Keramida (June 11, 2021); Carolyn Kohoot (June 11, 

2021); Legal and General Investment Management 

America (June 11, 2021); Christopher Lish (June 12, 

2021); Manifest Climate (June 13, 2021); Mercy 

Investment Services, Inc.; Miller/Howard 

Investments; Mirova US LLC (June 14, 2021); M.J. 

Bradley & Associates, on behalf of Energy Strategy 

Coalition (June 13, 2021); Morningstar, Inc. (June 9, 

2021); MSCI, Inc.; Natural Resources Defense 

Council (June 11, 2021); Persefoni (June 14, 2021); 

PRI; S&P Global; Maria Stoica (June 11, 2021); 

Trillium Asset Management; United Nations 

Environment Programme (UNEP) (June 9, 2021); 

Walmart, Inc. (June 11, 2021); and World Business 

Council for Development (June 11, 2021) (WBCSD). 

146See, e.g., letters from Adobe Inc. (June 11, 

2021); Alberta Investment Management Corporation 

(June 11, 2021); AllianceBernstein; American 

Chemistry Council (June 11, 2021); American 

Society of Adaptation Professionals (June 11, 2021); 

Baillie Gifford (June 11, 2021); Bank Policy Institute 

(June 9, 2021); BlackRock; Bloomberg, LP (June 3, 

2021); bp; BSR (June 11, 2021); Canadian Bankers 

Association (June 11, 2021); Canadian Coalition of 

Good Governance; Capital Group (June 11, 2021); 

Catavento Consultancy (Apr. 30, 2021); Center for 

Climate and Energy Solutions; Confluence 

Philanthropy (June 14, 2021); ConocoPhilips, Inc. 

• To provide the Regulation S–K 

mandated climate-related disclosure in 

a separate, appropriately captioned 

section of its registration statement or 

annual report, or alternatively to 

incorporate that information in the 

separate, appropriately captioned 

section by reference from another 

section, such as Risk Factors, 

Description of Business, or 

Management’s Discussion and Analysis 

(‘‘MD&A’’); 137

• To provide the Regulation S–X 

mandated climate-related financial 

statement metrics and related disclosure 

in a note to the registrant’s audited 

financial statements; 138

• To electronically tag both narrative 

and quantitative climate-related 

disclosures in Inline XBRL; 139 and 

• To file rather than furnish the 

climate-related disclosure.140

3. Attestation for Scope 1 and Scope 2 

Emissions Disclosure 

The proposed rules would require an 

accelerated filer or a large accelerated 

filer to include, in the relevant filing, an 

attestation report covering, at a 

minimum, the disclosure of its Scope 1 

and Scope 2 emissions and to provide 

certain related disclosures about the 

service provider.141 As proposed, both 

accelerated filers and large accelerated 

filers would have time to transition to 

the minimum attestation requirements. 

The proposed transition periods would 

provide existing accelerated filers and 

large accelerated filers one fiscal year to 

transition to providing limited 

assurance and two additional fiscal 

years to transition to providing 

reasonable assurance, starting with the 

respective compliance dates for Scopes 

1 and 2 disclosure described below.142

The proposed rules would provide 

minimum attestation report 

requirements, minimum standards for 

acceptable attestation frameworks, and 

would require an attestation service 

provider to meet certain minimum 

qualifications. The proposed rules 

would not require an attestation service 

provider to be a registered public 

accounting firm. 

4. Phase-In Periods and 

Accommodations for the Proposed 

Disclosures 

The proposed rules would include: 

• A phase-in for all registrants, with 

the compliance date dependent on the 

registrant’s filer status; 

• An additional phase-in period for 

Scope 3 emissions disclosure; 

• A safe harbor for Scope 3 emissions 

disclosure; 

• An exemption from the Scope 3 

emissions disclosure requirement for a 

registrant meeting the definition of a 

smaller reporting company (‘‘SRC’’); 143

and 

• A provision permitting a registrant, 

if actual reported data is not reasonably 

available, to use a reasonable estimate of 

its GHG emissions for its fourth fiscal 

quarter, together with actual, 

determined GHG emissions data for the 

first three fiscal quarters, as long as the 

registrant promptly discloses in a 

subsequent filing any material 

difference between the estimate used 

and the actual, determined GHG 

emissions data for the fourth fiscal 

quarter. 

The proposed rules would be phased 

in for all registrants, with the 

compliance date dependent upon the 

status of the registrant as a large 

accelerated filer, accelerated or nonaccelerated filer, or SRC, and the 

content of the item of disclosure. For 

example, assuming that the effective 

date of the proposed rules occurs in 

December 2022 and that the registrant 

has a December 31st fiscal year-end, the 

compliance date for the proposed 

disclosures in annual reports, other than 

the Scope 3 disclosure, would be: 

• For large accelerated filers, fiscal 

year 2023 (filed in 2024); 

• For accelerated and non-accelerated 

filers, fiscal year 2024 (filed in 2025); 

and 

• For SRCs, fiscal year 2025 (filed in 

2026).144

Registrants subject to the proposed 

Scope 3 disclosure requirements would 

have one additional year to comply with 

those disclosure requirements. 

We welcome feedback and encourage 

interested parties to submit comments 

on any or all aspects of the proposed 

rules. When commenting, it would be 

most helpful if you include the 

reasoning behind your position or 

recommendation. 

II. Discussion 

A. Overview of the Climate-Related 

Disclosure Framework 

1. Proposed TCFD-Based Disclosure 

Framework 

We have modeled the proposed 

disclosure rules in part on the TCFD 

disclosure framework. Building on the 

TCFD framework should enable 

companies to leverage the framework 

with which many investors and issuers 

are already familiar, which should help 

to mitigate both the compliance burden 

for issuers and any burdens faced by 

investors in analyzing and comparing 

the new proposed disclosures. 

Many commenters that supported 

climate disclosure rules recommended 

that we consider the TCFD framework 

in developing those rules. Numerous 

commenters stated that the Commission 

should base its climate-related 

disclosure rules on the TCFD framework 

either as a standalone framework,145 or 

in conjunction with industry-specific 

metrics drawn from the SASB146 or 


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(June 11, 2021); CPP Investments (June 11, 2021); 

Enbridge, Inc. (June 11, 2021); Energy Workforce 

and Technology Council (June 11, 2021); 

Entelligent, Inc. (June 14, 2021); Ethic Inc.; 

Emmanuelle Haack (Apr. 27, 2021); Harvard 

Management Company (June 11, 2021); Hermes 

Equity Ownership Services Limited (June 14, 2021); 

Douglas Hileman Consulting (June 7, 2021); HP, Inc. 

(June 14, 2021); Virginia Harper Ho (June 12, 2021); 

IHS Markit (June 13, 2021); Institute of International 

Bankers; Institute of International Finance (June 13, 

2021); Institute of Management Accountants (June 

12, 2021); Invesco (June 10, 2021); Investment 

Company Institute; Investment Consultants 

Sustainability Working Group (June 11, 2021); 

Richard Love (May 20, 2021); Manulife Investment 

Management (June 11, 2021); NEI Investments (June 

11, 2021); Neuberger Berman (June 11, 2021); New 

York State Society of Certified Public Accountants; 

Nordea Asset Management (June 11, 2021); Norges 

Bank Investment Management (June 13, 2021); NY 

State Comptroller; Paradice Investment 

Management (June 11, 2021); Parametric Portfolio 

Associates; PayPal Holdings, Inc. (June 12, 2021); 

PGIM (June 13, 2021); Reinsurance Association of 

America (June 9, 2021); Salesforce.com (June 11, 

2021); San Francisco Employees Retirement System 

(June 12, 2021); State Street Global Advisors; 

Summit Strategy Group (June 11, 2021); Teachers 

Insurance and Annuity Association of America 

(June 11, 2021); T Rowe Price (June 11, 2021); Value 

Reporting Foundation (June 11, 2021); Wellington 

Management Co. (June 11, 2021); and Westpath 

Benefits and Assessments (June 11, 2021). 

147See, e.g., letters from Gabrielle F. Preiser (Mar. 

31, 2021) and Worldbenchmarking Alliance (June 

11, 2021) (recommending the Global Reporting 

Initiative (GRI) standards); letter from Mathew 

Roling and Samantha Tirakian (June 11, 2021) 

(recommending the CDSB standards); and 

Pricewaterhouse Coopers and Grant Thornton (June 

11, 2021) (recommending the Sustainability 

Standards Board (SSB) standards once the SSB is 

established by the IFRS Foundation and others as 

a global standard-setter and once it promulgates 

standards). 

148See, e.g., letters from Adobe; Alphabet Inc. et 

al.; BNP Paribas; bp; Chevron; ConocoPhilips; and 

Walmart. 

149See, e.g., letters from Alberta Investment 

Management Corporation; BlackRock; CalPERS; 

CALSTRS; Impact Investors, Inc.; and San 

Francisco Employees Retirement System. 

150See, e.g., letters from BNP Paribas; Deutsche 

Bank (June 11, 2021); and Institute of International 

Bankers. 

151See, e.g., letters from AllianceBernstein; 

CALSTRS; Investment Company Institute; and NY 

State Comptroller. 152See supra note 95 and accompanying text. 153See, e.g., letters from BNP Paribas; bp; and 

Chevron. 154Proponents of the TCFD framework include 

academics (see, e.g., letters from Jill Fisch et al., J. 

Robert Gibson (May 26, 2021), and Gina-Gail S 

Fletcher (June 14, 2021)); accounting and audit 

firms (see, e.g., letters from AICPA (June 11, 2021), 

Center for Audit Quality (‘‘CAQ’’) (June 11, 2021), 

and KPMG LLP (June 12, 2021)); foreign firms (see, 

e.g., letters from Bank of Finland, BNP Paribas, bp, 

and Deutsche Bank); industry groups (see, e.g., 

letters from American Chemistry Council, 

Association of American Railroads (June 11, 2021), 

and Information Technology Industry Council (June 

11, 2021)); investor groups (see, e.g., letters from 

CalPERS; CALSTRS; and San Francisco Employees 

Retirement System); individuals (see, e.g., letters 

from Emmanuelle Haack, Christopher Lish, and 

Maria Stoica); issuers (see, e.g., letters from Adobe, 

Alphabet Inc. et al., Apple, and Chevron); NGOs 

(see, e.g., letters from Ceres et al., Climate 

Governance Initiative, Natural Resources Defense 

Council, and UNEP); professional climate advisors 

(see, e.g., letters from Catavento Consultancy, 

Douglas Hileman Consulting, ERM CVS, and Ethic 

Inc.); and professional investment advisors/ 

investment management companies (see, e.g., letters 

from AllianceBernstein, Impact Investors, Miller/ 

Howard Investments, and Neuberger Berman). 

155See proposed 17 CFR 229.1501. 

156See proposed 17 CFR 229.1502. 

157See proposed 17 CFR 229.1503. 

158See proposed 17 CFR 229.1504. 

159See proposed 17 CFR 229.1506. 

160See proposed 17 CFR 210.14–01 and 14–02. 

161See proposed 17 CFR 210.14–02(c) and (d). 

162See proposed 17 CFR 210.14–02(e) and (f). 

163See proposed 17 CFR 210.14–02(g) and (h). 

164See TCFD, Recommendations of the Task 

Force on Climate-related Financial Disclosures 

(June 2017), Section B.3 (Financial Impacts). 

165See TCFD, Guidance on Metrics, Targets, and 

Transition Plans (Oct. 2021), Section F (Financial 

Impacts), available at https://assets.bbhub.io/ 

company/sites/60/2021/07/2021-Metrics_Targets_

Guidance-1.pdf. For avoidance of doubt, disclosure 

of climate-related opportunities is optional, not 

required, under our proposal. 

166See, e.g., letters from AllianceBernstein; 

American Society of Adaptation Professionals; 

Seema Arora (June 22, 2021); Associated General 

Contractors of America (June 11, 2021); Baillie 

Gifford; CalPERS; Cardano Risk Management Ltd. 

(Apr. 19, 2021); Center for American Progress; Ceres 

et al.; Eni SpA; Jill Fisch (June 3, 2021); George S. 

Georgiev (June 22, 2021); Hannon Armstrong (June 

15, 2021); Henry Schein, Inc.; Hermes Equity 

Ownership Services Limited; Virginia Harper Ho; 

Institute for Governance and Sustainable 

Development (June 9, 2021); Institute for Market 

Transformation (June 12, 2021); Interfaith Center on 

Corporate Responsibility; International Corporate 

Governance Network (June 11, 2021); Japanese 

Bankers Association; Morrison & Foerster LLP; 

National Investor Relations Institute (June 11, 

2021); Natural Resources Defense Council; 

Newmont Corporation (June 13, 2021); New York 

Continued 

other third-party frameworks.147 A 

broad range of commenters, including 

both issuers 148 and investors,149

supported basing new climate-related 

disclosure rules on the TCFD 

framework. 

Commenters provided several reasons 

for their support of the TCFD 

framework. First, commenters indicated 

that, because of the widespread 

adoption of the framework, issuers and 

investors have experience making and 

using TCFD disclosures. As a result, 

according to commenters, aligning SEC 

rules with the TCFD could reduce the 

burden on issuers and increase the 

consistency and comparability of 

climate disclosures.150 Second, 

commenters stated that the information 

that the TCFD disclosures elicit is useful 

for investors to understand companies’ 

exposure to and management of climaterelated risks.151 Third, various 

jurisdictions around the world have 

announced their intention to align their 

domestic disclosure rules with the 

TCFD.152 Commenters stated that by 

aligning with the TCFD framework, the 

Commission could potentially facilitate 

higher levels of consistency and 

comparability of disclosures globally.153

The consistency and breadth of these 

comments comport with our 

understanding that the TCFD framework 

has been widely accepted by issuers, 

investors, and other market participants 

and reinforce our view that the 

framework would provide an 

appropriate foundation for the proposed 

amendments.154 Basing the 

Commission’s climate-related disclosure 

rules on a globally recognized 

framework should help elicit climaterelated disclosures that are consistent, 

comparable, and reliable while also 

limiting the compliance burden for 

registrants that are already providing 

climate-related disclosures based on this 

framework. 

Similar to the TCFD framework, the 

proposed climate-related provisions 

under Regulation S–K would require 

disclosure of a registrant’s: Governance 

of climate-related risks; 155 any material 

climate-related impacts on its strategy, 

business model, and outlook; 156

climate-related risk management; 157

GHG emissions metrics; 158 and climaterelated targets and goals, if any.159

The proposed climate-related 

provisions under Regulation S–X would 

require a registrant to disclose in a note 

to its financial statements certain 

disaggregated climate-related financial 

statement metrics that are mainly 

derived from existing financial 

statement line items.160 The proposed 

rules would require disclosure falling 

under the following three categories of 

information: Financial impact 

metrics; 161 expenditure metrics; 162 and 

financial estimates and assumptions.163

Similar to the TCFD’s recommendation 

regarding financial impacts, the 

proposed financial statement metrics 

have the objective of increasing 

transparency about how climate-related 

risks impact a registrant’s financial 

statements.164 The TCFD framework 

identifies two broad categories of actual 

and potential financial impacts driven 

by climate-related risks and 

opportunities: Financial performance 

(income statement focused) and 

financial position (balance sheet 

focused), and includes suggested 

metrics such as the amount of capital 

expenditure deployed toward climaterelated risks and opportunities, which is 

similar to our proposed financial 

statement metrics.165

2. Location of the Climate-Related 

Disclosure 

Many commenters stated that the 

Commission should amend Regulation 

S–K or Regulation S–X to include 

climate-related disclosure 

requirements.166 Other commenters 


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State Society of Certified Public Accountants; NY 

State Comptroller; PayPal Holdings, Inc.; PRI 

(Consultation Response); PricewaterhouseCoopers 

LLP; Maria Stoica; Sunrise Bay Area (June 14, 

2021); Teachers Insurance and Annuity Association 

of America; Vert Asset Management LLC (June 14, 

2021); WBCSD; and Wespath Benefits and 

Investments (June 11, 2021). 

167See letters from Bank Policy Institute; Andrew 

Behar (As You Sow) (June 14, 2021); Entelligent Inc. 

(June 14, 2021); Impax Asset Management; 

Information Technology Industry Council; Majedie 

Asset Management (May 25, 2021); David Marriage 

(June 15, 2021); and XBRL US (June 15, 2021). 

168See infra Section II.J for a discussion of the 

registrants and forms to which the proposed rules 

would apply. 

169See 17 CFR 230.411; 17 CFR 240.12b–23; and 

the applicable forms. 

170A registrant that elects to incorporate by 

reference any of the metrics or narrative disclosure 

that is subject to XBRL tagging must comply with 

the electronic tagging requirement in the section of 

the registration statement or report where the 

metrics or narrative disclosure appears in full. We 

discuss the XBRL tagging requirement in Section 

II.K. 

171See, e.g., letters from Acadian Asset 

Management LLC (June 14, 2021); Actual Systems, 

Inc. (June 11, 2021); Baillie Gifford; Biotechnology 

Innovation Organization; CDP; ClientEarth US (June 

14, 2021); FAIRR Initiative (June 15, 2021); Jill 

Fisch (June 3, 2021); Hermes Equity Ownership 

Services Limited; International Corporate 

Governance Network; Japanese Bankers 

Association; Majedie Asset Management; 

Morningstar, Inc.; NEI Investments; NY State 

Comptroller; Paradice Investment Management; PreDistribution Initiative (June 14, 2021); 

PricewaterhouseCoopers LLP; Matthew Roling and 

Samantha Tirakian (June 11, 2021); Terra Alpha 

Investments; Vert Asset Management; and WBCSD. 

172See, e.g., letters from Pricewaterhouse Coopers 

Ltd.; Vert Asset Management; and WBCSD. 

173See, e.g., letters from Canadian Coalition for 

Good Governance; Clean Production Action and 

Environmental Health Network (June 11, 2021); 

Decatur Capital Management; Dimensional Fund 

Advisors (June 11, 2021); Environmental Industry 

Group (June 9, 2021); Institute for Governance and 

Sustainable Development; PRI (Consultation 

Response); Kenya Rothstein (May 3, 2021); and 

Maria Stoica. But see letter from Sarah Ladin (June 

14, 2021) (doubting that a ‘‘sustainability discussion 

and analysis’’ requirement would achieve the 

desired results and stating that it would be difficult 

to enforce); and David Marriage (indicating that a 

discussion and analysis requirement for climaterelated data would make the data difficult for the 

market to absorb). 

recommended that the Commission 

adopt a new stand-alone regulation for 

climate-related disclosure.167 We are 

proposing to include the climate-related 

disclosure rules in Regulation S–K and 

Regulation S–X because the required 

disclosure is fundamental to investors’ 

understanding the nature of a 

registrant’s business and its operating 

prospects and financial performance, 

and therefore, should be presented 

together with other disclosure about the 

registrant’s business and its financial 

condition. 

Specifically, we are proposing to 

require a registrant to include climaterelated disclosure in Securities Act or 

Exchange Act registration statements 

and Exchange Act annual reports in a 

separately captioned ‘‘Climate-Related 

Disclosure’’ section and in the financial 

statements.168 Requiring climate-related 

disclosure to be presented in this 

manner would facilitate review of the 

climate-related disclosure by investors 

alongside other relevant company 

financial and non-financial information. 

A registrant would be able to 

incorporate by reference disclosure from 

other parts of the registration statement 

or annual report (e.g., Risk Factors, 

MD&A, or the financial statements) or, 

in most cases, from other filed or 

submitted reports into the ClimateRelated Disclosure item if it is 

responsive to the topics specified in 

Items 1500–1506 of Regulation S–K and 

if the registrant satisfies the 

incorporation by reference requirements 

under the Commission’s rules and 

forms.169 Allowing incorporation by 

reference for the Regulation S–K 

climate-related disclosure would be 

consistent with the treatment of other 

types of business disclosure under our 

rules and would provide some 

flexibility for registrants while reducing 

redundancy in disclosure.170

Many commenters stated that the 

Commission should require registrants 

to discuss and analyze their quantitative 

climate data in a manner similar to that 

required for MD&A.171 These 

commenters stressed the importance of 

placing climate-related metrics in the 

context of other company financial and 

non-financial information to enable 

investors to see how those metrics 

intersect with business operations and 

industrial processes.172 Other 

commenters supported a requirement to 

discuss and analyze the climate-related 

metrics, but stated that such discussion 

should be part of the existing MD&A 

disclosures.173 We agree with the 

commenters supporting a narrative 

discussion and analysis of the climaterelated metrics as means to present 

these disclosures in context and explain 

how they relate to the registrant’s 

strategy and management of its climaterelated risks. In this way, such a 

discussion will serve a similar function 

to the MD&A but will focus on climaterelated risk specifically. Our proposed 

approach, which requires the climaterelated disclosure to be included in a 

specific section but allows registrants to 

incorporate from disclosure elsewhere 

(consistent with applicable 

incorporation by reference 

requirements), provides some flexibility 

to the proposed climate-related 

disclosure scheme while ensuring the 

disclosure is consistent and comparable 

across registrants. 

Request for Comment 

1. Should we add a new subpart to 

Regulation S–K and a new article to 

Regulation S–X that would require a 

registrant to disclose certain climaterelated information, as proposed? 

Would including the climate-related 

disclosure in Regulation S–K and 

Regulation S–X facilitate the 

presentation of climate information as 

part of a registrant’s regular business 

reporting? Should we instead place the 

climate-related disclosure requirements 

in a new regulation or report? Are there 

certain proposed provisions, such as 

GHG emissions disclosure requirements, 

that would be more appropriate under 

Regulation S–X than Regulation S–K? 

2. If adopted, how will investors 

utilize the disclosures contemplated in 

this release to assess climate-related 

risks? How will investors use the 

information to assess the physical 

effects and related financial impacts 

from climate-related events? How will 

investors use the information to assess 

risks associated with a transition to a 

lower carbon economy? 

3. Should we model the Commission’s 

climate-related disclosure framework in 

part on the framework recommended by 

the TCFD, as proposed? Would 

alignment with the TCFD help elicit 

climate-related disclosures that are 

consistent, comparable, and reliable for 

investors? Would alignment with the 

TCFD framework help mitigate the 

reporting burden for issuers and 

facilitate understanding of climaterelated information by investors because 

the framework is widely used by 

companies in the United States and 

around the world? Are there aspects of 

the TCFD framework that we should not 

adopt? Should we instead adopt rules 

that are based on a different third-party 

framework? If so, which framework? 

Should we base the rules on something 

other than an existing third-party 

framework? 

4. Do our current reporting 

requirements yield adequate and 

sufficient information regarding climaterelated risks to allow investors to make 

informed decisions? In lieu of, or in 

addition to the proposed amendments, 

should we provide updated guidance on 

how our existing rules may elicit better 

disclosure about climate-related risks? 

5. Should we require a registrant to 

present the climate-related disclosure in 

an appropriately captioned, separate 

part of the registration statement or 

annual report, as proposed? Should this 

disclosure instead be presented as part 

of the registrant’s MD&A? 

6. Should we permit a registrant to 

incorporate by reference some of the 


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174See supra note 40. 

175The 2020 CFTC Advisory Subcommittee 

Report found that climate change currently impacts 

or is expected to affect every part of the U.S. 

economy, including agriculture, real estate, 

infrastructure, and the financial sectors. See infra 

note 361. 

176A National Climate Taskforce created by the 

president established commitments to reduce 

economy-wide net greenhouse gas emissions by 50– 

52% by 2030 as compared to 2005 levels, and to 

reach net zero emissions by 2050. See The White 

House, FACT SHEET: President Biden Sets 2030 

Greenhouse Gas Pollution Reduction Target Aimed 

at Creating Good-Paying Union Jobs and Securing 

U.S. Leadership on Clean Energy Technologies 

(Apr. 22, 2021). An Executive Order also directs the 

Federal government to achieve net-zero emissions 

from overall Federal operations by 2050, and a 65% 

emissions reduction by 2030. See The White House, 

FACT SHEET: President Biden Signs Executive 

Order Catalyzing America’s Clean Energy Economy 

Through Federal Sustainability (Dec. 8, 2021), at 

https://www.whitehouse.gov/briefing-room/ 

statements-releases/2021/12/08/fact-sheetpresident-biden-signs-executive-order-catalyzingamericas-clean-energy-economy-through-federalsustainability/. A growing number of governments 

and companies have made net zero commitments or 

announced similar carbon-reduction goals or 

targets. See United Nations Climate Change, 

Commitments to Net Zero Double in Less Than a 

Year (Sept. 21, 2020), available at https://

unfccc.int/news/commitments-to-net-zero-doublein-less-than-a-year. 

177See proposed 17 CFR 229.1502(a). 

178See id. 

179See TCFD, Recommendations of the Task 

Force on Climate-related Financial Disclosures, 

Appendix 5. 

180See proposed 17 CFR 229.1500(c). The 

reference to ‘negative’ impact is intended to refer 

to the actual or potential impact on the registrant’s 

consolidated financial statements, business 

operations, or value chains as a whole, rather than 

the mathematical impacts on a specific financial 

statement line item. See infra Section II.F.2 

(discussing the proposed financial impact metrics, 

which focus on the line items in a registrant’s 

consolidated financial statements). 

181See proposed 17 CFR 229.1500(t). 

182See id. 

183See, e.g., infra Section II.G.1. 

184See proposed 17 CFR 229.1500(c)(1). 

185See proposed 17 CFR 229.1500(c)(2). 

climate-related disclosure from other 

parts of the registration statement or 

annual report, as proposed? Should we 

permit a registrant to incorporate by 

reference climate-related disclosure that 

appears in a sustainability report if the 

registrant includes the incorporated by 

referenced disclosure as an exhibit to 

the registration statement or annual 

report? Are there some climate-related 

disclosure items, such as GHG 

emissions data, that we should not 

permit a registrant to incorporate by 

reference? Would requiring a registrant 

to include all of the proposed climaterelated disclosures in a separate, 

appropriately captioned section, while 

precluding a registrant from 

incorporating by reference some or all of 

the climate-related disclosures, promote 

comparability and ease of use of the 

climate-related information for 

investors? 

7. Should we permit a registrant to 

provide certain of the proposed climaterelated disclosures in Commission 

filings other than the annual report or 

registration statement? For example, 

should we permit a registrant to provide 

information about board and 

management oversight of climate-related 

risks in its proxy statement? 

B. Disclosure of Climate-Related Risks 

As many commenters have noted 

when seeking more detailed climaterelated disclosures,174 climate events 

and contingencies can pose financial 

risks to issuers across industrial 

sectors.175 Physical risks may include 

harm to businesses and their assets 

arising from acute climate-related 

disasters such as wildfires, hurricanes, 

tornadoes, floods, and heatwaves. 

Companies and their investors may also 

face chronic risks and more gradual 

impacts from long-term temperature 

increases, drought, and sea level rise. 

In addition to the physical risks 

associated with the climate, issuers and 

investors may also face risks associated 

with a potential transition to a less 

carbon intensive economy. These risks 

may arise from potential adoption of 

climate-related regulatory policies 

including those that may be necessary to 

achieve the national climate goals that 

may be or have been adopted in the 

United States and other countries; 176

climate-related litigation; changing 

consumer, investor, and employee 

behavior and choices; changing 

demands of business partners; long-term 

shifts in market prices; technological 

challenges and opportunities, and other 

transitional impacts. Disclosure about a 

registrant’s exposure to transition risks, 

as well as how the registrant is assessing 

and managing those risks, would help 

investors assess and plan for how the 

registrant would be financially impacted 

by a transition to a lower-carbon 

economy. 

1. Definitions of Climate-Related Risks 

and Climate-Related Opportunities 

A central focus of the Commission’s 

proposed rules is the identification and 

disclosure of a registrant’s material 

climate-related risks. The proposed 

rules would require a registrant to 

disclose any climate-related risks 

reasonably likely to have a material 

impact on the registrant’s business or 

consolidated financial statements.177 A 

registrant may also disclose, as 

applicable, the actual and potential 

impacts of any climate-related 

opportunities it is pursuing.178 The 

proposed definitions are substantially 

similar to the TCFD’s definitions of 

climate-related risks and climate-related 

opportunities.179 We have based our 

definitions on the TCFD’s definitions 

because they provide a common 

terminology that allows registrants to 

disclose climate-related risks and 

opportunities in a consistent and 

comparable way. Grounding our 

definitions in a framework that is 

already widely accepted also could help 

limit the burden on issuers to identify 

and describe climate-related risks and 

improve the comparability and 

usefulness of the disclosures for 

investors. 

As proposed, ‘‘climate-related risks’’ 

means the actual or potential negative 

impacts of climate-related conditions 

and events on a registrant’s consolidated 

financial statements, business 

operations, or value chains, as a 

whole.180 ‘‘Value chain’’ would mean 

the upstream and downstream activities 

related to a registrant’s operations.181

Under the proposed definition, 

upstream activities include activities by 

a party other than the registrant that 

relate to the initial stages of a 

registrant’s production of a good or 

service (e.g., materials sourcing, 

materials processing, and supplier 

activities). Downstream activities would 

be defined to include activities by a 

party other than the registrant that relate 

to processing materials into a finished 

product and delivering it or providing a 

service to the end user (e.g., 

transportation and distribution, 

processing of sold products, use of sold 

products, end of life treatment of sold 

products, and investments).182 We have 

proposed including a registrant’s value 

chain within the definition of climaterelated risks to capture the full extent of 

a registrant’s potential exposure to 

climate-related risks, which can extend 

beyond its own operations to those of its 

suppliers, distributors, and others 

engaged in upstream or downstream 

activities.183

Climate-related conditions and events 

can present risks related to the physical 

impacts of the climate (‘‘physical risks’’) 

and risks related to a potential transition 

to a lower carbon economy (‘‘transition 

risks’’). As proposed, ‘‘physical risks’’ is 

defined to include both acute and 

chronic risks to a registrant’s business 

operations or the operations of those 

with whom it does business.184 ‘‘Acute 

risks’’ is defined as event-driven risks 

related to shorter-term extreme weather 

events, such as hurricanes, floods, and 

tornadoes.185 ‘‘Chronic risks’’ is defined 

as those risks that the business may face 

as a result of longer term weather 


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186See proposed 17 CFR 229.1500(c)(3). The 

physical risks described are examples, but 

registrants may be exposed to many other types of 

physical risks from climate change depending on 

their specific facts and circumstances. As such, any 

reference to certain types of risks should be 

considered as non-exhaustive examples. 

187The IPCC’s Sixth Assessment Report noted 

drought, heatwaves, hurricanes, and heavy 

precipitation. See IPCC, Climate Change 2021, The 

Physical Science Basis Summary for Policymakers. 

188See proposed 17 CFR 229.1500(c)(4). 

189See proposed 17 CFR 229.1502(a)(1)(ii). 

190See proposed 17 CFR 229.1502(a)(1). 

191See, e.g., proposed 17 CFR 229.1502(b)(1) and 

229.1503(c)(1) and (2). 

192See proposed 17 CFR 229.1502(a)(1)(i). In 

some instances, chronic risks might give rise to 

acute risks. For example, drought (a chronic risk) 

that increases acute risks, such as wildfires, or 

increased temperatures (a chronic risk) that 

increases acute risks, such as severe storms. In such 

instances, a registrant should provide a clear and 

consistent description of the nature of the risk and 

how it may affect a related risk. 

193See id. 

194See proposed 17 CFR 229.1500(k). 

195See letter from Wellington Management Co. 

196See letters from Action Center on Race and 

Economy (June 14, 2021); Americans for Financial 

Reform Education Fund; Confluence Philanthropy; 

Domini Impact Investments; William and Flora 

Hewlett Foundation; Public Citizen; and Revolving 

Door Project. 

197See proposed 17 CFR 229.1502(a)(1)(i)(A). 

198See proposed 1502(a)(1)(i)(B). 

199Registrants in these industry sectors could be 

particularly susceptible to water-stress risks 

because operations in these sectors require large 

amounts of water. See TCFD, Implementing the 

Recommendations of the Task Force on ClimateRelated Financial Disclosures, Section E (Oct. 

2021), available at https://assets.bbhub.io/ 

company/sites/60/2021/07/2021/TCFD/ 

Implementing_Guidance.pdf (discussing the listed 

events and other risks). 

200See proposed 17 CFR 229.1502(a)(1)(i)(B). 

patterns and related effects, such as 

sustained higher temperatures, sea level 

rise, drought, and increased wildfires, as 

well as related effects such as decreased 

arability of farmland, decreased 

habitability of land, and decreased 

availability of fresh water.186 Many of 

these physical risks have already 

impacted and may continue to impact 

registrants across a wide range of 

economic sectors.187 The proposed rules 

would define transition risks to mean 

the actual or potential negative impacts 

on a registrant’s consolidated financial 

statements, business operations, or 

value chains attributable to regulatory, 

technological, and market changes to 

address the mitigation of, or adaptation 

to, climate-related risks.188 Transition 

risks would include, but are not limited 

to, increased costs attributable to 

climate-related changes in law or policy, 

reduced market demand for carbonintensive products leading to decreased 

sales, prices, or profits for such 

products, the devaluation or 

abandonment of assets, risk of legal 

liability and litigation defense costs, 

competitive pressures associated with 

the adoption of new technologies, 

reputational impacts (including those 

stemming from a registrant’s customers 

or business counterparties) that might 

trigger changes to market behavior, 

changes in consumer preferences or 

behavior, or changes in a registrant’s 

behavior. A registrant that has 

significant operations in a jurisdiction 

that has made a GHG emissions 

reduction commitment would likely be 

exposed to transition risks related to the 

implementation of the commitment.189

The proposed rules would require a 

registrant to specify whether an 

identified climate-related risk is a 

physical or transition risk so that 

investors can better understand the 

nature of the risk 190 and the registrant’s 

actions or plan to mitigate or adapt to 

the risk.191 If a physical risk, the 

proposed rules would require a 

registrant to describe the nature of the 

risk, including whether it may be 

categorized as an acute or chronic 

risk.192

The proposed rules would require a 

registrant to include in its description of 

an identified physical risk the location 

of the properties, processes, or 

operations subject to the physical 

risk.193 The proposed location 

disclosure would only be required for a 

physical risk that a registrant has 

determined has had or is likely to have 

a material impact on its business or 

consolidated financial statements. In 

such instances, a registrant would be 

required to provide the ZIP code for the 

location or, if the location is in a 

jurisdiction that does not use ZIP codes, 

a similar subnational postal zone or 

geographic location.194 Because 

physical risks can be concentrated in 

particular geographic areas, the 

proposed disclosure would allow 

investors to better assess the risk 

exposure of one or more registrants with 

properties or operations in a particular 

area. One commenter cited location 

information as a key component of how 

it, as an investor, assesses the climate 

risk facing a company, particularly for 

companies with fixed assets that may be 

disproportionately exposed to climaterelated physical risks.195 Several other 

commenters recommended that we 

require the disclosure of certain climate 

data to be disaggregated by location 

using a point source’s zip code for risk 

assessment.196 Disclosing the zip codes 

of its identified material climate-related 

risks, rather than a broader location 

designation, could help investors more 

accurately assess a registrant’s specific 

risk exposure. 

Some registrants might be exposed to 

water-related acute physical risks, such 

as flooding, which could impair a 

registrant’s operations or devalue its 

property. If flooding presents a material 

physical risk, the proposed rules would 

require a registrant to disclose the 

percentage of buildings, plants, or 

properties (square meters or acres) that 

are located in flood hazard areas in 

addition to their location.197 This 

information could help investors 

evaluate the magnitude of a registrant’s 

exposure to flooding, which, for 

example, could cause a registrant in the 

real estate sector to lose revenues from 

the rental or sale of coastal property or 

incur higher costs or a diminished 

ability to obtain property insurance, or 

a manufacturing registrant to incur 

increased expenses due to the need to 

replace water-damaged equipment or 

move an entire plant. 

Additional disclosure would be 

required if a material risk concerns the 

location of assets in regions of high or 

extremely high water stress.198 For 

example, some registrants might be 

impacted by water-related chronic 

physical risks, such as increased 

temperatures and changes in weather 

patterns that result in water scarcity. 

Registrants that are heavily reliant on 

water for their operations, such as 

registrants in the energy sector, 

materials and buildings sector, or 

agriculture sector,199 could face 

regulatory restrictions on water use, 

increased expenses related to the 

acquisition and purchase of alternative 

sources of water, or curtailment of its 

operations due to a reduced water 

supply that diminishes its earning 

capacity. If the location of assets in 

regions of high or extremely high water 

stress presents a material risk, the 

proposed rules would require a 

registrant to disclose the amount of 

assets (e.g., book value and as a 

percentage of total assets) located in 

such regions in addition to their 

location. The registrant would also be 

required to disclose the percentage of its 

total water usage from water withdrawn 

in those regions.200 These disclosures 

could help investors understand the 

magnitude of a registrant’s material 

water-stress risks with a degree of 

specificity that might not be elicited 

under our current risk factor disclosure 

standards. 

Any increased temperatures could 

also materially impact a registrant in 

other ways. For example, a registrant in 

the construction industry might be 

required to disclose the physical risk of 

increased heat waves that affect the 


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201See, e.g., How Seasonal Temperature Changes 

Affect the Construction Industry 

(constructconnect.com) (Aug. 15, 2018), available at 

https://www.constructconnect.com/blog/seasonaltemperature-changes-affect-construction-industry. 

202See, e.g., The Impact of Wildfires on Business 

is Enormous ⎢ Are You Ready? (alertmedia.com) 

(Aug. 27, 2020), available at https://

www.alertmedia.com/blog/the-impact-of-wildfireson-business/. 

203See, e.g., Climate change and the coming 

coastal real estate crash—Curbed (Oct. 16, 2018), 

available at https://archive.curbed.com/2018/10/16/ 

17981244/real-estate-climate-change-infrastructure. 

204See proposed 17 CFR 229.1502(a)(1)(ii). 

205See proposed 17 CFR 229.1500(b). The 

reference to ‘positive’ impact is intended to refer to 

the actual or potential impact on the registrant’s 

consolidated financial statements, business 

operations, or value chains as a whole, rather than 

the mathematical impacts on a specific financial 

statement line item. See infra Section II.F.2 

(discussing the proposed financial impact metrics, 

which focus on the line items in a registrant’s 

consolidated financial statements). 

206Some commenters expressed concern about 

potential anti-competitive effects of the 

Commission’s possible climate disclosure rules. 

See, e.g., letters from Association of General 

Contractors of America (June 11, 2021); and Healthy 

Markets Association (June 14, 2021). 

207See proposed Item 1502(a) of Regulation S–K. 

208See, e.g., letters from Boston Common Asset 

Management; Christian Brothers Investment 

Services (June 11, 2021); Clean Yield Asset 

Management; and Miller/Howard Investments; see 

also American Institute of CPAs (AICPA) (June 11, 

2021). 

209See 17 CFR 240.12b–2 (definition of 

‘‘material’’). See also Basic Inc. v. Levinson, 485 

U.S. 224, 231, 232, and 240 (1988) (holding that 

information is material if there is a substantial 

likelihood that a reasonable investor would 

consider the information important in deciding how 

to vote or make an investment decision; and 

quoting TSC Industries, Inc. v. Northway, Inc., 426 

U. S. 438, 449 (1977) to further explain that an 

omitted fact is material if there is ‘‘a substantial 

likelihood that the disclosure of the omitted fact 

would have been viewed by the reasonable investor 

as having significantly altered the ‘total mix’ of 

information made available.’’). 

210See Release No. 33–10064, Business and 

Financial Disclosure Required by Regulation S–K 

(Apr. 13, 2016), [81 FR 23915 (Apr. 22, 2016)] 

(discussing materiality in the context of, among 

other matters, restating financial statements). See 

also Staff Accounting Bulletin No. 99 (Aug. 12, 

1999), available at https://www.sec.gov/interps/ 

account/sab99.htm (emphasizing that a registrant or 

an auditor may not substitute a percentage 

threshold for a materiality determination that is 

required by applicable accounting principles). Staff 

accounting bulletins are not rules or interpretations 

of the Commission, nor are they published as 

bearing the Commission’s official approval. They 

represent interpretations and practices followed by 

the Division of Corporation Finance and the Office 

of the Chief Accountant in administering the 

disclosure requirements of the Federal securities 

laws. 

211See Basic, Inc. v. Levinson, 485 U.S. 224, 238 

(1988). When considering the materiality of 

different climate-related risks, a registrant might, for 

example, determine that certain transition risks and 

chronic physical risks are material when balancing 

their likelihood and impact. It also might determine 

that certain acute physical risks are material even 

if they are less likely to occur if the magnitude of 

their impact would be high. 

ability of its personnel to safely work 

outdoors, which could result in a 

cessation or delay of operations, and a 

reduction in its current or future 

earnings.201 A registrant operating in 

wildfire-prone areas could be exposed 

to potential disruption of operations, 

destruction of property, and relocation 

of personnel in the event of heatinduced wildfires.202 A registrant in the 

real estate sector might similarly be 

required to disclose the likelihood that 

sea levels could rise faster than 

expected and reduce the value of its 

coastal properties.203

The proposed rules would require a 

registrant to describe the nature of 

transition risks, including whether they 

relate to regulatory, technological, 

market (including changing consumer, 

business counterparty, and investor 

preferences), liability, reputational, or 

other transition-related factors, and how 

those factors impact the registrant.204

For example, an automobile 

manufacturer might describe how 

market factors, such as changing 

consumer and investor preferences for 

low-emission vehicles, have impacted 

or will likely impact its production 

choices, operational capabilities, and 

future expenditures. An energy 

producer might describe how regulatory 

and reputational factors have impacted 

or are likely to impact its operational 

activities, reserve valuations, and 

investments in renewable energy. An 

industrial manufacturer might describe 

how investments in innovative 

technologies, such as carbon capture 

and storage, have impacted or are likely 

to impact its consolidated financial 

statements, such as by increasing its 

capital expenditures. 

Climate related conditions and any 

transition to a lower carbon economy 

may also present opportunities for 

companies and investors. The proposed 

rules would define ‘‘climate-related 

opportunities’’ to mean the actual or 

potential positive impacts of climaterelated conditions and events on a 

registrant’s consolidated financial 

statements, business operations, or 

value chains, as a whole.205 Efforts to 

mitigate or adapt to the effects of 

climate-related conditions and events 

can produce opportunities, such as cost 

savings associated with the increased 

use of renewable energy, increased 

resource efficiency, the development of 

new products, services, and methods, 

access to new markets caused by the 

transition to a lower carbon economy, 

and increased resilience along a 

registrant’s supply or distribution 

network related to potential climaterelated regulatory or market constraints. 

A registrant, at its option, may disclose 

information about any climate-related 

opportunities it may be pursuing when 

responding to the proposed disclosure 

requirements concerning governance, 

strategy, and risk management in 

connection with climate-related risks. 

We are proposing to treat this disclosure 

as optional to allay any anti-competitive 

concerns that might arise from a 

requirement to disclose a particular 

business opportunity.206 By defining 

‘‘climate-related opportunities,’’ the 

proposed rules would promote 

consistency when such opportunities 

are disclosed, even if such disclosure is 

not required. 

2. Proposed Time Horizons and the 

Materiality Determination 

The proposed rules would require a 

registrant to disclose whether any 

climate-related risk is reasonably likely 

to have a material impact on a 

registrant, including its business or 

consolidated financial statements, 

which may manifest over the short, 

medium, and long term.207 Several 

commenters made a similar 

recommendation, stating that disclosure 

of climate-related risks and impacts 

across short, medium, and long-term 

time horizons is necessary to fully 

understand a registrant’s susceptibility 

to material climate-related risks.208

As proposed, a registrant would be 

required to describe how it defines 

short-, medium-, and long-term time 

horizons, including how it takes into 

account or reassesses the expected 

useful life of the registrant’s assets and 

the time horizons for the registrant’s 

planning processes and goals. We have 

not proposed a specific range of years to 

define short-, medium-, and long-term 

time horizons in order to allow 

flexibility for a registrant to select the 

time horizons that are most appropriate 

to its particular circumstances. 

As defined by the Commission and 

consistent with Supreme Court 

precedent, a matter is material if there 

is a substantial likelihood that a 

reasonable investor would consider it 

important when determining whether to 

buy or sell securities or how to vote.209

As the Commission has previously 

indicated, the materiality determination 

is largely fact specific and one that 

requires both quantitative and 

qualitative considerations.210 Moreover, 

as the Supreme Court has articulated, 

the materiality determination with 

regard to potential future events 

requires an assessment of both the 

probability of the event occurring and 

its potential magnitude, or significance 

to the registrant.211


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212See 17 CFR 229.303(a). 

213See Release No. 33–10890, Management’s 

Discussion and Analysis, Selected Financial Data, 

and Supplementary Financial Information (Nov. 19, 

2020), [86 FR 2080, 2089 (Jan. 11, 2021)]. 

214See, e.g., Daoping Wang, Dabo Guan, Shupeng 

Zhu, et al., Economic footprint of California 

wildfires in 2018, Nature Sustainability (Dec. 2020) 

(stating that the frequency and size of wildfires in 

the western United States has been increasing for 

several decades, driven by decreases in 

precipitation and related changes in the moisture in 

vegetation, which, together with land use and fire 

management practices, has dramatically increased 

wildfire risks, culminating in a series of enormously 

damaging fires in California in 2017, 2018 and 

2020); Andrew Freedman, California wildfires 

prompt new warnings amid record heat, erratic 

winds, the Washington Post (Oct. 1, 2020) (reporting 

that the ‘‘Glass Fire’’ forced about 80,000 to 

evacuate from Napa and Sonoma Counties and took 

a heavy toll on the wine industry). 

215See Shelby Vittek, California Farmers Struggle 

to Secure Wildfire Insurance Coverage, Modern 

Farmer (Aug. 2, 2021), available at https://

modernfarmer.com/2021/08/california-farmersstruggle-to-secure-wildfire-insurance-coverage/ 

216See, e.g., letters from AIR Worldwide (June 11, 

2021); Coastal Risk Consulting (May 3, 2021); 

CoreLogic (June 12, 2021); Datamaran (June 14, 

2021); Dynamhex, Inc. (June 15, 2021); EC-Map 

(June 12, 2021); FutureProof Technologies, Inc. 

(June 7, 2021); and right.based on science GmbH 

(June 12, 2021). 

217See, e.g., infra Sections II.C.4 and II.I. 

218Pub. Law 104–67, 109 Stat. 737. 

219See Securities Act Section 27A and Exchange 

Act Section 21E. The statutory safe harbors by their 

terms do not apply to forward-looking statements 

included in financial statements prepared in 

accordance with generally accepted accounting 

principles (‘‘GAAP’’). The statutory safe harbors 

also would not apply to forward-looking statements 

made: (i) In connection with an initial public 

offering; a tender offer; an offering by, or relating 

to the operations of, a partnership, limited liability 

company, or a direct participation investment 

program, an offering of securities by a blank check 

company; a roll-up transaction; or a going private 

transaction; or (ii) by an issuer of penny stock. See 

Section 27A(b) of the Securities Act and Section 

21E(b) of the Exchange Act. Also, the statutory safe 

harbors do not, absent a rule, regulation, or 

Commission order, apply to forward-looking 

statements by certain ‘‘bad actor’’ issuers under 

Section 27A(b)(1)(A) of the Securities Act and 

Section 21E(b)(1)(A) of the Exchange Act. 

The materiality determination that a 

registrant would be required to make 

regarding climate-related risks under the 

proposed rules is similar to what is 

required when preparing the MD&A 

section in a registration statement or 

annual report. The Commission’s rules 

require a registrant to disclose material 

events and uncertainties known to 

management that are reasonably likely 

to cause reported financial information 

not to be necessarily indicative of future 

operating results or of future financial 

condition.212 As the Commission has 

stated, MD&A should include 

descriptions and amounts of matters 

that have had a material impact on 

reported operations as well as matters 

that are reasonably likely to have a 

material impact on future operations.213

The proposed rule serves to 

emphasize that, when assessing the 

materiality of a particular risk, 

management should consider its 

magnitude and probability over the 

short, medium, and long term. In the 

context of climate, the magnitude and 

probability of such risks vary and can be 

significant over such time periods. For 

example, wildfires in California, which 

recently have become more frequent and 

more intense, may be a material risk for 

wineries, farmers, and other property 

owners.214 Some insurance companies 

have withdrawn from certain wildfire 

prone areas after concluding the risk is 

no longer insurable.215 For many 

investors, the availability of insurance 

and the potential exposure to damage, 

loss, and legal liability from wildfires 

may be a determining factor in their 

investment decision-making. Moreover, 

registrants must bear in mind that the 

materiality determination is made with 

regard to the information that a 

reasonable investor considers important 

to an investment or voting decision. 

To help ensure that management 

considers the dynamic nature of 

climate-related risks, we are proposing 

to require a registrant to discuss its 

assessment of the materiality of climaterelated risks over the short, medium, 

and long term. We recognize that 

determining the likely future impacts on 

a registrant’s business may be difficult 

for some registrants. Commenters have 

noted that the science of climate 

modelling has progressed in recent 

years and enabled the development of 

various software tools and that climate 

consulting firms are available to assist 

registrants in making this 

determination.216 We also note that, 

under our existing rules, registrants long 

have had to disclose forward-looking 

information, including pursuant to 

MD&A requirements. To the extent that 

the proposed climate-related disclosures 

constitute forward-looking statements, 

as discussed below,217 the forwardlooking statement safe harbors pursuant 

to the Private Securities Litigation 

Reform Act (‘‘PSLRA’’) 218 would apply, 

assuming the conditions specified in 

those safe harbor provisions are met.219

We note, however, that there are 

important limitations to the PSLRA safe 

harbor. For example, we are proposing 

that climate-related disclosures would 

be required in registration statements, 

including those for initial public 

offerings, and forward-looking 

statements made in connection with an 

initial public offering are excluded from 

the protections afforded by the PSLRA. 

In addition, the PSLRA does not limit 

the Commission’s ability to bring 

enforcement actions. 

Request for Comment 

8. Should we require a registrant to 

disclose any climate-related risks that 

are reasonably likely to have a material 

impact on the registrant, including on 

its business or consolidated financial 

statements, which may manifest over 

the short, medium, and long term, as 

proposed? If so, should we specify a 

particular time period, or minimum or 

maximum range of years, for ‘‘short,’’ 

‘‘medium,’’ and ‘‘long term?’’ For 

example, should we define short term as 

1 year, 1–3 years, or 1–5 years? Should 

we define medium term as 5–10 years, 

5–15 years, or 5–20 years? Should we 

define long-term as 10–20 years, 20–30 

years, or 30–50 years? Are there other 

possible years or ranges of years that we 

should consider as the definitions of 

short, medium, and long term? What, if 

any, are the benefits to leaving those 

terms undefined? What, if any, are the 

concerns to leaving those terms 

undefined? Would the proposed 

provision requiring a registrant to 

specify what it means by the short, 

medium, and long term mitigate any 

such concerns? 

9. Should we define ‘‘climate-related 

risks’’ to mean the actual or potential 

negative impacts of climate-related 

conditions and events on a registrant’s 

consolidated financial statements, 

business operations, or value chains, as 

proposed? Should we define climaterelated risks to include both physical 

and transition risks, as proposed? 

Should we define physical risks to 

include both acute and chronic risks 

and define each of those risks, as 

proposed? Should we define transition 

risks, as proposed? Are there any 

aspects of the definitions of climaterelated risks, physical risks, acute risks, 

chronic risks, and transition risks that 

we should revise? Are there other 

distinctions among types of climaterelated risks that we should use in our 

definitions? Are there any risks that we 

should add to the definition of 

transition risk? How should we address 

risks that may involve both physical and 

transition risks? 

10. We define transition risks to 

include legal liability, litigation, or 

reputational risks. Should we provide 

more examples about these types of 

risks? Should we require more specific 

disclosures about how a registrant 

assesses and manages material legal 

liability, litigation, or reputational risks 

that may arise from a registrant’s 

business operations, climate mitigation 

efforts, or transition activities? 


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220See proposed 17 CFR 229.1502(b). 

221See, e.g., letters from CALSTRS; Cardano Risk 

Management Ltd.; Climate Risk Disclosure Lab 

(June 14, 2021); and Colorado PERA (June 11, 2021). 

222See TCFD, 2021 Status Report, Section B (Oct. 

2021) (stating that, based on a review of reports of 

1,651 public companies from 2018–2020, while 38– 

52% of companies surveyed described climaterelated risks and opportunities during 2018–2020, 

only 26–39% disclosed the impacts of those risks 

and opportunities during this period). 

11. Some chronic risks might give rise 

to acute risks, e.g., drought (a chronic 

risk) that increases acute risks, such as 

wildfires, or increased temperatures (a 

chronic risk) that increases acute risks, 

such as severe storms. Should we 

require a registrant to discuss how the 

acute and chronic risks they face may 

affect one another? 

12. For the location of its business 

operations, properties or processes 

subject to an identified material 

physical risk, should we require a 

registrant to provide the ZIP code of the 

location or, if located in a jurisdiction 

that does not use ZIP codes, a similar 

subnational postal zone or geographic 

location, as proposed? Is there another 

location identifier that we should use 

for all registrants, such as the county, 

province, municipality or other 

subnational jurisdiction? Would 

requiring granular location information, 

such as ZIP codes, present concerns 

about competitive harm or the physical 

security of assets? If so, how can we 

mitigate those concerns? Are there 

exceptions or exemptions to a granular 

location disclosure requirement that we 

should consider? 

13. If a registrant determines that the 

flooding of its buildings, plants, or 

properties is a material risk, should we 

require it to disclose the percentage of 

those assets that are in flood hazard 

areas in addition to their location, as 

proposed? Would such disclosure help 

investors evaluate the registrant’s 

exposure to physical risks related to 

floods? Should we require this 

disclosure from all registrants, including 

those that do not currently consider 

exposure to flooding to be a material 

physical risk? Should we require this 

disclosure from all registrants operating 

in certain industrial sectors and, if so, 

which sectors? Should we define ‘‘flood 

hazard area’’ or provide examples of 

such areas? If we should define the 

term, should we define it similar to a 

related definition by the Federal 

Emergency Management Agency 

(‘‘FEMA’’) as an area having flood, 

mudflow or flood-related erosion 

hazards, as depicted on a flood hazard 

boundary map or a flood insurance rate 

map? Should we require a registrant to 

disclose how it has defined ‘‘flood 

hazard area’’ or whether it has used 

particular maps or software tools when 

determining whether its buildings, 

plants, or properties are located in flood 

hazard areas? Should we recommend 

that certain maps be used to promote 

comparability? Should we require 

disclosure of whether a registrant’s 

assets are located in zones that are 

subject to other physical risks, such as 

in locations subject to wildfire risk? 

14. If a material risk concerns the 

location of assets in regions of high or 

extremely high water stress, should we 

require a registrant to quantify the assets 

(e.g., book value and as a percentage of 

total assets) in those regions in addition 

to their location, as proposed? Should 

we also require such a registrant to 

disclose the percentage of its total water 

usage from water withdrawn in high or 

extremely high water stressed regions, 

as proposed? If so, should we include a 

definition of a ‘‘high water stressed 

region’’ similar to the definition 

provided by the World Resource 

Institute as a region where 40–80 

percent of the water available to 

agricultural, domestic, and industrial 

users is withdrawn annually? Should 

we similarly define an ‘‘extremely high 

water stressed area’’ as a region where 

more than 80 percent of the water 

available to agricultural, domestic, and 

industrial users is withdrawn annually? 

Are there other definitions of high or 

extremely high water stressed areas we 

should use for purposes of this 

disclosure? Would these items of 

information help investors assess a 

registrant’s exposure to climate-related 

risks impacting water availability? 

Should we require the disclosure of 

these items of information from all 

registrants, including those that do not 

currently consider having assets in high 

water-stressed areas a material physical 

risk? Should we require these 

disclosures from all registrants 

operating in certain industrial sectors 

and, if so, which sectors? 

15. Are there other specific metrics 

that would provide investors with a 

better understanding of the physical and 

transition risks facing registrants? How 

would investors benefit from the 

disclosure of any additional metrics that 

would not necessarily be disclosed or 

disclosed in a consistent manner by the 

proposed climate risk disclosures? 

What, if any, additional burdens would 

registrants face if they were required to 

disclose additional climate risk metrics? 

16. Are there other areas that should 

be included as examples in the 

definitions of acute or chronic risks? If 

so, for each example, please explain 

how the particular climate-related risk 

could materially impact a registrant’s 

operations or financial condition. 

17. Should we include the negative 

impacts on a registrant’s value chain in 

the definition of climate-related risks, as 

proposed? Should we define ‘‘value 

chain’’ to mean the upstream and 

downstream activities related to a 

registrant’s operations, as proposed? Are 

there any upstream or downstream 

activities included in the proposed 

definition of value chain that we should 

exclude or revise? Are there any 

upstream or downstream activities that 

we should add to the definition of value 

chain? Are there any upstream or 

downstream activities currently 

proposed that should not be included? 

18. Should we define climate-related 

opportunities as proposed? Should we 

permit a registrant, at its option, to 

disclose information about any climaterelated opportunities that it is pursuing, 

such as the actual or potential impacts 

of those opportunities on the registrant, 

including its business or consolidated 

financial statements, as proposed? 

Should we specifically require a 

registrant to provide disclosure about 

any climate-related opportunities that 

have materially impacted or are 

reasonably likely to impact materially 

the registrant, including its business or 

consolidated financial statements? Is 

there a risk that the disclosure of 

climate-related opportunities could be 

misleading and lead to ‘‘greenwashing’’? 

If so, how should this risk be addressed? 

C. Disclosure Regarding Climate-Related 

Impacts on Strategy, Business Model, 

and Outlook 

1. Disclosure of Material Impacts 

Once a registrant has described the 

climate-related risks reasonably likely to 

have a material impact on the 

registrant’s business or consolidated 

financial statements as manifested over 

the short, medium, and long term as 

required by proposed Item 1502(a), 

proposed Item 1502(b) would require 

the registrant to describe the actual and 

potential impacts of those risks on its 

strategy, business model, and 

outlook.220 Several commenters stated 

that many registrants have included 

largely boilerplate discussions about 

climate-related risks and failed to 

provide a meaningful analysis of the 

impacts of those risks on their 

businesses.221 The TCFD’s most recent 

assessment of public companies’ 

voluntary climate reports also noted that 

a minority of companies disclosed the 

impacts of climate-related risks and 

opportunities on their businesses in 

alignment with the TCFD framework.222

Because information about how climaterelated risks have impacted or are likely 

to impact a registrant’s strategy, 


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223See proposed 17 CFR 229.1502(b)(1). 

224See proposed 17 CFR 229.1502(b)(2). 

225See proposed 17 CFR 229.1502(c). 

226See infra Sections II.C.3 and 4, II.E, II.G.1, and 

II.I regarding the application to forward-looking 

climate disclosures of the PSLRA safe harbor for 

forward-looking statements. 

227See id. 

228See infra Sections II.F and II.G for a discussion 

of the proposed metrics and targets. 

229See supra Section I.D.2 and infra Section II.G 

for a discussion of Scopes 1 and 2 emissions. 

230See proposed 17 CFR 229.1502(d). To the 

extent that the proposed narrative discussion is 

provided in its MD&A, a registrant could 

incorporate by reference that part of the MD&A into 

the Climate-Related Disclosure section of the 

registration statement or report. See supra Section 

II.A.2. 

231See infra Section II.F. 

232See supra note 171. 

business model, and outlook can be 

important for purposes of making an 

investment or voting decision about the 

registrant, we are proposing the 

provisions below to elicit robust and 

company-specific disclosure on this 

topic. 

As proposed, a registrant would be 

required to disclose impacts on its: 

• Business operations, including the 

types and locations of its operations; 

• Products or services; 

• Suppliers and other parties in its 

value chain; 

• Activities to mitigate or adapt to 

climate-related risks, including 

adoption of new technologies or 

processes; 

• Expenditure for research and 

development; and 

• Any other significant changes or 

impacts.223

A registrant would also be required to 

disclose the time horizon for each 

described impact (i.e., as manifested in 

the short, medium, or long term, as 

defined by the registrant when 

determining its material climate-related 

risks).224

The proposed rules would require a 

registrant to discuss how it has 

considered the identified impacts as 

part of its business strategy, financial 

planning, and capital allocation.225 A 

registrant would be required to provide 

both current and forward-looking 

disclosures 226 that facilitate an 

understanding of whether the 

implications of the identified climaterelated risks have been integrated into 

the registrant’s business model or 

strategy, including how resources are 

being used to mitigate climate-related 

risks.227 The discussion must also 

include how any of the metrics 

referenced in proposed Rule 14–02 of 

Regulation S–X and Item 1504 of 

Regulation S–K or any of the targets 

referenced in proposed Item 1506 relate 

to the registrant’s business model or 

business strategy.228

For example, a registrant that operates 

in a jurisdiction that has imposed or is 

likely to impose limits on GHG 

emissions in support of the Paris 

Agreement might set a long-term target 

of net zero GHG emissions from its 

operations in 2050, a medium-term 

target of reducing its emissions by 30 

percent by 2030, and a short-term target 

of maintaining its emissions at its 2020 

rate through 2023. This registrant could 

face material transition risks due to the 

estimated costs of the operational 

changes expected to be implemented to 

achieve these targets. The registrant 

would be required to disclose these 

transition risks and their impacts on its 

strategy, business model, and outlook. 

Some of the described impacts would 

likely be common across industries and 

may involve reducing a registrant’s 

Scopes 1 and 2 GHG emissions 229 and 

incurring increased expenses in the 

short term related to, for example, 

acquiring new technology to curb its 

operational emissions and increasing 

the amount of electricity purchased 

from renewable sources. Other 

described impacts of material transition 

risks, however, would likely vary by 

industry. For example, an oil company 

might determine that a likely change in 

demand for fossil fuel-based products 

would require it to modify its business 

model or alter its product mix to 

emphasize advanced diesel gas and 

biofuels in order to maintain or increase 

its earning capacity, thereby requiring 

disclosure under the proposed rules. An 

electric utilities company might disclose 

an increase in the amount of electricity 

generated from less carbon-intensive 

sources, such as wind turbines, nuclear, 

hydroelectric, or solar power to meet 

current or likely regulatory constraints. 

A registrant would also be required to 

disclose the material impacts of 

physical risks on its strategy, business 

model, and outlook. For example, an 

agricultural producer or distributor 

might disclose the likely impacts of 

drought on its own product mix or that 

of its suppliers, including increased 

expenses for additional water or due to 

the procurement of alternative product 

sources. Similarly, a mining company 

that operates in areas susceptible to 

extreme rise in temperatures might 

disclose the likely impacts that this 

temperature rise has on its workforce 

and on its production schedule, 

including a reduction in output and 

future earning capacity. A real estate 

company that owns coastal property 

might disclose the likely impacts of 

rising sea levels on such property, 

including the potential diminution in 

value of, and a potential change in its 

strategy and outlook regarding, such 

properties. 

The proposed rules would require a 

registrant to provide a narrative 

discussion of whether and how any of 

its identified climate-related risks 

described in response to proposed Item 

1502(a) have affected or are reasonably 

likely to affect the registrant’s 

consolidated financial statements.230

The discussion should include any of 

the financial statement metrics 

disclosed pursuant to proposed 

Regulation S–X Rule 14–02.231 As 

previously noted, many commenters 

recommended that we require 

registrants to discuss and analyze their 

quantitative climate data in a manner 

similar to that required for MD&A.232

Proposed 17 CFR 229.1502(d) (Item 

1502(d) of Regulation S–K) is intended 

to provide climate-related disclosure 

that is similar to MD&A, although, as 

previously noted, a registrant may 

provide such disclosure as part of its 

MD&A. 

For example, an automobile 

manufacturer might discuss an increase 

in operating costs or capital 

expenditures due to the need to revamp 

its assembly lines to build lower 

emission vehicles to comply with new 

regulatory guidelines or to meet 

changing consumer demand. An oil 

company might discuss a change in the 

valuation of its proven reserves because 

of an anticipated reduced demand for 

fossil fuels. A freight company might 

discuss impairment charges or early 

write-offs for older equipment it might 

need to replace due to anticipated 

changes in regulation or policy favoring 

lower emissions equipment. While a 

registrant may currently have an 

obligation to make some of these 

disclosures pursuant to Regulation S–X, 

the disclosed impacts in the financial 

statements may not be in disaggregated 

form and may lack explanation. 

Proposed Item 1502(d) would require 

the disclosure in the form of a narrative 

analysis akin to MD&A that would be 

more easily accessible for investors. 

Moreover, it is likely that any 

disclosed impacts in the financial 

statements would be assessed for the 

fiscal years presented in the financial 

statements with a focus on near shortterm impacts. Because proposed Item 

1502 would require a registrant to 

identify material climate-related 

impacts that may manifest in the short, 

medium, and long term, a registrant’s 

narrative discussion of the likely 

climate-related impacts on its 

consolidated financial statements 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21355 

233See infra Section II.E for proposed disclosure 

requirements regarding the use of a transition plan. 

234See proposed 17 CFR 229.1502(c). 

235See proposed 17 CFR 229.1500(a). 

236See proposed 17 CFR 229.1500(n). See, e.g., 

EPA, Offsets and RECs: What’s the Difference?, 

available at https://www.epa.gov/sites/default/files/ 

2018-03/documents/gpp_guide_recs_offsets.pdf. 

237A company may purchase carbon offsets to 

address its direct and indirect GHG emissions (i.e., 

its Scopes 1, 2, and 3 emissions) by verifying global 

emissions reductions at additional, external 

projects. The reduction in GHG emissions from one 

place (‘‘offset project’’) can be used to ‘‘offset’’ the 

emissions taking place somewhere else (at the 

company’s operations). See, e.g., EPA, Offsets and 

RECs: What’s the Difference?, available at https://

www.epa.gov/sites/default/files/2018-03/ 

documents/gpp_guide_recs_offsets.pdf. In contrast, 

a company may purchase a REC in renewable 

electricity markets solely to address its indirect 

GHG emissions associated with purchased 

electricity (i.e., Scope 2 emissions) by verifying the 

use of zero- or low-emissions renewable sources of 

electricity. Each REC provides its owner exclusive 

rights to the attributes of one megawatt-hour of 

renewable electricity whether that renewable 

electricity has been installed on the company’s 

facilities or produced elsewhere. See id. 

238Science Based Targets Initiative (‘‘SBTi’’) is a 

partnership between CDP, the United Nations 

Global Compact, World Resources Institute (WRI) 

and the World Wide Fund for Nature (WWF), which 

defines and promotes best practice in emissions 

reductions and net-zero targets in line with climate 

science. SBTi provides technical assistance and its 

expertise to companies who voluntarily set sciencebased targets in line with the latest climate science. 

See SBTi, Who We Are/What We Do, available at 

https://sciencebasedtargets.org/about-us#who-weare. The SBTi does not permit offsets to be counted 

toward a company’s emission reduction targets to 

meet its science-based targets but does permit 

offsets by companies that wish to finance additional 

emission reductions beyond their science-based 

targets. See SBTi Criteria and Recommendations 

(Apr. 2020), available at https://

sciencebasedtargets.org/resources/legacy/2019/03/ 

SBTi-criteria.pdf. 

239See proposed 17 CFR 229.1500(j). 

240See infra Section II.G for a discussion of our 

proposal to use CO2e as a unit of measurement in 

the proposed requirements. 

241See infra Section II.G.2 for a discussion of the 

proposed requirements for determining the GHG 

emission organizational boundary. 

242See proposed 17 CFR 229.1502(e)(1). 

should cover more than just short-term 

impacts. For example, if a registrant has 

a transition plan 233 that includes the 

development of lower carbon products 

and processes, that registrant might 

disclose that it expects to incur higher 

initial capital costs to implement its 

strategy, but anticipates increased 

revenues or reduced expenses over the 

longer term. An automobile 

manufacturer that transitions from the 

production of internal combustion 

engine vehicles to the production of 

electric vehicles might disclose that it 

expects to incur costs in the short term 

to change its manufacturing processes, 

but over the longer term, it expects to 

realize increased sales, protect its 

market share against transition risks, 

including reputational risks, and 

potentially avoid regulatory fines or 

other costs as consumer and regulatory 

demands change. 

2. Disclosure of Carbon Offsets or 

Renewable Energy Credits if Used 

If, as part of its net emissions 

reduction strategy, a registrant uses 

carbon offsets or renewable energy 

credits or certificates (‘‘RECs’’), the 

proposed rules would require it to 

disclose the role that carbon offsets or 

RECs play in the registrant’s climaterelated business strategy.234 Under the 

proposed rules, carbon offsets represent 

an emissions reduction or removal of 

greenhouse gases in a manner calculated 

and traced for the purpose of offsetting 

an entity’s GHG emissions.235 We are 

proposing to define a REC, consistent 

with the EPA’s commonly used 

definition, to mean a credit or certificate 

representing each purchased megawatthour (1 MWh or 1000 kilowatt-hours) of 

renewable electricity generated and 

delivered to a registrant’s power grid.236

While both carbon offsets and RECs 

represent commonly used GHG 

emissions mitigation options for 

companies, they are used for somewhat 

different purposes.237

Some registrants might plan to use 

carbon offsets or RECs as their primary 

means of meeting their GHG reduction 

goals, including those formulated in 

response to government law or policy or 

customer or investor demands. Other 

registrants, including those that set 

Science Based Targets pursuant to the 

Science Based Targets Initiative,238

might develop strategies to reduce their 

emissions to the extent possible through 

operational changes—such as 

modifications to their product offerings 

or the development of solar or other 

renewable energy sources. They then 

might plan to use carbon offsets or RECs 

to offset the remainder of their 

emissions that they cannot reduce 

through operational changes or to meet 

their GHG reduction goals while they 

transition to lower carbon operations. 

Understanding the role that carbon 

offsets or RECs play in a registrant’s 

climate-related business strategy can 

help investors gain useful information 

about the registrant’s strategy, including 

the potential risks and financial 

impacts. A registrant that relies on 

carbon offsets or RECs to meet its goals 

might incur lower expenses in the short 

term but could expect to continue to 

incur the expense of purchasing offsets 

or RECs over the long term. It also could 

bear the risk of increased costs of offsets 

or RECs if increased demand for offsets 

or RECs creates scarcity and higher costs 

to acquire them over time. Alternatively, 

the value of an offset may decrease 

substantially and suddenly if, for 

example, the offset represents protected 

forest land that burns in a wildfire and 

no longer represents a reduction in GHG 

emissions. In that case, the registrant 

may need to write off the offset and 

purchase a replacement. In other cases, 

increased demand for, or scarcity of, 

offsets and RECs may benefit a registrant 

that produces or generates offsets or 

RECs to the extent their prices increase. 

Accordingly, under the proposed rules, 

a registrant that purchases offsets or 

RECs to meet its goals as it makes the 

transition to lower carbon products 

would need to reflect this additional set 

of short and long-term costs and risks in 

its Item 1502 disclosure, including the 

risk that the availability or value of 

offsets or RECs might be curtailed by 

regulation or changes in the market. 

3. Disclosure of a Maintained Internal 

Carbon Price 

Some registrants may use an internal 

carbon price when assessing climaterelated factors. Under the proposed 

definition, an internal carbon price is an 

estimated cost of carbon emissions used 

internally within an organization.239

Internal carbon pricing may be used by 

a registrant, among other purposes, as a 

planning tool to help identify climaterelated risks and opportunities, as an 

incentive to drive energy efficiencies to 

reduce costs, to quantify the potential 

costs the company would incur should 

a carbon price be put into effect, and to 

guide capital investment decisions. If a 

registrant uses an internal carbon price, 

the proposed rules would require it to 

disclose: 

• The price in units of the registrant’s 

reporting currency per metric ton of 

carbon dioxide equivalent (‘‘CO2e’’); 240

• The total price, including how the 

total price is estimated to change over 

time, if applicable; 

• The boundaries for measurement of 

overall CO2e on which the total price is 

based (if different from the GHG 

emission organizational boundary 

required pursuant to 17 CFR 

229.1504(e)(2); 241 and 

• The rationale for selecting the 

internal carbon price applied.242

These proposed items of disclosure 

would help investors understand the 

rationale and underlying assumptions 

for a registrant’s internal carbon price 

and help them assess whether the 

registrant’s use of an internal carbon 

price as a planning tool is reasonable 

and effective. 

A registrant would also be required to 

describe how it uses its disclosed 

internal carbon price to evaluate and 


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243See proposed 17 CFR 229.1502(e)(2). 244See proposed 17 CFR 229.1502(e)(3). 245See infra Section II.C.4 for the proposed 

disclosure required if a registrant uses scenario 

analysis. 246See, e.g., letters from Rob Bonta, California 

Attorney General, on behalf of several state attorney 

generals (June 14, 2021); Catavento; Center for 

Climate and Energy Solutions; Ceres; Climate Risk 

Disclosure Lab; Hermes Equity Ownership Services 

Limited; Majedie Asset Management; Managed 

Funds Association; Norges Bank Investment 

Management; Open Source Climate; PRI 

(Consultation Response); Regenerative Crisis 

Response Committee; Total Energies (June 13, 

2021); and Trillium Asset Management. But see 

Edison Electric Institute (stating that a ‘‘‘robust 

carbon market’ does not exist today’’ and 

disclosures based on that market would be ‘‘fraught 

with risk’’). 

247Letter from Ceres. 

248Letter from PRI. 

249See Edison Electric Institute. 

250We also note, based on current voluntary 

reporting, an increasing trend among public 

companies to use internal carbon pricing. See CDP, 

Putting a Price on Carbon (2021), available at 

https://cdn.cdp.net/cdp-production/cms/reports/ 

documents/000/005/651/original/CDP_Global_

Carbon_Price_report_2021.pdf?1618938446. 

251See proposed 17 CFR229.1502(f). 

252See, e.g., the definition of ‘‘scenario analysis’’ 

in TCFD, Recommendations of the Task Force on 

Climate-related Financial Disclosures. 

253See proposed 17 CFR 229.1500(o). 

254See, e.g., letters from AllianceBernstein; 

Americans for Financial Reform Education Fund; R. 

Ted Atwood (June 23, 2021); BlackRock; 

Bloomberg, LP; Boston Common Asset 

Management; Cardano Risk Management Ltd.; 

Certified B Corporations; Climate Governance 

Initiative; Climate Risk Disclosure Law and Policy 

Lab (June 14, 2021); Consumer Federation of 

America; CPP Investments; E2; ERM CVS; FAIRR 

Initiative; Forum for Sustainable and Responsible 

Investment (June 11, 2021); Friends of the Earth et 

al.; George Georgiev; Global Equity Strategy (June 

14, 2021); Impax Asset Management; Invesco; 

Christopher Lish; NY State Comptroller; PRI 

(Consultation Response); Revolving Door Project; 

RMI; Trillium Asset Management; UNEP; and Sens. 

Elizabeth Warren and Rep. Sean Casten (June 11, 

2021). 

255See letter from Bloomberg. 

manage climate-related risks.243 If a 

registrant uses more than one internal 

carbon price, the proposed rules would 

require it to provide disclosures for each 

internal carbon price, and to disclose its 

reasons for using different prices.244 For 

example, a registrant might disclose that 

it uses different internal carbon prices 

when considering different climaterelated scenarios to help it develop an 

appropriate business strategy over the 

short-, medium-, and long-term.245

Commenters that addressed the topic 

of carbon price generally supported 

requiring its disclosure in some form, 

such as: (i) Establishing a broad-based 

carbon price; (ii) requiring companies to 

maintain and disclose an internal 

carbon price; (iii) requiring disclosure of 

any internal carbon price already used 

by a company; or (iv) requiring 

disclosure of carbon prices used in the 

context of scenario analysis.246 One 

commenter referred to disclosure of a 

company’s use of internal carbon 

pricing as one of several ‘‘foundational 

climate disclosures’’ that should be 

required in any Commission rule.247

Another commenter also underscored 

the importance of this information, 

stating that ‘‘the thorough quantification 

of climate risk has been hampered by 

the lack of carbon pricing.’’ 248 We agree 

with commenters that supported the 

disclosure of carbon pricing as a key 

data point for evaluating how a 

registrant is planning for and managing 

climate-related risks. However, the 

proposed rules would not require 

registrants to maintain an internal 

carbon price or to mandate a particular 

carbon pricing methodology. We are 

aware that many registrants may not 

currently track this information and 

recognize that a robust carbon market on 

which to base such a price may not exist 

in many contexts.249 Accordingly, the 

proposed disclosures would be required 

only if the registrant otherwise 

maintains an internal carbon price. For 

similar reasons, we have not proposed 

requiring a specific methodology for 

setting an internal carbon price. 

Registrants may choose to use an 

internal carbon price when quantifying, 

analyzing, and assessing the financial 

impacts of climate-related risks and 

climate-related opportunities. For 

example, an internal carbon price helps 

monetize emissions by converting 

emissions data from CO2e into a value 

in the registrant’s reporting currency. A 

registrant may determine that 

monetization is useful when assessing 

the costs and benefits of its possible 

climate-related strategies, as it 

effectively puts a price on the emission 

impacts. Disclosure of an internal 

carbon price, when used by a registrant, 

would provide investors with material 

information regarding how the registrant 

developed a particular business strategy 

to mitigate or adapt to identified 

climate-related risks and would help 

quantify for investors at least part of the 

transition risks faced by a registrant. We 

believe that this proposed disclosure 

requirement would help investors assess 

whether a registrant’s internal carbon 

pricing practice is reasonable and 

whether its overall evaluation and 

planning regarding climate-related 

factors is sound.250

A registrant’s disclosure of any 

internal carbon price necessarily would 

include assumptions about future 

events. The carbon price applied should 

not be viewed as a promise or guarantee 

with regard to the future costs to the 

registrant of GHG emissions. Moreover, 

to the extent that certain information 

regarding a registrant’s internal carbon 

pricing would constitute forwardlooking statements, the PSLRA safe 

harbors would apply to such statements, 

assuming all other statutory 

requirements for those safe harbors are 

satisfied. 

4. Disclosure of Scenario Analysis, if 

Used 

We are proposing to require a 

registrant to describe the resilience of its 

business strategy in light of potential 

future changes in climate-related risks. 

A registrant also would be required to 

describe any analytical tools, such as 

scenario analysis, that the registrant 

uses to assess the impact of climaterelated risks on its business and 

consolidated financial statements, or to 

support the resilience of its strategy and 

business model in light of foreseeable 

climate-related risks.251 Scenario 

analysis is a process for identifying and 

assessing a potential range of outcomes 

of future events under conditions of 

uncertainty.252 The proposed definition 

of scenario analysis both states that (i) 

when applied to climate-related 

assessments, scenario analysis is a tool 

used to consider how, under various 

possible future climate scenarios, 

climate-related risks may impact a 

registrant’s operations, business 

strategy, and consolidated financial 

statements over time; and that (ii) 

registrants might use scenario analysis 

to test the resilience of their strategies 

under future climate scenarios, 

including scenarios that assume 

different global temperature increases, 

such as, for example, 3 °C, 2 °C, and 1.5 

°C above pre-industrial levels.253

Many commenters recommended that 

we require a registrant to conduct 

scenario analysis and disclose the 

results of such analysis.254 One 

commenter stated that scenario analysis 

was useful because it allows companies 

to test their business strategy against a 

spectrum of hypothetical future climate 

scenarios and develop a better informed 

view of implications for their enterprise 

value and value chains. The same 

commenter further indicated that 

disclosure of the scenarios used by a 

company was necessary to inform 

investors about the reliability, 

reasonableness, and resiliency of the 

company’s plans to address climaterelated risks and opportunities.255

Another commenter stated that the 

Commission should require disclosure 

of a registrant’s climate scenario 

analysis by no later than 2025, and 

recommended that companies engage in 

scenario analysis involving a base case, 

worse case, better case, and ‘‘Black 


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256See letter from Climate Governance Initiative. 

257See id. 

258See letter from Ceres. The CDP similarly 

reported that, although 54% of the 9,600+ 

companies that responded to their questionnaires in 

2020 reported engaging in scenario analysis, 14% 

of the companies only considered one scenario with 

many others considering only slight variations of 

one scenario. See CDP, 3 common pitfalls of using 

scenario analysis—and how to avoid them (Mar. 10, 

2021), available at https://www.cdp.net/en/articles/ 

companies/3-common-pitfalls-companies-makewhen-using-scenario-analysis-and-how-to-avoidthem. 

259See TCFD, 2021 Status Report, Section B 

(indicating that, during 2018–2020, only 5–13% of 

the surveyed companies disclosed the resilience of 

their strategies using scenario analysis). 

260See letter from J. Robert Gibson. 

261See letter from NEI Investments. 

262See letter from Information Technology 

Industry Council. 

263See letter from Dimensional Fund Advisors. 

264See letter from bp. 

265See letter from Nareit (June 11, 2021). 

266See proposed 17 CFR 229.1502(f). One 

commenter recommended requiring the disclosure 

of the results of scenario analysis if a registrant has 

engaged in such analysis. See letter from E3G. 

267See TCFD, Technical Supplement, The Use of 

Scenario Analysis in Disclosure of Climate-Related 

Risks and Opportunities (June 2017), available at 

https://assets.bbhub.io/company/sites/60/2020/09/ 

2020-TCFD_Guidance-Scenario-AnalysisGuidance.pdf. 

268The TCFD has summarized a number of 

publicly available scenario analysis models, with 

particular emphasis on the transition scenarios 

developed by the IEA and the physical risk 

scenarios developed by the IPCC. See id. at 

Appendix 1: IEA and IPCC Climate Scenarios. 

269See NGFS, Scenarios Portal, available at 

https://www.ngfs.net/ngfs-scenarios-portal/. 

Swan’’ scenarios related to possible 

climate transition pathways.256

Alternatively, the commenter suggested 

that a company take into account three 

scenarios: A smooth economic 

transition to +1.5 °C, which would form 

the basis of the company’s net-zero 

strategy; a disorderly and, therefore, 

more costly and disruptive transition to 

+1.5 °C; and a higher temperature 

scenario outcome of +3 °C of warming, 

which would be associated with 

extreme physical effects and 

unprecedented economic costs and 

disruption. This commenter further 

stated that robust disclosure of a 

company’s scenario analysis was 

necessary so that investors can 

understand how longer-term ‘‘climate 

drivers’’ have been incorporated into its 

corporate strategy and financial 

disclosures.257

Another commenter expressed the 

view that, although many companies 

purport to use scenario analysis in the 

climate context, their reporting 

regarding such use has been generally 

deficient. That commenter stated that 

the assumptions underlying the selected 

scenarios often are undisclosed and that 

the analysis tends to be limited and not 

usefully comparable.258 The TCFD’s 

most recent assessment of public 

companies’ voluntary climate reporting 

similarly found that only a small 

percentage of the surveyed companies 

disclosed the resilience of their 

strategies using scenario analysis as 

recommended by the TCFD.259

Some commenters recommended 

providing certain accommodations in 

connection with a scenario analysis 

requirement, such as creating a safe 

harbor for scenario analysis 

disclosure 260 or permitting scenario 

analysis to be furnished in a separate 

report that would not be subject to the 

same liability as Commission filings.261

Other commenters stated that they 

opposed a scenario analysis requirement 

because of the lack of a common 

methodology for scenario analysis; 262 a 

belief that the underlying methodology 

would be too difficult for investors to 

understand; 263 the need for further 

development of scenario analysis as a 

discipline; 264 or a belief that the focus 

of climate-related disclosure should be 

on historical data, and not on forwardlooking information.265

We agree with those commenters who 

stated that information concerning 

scenario analysis could help investors 

evaluate the resilience of the registrant’s 

business strategy in the face of various 

climate scenarios that could impose 

potentially different climate-related 

risks. We are not, however, proposing to 

mandate that registrants conduct 

scenario analysis. We recognize that not 

every registrant conducts scenario 

analysis and that, in certain instances, it 

may be costly or difficult for some 

registrants to conduct such scenario 

analysis. Instead, the proposed rules 

would require that if a registrant uses 

scenario analysis or any analytical tools 

to assess the impact of climate-related 

risks on its business and consolidated 

financial statements, and to support the 

resilience of its strategy and business 

model, the registrant must disclose 

certain information about such 

analysis.266 We believe this approach 

strikes an appropriate balance between 

the various positions expressed by 

commenters by requiring registrants to 

share any scenario analysis that they are 

otherwise conducting for their business 

operations while avoiding imposing a 

potentially difficult or burdensome 

requirement on those registrants that 

have not yet undertaken to conduct 

such analysis. 

If a registrant uses scenario analysis, 

the proposed amendments would 

require disclosure of the scenarios 

considered (e.g., an increase of no 

greater than 3°, 2°, or 1.5 °C above preindustrial levels), including parameters, 

assumptions, and analytical choices, 

and the projected principal financial 

impacts on the registrant’s business 

strategy under each scenario. The 

disclosure should include both 

quantitative and qualitative information. 

Disclosure of the parameters, 

assumptions, and analytical choices 

involved in the described scenarios 

would help investors better understand 

the various considered scenarios and 

help them evaluate whether the 

registrant has a plan to manage the 

climate-related risks posed by each 

scenario. 

Because a registrant’s scenario 

analysis disclosure would necessarily 

include predictions and other forwardlooking statements based on 

assumptions concerning future events, 

we believe that the PSLRA forwardlooking safe harbors would apply to 

much of the disclosure concerning 

scenario analysis provided the other 

statutory conditions for application of 

the safe harbor are met. 

We note that there are a number of 

publicly-available climate-related 

scenarios that could form the basis of a 

registrant’s scenario analysis. The TCFD 

has categorized these scenarios as 

transition scenarios and physical 

climate scenarios.267 If a registrant uses 

scenario analysis to assess the resilience 

of its business strategy to climate-related 

risks, investors may benefit from the use 

of scientifically based, widely accepted 

scenarios, such as those developed by 

the IPCC, International Energy Agency 

(‘‘IEA’’),268 or Network of Central Banks 

and Supervisors for Greening the 

Financial System (‘‘NGFS’’).269

Investors may also benefit by the use of 

more than one climate scenario, 

including one that assumes a disorderly 

transition (i.e., one that assumes that 

climate policies are delayed or divergent 

across countries and industrial sectors, 

resulting in higher transition risks to 

companies). These could enhance the 

reliability and usefulness of the scenario 

analysis for investors. 

Request for Comment 

19. Should we require a registrant to 

describe the actual and potential 

impacts of its material climate-related 

risks on its strategy, business model, 

and outlook, as proposed? Should we 

require a registrant to disclose impacts 

from climate-related risks on, or any 

resulting significant changes made to, 

its business operations, including the 

types and locations of its operations, as 

proposed? 

20. Should we require a registrant to 

disclose climate-related impacts on, or 


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any resulting significant changes made 

to, its products or services, supply chain 

or value chain, activities to mitigate or 

adapt to climate-related risks, including 

adoption of new technologies or 

processes, expenditure for research and 

development, and any other significant 

changes or impacts, as proposed? Are 

there any other aspects of a registrant’s 

business operations, strategy, or 

business model that we should specify 

as being subject to this disclosure 

requirement to the extent they may be 

impacted by climate-related factors? 

21. Should we require a registrant to 

specify the time horizon applied when 

assessing its climate-related impacts 

(i.e., in the short, medium, or long term), 

as proposed? 

22. Should we require a registrant to 

discuss whether and how it considers 

any of the described impacts as part of 

its business strategy, financial planning, 

and capital allocation, as proposed? 

Should we require a registrant to 

provide both current and forwardlooking disclosures to facilitate an 

understanding of whether the 

implications of the identified climaterelated risks have been integrated into 

the registrant’s business model or 

strategy, as proposed? Would any of the 

proposed disclosures present 

competitive concerns for registrants? If 

so, how can we mitigate such concerns? 

23. Should we require the disclosures 

to include how the registrant is using 

resources to mitigate climate-related 

risks, as proposed? Should the required 

discussion also include how any of the 

metrics or targets referenced in the 

proposed climate-related disclosure 

subpart of Regulation S–K or Article 14 

of Regulation S–X relate to the 

registrant’s business model or business 

strategy, as proposed? Should we 

require additional disclosures if a 

registrant leverages climate-related 

financing instruments, such as green 

bonds or other forms of ‘‘sustainable 

finance’’ such as ‘‘sustainability-linked 

bonds,’’ ‘‘transition bonds,’’ or other 

financial instruments linked to climate 

change as part of its strategy to address 

climate-related risks and opportunities? 

For example, should we require 

disclosure of the climate-related projects 

that the registrant plans to use the green 

bond proceeds to fund? Should we 

require disclosure of key performance 

metrics tied to such financing 

instruments? 

24. If a registrant has used carbon 

offsets or RECs, should we require the 

registrant to disclose the role that the 

offsets or RECs play in its overall 

strategy to reduce its net carbon 

emissions, as proposed? Should the 

proposed definitions of carbon offsets 

and RECs be clarified or expanded in 

any way? Are there specific 

considerations about the use of carbon 

offsets or RECs that we should require 

to be disclosed in a registrant’s 

discussion regarding how climaterelated factors have impacted its 

strategy, business model, and outlook? 

25. Should we require a registrant to 

provide a narrative discussion of 

whether and how any of its identified 

climate-related risks have affected or are 

reasonably likely to affect its 

consolidated financial statements, as 

proposed? Should the discussion 

include any of the financial statement 

metrics in proposed 17 CFR 210.14–02 

(14–02 of Regulation S–X) that 

demonstrate that the identified climaterelated risks have had a material impact 

on reported operations, as proposed? 

Should the discussion include a tabular 

representation of such metrics? 

26. Should we require registrants to 

disclose information about an internal 

carbon price if they maintain one, as 

proposed? If so, should we require that 

the registrant disclose: 

• The price in units of the registrant’s 

reporting currency per metric ton of 

CO2e; 

• The total price; 

• The boundaries for measurement of 

overall CO2e on which the total price is 

based if different from the GHG 

emission organizational boundary 

required pursuant to 17 CFR 210.14– 

03(d)(4); and 

• The rationale for selecting the 

internal or shadow carbon price 

applied, as proposed? 

Should we also require registrants to 

describe the methodology used to 

calculate its internal carbon price? 

27. Should we also require a registrant 

to disclose how it uses the described 

internal carbon price to evaluate and 

manage climate-related risks, as 

proposed? Should we further require a 

registrant that uses more than one 

internal carbon price to provide the 

above disclosures for each internal 

carbon price, and disclose its reasons for 

using different prices, as proposed? Are 

there other aspects regarding the use of 

an internal carbon price that we should 

require to be disclosed? Would 

disclosure regarding any internal carbon 

price maintained by a registrant elicit 

important or material information for 

investors? Would requiring the 

disclosure of the registrant’s use of an 

internal carbon price raise competitive 

harm concerns that would act as a 

disincentive from the use of an internal 

carbon price? If so, should the 

Commission provide an accommodation 

that would mitigate those concerns? For 

example, are there exceptions or 

exemptions to an internal carbon price 

disclosure requirement that we should 

consider? 

28. To the extent that disclosure that 

incorporates or is based on an internal 

carbon price constitutes forward-looking 

information, the PSLRA safe harbors 

would apply. Should we adopt a 

separate safe harbor for internal carbon 

price disclosure? If so, what disclosures 

should such a safe harbor cover and 

what should the conditions be for such 

a safe harbor? 

29. Should we require all registrants 

to disclose an internal carbon price and 

prescribe a methodology for 

determining that price? If so, what 

corresponding disclosure requirements 

should we include in connection with 

such mandated carbon price? What 

methodology, if any, should we 

prescribe for calculating a mandatory 

internal or shadow carbon price? Would 

a different metric better elicit disclosure 

that would monetize emissions? 

30. Should we require a registrant to 

disclose analytical tools, such as 

scenario analysis, that it uses to assess 

the impact of climate-related risks on its 

business and consolidated financial 

statements, and to support the resilience 

of its strategy and business model, as 

proposed? What other analytical tools 

do registrants use for these purposes, 

and should we require disclosure of 

these other tools? Are there other 

situations in which some registrants 

should be required to conduct and 

provide disclosure of scenario analysis? 

Alternatively, should we require all 

registrants to provide scenario analysis 

disclosure? If a registrant does provide 

scenario analysis disclosure, should we 

require it to follow certain publicly 

available scenario models, such as those 

published by the IPCC, the IEA, or 

NGFS and, if so, which scenarios? 

Should we require a registrant providing 

scenario analysis disclosure to include 

the scenarios considered (e.g., an 

increase of global temperature of no 

greater than 3°, 2°, or 1.5 °C above preindustrial levels), the parameters, 

assumptions, and analytical choices, 

and the projected principal financial 

impacts on the registrant’s business 

strategy under each scenario, as 

proposed? Are there any other aspects of 

scenario analysis that we should require 

registrants to disclose? For example, 

should we require a registrant using 

scenario analysis to consider a scenario 

that assumes a disorderly transition? Is 

there a need for us to provide additional 

guidance regarding scenario analysis? 

Are there any aspects of scenario 

analysis in our proposed required 

disclosure that we should exclude? 

Should we also require a registrant that 


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270See proposed 17 CFR 229.1501. 

271See, e.g., letters from Americans for Financial 

Reform Education Fund; Baillie Gifford; Andrew 

Behar; Bloomberg, LP; Canadian Coalition for Good 

Governance; Cardano Risk Management Ltd.; CDP 

NA (June 11, 2021); Center for American Progress; 

CAQ; Ceres et al.; Climate Disclosure Standards 

Board (June 14, 2021); Climate Governance 

Initiative; Climate Risk Disclosure Lab; Eni SpA; 

ERM CVS; Friends of the Earth, Amazon Watch, 

and Rainforest Action Network (June 11, 2021); 

Regenerative Crisis Response Committee; Hermes 

Equity Ownership Limited; William and Flora 

Hewlett Foundation (June 9, 2021); Impax Asset 

Management; Institute of Internal Auditors (May 23, 

2021); Institutional Shareholder Services (June 14, 

2021); Interfaith Center on Corporate 

Responsibility; International Corporate Governance 

Network; Morningstar, Inc.; International 

Organization for Standardization (June 11, 2021); 

Natural Resources Defense Council; NEI 

Investments; NY City Comptroller (June 14, 2021); 

NY State Comptroller; NY State Department of 

Financial Services (June 14, 2021); Oregon State 

Treasury (June 4, 2021); PRI (Consultation 

Response); Pricewaterhouse Coopers; Revolving 

Door Project (June 11, 2021); George Serafeim (June 

9, 2021); Maria Stoica; TotalEnergies (June 13, 

2021); Value Balancing Alliance; WBCSD; and 

World Benchmarking Alliance. 

272See, e.g., letters from Baillie Gifford; 

Bloomberg, LP; Ceres et al.; Climate Disclosure 

Standards Board; Climate Governance Initiative; 

Climate Risk Disclosure Lab; Eni SpA; William and 

Flora Hewlett Foundation; Impax Asset 

Management; Institute for Governance and 

Sustainable Development; International Corporate 

Governance Network; Richard Love; Morningstar, 

Inc.; Natural Resources Defense Council; NEI 

Investments; NY State Comptroller; Maria Stoica; 

TotalEnergies; and WBCSD. But see letter from 

Amanda Rose (stating that federalizing aspects of 

corporate governance could inhibit the ability of 

states to compete for corporate charters). 

273See, e.g., letters from Bloomberg, LP; and 

Natural Resources Defense Council. 

274See TCFD, 2021 Status Report (Oct. 2021) 

(finding that 9% of surveyed companies provided 

TCFD-recommended board disclosure in 2018, 

which increased to 25% in 2020; and 9% provided 

TCFD-recommended management disclosure in 

2018, which increased to 18% in 2020). 

275See, e.g., 17 CFR 229.401 and 229.407. 

276See proposed 17 CFR 229.1501(a)(1)(i). 

277See proposed 17 CFR 229.1501(a)(1)(ii). 

278See proposed 17 CFR 229.1501(a)(1)(iii). 

279See, e.g., letters from Bloomberg, LP; NY State 

Comptroller; and Vanguard Group, Inc. 

280See proposed 17 CFR 229.1501(a)(1)(iv). 

does not use scenario analysis to 

disclose that it has not used this 

analytical tool? Should we also require 

a registrant to disclose its reasons for 

not using scenario analysis? Will 

requiring disclosure of scenario analysis 

if and when a registrant performs 

scenario analysis discourage registrants 

from conducting scenario analysis? If so, 

and to the extent scenario analysis is a 

useful tool for building strategic 

resilience, how could our regulations 

prevent such consequences? 

31. Would the PSLRA forwardlooking statement safe harbors provide 

adequate protection for the proposed 

scenario analysis disclosure? Should we 

instead adopt a separate safe harbor for 

scenario analysis disclosure? If so, what 

disclosures should such a safe harbor 

cover that would not be covered by the 

PSLRA safe harbors and what should 

the conditions be for such a safe harbor? 

32. Should we adopt a provision 

similar to 17 CFR 229.305(d) that would 

apply the PSLRA forward-looking 

statement safe harbor to forward-looking 

statements made in response to 

specified climate-related disclosure 

items, such as proposed Item 1502 and 

Item 1505 (concerning targets and goals) 

of Regulation S–K? If so, which 

proposed items should we specifically 

include in the safe harbor? 

33. As proposed, a registrant may 

provide disclosure regarding any 

climate-related opportunities when 

responding to any of the provisions 

under proposed 17 CFR 229.1502 (Item 

1502). Should we require disclosure of 

climate-related opportunities under any 

or all of the proposed Item 1502 

provisions? 

D. Governance Disclosure 

Similar to the TCFD framework, the 

proposed rules would require a 

registrant to disclose, as applicable, 

certain information concerning the 

board’s oversight of climate-related 

risks, and management’s role in 

assessing and managing those risks.270

Many commenters asserted that climaterelated issues should be subject to the 

same level of board oversight as other 

financially material matters.271 Most of 

these commenters supported robust 

disclosure of a board’s and 

management’s governance of climaterelated risks and opportunities, 

consistent with the TCFD framework.272

Our proposed disclosure requirements 

are based on specific recommendations 

of the TCFD. We agree with commenters 

that a comprehensive understanding of 

a board’s oversight, and management’s 

governance, of climate-related risks is 

necessary to aid investors in evaluating 

the extent to which a registrant is 

adequately addressing the material 

climate-related risks it faces, and 

whether those risks could reasonably 

affect the value of their investment.273

We also note that, despite the 

importance of governance disclosure, 

according to the TCFD, only a small 

percentage of issuers that voluntarily 

provided climate-related information 

presented governance disclosure aligned 

with the TCFD’s recommendations.274

While the proposed rules are intended 

to provide investors with additional 

insight into a board’s and management’s 

governance of climate-related risks, they 

are similar to the Commission’s existing 

rules under Regulation S–K that call for 

disclosure about corporate governance 

in that they are intended to provide 

investors with relevant information 

about a registrant’s board, management, 

and principal committees.275

1. Board Oversight 

The proposed rules would require a 

registrant to disclose a number of board 

governance items, as applicable. The 

first item would require a registrant to 

identify any board members or board 

committees responsible for the oversight 

of climate-related risks.276 The 

responsible board committee might be 

an existing committee, such as the audit 

committee or risk committee, or a 

separate committee established to focus 

on climate-related risks. The next 

proposed item would require disclosure 

of whether any member of a registrant’s 

board of directors has expertise in 

climate-related risks, with disclosure 

required in sufficient detail to fully 

describe the nature of the expertise.277

Another proposed item would require 

a description of the processes and 

frequency by which the board or board 

committee discusses climate-related 

risks.278 The registrant would have to 

disclose how the board is informed 

about climate-related risks, and how 

frequently the board considers such 

risks. These proposed disclosure items 

could provide investors with insight 

into how a registrant’s board considers 

climate-related risks and any relevant 

qualifications of board members.279

The proposed rule also would require 

disclosure about whether and how the 

board or board committee considers 

climate-related risks as part of its 

business strategy, risk management, and 

financial oversight.280 This disclosure 

could enable an investor to understand 

whether and how the board or board 

committee considers climate-related 

risks when reviewing and guiding 

business strategy and major plans of 

action, when setting and monitoring 

implementation of risk management 

policies and performance objectives, 

when reviewing and approving annual 

budgets, and when overseeing major 

expenditures, acquisitions, and 

divestitures. In this way, the proposed 

disclosure requirement could help 

investors assess the degree to which a 

board’s consideration of climate-related 

risks has been integrated into a 

registrant’s strategic business and 

financial planning and its overall level 

of preparation to maintain its 

shareholder value. 

Finally, the proposed rule would 

require disclosure about whether and 

how the board sets climate-related 

targets or goals and how it oversees 


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281See proposed 17 CFR 229.1501(a)(1)(v). 

282See proposed 17 CFR 229.1501(b)(1)(i). 

283See proposed 17 CFR 229.1501(b)(1)(ii). 

284See proposed 17 CFR 229.1501(b)(1)(iii). 

285See, e.g., letters from Baillie Gifford; Andrew 

Behar; CDP; Climate Governance Initiative; E3G 

(June 14, 2021); Interfaith Center on Corporate 

Responsibility; Majedie Asset Management; NEI 

Investments; NY State Comptroller; PRI 

(Consultation Response); RMI (June 11, 2021); 

Maria Stoica; and Value Balancing Alliance. 

286See letter from Richard Love. 

287See letter from Western Energy Alliance (June 

12, 2021). 

288See 17 CFR 229.402(b) (requiring disclosure of 

all material elements of a registrant’s executive 

compensation, including the objectives of the 

registrant’s compensation programs and what each 

compensation program is designed to reward). 

Further, the Commission recently decided to reopen 

the comment period on rules to implement section 

953(a) of the Dodd-Frank Act, which requires 

disclosure of the relationship between executive 

compensation and the performance of the issuer. 

See Release No. 34–94074, Reopening of Comment 

Period for Pay Versus Performance (Jan. 27, 2021). 

progress against those targets or goals, 

including the establishment of any 

interim targets or goals.281 Such a target 

might be, for example, to achieve netzero carbon emissions for all or a large 

percentage of its operations by 2050 or 

to reduce the carbon intensity of its 

products by a certain percentage by 

2030 in order to mitigate transition risk. 

This proposed requirement would help 

investors evaluate whether and how a 

board is preparing to mitigate or adapt 

to any material transition risks, and 

whether it is providing oversight for the 

registrant’s potential transition to a 

lower carbon economy. If applicable, a 

registrant can elect also to discuss the 

board’s oversight of climate-related 

opportunities. 

2. Management Oversight 

Similar to the proposed required 

disclosures on board oversight, the 

proposed rules would require a 

registrant to disclose a number of items, 

as applicable, about management’s role 

in assessing and managing any climaterelated risks. For example, a registrant 

would be required to disclose, as 

applicable, whether certain management 

positions or committees are responsible 

for assessing and managing climaterelated risks and, if so, to identify such 

positions or committees and disclose 

the relevant expertise of the position 

holders or members in such detail as 

necessary to fully describe the nature of 

the expertise.282 This proposed 

requirement would give investors 

additional information to assess the 

extent to which management addresses 

climate-related risks, which could help 

them to make better informed 

investment or voting decisions. 

Similar to the proposed board 

oversight provision described above, 

another proposed item would require 

disclosure about the processes by which 

the responsible managers or 

management committees are informed 

about and monitor climate-related 

risks.283 Such a discussion might 

include, for example, whether there are 

specific positions or committees 

responsible for monitoring and 

assessing specific climate-related risks, 

the extent to which management relies 

on in-house staff with the relevant 

expertise to evaluate climate-related 

risks and implement related plans of 

action, and the extent to which 

management relies on third-party 

climate consultants for these same 

purposes. 

The final proposed management 

governance item would require 

disclosure about whether the 

responsible positions or committees 

report to the board or board committee 

on climate-related risks and how 

frequently this occurs.284 These 

proposed disclosure items could help 

investors evaluate whether management 

has adequately implemented processes 

to identify, assess, and manage climaterelated risks. If applicable, a registrant 

may elect also to describe management’s 

role in assessing and managing climaterelated opportunities. 

Several commenters recommended 

that we require a registrant to disclose 

whether it has connected a portion of its 

executive remuneration with the 

achievement of climate-related targets or 

goals.285 Other commenters expressed 

the view that such a requirement is 

unnecessary, because a registrant could 

implement other measures to motivate 

progress towards climate-related 

targets 286 or connect executive 

remuneration with climate-related 

achievements as a discretionary matter 

for the registrant.287 We are not 

proposing a compensation-related 

disclosure requirement at this time, 

because we believe that our existing 

rules requiring a compensation 

discussion and analysis should already 

provide a framework for disclosure of 

any connection between executive 

remuneration and achieving progress in 

addressing climate-related risks.288

Request for Comment 

34. Should we require a registrant to 

describe, as applicable, the board’s 

oversight of climate-related risks, as 

proposed? Should the required 

disclosure include whether any board 

member has expertise in climate-related 

risks and, if so, a description of the 

nature of the expertise, as proposed? 

Should we also require a registrant to 

identify the board members or board 

committee responsible for the oversight 

of climate-related risks, as proposed? Do 

our current rules, which require a 

registrant to provide the business 

experience of its board members, elicit 

adequate disclosure about a board 

member’s or executive officer’s 

expertise relevant to the oversight of 

climate-related risks? 

35. Should we require a registrant to 

disclose the processes and frequency by 

which the board or board committee 

discusses climate-related risks, as 

proposed? 

36. Should we require a registrant to 

disclose whether and how the board or 

board committee considers climaterelated risks as part of its business 

strategy, risk management, and financial 

oversight, as proposed? Would the 

proposed disclosure raise competitive 

harm concerns? If so, how could we 

address those concerns while requiring 

additional information for investors 

about how a registrant’s board oversees 

climate-related risks? 

37. Should we require a registrant to 

disclose whether and how the board sets 

climate-related targets or goals, as 

proposed? Should the required 

disclosure include how the board 

oversees progress against those targets 

or goals, including whether it 

establishes any interim targets or goals, 

as proposed? Would the proposed 

disclosure raise competitive harm 

concerns? If so, how could we address 

those concerns while requiring 

additional information for investors 

about how a registrant’s board oversees 

the setting of any climate-related targets 

or goals? 

38. Should we require a registrant to 

describe, as applicable, management’s 

role in assessing and managing climaterelated risks, as proposed? Should the 

required disclosure include whether 

certain management positions or 

committees are responsible for assessing 

and managing climate-related risks and, 

if so, the identity of such positions or 

committees, and the relevant expertise 

of the position holders or members in 

such detail as necessary to fully 

describe the nature of the expertise, as 

proposed? Should we require a 

registrant to identify the executive 

officer(s) occupying such position(s)? Or 

do our current rules, which require a 

registrant to provide the business 

experience of its executive officers, 

elicit adequate disclosure about 

management’s expertise relevant to the 

oversight of climate-related risks? 

39. Should we require a registrant to 

describe the processes by which the 

management positions or committees 

responsible for climate-related risks are 


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289See proposed 17 CFR 229.1503(a). 

290Risk factor disclosure has been part of the 

Commission’s Securities Act disclosure 

requirements since prior to and from adoption of its 

integrated disclosure system. See Release No. 33– 

6383, Adoption of Integrated Disclosure System 

(Mar. 3, 1982). The Commission added risk factor 

disclosure to its Exchange Act registration and 

annual reporting requirements in 2005. See Release 

No. 33–8591, Securities Offering Reform (July 19, 

2005) [70 FR 44722 (Aug. 3, 2005)]. 

291See, e.g., letters from Rob Bonta, California 

Attorney General et al.; Boston Common Asset 

Management; Carbon Tracker Initiative; Confluence 

Philanthropy; Hermes Equity Ownership Services 

Ltd.; The Institute for Policy Integrity (‘‘Policy 

Integrity’’) at New York University School of Law, 

Environmental Defense Fund (‘‘EDF’’), the Initiative 

on Climate Risk and Resilience Law (‘‘ICRRL’’), and 

Professors Madison Condon, Jim Rossi, and Michael 

Vandenbergh (June 14, 2021) (‘‘Institute for Policy 

Integrity, Environmental Defense Fund, Initiative 

on Climate Risk & Resilience Law’’); and Total 

Energies. 

292See TCFD, 2021 Status Report, Section B 

(indicating that, during 2018–2020, 16–30% of 

surveyed public companies disclosed their climate 

risk identification and assessment processes, 14– 

29% disclosed their risk management processes, 

and 10–27% disclosed whether their climate risk 

management processes were integrated into their 

overall risk management). 

293See proposed 17 CFR 229.1503(a)(1). 

294See proposed 17 CFR 229.1503(a)(2). 

295To the extent loss of insurance coverage or 

increases in premiums is reasonably likely to have 

a material impact on the registrant, the registrant 

would be required to disclose that risk pursuant to 

proposed Item 1502(a). 

296See proposed 17 CFR 229.1503(b). 

297See id. 

298See, e.g., letters from As You Sow; BlackRock; 

Clean Yield Asset Management; Climate Advisers; 

Climate Governance Initiative; Fiends of the Earth 

et al.; Institute for Governance and Sustainable 

Development; Miller/Howard Investments; Trillium 

Asset Management; and World Benchmarking 

Alliance. 

299See proposed 17 CFR 229.1500(s). 

300See id. 

301See proposed 17 CFR 229.1503(c)(1). 

informed about and monitor climaterelated risks, as proposed? Should we 

also require a registrant to disclose 

whether and how frequently such 

positions or committees report to the 

board or a committee of the board on 

climate-related risks, as proposed? 

40. Should we specifically require a 

registrant to disclose any connection 

between executive remuneration and 

the achievement of climate-related 

targets and goals? Is there a need for 

such a requirement in addition to the 

executive compensation disclosure 

required by 17 CFR 229.402(b)? 

41. As proposed, a registrant may 

disclose the board’s oversight of, and 

management’s role in assessing and 

managing, climate-related opportunities. 

Should we require a registrant to 

disclose these items? 

E. Risk Management Disclosure 

1. Disclosure of Processes for 

Identifying, Assessing, and Managing 

Climate-Related Risks 

The proposed rules would require a 

registrant to describe any processes the 

registrant has for identifying, assessing, 

and managing climate-related risks.289

Risk disclosure is a long-standing 

disclosure concept under our 

regulations.290 Several commenters 

recommended that we adopt decisionuseful disclosure requirements 

concerning a registrant’s climate-related 

risk management practices.291 More 

granular information regarding any 

climate-related risk management could 

allow investors to better understand 

how a registrant identifies, evaluates, 

and addresses climate-related risks that 

may materially impact its business. 

Such information could also permit 

investors to ascertain whether a 

registrant has made the assessment of 

climate-related risks part of its regular 

risk management processes. Despite the 

importance of climate-related risk 

management information, only a 

minority of registrants currently include 

such information in their voluntary 

climate reports.292

When describing the processes for 

identifying and assessing climaterelated risks, the registrant would be 

required to disclose, as applicable: 

• How it determines the relative 

significance of climate-related risks 

compared to other risks; 

• How it considers existing or likely 

regulatory requirements or policies, 

such as GHG emissions limits, when 

identifying climate-related risks; 

• How it considers shifts in customer 

or counterparty preferences, 

technological changes, or changes in 

market prices in assessing potential 

transition risks; and 

• How it determines the materiality of 

climate-related risks, including how it 

assesses the potential size and scope of 

any identified climate-related risk.293

When describing any processes for 

managing climate-related risks, a 

registrant would be required to disclose, 

as applicable: 

• How it decides whether to mitigate, 

accept, or adapt to a particular risk; 

• How it prioritizes addressing 

climate-related risks; and 

• How it determines how to mitigate 

a high priority risk.294

Together, these proposed disclosures 

would help investors evaluate whether 

a registrant has implemented adequate 

processes for identifying, assessing, and 

managing climate-related risks so that 

they may make better informed 

investment or voting decisions. As part 

of this risk management description, if 

a registrant uses insurance or other 

financial products to manage its 

exposure to climate-related risks, it may 

need to describe its use of these 

products.295

The proposed rules would also 

require a registrant to disclose whether 

and how climate-related risks are 

integrated into the registrant’s overall 

risk management system or 

processes.296 If a separate board or 

management committee is responsible 

for assessing and managing climaterelated risks, a registrant would be 

required to disclose how that committee 

interacts with the registrant’s board or 

management committee governing 

risks.297 These proposed disclosures 

would help investors assess whether the 

registrant has centralized the processes 

for managing climate-related risks, 

which may indicate to investors how 

the board and management may respond 

to such risks as they unfold. 

2. Transition Plan Disclosure 

Adoption of a transition plan to 

mitigate or adapt to climate-related risks 

may be an important part of a 

registrant’s climate-related risk 

management strategy, particularly if it 

operates in a jurisdiction that has made 

commitments under the Paris 

Agreement to reduce its GHG emissions. 

Many commenters recommended that 

we require disclosure regarding a 

registrant’s transition plan, stating that 

such disclosure would help investors 

evaluate whether a registrant has an 

effective strategy to achieve its short-, 

medium-, or long-term climate-related 

targets or goals.298

The proposed rules would define a 

‘‘transition plan’’ to mean a registrant’s 

strategy and implementation plan to 

reduce climate-related risks.299 A 

transition plan may include a plan to 

reduce its GHG emissions in line with 

a registrant’s commitments or 

commitments of jurisdictions within 

which it has significant operations.300

Transition plans may also be important 

to registrants and their shareholders to 

the extent transition risk arises from 

changes in customer or business 

counterparty preferences, technological 

change, or changes in market prices. If 

a registrant has adopted a transition 

plan, the proposed rules would require 

it to describe its plan, including the 

relevant metrics and targets used to 

identify and manage physical and 

transition risks.301 This information 

could help investors understand how a 

registrant intends to address identified 

climate-related risks and any transition 

to a lower carbon economy while 

managing and assessing its business 

operations and financial condition. 


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302See supra note 219. 

303See proposed 17 CFR 229.1503(c)(2)(i). 

304A registrant would be required to disclose the 

expected impact of any potential reduction on its 

results of operations or financial condition pursuant 

to proposed 17 CFR 229.1502 to the extent it 

believes the likely impact would be material. Such 

quantified disclosure may be eligible for the PSLRA 

safe harbors if the conditions of the safe harbors are 

met. 

305See proposed 17 CFR 229.1503(c)(2)(ii)(A)(1). 

306See proposed 17 CFR 229.1503(c)(2)(ii)(A)(2). 

307See proposed 17 CFR 229.1503(c)(2)(ii)(B). 

308See proposed 17 CFR 229.1503(c)(2)(ii)(C). 

309See proposed 17 CFR 229.1503(c)(1). 

310See proposed 17 CFR 229.1503(c)(3)(i) through 

(v). 

311A registrant would be required to disclose the 

expected impact of any transition opportunity on its 

results of operations or financial condition, e.g., 

increased costs or expenditures, pursuant to 

proposed 17 CFR 229.1502 to the extent it believes 

they would be reasonably likely to have a material 

impact. 

Because transition planning inherently 

requires judgments and predictions 

about the future, forward-looking 

statements made as part of a registrant’s 

discussion of its transition plan would 

be eligible for the PSLRA forwardlooking statement safe harbors provided 

all applicable conditions are met.302

If a registrant has adopted a transition 

plan as part of its climate-related risk 

management strategy, the proposed 

rules would require the registrant to 

discuss, as applicable, how it plans to 

mitigate or adapt to any physical risks 

identified in the filing, including but 

not limited to those concerning 

exposure to sea level rise, extreme 

weather events, wildfires, drought, and 

severe heat.303 For example, a company 

with significant operations in areas 

vulnerable to sea level rise might plan 

to relocate its vulnerable operations as 

part of any transition plan. A company 

operating in areas subject to severe 

storms might have a transition plan that 

includes reinforcing its physical 

facilities to better withstand such 

weather events, or a plan to relocate 

those facilities. An agricultural producer 

that operates in areas subject to 

increasing water stress might discuss its 

plans to adjust its business strategy or 

operations, for example by developing 

or switching to drought-resistant crops, 

developing technologies to optimize the 

use of available water, or acquiring land 

in other areas.304

The proposed rules would also 

require a registrant that has adopted a 

transition plan as part of its climaterelated risk management strategy to 

discuss, as applicable, how it plans to 

mitigate or adapt to any identified 

transition risks, including the following: 

• Laws, regulations, or policies that: 

Æ Restrict GHG emissions or products 

with high GHG footprints, including 

emissions caps; 305 or 

Æ Require the protection of high 

conservation value land or natural 

assets; 306

• Imposition of a carbon price; 307

and 

• Changing demands or preferences 

of consumers, investors, employees, and 

business counterparties.308

While each of these transition risks 

may not be applicable to each registrant 

and its particular transition plan, the 

above examples are intended to guide 

registrants in providing meaningful 

disclosure about its risk management 

strategies that is not generic or 

boilerplate. In this regard, it is 

important for investors to understand 

how a registrant plans to mitigate or 

adapt to any identified transition risks 

in its transition plan given the potential 

associated costs and burdens and their 

impact on the registrant’s business. 

The proposed rules would require a 

registrant that has adopted a transition 

plan as part of its climate-related 

management strategy to update its 

disclosure about its transition plan each 

fiscal year by describing the actions 

taken during the year to achieve the 

plan’s targets or goals.309 This is 

intended to provide investors with 

information that can help them better 

understand the registrant’s effectiveness 

in implementing any transition plan and 

the potential risks and costs associated 

with what it still needs to accomplish. 

A registrant that has adopted a 

transition plan as part of its climaterelated risk management strategy may 

also describe how it plans to achieve 

any identified climate-related 

opportunities, such as: 

• The production of products that 

facilitate the transition to a lower carbon 

economy, such as low emission modes 

of transportation and supporting 

infrastructure; 

• The generation or use of renewable 

power; 

• The production or use of low waste, 

recycled, or other consumer products 

that require less carbon intensive 

production methods; 

• The setting of conservation goals 

and targets that would help reduce GHG 

emissions; and 

• The provision of goods or services 

related to any transition to a lower 

carbon economy.310

For example, an energy company 

might discuss how, due to actual or 

potential regulatory constraints, it 

intends to take advantage of climaterelated opportunities by increasing the 

amount of electricity purchased that is 

produced using renewable energy 

sources, reducing its medium and longrange fossil fuel exploration and 

production, increasing the percentage of 

its products consisting of biofuels and 

other lower emissions fuels, or investing 

in carbon capture and storage 

technologies. A transportation company 

might discuss how, to mitigate 

reputational risk, it plans to realize any 

climate-related opportunities presented 

by switching its existing fleet to one 

composed of low- or no-emission 

vehicles by a certain date.311

Request for Comment 

42. Should we require a registrant to 

describe its processes for identifying, 

assessing, and managing climate-related 

risks, as proposed? 

43. When describing the processes for 

identifying and assessing climaterelated risks, should we require a 

registrant to disclose, as applicable, as 

proposed: 

• How the registrant determines the 

relative significance of climate-related 

risks compared to other risks? 

• How it considers existing or likely 

regulatory requirements or policies, 

such as emissions limits, when 

identifying climate-related risks? 

• How it considers shifts in customer 

or counterparty preferences, 

technological changes, or changes in 

market prices in assessing potential 

transition risks? 

• How the registrant determines the 

materiality of climate-related risks, 

including how it assesses the potential 

size and scope of an identified climaterelated risk? Are there other items 

relevant to a registrant’s identification 

and assessment of climate-related risks 

that we should require it to disclose 

instead of or in addition to the proposed 

disclosure items? 

44. When describing the processes for 

managing climate-related risks, should 

we require a registrant to disclose, as 

applicable, as proposed: 

• How it decides whether to mitigate, 

accept, or adapt to a particular risk? 

• How it prioritizes climate-related 

risks? 

• How it determines to mitigate a 

high priority risk? 

Are there other items relevant to a 

registrant’s management of climaterelated risks that we should require it to 

disclose instead of or in addition to the 

proposed disclosure items? 

45. Should we require a registrant to 

disclose whether and how the processes 

described in response to proposed 17 

CFR 229.1503(a) are integrated into the 

registrant’s overall risk management 

system or processes, as proposed? 

Should we specify any particular aspect 

of this arrangement that a registrant 


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312For example, the climate-related note to the 

financial statements would not be required in a 

Form 10–Q filing. See proposed 17 CFR 210.14– 

01(a). See infra note 690 and accompanying text, 

which discusses the applicability of the proposed 

rules to foreign private issuers. 

313See FASB Concepts Statement No. 8, Chapter 

8, par. D8 (‘‘[T]he primary purpose of notes to 

financial statements is to supplement or further 

explain the information on the face of financial 

statements by providing financial information 

relevant to existing and potential investors, lenders, 

and other creditors for making decisions about 

providing resources to an entity.’’). 

314See proposed 17 CFR 210.14–02(a). Inputs and 

assumptions may include the estimation 

methodology used to disaggregate the amount of 

impact on the financial statements between the 

climate-related events and activities and other 

factors. Policy decisions referenced herein may 

include a registrant’s election to disclose the 

impacts from climate-related opportunities. See 

also infra Section II.F.2 for an example of 

contextual information that would be required. 

315See FASB Staff Educational Paper, 

Intersection of Environmental, Social, and 

Governance Matters with Financial Accounting 

Standards (Mar. 2021), available at https://fasb.org/ 

jsp/FASB/Document_C/DocumentPage&cid=

1176176379917. See also IFRS, Effects of climaterelated matters on financial statements (Nov. 2020), 

available at https://www.ifrs.org/content/dam/ifrs/ 

supporting-implementation/documents/effects-ofclimate-related-matters-on-financial-statements.

pdf#:∼:text=IFRS%20Standards%20do%20not

%20refer%explicitly%20to%20climate-related,

significant%20judgements%20and

%20estimates%20that%20%20has%20made. 

316The Commission has broad authority to set 

accounting standards and principles. See, e.g., 15 

U.S.C. 77s; 15 U.S.C. 7218(c); and Policy Statement: 

Reaffirming the Status of the FASB as a Designated 

Private-Sector Standard Setter, Release No. 33–8221 

Continued 

should disclose, such as any interaction 

between, and corresponding roles of, the 

board or any management committee 

responsible for assessing climate-related 

risks, if there is a separate and distinct 

committee of the board or management, 

and the registrant’s committee in charge, 

generally, of risk assessment and 

management? 

46. If a registrant has adopted a 

transition plan, should we require the 

registrant to describe the plan, including 

the relevant metrics and targets used to 

identify and manage physical and 

transition risks, as proposed? Would 

this proposed disclosure requirement 

raise any competitive harm concerns 

and, if so, how can we mitigate such 

concerns? Would any of the proposed 

disclosure requirements for a 

registrant’s transition plan act as a 

disincentive to the adoption of such a 

plan by the registrant? 

47. If a registrant has adopted a 

transition plan, should we require it, 

when describing the plan, to disclose, as 

applicable, how the registrant plans to 

mitigate or adapt to any identified 

physical risks, including but not limited 

to those concerning energy, land, or 

water use and management, as 

proposed? Are there any other aspects 

or considerations related to the 

mitigation or adaption to physical risks 

that we should specifically require to be 

disclosed in the description of a 

registrant’s transition plan? 

48. If a registrant has adopted a 

transition plan, should we require it to 

disclose, if applicable, how it plans to 

mitigate or adapt to any identified 

transition risks, including the following, 

as proposed: 

• Laws, regulations, or policies that: 

Æ Restrict GHG emissions or products 

with high GHG footprints, including 

emissions caps; or 

Æ Require the protection of high 

conservation value land or natural 

assets? 

• Imposition of a carbon price? 

• Changing demands or preferences 

of consumers, investors, employees, and 

business counterparts? 

Are there any other transition risks 

that we should specifically identify for 

disclosure, if applicable, in the 

transition plan description? Are there 

any identified transition risks that we 

should exclude from the plan 

description? 

49. If a registrant has adopted a 

transition plan, when describing the 

plan, should we permit the registrant 

also to discuss how it plans to achieve 

any identified climate-related 

opportunities, including, as proposed: 

• The production of products that 

facilitate the transition to a lower carbon 

economy, such as low emission modes 

of transportation and supporting 

infrastructure? 

• The generation or use of renewable 

power? 

• The production or use of low waste, 

recycled, or environmentally friendly 

consumer products that require less 

carbon intensive production methods? 

• The setting of conservation goals 

and targets that would help reduce GHG 

emissions? 

• The provision of services related to 

any transition to a lower carbon 

economy? 

Should we require a registrant to 

discuss how it plans to achieve any of 

the above, or any other, climate-related 

opportunities when describing its 

transition plan? 

50. If a registrant has disclosed its 

transition plan in a Commission filing, 

should we require it to update its 

transition plan disclosure each fiscal 

year by describing the actions taken 

during the year to achieve the plan’s 

targets or goals, as proposed? Should we 

require a registrant to provide such an 

update more frequently, and if so, how 

frequently? Would the proposed 

updating requirement act as a 

disincentive to the adoption of a 

transition plan by the registrant? 

51. To the extent that disclosure about 

a registrant’s transition plan constitutes 

forward-looking information, the PSLRA 

safe harbors would apply. Should we 

adopt a separate safe harbor for 

transition plan disclosure? If so, what 

disclosures should such a safe harbor 

cover and what should the conditions 

be for such a safe harbor? 

F. Financial Statement Metrics 

1. Overview 

If a registrant is required to file the 

disclosure required by subpart 229.1500 

in a form that also requires audited 

financial statements,312 under our 

proposal it would be required to 

disclose in a note to its financial 

statements certain disaggregated 

climate-related financial statement 

metrics that are mainly derived from 

existing financial statement line 

items.313 In particular, the proposed 

rules would require disclosure falling 

under the following three categories of 

information: 

• Financial Impact Metrics; 

• Expenditure Metrics; and 

• Financial Estimates and 

Assumptions. 

The proposed financial statement 

metrics disclosures would involve 

estimation uncertainties that are driven 

by the application of judgments and 

assumptions, similar to other financial 

statement disclosures (e.g., estimated 

loss contingencies, fair value 

measurement of certain assets, etc.). 

Accordingly, for each type of financial 

statement metric, the proposed rules 

would require the registrant to disclose 

contextual information to enable a 

reader to understand how it derived the 

metric, including a description of 

significant inputs and assumptions 

used, and if applicable, policy decisions 

made by the registrant to calculate the 

specified metrics.314

A number of existing accounting 

standards could elicit climate-related 

disclosure in the financial statements, as 

highlighted by the FASB in a Staff 

Educational Paper and by the IFRS in a 

similar document.315 Nevertheless, we 

believe the proposed rules would 

benefit registrants by specifying when to 

provide such disclosures. Furthermore, 

the proposed rules may increase the 

consistency and comparability of such 

disclosures by prescribing accounting 

principles for preparing the proposed 

climate-related financial statement 

metrics disclosures, including, among 

other things, provisions that would 

specify the basis of calculation for such 

metrics and their presentation.316


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21364 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

(Apr. 25, 2003) [68 FR 23333 (May 1, 2003)], at 

23334 (‘‘While the Commission consistently has 

looked to the private sector in the past to set 

accounting standards, the securities laws, including 

the Sarbanes-Oxley Act, clearly provide the 

Commission with authority to set accounting 

standards for public companies and other entities 

that file financial statements with the 

Commission.’’). See also FASB Accounting 

Standards Codification (‘‘FASB ASC’’) Topic 105– 

10–10–1 (‘‘Rules and interpretive releases of the 

Securities and Exchange Commission . . . are also 

sources of authoritative GAAP for SEC 

registrants.’’). 

317See proposed 17 CFR 210.14–01(c)(1). 

318See, e.g., 17 CFR 210.3–01(a) (‘‘There shall be 

filed, for the registrant and its subsidiaries 

consolidated, audited balance sheets as of the end 

of each of the two most recent fiscal years.’’). 

319See proposed 17 CFR 210.14–01(c)(2). Foreign 

private issuers that file consolidated financial 

statements under home country GAAP and 

reconcile to U.S. GAAP, would be required to use 

U.S. GAAP (including the provisions of the 

proposed rules) as the basis for calculating and 

disclosing the proposed climate-related financial 

statement metrics. Foreign private issuers that file 

consolidated financial statements under IFRS as 

issued by the IASB, would apply IFRS and the 

proposed rules as the basis for calculating and 

disclosing the proposed climate-related financial 

statement metrics. For simplicity, we do not refer 

to the corresponding IFRS in each instance where 

we refer to a FASB ASC. Accordingly, references in 

this release to a FASB ASC should be read to also 

refer to the corresponding IFRS for foreign private 

issuers applying those standards. See also infra note 

690 which discusses proposed amendments to 

Form 20–F. 

320See also 17 CFR 210.4–01(a)(2) (discussing the 

application of U.S. GAAP, IFRS, and the use of 

other comprehensive sets of accounting principles 

(with reconciliation to U.S. GAAP)). 

321See proposed 17 CFR 210.14–01(d). 

322An EGC is a registrant that had total annual 

gross revenues of less than $1.07 billion during its 

most recently completed fiscal year and has not met 

the specified conditions for no longer being 

considered an EGC. See 17 CFR 230.405; 17 CFR 

240.12b–2; 15 U.S.C. 77b(a)(19); 15 U.S.C. 

78c(a)(80); and Inflation Adjustments and Other 

Technical Amendments under Titles I and III of the 

JOBS Act, Release No. 33–10332 (Mar. 31, 2017) [82 

FR 17545 (Apr. 12, 2017)]. 

323An EGC is only required to provide audited 

statements of comprehensive income and cash 

flows for each of the two fiscal years preceding the 

date of the most recent audited balance sheet (or 

such shorter period as the registrant has been in 

existence). See 17 CFR 210.3–02(a). A similar 

accommodation is provided to SRCs. See 17 CFR 

210.8–02. 324See supra Section II.C. 

To avoid potential confusion, 

maintain consistency with the rest of 

the financial statements, and aid 

comparability, registrants would be 

required to calculate the proposed 

financial statement metrics using 

financial information that is consistent 

with the scope of the rest of the 

registrant’s consolidated financial 

statements included in the filing.317

Therefore, registrants would have to 

include in any such calculation 

financial information from consolidated 

subsidiaries.318

For the avoidance of doubt, and to 

further promote consistency in the 

preparation of the financial statements, 

the proposed basis of calculation 

requirements would also specify that a 

registrant would be required to apply 

the same set of accounting principles 

that it is required to apply in 

preparation of the rest of its 

consolidated financial statements 

included in the filing, whenever 

applicable.319 Although 17 CFR 210.4– 

01(a)(1) already states that financial 

statements filed with the Commission 

that are not prepared in accordance with 

GAAP will be presumed misleading or 

inaccurate unless the Commission has 

otherwise provided, clarifying the 

application of this concept in the 

proposed rules may be helpful, given 

the possible confusion that may arise 

between the current body of GAAP and 

the proposed requirements.320

The proposed rules would also 

require disclosure to be provided for the 

registrant’s most recently completed 

fiscal year and for the historical fiscal 

year(s) included in the registrant’s 

consolidated financial statements in the 

applicable filing.321 For example, a 

registrant that is required to include 

balance sheets as of the end of its two 

most recent fiscal years and income 

statements and cash flow statements at 

the end of its three most recent fiscal 

years would be required to disclose two 

years of the climate-related financial 

statement metrics that correspond to 

balance sheet line items and three years 

of the climate-related financial 

statement metrics that correspond to 

income statement or cash flow 

statement line items. If the registrant is 

an emerging growth company 

(‘‘EGC’’) 322 or SRC, only two years 

would be required.323

A registrant, however, would not need 

to provide a corresponding historical 

metric for a fiscal year preceding its 

current reporting fiscal year if it is 

eligible to take advantage of the 

accommodation in 17 CFR 230.409 

(‘‘Rule 409’’) or 17 CFR 240.12b–21 

(‘‘Rule 12b–21’’). For example, if a 

registrant has not previously presented 

such metric for such fiscal year and the 

historical information necessary to 

calculate or estimate such metric is not 

reasonably available to the registrant 

without unreasonable effort or expense, 

the registrant may be able to rely on 

Rule 409 or Rule 12b–21 to exclude a 

corresponding historical metric. 

Requiring disclosure of current and, 

when known or reasonably available, 

historical periods, should allow 

investors to analyze trends in the 

climate-related impacts on the 

consolidated financial statements and to 

better evaluate the narrative trend 

disclosure provided pursuant to 

proposed Subpart 1500 of Regulation S– 

K.324

Request for Comment 

52. Should we require a registrant to 

provide contextual information, 

including a description of significant 

inputs and assumptions used, and if 

applicable, policy decisions made by 

the registrant to calculate the specified 

metrics, as proposed? Should we revise 

the proposed requirement to provide 

contextual information to require 

specific information instead? We 

provide some examples of contextual 

information disclosure in Sections II.F.2 

and II.F.3 below. Would providing 

additional examples or guidance assist 

registrants in preparing this disclosure? 

53. The proposed rules would specify 

the basis of calculation for the climaterelated financial statement metrics. Is it 

clear how to apply these accounting 

principles when calculating the 

proposed climate-related financial 

statement metrics, or should we provide 

additional guidance? Should we require 

a registrant to report these metrics with 

reference to its consolidated financial 

statements, as proposed? If not, how 

should registrants report these metrics? 

If we were to establish accounting 

principles (e.g., the basis for reporting 

these metrics) in a manner that differs 

from the principles applicable to the 

rest of the consolidated financial 

statements, would the application of 

those principles to the proposed metrics 

make climate-related disclosures less 

clear, helpful, or comparable for 

investors? 

54. Should we also require such 

metrics to be calculated at a reportable 

segment level when a registrant has 

more than one reportable segment (as 

defined by the FASB ASC Topic 280 

Segment Reporting)? In addition, should 

we require such metrics to be presented 

by geographic areas that are consistent 

with the registrant’s reporting pursuant 

to FASB ASC Topic 280–10–50–41? 

How would investors use such 

information? 

55. The proposed rules would require 

disclosure for the registrant’s most 

recently completed fiscal year and for 

the corresponding historical fiscal years 

included in the registrant’s consolidated 

financial statements in the filing. 

Should disclosure of the climate-related 

financial statement metrics be required 

for the fiscal years presented in the 

registrant’s financial statements, as 

proposed? Instead, should we require 

the financial statement metrics to be 

calculated only for the most recently 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21365 

325See proposed 17 CFR 229.1502(d). 

326See supra Section II.B.1 (discussing the 

definition of ‘‘climate-related risks’’). 

327See proposed 17 CFR 229.1500(c) (defining 

‘‘climate related risks’’ to include ‘‘physical risks’’ 

and ‘‘transition risks’’). 

328For example, the impact on the income 

statement line items for the periods presented in the 

financial statements in a registrant’s Form 10–K. 

329See proposed 17 CFR 210.14–02(i). 

330See, e.g., 2010 Guidance, 26 (‘‘Significant 

physical effects of climate change, such as effects 

on the severity of weather (for example, floods or 

hurricanes), [and] sea levels . . . have the potential 

to affect a registrant’s operations and results.’’). 

Temperature extremes and drought are also 

discussed in the 2010 Guidance. See, e.g., id. at 6– 

7. 

331See, e.g., Aurora A. Gutierrez et al., Wildfire 

response to changing daily temperature extremes in 

California’s Sierra Nevada, Science Advances, Vol. 

7, Issue 47 (Nov. 17, 2021) (‘‘Our work supports the 

conclusion that considerable potential exists for an 

increase in fire activity as a consequence of climate 

warming in the absence of changes in fire and 

ecosystem management.’’); U.S. Geological Survey, 

Will global warming produce more frequent and 

more intense wildfires? (‘‘[R]esearchers have found 

strong correlations between warm summer 

temperatures and large fire years, so there is general 

consensus that fire occurrence will increase with 

climate change.’’), available at https://

www.usgs.gov/faqs/will-global-warming-producemore-frequent-and-more-intense-wildfires. 

332See proposed 17 CFR 210.14–02(c). 

333See 2010 Guidance, 6. 

334See id. 

335See, e.g., 2021 FSOC Report, Chapter 1: From 

Climate-related Physical Risks to Financial Risks 

(discussing the listed events and other risks). 

336TCFD, Implementing the Recommendations of 

the Task Force on Climate-related Financial 

Disclosures (Oct. 2021), Section A.4 Assessing 

Financial Impacts of Climate-Related Risks and 

Opportunities. 

337See, e.g., TCFD, Guidance on Metrics, Targets, 

and Transition Plans (Oct. 2021), 23 (Figure C6), 

Appendix 2, available at https://assets.bbhub.io/ 

company/sites/60/2021/07/2021-Metrics_Targets_

Guidance-1.pdf (providing examples, mostly from 

sustainability (or equivalent) reports, that illustrate 

the feasibility of some of the disclosures that would 

be required by the proposed rules). 

completed fiscal year presented in the 

relevant filing? Would requiring 

historical disclosure provide important 

or material information to investors, 

such as information allowing them to 

analyze trends? Are there other 

approaches we should consider? 

56. Should information for all periods 

in the consolidated financial statements 

be required for registrants that are filing 

an initial registration statement or 

providing climate-related financial 

statement metrics disclosure for 

historical periods prior to the effective 

date or compliance date of the rules? 

Would the existing accommodation in 

Rules 409 and 12b–21 be sufficient to 

address any potential difficulties in 

providing the proposed disclosures in 

such situations? 

57. Should we provide additional 

guidance as to when a registrant may 

exclude a historical metric for a fiscal 

year preceding the current fiscal year? 

58. In several instances, the proposed 

rules specifically point to existing 

GAAP and, in this release, we provide 

guidance with respect to the application 

of existing GAAP. Are there other 

existing GAAP requirements that we 

should reference? Are there instances 

where it would be preferable to require 

an approach based on TCFD guidance or 

some other framework, rather than 

requiring the application of existing 

GAAP? 

2. Financial Impact Metrics 

As discussed above, proposed Item 

1502(d) of Regulation S–K would 

require a registrant to provide a 

narrative discussion of whether and 

how any of its identified climate-related 

risks have affected or are reasonably 

likely to affect the registrant’s 

consolidated financial statements.325

The term ‘‘climate-related risks’’ would 

be defined, in part, as the actual or 

potential negative impacts of climaterelated conditions and events on a 

registrant’s consolidated financial 

statements.326 ‘‘Climate-related risks’’ 

would also be defined to include 

physical risks, such as extreme weather 

events, and transition risks.327 To 

complement this proposed requirement 

in Regulation S–K to provide narrative 

disclosure about impacts on a 

registrant’s consolidated financial 

statements, we are proposing to amend 

Regulation S–X to require a registrant to 

include disaggregated information about 

the impact of climate-related conditions 

and events, and transition activities, on 

the consolidated financial statements 

included in the relevant filing,328 unless 

such impact is below a specified 

threshold. 

We are proposing to require 

disclosure of the impacts from severe 

weather events and other natural 

conditions and transition activities, 

which should capture a broad spectrum 

of these two types of climate-related 

risks (physical risks and transition 

risks). In addition, the proposed rules 

would require disclosure of the impacts 

of any climate-related risks identified 

pursuant to proposed Item 1502(a)— 

both physical risks (‘‘identified physical 

risks’’) and transition risks (‘‘identified 

transition risks’’)—on any of the 

financial statement metrics.329 Among 

the examples of severe weather events 

and other natural conditions that we 

have highlighted in the proposed rule 

are those that the Commission identified 

more than a decade ago in the 2010 

Guidance as potentially affecting a 

registrant’s operations and results.330 In 

addition, although not specifically 

mentioned in the 2010 Guidance, we are 

including wildfires as an example 

because it is well recognized as another 

type of natural event that can have 

significant impacts on a registrant’s 

financial statements.331 Providing 

examples of severe weather events, 

other natural conditions, and transition 

activities in the proposed rule would 

aid in the comparability of the resulting 

disclosure while assisting issuers in 

making the disclosures. 

Specifically, we are proposing that 

impacts on any relevant line item in the 

registrant’s consolidated financial 

statements during the fiscal years 

presented arising from severe weather 

events and natural conditions, and the 

identified physical risks (collectively, 

‘‘climate-related events’’), would trigger 

the proposed disclosure requirement 

discussed below. Specific examples of 

such severe weather events and natural 

conditions may include the following: 

• Flooding; 

• Drought; 

• Wildfires; 

• Extreme temperatures; and 

• Sea level rise.332

As discussed, above, there has been 

increased recognition of the current and 

potential effects, both positive and 

negative, of these events and the 

associated physical risks on a 

registrant’s business as well as its 

financial performance and position. For 

example, as mentioned above, the 2010 

Guidance discusses the potential 

impacts on a registrant’s business and 

financial performance from climaterelated events, including, for example, 

severe weather events, that could 

negatively impact a registrant’s supply 

chain or distribution chain and lead to 

higher input costs or delayed product 

deliveries.333 The 2010 Guidance also 

points to credit risks for banks driven by 

borrowers with assets located in high 

risk coastal areas.334 More recently, the 

FSOC’s Report on Climate-Related 

Financial Risk 2021 discusses 

significant costs from the types of events 

included in proposed Rule 14–02(c).335

The TCFD, in a recent publication, also 

discusses the potential financial impacts 

of such climate-related events.336

Furthermore, the TCFD provides 

examples of disclosures already being 

made by some companies (including 

registrants) of the financial statement 

impact of the climate-related events 

discussed above in their standalone 

sustainability (or equivalent) reports.337

Generally, climate-related events such 

as severe weather events and other 

natural conditions, and climate-related 

risks more generally, are linked to 

negative impacts on a registrant’s 

financial performance and position. 


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338See supra Section I.C.1. 339See supra Section II.B. 340See, e.g., 2021 FSOC Report, Chapter 1, From 

Climate-related Transition Risks to Financial Risks. 341See id. 

342See, e.g., TCFD, Guidance on Metrics, Targets, 

and Transition Plans (Oct. 2021), Appendix 2. 

343See proposed 17 CFR 210.14–02(d). 

344See proposed 17 CFR 210.14–02(j). 

345See id. 

346See proposed 17 CFR 210.14–02(b). The 

registrant would be required to evaluate the impact 

on a line-by-line basis consistent with the line items 

presented in its consolidated financial statements. 

See proposed 17 CFR 210.14–02(c) and (d). 

347The Commission currently uses a 1% 

threshold in other contexts for disclosure of certain 

items within the financial statements and without. 

See, e.g., 17 CFR 210.5–03.1(a) (stating that if the 

total of sales and revenues reported under this 

caption includes excise taxes in an amount equal 

to 1% or more of such total, the amount of such 

excise taxes shall be shown on the face of the 

statement parenthetically or otherwise); 17 CFR 

210.12–13 (requiring disclosure of open option 

contracts by management investment companies 

using a 1% of net asset value threshold, based on 

the notional amounts of the contracts); and 17 CFR 

229.404(d) (requiring disclosure of transactions 

between a SRC and related persons in which the 

amount involved exceeds the lesser of $120,000 or 

1% of the average of the SRC’s total assets at yearend for the last two completed fiscal years). 

348See 17 CFR 229.103(b)(2), (c)(3)(iii) and 17 

CFR 229.404(a). 

349Examples of such line items include revenue, 

cost of revenue, selling, general and administrative 

expenses, sale of property, plant, and equipment (in 

statement of cash flows), inventories, intangible 

assets, long-term debt, or contingent liabilities. 

350See proposed 17 CFR 210.14–02(c) and (d). 

351See proposed 17 CFR 210.14–02(b). 

352This example illustrates a situation where the 

registrant has elected to include impacts from 

transition opportunities. 

There could be situations, however, 

where such events result in positive 

impacts. For example, if a registrant’s 

business is to conduct post-disaster 

cleanup and reconstruction, the 

occurrence of such severe weather 

events would generate additional 

revenues for the registrant. 

In addition to the physical risks 

associated with climate change, 

registrants and investors also face 

climate-related transition risks. As 

government leaders across the globe 

have made public commitments to 

transition to a lower carbon economy, 

investors have sought information about 

the impact such a transition may have 

on registrants.338 In addition to public 

commitments, these impacts may be 

prompted by regulatory, technological, 

market (including changing consumer, 

business counterparty, and investor 

preferences), liability, reputational, or 

other transition-related factors.339 For 

example, significant shifts in modes of 

production may occur in GHG intensive 

economic sectors, such as the 

transportation, electricity generation, 

and heavy manufacturing sectors.340 A 

registrant that is engaged in transition 

activities may experience business 

losses or, conversely, may benefit from 

such transition activities.341 In 

response, some companies are already 

providing disclosure of the impact of 

transition-related activities on their 

financial statements and some have 

publicly made commitments related to 

this transition.342 In light of these 

transition risks, the proposed rules 

would also require a registrant to 

disclose the financial impact of the 

impact of any identified transition risks 

and any efforts to reduce GHG 

emissions or otherwise mitigate 

exposure to transition risks 

(collectively, ‘‘transition activities’’) on 

any relevant line items in the 

registrant’s consolidated financial 

statements during the fiscal years 

presented.343

A registrant may also disclose the 

impact of any opportunities arising from 

severe weather events and other natural 

conditions, any impact of efforts to 

pursue climate-related opportunities 

associated with transition activities, and 

the impact of any other climate-related 

opportunities, including those 

identified by the registrant pursuant to 

proposed Item 1502(a), on any of the 

financial statement metrics.344 If a 

registrant makes a policy decision to 

disclose the impact of a climate-related 

opportunity on the proposed financial 

statement metrics, it must do so 

consistently (e.g., for each fiscal year 

presented in the consolidated financial 

statements, for each financial statement 

line item, for all relevant opportunities 

identified by the registrant) and must 

follow the same presentation and 

disclosure threshold requirements 

applicable to the required disclosures 

related to financial impact metrics and 

expenditure metrics, as discussed 

below.345

The financial impact metric 

disclosure requirements in proposed 

Rules 14–02(c), (d), and (i) would 

require a registrant to disclose the 

financial impacts of severe weather 

events, other natural conditions, 

transition activities, and identified 

climate-related risks on the consolidated 

financial statements included in the 

relevant filing unless the aggregated 

impact of the severe weather events, 

other natural conditions, transition 

activities, and identified climate-related 

risks is less than one percent of the total 

line item for the relevant fiscal year.346

The proposed threshold would provide 

a bright-line standard for registrants and 

should reduce the risk of underreporting 

such information. The proposed 

quantitative threshold could also 

promote comparability and consistency 

among a registrant’s filings over time 

and among different registrants 

compared to a principles-based 

approach. The Commission has used 

similar one percent thresholds in other 

contexts.347 More generally, in addition 

to the approach in Article 5 of 

Regulation S–X discussed below, other 

rules such as 17 CFR 229.103 and 17 

CFR 229.404 use quantitative disclosure 

thresholds to facilitate comparability, 

consistency, and clarity in determining 

when information must be disclosed.348

A registrant would be required to 

determine the impacts of the severe 

weather events, other natural 

conditions, transition activities, and 

identified climate-related risks 

described above on each consolidated 

financial statement line item.349 Within 

each category (i.e., climate-related 

events or transition activities), impacts 

would, at a minimum, be required to be 

disclosed on an aggregated, line-by-line 

basis for all negative impacts and, 

separately, on an aggregated, line-byline basis for all positive impacts.350

However, for purposes of determining 

whether the disclosure threshold has 

been met, a registrant would be required 

to aggregate the absolute value of the 

positive and negative impacts on a lineby-line basis, which we believe would 

better reflect the significance of the 

impact of the climate-related events and 

transition activities on a registrant’s 

financial performance and position.351

For example, when evaluating the 

line-by-line impact, a registrant may 

determine that its cost of revenue is 

impacted by Events A, B, and C, and 

Transition Activity D in the following 

manner: 

• Cost of revenue was impacted 

negatively by Events A and B by 

$300,000, driven by increased input 

costs impacted by severe weather events 

that strained the registrant’s main 

supplier; 

• Cost of revenue was impacted 

positively by Event C by $70,000, driven 

by technology that improved the 

registrant’s ability to manage the impact 

of severe heat on certain raw materials, 

which resulted in more efficient 

production; and 

• Cost of revenue was impacted 

positively by Transition Activity D, 

which reduced production costs for 

certain products by $90,000 through 

advanced technology that improved 

energy efficiency during the production 

process.352


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353The examples below, like all of the examples 

in this release (including examples in the text of the 

proposed rules), are non-exclusive and should not 

be interpreted as a checklist for compliance with 

any proposed rule. 

354See proposed 17 CFR 210.14–02(c)(1) through 

(4). 

355See proposed 17 CFR 210.14–02(d)(1) through 

(4). 

356See, e.g., letters from Americans for Financial 

Reform Education Fund et al.; BlackRock; CalPERS; 

Ceres; Climate Accounting Project; Climate 

Governance Initiative; Eni SpA; Friends of the 

Earth, Amazon Watch and RainForest Coalition; 

Initiative on Climate Risk and Resilience Law; 

International Corporate Governance Network; 

Investment Company Institute; Natural Resources 

Defense Council; Policy Working Group; Sens. 

Brian Schatz and Sheldon Whitehouse (June 10, 

2021); Ted Atwood; The Forum for Sustainable and 

Responsible Investment; The Revolving Door 

Project; The Washington State Investment Board; 

UNEP—FI; Union of Concerned Scientists; and 

WBCSD. 

357See letter from Bloomberg. 358See, e.g., letters from the American Fuel 

Petrochemical Manufacturers (June 13, 2021); 

Environmental Bankers Association; Heritage 

Foundation; National Mining Association (June 11, 

2021); Society for Mining, Metallurgy, & 

Exploration (June 13, 2021); and The Associated 

General Contractors of America. 

For purposes of determining whether 

the impacts from the example above 

would trigger the disclosure threshold 

requirements, the registrant would 

perform the analysis illustrated in the 

following table: 

F/S line-item 

F/S balance 

(from 

consolidated 

financial 

statements) 

Impact of 

events 

A and B 

Impact of 

event C 

Impact of 

transition 

activity D 

Absolute value 

of impacts 

Percentage 

impact 

Cost of revenue ....................................... $10,000,000 ¥$300,000 +$70,000 +$90,000 $460,000 4.6% 

Although some of the impacts (e.g., 

impact of Event C, impact of Transition 

Activity D) do not individually meet the 

one percent threshold, the absolute 

value of the aggregated impacts from the 

events and transition activities on the 

line item in the above example is 

$460,000 and thus exceeds one percent 

of the corresponding line-item 

threshold; therefore, disclosure for that 

specific line item would be required. 

The registrant’s disclosure of such 

impacts may be provided, for example, 

as illustrated in the following table 

(excluding disclosure of contextual 

information): 

Note X. Climate-related financial 

metrics: 

F/S line-item 

Total 

negative impact from 

climate-related events 

Total 

positive impact from 

climate-related events 

Total negative 

impact from 

climate-related 

transition 

activities 

Total positive 

impact from 

climate-related 

transition activities 

and climate-related 

opportunities * 

Cost of revenue ................................................... (Debit) $300,000 .......... (Credit) $70,000 ........... ........................ (Credit) $90,000 

* As discussed earlier, a registrant may elect to include the impact of climate-related opportunities when calculating its climate-related financial 

impact metrics. This example illustrates a situation where the registrant has elected to include impacts from transition opportunities. 

In this example, contextual 

information may include disclosure 

such as the registrant’s election to 

include the impact from opportunities 

in its disclosure analysis and 

calculation, the specific events that 

were aggregated for purposes of 

determining the impact on the cost of 

revenue and, if applicable, a discussion 

of the estimation methodology used to 

disaggregate the amount of impact on 

the cost of revenue between the climaterelated events, transition activities, and 

other factors. 

To provide additional clarity, the 

proposed rule would include the 

following examples of disclosures that 

may be required to reflect the impact of 

the severe weather events and other 

natural conditions on each line item of 

the registrant’s consolidated financial 

statements (e.g., line items of the 

consolidated income statement, balance 

sheet, or cash flow statement): 353

• Changes to revenue or costs from 

disruptions to business operations or 

supply chains; 

• Impairment charges and changes to 

the carrying amount of assets (such as 

inventory, intangibles, and property, 

plant and equipment) due to the assets 

being exposed to severe weather, 

flooding, drought, wildfires, extreme 

temperatures, and sea level rise; 

• Changes to loss contingencies or 

reserves (such as environmental 

reserves or loan loss allowances) due to 

impact from severe weather events; and 

• Changes to total expected insured 

losses due to flooding or wildfire 

patterns.354

With respect to the financial impacts 

of transition activities, the proposed 

rule would include the following 

examples of potential impacts: 

• Changes to revenue or cost due to 

new emissions pricing or regulations 

resulting in the loss of a sales contract; 

• Changes to operating, investing, or 

financing cash flow from changes in 

upstream costs, such as transportation 

of raw materials; 

• Changes to the carrying amount of 

assets (such as intangibles and property, 

plant, and equipment), for example, due 

to a reduction of the asset’s useful life 

or a change in the asset’s salvage value 

by being exposed to transition activities; 

and 

• Changes to interest expense driven 

by financing instruments such as 

climate-linked bonds issued where the 

interest rate increases if certain climaterelated targets are not met.355

Many commenters stated that climaterelated financial disclosure is material 

and should be reflected separately in the 

financial statements.356 For example, 

one commenter stated that it is critical 

to investors and others in assessing a 

company’s risk profile, estimating its 

risk-adjusted returns, and completing 

other relevant financial analyses to 

include information on how climaterelated risks and climate-related 

opportunities may affect companies’ 

income statements, cash flow 

statements, and balance sheets.357

Other commenters, however, 

generally expressed the view that if 

such disclosures are material, they 

would already be required by existing 

financial statement disclosure 

requirements.358 For example, some of 

these commenters stated that they 

opposed new climate-specific disclosure 

rules because, in their view, the 

traditional concept of materiality 

already requires the disclosure of 

climate-related impacts that materially 


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359See letters from American Fuel Petrochemical 

Manufacturers; Environmental Bankers Association; 

and The Associated General Contractors of 

America. 

360Certain commenters, in response to FASB’s 

2021 Agenda Consultation, were also supportive of 

more disaggregated disclosures within the financial 

statements. See, e.g., letters from CalPERS (Sept. 22, 

2021); CFA Institute (Oct. 7, 2021); and CII (Sept. 

16, 2021). Comment letters in response to FASB’s 

invitation to comment are available at https://

www.fasb.org/jsp/FASB/CommentLetter_C/ 

CommentLetterPage&cid=1218220137090&project_

id=2021-004&page_number=1. 

361See, e.g., Madison Condon, Market Myopia’s 

Climate Bubble, 2022 Utah L. Rev. 63 (2021). See 

also 2020 CFTC Advisory Subcommittee Report 

(‘‘Climate change is expected to affect multiple 

sectors, geographies, and assets in the United 

States, sometimes simultaneously and within a 

relatively short timeframe. As mentioned earlier, 

transition and physical risks—as well as climate 

and non-climate-related risks—could interact with 

each other, amplifying shocks and stresses. This 

raises the prospect of spillovers that could disrupt 

multiple parts of the financial system 

simultaneously.’’). 

362The analogies presented are not intended to 

imply that FASB ASC Topic 280, IFRS 8 or other 

concepts would have to be applied when 

accounting for and disclosing the climate-related 

financial statement metrics. The analogies are also 

not intended to imply that the determination of 

when disclosure may be required and how that 

determination is made is the same across all of 

these concepts. See, e.g., infra note 363 (discussing 

management’s evaluation under FASB ASC Topic 

280 Segment Reporting and IFRS 8 Operating 

Segments) and the discussion below of FASB ASC 

Topic 606, IFRS 15, and Article 5 of Regulation 

S–X. 

363See FASB ASC Topic 280 Segment Reporting 

and IFRS 8 Operating Segments (requiring segment 

reporting disclosures to be included in the audited 

financial statements). FASB ASC 280–10–10–1 

states that the objective of segment reporting is to 

provide information about the different types of 

business activities in which a registrant engages and 

the different economic environments in which it 

operates to help users of financial statements: (i) 

Better understand the public entity’s performance; 

(ii) better assess its prospects for future net cash 

flows; and (iii) make more informed judgments 

about the public entity as a whole. FASB ASC 

Topic 280 and IFRS 8 focus on the chief operating 

decision maker’s view when evaluating the 

registrant and prescribes certain qualitative and 

quantitative considerations when determining what 

constitutes an operating segment. Similarly, the 

proposed rule would require an initial 

determination by the registrant of the relevant 

climate-related events and transition activities, and 

their impact on the registrant’s financial statements. 

364See Industry and Homogenous Geographic 

Segment Reporting, Release No. 33–6514 (Feb. 15, 

1984) [49 FR 6737–01 (Feb. 23, 1984)], at 6738. 

Robust segment reporting disclosures are important 

as they can provide crucial transparency to 

investors that are reviewing financial statements. 

See also Gary Buesser, For the Investor: Segment 

Reporting, FASB OUTLOOK (Apr. 2019) 

(‘‘[I]nvestors normally model a company at the 

segment level rather than at the consolidated level. 

More segments and greater information about an 

operating segment improve an analyst’s ability to 

forecast a company’s revenue, margins and assets— 

which serves as the basis for valuing a company.’’). 

365See supra note 347 for examples of the 

Commission’s use of a 1% threshold in other 

contexts. 

affect the issuer’s financial condition 

and results of operations.359

Although we agree that registrants are 

currently required to disclose material 

financial impacts on the financial 

statements, the proposed climate-related 

financial statement metrics should 

provide additional transparency into the 

impact of climate-related events on 

information reported in the financial 

statements that would be relevant to 

investors when making investment or 

voting decisions.360 Such disclosure 

would also provide investors with 

additional insights into the nature of a 

registrant’s business, the 

implementation of the registrant’s 

targets and goals, and material trends in 

climate-related impacts. Furthermore, 

separately stating the financial 

statement impacts from the climaterelated events and transition activities 

could improve comparability across 

both the registrant’s year-to-year 

disclosures and the disclosures of 

different registrants. 

We further note that the proposed 

requirement to separately disclose the 

financial impacts of the climate-related 

events and transition activities may be 

necessary not only because climaterelated risks may have significant 

impacts on individual registrants, but 

also because the risks presented by the 

climate-related events and transition 

activities may be correlated across 

different, similarly situated 

registrants.361 Climate-related risks 

present the potential for a high 

correlation and therefore concentration 

of risk within a portfolio. Separate 

disclosure of climate-related risks could 

help to provide investors with 

information to help them more 

effectively evaluate their portfolio risk. 

In this regard, we note that an analogous 

approach to disaggregated, or separately 

stated, disclosure has been taken in 

other contexts within the financial 

statements and elsewhere.362 For 

example, in segment reporting, a 

registrant must present within its 

consolidated financial statements a 

separate presentation of certain 

financial statement line items for each 

segment.363 The Commission has noted 

the importance of disaggregated 

disclosure in the segment reporting 

context, stating that it ‘‘has long been 

aware of the importance of meaningful 

segment information to reasoned 

investment decision-making.’’ 364

The importance of disaggregated 

disclosure in a registrant’s financial 

statements is also supported by the 

concepts set forth in FASB ASC Topic 

606 Revenue from Contracts with 

Customers and IFRS 15 Revenue from 

Contracts with Customers, which 

require, among other things, disclosure 

of disaggregated revenue recognized 

from contracts with customers into 

categories that depict how the nature, 

amount, timing, and uncertainty of 

revenue and cash flows are affected by 

economic factors. As noted earlier, the 

Commission also requires 

disaggregation of certain financial 

statement line items in Article 5 of 

Regulation S–X. Specifically, Article 5 

requires separate disclosures of specific 

balance sheet and income statement line 

items when practicable or when certain 

percentage thresholds are met, 

depending on the nature of the 

information.365 Those conditions on 

when separate disclosure is required are 

analogous to the proposed condition 

that financial impacts result from the 

climate-related events and transition 

activities. 

Request for Comment 

59. Should we require registrants to 

disclose the financial impact metrics, as 

proposed? Would presenting climatespecific financial information on a 

separate basis based on climate-related 

events (severe weather events and other 

natural conditions and identified 

physical risks) and transition activities 

(including identified transition risks) 

elicit decision-useful or material 

information for investors? Are there 

different metrics that would result in 

disclosure of more useful information 

about the impact of climate-related risks 

and climate-related opportunities on the 

registrant’s financial performance and 

position? 

60. Would the impact from climaterelated events and transition activities 

yield decision-useful information for 

investors? Would the climate-related 

events (including the examples 

provided) and transition activities result 

in impacts that are easier to quantify or 

disaggregate than climate-related risks 

more generally? Would a registrant be 

able to quantify and provide the 

proposed disclosure when the impact 

may be the result of a mixture of factors 

(e.g., a factory shutdown due to an 

employee strike that occurs 

simultaneously with a severe weather 

event)? If there are situations where 

disaggregation would not be practicable, 

should we require a registrant to 

disclose that it was unable to make the 

required determination and why, or to 

make a reasonable estimate and provide 

disclosure about the assumptions and 

information that resulted in the 

estimate? 

61. Alternatively, should we not 

require disclosure of the impacts of 

identified climate-related risks and only 

require disclosure of impacts from 


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366See proposed 17 CFR 210.14–02(e), (f), and (i). 

367See id. These metrics are focused on 

expenditures (spending) incurred in each reported 

fiscal year(s). We therefore believe the number of 

periods of the expenditure metrics should 

correspond to the number of years of income 

statement or cash flow statement presented in the 

consolidated financial statements. 

368See id. 

369See proposed 17 CFR 210.14–02(j). 

370See 17 CFR 210.4–01(a)(1) and (2). 

severe weather events and other natural 

conditions? Should we require a 

registrant to disclose the impact on its 

consolidated financial statements of 

only certain examples of severe weather 

events and other natural conditions? If 

so, should we specify which severe 

weather events and other natural 

conditions the registrant must include? 

Would requiring disclosure of the 

impact of a smaller subset of climaterelated risks be easier for a registrant to 

quantify without sacrificing information 

that would be material to investors? 

62. Should impact from climaterelated opportunities be required, 

instead of optional, as proposed? We are 

proposing to require a registrant that 

elects to disclose the impact of an 

opportunity to do so consistently (e.g., 

for each fiscal year presented in the 

consolidated financial statements, for 

each financial statement line item, and 

for all relevant opportunities identified 

by the registrant). Are there any other 

requirements that we should include to 

enhance consistency? Should we only 

require consistency between the first 

fiscal period in which opportunities 

were disclosed and subsequent periods? 

63. Is it clear which climate-related 

events would be covered by ‘‘severe 

weather events and other natural 

conditions’’? If not, should we provide 

additional guidance or examples about 

what events would be covered? Should 

we clarify that what is considered 

‘‘severe weather’’ in one region may 

differ from another region? For example, 

high levels of rainfall may be considered 

‘‘severe weather’’ in a typically arid 

region. 

64. Are the proposed requirements for 

calculating and presenting the financial 

impact metrics clear? Should the 

analysis be performed and disclosed in 

a manner other than on a line-by-line 

basis referring to the line items of the 

registrant’s consolidated financial 

statements? 

65. We are proposing to allow a 

registrant to aggregate the absolute value 

of negative and positive impacts of all 

climate-related events and, separately, 

transition activities on a financial 

statement line item. Should we instead 

require separate quantitative disclosure 

of the impact of each climate-related 

event or transition activity? Should we 

require separate disclosure of the impact 

of climate-related opportunities that a 

registrant chooses to disclose? 

66. The proposed financial impact 

metrics would not require disclosure if 

the absolute value of the total impact is 

less than one percent of the total line 

item for the relevant fiscal year. Is the 

proposed threshold appropriate? Should 

we use a different percentage threshold 

(e.g., three percent, five percent) or use 

a dollar threshold (e.g., less than or 

greater than $1 million)? Should we use 

a combination of a percentage threshold 

and a dollar threshold? Should we only 

require disclosure when the financial 

impact exceeds the threshold, as 

proposed, or should we also require a 

determination of whether an impact that 

falls below the proposed quantitative 

threshold would be material and should 

be disclosed? 

67. For purposes of determining 

whether the disclosure threshold has 

been met, should impacts on a line item 

from climate-related events and 

transition activities be permitted to 

offset (netting of positive and negative 

impacts), instead of aggregating on an 

absolute value basis as proposed? 

Should we prescribe how to analyze 

positive and negative impacts on a line 

item resulting from the same climaterelated event or the same transition 

activity (e.g., whether or not netting is 

permitted at an event or activity level)? 

Should we permit registrants to 

determine whether or not to offset as a 

policy decision (netting of the positive 

and negative impact within an event or 

activity) and provide relevant 

contextual information? Should we 

require the disclosure threshold to be 

calculated separately for the climaterelated events and transition activities, 

rather than requiring all of the impacts 

to be aggregated as proposed? 

68. Instead of including a quantitative 

threshold, as proposed, should we 

require disaggregated disclosure of any 

impact of climate-related risks on a 

particular line item of the registrant’s 

consolidated financial statements? 

Alternatively, should we just use a 

materiality standard? 

69. Should we require a registrant to 

disclose changes to the cost of capital 

resulting from the climate-related 

events? If so, should we require a 

registrant to disclose its weighted 

average cost of capital or any internal 

cost of capital metrics? Would such 

disclosure elicit decision-useful or 

material information for investors? 

70. We have not proposed defining 

the term ‘‘upstream costs’’ as used in the 

proposed examples for the financial 

impact metrics and elsewhere. Should 

we define that term or any others? If so, 

how should we define them? 

71. Are the proposed examples in the 

financial impact metrics helpful for 

understanding the types of disclosure 

that would be required? Should we 

provide different or additional examples 

or guidance? 

3. Expenditure Metrics 

The proposed expenditure metrics 

would refer to the positive and negative 

impacts associated with the same 

climate-related events, transition 

activities, and identified climate-related 

risks as the proposed financial impact 

metrics.366 As proposed, the 

expenditure metrics would require a 

registrant to separately aggregate 

amounts of (i) expenditure expensed 

and (ii) capitalized costs incurred 

during the fiscal years presented.367 For 

each of those categories, a registrant 

would be required to disclose separately 

the amount incurred during the fiscal 

years presented (i) toward positive and 

negative impacts associated with the 

climate-related events (i.e., severe 

weather events and other natural 

conditions and identified physical risks) 

and (ii) toward transition activities, 

specifically, to reduce GHG emissions or 

otherwise mitigate exposure to 

transition risks (including identified 

transition risks).368 The registrant may 

also choose to disclose the impact of 

efforts to pursue climate-related 

opportunities associated with transition 

activities.369 As discussed above, if a 

registrant elects to disclose the impact 

of an opportunity, it must do so 

consistently and must follow the same 

presentation and disclosure threshold 

requirements applicable to the required 

disclosures of expenditure metrics 

associated with transition risks. The 

amount of expenditure disclosed 

pursuant to the proposed metrics would 

be a portion, if not all, of the registrant’s 

total recorded expenditure (expensed or 

capitalized), as calculated pursuant to 

the accounting principles applicable to 

the registrant’s financial statements.370

The proposed expenditure metrics 

would be subject to the same disclosure 

threshold as the financial impact 

metrics, which we believe would 

promote comparability, consistency, 

and clarity in determining when 

information must be disclosed. For 

purposes of calculating the disclosure 

threshold for the expenditure metrics, a 

registrant would be permitted to 

separately determine the amount of 

expenditure expensed and the amount 

of expenditure capitalized; however, a 

registrant would be required to 


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371See proposed 17 CFR 210.14–02(e). 

372See proposed 17 CFR 210.14–02(f). 

373See, e.g., letters from Amalgamated Bank; 

Interfaith Center on Corporate Responsibility; and 

Natural Resources Defense Council. 

374See, e.g., letters from Calvert; Climate Risk 

Disclosure Lab; and World Benchmarking Alliance. 

aggregate expenditure related to climaterelated events and transition activities 

within the categories of expenditure 

(i.e., amount capitalized and amount 

expensed). This approach should better 

reflect the significance of climaterelated expenditure compared to a 

calculation approach that would allow 

for a disclosure threshold to be 

measured at the individual event or 

activity level, which may result in more 

limited disclosures. 

For example, assume a registrant 

capitalized $200,000 of expenditure 

incurred related to Event D and 

capitalized another $100,000 of 

expenditure incurred related to Activity 

E. The registrant also expensed $25,000 

of expenditure incurred related to Event 

F (which is an identified transition risk 

disclosed by the registrant). The 

registrant would determine whether the 

impacts would trigger the disclosure 

requirements based on the proposed 

thresholds, as illustrated below: 

Expenditure category 

Current fiscal 

year balances 

(from 

consolidated 

financial 

statements) * 

Event D Activity E Event F Percentage 

impact 

Capitalized costs (total expenditure incurred during the 

year that was capitalized) ................................................ $8,000,000 $200,000 $100,000 ........................ ** 3.85% 

Expense (total expenditure incurred during the year that 

was expensed) ................................................................. $3,000,000 ........................ ........................ $25,000 0.8% 

* As expenditures capitalized and expensed are recorded in various financial statement line items, we expect the ‘‘total’’ to be used for disclosure threshold calculation purposes for each category to represent the aggregated expenditures capitalized during the fiscal year and aggregated 

expenditures expensed during the fiscal year. See below for additional discussion regarding associated contextual information that may be required. 

** Calculated based on total impact on capitalized costs from Event D ($200,000), Activity E ($100,000), and Event F ($0): $300,000/ 

$8,000,000. 

In the above example, the expenditure 

incurred toward Event D was $200,000 

(capitalized) and the expenditure 

incurred toward Activity E and Event F 

were $100,000 (capitalized) and $25,000 

(expensed). The amount of capitalized 

costs equaled the proposed one percent 

threshold, and thus the disclosure 

would be required for that category of 

expenditure. No disclosure would be 

required for the expenditure incurred 

that was expensed (related to Event F in 

this example), because it was below the 

one percent threshold. The registrant’s 

resulting disclosure of such expenditure 

(capitalized or expensed) may be 

provided, for example, as illustrated in 

the following table (excluding 

disclosure of contextual information): 

Note X. Climate-related financial 

metrics: 

Expenditure 

incurred for 

climate-related 

events 

Expenditure 

incurred for 

climate-related 

transition 

activities 

Capitalized costs .......................................................................................................................................... $200,000 $100,000 

In this example, contextual 

information may include disclosure 

such as the specific climate-related 

events and transition activities that were 

aggregated for purposes of determining 

the impacts on the capitalized or 

expensed expenditure amounts and, if 

applicable, policy decisions made by a 

registrant to determine the amount of 

climate-related events or transition 

activities that are categorized as 

expenditure capitalized versus 

expenditure expensed or whether 

impact from pursuing any climaterelated opportunities are included in the 

analysis. Contextual information may 

also include a discussion of the 

composition of the total expenditure 

expensed and total expenditure 

capitalized, which were used to 

calculate whether the disclosure 

threshold was met, and, if applicable, a 

discussion of the estimation 

methodology used to disaggregate the 

amount of impact between the climaterelated events, transition activities, and 

other factors, including if an event or an 

activity impacted both capitalized and 

expensed costs. 

The proposed rules would clarify that 

a registrant may be required to disclose 

the amount of expenditure expensed or 

capitalized costs, as applicable, incurred 

for the climate-related events to increase 

the resilience of assets or operations, 

retire or shorten the estimated useful 

lives of impacted assets, relocate assets 

or operations at risk, or otherwise 

reduce the future impact of severe 

weather events and other natural 

conditions on business operations.371

The proposed rules would also clarify 

that a registrant may be required to 

disclose the amount of expenditure 

expensed or capitalized costs, as 

applicable, incurred for climate-related 

transition activities related to research 

and development of new technologies, 

purchase of assets, infrastructure, or 

products that are intended to reduce 

GHG emissions, increase energy 

efficiency, offset emissions (purchase of 

energy credits), or improve other 

resource efficiency.372

Several commenters recommended 

taking a similar approach, stating that 

we should require disclosure of climaterelated capital expenditure (i.e., 

capitalized assets),373 or both climaterelated expenses and capitalized 

assets.374 Consistent with these 

comments, and for similar reasons to 

those stated above with respect to the 

financial impact metrics, separate 

disclosure of total expense and total 

capitalized costs incurred toward the 

climate-related events and transition 

activities should provide important 


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375See supra Section II.C, which discusses our 

proposals to require the registrant to describe the 

actual and potential impacts of the identified 

climate-related risks (and climate-related 

opportunities if the registrant elects to do so) on its 

strategy, business model, and outlook. Further, such 

disclosure could also provide additional context to 

other narrative disclosures such as the discussion 

of risk factors required by 17 CFR 229.105. 

376See proposed 17 CFR 210.14–02(g) and (i). 

377See proposed 17 CFR 210.14–02(h) and (i). 

378See proposed 17 CFR 210.14–02(j). 

information to help investors make 

better informed investment or voting 

decisions. Moreover, the financial 

impacts of expenditure typically appear 

in different places within the financial 

statements (e.g., in an asset line item(s) 

on the balance sheet or in an expense 

line item(s) in the income statement). 

The proposed approach is intended to 

address this dispersed presentation by 

requiring registrants to first identify the 

relevant climate-related expenditures 

and then compile those impacts in one 

location. Similar to the proposed 

financial impact metrics, such an 

approach should provide insight into, 

and context for understanding, the 

nature of a registrant’s business, 

including any disclosed strategy for 

addressing and managing the specified 

risks—particularly in the context of 

transition planning.375

Request for Comment 

72. Should we require registrants to 

disclose the expenditure metrics, as 

proposed? Would presenting the 

expenditure metrics separately in one 

location provide decision-useful 

information to investors? Is there a 

different type of metric that would 

result in more useful disclosure of the 

expense or capitalized costs incurred 

toward climate-related events and 

transition activities or toward climaterelated risks more generally? 

73. Would the disclosure required by 

the expenditure metrics overlap with 

the disclosure required by the financial 

impact metrics? If so, should we require 

the disclosure to be provided pursuant 

to only one of these types of metrics? 

74. Should the same climate-related 

events (including severe weather events 

and other natural conditions and 

identified physical risks) and transition 

activities (including identified 

transition risks) that we are proposing to 

use for the financial impact metrics 

apply to the expenditure metrics, as 

proposed? Alternatively, should we not 

require a registrant to disclose 

expenditure incurred towards identified 

climate-related risks and only require 

disclosure of expenditure relating to 

severe weather events and other natural 

conditions? Should we require a 

registrant to disclose the expenditure 

incurred toward only certain examples 

of severe weather events and other 

natural conditions? If so, should we 

specify which severe weather events 

and other natural conditions the 

registrant must include? Would 

requiring disclosure of the expenditure 

relating to a smaller subset of climaterelated risks be easier for a registrant to 

quantify without sacrificing information 

that would be material to investors? 

75. Should the proposed rules instead 

require a registrant to disclose the 

aggregate amounts of expensed and 

capitalized costs incurred toward any 

climate-related risks? Should 

expenditures incurred towards climaterelated opportunities be optional based 

on a registrant’s election to disclose 

such opportunities, as proposed? 

76. Should we apply the same 

disclosure threshold to the expenditure 

metrics and the financial impact 

metrics? Is the proposed threshold for 

expenditure metrics appropriate? 

Should we use a different percentage 

threshold (e.g., three percent, five 

percent) or use a dollar threshold (e.g., 

less than or greater than $1 million)? 

Should we use a combination of a 

percentage threshold and a dollar 

threshold? Should we only require 

disclosure when the amount of climaterelated expenditure exceeds the 

threshold, as proposed, or should we 

also require a determination of whether 

an amount of expenditure that falls 

below the proposed quantitative 

threshold would be material and should 

be disclosed? Should we require 

separate aggregation of the amount of 

expense and capitalized costs for 

purposes of the threshold, as proposed? 

Should we require separate aggregation 

of expenditure relating to the climaterelated events and transition activities, 

as proposed? 

77. Instead of including a quantitative 

threshold, as proposed, should we 

require disaggregated disclosure of any 

amount of expense and capitalized costs 

incurred toward the climate-related 

events and transition activities, during 

the periods presented? Alternatively, 

should we just use a materiality 

standard? 

78. Are the proposed requirements for 

calculating and presenting the 

expenditure metrics clear? Should the 

analysis be performed and disclosed in 

a different manner, other than 

separately based on capitalized costs 

and amount of expenditure expensed 

and separately based on the climaterelated events and transition activities? 

Should disclosure of expenditure 

incurred be required for both the 

amount of capitalized costs and the 

amount of expenditure expensed if only 

one of the two types of expenditure 

meets the disclosure threshold? Should 

we require separate disclosure of 

expenditure incurred toward each 

climate-related event and transition 

activity? 

79. The proposed rule does not 

specifically address expensed or 

capitalized costs that are partially 

incurred towards the climate-related 

events and transition activities (e.g., the 

expenditure relates to research and 

development expenses that are meant to 

address both the risks associated with 

the climate-related events and other 

risks). Should we prescribe a particular 

approach to disclosure in such 

situations? Should we require a 

registrant to provide a reasonable 

estimate of the amount of expense or 

capitalized costs incurred toward the 

climate-related events and transition 

activities and to provide disclosure 

about the assumptions and information 

that resulted in the estimate? 

80. Are the proposed terms and 

examples used in the expenditure 

metrics helpful for understanding the 

types of disclosures that would be 

required? Should we provide different 

or additional examples? 

4. Financial Estimates and Assumptions 

The proposed rules would require a 

registrant to disclose whether the 

estimates and assumptions used to 

produce the consolidated financial 

statements were impacted by exposures 

to risks and uncertainties associated 

with, or known impacts from, climaterelated events (including identified 

physical risks and severe weather events 

and other natural conditions), such as 

flooding, drought, wildfires, extreme 

temperatures, sea level rise.376 If so, the 

registrant would be required to provide 

a qualitative description of how such 

events have impacted the development 

of the estimates and assumptions used 

by the registrant in the preparation of 

such financial statements. Similar to the 

other proposed financial statement 

metrics, the proposed rules would 

include a provision that would require 

separate disclosure focused on 

transition activities (including 

identified transition risks).377 Further, if 

a registrant elects to disclose the impact 

of an opportunity on its financial 

estimates and assumptions, it must do 

so consistently and must follow the 

same presentation and disclosure 

requirements applicable to the required 

disclosures herein.378

If the estimates and assumptions a 

registrant used to produce the 

consolidated financial statements were 


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379See proposed 17 CFR 229.1506. 

380See FASB Staff Educational Paper, 

Intersection of Environmental, Social and 

Governance Matters with Financial Accounting 

Standards (Mar. 2021), available at https://fasb.org/ 

jsp/FASB/Document_C/DocumentPage&

cid=1176176379917. See also IFRS, Effects of 

climate-related matters on financial statements 

(Nov. 2020), available at https://www.ifrs.org/ 

content/dam/ifrs/supporting-implementation/ 

documents/effects-of-climate-related-matters-onfinancial-statements.pdf#:∼:text=IFRS

%20Standards%20do%20not%20refer

%explicitly%20to%20climaterelated,significant%20judgements%20and

%20estimates%20that%20%20has%20made. We 

also remind registrants of the requirements under 

FASB ASC Topic 250–10–50–4 for disclosures of 

changes in accounting estimates, including the 

requirement that if a change in estimate does not 

have a material effect in the period of change, but 

is reasonably certain to have a material effect in 

later periods, a description of that change in 

estimate must be disclosed whenever the financial 

statements of the period of change are presented. 

381See letter from Carbon Tracker (stating that 

some companies in the European Union and United 

Kingdom (several of which are registrants) are 

already providing this information and providing 

examples). 

382See, e.g., letters from Carbon Tracker; Climate 

Accounting Project; ICCR; and Institute for Policy 

Integrity, Environmental Defense Fund, Initiative 

on Climate Risk & Resilience Law. 

383See letter from Carbon Tracker. 

384See letter from ICCR. 

impacted by risks and uncertainties 

associated with, or known impacts from, 

a potential transition to a lower carbon 

economy or any climate-related targets 

it has disclosed, the registrant would be 

required to provide a qualitative 

description of how the development of 

the estimates and assumptions were 

impacted by such a potential transition 

or the registrant’s disclosed climaterelated targets. 

Estimates and assumptions are 

currently required for accounting and 

financial reporting purposes (e.g., 

projected financial information used in 

impairment calculations, estimated loss 

contingencies, estimated credit risks, 

commodity price assumptions, etc.). 

The proposed disclosures could provide 

decision-useful information and 

transparency to investors about the 

impact of the climate-related events and 

transition activities, including disclosed 

targets and goals,379 on such estimates 

and assumptions. Moreover, in addition 

to providing insight into impacts on the 

registrant’s financial statements, such 

disclosure could allow investors to 

evaluate the reasonableness of the 

registrant’s estimates and assumptions, 

which are used to prepare the 

registrant’s financial statements. 

Although current accounting standards 

require registrants to consider how 

climate-related matters may intersect 

with and affect the financial statements, 

including their impact on estimates and 

assumptions,380 the nature of the 

climate-related events and transition 

activities discussed in the proposed 

rules, which may manifest over a longer 

time horizon, necessitate targeted 

disclosure requirements to elicit 

decision-useful information for 

investors in a consistent manner. We 

also note that some registrants have 

already provided disclosure along the 

lines of the proposed requirements, 

which lends support to the feasibility of 

making such disclosures.381

By way of example, the proposed 

climate-related events and impacts 

relating to a transition away from 

greenhouse gas producing products and 

activities could affect a registrant’s asset 

values and may result in asset 

impairments. The effect on asset values 

and the resulting impairments could, in 

turn, affect a registrant’s assumptions 

when calculating depreciation expenses 

or asset retirement obligations 

associated with the retirement of 

tangible, long-lived assets. Providing 

related disclosure could help an 

investor understand if a registrant 

would be responsible for removing 

equipment or cleaning up hazardous 

materials sooner than originally planned 

due to a severe weather event. Similarly, 

a registrant’s climate-related targets and 

related commitments, such as a 

commitment to achieve net-zero 

emissions by 2040, may impact certain 

accounting estimates and assumptions. 

For example, if a registrant announced 

a commitment that would require 

decommissioning an asset by a target 

year, then the registrant’s depreciation 

expense should reflect alignment with 

that commitment. If the registrant 

believes it can execute a strategy that 

would allow it to meet the commitment 

and continue to operate the asset past 

the target date, then the proposed 

disclosure requirement could facilitate 

an investor’s understanding and own 

assessment of the feasibility of that 

strategy. Other financial statement 

estimates and assumptions that may 

require disclosure pursuant to the 

proposed rules may include those 

related to the estimated salvage value of 

certain assets, estimated useful life of 

certain assets, projected financial 

information used in impairment 

calculations, estimated loss 

contingencies, estimated reserves (such 

as environmental reserve or loan loss 

allowances), estimated credit risks, fair 

value measurement of certain assets, 

and commodity price assumptions. 

Several commenters stated that it was 

important to provide investors with an 

understanding of how climate-related 

events and activities are considered 

when a registrant develops the 

assumptions and estimates used to 

prepare its financial statements.382 In 

particular, one commenter stated that 

investors may face ‘‘substantial risk’’ if 

disclosure on the impact of 

‘‘decarbonization’’ on the estimates and 

assumptions underlying asset valuations 

is not disclosed.383 Another commenter 

stated that ‘‘current corporate disclosure 

is not sufficient, is not readily available 

in existing financial disclosures, and 

does not allow investors to make 

comparable assessments of how 

companies are evaluating and 

responding to climate-related risks and 

opportunities.’’ 384

Request for Comment 

81. Should we require disclosure of 

financial estimates and assumptions 

impacted by the climate-related events 

and transition activities (including 

disclosed targets), as proposed? How 

would investors use this information? 

82. Should we instead require 

disclosure of only significant or material 

estimates and assumptions that were 

impacted by the climate-related events 

and transition activities? Alternatively, 

should we require disclosure of only 

estimates and assumptions that were 

materially impacted by the climaterelated events and transition activities? 

83. Should we instead require 

disclosure of financial estimates and 

assumptions impacts by a subset of 

climate-related events and transition 

activities, such as not requiring 

disclosure related to identified climaterelated risks or only requiring disclosure 

with respect to a subset of severe 

weather events and natural conditions? 

If so, how should the subset be defined? 

84. Should we instead utilize 

terminology and thresholds consistent 

with the critical accounting estimate 

disclosure requirement in 17 CFR 

229.303(b)(3), such as ‘‘estimates made 

in accordance with generally accepted 

accounting principles that involve a 

significant level of estimation 

uncertainty and have had or are 

reasonably likely to have a material 

impact on the financial condition or 

results of operations of the registrant’’? 

If so, should we only require disclosures 

of whether and how the climate-related 

events and transition activities impacted 

such critical accounting estimates? 

Should we require only a qualitative 

description of how the estimates and 

assumptions were impacted by the 

climate-related events and transition 

activities, as proposed? Should we 

require quantitative disclosures as well? 

If so, should we require such disclosure 


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385See supra Section II.F.2 for additional 

discussion of shared characteristics that the 

financial statement metrics have with existing 

financial statement disclosures and commenters’ 

views. 

386See proposed 17 CFR 229.1504(a). As 

discussed below, the proposed rules would also 

require a registrant to disclose its GHG emissions 

for the historical fiscal years included in its 

consolidated financial statements. 

387See, e.g., infra note 432 and accompanying 

text. 

388See, e.g., infra, note 433 and accompanying 

text. 

only if practicable or subject to another 

qualifier? 

85. Should the disclosure of financial 

estimates and assumptions impacted by 

climate-related opportunities be 

optional, as proposed? 

86. For the proposed financial 

statement metrics, should we require a 

registrant to disclose material changes 

in estimates, assumptions, or 

methodology among fiscal years and the 

reasons for those changes? If so, should 

we require the material changes 

disclosure to occur on a quarterly, or 

some other, basis? Should we require 

disclosure beyond a discussion of the 

material changes in assumptions or 

methodology and the reasons for those 

changes? Do existing required 

disclosures already elicit such 

information? What other approaches 

should we consider? 

5. Inclusion of Climate-Related Metrics 

in the Financial Statements 

The proposed financial statement 

metrics would be required in the 

financial statements, and therefore 

would be (i) included in the scope of 

any required audit of the financial 

statements in the relevant disclosure 

filing, (ii) subject to audit by an 

independent registered public 

accounting firm, and (iii) within the 

scope of the registrant’s ICFR. 

As discussed above, the proposed 

disclosures share many characteristics 

with other complex financial statement 

disclosures. The financial statement 

metrics present financial data that is 

derived from the registrant’s 

consolidated balance sheets, income 

statements, and statements of cash 

flows, and would be presented in a 

similar way to existing financial 

statement disclosures.385 Requiring 

certain climate-related information to be 

included in a note to the financial 

statements, and therefore subject to 

audit and within the scope of ICFR, 

should enhance the reliability of the 

proposed financial statement metrics. 

Request for Comment 

87. We are proposing to require the 

financial statement metrics to be 

disclosed in a note to the registrant’s 

audited financial statements. Should we 

require or permit the proposed financial 

statement metrics to be disclosed in a 

schedule to the financial statements? If 

so, should the metrics be disclosed in a 

schedule to the financial statements, 

similar to the schedules required under 

Article 12 of Regulation S–X, which 

would subject the disclosure to audit 

and ICFR requirements? Should we 

instead require the metrics to be 

disclosed as supplemental financial 

information, similar to the disclosure 

requirements under FASB ASC Topic 

932–235–50–2 for registrants that have 

significant oil- and gas-producing 

activities? If so, should such 

supplemental schedule be subject to 

assurance or ICFR requirements? 

88. Instead of requiring the financial 

statement metrics to be disclosed in a 

note to the registrant’s audited financial 

statements, should we require a new 

financial statement for such metrics? 

For example, should a ‘‘consolidated 

climate statement’’ be created in 

addition to the consolidated balance 

sheets, statements of comprehensive 

income, cash flows, and other 

traditional financial statements? Would 

including the proposed metrics in a new 

financial statement provide more clarity 

to investors given that the metrics are 

intended to follow the structure of the 

existing financial statements (including 

the line items)? What complications or 

unintended consequences may arise in 

practice if such a climate statement is 

created? 

89. Should we require the disclosure 

to be provided outside of the financial 

statements? Should we require all of the 

disclosure to be provided in the 

proposed separately captioned item in 

the specified forms? 

90. Should we require any additional 

metrics or disclosure to be included in 

the financial statements and subject to 

the auditing and ICFR requirements as 

described above? For example, should 

any of the disclosures we are proposing 

to require outside of the financial 

statements (such as GHG emissions 

metrics) be included in the financial 

statements? If so, should such metrics 

be disclosed in a note or a schedule to 

the financial statements? If in a 

schedule, should such schedule be 

similar to the schedules required under 

Article 12 of Regulation S–X and subject 

to audit and ICFR requirements? Should 

we instead require the metrics to be 

disclosed as supplemental financial 

information in a supplemental 

schedule? If so, should such 

supplemental schedule be subject to 

assurance or ICFR requirements? 

91. Under the proposed rules, PCAOB 

auditing standards would be applicable 

to the financial statement metrics that 

are included in the audited financial 

statements, consistent with the rest of 

the audited financial statements. What, 

if any, additional guidance or revisions 

to such standards would be needed in 

order to apply PCAOB auditing 

standards to the proposed financial 

statement metrics? For example, would 

guidance on how to apply existing 

requirements, such as materiality, risk 

assessment, or reporting, be needed? 

Would revisions to the auditing 

standards be necessary? What additional 

guidance or revisions would be helpful 

to auditors, preparers, audit committee 

members, investors, and other relevant 

participants in the audit and financial 

reporting process? 

92. Would it be clear that the climaterelated financial statement metrics 

would be included in the scope of the 

audit when the registrant files financial 

statements prepared in accordance with 

IFRS as issued by the IASB? Would it 

be clear that the proposed rules would 

not alter the basis of presentation of the 

financial statements as referred to in an 

auditor’s report? Should we amend 

Form 20–F, other forms, or our rules to 

clarify the scope of the audit or the basis 

of presentation in this context? For 

example, should we amend Form 20–F 

to state specifically that the scope of the 

audit must include any notes prepared 

pursuant to Article 14 of Regulation S– 

X? What are the costs for accounting 

firms to provide assurance with respect 

to the financial statement metrics? 

Would those costs decrease over time? 

G. GHG Emissions Metrics Disclosure 

1. GHG Emissions Disclosure 

Requirement 

a. Overview 

In addition to the other proposed 

climate-related disclosures, the 

proposed rules would require a 

registrant to disclose its GHG emissions 

for its most recently completed fiscal 

year.386 As institutional investors and 

other commenters have indicated, GHG 

emissions information is important to 

investment decisions for various 

reasons, including because GHG 

emissions data is quantifiable and 

comparable across industries and can be 

particularly useful in conducting a 

transition risk analysis; 387 it can be 

used to evaluate the progress in meeting 

net-zero commitments and assessing 

any associated risks; 388 and it may be 

relevant to investment or voting 

decisions because GHG emissions could 

impact the company’s access to 

financing, as well as its ability to reduce 


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389See, e.g., infra note 455 and accompanying 

text. 

390See supra note 112 and accompanying text. 

391 In addition, as discussed in Section II.G.2.d, 

the proposed rules would permit a registrant, if 

actual reported data is not reasonably available, to 

use a reasonable estimate of its GHG emissions for 

its fourth fiscal quarter, together with actual, 

determined GHG emissions data for the first three 

fiscal quarters, as long as the registrant promptly 

discloses in a subsequent filing any material 

difference between the estimate used and the 

actual, determined GHG emissions data for the 

fourth fiscal quarter. See proposed 17 CFR 

229.1504(e)(4)(i). This proposed provision should 

also help mitigate the GHG emissions compliance 

burden for registrants. 

392See proposed 17 CFR 229.1500(g). 

393 In Feb. 2013 the GHG Protocol amended the 

required greenhouse gas inventory list to align with 

the seven gases required by the Kyoto Protocol 

(consistent with the proposed definition of 

greenhouse gases). See GHG Protocol, Required 

Greenhouse Gases in Inventories: Accounting and 

Reporting Standard Amendment (Feb. 2013), 

available at https://www.ghgprotocol.org/sites/ 

default/files/ghgp/NF3-Amendment_052213.pdf. 

Nevertheless, the GHG Protocol’s Corporate 

Accounting and Reporting Standard, which was 

updated in 2015, continues to refer to only six 

greenhouse gases. We believe the common 

understanding of the GHG Protocol’s Corporate 

Accounting and Reporting Standard is that the 

earlier amendment (reflecting seven gases) applies 

despite the subsequent 2015 update to the standard. 

394See UN Framework Convention on Climate 

Change (‘‘UNFCCC’’)—Reporting requirements (last 

visited Nov. 4, 2021), available at https://

unfccc.int/process-and-meetings/transparency-andreporting/reporting-and-review-under-theconvention/greenhouse-gas-inventories-annex-iparties/reporting-requirements. The Kyoto Protocol 

is the international agreement linked to the 

UNFCCC. See also U.S. Energy Information 

Administration—Where greenhouse gases come 

from (last updated May 21, 2021), available at 

https://www.eia.gov/energyexplained/energy-andthe-environment/where-greenhouse-gases-comefrom.php; and EPA—Overview of Greenhouse Gases 

(last visited Nov. 4, 2021), available at https://

www.epa.gov/ghgemissions/overview-greenhousegases. 

395See proposed 17 CFR 229.1500(h). 

396See proposed 17 CFR 229.1500(h)(1). 

397See proposed 17 CFR 229.1500(h)(2). 

398Sources of emissions can include 

transportation, electricity production, industrial 

processes, commercial and residential use, 

agriculture, and land use changes (including 

deforestation). See, e.g., EPA, Sources of 

Greenhouse Gas Emissions, available at https://

www.epa.gov/ghgemissions/sources-greenhousegas-emissions.). 

399See proposed 17 CFR 229.1500(p). 

400See proposed 17 CFR 229.1500(q). 

401See proposed 17 CFR 229.1500(r). 

402See supra note 113. The EPA requires the 

disclosure of direct GHG emissions primarily from 

large industrial sources as well as emissions from 

fuel and industrial gas suppliers and CO2 injection 

sites in the United States. See EPA, Greenhouse Gas 

Reporting Program, available at https://

www.epa.gov/ghgreporting. 

403See proposed 17 CFR 229.1504(b)(1). We 

discuss the setting of a registrant’s organizational 

and operational boundaries in Section II.G.2. below. 

404See proposed 17 CFR 229.1504(c)(1). As 

discussed in greater detail below, for many 

companies, these emissions may be material for 

assessing the companies’ exposure to climaterelated risks, particularly transition risks, and their 

strategy to reduce their carbon footprint in the face 

of regulatory, policy, and market constraints. See 

infra Section II.G.1.b. 

its carbon footprint in the face of 

regulatory, policy, and market 

constraints.389 Thus, while the 

justifications for the proposed GHG 

emissions disclosures overlap in some 

respects with the justifications for the 

other proposed climate-related 

disclosure rules, the GHG emissions 

requirements are intended to address 

separate challenges and are supported 

by the particular justifications discussed 

in detail in the following sections. 

The proposed rules would establish 

certain requirements regarding the 

measurement and reporting of GHG 

emissions that would promote the 

comparability of such disclosure. We 

have based the proposed GHG emissions 

disclosure rules on the concept of 

scopes, which are themselves based on 

the concepts of direct and indirect 

emissions, developed by the GHG 

Protocol. We also have proposed 

definitions of Scope 1, Scope 2, and 

Scope 3 emissions that are substantially 

similar to the corresponding definitions 

provided by the GHG Protocol. 

Commenters indicated that the GHG 

Protocol has become the leading 

accounting and reporting standard for 

GHG emissions.390 By sharing certain 

basic concepts and a common 

vocabulary with the GHG Protocol, the 

proposed rules should help limit the 

compliance burden for those registrants 

that are already disclosing their GHG 

emissions pursuant to the GHG 

Protocol.391 Similarly, to the extent that 

registrants elect to follow GHG Protocol 

standards and methodologies, investors 

already familiar with the GHG Protocol 

may also benefit. 

The proposed rules would define 

‘‘greenhouse gases’’ as carbon dioxide 

(‘‘CO2’’); methane (‘‘CH4’’); nitrous oxide 

(‘‘N2O’’); nitrogen trifluoride (‘‘NF3’’); 

hydrofluorocarbons (‘‘HFCs’’); 

perfluorocarbons (‘‘PFCs’’); and sulfur 

hexafluoride (‘‘SF6’’).392 The greenhouse 

gases included in the proposed 

definition reflect the gases that are 

currently commonly referenced by 

international, scientific, and regulatory 

authorities as having significant climate 

impacts. In addition to being consistent 

with the GHG Protocol,393 the list of 

constituent greenhouse gases would be 

consistent with the gases identified by 

widely used frameworks, such as the 

Kyoto Protocol, the UN Framework 

Convention on Climate Change, the U.S. 

Energy Information Administration, and 

the EPA.394

The proposed rules would define 

GHG emissions to mean direct and 

indirect emissions of greenhouse 

gases.395 Pursuant to the proposed 

definition of GHG emissions, direct 

emissions are GHG emissions from 

sources that are owned or controlled by 

a registrant,396 whereas indirect 

emissions are GHG emissions that result 

from the activities of the registrant, but 

occur at sources not owned or 

controlled by the registrant.397 Similar 

to the GHG Protocol, the proposed rules 

would define: 398

• Scope 1 emissions as direct GHG 

emissions from operations that are 

owned or controlled by a registrant; 399

• Scope 2 emissions as indirect GHG 

emissions from the generation of 

purchased or acquired electricity, steam, 

heat, or cooling that is consumed by 

operations owned or controlled by a 

registrant; 400 and 

• Scope 3 emissions as all indirect 

GHG emissions not otherwise included 

in a registrant’s Scope 2 emissions, 

which occur in the upstream and 

downstream activities of a registrant’s 

value chain.401 Upstream emissions 

include emissions attributable to goods 

and services that the registrant acquires, 

the transportation of goods (for example, 

to the registrant), and employee 

business travel and commuting. 

Downstream emissions include the use 

of the registrant’s products, 

transportation of products (for example, 

to the registrant’s customers), end of life 

treatment of sold products, and 

investments made by the registrant. 

As previously noted, the EPA uses the 

concept of scopes, and refers to the GHG 

Protocol, when providing guidance to 

companies regarding their GHG 

emissions inventories.402 Because GHG 

emissions data compiled for the EPA’s 

own GHG emissions reporting program 

would be consistent with the GHG 

Protocol’s standards, and thus with the 

proposed rules, a registrant may use that 

data in partial fulfillment of its GHG 

emissions disclosure obligations 

pursuant to the proposed rules. 

The proposed rules would require a 

registrant to disclose its total Scope 1 

emissions separately from its total 

Scope 2 emissions after calculating 

them from all sources that are included 

in the registrant’s organizational and 

operational boundaries.403 A registrant 

would also be required to disclose 

separately its total Scope 3 emissions for 

the fiscal year if those emissions are 

material, or if it has set a GHG emissions 

reduction target or goal that includes its 

Scope 3 emissions.404 For each of its 

Scopes 1, 2, and 3 emissions, the 

proposed rules would require a 

registrant to disclose the emissions both 

disaggregated by each constituent 

greenhouse gas (e.g., by carbon dioxide 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21375 

405See proposed 17 CFR 229.1504(a)(1). 406For example, the White House has recently 

launched an initiative to reduce methane emissions 

in the United States. See the White House Office of 

Domestic Climate Policy, U.S. Methane Emissions 

Reductions Action Plan (Nov. 2021), available at 

https://www.whitehouse.gov/wp-content/uploads/ 

2021/11/US-Methane-Emissions-Reduction-ActionPlan-1.pdf. 407See id. 408The proposed rules would define global 

warming potential to mean a factor describing the 

global warming impacts of different greenhouse 

gases. It is a measure of how much energy will be 

absorbed in the atmosphere over a specified period 

of time as a result of the emission of one ton of a 

greenhouse gas, relative to the emissions of one ton 

of carbon dioxide (CO2). See proposed 17 CFR 

229.1500(f). 409See proposed 17 CFR 229.1500(d). 410See proposed 17 CFR 229.1504(a)(2). The 

proposed rules would define carbon offsets to 

represent an emissions reduction or removal of 

greenhouse gases in a manner calculated and traced 

for the purpose of offsetting an entity’s GHG 

emissions. See proposed 17 CFR 229.1500(a). 

411See GHG Protocol, Corporate Accounting and 

Reporting Standard, Chapter 9. 

412See, e.g., letters from Actual Systems, Inc.; 

Adobe Inc.; AICPA; Curt Albright (June 13, 2021); 

AllianceBernstein; Alphabet et al.; Amalgamated 

Bank; Americans for Financial Reform Education 

Fund; Andrew Behar; Apple; Ted Atwood; Baillie 

Gifford; Bank of America Corporation; BlackRock; 

Bloomberg, LP; Blueprint Financial; BNP Paribas; 

Rob Bonta, California Attorney General et al.; 

Boston Common Asset Management; BSR; CalPERS; 

CALSTRS; Calvert Research and Management; 

Carbon4 Finance (June 14, 2021); Carbon180 (June 

13, 2021); Carbon Tracker Initiative; Cardano Risk 

Management Ltd.; Carolyn Kohoot; CDP NA; Center 

for American Progress; Center for Climate and 

Energy Solutions; Center for Law and Social Policy 

and a New Deal for Youth (June 15, 2021); Ceres 

et al.; Certified B Corporations; Chevron; 

Christopher Lish; Clean Yield Asset Management; 

Climate Advisers; Climate Governance Initiative 

Climate Risk Disclosure Law and Policy Lab; 

Climate Policy Ocean Conservancy (June 14, 2021); 

Coalition on Material Emissions Transparency 

(COMET) (June 10, 2021); Confluence Philanthropy; 

Consumer Federation of America; Crake Asset 

Management (June 4, 2021); Credit Suisse (June 11, 

2021); Daniel Cain; Katherine DiMatteo; Domini 

Impact Investments LLC; Douglas Hileman 

Consulting, LLC; Dow (June 4, 2021); Dynamhex 

Inc.; Energy Infrastructure Council (June 14, 2014); 

Environmental Bankers Association; E2; E3G; ERM 

CVS; Etsy, Inc.; FAIRR Initiative; First Affirmative 

Financial Network; Regenerative Crisis Response 

Committee; the Forum for Sustainable and 

Responsible Investment; Friends of the Earth, 

Amazon Watch, and RainForect Action Network; 

Generation Investment Management LLP (June 14, 

2021); Georgetown Climate Center (June 14, 2021); 

George S. Georgiev; Emmanuelle Haack; Hannon 

Armstrong; Hermes Equity Ownership Services 

Limited; HP, Inc.; IHS Markit; Impact Investors, 

Inc.; Impax Asset Management; Institute for 

Governance and Sustainable Development; Institute 

for Market Transformation; Interfaith Center on 

Corporate Responsibility; International Corporate 

Governance Network; Invesco; Investment 

Consultants Sustainability Working Group-U.S.; 

Investor Advocates for Social Justice (June 14, 

2021); Janice Shade (June 22, 2021); Japanese 

Bankers Association; Keramida et al.; Majedie Asset 

Management; Manifest Climate; Mercy Investment 

Services, Inc.; Microsoft Corporation; Miller/ 

Howard Investments; Mirova US LLC; Morningstar, 

Inc.; MSCI Inc.; Natural Resources Defense Council; 

NEI Investments; Newground Social Investment 

(June 14, 2021); New York City Comptroller; New 

York State Society of Certified Public Accountants; 

Nia Impact Capital (June 14, 2021); Norges Bank 

Investment; NY State Comptroller; Oxfam America 

(June 13, 2021); Paradice Investment Management; 

PayPal Holdings, Inc.; Pension Investment 

Association of Canada (June 14, 2021); Michael S. 

Pieciak, Vermont Commissioner of Financial 

Regulation (June 14, 2021); PRI (Consultation 

Response); Private Equity Stakeholder Project (June 

14, 2021); Public Citizen and 57 other signatories 

(June 14, 2021); Publish What you Pay (US) (June 

13, 2021); Revolving Door Project; RMI; 

Salesforce.com, Inc.; SASB; Schroder Investment 

Management North America (June 14, 2021); 

Seventh Generation Interfaith, Inc.; State Street 

Global Advisors; Maria Stoica; Stray Dog Capital; 

Sunrise Bay Area; Sustainable Inclusive Solutions 

(June 13, 2021); Terra Alpha Investor Group; the 

organization Green America and 14,600 Individual 

Americans (June 14, 2021); TotalEnergies; Trillium 

Asset Management; Union of Concerned Scientists 

(June 14, 2021); Unovis Asset Management (June 11, 

2021); Value Balancing Alliance; Vert Asset 

Management LLC; Wellington Management Co.; 

Wespath Benefits and Investments; William and 

Flora Hewlett Foundation; W.K. Associates, Inc. 

(June 14, 2021); World Benchmarking Alliance; and 

WBCSD. 

413See, e.g., letters from Calvert Research and 

Management; Ceres et al.; NY State Comptroller; 

and SASB. 

414See, e.g., letters from Bloomberg, LP (stating 

that GHG emissions are critical components of any 

climate-related financial disclosure scheme, and 

that understanding the emissions contributions of a 

company is an important factor for understanding 

how financially vulnerable they may be to shifts in 

regulation, technology, and markets during any 

transition to a lower-carbon economy); CalPers 

(indicating the use of GHG emissions data by asset 

managers to evaluate potential transition risks); and 

Credit Suisse (supporting mandatory disclosure of 

Scopes 1, 2, and 3 emissions for key industries as 

such information is critical for financial market 

participants to have a better understanding of their 

total climate-related exposure to the highest 

emitting sectors). 

415See, e.g., letters from CALSTRS (indicating the 

use by asset managers of third-party derived climate 

data, the expense and lack of consistency regarding 

such data, and the need for publicly available 

climate data so that the commenter may more 

efficiently and cost-effectively allocate capital to 

lower climate risk assets in line with its investment 

Continued 

(CO2), methane (CH4), nitrous oxide 

(N2O), nitrogen trifluoride (NF3), 

hydrofluorocarbons (HFCs), 

perfluorocarbons (PFCs), and sulfur 

hexafluoride (SF6)) and in the 

aggregate.405 By requiring the disclosure 

of GHG emissions both disaggregated by 

the constituent greenhouse gases and in 

the aggregate, investors could gain 

decision-useful information regarding 

the relative risks to the registrant posed 

by each constituent greenhouse gas in 

addition to the risks posed by its total 

GHG emissions by scope. For example, 

if a government targets reduction of a 

specific greenhouse gas, knowing that a 

registrant has significant emissions of 

such gas would provide insight into 

potential impacts on the registrant’s 

business.406 Because measuring the 

constituent greenhouse gases is a 

necessary step in calculating a 

registrant’s total GHG emissions per 

scope, the proposed disaggregation by 

each constituent greenhouse gas should 

not create significant additional 

burdens. 

Consistent with the GHG Protocol, the 

proposed rules would require a 

registrant to express each scope of its 

GHG emissions in terms of carbon 

dioxide equivalent (‘‘CO2e’’).407 CO2e is 

the common unit of measurement used 

by the GHG Protocol to indicate the 

global warming potential (‘‘GWP’’) 408 of 

each greenhouse gas, expressed in terms 

of the GWP of one unit of carbon 

dioxide (CO2).409 Requiring a standard 

unit of measurement for GHG emissions, 

rather than different units of 

measurement for the different 

greenhouse gases, should simplify the 

disclosure for investors and enhance its 

comparability across registrants with 

different types of GHG emissions. 

For all scopes of GHG emissions, the 

proposed rules would require a 

registrant to disclose GHG emissions 

data in gross terms, excluding any use 

of purchased or generated offsets.410

Because the value of offsets can vary 

depending on restrictions that are or 

may be imposed by regulation or market 

conditions, disclosing GHG emissions 

data in this manner would allow 

investors to assess the full magnitude of 

climate-related risk posed by a 

registrant’s GHG emissions and the 

registrant’s plans for managing such 

risk. This proposed approach also is 

consistent with the approach taken by 

the GHG Protocol.411

Commenters generally supported 

requiring disclosure of a registrant’s 

Scope 1 and Scope 2 emissions, with 

many also supporting disclosure of 

Scope 3 emissions.412 A common reason 

asserted by commenters for requiring 

GHG emissions disclosure is that 

quantitative data, such as GHG 

emissions data, is useful for assessing a 

registrant’s exposure to climate-related 

risks and accordingly its ability to 

transition to a lower carbon economy.413

Investors that are currently using GHG 

emissions data do so because the data 

provides insight into a registrant’s 

exposure to climate-related risks, and 

transition risks in particular—risks that 

have implications for a registrant’s 

financial condition and results of 

operations.414 An increasing number of 

investors have identified GHG 

emissions as material to their 

investment decision-making and are 

either purchasing this information from 

third-party providers or engaging with 

companies to obtain the information 

directly. In each situation, there is a lack 

of consistency, comparability, and 

reliability in those data that our 

proposal seeks to address.415


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objectives); Credit Suisse (stating that the lack of 

consistent and reliable climate-related data has 

created significant challenges in the ability of 

financial market participants to adequately assess 

and compare the performance of reporting 

companies, as well as efficiently allocate capital 

towards low-carbon solutions); and Norges Bank 

Investment Management (indicating their reliance 

on companies’ climate-related data to assess their 

exposure to the effects of climate and how they 

manage climate-related risks and opportunities, and 

stating that the scope and quality of companies’ 

climate-related disclosures varies significantly and 

that their climate-related data is often incomplete 

and/or not comparable). 

416See, e.g., letters from Amazon Watch and 

Rainforest Action Network; Dimensional; Friends of 

the Earth; and ICCR. 

417See, e.g., letters from Ceres (‘‘In land-intensive 

sectors, deforestation, forest degradation, and landuse change are important financial risks associated 

with climate change. In these sectors—for example 

food and forest management—currently Scope 3 

GHG emissions are not regularly disclosed, despite 

comprising upwards of 90% of emissions from 

companies.’’); see also letters from Apple (stating 

that Scope 3 emissions ‘‘represent the 

overwhelming majority of most companies’ carbon 

footprint and are therefore critical to include’’); 

Natural Resources Defense Council; NY State 

Comptroller; and Teachers Insurance and Annuity 

Association of America. 

418See, e.g., letters from Apple; bp; Carbon 

Tracker Initiative; Consumer Federation of America; 

ERM CVS; Ethic Inc.; First Affirmative Financial 

Network; Regenerative Crisis Response Committee; 

MSCI, Inc.; Natural Resources Defense Council; 

New York State Society of Certified Public 

Accountants; Paradice Investment Management; 

Stray Dog Capital; and Huw Thomas. 

419See, e.g., letters from ERM CVS; and Natural 

Resources Defense Council. 

420See, e.g., letters from BNP Paribas; Natural 

Resources Defense Council; and New York State 

Society of Certified Public Accountants. 

421See, e.g., letters from BNP Paribas; Center for 

Law and Social Policy (June 15, 2021); and 

Dimensional Fund Advisors. See also Section IV.C 

below for further discussion of the practice of 

greenwashing. 

422See, e.g., letters from Acadian Asset 

Management LLC; American Bankers Association; 

American Exploration Production Council (June 11, 

2021); Seema Arora; Bank Policy Institute; 

Biotechnology Innovation Organization; Business 

Roundtable (June 11, 2021); Cisco (June 11, 2021); 

Conning (June 11, 2021); CPP Investments; Decatur 

Capital Management; Dimensional Fund Advisors; 

Ethic Inc.; Freeport-McMoran (June 11, 2021); 

Harvard Management Company; Information 

Technology Industry Council; Institute of 

International Bankers; Investment Adviser 

Association; Manulife Investment Management; 

PGIM; PIMCO; Real Estate Roundtable (June 9, 

2021); Matthew Roling and Samantha Tirakian; 

SIFMA Asset Management Group; the Vanguard 

Group, Inc.; and Walmart, Inc. 

423See, e.g., letters from Teachers Insurance and 

Annuity Association of America (recommending 

requiring Scope 3 disclosure from issuers in the 

financial, energy, transportation, materials and 

buildings, and agriculture, food, and forest products 

sectors; and Sens. Schatz and Whitehouse 

(recommending requiring Scope 3 disclosure for 

financed emissions). 

424See letter from Catavento Consultancy. 

425See, e.g., letters from Uber Technologies (Apr. 

27, 2021); and Americans for Financial Reform 

Education Fund. See also TCFD, Guidance on 

Metrics, Targets, and Transition Plans (stating that 

47% of respondents surveyed supported disclosure 

of Scope 3 GHG emissions independent of a 

materiality assessment). 

426See letters from American Petroleum Institute; 

Virginia Harper Ho; and David Marriage. 

427See letter from American Petroleum Institute. 

428See letter from Richard Love. 

429See supra notes 412 and 413. 

430See supra Section II.C and infra Section II.I. 

431See, e.g., letters from PIMCO; State Street 

Global Advisors; Trillium Asset Management; and 

Wellington Management Co. 

432See Wellington Management Co. 

433See supra Section I.C.1 (discussing, in 

particular, Climate Action 100+ and GFANZ). 

Some of these commenters supported 

requiring disclosure of Scope 1 

emissions at the individual greenhouse 

gas level.416 Although commenters 

noted an increase in the voluntary 

reporting of climate-related disclosure, 

several also stated that significant gaps 

remain in the disclosure, particularly 

regarding Scope 3 emissions, which, for 

certain industries, can comprise a 

majority of GHG emissions.417

Many commenters recommended 

basing any GHG emissions disclosure 

requirement on the GHG Protocol.418

Several of these commenters stated that 

the GHG Protocol’s framework for 

reporting GHG emissions, delineated as 

Scopes 1, 2, and 3 emissions, has 

become the globally-accepted standard 

used by numerous companies for 

reporting their GHG emissions.419

Commenters also indicated that a 

mandatory standard for reporting GHG 

emissions based on the GHG Protocol 

would help in producing consistent, 

comparable, and reliable climate-related 

information for investors.420 Some 

commenters also stated that mandating 

GHG emissions pursuant to a 

standardized approach, such as the GHG 

Protocol, would help mitigate instances 

of greenwashing.421

Some commenters indicated that the 

Commission should mandate disclosure 

of only Scopes 1 and 2 emissions.422

Other commenters suggested limiting 

the mandatory disclosure of Scope 3 

emissions to registrants in certain 

industries,423 larger registrants, or when 

a registrant’s Scope 3 emissions 

comprise 40 percent of its total 

emissions.424 These commenters 

pointed to difficulties in obtaining the 

necessary data from third parties and 

methodological uncertainties as reasons 

for limiting or not requiring disclosure 

of Scope 3 emissions. Other commenters 

and research support a requirement for 

disclosure of Scope 3 emissions that is 

independent of an individual 

company’s materiality assessment.425

A few commenters stated that the 

Commission should require the 

disclosure of only Scope 1 emissions.426

One commenter stated that this 

approach would be consistent with the 

Greenhouse Gas Reporting Program 

overseen by the EPA, which they stated 

requires the tracking of facility-level 

Scope 1 emissions from ‘‘large 

greenhouse gas emitters.’’ 427 Another 

commenter opposed a requirement to 

disclose any GHG emissions, asserting 

that GHG emissions do not serve as 

adequate indicators for the actual risks 

faced by a registrant.428

We agree with the many commenters 

that indicated that GHG emissions 

disclosure could provide important 

information for investors to help them 

evaluate the climate-related risks faced 

by registrants and to understand better 

how registrants are planning to mitigate 

or adapt to those risks.429 The proposed 

GHG emissions disclosures could be 

important to an investor’s 

understanding of other disclosures that 

would be required by the proposed 

rules, such as disclosure of the likely 

impacts of climate-related risks as well 

as any targets and goals disclosure.430

We propose requiring disclosure of 

registrants’ Scopes 1 and 2 emissions 

because, as several institutional investor 

commenters stated, investors need and 

many investors currently use this 

information to make investment or 

voting decisions.431 One of those 

commenters stated that GHG emissions 

information serves as the starting point 

for transition risk analysis because it is 

quantifiable and comparable across 

companies and industries.432 The 

commenter, an institutional investor, 

indicated that it uses GHG emissions 

data to rank companies within 

industries based on their GHG 

emissions intensity to better assess 

transition risk exposure of companies in 

its portfolio and make informed 

investment decisions. This commenter 

also indicated that Scopes 1 and 2 

emissions information is more broadly 

available than Scope 3 emissions data 

because of the challenges of collecting 

the latter data. 

As previously mentioned, several 

large institutional investors and 

financial institutions, which collectively 

have trillions of dollars in assets under 

management, have formed initiatives 

and made commitments to achieve a 

net-zero economy by 2050, with interim 

targets set for 2030.433 These initiatives 

further support the notion that investors 

currently need and use GHG emissions 

data to make informed investment 

decisions. These investors and financial 

institutions are working to reduce the 

GHG emissions of companies in their 

portfolios or of their counterparties and 

need GHG emissions data to evaluate 

the progress made regarding their netzero commitments and to assess any 


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434See, e.g., Climate Action 100+, The Three 

Asks. 

435See supra note 420. 

436See, e.g., Kauffmann, C., C. Te ́bar Less and D. 

Teichmann (2012), Corporate Greenhouse Gas 

Emission Reporting: A Stocktaking of Government 

Schemes, OECD Working Papers on International 

Investment, 2012/01, OECD Publishing, at 8, 

available at http://dx.doi.org/10.1787/ 

5k97g3x674lq-en (‘‘For example, the use of scope 1, 

2, 3 to classify emissions as defined by the GHG 

Protocol has become common language and practice 

today.’’). 

437See infra Section II.G.2 (discussing the 

proposed treatment for determining ownership or 

control for the purpose of setting a registrant’s 

organizational boundaries when measuring its 

Scopes 1 and 2 emissions). 

438See EPA, Direct Emissions from Stationary 

Combustion Sources (Dec. 2020), available at 

https://www.epa.gov/sites/default/files/2020-12/ 

documents/stationaryemissions.pdf. 

439See EPA, Indirect Emissions from Purchased 

Electricity (Dec. 2020), available at https://

www.epa.gov/sites/default/files/2020-12/ 

documents/electricityemissions.pdf. 

440As previously mentioned, the proposed rules 

would define a registrant’s value chain to mean the 

upstream and downstream activities related to a 

registrant’s operations. Upstream activities include 

activities that relate to the initial stages of 

producing a good or service (e.g., materials 

sourcing, materials processing, and supplier 

activities). Downstream activities include activities 

that relate to processing materials into a finished 

product and delivering it or providing a service to 

the end user (e.g., transportation and distribution, 

processing of sold products, use of sold products, 

end of life treatment of sold products, and 

investments). See proposed 17 CFR 229.1500(t). 

441See, e.g., letter from Wellington Management 

Co. 

442See, e.g., letter from Apple (referencing its 

2021 Environmental Progress Report, available at 

https://www.apple.com/environment/pdf/Apple_

Environmental_Progress_Report_2021.pdf, which 

states that 109 suppliers across 24 countries have 

committed to manufacturing Apple products with 

100 percent renewable energy, and indicating 

Apple’s development of detailed life cycle 

assessment models, which help the company 

identify its top product component contributors of 

carbon emissions and facilitate its providing a 

comprehensive account of its relevant Scope 3 

emissions). 

associated potential asset devaluation or 

loan default risks.434 A company’s GHG 

emissions footprint also may be relevant 

to investment or voting decisions 

because it could impact the company’s 

access to financing or signal potential 

changes in its financial planning as 

governments, financial institutions, and 

other investors make demands to reduce 

GHG emissions. 

We also agree with commenters that 

basing the Commission’s proposed GHG 

emissions disclosure rules on concepts 

used in the GHG Protocol could help 

provide investors with consistent, 

comparable, and reliable information 

about a registrant’s GHG emissions.435

In this regard, we note that several 

studies have found that GHG emissions 

data prepared pursuant to the GHG 

Protocol have become the most 

commonly referenced measurements of 

a company’s exposure to climate-related 

risks.436

However, we are not proposing to 

adopt all of the features of the GHG 

Protocol into the Commission’s 

proposed climate-related disclosure 

rules. As explained in greater detail 

below, in one significant respect the 

proposed rules differ from the approach 

taken by the GHG Protocol regarding the 

methodology that a registrant would be 

required to use when calculating its 

GHG emissions. This difference better 

suits the U.S. financial reporting regime 

and the needs of investors.437 We 

recognize that the methodologies 

pertaining to the measurement of GHG 

emissions, particularly Scope 3 

emissions, are evolving. While we 

expect that many registrants would 

choose to follow the standards and 

guidance provided by the GHG Protocol 

when calculating their GHG emissions, 

the proposed rules would not require 

registrants to do so. Allowing for some 

flexibility in the choice of GHG 

emissions methodologies would permit 

registrants to adapt to new approaches, 

such as those pertaining to their specific 

industry, as they emerge. 

b. The Treatment of Scopes 1 and 2 

Emissions Compared to Scope 3 

Emissions 

We are proposing to require all 

registrants to disclose their Scopes 1 

and 2 emissions. Those types of 

emissions result directly or indirectly 

from facilities owned or activities 

controlled by a registrant. The relevant 

data for calculating Scopes 1 and 2 

emissions should be reasonably 

available to registrants, and the relevant 

methodologies are fairly welldeveloped. Registrants with large 

stationary sources of emissions already 

report Scope 1 emissions data to the 

EPA, and the EPA provides detailed 

methodologies for a range of industries 

with significant Scope 1 emissions.438

The EPA also provides detailed 

guidance for the calculation of Scope 2 

emissions, which, although classified as 

‘‘indirect emissions,’’ are generated by 

direct activities of the registrant in using 

purchased energy.439

Unlike Scopes 1 and 2 emissions, 

Scope 3 emissions typically result from 

the activities of third parties in a 

registrant’s value chain 440 and thus 

collecting the appropriate data and 

calculating these emissions would 

potentially be more difficult than for 

Scopes 1 and 2 emissions. At the same 

time, in many cases Scope 3 emissions 

disclosure may be necessary to present 

investors a complete picture of the 

climate-related risks—particularly 

transition risks—that a registrant faces 

and how GHG emissions from sources 

in its value chain, which are not 

included in its Scopes 1 and 2 

emissions, may materially impact a 

registrant’s business operations and 

associated financial performance. Scope 

3 emissions can augment the 

information provided in Scopes 1 and 2 

emissions and help to reflect the total 

emissions associated with a registrant’s 

operations, including inputs from 

upstream activities, such as those of its 

suppliers, and outputs from 

downstream activities, such as those 

involving the distribution, use, and 

disposal of a registrant’s products or 

services.441

Scope 3 emissions are indirect, but 

registrants can and do take steps to limit 

Scope 3 emissions and the attendant 

risks. Although a registrant may not 

own or control the operational activities 

in its value chain that produce Scope 3 

emissions, it nevertheless may influence 

those activities, for example, by working 

with its suppliers and downstream 

distributors to take steps to reduce those 

entities’ Scopes 1 and 2 emissions (and 

thus help reduce the registrant’s Scope 

3 emissions) and any attendant risks. As 

such, a registrant may be able to 

mitigate the challenges of collecting the 

data required for Scope 3 disclosure.442

Such data may reveal changes in a 

registrant’s Scope 3 emissions over time 

that could be informative for investors 

in discerning how the registrant is 

managing transition risks. For example, 

a registrant could seek to reduce the 

potential impacts on its business of its 

upstream emissions by choosing to 

purchase from more GHG emissionefficient suppliers or by working with 

existing suppliers to reduce emissions. 

A registrant could also seek to reduce 

the potential impacts on its business of 

downstream emissions by producing 

products that are more energy efficient 

or involve less GHG emissions when 

consumers use them, or by contracting 

with distributors that use shorter 

transportation routes. Being able to 

compare Scope 3 emissions over time 

could thus be a valuable tool for 

investors in tracking a registrant’s 

progress in mitigating transition and 

other climate-related risks. 

To balance the importance of Scope 3 

emissions with the potential relative 

difficulty in data collection and 

measurement, the proposed rules would 

require disclosure of Scope 3 emissions 

only if those emissions are material, or 

if the registrant has set a GHG emissions 

reduction target or goal that includes its 


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443See proposed 17 CFR 229.1504(c)(1). As 

explained below, we are also proposing a safe 

harbor for Scope 3 disclosures. See infra Section 

II.G.3. 

444See infra note 461 and accompanying text. 

445See supra note 209. 

446TSC Industries, Inc. v Northway, 426 U.S. at 

448. 

447See, e.g., letters from Apple; and WK 

Associates. 

448See, e.g., letter from Wellington Management 

Co. 

449See Eric Rosenbaum, Climate experts are 

worried about the toughest carbon emissions for 

companies to capture (Aug. 18, 2021) (‘‘Scope 3 

carbon emissions, or those not part of operations or 

under direct control, represent the majority of the 

carbon footprint for most companies, in some cases 

as high as 85% to 95%’’), available at https://

www.cnbc.com/2021/08/18/apple-amazon-exxonand-the-toughest-carbon-emissions-tocapture.html#:∼:text=Scope%203%20carbon%20 

emissions%2C%20or,as%2085%25%to%2095%25. 

See also MSCI, Emissions: Seeing the Full Picture 

(Sept. 17, 2020) (‘‘For some companies and 

industries, Scope 3 emissions dominate the overall 

carbon footprint. For example, the Scope 3 

emissions of the integrated oil and gas industry . . . 

are more than six times the level of its Scope 1 and 

2 emissions.’’), available at https://www.msci.com/ 

www/blog-posts/scope-3-carbon-emissions-seeing/ 

02092372761; letter from WK Associates, Inc. (June 

14, 2021) (stating that Scope 3 emissions account 

for approximately 70–90% of lifecycle emissions 

from oil products and 60–85% of those from natural 

gas, according to the International Energy Agency). 

450See, e.g., TCFD, Guidance on Metrics, Targets, 

and Transition Plans (Oct. 2021), Appendix 1, 

Figure A1–1 (Importance of Scope 3 GHG Emissions 

in Certain Sectors) (showing that, for the 

automobiles and components sector, the majority of 

GHG emissions result from downstream product 

use), available at https://assets.bbhub.io/company/ 

sites/60/2021/07/2021-Metrics_Targets_Guidance1.pdf. 

451See, e.g., Coral Davenport, E.P.A. Announces 

Tightest-Ever Auto Pollution Rules, N.Y. Times, 

Dec. 20, 2021, available at https://

www.nytimes.com/2021/12/20/climate/tailpiperules-climate-biden.html?searchResultPosition=25 

(reporting that the EPA announced strengthened 

limits on pollution from automobile tailpipes). In 

addition, more than a dozen states have adopted 

low emission vehicle standards. See California Air 

Resources Board, States that have Adopted 

California’s Vehicle Standards under Section 177 of 

the Federal Clean Air Act, available at https://

ww2.arb.ca.gov/resources/documents/states-haveadopted-californias-vehicle-standards-undersection-177-federal. 

452See, e.g., Catherine Lucey and Andrew 

Duehren, Biden Touts Build Back Better in Meeting 

With CEOs, Wall Street Journal, Jan. 26, 2022, 

available at https://www.wsj.com/articles/bidentouts-build-back-better-in-meeting-with-ceos11643227677?mod=Searchresults_pos1&page= 

(reporting efforts to obtain Federal tax incentives to 

promote the use of electric and hydrogen-power 

vehicles). 

453See Jack Ewing, Sales of Electric Vehicles 

Surpass Diesel in Europe, a First, N.Y. Times, Jan. 

17, 2022 (stating that sales of battery-powered cars 

soared in Europe, the United States, and China in 

2021), available at https://www.nytimes.com/2022/ 

01/17/business/electric-vehicleseurope.html?searchResultPosition=1. 

454See, e.g., Tom Krisher and Aamer Madhani, 

US automakers pledge huge increase in electric 

vehicles, AP News, Aug. 5, 2021, available at 

https://apnews.com/article/technology-joe-bidenbusiness-environment-and-nature-economy88fe6ca8e333f3d00f6d2e98c6652cea (reporting that 

General Motors aspires to sell only electric 

passenger vehicles by 2035 and Ford and Stellantis 

(formerly Fiat Chrysler) each expect that 40% of 

global sales to be electric vehicles by 2030); see also 

https://www.caranddriver.com/news/g35562831/evplans-automakers-timeline/; and Jim Motavalli, 

Every Automaker’s EV Plans Through 2035 And 

Beyond, Forbes, Oct. 4, 2021, available at https:// 

www.forbes.com/wheels/news/automaker-ev-plans/. 

455See supra Section I.C.1. 

Scope 3 emissions.443 As explained in 

greater detail below, this latter proposed 

disclosure requirement could assist 

investors in tracking the progress of the 

registrant toward reaching the target or 

goal so that investors can better 

understand potential associated 

costs.444

Consistent with the Commission’s 

definition of ‘‘material’’ and Supreme 

Court precedent, a registrant would be 

required to disclose its Scope 3 

emissions if there is a substantial 

likelihood that a reasonable investor 

would consider them important when 

making an investment or voting 

decision.445 In articulating this 

materiality standard, the Supreme Court 

recognized that ‘‘[d]oubts as to the 

critical nature’’ of the relevant 

information ‘‘will be commonplace.’’ 

But ‘‘particularly in view of the 

prophylactic purpose’’ of the securities 

laws,’’ and ‘‘the fact that the content’’ of 

the disclosure ‘‘is within management’s 

control, it is appropriate that these 

doubts be resolved in favor of those the 

statute is designed to protect,’’ namely 

investors.446

When recommending that the 

Commission require the disclosure of 

Scope 3 emissions, some commenters 

indicated that Scope 3 emissions 

represent the relatively large source of 

overall GHG emissions for many 

companies.447 Given their relative 

magnitude, we agree that, for many 

registrants, Scope 3 emissions may be 

material to help investors assess the 

registrants’ exposure to climate-related 

risks, particularly transition risks,448

and whether they have developed a 

strategy to reduce their carbon footprint 

in the face of regulatory, policy, and 

market constraints.449

Scope 3 emissions information may 

be material in a number of situations to 

help investors gain a more complete 

picture of the transition risks to which 

a registrant may be exposed. In certain 

industries, a transition to loweremission products or processes may 

already be underway, triggered by 

existing laws or regulations, changes in 

weather, policy initiatives, a shift in 

consumer preferences, technological 

changes, or other market forces, such 

that financial risks are reasonably 

foreseeable for registrants in those 

industries based on the emissions in 

their value chain. For example, some 

registrants may need to allocate capital 

to invest in lower emissions equipment. 

Investors thus need and use information 

about the full GHG emissions footprint 

and intensity of a registrant to 

determine and compare how exposed a 

registrant is to the financial risks 

associated with any transition to loweremission products. 

For example, in the automobile 

industry, the vast majority of car 

manufacturers’ GHG emissions footprint 

comes from tailpipe emissions of cars 

driven by customers, as compared to the 

emissions from manufacturing the 

cars.450 There is already a transition 

underway to reduce tailpipe emissions 

through the adoption of stricter fuel 

efficiency regulations 451 and by 

governmental initiatives that encourage 

the manufacture and demand for 

electric vehicles.452 Demand for electric 

vehicles is increasing in the United 

States and globally,453 and leading 

automobile manufacturers have 

announced plans to increase the 

manufacture of electric vehicles, with 

many setting commitments to 

manufacture all-electric fleets or achieve 

net-zero emissions.454 This transition 

raises financial risks for automobile 

manufacturers, which can be gauged, in 

part, by their Scope 3 emissions. 

Investors can use Scope 3 emissions 

data concerning a car manufacturer’s 

suppliers and the use of its sold 

products to assess whether a particular 

manufacturer is taking steps to mitigate 

or adapt to the risks posed by a 

transition to lower emission vehicles. 

Changes in requirements by financial 

institutions and institutional investors 

can present similar financial risks for 

companies. As many financial 

institutions and investors begin to set 

their own GHG emissions reduction 

goals, they may consider the total GHG 

emissions footprint of companies that 

they finance or invest in to build 

portfolios to meet their goals.455

Financial institutions and investors may 

focus on Scopes 1 and 2 emissions for 

companies in some industries, 

particularly for industries in which 

Scopes 1 and 2 represent the majority of 

companies’ total GHG emissions 

footprint. For other industries, however, 

Scope 3 emissions represent a relatively 

significant portion of companies’ total 

GHG footprint, and therefore may reflect 

a more complete picture of companies’ 

exposure to transition risks than Scopes 

1 and 2 emissions alone. For oil and gas 

product manufacturers, for example, 

Scope 3 emissions are likely to be 

material and thus necessary to an 


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456See, e.g., letter from Uber Technologies; see 

also TCFD, Guidance on Metrics, Targets, and 

Transition Plans, at note 40, citing SBTi, SBTi 

Criteria and Recommendations (Oct. 2021), 

available at https://sciencebasedtargets.org/ 

resources/files/SBTi-criteria.pdf. 

457TSC Industries v. Northway, 426 U.S. at 449. 

458See, e.g., letters from Confluence 

Philanthropy; Forum for Sustainable and 

Responsible Investment; Mirova US LLC; NY City 

Comptroller; and Wellington Management Co. 

459See id. 

460For example, registrants that choose to 

mitigate climate-related risks by undertaking 

research and development activities to source 

inputs involving less GHG emissions might incur 

expenses in the short-term but could achieve 

potential long-term cost savings by implementing 

more energy-efficient production processes and 

avoiding potential penalties imposed by regulation. 

461See proposed 17 CFR 229.1504(c)(1). 

understanding of a registrant’s climaterelated risks. 

When assessing the materiality of 

Scope 3 emissions, registrants should 

consider whether Scope 3 emissions 

make up a relatively significant portion 

of their overall GHG emissions. While 

we are not proposing a quantitative 

threshold for determining materiality, 

we note that some companies rely on, or 

support reliance on, a quantitative 

threshold such as 40 percent when 

assessing the materiality of Scope 3 

emissions.456 However, even when 

Scope 3 emissions do not represent a 

relatively significant portion of overall 

GHG emissions, a quantitative analysis 

alone would not suffice for purposes of 

determining whether Scope 3 emissions 

are material. Consistent with the 

concept of materiality in the securities 

laws, this determination would 

ultimately need to take into account the 

total mix of information available to 

investors, including an assessment of 

qualitative factors. Accordingly, Scope 3 

emissions may make up a relatively 

small portion of a registrant’s overall 

GHG emissions but still be material 

where Scope 3 represents a significant 

risk, is subject to significant regulatory 

focus, or ‘‘if there is a substantial 

likelihood that a reasonable [investor] 

would consider it important.’’ 457

Moreover, if a materiality analysis 

requires a determination of future 

impacts, i.e., a transition risk yet to be 

realized, then both the probability of an 

event occurring and its magnitude 

should be considered. Even if the 

probability of an adverse consequence is 

relatively low, if the magnitude of loss 

or liability is high, then the information 

in question may still be material. 

If a registrant determines that its 

Scope 3 emissions are not material, and 

therefore not subject to disclosure, it 

may be useful to investors to understand 

the basis for that determination. Further, 

if a registrant determines that certain 

categories of Scope 3 emissions are 

material, registrants should consider 

disclosing why other categories are not 

material. If, however, Scope 3 emissions 

are material, then understanding the 

extent of a registrant’s exposure to 

Scope 3 emissions, and the choices it 

makes regarding them, would be 

important for investors when making 

investment or voting decisions. 

Several commenters stated that 

disclosure of a registrant’s Scope 3 

emissions is essential to making an 

informed investment decision because 

Scope 3 emissions can indicate a 

registrant’s exposure to climate-related 

transition risks.458 For example, if 

policy changes lead to mandatory 

emissions reductions or carbon pricing, 

a registrant with high Scope 3 emissions 

could experience higher costs in 

sourcing key inputs. Similarly, if 

consumer preferences change to favor 

products that are less carbon intensive, 

a registrant could see a significant 

change in demand for its products. 

Registrants that do not account for these 

risks, or make suboptimal choices 

regarding them, could become less 

profitable in the future than registrants 

that acknowledge these risks and 

successfully mitigate them.459 Thus, 

Scope 3 emissions disclosure could help 

convey to investors the potential 

financial risks facing a company related 

to any transition to a lower carbon 

economy. With Scope 3 information 

disclosed, investors would be able to 

assess, in conjunction with reported 

financial information, how GHG 

emissions impact the registrant’s 

operations as well as its overall business 

strategy so that they can make more 

informed investment or voting 

decisions.460

Disclosure of Scope 3 emissions could 

also highlight instances where a 

registrant attempts to reduce its total 

Scopes 1 and 2 emissions by 

outsourcing carbon intensive activities. 

For example, a registrant could contract 

out certain high-emissions production 

activities so that its own Scope 1 or 2 

emissions are lower than a similar 

company that has retained direct 

ownership and control over more of its 

production activities. Thus, Scope 3 

emissions reporting could provide 

greater transparency and help preclude 

any efforts by registrants to obscure for 

investors the full magnitude of the 

climate-related risks associated with 

their GHG emissions. 

The proposed rules would also 

require a registrant to disclose its Scope 

3 emissions if it has set a GHG 

emissions reduction target or goal that 

includes Scope 3 emissions.461 This 

disclosure requirement would enable 

investors to understand the scale and 

scope of actions the registrant may need 

to take to fulfill its commitment to 

reduce its Scope 3 emissions and the 

potential financial impact of that 

commitment on the registrant. It would 

also enable an investor to assess the 

registrant’s strategy for meeting its 

Scope 3 emissions target or goal and its 

progress towards that target or goal, 

which may affect the registrant’s 

business. 

Scope 3 emissions disclosures would 

help investors to understand and assess 

the registrant’s strategy. For example, 

Scope 3 emissions disclosures would 

allow an investor to better understand 

how feasible it would be for the 

registrant to achieve its targets through 

its current strategy, to track the 

registrant’s progress over time, and to 

understand changes the registrant may 

make to its strategy, targets, or goals. 

Scope 3 emissions disclosures would 

thus be important to evaluating the 

financial effects of the registrant’s target 

or goal. In addition, this disclosure 

could help prevent instances of 

greenwashing or other misleading 

claims concerning the potential impact 

of Scope 3 emissions on a registrant’s 

business because investors, and the 

market would have access to a 

quantifiable, trackable metric. 

A registrant’s Scope 3 emissions 

disclosure, together with the proposed 

financial statement metrics, would also 

enable an investor to assess the 

efficiency and efficacy of the registrant’s 

actions to achieve its target or goal (e.g., 

by comparing the registrant’s 

expenditures or other investments in 

lower carbon transition activities from 

year to year with any corresponding 

reduction in its Scope 3 emissions). If a 

registrant has a relatively ambitious 

Scope 3 emissions target, but discloses 

little investment in transition activities 

in its financial statements and little or 

no reduction in Scope 3 emissions from 

year to year, these disclosures could 

indicate to investors that the registrant 

may need to make a large expenditure 

or significant change to its business 

operations as it gets closer to its target 

date, or risk missing its target. Both 

potential outcomes could have financial 

ramifications for the registrant and, 

accordingly, investors. 

The proposed disclosure requirement 

should also give investors the ability to 

evaluate whether a registrant’s target or 

goal and its plan for achieving that 

target or goal could have an adverse 

impact on the registrant. For example, 

an investor might conclude that the 

financial costs of a registrant’s plan 

would outweigh any benefits to the 


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462See WBCSD and World Resources Institute, 

Greenhouse Gas Protocol Corporate Value Chain 

(Scope 3) Accounting and Reporting Standard 

(Sept. 2011). 

463See proposed 17 CFR 229.1500(r). 

464See id. The ‘‘investments’’ category would 

capture what are commonly referred to as ‘‘financed 

emissions.’’ 

465See proposed 17 CFR 229.1504(c)(1). 

466Activity data refers to a quantitative measure 

of a level of activity that results in GHG emissions. 

Depending on the activity, such data could be 

expressed, for example, as: Liters of fuel consumed; 

kilowatt-hours of electricity consumed; kilograms of 

material consumed; kilometers of distance traveled; 

hours of time operated; square meters of area 

occupied; kilograms of waste generated; kilograms 

of product sold; or quantity of money spent. See 

GHG Protocol, Corporate Value Chain (Scope 3) 

Accounting and Reporting Standard, Chapter 7. 

467See proposed 17 CFR 229.1504(c)(2). 

business, and factor that into how the 

registrant’s securities fit into the 

investor’s own investment portfolio 

given the investor’s risk tolerance and 

other investment goals. Thus, the 

objective of this disclosure is not to 

drive targets, goals, plans, or conduct, 

but to provide investors with the tools 

to assess the implications of any targets, 

goals, or plans on the registrant in 

making investment or voting decisions. 

This disclosure requirement could 

also enable investors to better compare 

firms. For example, two registrants may 

have the same total GHG emissions and 

have made the same commitments to 

reduce total GHG emissions from 

Scopes 1, 2, and 3 emissions combined. 

However, if the registrants have 

different proportions of emissions from 

Scope 1 and 2 versus Scope 3, investors 

might determine that there would be 

different costs and effects for these 

registrants from their disclosed plans to 

reduce their overall emissions. 

Scope 3 emissions disclosures could 

also enable investors to better compare 

registrants’ plans to achieve their Scope 

3 emissions targets or goals. For 

example, registrants in the retail 

industry may have a relatively large 

portion of their Scope 3 emissions 

derived from customer travel to the 

registrant’s stores and shipping products 

or goods to customers or stores. If a 

registrant in this industry has set Scope 

3 emissions targets or goals, in order to 

meet those targets or goals it may choose 

to relocate its stores to be closer to 

public transportation. Another similarly 

situated registrant may elect to switch to 

using electric vehicles for shipping. A 

third similarly situated registrant might 

elect to take neither action, but instead 

assume Scope 3 emissions reductions 

based on customers’ change in behavior. 

Investors could assess the likelihood of 

each of these three registrants meeting 

their Scope 3 emissions target or goal— 

as well as the likely financial and 

operational impact—which could 

depend on the amount and type of their 

Scope 3 emissions. Investors could also 

compare the potential impacts of these 

plans on the three different registrants. 

Without disclosures of the amount and 

type of Scope 3 emissions, investors 

would face difficulty assessing the 

likely impacts of a target or goal that 

includes Scope 3 emissions on 

registrants and comparing the relative 

impacts across registrants. 

If required to disclose Scope 3 

emissions, a registrant would be 

required to identify the categories of 

upstream and downstream activities 

that have been included in the 

calculation of its Scope 3 emissions. 

Consistent with the GHG Protocol,462

the proposed rules identify several 

categories of activities that can give rise 

to Scope 3 emissions. Upstream 

activities from which Scope 3 emissions 

might result include: 

• A registrant’s purchased goods and 

services; 

• A registrant’s capital goods; 

• A registrant’s fuel and energy 

related activities not included in Scope 

1 or Scope 2 emissions; 

• Transportation and distribution of 

purchased goods, raw materials, and 

other inputs; 

• Waste generated in a registrant’s 

operations; 

• Business travel by a registrant’s 

employees; 

• Employee commuting by a 

registrant’s employees; and 

• A registrant’s leased assets related 

principally to purchased or acquired 

goods or services.463

Downstream activities from which 

Scope 3 emissions might result include: 

• Transportation and distribution of a 

registrant’s sold products, goods or 

other outputs; 

• Processing by a third party of a 

registrant’s sold products; 

• Use by a third party of a registrant’s 

sold products; 

• End-of-life treatment by a third 

party of a registrant’s sold products; 

• A registrant’s leased assets related 

principally to the sale or disposition of 

goods or services; 

• A registrant’s franchises; and 

• Investments by a registrant.464

The list of upstream and downstream 

activities set forth in proposed Item 

1500(r) is non-exclusive. If any 

upstream or downstream activities were 

significant to the registrant when 

calculating its Scope 3 emissions, the 

proposed rules would require it to 

identify such categories and separately 

disclose Scope 3 emissions data for each 

of those categories together with a total 

of all Scope 3 emissions.465 For 

example, an energy company that 

produces oil and gas products may find 

that a significant category of activity 

resulting in Scope 3 emissions relates to 

the end use of its sold products. A 

manufacturer might find that a 

significant category of activities 

resulting in Scope 3 emissions relate to 

the emissions of its suppliers in the 

production of purchased goods or 

services, the processing of its sold 

products, or by the fuel consumed by its 

third-party transporters and distributors 

of those goods and services and of its 

sold products. In some cases, the 

category in which an emissions source 

belongs may be unclear, or the source 

might fit within more than one category. 

In those cases, registrants would need to 

use their best judgment as to the 

description of the emissions source and 

provide sufficient transparency as to the 

reasoning and methodology to facilitate 

investor understanding of the emissions 

category and source. 

If required to disclose Scope 3 

emissions, a registrant would also be 

required to describe the data sources 

used to calculate those emissions, 

including the use of any of the 

following: 

• Emissions reported by parties in the 

registrant’s value chain, and whether 

such reports were verified by the 

registrant or a third party, or unverified; 

• Data concerning specific 

activities,466 as reported by parties in 

the registrant’s value chain; and 

• Data derived from economic 

studies, published databases, 

government statistics, industry 

associations, or other third-party 

sources outside of a registrant’s value 

chain, including industry averages of 

emissions, activities, or economic 

data.467

This information is intended to assist 

investors in assessing the reliability and 

accuracy of the registrant’s Scope 3 

emissions disclosure. For example, an 

investor might find emissions data 

related to the downstream 

transportation and distribution of a 

registrant’s sold products more reliable 

if based on specific distances traveled 

by the registrant’s transportation and 

distribution partners and companyspecific emissions factors rather than 

estimates of distances traveled based on 

industry-average data and using 

national average emission factors. 

Although we recognize that a registrant 

may sometimes need to use industryand national-average data when 

calculating its Scope 3 emissions, 

information about the data sources for 

its Scope 3 emissions would help 


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468See, e.g., TCFD, Guidance on Metrics, Targets, 

and Transition Plans (Oct. 2021), Appendix 1. 

469See, e.g., GHG Protocol, Corporate Value 

Chain (Scope 3) Accounting and Reporting 

Standard. 

470See, e.g., TCFD, Guidance on Metrics, Targets, 

and Transition Plans (Oct. 2021), Appendix 1; and 

letters from Apple; NY City Comptroller; and 

Wellington Investment Co. 

471See, e.g., letter from Catavento Consultancy 

(stating that Scope 3 emissions disclosure should be 

mandatory for larger companies and for those in 

which Scope 3 emissions account for more than 

40% of total emissions). 

investors better understand the risk 

exposure posed by the registrant’s value 

chain in comparison with other 

registrants and make more informed 

investment decisions. 

We acknowledge that a registrant’s 

material Scope 3 emissions is a 

relatively new type of metric, based 

largely on third-party data, that we have 

not previously required. We are 

proposing the disclosure of this metric 

because we believe capital markets have 

begun to assign financial value to this 

type of metric, such that it can be 

material information for investors about 

financial risks facing a company. Scope 

3 emissions disclosure is an integral 

part of both the TCFD 468 framework and 

the GHG Protocol,469 which are widely 

accepted. It also has been widely 

recognized that, for some companies, 

disclosure of just Scopes 1 and 2 

emissions could convey an incomplete, 

and potentially misleading, picture.470

We have attempted to calibrate our 

proposal to balance investors’ demand 

for this information with the current 

limitations of the Scope 3 emissions 

data. 

We also recognize, as discussed 

below, that the reporting of Scope 3 

emissions may present more challenges 

than the reporting of Scopes 1 and 2 

emissions. But in light of the fact that 

a GHG emissions reporting regime may 

be incomplete without the reporting of 

Scope 3 emissions, we are proposing to 

include them, with an appropriate 

transition period and safe harbor, at the 

outset. Although we have not proposed 

to exclude specific upstream or 

downstream activities from the scope of 

the proposed Scope 3 disclosure 

requirement, we have limited the 

proposed disclosure requirement to 

those value chain emissions that overall 

are material. We also have not proposed 

a bright-line quantitative threshold for 

the materiality determination as 

suggested by some commenters 471

because whether Scope 3 emissions are 

material would depend on the particular 

facts and circumstances, making it 

difficult to establish a ‘‘one size fits all’’ 

standard. 

Request for Comment 

93. How would investors use GHG 

emissions disclosures to inform their 

investment and voting decisions? How 

would such disclosures provide insight 

into a registrant’s financial condition, 

changes in financial condition, and 

results of operations? How would such 

disclosures help investors evaluate an 

issuer’s climate risk-related exposure? 

Would such disclosures enable 

investors to better assess physical risks 

associated with climate-related events, 

transition risks, or both types of risks? 

94. Should we require a registrant to 

disclose its GHG emissions both in the 

aggregate, per scope, and on a 

disaggregated basis for each type of 

greenhouse gas that is included in the 

Commission’s proposed definition of 

‘‘greenhouse gases,’’ as proposed? 

Should we instead require that a 

registrant disclose on a disaggregated 

basis only certain greenhouse gases, 

such as methane (CH4) or 

hydrofluorocarbons (HFCs), or only 

those greenhouse gases that are the most 

significant to the registrant? Should we 

require disaggregated disclosure of one 

or more constituent greenhouse gases 

only if a registrant is obligated to 

separately report the individual gases 

pursuant to another reporting regime, 

such as the EPA’s greenhouse gas 

reporting regime or any foreign 

reporting regime? If so, should we 

specify the reporting regime that would 

trigger this disclosure? 

95. We have proposed defining 

‘‘greenhouse gases’’ as a list of specific 

gases that aligns with the GHG Protocol 

and the list used by the EPA and other 

organizations. Should other gases be 

included in the definition? Should we 

expand the definition to include any 

other gases to the extent scientific data 

establishes a similar impact on climate 

change with reasonable certainty? 

Should we require a different standard 

to be met for other greenhouse gases to 

be included in the definition? 

96. Should we require a registrant to 

express its emissions data in CO2e, as 

proposed? If not, is there another 

common unit of measurement that we 

should use? Is it important to designate 

a common unit of measurement for GHG 

emissions data, as proposed, or should 

we permit registrants to select and 

disclose their own unit of measurement? 

97. Should we require a registrant to 

disclose its total Scope 1 emissions and 

total Scope 2 emissions separately for its 

most recently completed fiscal year, as 

proposed? Are there other approaches 

that we should consider? 

98. Should we require a registrant to 

disclose its Scope 3 emissions for the 

fiscal year if material, as proposed? 

Should we instead require the 

disclosure of Scope 3 emissions for all 

registrants, regardless of materiality? 

Should we use a quantitative threshold, 

such as a percentage of total GHG 

emissions (e.g., 25%, 40%, 50%) to 

require the disclosure of Scope 3 

emissions? If so, is there any data 

supporting the use of a particular 

percentage threshold? Should we 

require registrants in particular 

industries, for which Scope 3 emissions 

are a high percentage of total GHG 

emissions, to disclose Scope 3 

emissions? 

99. Should we require a registrant that 

has made a GHG emissions reduction 

commitment that includes Scope 3 

emissions to disclose its Scope 3 

emissions, as proposed? Should we 

instead require registrants that have 

made any GHG emissions reduction 

commitments, even if those 

commitments do not extend to Scope 3, 

to disclose their Scope 3 emissions? 

Should we only require Scope 3 

emissions disclosure if a registrant has 

made a GHG emissions reduction 

commitment that includes Scope 3 

emissions? 

100. Should Scope 3 emissions 

disclosure be voluntary? Should we 

require Scope 3 emissions disclosure in 

stages, e.g., requiring qualitative 

disclosure of a registrant’s significant 

categories of upstream and downstream 

activities that generate Scope 3 

emissions upon effectiveness of the 

proposed rules, and requiring 

quantitative disclosure of a registrant’s 

Scope 3 emissions at a later date? If so, 

when should we require quantitative 

disclosure of a registrant’s Scope 3 

emissions? 

101. Should we require a registrant to 

exclude any use of purchased or 

generated offsets when disclosing its 

Scope 1, Scope 2, and Scope 3 

emissions, as proposed? Should we 

require a registrant to disclose both a 

total amount with, and a total amount 

without, the use of offsets for each scope 

of emissions? 

102. Should we require a registrant to 

disclose its Scope 3 emissions for each 

separate significant category of 

upstream and downstream emissions as 

well as a total amount of Scope 3 

emissions for the fiscal year, as 

proposed? Should we only require the 

disclosure of the total amount of Scope 

3 emissions for the fiscal year? Should 

we require the separate disclosure of 

Scope 3 emissions only for certain 

categories of emissions and, if so, for 

which categories? 

103. Should the proposed rules 

include a different standard for 


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472See proposed 17 CFR 229.1504(d)(1). 

473See proposed 17 CFR 229.1504(d)(2). The 

proposed safe harbor for Scope 3 emissions 

disclosure would apply to this proposed GHG 

intensity metric for Scope 3 emissions. See infra 

Section II.C.3. 

474See proposed 17 CFR 229.1500(i). We derived 

this proposed definition from the GHG Protocol. 

See GHG Protocol, A Corporate Accounting and 

Reporting Standard, Chapter 9. 

475See proposed 17 CFR 229.1504(d)(1). 

requiring identification of the categories 

of upstream and downstream emissions, 

such as if those categories of emissions 

are significant to total GHG emissions or 

total Scope 3 emissions? Are there any 

other categories of, or ways to 

categorize, upstream or downstream 

emissions that a registrant should 

consider as a source of Scope 3 

emissions? For example, should we 

require a registrant to disclose Scope 3 

emissions only for categories of 

upstream or downstream activities over 

which it has influence or indirect 

control, or for which it can quantify 

emissions with reasonable reliability? 

Are there any proposed categories of 

upstream or downstream emissions that 

we should exclude as sources of Scope 

3 emissions? 

104. Should we, as proposed, allow a 

registrant to provide their own 

categories of upstream or downstream 

activities? Are there additional 

categories, other than the examples we 

have identified, that may be significant 

to a registrant’s Scope 3 emissions and 

that should be listed in the proposed 

rule? Are there any categories that we 

should preclude, e.g., because of lack of 

accepted methodologies or availability 

of data? Would it be useful to allow 

registrants to add categories that are 

particularly significant to them or their 

industry, such as Scope 3 emissions 

from land use change, which is not 

currently included in the Greenhouse 

Gas Protocol’s Scope 3 categories? 

Should we specifically add an upstream 

emissions disclosure category for land 

use? 

105. Should we require the 

calculation of a registrant’s Scope 1, 

Scope 2, and/or Scope 3 emissions to be 

as of its fiscal year end, as proposed? 

Should we instead allow a registrant to 

provide its GHG emissions disclosures 

according to a different timeline than 

the timeline for its Exchange Act annual 

report? If so, what should that timeline 

be? For example, should we allow a 

registrant to calculate its Scope 1, Scope 

2, and/or Scope 3 emissions for a 12- 

month period ending on the latest 

practicable date in its fiscal year that is 

no earlier than three months or, 

alternatively, six months prior to the 

end of its fiscal year? Would allowing 

for an earlier calculation date alleviate 

burdens on a registrant without 

compromising the value of the 

disclosure? Should we allow such an 

earlier calculation date only for a 

registrant’s Scope 3 emissions? Would 

the fiscal year end calculations required 

for a registrant to determine if Scope 3 

emissions are material eliminate the 

benefits of an earlier calculation date? 

Should we instead require a registrant to 

provide its GHG emissions disclosures 

for its most recently completed fiscal 

year one, two, or three months after the 

due date for its Exchange Act annual 

report in an amendment to that report? 

106. Should we require a registrant 

that is required to disclose its Scope 3 

emissions to describe the data sources 

used to calculate the Scope 3 emissions, 

as proposed? Should we require the 

proposed description to include the use 

of: (i) Emissions reported by parties in 

the registrant’s value chain, and 

whether such reports were verified or 

unverified; (ii) data concerning specific 

activities, as reported by parties in the 

registrant’s value chain; and (iii) data 

derived from economic studies, 

published databases, government 

statistics, industry associations, or other 

third-party sources outside of a 

registrant’s value chain, including 

industry averages of emissions, 

activities, or economic data, as 

proposed? Are there other sources of 

data for Scope 3 emissions the use of 

which we should specifically require to 

be disclosed? For purposes of our 

disclosure requirement, should we 

exclude or prohibit the use of any of the 

proposed specified data sources when 

calculating Scope 3 emissions and, if so, 

which ones? 

107. Should we require a registrant to 

provide location data for its disclosed 

sources of Scope 1, Scope 2, and Scope 

3 emissions if feasible? If so, should the 

feasibility of providing location data 

depend on whether it is known or 

reasonably available pursuant to the 

Commission’s existing rules (Securities 

Act Rule 409 and Exchange Act Rule 

12b–21)? Would requiring location data, 

to the extent feasible, assist investors in 

understanding climate-related risks, and 

in particular, likely physical risks, 

associated with a registrant’s emissions’ 

sources? Would a requirement to 

disclose such location data be 

duplicative of any of the other 

disclosure requirements that we are 

proposing? 

108. If we require a registrant to 

provide location data for its GHG 

emissions, how should that data be 

presented? Should the emissions data be 

grouped by zip code separately for each 

scope? Should the disclosure be 

presented in a cartographic data display, 

such as what is commonly known as a 

‘‘heat map’’? If we require a registrant to 

provide location data for its GHG 

emissions, should we also require 

additional disclosure about the source 

of the emissions? 

c. GHG Intensity 

In addition to requiring the disclosure 

of its GHG emissions in gross terms, the 

proposed rules would also require a 

registrant to disclose the sum of its 

Scopes 1 and 2 emissions in terms of 

GHG intensity.472 If required to disclose 

Scope 3 emissions, a registrant would 

also be required to separately disclose 

its Scope 3 emissions in terms of GHG 

intensity.473 GHG intensity disclosure 

should provide context to a registrant’s 

emissions in relation to its business 

scale (e.g., emissions per economic 

output). For example, car manufacturer 

A may generate more emissions in terms 

of CO2e than car manufacturer B; 

however, when analyzing an intensity 

metric (emissions per unit of 

production), it becomes apparent that 

car manufacturer A actually has a lower 

emission rate per car produced than car 

manufacturer B, which indicates a 

registrant’s emission efficiency. Because 

emission efficiency can be a potential 

indicator of the likelihood of the 

registrant being impacted by transition 

risks, such GHG intensity disclosure 

could provide decision-useful 

information to investors. In addition, 

the proposed GHG intensity disclosure 

would provide a standardized method 

for presenting such measure of 

efficiency across registrants, which 

should facilitate comparability of the 

registrant’s emissions efficiency over 

time. 

The proposed rules would define 

‘‘GHG intensity’’ (or ‘‘carbon intensity’’) 

to mean a ratio that expresses the 

impact of GHG emissions per unit of 

economic value (e.g., metric tons of 

CO2e per unit of total revenues, using 

the registrant’s reporting currency) or 

per unit of production (e.g., metric tons 

of CO2e per unit of product 

produced).474 For purposes of 

standardizing the disclosure and 

facilitating its comparability, we are 

proposing to require the disclosure of 

GHG intensity in terms of metric tons of 

CO2e per unit of total revenue and per 

unit of production for the fiscal year.475

Total revenue is one of the most 

commonly used and understood 

financial metrics when investors 

analyze a registrant’s financial results 

and applies to most registrants 

(depending on the nature and maturity 

of the business) and therefore would be 

a good common denominator for the 


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476See proposed 17 CFR 229.1504(d)(3). 

477See proposed 17 CFR 229.1504(d)(4). 

478See proposed 17 CFR 229.1504(e)(1) and infra 

Section II.G.2 for the proposed disclosure 

requirements pertaining to GHG emissions 

methodology. 479See proposed 17 CFR 229.1504(a). 

480See supra Section II.C for a discussion of 

proposed 17 CFR 229.1502. 

481Alternatively, if a registrant has no revenue, 

and it decides to calculate GHG intensity using total 

assets, we believe it would be appropriate for that 

registrant to provide its GHG intensity for the same 

number of years as are required on its balance 

sheets (i.e., two years if not a SRC). 

intensity calculation. The selected unit 

of production should be relevant to the 

registrant’s industry to facilitate investor 

comparison of the GHG intensity of 

companies within an industry without 

regard to registrant size. Investors may 

find such a comparison to be useful to 

making informed investment decisions 

to the extent that a registrant within a 

particular industry that has a lower 

GHG intensity relative to its peers that 

face fewer climate-related risks. 

If the registrant has no revenue for a 

fiscal year, it would be required to 

calculate its GHG intensity with another 

financial measure (e.g., total assets), 

with an explanation of why the 

particular measure was used. Similarly, 

if the registrant does not have a unit of 

production, it would be required to 

calculate its GHG intensity with another 

measure of economic output, depending 

on the nature of its business (e.g., data 

processing capacity, volume of products 

sold, or number of occupied rooms) 

with an explanation of why the 

particular measure was used.476

A registrant could also voluntarily 

disclose other additional measures of 

GHG intensity, including non-financial 

measures such as economic output, 

provided it includes an explanation of 

the reasons why those particular GHG 

intensity measures were used and why 

the registrant believes such measures 

provide useful information to 

investors.477 In all cases, the registrant 

would be required to disclose the 

methodology and other information 

required pursuant to the proposed GHG 

emissions metrics instructions.478

Request for Comment 

109. Should we require a registrant to 

disclose the intensity of its GHG 

emissions for the fiscal year, with 

separate calculations for (i) the sum of 

Scope 1 and Scope 2 emissions and, if 

applicable (ii) its Scope 3 emissions 

(separately from Scopes 1 and 2), as 

proposed? Should we define GHG 

intensity, as proposed? Is there a 

different definition we should use for 

this purpose? 

110. Should we require the disclosed 

GHG intensity to be expressed in terms 

of metric tons of CO2e per unit of total 

revenue, as proposed? Should we 

require a different financial measure of 

GHG intensity and, if so, which 

measure? For example, should GHG 

intensity be expressed in terms of metric 

tons of CO2e per unit of total assets? 

111. Should we require the disclosed 

GHG intensity to be expressed in terms 

of metric tons of CO2e per unit of 

production, as proposed? Would such a 

requirement facilitate the comparability 

of the disclosure? Should we require a 

different economic output measure of 

GHG intensity and, if so, which 

measure? For example, should GHG 

intensity be expressed in terms of metric 

tons of CO2e per number of employees? 

Should we require the GHG intensity to 

be expressed per unit of production 

relevant to the registrant’s business 

(rather than its industry)? Is further 

guidance needed on how to comply 

with the proposed requirement? Would 

requiring GHG intensity to be expressed 

in terms of metrics tons of CO2e per unit 

of production require disclosure of 

commercially sensitive or competitively 

harmful information? 

112. Should we require a registrant 

with no revenue or unit of production 

for a fiscal year to disclose its GHG 

intensity based on, respectively, another 

financial measure or measure of 

economic output, as proposed? Should 

we require such a registrant to use a 

particular financial measure, such as 

total assets, or a particular measure of 

economic output, such as total number 

of employees? For registrants who may 

have minimal revenue, would the 

proposed calculation result in intensity 

disclosure that is confusing or not 

material? Should additional guidance be 

provided with respect to such 

instances? 

113. Should we permit a registrant to 

disclose other measures of GHG 

intensity, in addition to the required 

measures, as long as the registrant 

explains why it uses the particular 

measure of GHG intensity and discloses 

the corresponding calculation 

methodology used, as proposed? 

d. GHG Emissions Data for Historical 

Periods 

The proposed rules would require 

disclosure to be provided for the 

registrant’s most recently completed 

fiscal year and for the historical fiscal 

years included in the registrant’s 

consolidated financial statements in the 

applicable filing, to the extent such 

historical GHG emissions data is 

reasonably available.479 Requiring 

historical GHG emissions data, to the 

extent available, would provide useful 

information for investors by enabling 

investors to track over time the 

registrant’s exposure to climate-related 

impacts represented by the yearly 

emissions data, and to assess how it is 

managing the climate-related risks 

associated with those impacts. 

Requiring GHG emissions disclosure for 

current and, when reasonably available, 

historical periods should enable 

investors to analyze trends in the 

impacts of material climate-related risks 

and to evaluate the narrative disclosure 

provided pursuant to proposed Item 

1502.480 Historical GHG emissions data 

also could be particularly useful when 

a registrant has announced a target or 

goal for reducing GHG emissions by a 

certain date by helping investors assess 

its progress in meeting that target or goal 

and the related impacts on the 

registrant. 

Linking the required number of years 

of historical GHG emissions data to the 

historical periods required in the 

consolidated financial statements 

should benefit investors by requiring 

emissions data that is consistent with 

the financial statement metrics in the 

filing. This should help investors 

connect GHG emissions with the 

financial performance of a registrant in 

the same period, including the proposed 

financial statement metrics. Moreover, 

although we are not proposing to 

require the GHG emissions data to be 

included in the registrant’s consolidated 

financial statements, we nevertheless 

believe that the GHG emissions data is 

relevant to, and would be read in 

conjunction with, information included 

in the consolidated financial statements. 

Just as data about a registrant’s revenues 

and expenses on its income statement 

reflect its activities in financial terms for 

a given year, a registrant’s emissions 

data reflect its carbon footprint activities 

for that year. For this reason, we have 

proposed requiring a registrant to 

provide its GHG emissions data for the 

same number of years as it is required 

to provide data on its income statement 

and cash flow statement, to the extent 

such emissions data is reasonably 

available. For example, a registrant that 

is required to include income 

statements and cash flow statements at 

the end of its three most recent fiscal 

years would be required to disclose 

three years of its Scope 1, Scope 2 and, 

if material to the registrant or if it has 

set a GHG emissions target or goal that 

includes its Scope 3 emissions, its 

Scope 3 emissions, expressed both in 

absolute terms and in terms of 

intensity.481 If the registrant is a SRC, 


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482We are proposing to exempt SRCs from Scope 

3 disclosures. See infra Section II.G.3. 

483See Securities Act Rule 409 and Exchange Act 

Rule 12b–21. 

484See proposed 17 CFR 229.1504(e)(1). 

485See id. 

486See proposed 17 CFR 229.1500(m). 

487See proposed 17 CFR 229.1500(l). 

488See proposed 17 CFR 229.1504(b)(1). 

489See GHG Protocol, Corporate Accounting and 

Reporting Standard, Chapter 3. 

490See proposed 17 CFR 229.1500(m). 

491See supra note 111. 

492Under the GHG Protocol’s equity share 

approach, a company accounts for GHG emissions 

from operations according to its share of equity in 

the operation. Under the GHG Protocol’s control 

approach, a company accounts for 100% of the 

GHG emissions from operations over which it has 

control. A company can choose to define control 

either in financial or operational terms. See GHG 

Protocol, Corporate Accounting and Reporting 

Standard, Chapter 3. 

493See proposed 17 CFR 229.1504(e)(2). 

494Foreign private issuers that file consolidated 

financial statements under IFRS as issued by the 

IASB would apply IFRS under the proposed rules 

as the basis for setting its organizational boundaries 

for the purpose of providing the proposed GHG 

emissions disclosure. 

495 Issuers that are permitted to, and do, apply 

IFRS issued by the International Accounting 

Standards Board would apply the IASB’s equivalent 

standards. See, e.g., IFRS 10 Consolidated Financial 

Statements, IFRS 11 Joint Arrangements and 

International Accounting Standards (‘‘IAS’’) 28 

Investments in Associates and Joint Ventures. See 

supra note 319, which states that foreign private 

issuers that file consolidated financial statements 

under home country GAAP and reconcile to U.S. 

GAAP, would be required to use U.S. GAAP as the 

basis for calculating and disclosing the proposed 

climate-related financial statement metrics. The 

same requirement would apply for the purpose of 

determining the proposed GHG emissions metrics. 

496See proposed 17 CFR 229.1504(e)(2). 

only two years of Scopes 1 and 2 

emissions metrics would be required.482

A registrant, however, would not 

otherwise be required to provide a 

corresponding GHG emissions metric 

for a fiscal year preceding its current 

reporting fiscal year if, for example, it 

was not required to and has not 

previously presented such metric for 

such fiscal year and the historical 

information necessary to calculate or 

estimate such metric is not reasonably 

available to the registrant without 

unreasonable effort or expense.483

Request for Comment 

114. Should we require GHG 

emissions disclosure for the registrant’s 

most recently completed fiscal year and 

for the appropriate, corresponding 

historical fiscal years included in the 

registrant’s consolidated financial 

statements in the filing, to the extent 

such historical GHG emissions data is 

reasonably available, as proposed? 

Should we instead only require GHG 

emissions metrics for the most recently 

completed fiscal year presented in the 

relevant filing? Would requiring 

historical GHG emissions metrics 

provide important or material 

information to investors, such as 

information allowing them to analyze 

trends? 

2. GHG Emissions Methodology and 

Related Instructions 

The proposed rules would require a 

registrant to describe the methodology, 

significant inputs, and significant 

assumptions used to calculate its GHG 

emissions metrics.484 As proposed, the 

description of the registrant’s 

methodology must include the 

registrant’s organizational boundaries, 

operational boundaries, calculation 

approach, and any calculation tools 

used to calculate the registrant’s GHG 

emissions.485 Organizational boundaries 

would be defined to mean the 

boundaries that determine the 

operations owned or controlled by a 

registrant for the purpose of calculating 

its GHG emissions.486 Operational 

boundaries would be defined to mean 

the boundaries that determine the direct 

and indirect emissions associated with 

the business operations owned or 

controlled by a registrant.487 This 

information should help investors 

understand the scope of a registrant’s 

operations included in its GHG 

emissions metrics and how those 

metrics were measured. With this 

information, investors could more 

knowledgeably compare a registrant’s 

GHG emissions metrics with the GHG 

emissions metrics of other registrants 

and make more informed investment 

decisions. 

a. The Setting and Disclosure of 

Organizational Boundaries 

The proposed rules would require a 

registrant to disclose its Scope 1 

emissions and its Scope 2 emissions 

separately after calculating them from 

all sources that are included in the 

registrant’s organizational and 

operational boundaries.488 An initial 

step for many registrants may be to set 

their organizational boundaries.489

Those boundaries determine the 

business operations owned or controlled 

by a registrant to be included in the 

calculation of its GHG emissions.490

Because both Scope 1 and Scope 2 

emissions relate to the operations 

owned or controlled by a registrant, 

setting a registrant’s organizational 

boundaries is an important part of 

determining its Scopes 1 and 2 

emissions. 

Several commenters stated that the 

GHG Protocol’s standards and guidance 

would provide an appropriate 

framework for reporting GHG emissions 

if the Commission required disclosure 

of GHG emissions.491 A company 

following the GHG Protocol would base 

its organizational boundaries on either 

an equity share approach or a control 

approach.492 Our proposed approach, 

however, would require a registrant to 

set the organizational boundaries for its 

GHG emissions disclosure using the 

same scope of entities, operations, 

assets, and other holdings within its 

business organization as those included 

in, and based upon the same set of 

accounting principles applicable to, its 

consolidated financial statements.493

For similar reasons to those noted 

above regarding the proposed time 

periods required for GHG emissions 

disclosure, we propose requiring the 

scope of consolidation and reporting to 

be consistent for financial data and GHG 

emissions data. This would be 

accomplished by applying existing 

GAAP.494 Requiring a consistent 

approach should help avoid potential 

investor confusion about the reporting 

scope used in determining a registrant’s 

GHG emissions and the reporting scope 

used for the financial statement metrics, 

which are included in the financial 

statements. Applying existing GAAP 

could help limit the compliance burden 

for registrants as they would be able to 

use familiar concepts from financial 

reporting when preparing their required 

GHG emissions disclosures. Requiring 

registrants to follow the scope of 

reporting used in their financial 

statements should also enhance 

comparability across registrants when 

compared with the multiple options 

available under the GHG Protocol. 

Thus, as proposed, the scope of 

reporting for a registrant’s GHG 

emissions metrics would be consistent 

with the scope of reporting for the 

proposed financial statement metrics 

and other financial data included in its 

consolidated financial statements in 

order to provide investors a consistent 

view of the registrant’s business across 

its financial and GHG emissions 

disclosures. For example, a registrant 

that prepares its financial statements 

pursuant to U.S. GAAP would apply 

relevant guidance from U.S. GAAP (e.g., 

FASB ASC Topic 810 Consolidation and 

FASB ASC Topic 323 Investments— 

Equity Method and Joint Ventures) 

when determining which entities would 

be subject to consolidation or which 

investments qualify for equity method 

accounting or proportionate 

consolidation.495 Therefore, under the 

proposed rules a registrant would be 

required to include all of the emissions 

from an entity that it consolidates.496

For an equity method investee or an 


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497See id. 498See id. 499See proposed 17 CFR 229.1504(b)(2). 500See proposed 17 CFR 229.1500(m) (defining 

organizational boundaries as the boundaries that 

determine the operations owned or controlled by a 

registrant) and 17 CFR 229.1504(b)(1) (requiring the 

disclosure of Scopes 1 and 2 emissions separately 

after calculating them from all sources included in 

a registrant’s organizational and operational 

boundaries). 

501See proposed 17 CFR 229.1504(e)(2). 

502See proposed 17 CFR 229.1504(e)(3). 

503See id. 504See id. 505See proposed Item 1504(e)(1). 506This non-exclusive list of possible emissions 

sources is based on categories of emissions sources 

provided in the GHG Protocol. See GHG Protocol, 

Corporate Accounting and Reporting Standard, 

Chapter 6. 

507See id. 

508See proposed 17 CFR 229.1504(e)(1). 

509See id. 

510See, e.g., GHG Protocol, Corporate Accounting 

and Reporting Standard, Chapter 6. 

operation that is proportionally 

consolidated, the registrant would be 

required to include its share of 

emissions based on its percentage 

ownership of such investee or 

operation.497 For a registrant that 

applies the equity method to an 

investee, the percentage of ownership 

interest used to record its share of 

earnings or losses in the investee must 

be the same for measuring its share of 

GHG emissions by the equity method 

investee.498 The proposed rules would 

permit a registrant to exclude emissions 

from investments that are not 

consolidated, are not proportionately 

consolidated, or that do not qualify for 

the equity method of accounting in the 

registrant’s consolidated financial 

statements.499

For example, a registrant might own 

or control several plants but have only 

a minority ownership in another plant 

over which it has no control. For the 

plants that are owned or controlled by 

the registrant, all of those plants’ direct 

and indirect emissions should be 

included in its Scopes 1 and 2 

emissions disclosure (regardless of 

ownership percentage that resulted in 

consolidation for financial statement 

purposes).500 If the registrant’s 

proportional interest in the latter plant 

is reflected in its consolidated financial 

statements (e.g., the investment qualifies 

for the equity method or a proportionate 

consolidation approach), when 

calculating its Scopes 1 and 2 emissions 

the registrant should include such 

proportional share (based on ownership 

interest) of that plant’s emissions in the 

total of each of its Scopes 1 and 2 

emissions.501

A related provision under the 

proposed rules would require a 

registrant to use the same organizational 

boundaries when calculating its Scope 1 

emissions and Scope 2 emissions 502

since both sets of emissions relate to 

operations that a registrant owns or 

controls. If required to disclose its 

Scope 3 emissions, a registrant would 

also be required to apply the same 

organizational boundaries used when 

determining its Scopes 1 and 2 

emissions as an initial step in 

identifying the sources of indirect 

emissions from activities in its value 

chain over which it lacks ownership 

and control and which must be 

included in the calculation of its Scope 

3 emissions.503 Requiring a registrant to 

use the same organizational boundaries 

when calculating its Scopes 1, 2 and 3 

emissions should help limit investor 

confusion over those operations or 

activities over which it has ownership 

or control (sources of its Scopes 1 and 

2 emissions) and those activities in its 

value chain over which it lacks 

ownership or control (sources of its 

Scope 3 emissions). The proposed 

provision also would provide that, once 

a registrant has determined its 

organizational (and operational) 

boundaries, it must consistently use 

those boundaries when calculating its 

GHG emissions.504 This proposed 

provision should help investors track 

and compare a registrant’s GHG 

emissions over time. 

b. The Setting and Disclosure of 

Operational Boundaries 

When describing the methodology, 

significant inputs, and significant 

assumptions used to calculate its GHG 

emissions metrics, a registrant is 

required to describe its operational 

boundaries.505 This would involve 

identifying emissions sources within its 

plants, offices, and other operational 

facilities that fall within its 

organizational boundaries, and then 

categorizing the emissions as either 

direct or indirect emissions. For 

example, a registrant might have direct 

emissions from one or more of the 

following sources that it owns or 

controls: 

• Stationary equipment (from the 

combustion of fuels in boilers, furnaces, 

burners, turbines, heaters, and 

incinerators); 

• Transportation (from the 

combustion of fuels in automobiles, 

trucks, buses, trains, airplanes, boats, 

ships, and other vessels); 

• Manufacturing processes (from 

physical or chemical processes, such as 

CO2 from the calcination process in 

cement manufacturing or from catalytic 

cracking in petrochemical processing, 

and PFC emissions from aluminum 

smelting); and 

• Fugitive emission sources 

(equipment leaks from joints, seals, 

packing, gaskets, coal piles, wastewater 

treatment, pits, cooling towers, and gas 

processing facilities, and other 

unintentional releases).506

Most registrants would likely have 

emission sources from stationary 

equipment and transportation devices. 

Registrants in certain industrial sectors, 

such as cement, aluminum, and other 

manufacturers, or oil and gas 

production and refining, are likely also 

to produce emissions from physical or 

chemical processes. Some registrants 

would likely have emissions from all 

four types of sources, particularly if they 

have their own power generation or 

waste treatment facilities.507

The proposed rules would require a 

registrant to include its approach to 

categorizing its emissions and emissions 

sources when describing its 

methodology to determine its 

operational boundaries.508 A registrant 

could use the above non-exclusive list 

of emissions sources or other categories 

of emissions sources as long as it 

describes how it determined the 

emissions to include as direct 

emissions, for the purpose of calculating 

its Scope 1 emissions, and indirect 

emissions, for the purpose of calculating 

its Scope 2 emissions.509 For most 

registrants, purchased electricity would 

likely constitute a large percentage of 

their Scope 2 emissions. Although 

Scope 2 emissions are generated from a 

source external to a registrant, the 

electricity (or steam, heat, or cooling) is 

consumed by the registrant’s operations 

that it owns or controls. 

c. The Selection and Disclosure of a 

GHG Emissions Calculation Approach, 

Including Emission Factors 

In addition to setting its 

organizational and operational 

boundaries, a registrant would need to 

select a GHG emissions calculation 

approach. While the direct 

measurement of GHG emissions from a 

source by monitoring concentration and 

flow rate is likely to yield the most 

accurate calculations, due to the 

expense of the direct monitoring of 

emissions, an acceptable and common 

method for calculating emissions 

involves the application of published 

emission factors to the total amount of 

purchased fuel consumed by a 

particular source.510 The proposed rules 

would define ‘‘emission factor’’ as a 

multiplication factor allowing actual 

GHG emissions to be calculated from 

available activity data or, if no activity 

data is available, economic data, to 


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511See proposed 17 CFR 229.1500(e). 

512See id. 

513See id. 

514See, e.g., Greenhouse Gas Protocol, Corporate 

Value Chain (Scope 3) Accounting and Reporting 

Standard, Supplement to the GHG Protocol 

Corporate Accounting and Reporting Standard, 

Chapter 1 (describing the ‘‘spend-based method’’ for 

calculating emissions from purchased goods or 

services). 

515See EPA, Emission Factors for Greenhouse Gas 

Inventories (Apr. 2021), available at https://

www.epa.gov/sites/default/files/2021-04/ 

documents/emission-factors_apr2021.pdf. 

516See, e.g., The Greenhouse Gas Protocol, GHG 

Emission Calculation Tool (Mar. 2021), available at 

https://ghgprotocol.org/calculation-tools. 

517See proposed 17 CFR 229.1504(e)(1). 

518See, e.g., GHG Protocol, Corporate Accounting 

and Reporting Standard, Chapter 6 (providing an 

overview of calculation tools by type of source (e.g., 

for stationary combustion, mobile combustion, and 

air conditioning and refrigeration use) and by sector 

(e.g., for aluminum production, iron and steel 

production, cement manufacturing, and pulp and 

paper production), which are available on the GHG 

Protocol website at https://ghgprotocol.org/. The 

EPA also has published a Simplified GHG 

Emissions Calculator that is designed as a 

simplified calculation tool to help small businesses 

and low emitter organizations estimate and 

inventory their annual GHG emissions. See EPA, 

Simplified GHG Emissions Calculator (2021), 

available at https://www.epa.gov/climateleadership/ 

simplified-ghg-emissions-calculator. 

519As noted earlier, a registrant that is required 

to report its direct emissions to the EPA may be able 

to use the EPA-provided data, together with data for 

any direct emissions not reported to the EPA, to 

help fulfill the Commission’s proposed Scope 1 

emission disclosure requirement. 

520See World Resources Institute, GHG Protocol 

Scope 2 Guidance (2015), Chapter 4, available at 

https://ghgprotocol.org/sites/default/files/ 

standards/Scope%202%20Guidance_Final_

Sept26.pdf. 

521See id. 

522We note that, pursuant to the GHG Protocol, 

and as referenced by the EPA, a company that 

determines its Scope 2 emissions using a marketbased approach would also calculate those 

emissions using the location-based method to 

provide a more complete picture of the company’s 

Scope 2 emissions. See World Resources Institute, 

GHG Protocol Scope 2 Guidance, Chapter 7; and 

EPA Center for Corporate Climate Leadership, 

Scope 1 and Scope 2 Inventory Guidance. 

523See, e.g., EPA, Emission Factors for 

Greenhouse Gas Inventories, Table 6, which 

provides emission factors for regional electrical 

grids. 

524See, e.g., EPA, Emission Factors for 

Greenhouse Gas Inventories, Table 7, which 

provides emission factors for steam and heat. 

525See proposed 17 CFR 229.1504(e)(1). 

derive absolute GHG emissions.511

Emission factors are ratios that typically 

relate GHG emissions to a proxy 

measure of activity at an emissions 

source. Examples of activity data 

reflected in emission factors include 

kilowatt-hours of electricity used, 

quantity of fuel used, output of a 

process, hours of operation of 

equipment, distance travelled, and floor 

area of a building.512 If no activity data 

is available, a registrant may use an 

emission factor based on economic 

data.513 For example, when calculating 

Scope 3 emissions from purchased 

goods or services, a registrant could 

determine the economic value of the 

goods or services purchased and 

multiply it by an industry average 

emission factor (expressed as average 

emissions per monetary value of goods 

or services).514

The EPA has published a set of 

emission factors based on the particular 

type of source (e.g., stationary 

combustion, mobile combustion, 

refrigerants, and electrical grid, among 

others) and type of fuel consumed (e.g., 

natural gas, coal or coke, crude oil, and 

kerosene, among many others).515 The 

GHG Protocol’s own set of GHG 

emission calculation tools are based in 

part on the EPA’s emission factors.516

Whatever set of emission factors a 

registrant chooses to use, it must 

identify the emission factors and its 

source.517

After a registrant has selected a 

calculation approach (i.e., direct 

measurement or application of 

emissions factors), the registrant would 

determine what data must be collected 

and how to conduct the relevant 

calculations, including whether to use 

any publicly-available calculation tools. 

In this regard, we note that there are a 

number of publicly-available calculation 

tools a registrant may elect to utilize in 

determining its GHG emissions.518

Finally, a registrant would gather and 

report GHG emissions up to the 

corporate level. 

For example, when determining its 

Scope 1 emissions for a particular plant, 

a registrant might add up the amount of 

natural gas consumed by furnaces and 

other stationary equipment during its 

most recently completed fiscal year and 

then apply the CO2 emission factor for 

natural gas to that total amount to derive 

the amount of GHG emissions expressed 

in CO2e. The registrant would repeat 

this process for each type of fuel 

consumed and for each type of source. 

If a registrant owns a fleet of trucks, it 

might total the amount of diesel fuel or 

other type of gasoline consumed for the 

fiscal year and apply the appropriate 

CO2 emission factor for that vehicle and 

type of fuel. A registrant that uses 

refrigerants also might apply the 

appropriate emission factor for the 

particular type of refrigerant to the total 

amount of that refrigerant used during 

the fiscal year. As part of the roll-up 

process for a registrant with multiple 

entities and emission sources, once it 

has determined the amount of CO2e for 

each type of direct emissions source and 

for each facility within its 

organizational and operational 

boundaries, the registrant would then 

add them together to derive the total 

amount of Scope 1 emissions for the 

fiscal year.519

A registrant would undergo a similar 

process when calculating its Scope 2 

emissions for its most recently 

completed fiscal year. There are two 

common methods for calculating Scope 

2 emissions for purchased electricity: 

The market-based method and the 

location-based method.520 Pursuant to 

the market-based method, a registrant 

would calculate its Scope 2 emissions 

based on emission factors and other data 

provided by the generator of electricity 

from which the registrant has contracted 

to purchase the electricity and which 

are included in the contractual 

instruments. Pursuant to the locationbased method, a registrant would 

calculate its Scope 2 emissions based on 

average energy generation emission 

factors for grids located in defined 

geographic locations, including local, 

subnational, or national boundaries.521

A registrant could use either of these 

methods, both methods, a combination, 

or another method as long as it 

identifies the method used and its 

source.522 For example, if using the 

location-based method, the registrant 

would apply an appropriate emission 

factor for the electricity grid in its region 

to the total amount of electricity 

purchased from that grid during its 

fiscal year.523 The registrant would then 

calculate the amount of CO2e from 

purchased steam/heat, if any, by 

applying the appropriate emission factor 

for that type of energy source to the total 

amount consumed.524 The registrant 

would report the sum of its CO2e from 

purchased electricity and steam/heat as 

its total Scope 2 emissions for the fiscal 

year. 

As noted above, in all instances a 

registrant would be required to describe 

its methodology, including its 

organizational and operational 

boundaries, calculation approach 

(including any emission factors used 

and the source of the emission factors), 

and any calculation tools used to 

calculate the GHG emissions.525

Requiring a registrant to describe its 

methodology for determining its GHG 

emissions should provide investors with 

important information to assist them in 

evaluating the registrant’s GHG 

emissions disclosure as part of its 

overall business and financial 

disclosure. Such disclosure should 

enable investors to evaluate the 

reasonableness and accuracy of the 

emission disclosures, and should 

promote consistency and comparability 

over time. For example, an investor 


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526See PCAF, Global GHG Accounting & 

Reporting Standard for the Financial Industry 

(2020), available at https://

carbonaccountingfinancials.com/files/downloads/ 

PCAF-Global-GHG-Standard.pdf. 

527See id. See also GHG Protocol Press Release, 

New Standard Developed to Help Financial 

Industry Measure and Report Emissions (Mar. 

2021), available at https://ghgprotocol.org/blog/ 

new-standard-developed-help-financial-industrymeasure-and-report-emissions. 

528While the guidance provided by the PCAF 

Standard for each asset class differs in certain 

respects, the PCAF Standard applies a common set 

of principles across the various asset classes. A key 

principle is that the GHG emissions from a client’s 

activities financed by loans or investments 

attributable to the reporting financial institution 

should be allocated to that institution based on its 

proportional share of lending or investment in the 

borrower or investee through the application of an 

‘‘attribution factor.’’ See PCAF, Global GHG 

Accounting & Reporting Standard for the Financial 

Industry (2020), Sections 4.2 and 5. 

529See proposed 17 CFR 229.1504(e)(4). 

530See, e.g., letters from Cisco; Dow; Energy 

Infrastructure Council; National Mining 

Association; Newmont Corporation; and United 

Airlines Holdings, Inc. 

531See proposed 17 CFR 229.1504(e)(4)(i). One 

commenter made a similar recommendation when 

stating that a registrant should be required to follow 

the same timeline for disclosure of its GHG 

emissions as for its Exchange Act annual reporting 

obligations. See letter from Pricewaterhouse 

Coopers. 

532See supra note 530. 

533See proposed 17 CFR 229.1504(e)(5). 

534See id. 

535See proposed 17 CFR 229.1504(e)(6). 

536See proposed 17 CFR 229.1504(e)(7). 

would be able to evaluate both if the 

registrant’s selection of an emission 

factor is reasonable given the registrant’s 

industry sector and whether changes in 

reported emissions reflect changes in 

actual emissions in accordance with its 

strategy or simply a change in 

calculation methodology. 

Like registrants in other sectors, 

registrants in the financial sector would 

be required to disclose their Scope 3 

emissions if those emissions are 

material and to describe the 

methodology used to calculate those 

emissions. A financial registrant’s Scope 

3 emissions disclosures would likely 

include the emissions from companies 

that the registrant provides debt or 

equity financing to (‘‘financed 

emissions’’). While financial registrants 

may use any appropriate methodology 

to calculate its Scope 3 emissions, the 

Partnership for Carbon Accounting 

Financials’ Global GHG Accounting & 

Reporting Standard (the ‘‘PCAF 

Standard’’) provides one methodology 

that complements the GHG Protocol and 

assists financial institutions in 

calculating their financed emissions.526

The PCAF Standard was developed to 

work with the calculation of Scope 3 

emissions for the ‘‘investment’’ category 

of downstream emissions and was 

endorsed by the drafters of the GHG 

Protocol.527 The PCAF Standard covers 

six asset classes: Listed equity and 

corporate bonds; business loans and 

unlisted equity; project finance; 

commercial real estate; mortgages; and 

motor vehicle loans.528

At this time, we are not proposing to 

require a particular methodology for the 

financial sector in order to provide a 

financial sector registrant the flexibility 

to choose the methodology that best 

suits its particular portfolio and 

financing activities. We believe the 

proposed requirement to disclose the 

methodology used (e.g., the PCAF 

Standard or another standard) would 

provide sufficient information to an 

investor. 

d. Additional Rules Related to 

Methodology Disclosure 

We are proposing additional rules 

related to the methodology for 

calculating GHG emissions. Some of 

these rules would apply generally to the 

determination of GHG emissions while 

some would apply specifically to the 

calculation of Scope 3 emissions. For 

example, one proposed rule would 

provide that a registrant may use 

reasonable estimates when disclosing its 

GHG emissions as long as it also 

describes the assumptions underlying, 

and its reasons for using, the 

estimates.529 While we encourage 

registrants to provide as accurate a 

measurement of its GHG emissions as is 

reasonably possible, we recognize that, 

in many instances, direct measurement 

of GHG emissions at the source, which 

would provide the most accurate 

measurement, may not be possible. 

Several commenters indicated that a 

registrant may find it difficult to 

complete its GHG emissions 

calculations for its most recently 

completed fiscal year in time to meet its 

disclosure obligations for that year’s 

Exchange Act annual report.530 The 

proposed rules would permit a 

registrant to use a reasonable estimate of 

its GHG emissions for its fourth fiscal 

quarter if no actual reported data is 

reasonably available, together with 

actual, determined GHG emissions data 

for its first three fiscal quarters when 

disclosing its GHG emissions for its 

most recently completed fiscal year, as 

long as the registrant promptly discloses 

in a subsequent filing any material 

difference between the estimate used 

and the actual, determined GHG 

emissions data for the fourth fiscal 

quarter.531 We believe that this 

proposed provision would help address 

the concerns of commenters about the 

timely completion of both the work 

required to disclose a registrant’s GHG 

emissions as of its fiscal year-end and to 

meet its other Exchange Act annual 

reporting obligations.532

Another proposed provision would 

require a registrant to disclose, to the 

extent material and as applicable, any 

use of third-party data when calculating 

its GHG emissions, regardless of the 

particular scope of emissions.533 While 

this proposed provision would be most 

relevant to the disclosure of Scope 3 

emissions, where the use of third-party 

data is common, it would apply in other 

instances when third-party data is 

material to the GHG emissions 

determination, such as when 

determining Scope 2 emissions using 

contractual, supplier-provided emission 

factors for purchased electricity. When 

disclosing the use of third-party data, a 

registrant would be required to identify 

the source of the data and the process 

the registrant undertook to obtain and 

assess such data.534 This information 

would help investors better understand 

the basis for, and assess the 

reasonableness of, the GHG emissions 

determinations and, accordingly, 

evaluate the GHG disclosures as part of 

a registrant’s business and financial 

information. 

One proposed provision would 

require a registrant to disclose any 

material change to the methodology or 

assumptions underlying its GHG 

emissions disclosure from the previous 

fiscal year.535 For example, if a 

registrant uses a different set of 

emission factors, or develops a more 

direct method of measuring GHG 

emissions, which results in a material 

change to the GHG emissions produced 

from the previous year under (or 

assuming) the same organizational and 

operational boundaries, it would be 

required to report that change. This 

should help investors more 

knowledgeably compare the emissions 

data from year to year and better 

understand the nature and significance 

of a material change in emissions (i.e., 

was the change primarily due to an 

implementation of strategy or a change 

in methodology). 

Another proposed provision would 

require a registrant to disclose, to the 

extent material and as applicable, any 

gaps in the data required to calculate its 

GHG emissions.536 This proposed 

provision would be particularly relevant 

to a registrant’s Scope 3 emissions. 

While a registrant’s GHG emissions 

disclosure should provide investors 

with a reasonably complete 

understanding of the registrant’s GHG 

emissions in each scope of emissions, as 

previously noted, we recognize that a 


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537See id. 

538See proposed 17 CFR 229.1504(e)(8). 

539See Greenhouse Gas Protocol, Corporate Value 

Chain (Scope 3) Accounting and Reporting 

Standard, Supplement to the GHG Protocol 

Corporate Accounting and Reporting Standard, 

Chapter 6. 

540See proposed 17 CFR 229.1504(e)(9). 541See proposed 17 CFR 229.1504(e)(4)(ii). 

registrant may encounter data gaps, 

particularly when calculating its Scope 

3 emissions. The proposed provision 

would require the registrant to disclose 

the data gaps and discuss whether it 

used proxy data or another method to 

address such gaps. A registrant would 

also be required to discuss how its 

accounting for any data gaps has 

affected the accuracy or completeness of 

its GHG emissions disclosure.537 This 

information should help investors 

understand certain underlying 

uncertainties and limitations, and 

evaluate the corresponding reliability, of 

a registrant’s GHG emissions disclosure, 

particularly for its Scope 3 emissions, as 

part of their assessment of the 

registrant’s business and financial 

information. 

One proposed provision would 

provide that, when determining whether 

its Scope 3 emissions are material, and 

when disclosing those emissions, in 

addition to emissions from activities in 

its value chain, a registrant must 

include GHG emissions from outsourced 

activities that it previously conducted as 

part of its own operations, as reflected 

in the financial statements for the 

periods covered in the filing.538 This 

proposed approach, which is consistent 

with the GHG Protocol,539 would help 

ensure that investors receive a complete 

picture of a registrant’s carbon footprint 

by precluding the registrant from 

excluding emissions from activities that 

are typically conducted as part of 

operations over which it has ownership 

or control but that are outsourced in 

order to reduce its Scopes 1 or 2 

emissions. 

Another proposed provision would 

provide that, if a registrant is required 

to disclose Scope 3 emissions, and if 

there was any significant overlap in the 

categories of activities producing the 

Scope 3 emissions, the registrant must 

describe the overlap, how it accounted 

for the overlap, and its disclosed total 

Scope 3 emissions.540 For example, a 

mining registrant may mine and process 

iron ore for conversion into steel 

products. Because the processing of iron 

ore and steelmaking both require the use 

of coal, GHG emissions would arise both 

from the downstream activities 

involving the processing of sold 

products and the use of sold products 

(i.e., the use of iron ore in the 

production of steel). If the registrant has 

allocated GHG emissions to both 

categories (i.e., processing of sold 

products and use of sold products), it 

would be required to describe the 

overlap in emissions between the two 

categories of downstream activities, how 

it accounted for the overlap, and the 

effect on its disclosed total Scope 3 

emissions. For example, if the total 

reported Scope 3 emissions involved 

some double-counting because of the 

overlap, a registrant would be required 

to report this effect. This information 

could help investors better understand 

the true extent of a registrant’s disclosed 

Scope 3 emissions and, thus, the 

climate-related risks faced by the 

registrant. 

Finally, a proposed provision would 

provide that a registrant may present its 

estimated Scope 3 emissions in terms of 

a range as long as it discloses its reasons 

for using the range and the underlying 

assumptions.541 This proposed 

provision reflects our understanding 

that, because a registrant may encounter 

more difficulties obtaining all of the 

data required for determining its Scope 

3 emissions compared to determining its 

Scopes 1 and 2 emissions, presenting its 

Scope 3 emissions in terms of a range 

may be a reasonable means of estimating 

these emissions when faced with such 

gaps in the data. 

Request for Comment 

115. Should we require a registrant to 

disclose the methodology, significant 

inputs, and significant assumptions 

used to calculate its GHG emissions 

metrics, as proposed? Should we require 

a registrant to use a particular 

methodology for determining its GHG 

emission metrics? If so, should the 

required methodology be pursuant to 

the GHG Protocol’s Corporate 

Accounting and Reporting Standard and 

related standards and guidance? Is there 

another methodology that we should 

require a registrant to follow when 

determining its GHG emissions? Should 

we base our climate disclosure rules on 

certain concepts developed by the GHG 

Protocol without requiring a registrant 

to follow the GHG Protocol in all 

respects, as proposed? Would this 

provide flexibility for registrants to 

choose certain methods and approaches 

in connection with GHG emissions 

determination that meet the particular 

circumstances of their industry or 

business or that emerge along with 

developments in GHG emissions 

methodology as long as they are 

transparent about the methods and 

underlying assumptions used? Are there 

adjustments that should be made to the 

proposed methodology disclosure 

requirements that would provide 

flexibility for registrants while 

providing sufficient comparability for 

investors? 

116. Should we require a registrant to 

disclose the organizational boundaries 

used to calculate its GHG emissions, as 

proposed? Should we require a 

registrant to determine its organizational 

boundaries using the same scope of 

entities, operations, assets, and other 

holdings within its business 

organization as that used in its 

consolidated financial statements, as 

proposed? Would prescribing this 

method of determining organizational 

boundaries avoid potential investor 

confusion about the reporting scope 

used in determining a registrant’s GHG 

emissions and the reporting scope used 

for the financial statement metrics, 

which are included in the financial 

statements? Would prescribing this 

method of determining organizational 

boundaries result in more robust 

guidance for registrants and enhanced 

comparability for investors? If, as 

proposed, the organizational boundaries 

must be consistent with the scope of the 

registrant’s consolidated financial 

statements, would requiring separate 

disclosure of the organizational 

boundaries be redundant or otherwise 

unnecessary? 

117. Except for calculating Scope 3 

emissions, the proposed rules would not 

require a registrant to disclose the 

emissions from investments that are not 

consolidated, proportionately 

consolidated, or that do not qualify for 

the equity method of accounting. 

Should we require such disclosures for 

Scopes 1 and 2 emissions, and if so, 

how? 

118. Could situations arise where it is 

impracticable for a registrant to align the 

scope of its organizational boundaries 

for GHG emission data with the scope 

of the consolidation for the rest of its 

financial statements? If so, should we 

allow a registrant to take a different 

approach to determining the 

organizational boundaries of its GHG 

emissions and provide related 

disclosure, including an estimation of 

the resulting difference in emissions 

disclosure (in addition to disclosure 

about methodology and other matters 

that would be required by the proposed 

GHG emissions disclosure rules)? 

119. Alternatively, should we require 

registrants to use the organizational 

boundary approaches recommended by 

the GHG Protocol (e.g., financial control, 

operational control, or equity share)? Do 

those approaches provide a clear 

enough framework for complying with 

the proposed rules? Would such an 


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approach cause confusion when 

analyzing information in the context of 

the consolidated financial statements or 

diminish comparability? If we permit a 

registrant to choose one of the three 

organizational boundary approaches 

recommended by the GHG Protocol, 

should we require a reconciliation with 

the scope of the rest of the registrant’s 

financial reporting to make the 

disclosure more comparable? 

120. Should we require a registrant to 

disclose its operational boundaries, as 

proposed? Should we require a 

registrant to discuss its approach 

towards the categorization of emissions 

(e.g., as direct or indirect emissions) and 

emissions sources (e.g., stationary or 

mobile) when describing its operational 

boundaries, as proposed? 

121. The proposed operational 

boundaries disclosure is based largely 

on concepts developed by the GHG 

Protocol. Would requiring a registrant to 

determine its organizational boundaries 

pursuant to the GAAP applicable to the 

financial statement metrics included in 

the financial statements but its 

operational boundaries largely pursuant 

to concepts developed by the GHG 

Protocol cause confusion? Should we 

require a registrant to apply the GAAP 

applicable to its financial statements 

when determining whether it ‘‘controls’’ 

a particular source pursuant to the 

definition of Scope 1 emissions, or 

particular operations pursuant to the 

definition of Scope 2 emissions, as 

proposed? If not, how should ‘‘control’’ 

be determined and would applying a 

definition of control that differs from 

applicable GAAP result in confusion for 

investors? 

122. Should we require a registrant to 

use the same organizational boundaries 

when calculating its Scopes 1 and 2 

emissions, as proposed? Are there any 

circumstances when a registrant’s 

organizational boundaries for 

determining its Scope 2 emissions 

should differ from those required for 

determining its Scope 1 emissions? 

Should we also require a registrant to 

apply the same organizational 

boundaries used when determining its 

Scopes 1 and 2 emissions as an initial 

step in identifying the sources of 

indirect emissions from activities in its 

value chain over which it lacks 

ownership and control and which must 

be included in the calculation of its 

Scope 3 emissions, as proposed? Are 

there any circumstances where using a 

different organizational boundary for 

purposes of Scope 3 emissions 

disclosure would be appropriate? 

123. Should we require a registrant to 

be consistent in its use of its 

organizational and operational 

boundaries once it has set those 

boundaries, as proposed? Would the 

proposed requirement help investors to 

track and compare the registrant’s GHG 

emissions over time? 

124. Should we require a registrant to 

disclose the methodology for calculating 

the GHG emissions, including any 

emission factors used and the source of 

the emission factors, as proposed? 

Should we require a registrant to use a 

particular set of emission factors, such 

as those provided by the EPA or the 

GHG Protocol? 

125. Should we permit a registrant to 

use reasonable estimates when 

disclosing its GHG emissions as long as 

it also describes the assumptions 

underlying, and its reasons for using, 

the estimates, as proposed? Should we 

permit the use of estimates for only 

certain GHG emissions, such as Scope 3 

emissions? Should we permit a 

registrant to use a reasonable estimate of 

its GHG emissions for its fourth fiscal 

quarter if no actual reported data is 

reasonably available, together with 

actual, determined GHG emissions data 

for its first three fiscal quarters when 

disclosing its GHG emissions for its 

most recently completed fiscal year, as 

long as the registrant promptly discloses 

in a subsequent filing any material 

difference between the estimate used 

and the actual, determined GHG 

emissions data for the fourth fiscal 

quarter, as proposed? If so, should we 

require a registrant to report any such 

material difference in its next Form 10– 

Q if domestic, or in a Form 6–K, if a 

foreign private issuer? Should we 

permit a domestic registrant to report 

any such material difference in a Form 

8–K if such form is filed (rather than 

furnished) with the Commission? 

Should any such reasonable estimate be 

subject to conditions to help ensure 

accuracy and comparability? If so, what 

conditions should apply? 

126. Should we require a registrant to 

disclose, to the extent material, any use 

of third-party data when calculating its 

GHG emissions, regardless of the 

particular scope of emissions, as 

proposed? Should we require the 

disclosure of the use of third-party data 

only for certain GHG emissions, such as 

Scope 3 emissions? Should we require 

the disclosure of the use of third-party 

data for Scope 3 emissions, regardless of 

its materiality to the determination of 

those emissions? If a registrant discloses 

the use of third-party data, should it 

also be required to identify the source 

of such data and the process the 

registrant undertook to obtain and 

assess the data, as proposed? 

127. Should we require a registrant to 

disclose any material change to the 

methodology or assumptions underlying 

its GHG emissions disclosure from the 

previous year, as proposed? If so, should 

we require a registrant to restate its GHG 

emissions data for the previous year, or 

for the number of years for which GHG 

emissions data has been provided in the 

filing, using the changed methodology 

or assumptions? If a registrant’s 

organizational or operational 

boundaries, in addition to methodology 

or assumptions, change, to what extent 

should we require such disclosures of 

the material change, restatements or 

reconciliations? In these cases, should 

we require a registrant to apply certain 

accounting standards or principles, such 

as FASB ASC Topic 250, as guidance 

regarding when retrospective disclosure 

should be required? 

128. Should we require a registrant to 

disclose, to the extent material, any gaps 

in the data required to calculate its GHG 

emissions, as proposed? Should we 

require the disclosure of data gaps only 

for certain GHG emissions, such as 

Scope 3 emissions? If a registrant 

discloses any data gaps encountered 

when calculating its Scope 3 emissions 

or other type of GHG emissions, should 

it be required to discuss whether it used 

proxy data or another method to address 

such gaps, and how its management of 

any data gaps has affected the accuracy 

or completeness of its GHG emissions 

disclosure, as proposed? Are there other 

disclosure requirements or conditions 

we should adopt to help investors 

obtain a reasonably complete 

understanding of a registrant’s exposure 

to the GHG emissions sourced by each 

scope of emissions? 

129. When determining the 

materiality of its Scope 3 emissions, or 

when disclosing those emissions, 

should a registrant be required to 

include GHG emissions from outsourced 

activities that it previously conducted as 

part of its own operations, as reflected 

in the financial statements for the 

periods covered in the filing, in addition 

to emissions from activities in its value 

chain, as proposed? Would this 

requirement help ensure that investors 

receive a complete picture of a 

registrant’s carbon footprint by 

precluding the registrant from excluding 

emissions from activities that are 

typically conducted as part of 

operations over which it has ownership 

or control but that are outsourced in 

order to reduce its Scopes 1 or 2 

emissions? Should a requirement to 

include outsourced activities be subject 

to certain conditions or exceptions and, 

if so, what conditions or exceptions? 

130. Should we require a registrant 

that must disclose its Scope 3 emissions 

to discuss whether there was any 


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542See, e.g., letter from Dimensional Fund 

Advisors; see also supra note 422. 

543While there may be less challenging 

approaches, such as using industry averages or 

proxies for activity data (such as economic data), 

the result may be less accurate and could obscure 

the impact of choices that companies may make to 

reduce their Scope 3 emissions. For example, if a 

company uses industry averages to calculate Scope 

3 emissions from shipping its products, it may have 

difficulty communicating to investors how its 

selection of a shipping company that runs on lower 

emissions fuel or picks more efficient routes has 

lowered its Scope 3 emissions. 

544See, e.g., Apple, Environmental Social 

Governance Report (2021), available at https://

s2.q4cdn.com/470004039/files/doc_downloads/ 

2021/08/2021_Apple_ESG_Report.pdf (stating that 

Apple works with its suppliers to help address 

Apple’s environmental commitments, such as 

becoming carbon neutral by 2030 across its entire 

product footprint). 

545See, e.g., PCAF, The Global GHG Accounting 

and Reporting Standard for the Financial Industry. 

In addition, the American Petroleum Institute has 

developed an overview of Scope 3 methodologies 

to inform oil and gas companies about Scope 3 

estimation approaches. See API and IPIECA, 

Estimating petroleum industry value chain (Scope 

3) greenhouse gas emissions, available at https://

www.api.org/∼/media/Files/EHS/climate-change/ 

Scope-3-emissions-reporting-guidance-2016.pdf. 

Finally, an initiative launched by food and beverage 

companies, Danone and Mars, together with the 

Science Based Targets Initiative, aims to provide 

Scope 3 guidance to companies in difference 

industries, starting with the food and beverage 

industry. See SB, Serious About Scope 3: 

Pioneering Companies Embracing Complexity, 

Reaping the Benefits, available at https://

sustainablebrands.com/read/supply-chain/seriousabout-scope-3-pioneering-companies-embracingcomplexity-reaping-the-benefits. 

546See 17 CFR 229.1504(f). 

547See proposed 17 CFR 229.1504(c)(3). 

548See infra Section II.M. 

549See, e.g., letters from ACCO Brands Corp.; 

American Bankers Association; American 

Petroleum Institute; American Property Casualty 

Insurance Association; Associated General 

Contractors of America; Bank of America 

Corporation; Biotechnology Innovation 

Organization; ConocoPhillips; Delta Airlines, Inc. 

(June 16, 2021); Deutsches Bank AG; Dow; Enbridge 

Inc.; Energy Infrastructure Council; Etsy, Inc.; 

Freeport-McMoran; KPMG LLP; Managed Funds 

Association; Nacco Industries; National Investor 

Relations Institute; National Ocean Industries 

Association; Neuberger Berman; NIRI Los Angeles; 

Oshkosh Corporation; Salesforce.com; SASB; 

SIFMA (June 10, 2021); Society for Corporate 

Governance; United Airlines Holdings, Inc. (June 

11, 2021); and Wachtell Rosen Lipton & Katz. 

550See, e.g., letters from Business Council for 

Sustainable Energy; Dimensional Fund Advisors; 

and Independent Community Bankers of America. 

551See, e.g., letters from AICPA; BlackRock; 

Center for Climate and Energy Solutions; Crowe 

LLP; Energy Strategy Coalition; Institute of 

Management Accountants; Japanese Bankers 

Association; Nareit; National Mining Association; 

and Newmont Corporation. 

552See, e.g., letters from Dimensional Fund 

Advisors; and International Capital Markets 

Association (June 15, 2021). 

significant overlap in the categories of 

activities that produced the Scope 3 

emissions? If so, should a registrant be 

required to describe any overlap, how it 

accounted for the overlap, and its effect 

on the total Scope 3 emissions, as 

proposed? Would this requirement help 

investors assess the accuracy and 

reliability of the Scope 3 emissions 

disclosure? 

131. Should we permit a registrant to 

present its Scope 3 emissions in terms 

of a range as long as it discloses its 

reasons for using the range and the 

underlying assumptions, as proposed? 

Should we place limits or other 

parameters regarding the use of a range 

and, if so, what should those limits or 

parameters be? For example, should we 

require a range to be no larger than a 

certain size? What other conditions or 

guidance should we provide to help 

ensure that a range, if used, is not overly 

broad and is otherwise reasonable? 

132. Should we require a registrant to 

follow a certain set of published 

standards for calculating Scope 3 

emissions that have been developed for 

a registrant’s industry or that are 

otherwise broadly accepted? For 

example, should we require a registrant 

in the financial industry to follow 

PCAF’s Global GHG Accounting & 

Reporting Standard for the Financial 

Industry when calculating its financed 

emissions within the ‘‘Investments’’ 

category of Scope 3 emissions? Are 

there other industry-specific standards 

that we should require for Scope 3 

emissions disclosure? Should we 

require a registrant to follow the GHG 

Protocol’s Corporate Value Chain (Scope 

3) Accounting and Reporting Standard if 

an industry-specific standard is not 

available for Scope 3 emissions 

disclosure? If we should require the use 

of a third-party standard for Scope 3 

emissions reporting, or any other scope 

of emissions, how should we implement 

this requirement? 

3. The Scope 3 Emissions Disclosure 

Safe Harbor and Other Accommodations 

We recognize that the calculation and 

disclosure of Scope 3 emissions may 

pose difficulties compared to Scopes 1 

and 2 emissions, which has caused 

concern for some commenters.542 It may 

be difficult to obtain activity data from 

suppliers and other third parties in a 

registrant’s value chain, or to verify the 

accuracy of that information. It may also 

be necessary to rely heavily on estimates 

and assumptions to generate Scope 3 

emissions data. For example, registrants 

may need to rely on assumptions about 

how customers will use their products 

in order to calculate Scope 3 emissions 

from the use of sold products. 

Depending on the size and complexity 

of a company and its value chain, the 

task of calculating Scope 3 emissions 

could be challenging.543 We expect that 

some of these challenges may recede 

over time. For example, as more 

companies make their Scope 1 and 2 

emissions data publicly available, these 

data can serve as the input for other 

companies’ Scope 3 calculations. In 

addition, large companies that are 

voluntarily disclosing Scope 3 

emissions information currently are also 

working with suppliers to increase 

access to emissions data and improve its 

reliability,544 which could have positive 

spillover effects for other companies 

that use the same suppliers. 

Furthermore, within certain industries, 

there is work underway to improve 

methodologies and share best practices 

to make Scope 3 calculations less 

burdensome and more reliable.545

Notwithstanding these anticipated 

developments, calculating and 

disclosing Scope 3 emissions could 

represent a challenge for certain 

registrants, in particular those that do 

not currently report such information on 

a voluntary basis. 

To balance concerns about reporting 

Scope 3 emissions with the need for 

decision-useful emissions disclosure, 

we are proposing the following 

accommodations for Scope 3 emissions 

disclosure: 

• A safe harbor for Scope 3 emissions 

disclosure from certain forms of liability 

under the Federal securities laws; 546

• An exemption for smaller reporting 

companies (‘‘SRCs’’) from the Scope 3 

emissions disclosure provision; 547 and 

• A delayed compliance date for 

Scope 3 emissions disclosure.548

We are proposing a safe harbor for 

Scope 3 emissions disclosure to 

alleviate concerns that registrants may 

have about liability for information that 

would be derived largely from third 

parties in a registrant’s value chain. 

Many commenters recommended that 

the Commission adopt a safe harbor for 

climate-related disclosures.549 These 

commenters asserted that a safe harbor 

would encourage registrants to provide 

meaningful, quantitative metrics and 

analysis. Other commenters focused 

their recommendation for a safe harbor 

on certain types of climate-related 

disclosures, such as those pertaining to 

scenario analysis, third-party derived 

data (such as Scope 3 emissions),550 or 

forward-looking statements generally.551

With respect to Scope 3 emissions 

specifically, commenters recommended 

that the Commission provide a safe 

harbor due to the reliance on estimates 

and data needed for Scope 3 emissions 

reporting that are outside of the 

registrant’s control.552

While we are not proposing a broad 

safe harbor for all climate-related 

disclosures, many of which are similar 


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553See proposed 17 CFR 229.1504(f)(1). 

554See proposed 17 CFR 229.1504(f)(2). 

555See proposed 17 CFR 229.1504(f)(3). This 

definition is based on the definition of fraudulent 

statement in 17 CFR 230.175. 

556See, e.g., letters from Elisha Doerr (May 24, 

2021); Freedomworks Foundation (June 14, 2021); 

Roger Hawkins (May 24, 2021); and Jonathan Skee 

(May 26, 2021). 

557See, e.g., letters from American Bankers 

Association (June 11, 2021); Biotechnology 

Innovation Organization (June 15, 2021); BNP 

Paribas; Cardano Risk Management Ltd.; Catavento 

Consultancy; Chamber of Commerce (June 11, 

2021); Credit Roundtable (June 11, 2021); Douglas 

Hileman Consulting; Environmental Bankers 

Association (June 9, 2021); Grant Thornton; Virginia 

Harper Ho; Manulife Investment Management; 

Mirova US; Morrison & Foerster; NEI Investments 

(June 11, 2021); New York State Society of Certified 

Public Accountants; PIMCO; and SIFMA. 

558See proposed 17 CFR 229.1504(c)(3). We also 

are proposing a later compliance date for SRCs. See 

infra Section II.M. 

559See 17 CFR 230.409 and 17 CFR 240.12b–21. 

560See id. We expect, however, that a registrant 

that requires emissions data from another registrant 

in its value chain would be able to obtain that data 

without unreasonable effort or expense because of 

the increased availability of Scopes 1 and 2 

emissions data for registrants following the 

effectiveness of the proposed rules. 

to other business and financial 

information required by Commission 

rules, we are proposing a targeted safe 

harbor for Scope 3 emissions data in 

light of the unique challenges associated 

with this information. The proposed 

safe harbor would provide that 

disclosure of Scope 3 emissions by or on 

behalf of the registrant would be 

deemed not to be a fraudulent statement 

unless it is shown that such statement 

was made or reaffirmed without a 

reasonable basis or was disclosed other 

than in good faith.553 The safe harbor 

would extend to any statement 

regarding Scope 3 emissions that is 

disclosed pursuant to proposed subpart 

1500 of Regulation S–K and made in a 

document filed with the Commission.554

For purposes of the proposed safe 

harbor, the term ‘‘fraudulent statement’’ 

would be defined to mean a statement 

that is an untrue statement of material 

fact, a statement false or misleading 

with respect to any material fact, an 

omission to state a material fact 

necessary to make a statement not 

misleading, or that constitutes the 

employment of a manipulative, 

deceptive, or fraudulent device, 

contrivance, scheme, transaction, act, 

practice, course of business, or an 

artifice to defraud as those terms are 

used in the Securities Act or the 

Exchange Act or the rules or regulations 

promulgated thereunder.555 The 

proposed safe harbor is intended to 

mitigate potential liability concerns 

associated with providing emissions 

disclosure based on third-party 

information by making clear that 

registrants would only be liable for such 

disclosure if it was made without a 

reasonable basis or was disclosed other 

than in good faith. It also may encourage 

more robust Scope 3 emissions 

information, to the extent registrants 

feel reassured about relying on actual 

third-party data as opposed to national 

or industry averages for their emissions 

estimates. 

Several commenters expressed 

concern that the Commission would 

impose a ‘‘one size fits all’’ approach, 

which could disproportionately impact 

smaller registrants, when adopting 

climate-related disclosure rules.556

Several commenters recommended that 

the Commission phase-in or scale down 

the climate-related disclosure 

requirements for smaller registrants.557

Although we are not proposing to 

exempt SRCs from the full scope of the 

proposed climate-related disclosure 

rules, we are proposing to exempt SRCs 

from the proposed Scope 3 emissions 

disclosure requirement.558 We believe 

that exempting SRCs from the proposed 

Scope 3 emissions disclosure 

requirement would be appropriate in 

light of the proportionately higher costs 

they could incur, compared to nonSRCs, to engage in the data gathering, 

verification, and other actions 

associated with Scope 3 emissions 

reporting, many of which may have 

fixed cost components. 

To further ease the burden of 

complying with the proposed Scope 3 

disclosure requirement, we are also 

proposing a delayed compliance date for 

this requirement. As explained in 

greater detail below, all registrants, 

regardless of their size, would have an 

additional year to comply initially with 

the Scope 3 disclosure requirement 

beyond the compliance date for the 

other proposed rules. Moreover, because 

a registrant’s Scope 3 emissions consist 

of the Scopes 1 and 2 emissions of its 

suppliers, distributors, and other third 

parties in the registrant’s value chain, to 

the extent those parties become subject 

to the proposed rules, the increased 

availability of Scopes 1 and 2 emissions 

data following the rules’ effectiveness 

should help ease the burden of 

complying with the Scope 3 emissions 

disclosure requirement. 

Finally, we note that Securities Act 

Rule 409 and Exchange Act Rule 12b– 

21, which provide accommodations for 

information that is unknown and not 

reasonably available, would be available 

for the proposed Scope 3 emissions 

disclosures.559 These rules allow for the 

conditional omission of required 

information when such information is 

unknown and not reasonably available 

to the registrant, either because 

obtaining the information would 

involve unreasonable effort or expense, 

or because the information rests 

peculiarly within the knowledge of 

another person not affiliated with the 

registrant.560

Request for Comment 

133. Should we provide a safe harbor 

for Scope 3 emissions disclosure, as 

proposed? Is the scope of the proposed 

safe harbor clear and appropriate? For 

example, should the safe harbor apply 

to any registrant that provides Scope 3 

disclosure pursuant to the proposed 

rules, as proposed? Should we limit the 

use of the safe harbor to certain classes 

of registrants or to registrants meeting 

certain conditions and, if so, which 

classes or conditions? For example, 

should we require the use of a particular 

methodology for calculating and 

reporting Scope 3 emissions, such as the 

PCAF Standard if the registrant is a 

financial institution, or the GHG 

Protocol Scope 3 Accounting and 

Reporting Standard for other types of 

registrants? Should we clarify the scope 

of persons covered by the language ‘‘by 

or on behalf of a registrant’’ by 

including language about outside 

reviewers retained by the registrant or 

others? Should we define a ‘‘fraudulent 

statement,’’ as proposed? Is the level of 

diligence required for the proposed safe 

harbor (i.e., that the statement was made 

or reaffirmed with a reasonable basis 

and disclosed in good faith) the 

appropriate standard? Should the safe 

harbor apply to other climate-related 

disclosures, such as Scopes 1 and 2 

emissions disclosures, any targets and 

goals disclosures in response to 

proposed Item 1505 (discussed below), 

or the financial statement metrics 

disclosures required pursuant to 

Proposed Article 14 of Regulation S–X? 

Should the safe harbor apply 

indefinitely, or should we include a 

sunset provision that would eliminate 

the safe harbor some number of years, 

(e.g., five years) after the effective date 

or applicable compliance date of the 

rules? Should the safe harbor sunset 

after certain conditions are satisfied? If 

so, what types of conditions should we 

consider? What other approaches 

should we consider? 

134. Should we provide an exemption 

from Scope 3 emissions disclosure for 

SRCs, as proposed? Should the 

exemption not apply to a SRC that has 

set a target or goal or otherwise made a 

commitment to reduce its Scope 3 

emissions? Are there other classes of 

registrants we should exempt from the 


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561See proposed 17 CFR 229.1505(a). In order to 

attest to the Scopes 1 and 2 emissions disclosure, 

we believe a GHG emissions attestation provider 

would need to include in its evaluation relevant 

contextual information. In particular, the attestation 

provider would be required to evaluate the 

registrant’s compliance with (i) proposed Item 

1504(a), which includes presentation requirements 

(e.g., disaggregation by each constituent greenhouse 

gas), (ii) the calculation instructions included in 

proposed Item 1504(b), and (iii) the disclosure 

requirements in proposed Item 1504(e) regarding 

methodology, organizational boundary, and 

operational boundary. See infra Section II.H.3 for 

further discussion of the criteria against which the 

Scopes 1 and 2 emissions disclosure are measured 

or evaluated. 

562See proposed 17 CFR 229.1505(d). 

563See proposed 17 CFR 229.1505(a)(1). 

564Reasonable assurance is equivalent to the level 

of assurance provided in an audit of a registrant’s 

consolidated financial statements included in a 

Form 10–K. Limited assurance is equivalent to the 

level of assurance (commonly referred to as a 

‘‘review’’) provided over a registrant’s interim 

financial statements included in a Form 10–Q. 565We refer to ‘‘assurance’’ broadly when 

describing the level and scope of assurance to 

which climate-related disclosures should be 

subject. Our proposed approach to assurance has 

been guided by ‘‘attestation’’ standards published 

by organizations including the PCAOB, AICPA, and 

the International Auditing and Assurance Standards 

Board (‘‘IAASB’’). Such attestation standards apply 

to engagements other than audit and review of 

historical financial statements and have been 

widely used in the current voluntary ESG and GHG 

assurance market for a number of years. 

566See proposed 17 CFR 229.1505(a)(2). If the 

accelerated filer or large accelerated filer was 

required to obtain reasonable assurance over its 

Scope 1 and Scope 2 emissions disclosures and the 

attestation provider chose to follow, for example, 

the AICPA attestation standards, the accelerated 

filer or large accelerated filer could voluntarily 

obtain limited assurance over its GHG intensity 

metric or Scope 3 emissions disclosures, and the 

attestation provider would be required to follow the 

AICPA’s attestation standard for providing limited 

assurance. 

567See, e.g., letters from AICPA; Americans for 

Financial Reform Education Fund et al; Andrew 

Behar; Baillie Gifford; Carbon Tracker Initiative; 

Cardano Risk Management Ltd.; CDP; Center for 

American Progress; Center for Audit Quality; Ceres 

et al.; Climate Disclosure Standards Board; Climate 

Governance Initiative; Emmanuelle Haack; Eni SpA; 

ERM CVS (recommending limited assurance); 

George Serafeim; Regenerative Crisis Response 

Committee; Friends of the Earth, Amazon Watch, 

and Rainforest Action Network; Hermes Equity 

Ownership Limited; Impax Asset Management; 

Institutional Shareholder Services; Interfaith Center 

on Corporate Responsibility (recommending 

reasonable assurance); International Corporate 

Governance Institute; International Organization for 

Standardization; Morningstar, Inc.; Natural 

Resources Defense Council; NY City Comptroller; 

NY State Comptroller; Oxfam America; PRI ; 

Pricewaterhouse Coopers; Revolving Door Project; 

TotalEnergies (recommending limited assurance); 

Value Balancing Alliance; WBCSD; William and 

Flora Hewlett Foundation; and World 

Benchmarking Alliance. 

Scope 3 emissions disclosure 

requirement? For example, should we 

exempt EGCs, foreign private issuers, or 

a registrant that is filing or has filed a 

registration statement for its initial 

public offering during its most recently 

completed fiscal year from the Scope 3 

disclosure requirement? Instead of an 

exemption, should we provide a longer 

phase in for the Scope 3 disclosure 

requirements for SRCs than for other 

registrants? 

H. Attestation of Scope 1 and Scope 2 

Emissions Disclosure 

1. Overview 

The proposed rules would require a 

registrant, including a foreign private 

issuer, that is an accelerated filer or 

large accelerated filer to include in the 

relevant filing an attestation report 

covering the disclosure of its Scope 1 

and Scope 2 emissions 561 and to 

provide certain related disclosures 

about the service provider.562 As 

proposed, the attestation engagement 

must, at a minimum, be at the following 

assurance level for the indicated fiscal 

year for the required GHG emissions 

disclosure:563

Limited assurance Reasonable 

assurance 

Fiscal Years 2 and 3 

after Scopes 1 and 

2 emissions disclosure compliance 

date.

Fiscal Years 4 and 

beyond after 

Scopes 1 and 2 

emissions disclosure compliance 

date. 

To provide additional clarity, the 

following table illustrates the 

application of the transition periods 

assuming that the proposed rules will be 

adopted with an effective date in 

December 2022 and that the accelerated 

filer or large accelerated filer has a 

December 31st fiscal year-end: 

Filer type Scopes 1 and 2 GHG disclosure 

compliance date * Limited assurance Reasonable assurance 

Accelerated Filer ............................ Fiscal year 2024 (filed in 2025) .... Fiscal year 2025 (filed in 2026) .... Fiscal year 2027 (filed in 2028). 

Large Accelerated Filer .................. Fiscal year 2023 (filed in 2024) .... Fiscal year 2024 (filed in 2025) .... Fiscal year 2026 (filed in 2027). 

*See infra Section II.M for a discussion of the proposed disclosure compliance dates for Scopes 1 and 2 GHG emissions disclosure. If the accelerated filer or the large accelerated filer has a non-calendar-year fiscal year-end date that results in its 2024 or 2023 fiscal year, respectively, 

commencing before the compliance dates of the rules, it would not be required to comply with proposed GHG emissions disclosure requirements 

until the following fiscal year (as discussed below in Section II.M). Accordingly, for such filers, the time period for compliance with the corresponding attestation requirements under proposed Item 1505 would be one year later than illustrated above. 

During the transition period when 

limited assurance is required, the 

proposed rules would permit an 

accelerated filer or a large accelerated 

filer, at its option, to obtain reasonable 

assurance of its Scope 1 and 2 emissions 

disclosure.564 For example, an 

accelerated filer or a large accelerated 

filer may choose to obtain reasonable 

assurance such that its GHG emissions 

disclosure receives the same level of 

assurance as its financial statements.565

At its option, an accelerated filer or a 

large accelerated filer would be able to 

obtain any level of assurance over its 

climate-related disclosures that are not 

required to be assured pursuant to 

proposed Item 1505(a). For example, an 

accelerated filer or a large accelerated 

filer could voluntarily include an 

attestation report at the limited 

assurance level for its GHG intensity 

metrics or its Scope 3 emissions 

disclosure. To avoid potential 

confusion, however, the voluntary 

assurance obtained by such filer would 

be required to follow the requirements 

of proposed Item 1505(b)–(d), including 

using the same attestation standard as 

the required assurance over Scope 1 and 

Scope 2.566 For filings made by 

accelerated filers and large accelerated 

filers after the compliance date for the 

GHG emissions disclosure requirements 

but before proposed Item 1505(a) 

requires limited assurance, the filer 

would only be required to provide the 

disclosure called for by proposed Item 

1505(e). As discussed below in Section 

II.H.5, a registrant that is not an 

accelerated filer or a large accelerated 

filer that obtains voluntary assurance 

would be required to comply only with 

proposed Item 1505(e). 

Many commenters recommended that 

we require climate-related disclosures to 

be subject to some level of assurance to 

enhance the reliability of the 

disclosures.567 Commenters noted that 

companies are increasingly seeking 

some type of third-party assurance or 


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568See letter from CAQ; see also CAQ, S&P 500 

and ESG Reporting (Aug. 9, 2021), available at 

https://www.thecaq.org/sp-500-and-esg-reporting/ 

(stating that more than half of S&P 500 companies 

had some form of assurance or verification over 

ESG metrics, including GHG emissions metrics). 

569See, e.g., letters from Credit Suisse; ERM CVS; 

PayPal Holdings, Inc.; TotalEnergies; and Walmart. 

570See letter from Energy Infrastructure Council; 

see also CAQ, S&P 500 and ESG Reporting (Aug. 

9, 2021). 

571See letter from PayPal Holdings, Inc. 

572See letter from CAQ. 

573See letter from Credit Suisse. 

574See, e.g., letters from Ceres et al.; and 

Interfaith Center on Corporate Responsibility. 

575See, e.g., letters from American Petroleum 

Institute; Investment Company Institute; and 

National Association of Manufacturers. 576See, e.g., letters from American Petroleum 

Institute; and Investment Company Institute. We 

agree that registrants should develop their DCP to 

include their GHG emissions disclosures. When the 

proposed GHG emissions disclosures are included 

in Form 10–K and Form 20–F annual reports, our 

rules governing DCP would apply to those 

disclosures. See 17 CFR 240.13a–15 and 240.15d– 

15. 

577See 17 CFR 229.1302 (requiring a registrant’s 

disclosure of exploration results, mineral resources, 

or mineral reserves to be based on and accurately 

reflect information and supporting documentation 

prepared by a qualified person, which, pursuant to 

17 CFR 229.1300, is defined to mean a mineral 

industry professional with at least five years of 

relevant experience in the type of mineralization 

and type of deposit under consideration who meets 

certain additional criteria); and 17 CFR 

229.1202(a)(7) (requiring a registrant to disclose the 

qualifications of the technical person primarily 

responsible for overseeing the preparation of the oil 

and gas reserves estimates or reserves audit). 

578See PCAOB AS 2710 Other Information in 

Documents Containing Audited Financial 

Statements (requiring an auditor to read the other 

information (included in an annual report with the 

audited financial statements) and consider whether 

such information, or the manner of its presentation, 

is materially inconsistent with information, or the 

manner of its presentation, appearing in the 

financial statements). For example, disclosure 

pursuant to 17 CFR 229.303 (Item 303 of Regulation 

S–K—MD&A) is derived in part from the same 

books and records that are subject to ICFR and used 

to generate a registrant’s audited financial 

statements and accompanying notes (e.g., the 

liquidity and capital resources disclosures are 

anchored to the audited cash flows information 

disclosed in the financial statements). 

579Although GHG emission disclosure would 

generally not be directly derived from the same 

books and records that are used to generate a 

registrant’s audited financial statements and 

accompanying notes and that are subject to ICFR, 

GHG emission disclosure, as proposed, would be 

required to use the same organizational and 

operational boundaries as the registrant’s financial 

statement disclosures. See proposed 17 CFR 

229.1504(e)(2). 

580See Modernization of Property Disclosures for 

Mining Registrants, Release No. 33–10570 (Oct. 31, 

2018), [83 FR 66344 (Dec. 26, 2018)]. 

verification over ESG and climaterelated disclosures. For example, 

according to one commenter, 80 percent 

of S&P 100 companies currently subject 

certain items of their ESG information, 

including climate-related disclosures 

such as greenhouse gas emissions, to 

some type of third-party assurance or 

verification.568 Several commenters 

recommended that we require climaterelated disclosures to be subject to 

limited assurance,569 which provides a 

lower level of assurance than reasonable 

assurance, but is less costly, and is the 

most common form of assurance 

provided for ESG, including climaterelated disclosures, in the current 

voluntary reporting landscape.570

One commenter recommended that, at 

a minimum, we require a registrant to 

obtain a limited assurance report for its 

Scopes 1 and 2 emissions disclosure 

while encouraging optional verification 

for other ESG metrics.571 Another 

commenter indicated that a limited 

assurance requirement for climaterelated disclosures would be similar to 

the EU’s Corporate Sustainability 

Reporting Directive proposal that, if 

adopted, would initially require 

companies in the European Union to 

obtain limited assurance on reported 

sustainability information with an 

option to move towards reasonable 

assurance in the future.572 One 

commenter stated the view that, while 

the professional capacity of audit firms 

might, at this point, be insufficient to 

provide reasonable assurance of ESG 

data, it supported a mandatory limited 

assurance requirement for climate risk 

reporting.573 Other commenters 

recommended that we require climaterelated disclosures to be audited at the 

reasonable assurance level.574

Some commenters, however, opposed 

any third-party assurance requirement 

for climate-related disclosures because 

of the significant cost that these 

commenters asserted it could impose on 

public companies, and because, in their 

view, application of assurance standards 

to data that is different from traditional 

financial reporting disclosures, such as 

GHG emissions, would be a relatively 

new and evolving field.575 Some of 

these commenters indicated that, as a 

first step, registrants should develop 

their internal controls and disclosure 

controls and procedures (‘‘DCP’’) to 

include climate-related disclosures, and 

defer mandated third-party assurance 

requirements to a later time.576

We recognize that requiring GHG 

emissions disclosure in Commission 

filings should enhance the consistency, 

comparability, and reliability of such 

disclosures due to the application of 

DCP and the proposed inclusion of 

certain prescriptive elements that may 

help improve standardization of GHG 

emissions calculations. Nevertheless, 

the evolving and unique nature of GHG 

emissions reporting involves and, in 

some cases, warrants varying 

methodologies, differing assumptions, 

and a substantial amount of estimation. 

Certain aspects of GHG emissions 

disclosure also involve reliance on 

third-party data. As such, requiring a 

third party’s attestation over these 

disclosures would provide investors 

with an additional degree of reliability 

regarding not only the figures that are 

disclosed, but also the key assumptions, 

methodologies, and data sources the 

registrant used to arrive at those figures. 

In other contexts, such as mineral 

resources and oil and gas reserves, the 

Commission has recognized the value 

that third parties with specialized 

expertise in audit and engineering can 

bring to company disclosures of 

physical resources or risks.577

Our rules typically do not require 

registrants to obtain assurance over 

disclosure provided outside of the 

financial statements, including 

quantitative disclosure. We believe, 

however, that there are important 

distinctions between existing 

quantitative disclosure required to be 

provided outside of the financial 

statements and the proposed GHG 

emissions disclosure. In contrast to GHG 

emissions disclosure, quantitative 

disclosure outside of the financial 

statements typically is derived, at least 

in part, from the same books and 

records that are used to generate a 

registrant’s audited financial statements 

and accompanying notes and that are 

subject to ICFR. Accordingly, such 

quantitative disclosure has been subject 

to audit procedures as part of the audit 

of the financial statements in the same 

filing. Further, the auditor’s read and 

consider obligation requires an 

evaluation of this quantitative 

information based on the information 

obtained through the audit of the 

financial statements.578 Unlike other 

quantitative information that is 

provided outside of the financial 

statements, GHG emissions disclosure 

would generally not be developed from 

information that is included in the 

registrant’s books and records and, 

therefore, would not be subjected to 

audit procedures.579 In addition, 

although not an assurance engagement, 

we have adopted rules requiring an 

expert to review and provide 

conclusions on other specialized, 

quantitative data that is provided 

outside of the financial statements.580

Accordingly, to enhance its reliability, 

we believe it is appropriate to require 

that GHG emissions disclosure be 

subject to third-party attestation. 

For similar reasons, we also 

considered proposing to require that 

management assess and disclose the 

effectiveness of controls over GHG 


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581See Qualifications of Accountants, Release 

No. 33–10876 (Oct. 16, 2020) [85 FR 80508 (Dec. 

11, 2020)], at 80508. See also Statement of Paul 

Munter, Acting Chief Accountant, The Importance 

of High Quality Independent Audits and Effective 

Audit Committee Oversight to High Quality 

Financial Reporting to Investors (Oct. 26, 2021), 

available at https://www.sec.gov/news/statement/ 

munter-audit-2021/10/26. 

582See, e.g., Carol Callaway Dee, et al., Client 

Stock Market Reaction to PCAOB Sanctions against 

a Big Four Auditor, 28 Contemp. Acct. Res. 263 

(Spring 2011) (‘‘Audits are valued by investors 

because they assure the reliability of and reduce the 

uncertainty associated with financial statements.’’); 

Center for Audit Quality, 2019 Main Street Investor 

Survey (‘‘[I]nvestors continue to register high 

degrees of confidence in the ability of public 

company auditors to fulfill their investor-protection 

roles. Eighty-three percent of US retail investors 

view auditors as effective in their investorprotection role within the US capital markets, up 

from 81% in 2018); and CFA Institute, CFA Institute 

Member Survey Report—Audit Value, Quality, and 

Priorities (2018). 

583See infra note 604 for a discussion of the key 

differences between limited and reasonable 

assurance engagements. 

584See, e.g., Ryan J. Casey, et al., Understanding 

and Contributing to the Enigma of Corporate Social 

Responsibility (CSR) Assurance in the United 

States, 34 Auditing: A Journal of Practice and 

Theory 97, 122 (Feb. 2015) (finding that corporate 

social responsibility (‘‘CSR’’) assurance results in 

lower cost-of-capital along with lower analyst 

forecast errors and dispersion, and that financial 

analysts find related CSR reports to be more 

credible when independently assured). See also 

infra note 592 for statistics illustrating that limited 

assurance is more commonly obtained voluntarily 

in the current market than reasonable assurance 

over ESG-related information. 

585See, e.g., letter from Institute for Policy 

Integrity, Environmental Defense Fund, Initiative 

on Climate Risk & Resilience Law (‘‘Voluntary 

frameworks typically lack independent auditing 

requirements, which is one reason many investors 

perceive current disclosures to be unreliable or 

uneven.’’). See also EVORA Global and SIERA, 

Investor Survey 2021: Part 2 ESG Data Challenge 

(2021), 7, available at https://evoraglobal.com/wpcontent/uploads/2021/12/ESG-Data-ChallengeInvestor-Survey-Part-2.pdf (‘‘Investors are 

integrating ESG across the investment lifecycle, for 

the purposes of strategy, reporting, peer 

benchmarking, etc., however the majority (86%) are 

not sure of their ESG data quality. About 52% of 

the investors consider that their ESG data is 

partially investment-grade.’’); State Street Global 

Advisors, The ESG Data Challenge (Mar. 2019), 

available at https://www.ssga.com/investmenttopics/environmental-social-governance/2019/03/ 

esg-data-challenge.pdf. 

586See CAQ, S&P 500 and ESG Reporting (Aug. 

9, 2021). 

587See KPMG, The KPMG Survey of 

Sustainability Reporting 2020, available at https:// 

home.kpmg/xx/en/home/insights/2020/11/the-timehas-come-survey-of-sustainability-reporting.html. 

588 International Federation of Accountants, The 

State of Play in Sustainability Assurance (June 23, 

2021), available at https://www.ifac.org/knowledgegateway/contributing-global-economy/discussion/ 

state-play-sustainability-assurance; Lawrence 

Heim, International Federation of Accountants, 

IFAC: Poor ESG Assurance an ‘‘Emerging Financial 

Stability Risk’’ (July 1, 2021), available at https:// 

practicalesg.com/2021/07/ifac-poor-esg-assurancean-emerging-financial-stability-risk/. 

589 IOSCO, Report on Sustainability-related Issuer 

Disclosures (June 2021). 

emissions disclosure (apart from the 

existing requirements with respect to 

the assessment and effectiveness of 

DCP). More specifically, in addition to 

the requirement to assess such controls, 

we considered whether to require 

management to include a statement in 

their annual report regarding their 

responsibility for the design and 

evaluation of controls over GHG 

emissions disclosures, as well as to 

disclose their conclusion regarding the 

effectiveness of such controls. We also 

considered proposing to require a GHG 

emissions attestation provider’s 

attestation of the effectiveness of 

controls over GHG emissions disclosure 

in addition to the proposed attestation 

over the Scopes 1 and 2 GHG emissions 

disclosure. Although both such 

requirements could further enhance the 

reliability of the related Scopes 1 and 2 

GHG emissions disclosure, we are not 

currently proposing them at this time. 

We are, however, continuing to consider 

these alternatives, including: (i) the 

need to develop guidance for 

management on conducting such an 

assessment and (ii) whether appropriate 

attestation standards exist. Accordingly, 

we request comment on these and 

related issues below. 

The Commission has long recognized 

the important role played by an 

independent audit in contributing to the 

reliability of financial reporting.581

Relatedly, studies suggest that investors 

have greater confidence in information 

that has been assured, particularly when 

it is assured at the reasonable assurance 

level.582 Although a limited assurance 

engagement provides a lower level of 

assurance than a reasonable assurance 

engagement,583 studies of ESG-related 

assurance, which is typically provided 

at a limited assurance level, have found 

benefits such as credibility 

enhancement, lower cost of equity 

capital, and lower analyst forecast errors 

and dispersion.584 Therefore, proposing 

to require Scope 1 and Scope 2 

emissions disclosure by accelerated 

filers and large accelerated filers be 

subject to limited assurance initially, 

with an eventual scaling up to 

reasonable assurance, could potentially 

improve both the actual reliability of 

disclosure and investor confidence in 

such disclosure.585

Increasing investor demand for 

consistent, comparable, and reliable 

climate-related financial information 

appears to have led a growing number 

of companies to voluntarily obtain 

third-party assurance over their climaterelated disclosures both within the U.S. 

and globally. For example, according to 

one study, 53% of the S&P 500 

companies had some form of assurance 

or verification over climate-related 

metrics, along with other metrics.586

Another survey of sustainability 

reporting trends from 5,200 companies 

across 52 countries (including the 

United States) stated that, of the top 100 

companies (by revenue), 80% have 

reporting on ESG (including climate), 

with up to 61% of those companies also 

obtaining assurance.587 The prevalence 

of major companies obtaining assurance 

in connection with their voluntary 

sustainability reports suggests that both 

the companies and their investors are 

focused on the reliability of such 

disclosures. 

Although many registrants have 

voluntarily obtained some level of 

assurance for their climate-related 

disclosures, current voluntary ESG 

assurance practices have been varied 

with respect to the levels of assurance 

provided (e.g., limited versus 

reasonable), the assurance standards 

used, the types of service providers, and 

the scope of disclosures covered by the 

assurance. This fragmentation has 

diminished the comparability of the 

assurance provided and may require 

investors to become familiar with many 

different assurance standards and the 

varying benefits of different levels of 

assurance. The consequences of such 

fragmentation has also been highlighted 

by certain international 

organizations,588 including IOSCO, 

which stated that the ‘‘perceived lack of 

clarity and consistency around the 

purpose and scope of [voluntary] 

assurance . . . potentially lead[s] to 

market confusion, including misleading 

investors and exacerbating the 

expectations gap.’’ 589 For example, 

investors may see that a service provider 

has produced an assurance report for a 

registrant’s GHG emissions disclosure 

and have an expectation that such 

assurance will enhance the reliability of 

that disclosure without always 

understanding the service provider’s 

qualifications for producing the report, 

what level of assurance (e.g., limited 

versus reasonable) is being provided, 

what scope of assurance (e.g., the 

disclosures covered by the assurance) is 

being provided with respect to the 

registrant’s GHG emissions disclosure, 

and the methodologies and procedures 

that the attestation provider used. While 

some experienced assurance providers 

may be proficient in applying attestation 

standards to GHG emissions disclosures, 

other assurance providers may lack 

GHG emissions expertise. Similarly, 

some service providers providing 

assurance may have expertise in GHG 

emissions but have minimal assurance 

experience. Moreover, some service 

providers may use standards that are 


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590See infra Section II.H.3. 

591See, e.g., CAQ, S&P 500 and ESG Reporting 

(Aug. 9, 2021) (pointing to the use of assurance 

methodologies developed by individual service 

providers, which in some cases were based on 

IAASB International Standard on Assurance 

Engagements (ISAE) 3000 with modifications). 

592See, e.g., CAQ, S&P 500 and ESG Reporting 

(Aug. 9, 2021) (providing statistics on limited 

assurance versus reasonable assurance obtained 

voluntarily in the current market (e.g., at least 26 

of 31 companies that obtained assurance from 

public company auditors obtained limited 

assurance; at least 174 of 235 companies that 

obtained assurance or verification from other 

service providers (non-public company auditors) 

obtained limited assurance)). For similar 

information on the S&P 100, see CAQ, S&P 100 and 

ESG Reporting (Apr. 29, 2021), available at https:// 

www.thecaq.org/sp-100-and-esg-reporting/. Based 

on an analysis by Commission staff on Mar. 3, 2022, 

a substantial number of the S&P 500 companies 

(460+) are large accelerated filers and therefore 

would be subject to the proposed assurance 

requirements. 

593See infra note 955 in Section IV.C of the 

Economic Analysis for further discussion on 

proportionate costs between different types of filers. 

594See infra note 604 for a discussion of the key 

differences between limited and reasonable 

assurance engagements. 

595By limiting the assurance requirements to 

accelerated filers and large accelerated filers, a new 

registrant would not be required to provide 

assurance until it has been subject to the 

requirements of Section 13(a) or 15(d) of the 

Exchange Act for a period of at least twelve 

calendar months and it has filed at least one annual 

report pursuant to Section 13(a) or 15(d) of the 

Exchange Act. See 17 CFR 240.12b–2. Therefore, no 

registrant would be required to provide assurance 

covering its GHG emissions disclosure during an 

initial public offering. However, any registrant that 

voluntarily includes an attestation report for GHG 

emissions disclosure would be required to comply 

with proposed Item 1505(e). 

developed by accreditation bodies with 

notice and public comment and other 

robust due process procedures 590 for 

standard setting, while other service 

providers may use privately developed 

‘‘verification’’ standards.591

To improve accuracy, comparability, 

and consistency with respect to the 

proposed GHG emissions disclosure, we 

are proposing to require a minimum 

level of attestation services for 

accelerated filers and large accelerated 

filers including: (1) Limited assurance 

for Scopes 1 and 2 emissions disclosure 

that scales up to reasonable assurance 

after a specified transition period; (2) 

minimum qualifications and 

independence requirements for the 

attestation service provider; and (3) 

minimum requirements for the 

accompanying attestation report. These 

proposed requirements would be 

minimum standards that the GHG 

emissions attestation provider engaged 

by accelerated filers and large 

accelerated filers must meet, but, as 

mentioned above, would not prevent a 

registrant from obtaining a heightened 

level of assurance over its climaterelated disclosures (prior to the 

transition to reasonable assurance) or to 

obtain assurance over climate-related 

disclosures other than Scope 1 and 

Scope 2 emissions. 

By specifying minimum standards for 

the attestation provided with respect to 

GHG emissions disclosure by 

accelerated filers and large accelerated 

filers, the proposed rules should 

improve accuracy and consistency in 

the reporting of this information, while 

also providing investors with an 

enhanced level of reliability against 

which to evaluate the disclosure. In 

addition to the proposed minimum 

standards for attestation services, the 

proposed additional disclosure 

requirements for registrants, described 

below, should further assist investors in 

understanding the qualifications and 

suitability of the GHG emissions 

attestation provider selected by the 

registrant, particularly in light of the 

broad spectrum of attestation providers 

that would be permitted to provide 

attestation services under the proposed 

rules. 

Although we are proposing certain 

minimum standards for attestation 

services, this proposal does not aim to 

create or adopt a specific attestation 

standard for assuring GHG emissions, 

just as this proposal does not define a 

single methodology for calculating GHG 

emissions. This is because both the 

reporting and attestation landscapes are 

currently evolving and it would be 

premature to adopt one approach and 

potentially curtail future innovations in 

these two areas. The evolving nature of 

GHG emissions calculations and 

attestation standards could suggest that 

it may also be premature to require 

assurance. We are soliciting comment 

on the feasibility of our proposal and 

will consider any public feedback 

received, but we have preliminarily 

determined that the phased-in approach 

that we are proposing, along with an 

extended period for disclosure 

compliance for accelerated filers, 

balances the benefits of third-party 

review with the costs of seeking 

assurance in this evolving space. 

The proposed minimum standards for 

attestation services and the proposed 

additional disclosure requirements 

would not eliminate fragmentation with 

respect to assurance or obviate the need 

for investors to assess and compare 

multiple attestation standards. 

Nevertheless, we believe some 

flexibility in our approach is warranted 

at this time given the unique and 

evolving nature of third-party assurance 

for climate-related disclosures. We 

believe the proposed minimum 

standards and additional disclosure 

requirements would enable investors to 

better understand the assurance that has 

been provided. 

We are cognizant of the fact that the 

calculation and disclosure of GHG 

emissions would be new for many 

registrants, as would be the application 

of assurance standards to GHG 

emissions disclosure. For these reasons 

and the reasons discussed in greater 

detail below, we are proposing to 

require assurance (1) only for 

accelerated filers and large accelerated 

filers, (2) only with respect to Scope 1 

and Scope 2 emissions, and (3) with an 

initial transition period for limited 

assurance and a subsequent transition 

period for reasonable assurance. 

Although we have considered the 

challenges that mandatory assurance of 

GHG emissions disclosure could 

present, accelerated filers and large 

accelerated filers should have the 

necessary resources to devote to 

complying with such requirements over 

the proposed implementation timetable. 

For the many large accelerated filers 

that are already voluntarily obtaining 

some form of assurance over their GHG 

emissions, any cost increases associated 

with complying with the proposed rules 

would be mitigated.592 Furthermore, 

larger issuers generally bear 

proportionately lower compliance costs 

than smaller issuers due to the fixed 

cost components of such compliance.593

The proposed transition periods 

would also provide existing accelerated 

filers and large accelerated filers one 

fiscal year to transition to limited 

assurance 594 and two additional fiscal 

years to transition to reasonable 

assurance.595 For existing accelerated 

filers, this transition period would be in 

addition to the one additional year they 

will have to comply with the Scopes 1 

and 2 emission disclosure requirements 

(compared to large accelerated filers). 

As such, these filers would have 

significant time to develop processes to 

support their GHG emissions disclosure 

requirements and the relevant DCP, as 

well as to adjust to the incremental costs 

and efforts associated with escalating 

levels of assurance. During this 

transition period, GHG emissions 

attestation providers would also have 

time to prepare themselves for 

providing such services in connection 

with Commission filings. 

In addition to the challenges posed by 

the newness of calculating and 

disclosing GHG emissions, we believe 

that only requiring assurance over 

Scope 1 and Scope 2 emissions would 

be appropriate because the emissions 

result directly or indirectly from 


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596For specific examples, see, e.g., Etsy, Inc. FY 

2021 Form 10–K, available at https://

s22.q4cdn.com/941741262/files/doc_financials/ 

2021/q4/ETSY-12.31.2021-10K.pdf (external thirdparty attestation report available at https://

s22.q4cdn.com/941741262/files/doc_financials/ 

2021/q4/PwC/Limited-Assurance-Report-AssertionEtsy-FY21_2.24.22_final-signed_final.pdf); Johnson 

Controls International plc 2021 Sustainability 

Report, available at https://

www.johnsoncontrols.com/2021sustainability 

(external third-party verification report available at 

https://www.johnsoncontrols.com/-/media/jci/ 

corporate-sustainability/reporting-and-policies/gri/ 

2020/ghg-jci-fy-2020-verification-statement.pdf); 

Norfolk Southern Corporation 2021 GHG Emissions 

Report, available at http://www.nscorp.com/ 

content/dam/nscorp/get-to-know-ns/about-ns/ 

environment/2020-GHG-Emissions-Report.pdf; 

Koninklijke Philips NV (Royal Philips) Annual 

Report 2021, at 269, available at https://

www.results.philips.com/publications/ar21/ 

downloads/pdf/en/Philips/ 

English.pdf?v=20220225104533; Starbucks Coffee 

Company FY 2020 GHG emissions inventory 

assurance report, at 2, available at https://

stories.starbucks.com/uploads/2021/04/StaFY20/ 

Third-Party-Independent-Verification-andAssurance-Reports.pdf; and Vornado Realty Trust 

FY 2020 ESG report, available at https://

books.vno.com/books/idpn/#p=1. See also supra 

note 592 for S&P 100 and S&P 500 related statistics. 

597See supra Section II.G.3 for further discussion 

of the unique challenges presented by the 

disclosure of Scope 3 emissions. 

598See, e.g., AICPA’s Statement on Standards for 

Attestation Engagements (SSAE) No.22, AT–C 

Section 210. 

599See infra Section II.H.3 for further discussion 

of the attestation report requirements, including the 

difference between a conclusion and an opinion. 

600See, e.g., AICPA SSAE No. 21, AT–C Sections 

205 and 206. 

601Under commonly used attestation standards, 

both a reasonable assurance engagement and a 

limited assurance engagement have the same 

requirement that the subject matter (e.g., Scope 1 

and Scope 2 emissions) of the engagement be 

appropriate as a precondition for providing 

assurance. Thus, if the subject matter is appropriate 

for a limited assurance engagement, it is also 

appropriate for a reasonable assurance engagement. 

See AICPA SSAE No. 18 (Apr. 2016); and IAASB 

ISAE 3000 (Revised) (Dec. 2013). 

602For example, some registrants have voluntarily 

sought reasonable assurance over certain 

information, including Scopes 1, 2, and 3 

emissions, for which others have voluntarily sought 

limited assurance. See, e.g., Apple, Inc. 

Environmental Progress Report (Mar. 2021), at 88– 

90, available at https://www.apple.com/ 

environment/pdf/Apple_Environmental_Progress_

Report_2021.pdf; United Parcel Service, Inc. (UPS) 

FY 2020 GRI Content Index, at 72, available at 

https://about.ups.com/content/dam/upsstories/ 

assets/reporting/sustainability-2021/2020_UPS_

GRI_Content_Index_081921v2.pdf; and Guess?, Inc. 

FY2020–2021 Sustainability Report, at 91, available 

at https://static1.squarespace.com/static/ 

609c10ed49db5202181d673f/t/ 

6faf8af82418f5da4778f6f/1627060411937/ 

GUESS+FY20-21+Sustainability+Report.pdf. 

603See supra note 592 (providing statistics on 

limited assurance obtained voluntarily in the 

current market). 

604The scope of work in a limited assurance 

engagement is substantially less than a reasonable 

assurance engagement. The primary difference 

between the two levels of assurance relates to the 

nature, timing, and extent of procedures required to 

obtain sufficient, appropriate evidence to support 

the limited assurance conclusion or reasonable 

assurance opinion. Limited assurance engagements 

primarily include procedures such as inquiries and 

analytical procedures and do not necessarily 

include a consideration of whether internal controls 

have been effectively designed, whereas reasonable 

assurance engagements require the assurance 

service provider to consider and obtain an 

understanding of internal controls. More extensive 

testing procedures beyond inquiries and analytical 

procedures, including recalculation and verification 

of data inputs, are also required in reasonable 

assurance engagements, such as inspecting source 

documents that support transactions selected on a 

sample basis. Driven by these differences, the cost 

of limited assurance is generally lower than that of 

reasonable assurance. 

605See letters from CAQ and Energy 

Infrastructure Council; supra note 592 (providing 

statistics on voluntary assurance obtained by S&P 

100 and S&P 500 companies). 

facilities owned or activities controlled 

by a registrant, which makes it relatively 

more accessible and easier to subject to 

the registrant’s DCP compared to Scope 

3 data. Further, as discussed earlier, 

many registrants already voluntarily 

seek assurance over their GHG 

emissions disclosure (predominately 

Scope 1 and Scope 2 disclosures),596

which further supports the feasibility 

and readiness of Scope 1 and Scope 2 

emissions disclosure for mandatory 

assurance. In contrast, we are not 

proposing to require assurance of Scope 

3 emissions disclosure at this time 

because the preparation of such 

disclosure presents unique 

challenges.597 Depending on the size 

and complexity of a company and its 

value chain, the task of calculating 

Scope 3 emissions could be relatively 

more burdensome and expensive than 

calculating Scope 1 and Scope 2 

emissions. In particular, it may be 

difficult to obtain activity data from 

suppliers, customers, and other third 

parties in a registrant’s value chain, or 

to verify the accuracy of that 

information compared to disclosures of 

Scope 1 and Scope 2 emissions data, 

which are more readily available to a 

registrant. 

We are proposing to require 

accelerated filers and large accelerated 

filers to obtain limited assurance, with 

an eventual scaling up to reasonable 

assurance. The objective of a limited 

assurance engagement is for the service 

provider to express a conclusion about 

whether it is aware of any material 

modifications that should be made to 

the subject matter (e.g., the Scopes 1 and 

2 emissions disclosure) in order for it to 

be fairly stated or in accordance with 

the relevant criteria (e.g., the 

methodology and other disclosure 

requirements specified in proposed 17 

CFR 229.1504 (Item 1504 of Regulation 

S–K).598 In such engagements, the 

conclusion is expressed in the form of 

negative assurance regarding whether 

any material misstatements have been 

identified.599 In contrast, the objective 

of a reasonable assurance engagement, 

which is the same level of assurance 

provided in an audit of a registrant’s 

consolidated financial statements, is to 

express an opinion on whether the 

subject matter is in accordance with the 

relevant criteria, in all material respects. 

A reasonable assurance opinion 

provides positive assurance that the 

subject matter is free from material 

misstatement.600

Reasonable assurance is feasible 

whenever limited assurance can be 

provided on a subject,601 and as noted 

above the voluntary attestation obtained 

by some registrants has been at the 

reasonable assurance level.602 We 

understand, however, that a limited 

assurance engagement is less extensive 

and is currently the level of assurance 

most commonly provided 603 in the 

voluntary assurance market for climaterelated disclosure.604 Therefore, prior to 

the transition to reasonable assurance, 

the additional compliance efforts 

required to comply with the proposed 

assurance requirement should be 

limited for the many registrants that— 

according to commenters and others— 

are already obtaining limited assurance 

for their climate-related disclosures.605

Furthermore, although reasonable 

assurance provides a significantly 

higher level of assurance than limited 

assurance, we believe limited assurance 

would benefit investors during the 

initial transition period by enhancing 

the reliability of a registrant’s Scopes 1 

and 2 emissions disclosure, in light of 

the benefits that assurance provides, as 

discussed above. Moreover, under the 

proposed rules, accelerated filers and 

large accelerated filers would not be 

prevented from obtaining reasonable 

assurance for their climate disclosures 

earlier than required. After the 

transition to mandatory reasonable 

assurance, investors would have the 

benefits of a higher level of assurance 

with smaller incremental costs to 

accelerated filers and large accelerated 

filers than moving directly to a 

reasonable assurance requirement. 

Request for Comment 

135. Should we require accelerated 

filers and large accelerated filers to 

obtain an attestation report covering 

their Scope 1 and Scope 2 emissions 

disclosure, as proposed? Should we 

require accelerated filers and large 

accelerated filers to obtain an attestation 

report covering other aspects of their 

climate-related disclosures beyond 

Scope 1 and 2 emissions? For example, 

should we also require the attestation of 

GHG intensity metrics, or of Scope 3 


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606See 17 CFR 230.405 (defining ‘‘well-known 

seasoned issuer’’). 

607See, e.g., 17 CFR 240.12b–2. 

emissions, if disclosed? Conversely, 

should we require accelerated filers and 

large accelerated filers to obtain 

assurance covering only Scope 1 

emissions disclosure? Should any 

voluntary assurance obtained by these 

filers after limited assurance is required 

be required to follow the same 

attestation requirements of Item 

1505(b)–(d), as proposed? 

136. If we required accelerated filers 

and large accelerated filers to obtain an 

attestation report covering Scope 3 

emissions disclosure, should the 

requirement be phased-in over time? If 

so, what time frame? Should we require 

all Scope 3 emissions disclosure to be 

subject to assurance or only certain 

categories of Scope 3 emissions? Would 

it be possible for accelerated filers and 

large accelerated filers to obtain an 

attestation report covering the process 

or methodology for calculating Scope 3 

emissions rather than obtaining an 

attestation report covering the 

calculations of Scope 3 emissions? 

Alternatively, is there another form of 

verification over Scope 3 disclosure that 

would be more appropriate than 

obtaining an attestation report? 

137. Should the attestation 

requirement be limited to accelerated 

filers and large accelerated filers, as 

proposed? Alternatively, should the 

attestation requirement be limited to a 

subset of accelerated filers and large 

accelerated filers? If so, what conditions 

should apply? Should the attestation 

requirement only apply to well-known 

seasoned issuers?606 Should the 

attestation requirement also apply to 

other types of registrants? Should we 

create a new test for determining 

whether the attestation requirements 

apply to a registrant that would take 

into account the resources of the 

registrant and also apply to initial 

public offerings? For example, should 

we create a test similar to the SRC 

definition,607 which includes a separate 

determination for initial registration 

statements, but using higher public float 

and annual revenue amounts? 

138. Instead of requiring only 

accelerated filers and large accelerated 

filers to include an attestation report for 

Scope 1 and Scope 2 emissions, should 

the proposed attestation requirements 

also apply to registrants other than 

accelerated filers and large accelerated 

filers? If so, should the requirement 

apply only after a specified transition 

period? Should such registrants be 

required to provide assurance at the 

same level as accelerated filers and large 

accelerated filers and over the same 

scope of GHG emissions disclosure, or 

should we impose lesser requirements 

(e.g., only limited assurance and/or 

assurance over Scope 1 emissions 

disclosure only)? 

139. Should we require accelerated 

filers and large accelerated filers to 

initially include attestation reports 

reflecting attestation engagements at a 

limited assurance level, eventually 

increasing to a reasonable assurance 

level, as proposed? What level of 

assurance should apply to the proposed 

GHG emissions disclosure, if any, and 

when should that level apply? Should 

we provide a one fiscal year transition 

period between the GHG emissions 

disclosure compliance date and when 

limited assurance would be required for 

accelerated filers and large accelerated 

filers, as proposed? Should we provide 

an additional two fiscal year transition 

period between when limited assurance 

is first required and when reasonable 

assurance is required for accelerated 

filers and large accelerated filers, as 

proposed? 

140. Should we provide the same 

transition periods (from the Scopes 1 

and 2 emissions disclosure compliance 

date) for accelerated filers and large 

accelerated filers, as proposed? Instead, 

should different transition periods 

apply to accelerated filers and large 

accelerated filers? Should we provide 

transition periods with different lengths 

than those proposed? Should we require 

the attestation to be at a reasonable 

assurance level without having a 

transition period where only limited 

assurance is required? Should we 

instead impose assurance requirements 

to coincide with reporting compliance 

periods? 

141. Under prevailing attestation 

standards, ‘‘limited assurance’’ and 

‘‘reasonable assurance’’ are defined 

terms that we believe are generally 

understood in the marketplace, both by 

those seeking and those engaged to 

provide such assurance. As a result, we 

have not proposed definitions of those 

terms. Should we define ‘‘limited 

assurance’’ and ‘‘reasonable assurance’’ 

and, if so, how should we define them? 

Would providing definitions in this 

context cause confusion in other 

attestation engagements not covered by 

the proposed rules? Are the differences 

between these types of attestation 

engagements sufficiently clear without 

providing definitions? 

142. As proposed, there would be no 

requirement for a registrant to either 

provide a separate assessment and 

disclosure of the effectiveness of 

controls over GHG emissions disclosure 

by management or obtain an attestation 

report from a GHG emissions attestation 

provider specifically covering the 

effectiveness of controls over GHG 

emissions disclosure. Should we require 

accelerated filers and large accelerated 

filers to provide a separate management 

assessment and disclosure of the 

effectiveness of controls over GHG 

emissions disclosure (separate from the 

existing requirements with respect to 

the assessment and effectiveness of 

DCP)? Should we require management 

to provide a statement in their annual 

report on their responsibility for the 

design and evaluation of controls over 

GHG emissions disclosure and to 

disclose their conclusion regarding the 

effectiveness of such controls? Instead 

of, or in addition to, such management 

assessment and statement, should we 

require the registrant to obtain an 

attestation report from a GHG emissions 

attestation provider that covers the 

effectiveness of such GHG emissions 

controls as of the date when the 

accelerated filer or large accelerated filer 

is required to comply with the 

reasonable assurance requirement under 

proposed Item 1505(a)? If so: 

(i) Would it be confusing to apply 

either such requirement in light of the 

existing DCP requirements that would 

apply to the proposed GHG emissions 

disclosure? 

(ii) Would a separate management 

assessment and statement on the 

effectiveness of controls over GHG 

emissions provide meaningful 

disclosure to investors beyond the 

existing requirement for DCP? 

(iii) Should we specify that the 

separate management assessment and 

statement must be provided by the 

accelerated filer’s or large accelerated 

filer’s principal executive and principal 

financial officers, or persons performing 

similar functions? Should we clarify 

which members of the accelerated filer 

or large accelerated filer’s management 

should be involved in performing the 

underlying assessment? 

(iv) What controls framework(s) 

would the effectiveness of the 

registrant’s controls over GHG emissions 

disclosure be evaluated against, if any? 

(v) For the GHG emissions attestation 

provider, what requirements should be 

applied to such GHG emissions 

disclosure controls attestation 

requirement? For example, what 

attestation standards should apply? 

Should other service provider(s) in 

addition to or in lieu of the GHG 

emissions attestation provider be 

permitted to provide such attestation 

over the effectiveness of the GHG 

controls? 

(vi) Should we limit such a 

requirement to accelerated filers and 


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608See proposed 17 CFR 229.1505(b). 

609See proposed 17 CFR 229.1505(b)(1). 

610 ‘‘Affiliates,’’ for purposes of proposed 17 CFR 

229.1505 has the meaning provided in 17 CFR 

210.2–01, except references to ‘‘audit’’ are deemed 

to be references to the attestation services provided 

pursuant to this section. See proposed 17 CFR 

229.1505(b)(2)(iii). 

611See proposed 17 CFR 229.1505(b)(2) and 

229.1505(b)(2)(iv) (defining the term ‘‘attestation 

and professional engagement period’’). 

large accelerated filers only or should it 

apply to other registrants as well? 

(vii) What would be the potential 

benefits and costs of either approach? 

(viii) Should we require a certification 

on the design and evaluation of controls 

over GHG emissions disclosures by 

officers serving in the principal 

executive and principal financial officer 

roles or persons performing similar 

functions for an accelerated filer or large 

accelerated filer? Would a certification 

requirement have any additional 

benefits or impose any additional costs 

when compared to a requirement for 

management to assess and disclose in a 

statement in the annual report the 

effectiveness of controls over GHG 

emissions? 

143. We considered whether to 

require registrants to include the GHG 

emissions metrics in the notes or a 

separate schedule to their financial 

statements, by amending Regulation S– 

X instead of Regulation S–K. 

(i) Would there be benefits to 

including this information in a 

registrant’s financial statements? For 

example, would requiring the GHG 

emissions disclosure to be included in 

the financial statements improve the 

consistency, comparability, reliability, 

and decision-usefulness of the 

information for investors? Would it 

facilitate the integration of GHG metrics 

and targets into the registrant’s financial 

analysis? Would such placement cause 

registrants to incur significantly more 

expense in obtaining an audit of the 

disclosure? If so, please quantify those 

additional expenses where possible. 

(ii) Should we require a registrant to 

include the GHG emissions disclosure 

in its audited financial statements so 

that the disclosure would be subject to 

the existing requirements for an 

independent audit and ICFR? If so, we 

seek comment on the following aspects 

of this alternative: 

(a) If GHG emissions disclosure is 

subject to ICFR, or an internal control 

framework similar to ICFR, would GHG 

emissions disclosure be more reliable 

compared to what is currently 

proposed? What are the benefits or 

costs? 

(b) Should the GHG emissions 

disclosure be included in a note to the 

registrant’s financial statements (e.g., in 

the note where the proposed financial 

statement metrics as discussed above in 

Section II.F would be included) or in a 

schedule, or somewhere else? If the 

GHG emissions disclosure was required 

in the financial statements, should it be 

subject to a reasonable assurance audit 

like the other information in the 

financial statements? If in a schedule, 

should the GHG emissions disclosure be 

disclosed in a schedule similar to those 

required under Article 12 of Regulation 

S–X, which would subject the 

disclosure to audit and ICFR 

requirements? Should we instead 

require the metrics to be disclosed as 

supplemental financial information, 

similar to the disclosure requirements 

under FASB ASC Topic 932–235–50–2 

for registrants that have significant oiland gas-producing activities? If so, 

should such supplemental schedule be 

subject to ICFR requirements? Instead of 

requiring the GHG emissions disclosure 

to be included in a note to the 

registrant’s audited financial statements, 

should we require a new financial 

statement for such metrics? 

(c) PCAOB auditing standards apply 

to the audit of a registrant’s financial 

statements. If GHG emissions disclosure 

is included in a supplemental schedule 

to the financial statements, should we 

allow other auditing standards to be 

applied? If so, which ones? What, if any, 

additional guidance or revisions to such 

standards would be needed in order to 

apply them to the audit of GHG 

emissions disclosure? 

(d) What are the costs and benefits of 

employing registered public accounting 

firms to perform audits of GHG 

emissions disclosure and related 

attestation of internal controls? Are 

there potential cost savings in 

employing registered public accountants 

that currently perform audits of 

financial statements and attestation of 

ICFR to review GHG emissions 

disclosure and any related internal 

controls? If we require GHG emissions 

disclosure to be presented in the 

financial statements, should we permit 

entities other than registered public 

accounting firms to provide assurance of 

this information, as proposed for the 

current attestation requirements under 

Regulation S–K? If not limited to 

registered public accounting firms, who 

should be permitted to provide 

assurance of GHG emissions disclosure? 

Should we permit environmental 

consultants, engineering firms, or other 

types of specialists to provide 

assurance? What are the costs and 

benefits of such approach? Would the 

reliability of the audits and therefore the 

information disclosed be affected if 

assurance providers other than 

registered public accounting firms are 

permitted to conduct these audits? 

Please provide supporting data where 

possible. If we should allow for 

assurance providers that are not 

registered public accounting firms, what 

qualifications and oversight should they 

have, and what requirements should we 

impose on them? Should we direct the 

PCAOB to develop a separate 

registration process for service providers 

that are not otherwise registered? What 

expertise, independence and quality 

control standards should apply? 

(e) What would be the other potential 

benefits and costs of such an approach? 

2. GHG Emissions Attestation Provider 

Requirements 

The proposed rules would require the 

GHG emissions attestation report 

required by proposed Item 1505(a) for 

accelerated filers and large accelerated 

filers to be prepared and signed by a 

GHG emissions attestation provider.608

The proposed rules would define a GHG 

emissions attestation provider to mean a 

person or a firm that has all of the 

following characteristics: 

• Is an expert in GHG emissions by 

virtue of having significant experience 

in measuring, analyzing, reporting, or 

attesting to GHG emissions. Significant 

experience means having sufficient 

competence and capabilities necessary 

to: 

o perform engagements in accordance 

with professional standards and 

applicable legal and regulatory 

requirements; and 

o enable the service provider to issue 

reports that are appropriate under the 

circumstances.609

• Is independent with respect to the 

registrant, and any of its affiliates,610 for 

whom it is providing the attestation 

report, during the attestation and 

professional engagement period.611

The proposed expertise requirement 

is intended to help ensure that the 

service provider preparing the 

attestation report has sufficient 

competence and capabilities necessary 

to execute the attestation engagement. In 

this regard, if the service provider is a 

firm, we would expect that it have 

policies and procedures designed to 

provide it with reasonable assurance 

that the personnel selected to conduct 

the GHG emissions attestation 

engagement have significant experience 

with respect to both attestation 

engagements and GHG disclosure. This 

would mean that the service provider 

has the qualifications necessary for 

fulfillment of the responsibilities that it 

would be called on to assume, including 

the appropriate engagement of 


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612 Independent auditors and accountants are 

already required to comply with similar quality 

control and management standards when providing 

audit and attest services under the PCAOB, AICPA, 

or IAASB standards. See, e.g., PCAOB, Quality 

Control (QC) Standards Section 20 System of 

Quality Control for a CPA Firm’s Accounting and 

Auditing Practice and Section 40 The Personnel 

Management Element of a Firm’s System of Quality 

Control—Competencies Required by a Practitionerin-Charge of an Attest Engagement, available at 

https://pcaobus.org/oversight/standards/qcstandards; AICPA, QC Section 10, A Firm’s System 

of Quality Control, available at https://us.aicpa.org/ 

content/dam/aicpa/research/standards/ 

auditattest//qc-00010.pdf; and IAASB, International 

Standard on Quality Management 1, Quality 

Management for Firms that Perform Audits or 

Reviews of Financial Statements, or Other 

Assurance or Related Services Engagements, 

available at https://www.ifac.org/system/files/ 

publications/files/IAASB-Quality-ManagementISQM-1-Quality-Management-for-Firms.pdf. 

613We have adopted similar expertise 

requirements in the past to determine eligibility to 

prepare a mining technical report. Although also 

relating to technical, specialized disclosures, the 

mining technical report requirements differ in that 

such an engagement is not an assurance 

engagement. See Modernization of Property 

Disclosures for Mining Registrants, Release No. 33– 

10570 (Oct. 31, 2018), [83 FR 66344 (Dec. 26, 

2018)]. 

614See Mark Defond & Jieying Zhang, A Review 

of Archival Auditing Research, 58 J. Acct. & Econ., 

275 (2014); Qualifications of Accountants, Release 

No. 33–10876 (Oct. 16, 2020) [85 FR 80508 (Dec. 

11, 2020)], at 80508 (‘‘The Commission has long 

recognized that an audit by an objective, impartial, 

and skilled professional contributes to both investor 

protection and investor confidence’’). See also 

Statement of Paul Munter, Acting Chief Accountant, 

The Importance of High Quality Independent 

Audits and Effective Audit Committee Oversight to 

High Quality Financial Reporting to Investors (Oct. 

26, 2021). 

615See 17 CFR 210.2–01(b). 

616See proposed 17 CFR 229.1505(b)(2)(i). 

617See proposed 17 CFR 229.1505(b)(2)(iv). 

618See proposed 17 CFR 229.1505(b)(2)(ii)(A). 

619See proposed 17 CFR 229.1505(b)(2)(ii)(B). 

620See 17 CFR 210.2–01. For the avoidance of 

doubt, we note that if the independent accountant 

who audits the registrant’s consolidated financial 

statements is also engaged to perform the GHG 

emissions attestation for the same filing, the fees 

associated with the GHG emissions attestation 

engagement would be considered ‘‘Audit-Related 

Fees’’ for purposes of Item 9(e) of 17 CFR 240.14a101, Item 14 of Form 10–K, Item 16C of Form 20– 

F, or any similar requirements. 

621 15 U.S.C. 77g. 

622See 17 CFR 230.436. 

623See 17 CFR 229.601(b)(23). 

specialists, if needed.612 The proposed 

expertise requirement would apply to 

the person or the firm signing the GHG 

emissions attestation report.613

The second proposed requirement is 

modeled on the Commission’s 

qualifications for accountants under 17 

CFR 210.2–01 (Rule 2–01 of Regulation 

S–X), which are designed to ensure that 

auditors are independent of their audit 

clients. Similar to how assurance 

provided by independent public 

accountants improves the reliability of 

financial statements and disclosures and 

is a critical component of our capital 

markets, assurance of GHG emissions 

disclosure by independent service 

providers should also improve the 

reliability of such disclosure. Academic 

studies demonstrate that assurance 

provided by an independent auditor 

reduces the risk that an entity provides 

materially inaccurate information to 

external parties, including investors, by 

facilitating the dissemination of 

transparent and reliable financial 

information.614 We expect that GHG 

emissions disclosure would similarly 

benefit if assured by an independent 

service provider. Moreover, the 

potential conflicts of interest, or even 

the appearance of such conflicts of 

interest, between the GHG emissions 

attestation provider and the registrant 

could raise doubts for investors about 

whether they can rely on the attestation 

service and its report. 

Similar to Rule 2–01 of Regulation S– 

X,615 the proposed rules would provide 

that a GHG emissions attestation 

provider is not independent if during 

the attestation and professional 

engagement period such attestation 

provider is not, or a reasonable investor 

with knowledge of all relevant facts and 

circumstances would conclude that 

such attestation provider is not, capable 

of exercising objective and impartial 

judgment on all issues encompassed 

within the attestation provider’s 

engagement.616 The proposed definition 

for the attestation and professional 

engagement period, which is modeled 

on Rule 2–01 of Regulation S–X, 

includes both (1) the period covered by 

the attestation report and (2) the period 

of the engagement to attest to the 

registrant’s GHG emissions or to prepare 

a report filed with the Commission (the 

‘‘professional engagement period’’). 

Under the proposed rules, the 

professional engagement period would 

begin when the GHG attestation service 

provider either signs an initial 

engagement letter (or other agreement to 

attest to a registrant’s GHG emissions) or 

begins attest procedures, whichever is 

earlier.617

The proposed rules would further 

state that, in determining whether a 

GHG emissions attestation provider is 

independent, the Commission will 

consider: 

• Whether a relationship or the 

provision of a service creates a mutual 

or conflicting interest between the 

attestation provider and the registrant 

(or any of its affiliates), places the 

attestation provider in the position of 

attesting to such attestation provider’s 

own work, results in the attestation 

provider acting as management or an 

employee of the registrant (or any of its 

affiliates), or places the attestation 

provider in a position of being an 

advocate for the registrant (or any of its 

affiliates); 618 and 

• all relevant circumstances, 

including all financial or other 

relationships between the attestation 

provider and the registrant (or any of its 

affiliates), and not just those relating to 

reports filed with the Commission.619

These proposed provisions are 

modeled on the factors used by the 

Commission in determining whether an 

accountant is independent.620 Similar to 

Rule 2–01 of Regulation S–X, the 

proposed provisions should help protect 

investors by requiring the GHG 

emissions attestation provider to be 

independent both in fact and 

appearance from the registrant, 

including its affiliates. 

Because the GHG emissions 

attestation provider would be a person 

whose profession gives authority to the 

statements made in the attestation 

report and who is named as having 

provided an attestation report that is 

part of the registration statement, the 

registrant would be required to obtain 

and include the written consent of the 

GHG emissions attestation provider 

pursuant to Securities Act Section 7,621

the corresponding rule requiring the 

written consents of such experts,622 and 

the Regulation S–K provision requiring 

the attachment of the written consent of 

an expert to a Securities Act registration 

statement or an Exchange Act report 

that incorporates by reference a written 

expert report attached to a previously 

filed Securities Act registration 

statement.623 The GHG emissions 

attestation provider would also be 

subject to liability under the federal 

securities laws for the attestation 

conclusion or, when applicable, opinion 

provided. Such liability should 

encourage the attestation service 

provider to exercise due diligence with 

respect to its obligations under a limited 

or reasonable assurance engagement. 

Request for Comment 

144. Should we require a registrant to 

obtain a GHG emissions attestation 

report that is provided by a GHG 

emissions attestation provider that 

meets specified requirements, as 

proposed? Should one of the 

requirements be that the attestation 

provider is an expert in GHG emissions, 

with significant experience in 

measuring, analyzing, reporting, or 

attesting to GHG emissions, as 

proposed? Should we specify that 

significant experience means having 

sufficient competence and capabilities 


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necessary to: (a) Perform engagements in 

accordance with professional standards 

and applicable legal and regulatory 

requirements and (b) enable the service 

provider to issue reports that are 

appropriate under the circumstances, as 

proposed? Should we instead require 

that the GHG emissions attestation 

provider have a specified number of 

years of the requisite type of experience, 

such as 1, 3, 5, or more years? Should 

we specify that a GHG emissions 

attestation provider meets the expertise 

requirements if it is a member in good 

standing of a specified accreditation 

body that provides oversight to service 

providers that apply attestation 

standards? If so, which accreditation 

body or bodies should we consider (e.g., 

AICPA)? Are there any other 

requirements for the attestation provider 

that we should specify? Instead, should 

we require a GHG emissions attestation 

provider to be a PCAOB-registered audit 

firm? 

145. Is additional guidance needed 

with respect to the proposed expertise 

requirement? Should we instead include 

prescriptive requirements related to the 

qualifications and characteristics of an 

expert under the proposed rules? For 

example, should we include a provision 

that requires a GHG emissions 

attestation provider that is a firm to 

have established policies and 

procedures designed to provide it with 

reasonable assurance that the personnel 

selected to provide the GHG attestation 

service have the qualifications necessary 

for fulfillment of the responsibilities 

that the GHG emissions attestation 

provider will be called on to assume, 

including the appropriate engagement of 

specialists, if needed? 

146. Should we require the GHG 

emissions attestation provider to be 

independent with respect to the 

registrant, and any of its affiliates, for 

whom it is providing the attestation 

report, as proposed? Should we specify 

that a GHG emissions attestation 

provider is not independent if such 

attestation provider is not, or a 

reasonable investor with knowledge of 

all relevant facts and circumstances 

would conclude that such attestation 

provider is not, capable of exercising 

objective and impartial judgment on all 

issues encompassed within the 

attestation provider’s engagement, as 

proposed? The proposed provision is 

based on a similar provision regarding 

the qualification of an accountant to be 

an independent auditor under Rule 2– 

01 of Regulation S–X. Is Rule 2–01 an 

appropriate model for determining the 

independence of a GHG emissions 

attestation provider? Is being 

independent from a registrant and its 

affiliates an appropriate qualification for 

a GHG emissions attestation provider? 

147. Should we specify that the 

factors the Commission would consider 

in determining whether a GHG 

emissions attestation provider is 

independent include whether a 

relationship or the provision of a service 

creates a mutual or conflicting interest 

between the attestation provider and the 

registrant, including its affiliates, places 

the attestation provider in the position 

of attesting to such attestation provider’s 

own work, results in the attestation 

provider acting as management or an 

employee of the registrant, including its 

affiliates, or places the attestation 

provider in a position of being an 

advocate for the registrant and its 

affiliates, as proposed? Should we 

specify that the Commission also will 

consider all relevant circumstances, 

including all financial and other 

relationships between the attestation 

provider and the registrant, including its 

affiliates, and not just those relating to 

reports filed with the Commission, as 

proposed? 

148. Should we adopt all of the 

proposed factors for determining the 

independence of a GHG emissions 

attestation provider, or are there factors 

we should omit? Are there any 

additional factors that we should 

specify that the Commission will 

consider when determining the 

independence of a GHG emissions 

attestation provider? For example, 

should we include any non-exclusive 

specifications of circumstances that 

would be inconsistent with the 

independence requirements, similar to 

those provided in 17 CFR 210.2–01(c) 

(Rule 2–01(c) of Regulation S–X)? 

149. Should the definition of 

‘‘affiliates’’ be modeled on Rule 2–01, as 

proposed, or should we use a different 

definition? Would defining the term 

differently than proposed cause 

confusion because the rest of the 

proposed independence requirement is 

modeled on Rule 2–01? Many 

accountants are likely familiar with the 

proposed definition given their required 

compliance with Rule 2–01, would nonaccountants understand how to comply 

with and apply this concept? 

150. Should the term ‘‘attestation and 

professional engagement period’’ be 

defined in the proposed manner? If not, 

how should ‘‘attestation and 

professional engagement period’’ be 

defined? Alternatively, should the 

Commission specify a different time 

period during which an attestation 

provider must meet the proposed 

independence requirements? 

151. Should we include disclosure 

requirements when there is a change in, 

or disagreement with, the registrant’s 

GHG emissions attestation provider that 

are similar to the disclosure 

requirements in Item 4.01 of Form 8–K 

and 17 CFR 229.304 (Item 304 of 

Regulation S–K)? 

152. Accountants are already required 

to comply with the relevant quality 

control and management standards 

when providing audit and attest services 

under the PCAOB, AICPA, or IAASB 

standards. These quality control and 

management standards would apply to 

accountants providing GHG attestation 

services pursuant to those standards as 

well. Should we require the GHG 

emissions attestation provider to 

comply with additional minimum 

quality control requirements (e.g., 

acceptance and continuance of 

engagements, engagement performance, 

professional code of conduct, and 

ethical requirements) to provide greater 

consistency over the quality of service 

provided by GHG emissions attestation 

providers who do not (or cannot) use 

the PCAOB, AICPA, or IAASB 

attestation standards? If so, what should 

the minimum requirements be? 

153. As proposed, the GHG emissions 

attestation provider would be a person 

whose profession gives authority to 

statements made in the attestation 

report and who is named as having 

provided an attestation report that is 

part of the registration statement, and 

therefore the registrant would be 

required to obtain and include the 

written consent of the GHG emissions 

provider pursuant to Securities Act 

Section 7 and related Commission rules. 

This would subject the GHG emissions 

attestation provider to potential liability 

under Section 11 of the Securities Act. 

Would the possibility of Section 11 

liability deter qualified persons from 

serving as GHG emissions attestation 

providers? Should we include a 

provision similar to 17 CFR 230.436(c), 

or amend that rule, to provide that a 

report on GHG emissions at the limited 

assurance level by a GHG emissions 

attestation provider that has reviewed 

such information is not considered part 

of a registration statement prepared or 

certified by a person whose profession 

gives authority to a statement made by 

him or a report prepared or certified by 

such person within the meaning of 

Section 7 and 11 of the Act? 

3. GHG Emissions Attestation 

Engagement and Report Requirements 

The proposed rules would require the 

attestation report required by proposed 

Item 1505(a) for accelerated filers and 

large accelerated filers to be included in 

the separately-captioned ‘‘ClimateRelated Disclosure’’ section in the 


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624See proposed 17 CFR 229.1505(a)(2) and (c). 

625See 17 CFR 240.13a–15(c) and 240.15d–15(c) 

(stating that the ‘‘framework on which 

management’s evaluation of the issuer’s internal 

control over financial reporting is based must be a 

suitable, recognized control framework that is 

established by a body or group that has followed 

due-process procedures, including the broad 

distribution of the framework for public 

comment’’). 

626See PCAOB AT Section 101, Attest 

Engagements, available at https://pcaobus.org/ 

oversight/standards/attestation-standards/details/ 

AT101. 

627See AICPA SSAE No. 18 (general attestation 

standard), available at https://us.aicpa.org/content/ 

dam/aicpa/research/standards/auditattest/ 

downloadabledocuments/ssae-no-18.pdf; SSAE No. 

22, Review Engagements (limited assurance 

standard, effective for reports dated on or after June 

15, 2022), available at https://us.aicpa.org/content/ 

dam/aicpa/research/standards/auditattest/ 

downloadabledocuments/ssae-22.pdf; and SSAE 

No. 21, Direct Examination Engagements 

(reasonable assurance standard, effective for reports 

dated on or after June 15, 2022 and will amend 

SSAE No. 18), available at https://us.aicpa.org/ 

content/dam/aicpa/research/standards/auditattest/ 

downloadabledocuments/ssae-21.pdf. 

628See IAASB ISAE 3000 (Revised), Assurance 

Engagements Other than Audits or Reviews of 

Historical Financial Information, available at 

https://www.ifac.org/system/files/publications/files/ 

ISAE%203000%20Revised%20-%20for

%20IAASB.pdf. See also IAASB ISAE 3410, 

Assurance Engagements on Greenhouse Gas 

Statements, available at https://www.ifac.org/ 

system/files/publications/files/Basis%20for

%20Conclusions%20-%20ISAE%203410%20

Assurance%20Engagements%20on

%20Greenhouse%20Gas%20Statements-final_

0.pdf. 

629See, e.g., AICPA SSAE No. 22, AT–C 

§ 210.A16. 

630See 15 U.S.C. 7262(b) (requiring a registered 

public accounting firm that prepares or issues an 

audit report for certain issuers to attest to, and 

report on, the assessment made by the management 

of the issuer with respect to internal controls). 

631See proposed 17 CFR 229.1505(c). 

632See proposed 17 CFR 229.1505(c)(1) through 

(13). 

relevant filing and provided pursuant to 

standards that are publicly available at 

no cost and are established by a body or 

group that has followed due process 

procedures, including the broad 

distribution of the framework for public 

comment.624 The requirement that the 

standards be established by a body or 

group that has followed due process 

procedures would be similar to the 

requirements for determining a suitable, 

recognized control framework for use in 

management’s evaluation of an issuer’s 

ICFR.625 In both cases, a specific 

framework is not prescribed but 

minimum requirements for what 

constitutes a suitable framework are 

provided. This approach would help to 

ensure that the standards upon which 

the attestation engagement and report 

are based are the result of a transparent, 

public, and reasoned process. This 

requirement should also help to protect 

investors who may rely on the 

attestation report by limiting the 

standards to those that have been 

sufficiently developed. Rather than 

prescribe a particular attestation 

standard, the proposed approach 

recognizes that more than one suitable 

attestation standard exists and that 

others may develop in the future. 

In our view, the attestation standards, 

for example, of the PCAOB,626

AICPA,627 and IAASB628 would meet 

this due process requirement. In 

addition, all of these attestation 

standards are publicly available at no 

cost to investors who desire to review 

them. We believe that open access is an 

important consideration when 

determining the suitability of attestation 

standards for application to GHG 

emissions disclosure because it would 

enable investors to evaluate the report 

against the requirements of the selected 

attestation standard. By highlighting 

these standards, we do not mean to 

imply that other standards currently 

used in voluntary reporting would not 

be suitable for use under the proposed 

rules. Our proposal intends to set 

minimum standards while 

acknowledging the current voluntary 

practices of registrants. As noted below, 

we seek comment on whether other 

standards currently used in the 

voluntary climate-related assurance 

market or that are otherwise under 

development would meet the proposed 

due process requirement and also be 

suitable for application to GHG 

emissions under the Commission’s 

proposed rules. 

The proposed rules would not include 

any requirement for a registrant to 

obtain an attestation report covering the 

effectiveness of internal control over 

GHG emissions disclosure, and 

therefore such a report would not be 

required even when the GHG emissions 

attestation engagement is performed at a 

reasonable assurance level. Given the 

current evolving state of GHG emissions 

reporting and assurance, we believe that 

existing DCP obligations, and the 

proposed requirement that accelerated 

filers and large accelerated filers 

initially obtain at least limited 

assurance of such disclosure, are 

appropriate first steps toward enhancing 

the reliability of GHG emissions 

disclosure. We also note that, under 

prevailing attestation standards for 

limited assurance engagements, the 

testing of and attestation over internal 

controls are not required.629 With 

respect to the eventual reasonable 

assurance engagements, while there are 

requirements under prevailing 

attestation standards to consider and 

obtain an understanding of internal 

controls, there is no required attestation 

of the effectiveness of internal controls 

such as that included in Section 404(b) 

of the Sarbanes-Oxley Act of 2002 

(Sarbanes-Oxley Act).630

We recognize that the attestation 

standards that a GHG emissions 

attestation provider may use would 

have specific requirements for the form 

and content of attestation reports. The 

proposed rules would require a GHG 

emissions attestation provider to follow 

the specific requirements regarding form 

and content of the reports set forth by 

the attestation standard (or standards) 

used by such attestation provider.631

Nevertheless, in order to provide some 

standardization and comparability of 

GHG emissions attestation reports, the 

proposed rules would impose minimum 

requirements for the GHG emissions 

attestation report.632 In particular, such 

minimum report requirements would 

provide investors with consistent and 

comparable information about the GHG 

emissions attestation engagement and 

report obtained by the registrant when 

the engagement is conducted by a GHG 

emissions attestation provider using an 

attestation standard that may be less 

widely used or that has less robust 

report requirements than more prevalent 

standards. 

The proposed minimum attestation 

engagement and report requirements are 

primarily derived from the AICPA’s 

attestation standards (e.g., SSAE No. 

18), which are commonly used by 

accountants who currently provide GHG 

attestation engagement services as well 

as other non-GHG-related attestation 

engagement services, and are largely 

similar to the report requirements under 

PCAOB AT–101 and IAASB ISAE 3410. 

Many of the following proposed 

minimum attestation report 

requirements are also elements of an 

accountant’s report when attesting to 

internal control over financial reporting, 

of an accountant’s report on audited 

financial statements (which is 

conducted at a reasonable assurance 

level), or of a review report on interim 

financial statements (which is 

conducted at a limited assurance level). 

We explain below each of the proposed 

minimum components of a GHG 

emissions attestation report. These are 

all common elements of current 

assurance reports and are also similar to 

elements of other expert reports and 

legal opinions provided in Commission 

filings and other transactions. 

As proposed, the GHG emissions 

attestation report would be required to 

include an identification or description 

of the subject matter or assertion on 

which the attestation provider is 


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633See proposed 17 CFR 229.1505(c)(1). 

634See, e.g., AICPA SSAE No. 22, AT–C 

§ 210.45(c); AICPA SSAE No. 21, AT–C § 205.63(c). 

635See proposed 17 CFR 229.1505(c)(1). 

636As previously mentioned, we are soliciting 

comment regarding whether the GHG emissions 

should be reported as of fiscal year-end or some 

other 12-month period. See supra Section II.G.1. 

637See proposed 17 CFR 229.1505(c)(2). 

638See, e.g., AICPA SSAE No. 18, AT–C 

§ 105.A16 and .A42; AICPA SSAE No. 21, AT–C 

§ 105.A16 and .A44. In addition to relevance and 

completeness, the characteristics of suitable criteria 

under ISAE 3000.A23 include reliability, neutrality 

and understandability. Despite the differences in 

the characteristics listed, the underlying concepts 

and objectives are consistent. 

639See proposed 17 CFR 229.1505(c)(3). 

640See proposed 17 CFR 229.1505(c)(4). 

641See proposed 17 CFR 229.1505(a)(2). 

642See proposed 17 CFR 229.1505(c)(5). 

643See, e.g., PCAOB AS 3101, par. 9(a). 

644See proposed 17 CFR 229.1505(c)(6). 

reporting.633 For example, the 

attestation report would identify the 

subject matter as Scope 1 and Scope 2 

emissions disclosure. If a registrant 

voluntarily sought attestation of 

additional items of disclosure, such as 

GHG intensity metrics or Scope 3 

emissions, the attestation provider 

would be required to identify those 

additional items as well in the 

attestation report. If a registrant has 

made an assertion about the 

measurement or evaluation of the 

subject matter to the attestation 

provider,634 the attestation report must 

include such assertion. For example, the 

attestation report might refer to the 

registrant’s assertion that the Scope 1 

and Scope 2 emissions disclosure 

included within the filing has been 

presented in accordance with Item 1504 

of Regulation S–K. These proposed 

minimum requirements would elicit 

information that is fundamental to 

understanding the attestation report and 

would clarify the scope of the 

attestation report when the scope does 

not align with the scope of the 

registrant’s GHG emissions disclosure 

(e.g., when Scope 3 emissions 

disclosure is included in the filing but 

not covered by the attestation report). 

The proposed rules would also 

require the GHG emissions attestation 

report to include the point in time or 

period of time to which the 

measurement or evaluation of the 

subject matter or assertion relates.635

Therefore, the attestation provider 

would be required to identify the time 

period to which the Scopes 1 and 2 

emissions disclosure (or other 

additional disclosure) relates, which 

would be the registrant’s most recently 

completed fiscal year or some other 12- 

month period if permitted under the 

applicable climate-related disclosure 

rules 636 as well as any relevant 

historical period disclosure included 

within the filing. This proposed 

requirement seeks to avoid any 

confusion investors may have about 

which period or periods of the climaterelated disclosures included within the 

filing are subject to the attestation. 

The proposed rules would also 

require the attestation report to identify 

the criteria against which the subject 

matter was measured or evaluated.637

For an attestation report solely covering 

Scopes 1 and 2 emissions disclosure, 

the identified criteria would include the 

requirements in proposed Item 1504 of 

Regulation S–K and, in particular, Item 

1504(a), which includes presentation 

requirements such as disaggregation by 

each constituent greenhouse gas. The 

identified criteria would also include 

Item 1504(b) and the applicable 

instructions in Item 1504(e) regarding 

methodology, organizational boundary, 

and operational boundary. In other 

words, this minimum requirement 

would require an attestation provider to 

refer to the requirements with which the 

registrant must comply when making 

the disclosure that is subject to the 

attestation. Without the frame of 

reference provided by the identified 

criteria, the conclusion or opinion 

included in the report may be open to 

individual interpretation and 

misunderstanding by investors. 

Prevailing attestation standards 

require the criteria against which the 

subject matter is measured or evaluated 

to be ‘‘suitable.’’ In the context of the 

proposed rules, suitable criteria would, 

when followed, result in reasonably 

consistent measurement or evaluation of 

the registrant’s disclosure that is within 

the scope of the engagement. 

Characteristics of suitable criteria 

include relevance, objectivity, 

measurability, and completeness.638 We 

believe that proposed Item 1504 of 

Regulation S–K would satisfy the 

suitable criteria requirements of the 

prevailing attestation standards because 

the proposed requirements set forth 

relevant, objective standards that call for 

measurable and complete disclosure of 

GHG emissions that would allow for a 

consistent evaluation of the registrant’s 

disclosure. 

The GHG emissions attestation report 

would further be required to include a 

statement that identifies the level of 

assurance provided and describes the 

nature of the attestation engagement.639

For example, under the proposed rule, 

an attestation report providing limited 

assurance would need to include not 

only a statement that limited assurance 

is the provided level of assurance, but 

also would need to describe the scope 

of work performed in a limited 

assurance engagement, which typically 

would indicate that the procedures 

performed vary in nature, timing, and 

extent compared to a reasonable 

assurance engagement. This proposed 

minimum requirement would help 

investors understand the level of 

assurance provided. 

The proposed rules would require the 

attestation report to include a statement 

that identifies the attestation standard 

(or standards) used.640 As previously 

discussed, the standard used must be 

publicly available at no cost and have 

been established by a body or group that 

has followed due process procedures, 

including the broad distribution of the 

framework for public comment.641 This 

minimum report requirement would 

allow investors to easily identify the 

attestation standard that the engagement 

is executed against, which is 

particularly important because the 

proposed rules do not prescribe a 

particular attestation standard. 

Understanding the attestation standard 

used would allow investors to better 

understand the attestation performed by 

evaluating the report against the 

attestation standard’s requirements and 

would facilitate comparability across 

the attestation reports of different 

registrants. 

The attestation report would also be 

required to include a statement that 

describes the registrant’s responsibility 

to report on the subject matter or 

assertion being reported on in order to 

make it clear to investors who is 

ultimately responsible for the 

disclosure.642 At a minimum, this 

proposed provision would require a 

statement that the registrant is 

responsible for the subject matter, or its 

assertion on the subject matter. This 

proposed requirement, like all of the 

minimum requirements, has corollaries 

outside of the GHG emissions context. 

For example, an independent auditor’s 

audit report on a registrant’s financial 

statements is required to include a 

statement that the registrant’s 

management is responsible for the 

financial statements that are being 

audited.643

The proposed rules would further 

require the attestation report to include 

a statement that describes the attestation 

provider’s responsibilities in connection 

with the preparation of the attestation 

report.644 This is consistent with 

existing requirements in reports such as 

those issued by the independent auditor 

on the audited financial statements or a 

review report on the interim financial 

statements. For example, with respect to 


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645See, e.g., AICPA SSAE No.22, AT–C sec. 

210.45(f). 

646See, e.g., AICPA SSAE No. 21, AT–C sec. 

205.63(f) and sec. 206.12(e)(ii). 

647See proposed 17 CFR 229.1505(c)(7). 

648See supra Section II.H.2. 

649See proposed 17 CFR 229.1505(c)(8). 

650See proposed 17 CFR 229.1505(c)(9). 

651See proposed 17 CFR 229.1505(c)(10). 

652See, e.g., AICPA SSAE No. 22, AT–C sec. 

210.45(l). 

653See, e.g., AICPA SSAE No. 21 AT–C sec. 

205.63(k) and sec. 206.12(j). 

654See proposed 17 CFR 229.1505(c)(11). 

655See proposed 17 CFR 229.1505(c)(12). 

656See proposed 17 CFR 229.1505(c)(13). 

a limited assurance engagement, under 

prevailing attestation standards, the 

report would typically include a 

statement that the attestation provider’s 

responsibilities include expressing a 

conclusion on the subject matter or the 

assertion based on the attestation 

provider’s review.645 Similarly, for a 

reasonable assurance engagement, the 

report would typically include a 

statement that the attestation provider’s 

responsibilities include expressing an 

opinion on the subject matter or 

assertion, based on the attestation 

provider’s examination.646

The proposed rules would also 

require the attestation report to include 

a statement that the attestation provider 

is independent, as required by proposed 

17 CFR 229.1505(a).647 Because 

independence from the registrant, 

including its affiliates, would be a 

necessary qualification for the GHG 

emissions attestation provider,648 the 

attestation report would be required to 

include the attestation provider’s 

confirmation of his or her compliance 

with the proposed independence 

requirement. 

The proposed rules would further 

require the attestation report, for a 

limited assurance engagement, to 

include a description of the work 

performed as a basis for the attestation 

provider’s conclusion.649 This proposed 

provision is intended to enhance the 

transparency of the GHG emissions 

attestation report for investors by 

eliciting disclosure about the 

procedures undertaken by the 

attestation provider in its limited 

assurance engagement, such as inquiries 

and analytical procedures. This 

information would allow investors to 

assess and understand the extent of 

procedures performed to support the 

conclusion reached by the attestation 

provider, which could also facilitate an 

investor’s comparison of different 

attestation reports provided under the 

same or different attestation standards. 

The GHG emissions attestation report 

would also be required to include a 

statement that describes any significant 

inherent limitations associated with the 

measurement or evaluation of the 

subject matter (at a minimum, Scopes 1 

and 2 emissions) against the criteria 

(i.e., the applicable requirements in 

proposed Item 1504).650 Such a 

statement is a common characteristic of 

attestation reports, including the 

independent auditor’s report on internal 

control over financial reporting. This 

proposed provision is intended to elicit 

disclosure about the estimation 

uncertainties inherent in the 

quantification of GHG emissions, driven 

by reasons such as the state of the 

science, methodology, and assumptions 

used in the measurement and reporting 

processes. For example, an attestation 

provider might include in its report a 

statement about measurement 

uncertainty resulting from accuracy and 

precision of GHG emission conversion 

factors. 

The proposed rules would require the 

GHG emissions attestation report to 

include the attestation provider’s 

conclusion or opinion, as applicable, 

based on the attestation standard(s) 

used.651 For a limited assurance 

engagement, under prevailing 

attestation standards, the conclusion 

would typically state whether the 

provider is aware of any material 

modifications that should be made to 

the subject matter in order for the 

disclosure to be in accordance with (or 

based on) the requirements specified in 

Item 1504, or for the registrant’s 

assertion about such subject matter to be 

fairly stated.652 For a reasonable 

assurance engagement, the attestation 

provider would typically provide an 

opinion on whether the subject matter is 

in accordance with (or based on) the 

requirements specified in Item 1504 in 

all material respects, or that the 

registrant’s assertion about its subject 

matter is fairly stated, in all material 

respects.653

Finally, the proposed rules would 

require the GHG emissions attestation 

report to include the signature of the 

attestation provider (whether by an 

individual or a person signing on behalf 

of the attestation provider’s firm),654 the 

city and state where the attestation 

report has been issued,655 and the date 

of the report.656 These are all common 

elements of current assurance and 

expert reports, and each of these 

proposed provisions would help to 

identify and confirm the validity of the 

GHG emissions attestation provider. 

Request for Comment 

154. Should we require the attestation 

engagement and related attestation 

report to be provided pursuant to 

standards that are publicly available at 

no cost and are established by a body or 

group that has followed due process 

procedures, including the broad 

distribution of the framework for public 

comment, as proposed? Is the 

requirement of ‘‘due process 

procedures, including the broad 

distribution of the framework for public 

comment’’ sufficiently clear? Would the 

attestation standards of the PCAOB, 

AICPA, and IAASB meet this due 

process requirement? Are there other 

standards currently used in the 

voluntary climate-related assurance 

market or otherwise in development 

that would meet the due process and 

publicly availability requirements? For 

example, would verification standards 

commonly used by non-accountants 

currently, such as ISO 14064–3 and the 

AccountAbility’s AA1000 Series of 

Standards, meet the proposed 

requirements? Are there standards 

currently used in the voluntary climaterelated assurance market or otherwise 

under development that would be 

appropriate for use under the 

Commission’s climate-related disclosure 

rules although they may not strictly 

meet the proposed public comment 

requirement? If so, please explain 

whether those standards have other 

characteristics that would serve to 

protect investors? 

155. Should we require that the 

attestation standards used be publicly 

available at no cost to investors, as 

proposed? Should we permit the use of 

attestation standards, even if not 

publicly available at no cost, provided 

that registrants provide access to those 

standards at the request of their 

investors? 

156. Should we require the GHG 

emissions attestation report to meet 

certain minimum requirements in 

addition to any form and content 

requirements set forth by the attestation 

standard or standards used by the GHG 

emissions attestation provider, as 

proposed? Should we instead require 

that the attestation report solely meet 

whatever requirements are established 

by the attestation standard or standards 

used? 

157. Should we adopt each of the 

proposed minimum requirements? Are 

there any proposed requirements that 

we should omit or add to the proposed 

list of minimum GHG emissions 

attestation report requirements? 

158. Regarding the proposed 

provision requiring the identification of 

the criteria against which the subject 

matter was measured or evaluated, 

would reference to proposed Item 

1504(a), Item 1504(b), and Item 

1504(e)’s instructions concerning the 


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657See proposed 17 CFR 229.1505(d). 

658See id. 

659See supra Section II.H.2. 

660 If an accelerated filer or a large accelerated 

filer voluntarily obtains assurance beyond what 

would be required by proposed Item 1505(a) and 

uses a different service provider for such assurance, 

it would also be required to provide the information 

required by proposed Item 1505(d) for such service 

provider. 

661See proposed 17 CFR 229.1505(d)(1). 

662See proposed 17 CFR 229.1505(d)(2). 

663See proposed 17 CFR 229.1505(d)(3). 

664For example, the AICPA imposes a minimum 

five-year documentation retention program for an 

audit. See AU–C 230.17. Although document 

retention is less prescriptive for attestation 

engagements, many attestation providers adhere to 

the five-year period in practice. 

presentation, methodology, including 

underlying assumptions, and 

organizational and operational 

boundaries applicable to the 

determination of Scopes 1 and 2 

emissions meet the ‘‘suitable criteria’’ 

requirement under prevailing attestation 

standards (e.g., AICPA SSAE No. 18, 

AT–C 105.A16)? 

159. If we require or permit a 

registrant to use the GHG Protocol as the 

methodology for determining GHG 

emissions, would the provisions of the 

GHG Protocol qualify as ‘‘suitable 

criteria’’ against which the Scope 1 and 

Scope 2 emissions disclosure should be 

evaluated? 

4. Additional Disclosure by the 

Registrant 

In addition to the minimum 

attestation report requirements 

described above, which reflect the 

contents of attestation reports under 

prevailing attestation standards, we are 

proposing to require disclosure by the 

registrant of certain additional matters 

related to the attestation of a registrant’s 

GHG emissions.657 These disclosures 

are not typically included in an 

attestation report, and would not be 

included in the GHG emissions 

attestation report under the proposed 

rules. Instead, the registrant would be 

required to provide these disclosures in 

the separately captioned ‘‘ClimateRelated Disclosure’’ section, where the 

GHG emissions disclosure would be 

provided pursuant to the proposed 

rules.658

These proposed additional 

disclosures should assist investors in 

evaluating the qualifications of the GHG 

emissions attestation provider selected 

by the registrant, particularly in light of 

the broad spectrum of attestation 

providers that would be permitted to 

provide an attestation report under the 

proposed rules.659

We considered requiring the proposed 

disclosures to be provided in the 

attestation report but are not proposing 

to do so because we are concerned such 

an approach may create confusion by 

conflicting with prevalent attestation 

standards. Furthermore, in light of the 

variety of attestation service providers 

the registrant is permitted to engage, 

requiring the registrant to provide such 

disclosures may allow the registrant to 

better provide its investors with relevant 

information about the qualifications of 

the service provider that the registrant 

engaged for the GHG emissions 

attestation. 

With respect to the Scope 1 and Scope 

2 emissions attestation required 

pursuant to proposed Item 1505(a) for 

accelerated filers and large accelerated 

filers,660 the registrant would be 

required to disclose in the filing, based 

on relevant information obtained from 

any GHG emissions attestation provider: 

• Whether the attestation provider 

has a license from any licensing or 

accreditation body to provide assurance, 

and if so, the identity of the licensing or 

accreditation body, and whether the 

attestation provider is a member in good 

standing of that licensing or 

accreditation body; 661

• Whether the GHG emissions 

attestation engagement is subject to any 

oversight inspection program, and if so, 

which program (or programs); 662 and 

• Whether the attestation provider is 

subject to record-keeping requirements 

with respect to the work performed for 

the GHG emissions attestation 

engagement and, if so, identify the 

record-keeping requirements and the 

duration of those requirements.663

The first two above items of 

disclosure would help investors better 

understand the qualifications of the 

GHG emissions attestation provider, 

which in turn could help them assess 

the reliability of the attestation results. 

An example of a license from a licensing 

or accreditation body to provide 

assurance would be a Certified Public 

Accountant license issued by a state 

board of accountancy (e.g., the 

California Board of Accountancy), while 

an example of oversight programs 

would include the AICPA peer review 

program, among others. The proposed 

disclosure requirement about any 

record-keeping requirements to which 

the attestation provider is subject would 

help enhance the transparency of the 

attestation process by providing 

investors with information about the 

business practices of the attestation 

provider that has been retained by the 

registrant.664

Request for Comment 

160. Should we require certain items 

of disclosure related to the attestation of 

a registrant’s GHG emissions to be 

provided by the registrant in its filing 

that includes the attestation report 

(where the GHG emissions and other 

climate-related disclosures are 

presented), based on relevant 

information obtained from the GHG 

emissions attestation provider, as 

proposed? Should these additional 

items of disclosure instead be included 

in the attestation report? 

161. Should we require the registrant 

to disclose whether the attestation 

provider has a license from any 

licensing or accreditation body to 

provide assurance, and if so, the 

identity of the licensing or accreditation 

body, and whether the attestation 

provider is a member in good standing 

of that licensing or accreditation body, 

as proposed? In lieu of disclosure, 

should we require a GHG emissions 

attestation provider to be licensed to 

provide assurance by specified licensing 

or accreditation bodies? If so, which 

licensing or accreditation bodies should 

we specify? 

162. Should we require a registrant to 

disclose whether the GHG emissions 

attestation engagement is subject to any 

oversight inspection program, and if so, 

which program (or programs), as 

proposed? Should we instead require 

the registrant to disclose whether the 

attestation engagement is subject to 

certain specified oversight programs? If 

so, which oversight programs should we 

specify? 

163. Should we require a registrant to 

disclose whether the attestation 

provider is subject to record-keeping 

requirements with respect to the work 

performed for the GHG emissions 

attestation engagement and, if so, 

identify the record-keeping 

requirements and duration of those 

requirements, as proposed? In lieu of 

disclosure, should we specify that the 

record-keeping requirements of a GHG 

emissions attestation provider must be 

of a certain minimum duration, such as 

three, five, or seven years, or some other 

period? Should we specify that the 

record-keeping requirements must 

include certain reasonable procedures 

and, if so, what procedures? 

5. Disclosure of Voluntary Attestation 

Because GHG emissions reporting and 

assurance landscapes are both relatively 

new and evolving as described earlier, 

at this time, we are proposing to require 

a registrant, other than a large 

accelerated filer or an accelerated filer 

that is required to include a GHG 

emissions attestation report pursuant to 

proposed Item 1505(a), to disclose 

within the separately captioned 

‘‘Climate-Related Disclosure’’ section in 


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665See proposed 17 CFR 229.1505(e)(1). 

666See proposed 17 CFR 229.1505(e)(2). 

667See proposed 17 CFR 229.1505(e)(3). 

668See proposed 17 CFR 229.1505(e)(4). 

669See proposed 17 CFR 229.1505(e)(5). 

670See proposed 17 CFR 229.1505(e)(6). 

671See, e.g., letters from BNP Paribas; Eni SpA; 

ERM CVS; and Walmart. See also CAQ, S&P 500 

and ESG Reporting. 

672See proposed 17 CFR 229.1506(a)(1). 

673For example, numerous companies have 

pledged to achieve 100% of the electricity used in 

their global operations from renewable sources by 

2050. See RE100, What are the requirements to 

become a RE100 member?, available at https://

www.there100.org/technical-guidance. 

674See, e.g., letters from Americans for Financial 

Reform Education Fund and Public Citizen; Center 

for Law and Social Policy; Domini Impact 

Investments; Dynamhex, Inc.; FAIRR Initiative; 

Generation Investment Management; Hannon 

Armstrong; HP, Inc.; Interfaith Center on Corporate 

Responsibility; NYC Office of Comptroller; PreDistribution Initiative; Regenerative Crisis Response 

Committee; and WK Associates. 

the filing the following information if 

the registrant’s GHG emissions 

disclosures were subject to third-party 

attestation or verification: 

(i) Identify the provider of such 

assurance or verification; 665

(ii) Describe the assurance or 

verification standard used; 666

(iii) Describe the level and scope of 

assurance or verification provided; 667

(iv) Briefly describe the results of the 

assurance or verification; 668

(v) Disclose whether the third-party 

service provider has any other business 

relationships with or has provided any 

other professional services to the 

registrant that may lead to an 

impairment of the service provider’s 

independence with respect to the 

registrant; 669 and 

(vi) Disclose any oversight inspection 

program to which the service provider 

is subject (e.g., the AICPA’s peer review 

program).670

Taken together, these proposed 

disclosure items should help investors 

understand the nature and reliability of 

the attestation or verification provided 

and help them assess whether the 

voluntary assurance or verification has 

enhanced the reliability of the GHG 

emissions disclosure. We are limiting 

the proposed assurance disclosure 

requirement to a registrant’s GHG 

emissions disclosure because registrants 

are more likely to obtain assurance 

voluntarily for this disclosure item than 

for other climate-related disclosures.671

The proposed approach should mitigate 

the compliance burden of the proposed 

GHG emissions disclosure rules, taking 

into consideration the proportionate 

compliance costs that may impact 

accelerated and large accelerated filers 

versus other types of filers, while 

providing transparency for investors 

about the level and reliability of the 

assurance or verification, if any, 

provided on the GHG emissions 

disclosures. 

Request for Comment 

164. Should we require a registrant 

that is not required to include a GHG 

emissions attestation report pursuant to 

proposed Item 1505(a) to disclose 

within the separately captioned 

‘‘Climate-Related Disclosure’’ section in 

the filing the following information, if 

the registrant’s GHG emissions 

disclosure was subject to third-party 

attestation or verification, as proposed: 

(i) Identify the provider of such 

assurance or verification; 

(ii) Disclose the assurance or 

verification standard used; 

(iii) Describe the level and scope of 

assurance or verification provided; 

(iv) Briefly describe the results of the 

assurance or verification; 

(v) Disclose whether the third-party 

service provider has any other business 

relationships with or has provided any 

other professional services to the 

registrant that may lead to an 

impairment of the service provider’s 

independence with respect to the 

registrant; and 

(vi) Disclose any oversight inspection 

program to which the service provider 

is subject (e.g., the AICPA’s peer review 

program), each as proposed? 

Are there other disclosure items that 

we should require if a registrant has 

obtained voluntary assurance or 

verification of the climate-related 

disclosures? Are there any of the 

proposed disclosure items that we 

should omit? Should we specify 

parameters or include guidance on 

when the services provided by a thirdparty would be considered ‘‘assurance’’ 

or ‘‘verification’’ and thus require 

disclosure pursuant to the proposed 

rules? Should a registrant be required to 

furnish a copy of or provide a link to the 

assurance or verification report so that 

it is readily accessible by an investor? 

165. Instead of requiring a registrant 

to disclose whether the third-party 

service provider has any other business 

relationships with or has provided any 

other professional services to the 

registrant that may lead to an 

impairment of the service provider’s 

independence with respect to the 

registrant as proposed, should we 

require the third-party service provider 

to be independent, according to the 

standard proposed under Item 1505(b) 

for accelerated filers and large 

accelerated filers that are required to 

include a GHG emissions attestation 

report pursuant to proposed Item 

1505(a)? If not, should we provide 

guidance as to what constitutes an 

impairment of a service provider’s 

independence with respect to the 

registrant? Would this result in 

decision-useful information to an 

investor? Should we instead require a 

registrant to disclose whether the thirdparty service provider would be 

considered independent under some 

other independence requirement? 

166. As proposed, a registrant would 

be required to disclose any oversight 

inspection program to which the service 

provider is subject, such as the PCAOB’s 

inspection program or the AICPA’s peer 

review program. Are there other 

oversight programs that we should 

provide as examples? Would such 

disclosure provide decision-useful 

information to an investor? Is it clear 

what ‘‘any oversight inspection 

program’’ would include? 

167. As proposed, a registrant would 

not be required to disclose the voluntary 

assurance or verification fees associated 

with the GHG disclosures. Should we 

require GHG disclosure assurance or 

verification fees to be disclosed? Would 

such disclosure be decision-useful to 

investors making voting or investment 

decisions? 

I. Targets and Goals Disclosure 

If a registrant has set any climaterelated targets or goals, then the 

proposed rules would require the 

registrant to provide certain information 

about those targets or goals.672 Those 

goals or targets might, for example, 

relate to the reduction of GHG 

emissions, or address energy usage,673

water usage, conservation or ecosystem 

restoration. A registrant might also set 

goals with regard to revenues from lowcarbon products in line with anticipated 

regulatory requirements, market 

constraints, or other goals established by 

a climate-related treaty, law, regulation, 

policy, or organization. The proposed 

disclosure requirements could help 

investors better understand the scope of 

a registrant’s climate-related targets or 

goals, including those related to GHG 

emissions, and assist in assessing 

progress towards achieving those targets 

or goals. 

Many commenters recommended that 

we require registrants to provide 

detailed information about their 

climate-related targets and goals, 

including action plans and timelines for 

achieving such targets as GHG 

emissions reductions and performance 

data measured against those targets.674

This information could be important for 

investors in light of the fact that, 

according to one publication, two-thirds 

of S&P 500 companies had set a carbon 


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675See supra note 66 (referencing The Wall Street 

Journal (Nov. 5, 2021)). 

676See, e.g., Jocelyn Timperley, The Guardian, 

The truth behind corporate climate pledges (July 

26, 2021); Peter Eavis and Clifford Krauss, The New 

York Times, What’s Really Behind Corporate 

Promises on Climate Change? (May 12, 2021); and 

Alice C. Hill and Jennifer Nash, The Hill, The truth 

behind companies’ ‘net zero’ climate commitments 

(Apr. 9, 2021). 

677See proposed 17 CFR 229.1506(b)(1) through 

(6). 

678See proposed 17 CFR 229.1506(b)(3). 

679See proposed 17 CFR 229.1506(b)(4). 

680See proposed 17 CFR 229.1506(b)(5). 

681See proposed 17 CFR 229.1506(b)(6). 

682See proposed 17 CFR 229.1506(b)(6). 

683See proposed 17 CFR 229.1502. 

684See proposed 17 CFR 229.1506(c). 

685See id. 

686See proposed 17 CFR 229.1506(d). 

reduction target by the end of 2020.675

Despite the numerous commitments to 

reduce GHG emissions, according to 

several sources, many companies do not 

provide their investors with sufficient 

information to understand how the 

companies intend to achieve those 

commitments or the progress made 

regarding them.676 The proposed 

disclosure requirements are intended to 

elicit enhanced information about 

climate-related targets and goals so that 

investors can better evaluate these 

points. 

If a registrant has set climate-related 

targets or goals, the proposed rules 

would require it to disclose them, 

including, as applicable, a description 

of: 

• The scope of activities and 

emissions included in the target; 

• The unit of measurement, including 

whether the target is absolute or 

intensity based; 

• The defined time horizon by which 

the target is intended to be achieved, 

and whether the time horizon is 

consistent with one or more goals 

established by a climate-related treaty, 

law, regulation, policy, or organization; 

• The defined baseline time period 

and baseline emissions against which 

progress will be tracked with a 

consistent base year set for multiple 

targets; 

• Any interim targets set by the 

registrant; and 

• How the registrant intends to meet 

its climate-related targets or goals.677

This information would help 

investors understand a registrant’s 

particular target or goal and a particular 

timeline for that target or goal, how the 

target or goal is to be measured, and 

how progress against the target or goal 

is to be tracked. For example, a 

registrant might disclose that it plans to 

cut its Scopes 1 and 2 emissions by 50 

percent by 2030.678 The registrant might 

also disclose a target to reduce its Scope 

3 emissions by 50 percent by 2035. In 

addition, the registrant might also set a 

goal of achieving net zero greenhouse 

gas emissions across its operations by 

2050, in keeping with the goals of the 

Paris Agreement. 

Under the proposed rules, the 

registrant would be required to disclose 

the baseline year for multiple targets.679

Requiring disclosure of defined baseline 

time periods and baseline emissions 

against which progress will be tracked, 

with a consistent base year for multiple 

targets, could help investors compare 

the progress made towards each target. 

The registrant would also be required to 

disclose the unit of measurement, 

including whether the target is 

expressed in absolute terms or is 

intensity-based. If the registrant has set 

intervening targets (e.g., reducing its 

Scope 3 emissions by 35 percent by 

2030), the registrant would be required 

to disclose these targets.680 Each of the 

proposed disclosure requirements is 

intended to provide investors with 

additional insight into the scope and 

specifics of a registrant’s climate-related 

targets or goals. 

The proposed rules would further 

require a registrant to discuss how it 

intends to meet its climate-related 

targets or goals.681 This information 

should enable investors to better 

understand the potential impacts on a 

registrant associated with pursuing its 

climate-related targets or goals. For 

example, for a target or goal regarding 

net GHG emissions reduction, the 

discussion could include a strategy to 

increase energy efficiency, transition to 

lower carbon products, purchase carbon 

offsets or RECs, or engage in carbon 

removal and carbon storage.682 For a 

registrant operating in a water-stressed 

area, with the goal of reducing its 

freshwater needs, the discussion could 

include a strategy to increase the water 

efficiency of its operations, such as by 

recycling wastewater or, if in 

agriculture, engaging in bioengineering 

techniques to make crops more resilient 

and less water dependent. Information 

about how a registrant intends to 

achieve its climate-related target or goal 

could provide investors with a better 

understanding of the potential costs to 

mitigate a potential climate-related risk, 

such as a manufacturer’s reduction of 

GHG emissions through implementation 

of a relatively high cost solution such as 

carbon capture and storage 

technology.683

The proposed rules would also 

require a registrant to disclose relevant 

data to indicate whether it is making 

progress toward achieving the target or 

goal and how such progress has been 

achieved.684 A registrant would be 

required to update this disclosure each 

fiscal year by describing the actions 

taken during the year to achieve its 

targets or goals.685 This proposed 

disclosure could help investors assess 

how well a registrant is managing its 

identified climate-related risks. 

Some companies might establish 

climate-related goals or targets without 

yet knowing how they will achieve 

those goals. They might plan to develop 

their strategies over time, particularly as 

new technologies become available that 

might facilitate their achievement of 

their goals. The fact that a company has 

set a goal or target does not mean that 

it has a specific plan for how it will 

achieve those goals. What is important 

is that investors be informed of a 

registrant’s plans and progress wherever 

it is in the process of developing and 

implementing its plan. 

If the registrant has used carbon 

offsets or RECs in its plan to achieve 

climate-related targets or goals, it would 

be required to disclose the amount of 

carbon reduction represented by the 

offsets or the amount of generated 

renewable energy represented by the 

RECS, the source of the offsets or RECs, 

a description and location of the 

underlying projects, any registries or 

other authentication of the offsets or 

RECs, and the cost of the offsets or 

RECs.686 For example, a carbon offset 

might pertain to an underlying project 

to reduce GHG emissions, increase the 

storage of carbon, or enhance GHG 

removals from the atmosphere. 

Information regarding the source, value, 

underlying projects, and authentication 

of the offsets or RECs could help 

investors assess the offsets or RECs and 

the effectiveness of the registrant’s plan 

to achieve its climate-related targets or 

goals. Such information could also help 

investors understand changes in the use 

or viability of the carbon offsets or RECs 

as part of achieving a registrant’s 

climate-related targets or goals that are 

caused by changes in regulation or 

markets. A reasonable investor could 

well assess differently the effectiveness 

and value to a registrant of the use of 

carbon offsets where the underlying 

projects resulted in authenticated 

reductions in GHG emissions compared 

to the use of offsets where the 

underlying projects resulted in the 

avoidance, but not the reduction, in 

GHG emissions or otherwise lacked 

verification. As some commenters have 

indicated, mandated detailed disclosure 

about the nature of a purchased carbon 


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687See, e.g., letter from Dimensional Fund 

Advisors. 

688 15 U.S.C. 78m(a). 

689 15 U.S.C. 78o(d). 

offset could also help to mitigate 

instances of greenwashing.687

Proposed 17 CFR 229.1505(a)(2) (Item 

1505(a)(2)) would state that a registrant 

may provide the disclosures required by 

the section when discussing climaterelated impacts on its strategy, business 

model, and outlook (in response to 

proposed Item 1502) or when discussing 

its transition plan as part of its risk 

management disclosure (in response to 

proposed Item 1503). If so, it need not 

repeat the disclosure in response to the 

proposed targets and goals section but 

should cross-refer to the section where 

the information has been provided. 

A registrant’s disclosure of its climaterelated targets or goals should not be 

construed to be promises or guarantees. 

To the extent that information regarding 

a registrant’s climate-related targets or 

goals would constitute forward-looking 

statements, which we would expect, for 

example, with respect to how a 

registrant intends to achieve its climaterelated targets or goals and expected 

progress regarding those targets and 

goals, the PSLRA safe harbors would 

apply to such statements, assuming all 

other statutory requirements for those 

safe harbors are satisfied. 

Request for Comment 

168. Should we require a registrant to 

disclose whether it has set any targets 

related to the reduction of GHG 

emissions, as proposed? Should we also 

require a registrant to disclose whether 

it has set any other climate-related target 

or goal, e.g., regarding energy usage, 

water usage, conservation or ecosystem 

restoration, or revenues from lowcarbon products, in line with 

anticipated regulatory requirements, 

market constraints, or other goals, as 

proposed? Are there any other climaterelated targets or goals that we should 

specify and, if so, which targets or 

goals? Is it clear when disclosure under 

this proposed item would be triggered, 

or do we need to provide additional 

guidance? Would our proposal 

discourage registrants from setting such 

targets or goals? 

169. Should we require a registrant, 

when disclosing its targets or goals, to 

disclose: 

• The scope of activities and 

emissions included in the target; 

• The unit of measurement, including 

whether the target is absolute or 

intensity based; 

• The defined time horizon by which 

the target is intended to be achieved, 

and whether the time horizon is 

consistent with one or more goals 

established by a climate-related treaty, 

law, regulation, or organization; 

• The defined baseline time period 

and baseline emissions against which 

progress will be tracked with a 

consistent base year set for multiple 

targets; 

• Any intervening targets set by the 

registrant; and 

• How it intends to meet its targets or 

goals, each as proposed? 

Are there any other items of 

information about a registrant’s climaterelated targets or goals that we should 

require to be disclosed, in addition to or 

instead of these proposed items? Are 

there any proposed items regarding such 

targets or goals that we should exclude 

from the required disclosure? If a 

registrant has set multiple targets or 

goals, should it be permitted to establish 

different base years for those targets or 

goals? 

170. Should we require a registrant to 

discuss how it intends to meet its 

climate-related targets or goals, as 

proposed? Should we provide examples 

of potential items of discussion about a 

target or goal regarding GHG emissions 

reduction, such as a strategy to increase 

energy efficiency, a transition to lower 

carbon products, purchasing carbon 

offsets or RECs, or engaging in carbon 

removal and carbon storage, as 

proposed? Should we provide 

additional examples of items of 

discussion about climate-related targets 

or goals and, if so, what items should 

we add? Should we remove any of the 

proposed examples of items of 

discussion? 

171. Should we require a registrant, 

when disclosing its targets or goals, to 

disclose any data that indicates whether 

the registrant is making progress 

towards meeting the target and how 

such progress has been achieved, as 

proposed? 

172. Should we require that the 

disclosure be provided in any particular 

format, such as charts? Would certain 

formats help investors and others better 

assess these disclosures in the context of 

assessing the registrant’s business and 

financial condition? What additional or 

other requirements would help in this 

regard? 

173. If a registrant has used carbon 

offsets or RECs, should we require the 

registrant to disclose the amount of 

carbon reduction represented by the 

offsets or the amount of generated 

renewable energy represented by the 

RECS, the source of the offsets or RECs, 

the nature and location of the 

underlying projects, any registries or 

other authentication of the offsets or 

RECs, and the cost of the offsets or 

RECs, as proposed? Are there other 

items of information about carbon 

offsets or RECs that we should 

specifically require to be disclosed 

when a registrant describes its targets or 

goals and the related use of offsets or 

RECs? Are there proposed items of 

information that we should exclude 

from the required disclosure about 

offsets and RECs? 

174. Should we apply the PSLRA 

statutory safe harbors as they currently 

exist to forward-looking statements 

involving climate-related targets and 

goals, or other climate-related forwardlooking information? Should we instead 

create a separate safe harbor for forwardlooking climate-related information, 

including targets and goals? Should we 

adopt an exception to the PSLRA 

statutory safe harbors that would extend 

the safe harbors to climate-related 

forward-looking disclosures made in an 

initial public offering registration 

statement? 

J. Registrants Subject to the ClimateRelated Disclosure Rules and Affected 

Forms 

The proposed climate-related 

disclosure rules would apply to a 

registrant with Exchange Act reporting 

obligations pursuant to Exchange Act 

Section 13(a) 688 or Section 15(d) 689 and 


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690Form 20–F is the Exchange Act form used by 

a foreign private issuer for its annual report or to 

register a class of securities under Section 12 of the 

Exchange Act. The proposed rules would amend 

Part I of Form 20–F to require a foreign private 

issuer to provide the climate-related disclosures 

pursuant to the proposed rules either when 

registering a class of securities under the Exchange 

Act or when filing its Exchange Act annual report. 

A foreign private issuer would also be required to 

comply with the proposed rules when filing a 

Securities Act registration statement on Form F–1. 

Because Form F–1 requires a registrant to include 

the disclosures required by Part I of Form 20–F, the 

proposed amendment to Form 20–F would render 

unnecessary a formal amendment to Form F–1. We 

are similarly not formally amending Forms S–3 and 

F–3 because the climate-related disclosure would 

be included in a registrant’s Form 10–K or 20–F 

annual report that is incorporated by reference into 

those Securities Act registration statements. 

691See Form 20–F, General Instruction B(d) 

(stating that Regulation S–X applies to the 

presentation of financial information in the form). 

Although Item 17 and 18 of Form 20–F, and the 

forms that refer to Form 20–F (including Forms 

F–1 and F–3) permit a foreign private issuer to file 

financial statements prepared in accordance with 

IFRS as issued by the IASB, the proposed Article 

14 disclosure would nevertheless be required 

(similar to disclosure required by Article 12 of 

Regulation S–X). See Acceptance from Foreign 

Private Issuers of Financial Statements Prepared in 

Accordance with International Financial Reporting 

Standards Without Reconciliation to U.S. GAAP, 

Rel. No. 33–8879 (Dec. 21, 2007) [73 FR 986 (Jan. 

4, 2008)], 999, n.136 (stating that ‘‘Regulation S–X 

will continue to apply to the filings of all foreign 

private issuers, including those who file financial 

statements prepared using IFRS as issued by the 

IASB,’’ but providing that such issuers ‘‘will 

comply with IASB requirements for form and 

content within the financial statements, rather than 

with the specific presentation and disclosure 

provisions in Articles 4, 5, 6, 7, 9, and 10 of 

Regulation S–X’’). 

692Form 6–K is the form furnished by a foreign 

private issuer with an Exchange Act reporting 

obligation if the issuer: (i) Makes or is required to 

make the information public pursuant to the law of 

the jurisdiction of its domicile or in which it is 

incorporated or organized, or (ii) files or is required 

to file the information with a stock exchange on 

which its securities are traded and which was made 

public by that exchange, or (iii) distributes or is 

required to distribute the information to its security 

holders. See General Instruction B to Form 6–K. 

That instruction currently list certain types of 

information that are required to be furnished 

pursuant to subparagraphs (i), (ii), and (iii), above. 

While we are proposing to amend Form 6–K to add 

climate-related disclosure to the list of the types of 

information to be provided on Form 6–K, a foreign 

private issuer would not be required to provide the 

climate-related disclosure if such disclosure is not 

required to be furnished pursuant to subparagraphs 

(i), (ii), or (iii) of General Instruction B. 

693See proposed Item 3.E to Form 20–F. 

694For similar reasons, we believe that requiring 

the proposed climate disclosures on Forms F–1, 

F–3, and F–4 is appropriate because those forms 

either require the disclosure pursuant to certain 

parts of Form 20–F (Forms F–1 and F–4) and certain 

items, such as risk factors, under Regulation S–K, 

or permit the incorporation by reference of Form 

20–F (Forms F–3 and F–4) and therefore require 

disclosure similar to the domestic forms. 

695An emerging growth company (‘‘EGC’’) is a 

registrant that had total annual gross revenues of 

less than $1.07 billion during its most recently 

completed fiscal year and has not met the specified 

conditions for no longer being considered an EGC. 

See 17 CFR 230.405; 17 CFR 240.12b–2; 15 U.S.C. 

77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation 

Adjustments and Other Technical Amendments 

under Titles I and II of the JOBS Act, Release No. 

33–10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 12, 

2017)]. 

696See, e.g., letters from Rob Bonta, California 

Attorney General et al.; Ceres et al.; and Natural 

Resources Defense Council. 

697See proposed 17 CFR 229.1504(c)(3). In this 

regard we note that participants in the Commissionhosted 2021 Small Business Forum recommended 

that the Commission provide exemptions or scaled 

requirements for small and medium-sized 

companies in connection with any new ESG 

disclosure requirements adopted by the 

Commission. See Report on the 40th Annual Small 

Business Forum (May 2021), available at https://

www.sec.gov/files/2021_OASB_Annual_

Forum_Report_FINAL_508.pdf. See also Office of 

the Advocate for Small Business Capital Formation, 

Annual Report for Fiscal Year 2021 (supporting 

‘‘efforts to continue tailoring the disclosure and 

reporting framework to the complexity and size of 

operations of companies, either by scaling 

obligations or delaying compliance for the smallest 

of the public companies, particularly as it pertains 

to potential new or expanded disclosure 

requirements’’). 

698See infra Section II.M. 

699A BDC is a closed-end investment company 

that has a class of its equity securities registered 

under, or has filed a registration statement pursuant 

to, Section 12 of the Exchange Act, and elects to be 

regulated as a business development company. See 

Section 54 of the Investment Company Act, 15 

U.S.C. 80a–53. Like other Section 12 registrants, 

BDCs are required to file Exchange Act annual 

reports. 

companies filing a Securities Act or 

Exchange Act registration statement. 

Specifically, we are proposing to require 

a registrant to include climate-related 

disclosure in Securities Act or Exchange 

Act registration statements (Securities 

Act Forms S–1, F–1, S–3, F–3, S–4, F– 

4, and S–11, and Exchange Act Forms 

10 and 20–F) 690 and Exchange Act 

annual reports (Forms 10–K and 20–F), 

including the proposed financial 

statement metrics.691 Similar to the 

treatment of other important business 

and financial information, the proposed 

rules would also require registrants to 

disclose any material change to the 

climate-related disclosure provided in a 

registration statement or annual report 

in its Form 10–Q (or, in certain 

circumstances, Form 6–K for a registrant 

that is a foreign private issuer that does 

not report on domestic forms).692

The proposed rules would amend 

Form 20–F and the Securities Act forms 

that a foreign private issuer may use to 

register the offer and sale of securities 

under the Securities Act to require the 

same climate-related disclosures as 

proposed for a domestic registrant.693

Because climate-related risks potentially 

impact both domestic and foreign 

private issuers, regardless of the 

registrant’s jurisdiction of origin or 

organization, requiring that foreign 

private issuers provide this disclosure 

would be important to achieving our 

goal of more consistent, reliable, and 

comparable information across 

registrants. Moreover, we note that Form 

20–F imposes substantially similar 

disclosure requirements as those 

required for Form 10–K filers on 

matters, such as risk factors and MD&A, 

that are similar and relevant to the 

proposed climate-related disclosures.694

We are not proposing generally to 

exempt SRCs, EGCs,695 or registrants 

that are foreign private issuers from the 

entire scope of the proposed climaterelated disclosure rules because we 

agree with commenters who stated that, 

because of their broad impact across 

industries and jurisdictions, climaterelated risks may pose a significant risk 

to the operations and financial 

condition of domestic and foreign 

issuers, both large and small.696 While 

we are not proposing to exempt SRCs 

from the full scope of the proposed 

climate-related disclosure rules, we are 

proposing to exempt SRCs from the 

proposed Scope 3 emissions disclosure 

requirement.697 We also are proposing 

to provide a longer transition period for 

SRCs to comply with the proposed rules 

than we are proposing for other 

registrants.698 The proposed 

accommodations for Scope 3 emissions 

disclosures could mitigate the proposed 

rules’ compliance burden for smaller 

registrants that, when compared to 

larger registrants with more resources, 

may be less able to afford the fixed costs 

associated with the reporting of GHG 

emissions. In addition, the extended 

compliance period would give SRCs 

additional time to allocate the resources 

necessary to compile and prepare their 

climate-related disclosures. 

Request for Comment 

175. Should the proposed climaterelated disclosures be required in 

Exchange Act reports and registration 

statements, as proposed? Should we 

exempt SRCs from all of the proposed 

climate-related disclosure rules instead 

of exempting them solely from Scope 3 

emissions disclosure requirements, as 

proposed? Should we exempt SRCs 

from certain other proposed climaterelated disclosure requirements and, if 

so, which requirements? For example, 

in addition to the proposed exemption 

from Scope 3 emissions disclosure, 

should we exempt SRCs from the 

proposed requirement to disclose 

Scopes 1 and 2 emissions? Are there 

certain types of other registrants, such 

as EGCs or business development 

companies (‘‘BDCs’’),699 that should be 

excluded from all or some of the 

proposed climate-related disclosure 

rules? 

176. Should we require foreign 

private issuers that report on Form 20– 


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F to provide the same climate-related 

disclosures as Form 10–K filers, as 

proposed? Should we require climaterelated disclosures in the registration 

statements available for foreign private 

issuers, as proposed? If not, how should 

the climate-related disclosures provided 

by foreign private issuer registrants 

differ from the disclosures provided by 

domestic registrants? 

177. Should we require a registrant to 

disclose any material changes to the 

climate-related disclosure provided in 

its registration statement or annual 

report in its Form 10–Q or Form 6–K, 

as proposed? Are there any changes that 

should be required to be reported on 

Form 8–K? 

178. Should we require the climaterelated disclosure in the forms specified 

above? Is the application of the 

proposed rules to the forms sufficiently 

clear, or should we include additional 

clarifying amendments? For example, 

would the application of proposed 

Article 14 to Forms 20–F, F–1 and 

F–3 be sufficiently clear when a 

registrant prepares its financial 

statements pursuant to IFRS as issued 

by the International Accounting 

Standards Board (‘‘IASB’’) without 

reconciliation to U.S. generally accepted 

accounting principles (‘‘U.S. GAAP’’), or 

should we add a related instruction to 

those forms? 

179. Are there certain registration 

statements or annual reports that should 

be excluded from the scope of the 

proposed climate-related disclosure 

rules? For example, should we exclude 

Securities Act registration statements 

filed in connection with a registrant’s 

initial public offering? Would such an 

accommodation help address concerns 

about the burdens of transitioning to 

public company status? We have not 

proposed to require climate-related 

disclosures in registration statements on 

Form S–8 or annual reports on Form 

11–K. Should we require such 

disclosures? 

180. Should we require climaterelated disclosure in Forms S–4 and 

F–4, as proposed? Should we provide 

transitional relief for recently acquired 

companies? For example, should we 

provide that a registrant would not be 

required to provide the proposed 

climate-related disclosures for a 

company that is a target of a proposed 

acquisition under Form S–4 or F–4 until 

the fiscal year following the year of the 

acquisition if the target company is not 

an Exchange Act reporting company and 

is not the subject of foreign climaterelated disclosure requirements that are 

substantially similar to the 

Commission’s proposed requirements? 

Should such transitional relief in this 

instance be for a longer period than one 

year and, if so, for how long should 

such transitional relief extend? 

181. We have not proposed to amend 

Form 40–F, the Exchange Act form used 

by a Canadian issuer eligible to report 

under the Multijurisdictional Disclosure 

System (‘‘MJDS’’) to register securities 

or to file its annual report under the 

Exchange Act, to include the proposed 

climate-related disclosure requirements. 

Should we require a Form 40–F issuer 

to comply with the Commission’s 

proposed climate-related disclosure 

requirements? Should we permit a 

MJDS issuer to comply with Canadian 

climate-related disclosure requirements 

instead of the proposed rules if they 

meet certain conditions or provide 

certain additional disclosures and, if so, 

which conditions or disclosures? 

182. The proposed rules would not 

apply to asset-backed issuers. The 

Commission and staff are continuing to 

evaluate climate-related disclosures 

with respect to asset-backed securities. 

Should we require asset-backed issuers 

to provide some or all of the disclosures 

under proposed Subpart 1500 of 

Regulation S–K? If so, which of the 

proposed disclosures should apply to 

asset-backed issuers? Are other types of 

climate disclosure better suited to assetbacked issuers? How can climate 

disclosure best be tailored to various 

asset classes? 

183. Should we adopt an alternative 

reporting provision that would permit a 

registrant that is a foreign private issuer 

and subject to the climate-related 

disclosure requirements of an 

alternative reporting regime that has 

been deemed by the Commission to be 

substantially similar to the requirements 

of proposed Subpart 1500 of Regulation 

S–K and Article 14 of Regulation S–X to 

satisfy its disclosure obligations under 

those provisions by complying with the 

reporting requirements of the alternative 

reporting regime (‘‘alternative reporting 

provision’’)? If so, should we require the 

submission of an application for 

recognition of an alternative reporting 

regime as having substantially similar 

requirements for purposes of alternative 

reporting regarding climate-related 

disclosures? Should we permit 

companies, governments, industry 

groups, or climate-related associations 

to file such an application? Should we 

require the applicant to follow certain 

procedures, such as those set forth in 17 

CFR 240.0–13? 

184. If we adopt an alternative 

reporting provision, should we specify 

certain minimum standards that the 

alternative reporting regime must meet 

in order to be recognized and, if so, 

what standards? For example, should 

we specify that an alternative reporting 

regime must require the disclosure of a 

foreign private issuer’s Scopes 1 and 2 

emissions and related targets, the 

proposed financial statement metrics, as 

well as disclosures pursuant to the 

TCFD’s recommendations regarding 

governance, strategy, and risk 

management disclosure? Should we 

specify that the alternative reporting 

regime must require the disclosure of 

Scope 3 emissions and, if so, should we 

deem the alternative reporting regime to 

be substantially similar even if its Scope 

3 emissions requirements become 

effective after the Commission’s phase 

in period for Scope 3 emissions 

disclosure requirements? Should we 

specify that the alternative reporting 

regime must require the disclosure of 

scenario analysis if a registrant uses 

scenario analysis in formulating its 

strategy regarding climate-related risks? 

Are there certain climate-related 

disclosure requirements that have been 

adopted or are in the process of being 

adopted in other jurisdictions that we 

should consider to be substantially 

similar to the Commission’s rules for 

purposes of an alternative reporting 

provision? If so, which requirements 

should we consider? 

185. If we adopt an alternative 

reporting provision, should it be a 

mutual recognition system, so that, as a 

condition of our recognition of a 

particular jurisdiction as an alternative 

reporting regime, that jurisdiction must 

recognize the Commission’s climaterelated disclosure rules as an alternative 

reporting system that a registrant duallisted in the United States and the other 

jurisdiction may use to fulfill the foreign 

jurisdiction’s climate-related disclosure 

rules? 

186. If we adopt an alternative 

reporting provision, should we require a 

registrant filing the alternative climaterelated disclosure to make certain 

changes that we deem necessary as a 

condition to alternative reporting? For 

example, should we require a registrant 

to comply with XBRL tagging 

requirements as a condition to filing 

alternative climate-related disclosure? 

Are there other specific conditions that 

we should impose on disclosure under 

an alternative climate reporting 

provision? 

187. If we adopt an alternative 

reporting provision, should we require a 

registrant using that system to: 

• State in the filing that it is relying 

on this alternative reporting provision; 

• Identify the alternative reporting 

regime for which the climate-related 

disclosure was prepared; 


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700See supra note 92. 

701See proposed 17 CFR 229.1507. 

702For the proposed Subpart 1500 disclosures, 

this tagging requirement would be implemented by 

including a cross-reference to Rule 405 of 

Regulation S–T in proposed Item 1507 of 

Regulation S–K, and by revising Rule 405(b) of 

Regulation S–T to include the proposed climaterelated disclosures required by Subpart 1500 of 

Regulation S–K. The proposed Article 14 of 

Regulation S–X disclosures would be subject to 

existing requirements in Rule 405(b) to tag 

information in financial statements (including 

footnotes). Pursuant to Rule 301 of Regulation 

S–T the EDGAR Filer Manual is incorporated by 

reference into the Commission’s rules. In 

conjunction with the EDGAR Filer Manual, 

Regulation S–T governs the electronic submission 

of documents filed with the Commission. Rule 405 

of Regulation S–T specifically governs the scope 

and manner of disclosure tagging requirements for 

operating companies and investment companies, 

including the requirement in Rule 405(a)(3) to use 

Inline XBRL as the specific structured data language 

to use for tagging the disclosures. 

703 Interactive Data to Improve Financial 

Reporting, Release No. 33–9002 (Jan. 30, 2009) [74 

FR 6776 (Feb. 10, 2009)] (‘‘2009 Financial 

Statement Information Adopting Release’’) 

(requiring submission of an Interactive Data File to 

the Commission in exhibits to such reports); see 

also Release No. 33–9002A (Apr. 1, 2009) [74 FR 

15666 (Apr. 7, 2009)]. 

704 Inline XBRL Filing of Tagged Data, Release 

No. 33–10514 (June 28, 2018) [83 FR 40846, 40847 

(Aug. 16, 2018)]. Inline XBRL allows filers to embed 

XBRL data directly into an HTML document, 

eliminating the need to tag a copy of the 

information in a separate XBRL exhibit. Id. at 

40851. 

705Securities Offering Reform for Closed-End 

Investment Companies, Release No. 33–10771 (Apr. 

8, 2020) [85 FR 33290 (June 1, 2020) at 33318]. 

706See supra notes 704 and 705. Inline XBRL 

requirements for business development companies 

will take effect beginning Aug. 1, 2022 (for seasoned 

issuers) and Feb. 1, 2023 (for all other issuers). See 

id. If the proposed Inline XBRL requirements are 

adopted in the interim, they will not apply to 

business development companies prior to the 

aforementioned effectiveness dates. 

• Identify the exhibit number of the 

filing where the alternative disclosure 

can be found; and 

• File a fair and accurate English 

translation of the alternative climaterelated disclosure if in a foreign 

language? 

Would these requirements enhance 

the accessibility of the alternative 

disclosures? Are there other 

requirements that we should impose to 

enhance the transparency of the 

alternative climate-related disclosure? 

188. If we adopt an alternative 

reporting provision, should we permit a 

registrant to follow the submission 

deadline of the approved alternative 

reporting regime even if that deadline 

differs from the deadline for reporting 

under our rules? If so, what conditions, 

if any, should apply to permit the use 

of such alternative deadline? For 

example, should the registrant be 

required to provide adequate notice, 

before the due date of the Commission 

filing in which the alternative 

disclosure is required to be included? 

Should such notice indicate the 

registrant’s intent to file the alternative 

disclosure using the alternative 

jurisdiction’s deadline? If so, what 

would constitute adequate notice? For 

example, should the deadline for filing 

the notice be three, five, or ten business 

days before the Commission filing 

deadline? Should we permit a registrant 

to provide such notice through an 

appropriate submission to the 

Commission’s EDGAR system? Should 

we permit a registrant to indicate in its 

Form 20–F or other report that it will 

file the alternative disclosure at a later 

date if permitted to do so by the 

alternative reporting regime? In that 

case, should we permit the registrant to 

file the alternative disclosure on a Form 

6–K or 8–K? Should we instead require 

a registrant to submit the notice via a 

form that we would create for such 

purpose? Should there be any 

consequences if a registrant fails to file 

a timely notice or fails to file the 

alternative disclosure by the alternative 

regime’s due date? For example, should 

we preclude such a registrant from 

relying on the alternative reporting 

provision for the following fiscal year? 

189. An International Sustainability 

Standards Board (ISSB) has recently 

been created, which is expected to issue 

global sustainability standards, 

including climate-related disclosure 

standards.700 If we adopt an alternative 

reporting provision, should that 

provision be structured to encompass 

reports made pursuant to criteria 

developed by a global sustainability 

standards body, such as the ISSB? If so, 

should such alternative reporting be 

limited to foreign private issuers, or 

should we extend this option to all 

registrants? What conditions, if any, 

should we place on a registrant’s use of 

alternative reporting provisions based 

on the ISSB or a similar body? 

K. Structured Data Requirement 

The proposed rules would require a 

registrant to tag the proposed climaterelated disclosures in a structured, 

machine-readable data language.701

Specifically, the proposed rules would 

require a registrant to tag climate-related 

disclosures in Inline eXtensible 

Business Reporting Language (‘‘Inline 

XBRL’’) in accordance with 17 CFR 

232.405 (Rule 405 of Regulation S–T) 

and the EDGAR Filer Manual. The 

proposed requirements would include 

block text tagging and detail tagging of 

narrative and quantitative disclosures 

provided pursuant to Subpart 1500 of 

Regulation S–K and Article 14 of 

Regulation S–X.702

In 2009, the Commission adopted 

rules requiring operating companies to 

submit the information from the 

financial statements (including 

footnotes and schedules thereto) 

included in certain registration 

statements and periodic and current 

reports in a structured, machinereadable data language using eXtensible 

Business Reporting Language 

(‘‘XBRL’’).703 In 2018, the Commission 

adopted modifications to these 

requirements by requiring issuers to use 

Inline XBRL, which is both machinereadable and human-readable, to reduce 

the time and effort associated with 

preparing XBRL filings and improve the 

quality and usability of XBRL data for 

investors.704 In 2020, the Commission 

adopted Inline XBRL requirements for 

business development companies that 

will be effective no later than February 

2023.705

Requiring Inline XBRL tagging of the 

proposed climate-related disclosures 

would benefit investors by making the 

disclosures more readily available and 

easily accessible to investors, market 

participants, and other users for 

aggregation, comparison, filtering, and 

other analysis, as compared to requiring 

a non-machine readable data language 

such as ASCII or HTML. This would 

enable automated extraction and 

analysis of climate-related disclosures, 

allowing investors and other market 

participants to more efficiently perform 

large-scale analysis and comparison of 

climate-related disclosures across 

companies and time periods. At the 

same time, we do not expect the 

incremental compliance burden 

associated with tagging the additional 

information to be unduly burdensome, 

because issuers subject to the proposed 

requirements are or in the near future 

will be subject to similar Inline XBRL 

requirements in other Commission 

filings.706

Request for Comment 

190. Should we require registrants to 

tag the climate-related disclosures, 

including block text tagging and detail 

tagging of narrative and quantitative 

disclosures required by Subpart 1500 of 

Regulation S–K and Article 14 of 

Regulation S–X in Inline XBRL, as 

proposed? Should we permit custom 

tags for the climate-related disclosures? 

191. Should we modify the scope of 

the proposed climate-related disclosures 

required to be tagged? For example, 

should we only require tagging of the 

quantitative climate-related metrics? 

192. Are there any third-party 

taxonomies the Commission should 


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707 15 U.S.C. 78r. 

708 15 U.S.C. 77k. 

709Form 6–K, General Instruction B. 

710See Release No. 34–8069 (Apr. 28, 1967), [32 

FR 7853 (May 30, 1967)]. Form 6–K’s treatment as 

furnished for purposes of Section 18 has existed 

since the Commission adopted the form. 

711See, e.g., letters from Baillie Gifford; Rob 

Bonta, California Attorney General et al.; Calvert 

Research and Management; Carolyn Kohoot; Center 

for American Progress; Ceres et al.; Certified B 

Corporations; Clean Yield Asset Management; 

Climate Risk Disclosure Lab; Consumer Federation 

of America; Environmental Bankers Association; 

Friends of the Earth, Amazon Watch, and Rainforest 

Action Network; Garcia Hamilton & Associates 

(June 11, 2021); Grant Thornton; Sarah Ladin; 

Miller/Howard Investments; Natural Resources 

Defense Council; New York State Society of 

Certified Public Accountants; Nia Impact Capital; 

Teachers Insurance and Annuity Association of 

America; ValueEdge Advisors (July 5, 2021); and 

Vert Asset Management. 

712See, e.g., letters from Rob Bonta, California 

Attorney General et al.; Calvert Research and 

Management; and Ceres et al. 

713See, e.g., letters from Consumer Federation of 

America; and Natural Resources Defense Council. 

714See, e.g., letters from American Petroleum 

Institute; Associated General Contractors of 

America; Bank Policy Institute; Business 

Roundtable; Chamber of Commerce; Chevron; 

Cisco; ConocoPhilips; Dell Technologies; Dow; 

FedEx Corporation (June 11, 2021); Investment 

Company Institute; NACCO Industries, Inc. (June 

11, 2021); KPMG, LLP; National Association of 

Manufacturers; National Investor Relations 

Institute; National Mining Association; Society for 

Corporate Governance; and United Airlines 

Holdings, Inc. 

715Letter from American Petroleum Institute; see 

also letters from Chamber of Commerce; and 

National Association of Manufacturers. 

716See, e.g., letters from National Mining 

Association; and United Airlines Holdings. 

717See supra note 713. 

718See, e.g., letter from National Association of 

Manufacturers. 

719See infra Section II.M. 720See supra note 556. 

look to in connection with the proposed 

tagging requirements? 

193. Should we require issuers to use 

a different structured data language to 

tag climate-related disclosures? If so, 

what structured data language should 

we require? Should we leave the 

structured data language undefined? 

L. Treatment for Purposes of Securities 

Act and Exchange Act 

We are proposing to treat the 

proposed required climate-related 

disclosures as ‘‘filed’’ and therefore 

subject to potential liability under 

Exchange Act Section 18,707 except for 

disclosures furnished on Form 6–K. The 

proposed filed climate-related 

disclosures would also be subject to 

potential Section 11 liability 708 if 

included in or incorporated by reference 

into a Securities Act registration 

statement. This treatment would apply 

both to the disclosures in response to 

proposed subpart 1500 of Regulation 

S–K and to proposed Article 14 of 

Regulation S–X. 

Form 6–K disclosures would not be 

treated as ‘‘filed’’ because the form, by 

its own terms, states that ‘‘information 

and documents furnished in this report 

shall not be deemed to be ‘‘filed’’ for the 

purposes of Section 18 of the Act or 

otherwise subject to the liabilities of 

that section.’’ 709 The treatment of 

disclosures on Form 6–K as furnished is 

a long-standing part of our foreign 

private issuer disclosure system.710

Commenters expressed differing 

views on whether we should treat 

Commission-mandated climate-related 

disclosures as filed or furnished. Many 

commenters recommended that we treat 

such climate-related disclosures as 

filed.711 Some of these commenters 

stated that we should treat climaterelated disclosures like financial 

disclosures and require them to be filed 

together with the rest of the Commission 

filing.712 Other commenters indicated 

that the treatment of climate-related 

disclosures as filed would help ensure 

that investors have confidence in the 

accuracy and completeness of such 

disclosures because of the liability 

associated with filed documents.713

Other commenters recommended that 

we treat climate-related disclosures as 

furnished.714 Some of these commenters 

stated that the Commission’s treatment 

of such disclosures as filed could act as 

a disincentive to providing ‘‘broader’’ 

disclosure and would incentivize some 

issuers ‘‘to disclose in the manner most 

limited to meet the specific requirement 

and avoid more robust explanation.’’ 715

Other commenters stated that the 

treatment of climate-related disclosures 

as furnished would be appropriate 

because, in their view, much of that 

disclosure is based on projections and 

aspirational statements ill-suited to the 

application of a stricter liability 

standard.716

We agree with those commenters who 

indicated that the treatment of climaterelated disclosures as filed could help 

promote the accuracy and reliability of 

such disclosures for the benefit of 

investors.717 In this regard, we believe 

these disclosures should be subject to 

the same liability as other important 

business or financial information that 

the registrant includes in its registration 

statements and periodic reports. While 

we acknowledge commenters who 

stated that the methodology underlying 

climate data continues to evolve,718 we 

intend to provide registrants with an 

ample transition period to prepare to 

provide such disclosure.719 Further, 

much of the disclosure proposed to be 

required reflects discussion of a 

company’s own climate risk assessment 

and strategy, which is not dependent on 

external sources of information. In 

addition, we have provided guidance 

and proposed rules on the applicability 

of safe harbors to certain disclosures 

under the proposed rules. For these 

reasons, we believe it would be 

appropriate for the proposed disclosures 

to be filed rather than furnished, except 

with respect to the proposed disclosure 

we are requiring on Form 6–K. 

Request for Comment 

194. Should we treat the climaterelated disclosures required by 

proposed subpart 1500 of Regulation 

S–K and proposed Article 14 of 

Regulation S–X as filed for purposes of 

potential liability under the Securities 

Act and Exchange Act, except for the 

climate disclosures on Form 6–K, as 

proposed? Should we instead treat the 

climate-related disclosures required by 

both proposed subpart 1500 of 

Regulation S–K and proposed Article 14 

of Regulation S–X as furnished? Are 

there reasons why the proposed climaterelated disclosures should not be subject 

to Section 18 liability? 

195. Should we only treat the climaterelated disclosures required by 

proposed subpart 1500 of Regulation S– 

K as filed? Should we only treat the 

climate-related disclosures required by 

proposed Article 14 of Regulation S–X 

as filed? Is there some other subset of 

climate-related disclosures that should 

be treated as furnished rather than filed? 

For example, should we only treat as 

filed disclosures related to a registrant’s 

Scopes 1 and 2 emissions, and treat a 

registrant’s Scope 3 emissions as 

furnished? 

196. Should we treat the climate 

disclosures on Form 6–K as filed? 

M. Compliance Date 

We recognize that many registrants 

may require time to establish the 

necessary systems, controls, and 

procedures to comply with the proposed 

climate-related disclosure requirements. 

In addition, some commenters 

recommended that the Commission not 

adopt a ‘‘one size fits all’’ approach 

when promulgating climate-related 

disclosure rules because such an 

approach would disproportionately 

impact smaller registrants.720 In order to 

provide registrants, especially smaller 

registrants, with additional time to 

prepare for the proposed climate-related 

disclosures, we are proposing phased-in 

dates for complying with proposed 

subpart 1500 of Regulation S–K and 

Article 14 of Regulation S–X, which 

would provide additional time for 

certain smaller registrants. The table 


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721See, e.g., letters from Adobe; Apple; BNP 

Paribas; bp; Chevron; Eni SpA; and Walmart. 722See supra Section II.G.3. 

723Section 2(b) of the Securities Act, 15 U.S.C. 

77b(b), and Section 3(f) of the Exchange Act, 17 

U.S.C. 78c(f), require the Commission, when 

engaging in rulemaking where it is required to 

consider or determine whether an action is 

necessary or appropriate in the public interest, to 

consider, in addition to the protection of investors, 

whether the action will promote efficiency, 

competition, and capital formation. Further, Section 

23(a)(2) of the Exchange Act, 17 U.S.C. 78w(a)(2), 

requires the Commission, when making rules under 

the Exchange Act, to consider the impact that the 

below summarizes the proposed phaseins for the compliance date. The table assumes, for illustrative 

purposes, that the proposed rules will 

be adopted with an effective date in 

December 2022, and that the registrant 

has a December 31st fiscal year-end. 

Registrant type Disclosure compliance date Financial statement metrics 

audit compliance date 

All proposed disclosures, including GHG 

emissions metrics: Scope 1, Scope 2, 

and associated intensity metric, but 

excluding Scope 3.

GHG emissions metrics: Scope 3 and 

associated intensity metric.

Large Accelerated Filer ....... Fiscal year 2023 (filed in 2024) .............. Fiscal year 2024 (filed in 2025) .............. Same as disclosure compliance date. 

Accelerated Filer and NonAccelerated Filer.Fiscal year 2024 (filed in 2025) .............. Fiscal year 2025 (filed in 2026).

SRC ..................................... Fiscal year 2025 (filed in 2026) .............. Exempted.

The proposed compliance dates in the 

table above would apply to both annual 

reports and registration statements. For 

example, if a non-accelerated filer with 

a December 31st fiscal year-end filed a 

registration statement that was not 

required to include audited financial 

statements for fiscal year 2024 (e.g., the 

registration statement was filed in 2023 

or 2024), it would not be required to 

comply with the proposed climate 

disclosure rules in that registration 

statement. 

A registrant with a different fiscal 

year-end date that results in its fiscal 

year 2023 commencing before the 

effective date of the rules would not be 

required to comply with subpart 1500 of 

Regulation S–K and Article 14 of 

Regulation S–X until the following 

fiscal year. For example, a large 

accelerated filer with a March 31st fiscal 

year-end date would not be required to 

comply with the proposed climate 

disclosure rules until its Form 10–K for 

fiscal year 2024, filed in June, 2024. 

This would provide large accelerated 

filers, who would have the earliest 

compliance date of all categories of 

filers, with what we believe is a 

reasonable amount of time to comply 

with the rules. 

We believe that initially applying the 

disclosure requirements to the more 

limited pool of large accelerated filers 

would be appropriate, because many 

large accelerated filers are already 

collecting and disclosing climate-related 

information, have already devoted 

resources to these efforts, and have 

some levels of controls and processes in 

place for such disclosure.721 In 

comparison, registrants that are not 

large accelerated filers may need more 

time to develop the systems, controls, 

and processes necessary to comply with 

the proposed rules, and may face 

proportionately higher costs. 

Accordingly, we propose to provide 

them additional time to comply. 

We also recognize that obtaining the 

data necessary to calculate a registrant’s 

Scope 3 emissions might prove 

challenging since much of the data is 

likely to be under the control of third 

parties. In order to provide sufficient 

time for registrants to make the 

necessary arrangements to begin 

gathering and assessing such data, we 

are proposing an additional one-year 

phase-in period for the Scope 3 

emissions disclosure requirements. As 

previously mentioned, we also are 

proposing an exemption for SRCs from 

the proposed Scope 3 emissions 

disclosure provision.722

The proposed mandatory compliance 

periods are intended to provide 

registrants with ample time to prepare 

to provide the proposed disclosures. 

Registrants would, however, be able to 

provide the disclosures at any time after 

the effective date of the rules. 

Request for Comment 

197. Should we provide different 

compliance dates for large accelerated 

filers, accelerated filers, non-accelerated 

filers, or SRCs, as proposed? Should any 

of the proposed compliance dates in the 

table above be earlier or later? Should 

any of the compliance dates be earlier 

so that, for example, a registrant would 

be required to comply with the 

Commission’s climate-related disclosure 

rules for the fiscal year in which the 

rules become effective? 

198. Should we provide a compliance 

date for the proposed Scope 3 emissions 

disclosure requirements that is one year 

later than for the other disclosure 

requirements, as proposed? Should the 

compliance dates for the Scope 3 

emissions disclosure requirements be 

earlier or later? Should the compliance 

date for the Scope 3 emissions 

disclosure requirements depend upon 

whether the registrant is a large 

accelerated filer, accelerated filer, or 

non-accelerated filer? 

199. Should we provide different 

compliance dates for registrants that do 

not have a December 31st fiscal yearend? 

200. Should we include rules or 

guidance addressing less common 

situations, such as, but not limited to, 

reverse mergers, recapitalizations, other 

acquisition transactions, or if a 

registrant’s SRC (or EGC) status changes 

as a result of such situations? 

201. Are there other phase-ins or 

exemptions regarding any or all of the 

proposed rules that we should provide? 

III. General Request for Comments 

We request and encourage any 

interested person to submit comments 

on any aspect of the proposed 

amendments, other matters that might 

have an impact on the proposed 

amendments, and any suggestions for 

additional changes. With respect to any 

comments, we note that they are of 

greatest assistance to our rulemaking 

initiative if accompanied by supporting 

data and analysis of the issues 

addressed in those comments and by 

alternatives to our proposals where 

appropriate. 

IV. Economic Analysis 

We are mindful of the economic 

effects that may result from the 

proposed rules, including the benefits, 

costs, and the effects on efficiency, 

competition, and capital formation.723


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rules would have on competition, and prohibits the 

Commission from adopting any rule that would 

impose a burden on competition not necessary or 

appropriate in furtherance of the Exchange Act. 

724See infra Section IV.C.1. 

725 Id. 

726 Id. 

727See infra Section IV.D. 

728See infra Section IV.C.2 

729FPIs refer to the subset of all FPIs that file 

annual reports on Form 20–F, excluding MJDS filers 

using form 40–F.The number of domestic 

registrants and FPIs affected by the final 

amendments is estimated as the number of unique 

companies, identified by Central Index Key (CIK), 

that filed a Form 10–K, Form 20–F, or an 

amendment thereto, or both a Form 10–Q and a 

Form S–1, S–3, S–4, or S–11 with the Commission 

during calendar year 2020, excluding asset-backed 

securities issuers. For purposes of this economic 

analysis, these estimates do not include registrants 

that only filed a Securities Act registration 

statement during calendar year 2020, or only filed 

a Form 10–Q not preceded by a Securities Act 

registration statement (in order to avoid including 

entities such as certain co-issuers of debt 

securities). We believe that most registrants that 

have filed a Securities Act registration statement or 

a Form 10–Q not preceded by a Securities Act 

registration statement, other than such co-issuers, 

would be captured by this estimate. The estimates 

for the percentages of SRCs, EGCs, accelerated 

filers, large accelerated filers, and non-accelerated 

filers are based on data obtained by Commission 

staff using a computer program that analyzes SEC 

filings, with supplemental data from Ives Group 

Audit Analytics and manual review of filings by 

staff. 

730This number includes approximately 20 FPIs 

that filed on domestic forms in 2020 and 

approximately 90 BDCs. 

731See Commission Guidance Regarding 

Disclosure Related to Climate Change, Release No. 

33–9106 (Feb. 2, 2010) [75 FR 6290 (Feb, 8, 2010)] 

(‘‘2010 Climate Change Guidance’’), available at 

https://www.sec.gov/rules/interp/2010/33-9106.pdf 

(The guidance did not create new legal 

requirements nor modify existing ones. Instead, it 

highlighted climate-related topics that registrants 

should consider in seeking to meet their existing 

disclosure obligations (e.g., the impact of 

legislation, regulation, international accords, 

indirect consequences, physical risks, etc.) and in 

what section they should be discussed (e.g., risk 

factors, MD&A, etc.)). See also discussion in Section 

I.A. 

732See Section I.B. 

This section analyzes the expected 

economic effects of the proposed rules 

relative to the current baseline, which 

consists of the regulatory framework of 

disclosure requirements in existence 

today, the current disclosure practices 

of registrants, and the use of such 

disclosures by investors and other 

market participants. 

We anticipate the proposed rules will 

give rise to several benefits by 

strengthening investor protection, 

improving market efficiency, and 

facilitating capital formation. The 

primary benefit is that investors would 

have access to more consistent, 

comparable, and reliable disclosures 

with respect to registrants’ climaterelated risks, which is expected to 

enable investors to make more informed 

investment or voting decisions.724 By 

providing access to this information 

through SEC filings for all public 

issuers, this enhanced disclosure could 

mitigate the challenges that investors 

currently confront in assessing the 

nature and extent of the climate-related 

risks faced by registrants and their 

impact on registrants’ business 

operations and financial condition. In 

this way, the proposed rules may reduce 

information asymmetry both among 

investors, which can reduce adverse 

selection problems and improve stock 

liquidity,725 and between investors and 

firms, which can reduce investors’ 

uncertainty about estimated future cash 

flows, thus lowering the risk premium 

they demand and therefore registrant’s 

cost of capital. The proposed rules 

could also mitigate certain agency 

problems between the firm’s 

shareholders and management, thus 

strengthening investor protection.726

Further, by enabling climate-related 

information to be more fully 

incorporated into asset prices, the 

proposed rules would allow climaterelated risks to be borne by those who 

are most willing and able to bear them, 

thereby strengthening financial system 

resilience. Taken together, the proposed 

rules are expected to contribute to the 

efficient allocation of capital, capital 

formation, competition, and the 

maintenance of fair and orderly 

markets.727

We are also mindful of the costs that 

would be imposed by the proposed 

rules. Registrants would face increased 

compliance burdens in meeting the new 

disclosure requirements. In some cases, 

these additional compliance burdens 

could be significant while in others 

relatively small if companies already 

provide information similar to that 

required by our rules. Other potential 

costs include increased litigation risk 

and the potential disclosure of 

proprietary information about firms’ 

operations and/or production 

processes.728

A. Baseline and Affected Parties 

This section describes the current 

regulatory and economic landscape with 

respect to climate-related disclosures. It 

discusses the parties likely to be 

affected by the proposed rules, current 

trends in registrants’ voluntary reporting 

on climate risks, related assurance 

practices, and existing mandatory 

disclosure rules under state and other 

Federal laws. These factors form the 

baseline against which we estimate the 

likely economic effects of the proposed 

rules. 

1. Affected Parties 

The proposed disclosure requirements 

would apply to Forms S–1, F–1, S–3, 

F–3, S–4, F–4, S–11, 6–K, 10, 10–Q, 

10–K, and 20–F. Thus, the parties that 

are likely affected by the proposed rules 

include registrants subject to the 

disclosure requirements imposed by 

these forms, as well as investors and 

other market participants that use the 

information in these filings (e.g. 

financial analysts, investment advisors, 

asset managers, etc.). 

The proposed rules may affect both 

domestic registrants and foreign private 

issuers (FPIs).729 We estimate that 

during calendar year 2020, excluding 

registered investment companies, there 

were approximately 6,220 registrants 

that filed on domestic forms 730 and 

approximately 740 FPIs that filed on 

Forms 20–F. Among the registrants that 

filed on domestic forms, approximately 

31 percent were large accelerated filers, 

11 percent were accelerated filers, and 

58 percent were non-accelerated filers. 

In addition, we estimate that 

approximately 50 percent of these 

domestic registrants were smaller 

reporting companies (SRCs) and 22 

percent were emerging growth 

companies (EGCs). 

2. Current Regulatory Framework 

A number of the Commission’s 

existing disclosure requirements may 

elicit disclosure about climate-related 

risks; however, many of these 

requirements are principles-based in 

nature and thus the nature and extent of 

the information provided depends to an 

extent on the judgment of management. 

As discussed above, in 2010, the 

Commission published interpretive 

guidance on existing disclosure 

requirements as they pertain to business 

or legal developments related to climate 

change.731 The 2010 Guidance 

emphasized that if climate-related 

factors have a material impact on a 

firm’s financial condition, disclosure 

may be required under current Item 101 

(Description of Business), Item 103 

(Legal Proceedings), Item 105 (Risk 

Factors), or Item 303 (MD&A) of 

Regulation S–K. While these provisions 

may elicit some useful climate-related 

disclosure, these provisions have not 

resulted in the consistent and 

comparable information about climaterelated risks that many investors have 

stated that they need in order to make 

informed investment or voting 

decisions.732

3. Existing State and Federal Laws 

There are also state and other Federal 

laws that require certain climate-related 

disclosures or reporting. For instance, 


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733The 14 states are California, Connecticut, 

Delaware, Maine, Maryland, Massachusetts, 

Minnesota, New Mexico, New York, Oregon, 

Pennsylvania, Rhode Island, Vermont, and 

Washington. 

734Net written premium is defined as the 

premiums written by an insurance company, minus 

premiums paid to reinsurance companies, plus any 

reinsurance assumed. 

735See NAIC, Assessments of and Insights from 

NAIC Climate Risk Disclosure Data (Nov. 2020), 

available at https://content.naic.org/article/news_

release_naic_assesses_provides_insight_insurer_

climate_risk_disclosure_survey_data.htm. 

736See 40 CFR part 98 (2022); see also EPA, EPA 

Fact Sheet: Greenhouse Gases Reporting Program 

Implementation (2013), available at https://

www.epa.gov/sites/default/files/2014-09/ 

documents/ghgrp-overview-factsheet.pdf. 

737According to the EPA, ‘‘direct emitters’’ are 

facilities that combust fuels or otherwise put GHGs 

into the atmosphere directly from their facility. An 

example of this is a power plant that burns coal or 

natural gas and emits carbon dioxide directly into 

the atmosphere. The EPA estimates that the GHGRP 

data reported by direct emitters covers about half 

of total U.S. emissions. ‘‘Suppliers’’ are those 

entities that supply products into the economy 

which if combusted, released or oxidized emit 

greenhouse gases into the atmosphere. These fuels 

and industrial gases are not emitted from the 

supplier facility but instead distributed throughout 

the country and used. An example of this is 

gasoline, which is sold in the U.S. and primarily 

burned in cars throughout the country. The majority 

of GHG emissions associated with the 

transportation, residential and commercial sectors 

are accounted for by these suppliers. 

738The EPA’s emissions data does not include 

emissions from agriculture, land use, or direct 

emissions from sources that have annual emissions 

of less than 25,000 metric tons of CO2e. 

739On this latest point, in particular, facility-level 

supplied emissions cannot necessarily be 

characterized as a portion of the registrant’s Scope 

3 emission as the boundaries of the entity required 

to report under the EPA reporting regime (the 

facility) are different from the boundaries of the 

entity required to report under our proposed rules 

(the registrant). 

740The EPA requires emissions reporting only for 

domestic facilities, while the proposed rule would 

not be limited to U.S. facilities and includes 

indirect emissions. The EPA also requires some 

gases (e.g. fluorinated ethers, perfluoropolyether) 

that are considered optional under the GHG 

Protocol and that are not included within the 

proposed definition of ‘‘greenhouse gases.’’ 

741See supra note 736. 

742See NCSL, Greenhouse Gas Emissions 

Reduction Targets and Market-Based Policies 

(2021), available at https://www.ncsl.org/research/ 

energy/greenhouse-gas-emissions-reduction-targetsand-market-based-policies.aspx. The 17 states with 

GHG reporting requirements are Hawaii, 

Washington, Oregon, California, Nevada, Colorado, 

Minnesota, Iowa, Virginia, Pennsylvania, New 

York, New Jersey, Maryland, Connecticut, 

Massachusetts, Vermont, and Maine. 

743See Air Compliance and Emissions (ACE) 

Reporting, available at https://www.dec.ny.gov/ 

chemical/54266.html. 

744See M. Sakas, Colorado Greenhouse Gas 

Producers Are Now Required To Report Emissions 

Data To The State, Colorado Public Radio News 

(2020), available at https://www.cpr.org/2020/05/ 

22/colorado-greenhouse-gas-producers-are-nowrequired-to-report-emissions-data-to-the-state. 

745See Cal. Air Res. Bd., Mandatory Greenhouse 

Gas Reporting 2020 Emissions Year Frequently 

Asked Questions (Nov. 4, 2021), available at 

https://www.arb.ca.gov/cc/reporting/ghg-rep/ 

reported-data/2020mrrfaqs.pdf?_

ga=2.110314373.182173320.1638196601- 

1516874544.1627053872. 

746See Section I.D. 

747See TCFD, Overview (Mar. 2021) (‘‘TCFD_

Booklet_FNL_Digital_March-2020’’), available at 

https://assets.bbhub.io/company/sites/60/2020/10/

TCFD_Booklet_FNL_Digital_March-2020.pdf. 

there are requirements for mandatory 

climate risk disclosure within the 

insurance industry. As of 2021, 14 

states 733 and the District of Columbia 

require any domestic insurers that write 

more than $100 million in annual net 

written premium 734 to disclose their 

climate-related risk assessment and 

strategy via the NAIC Climate Risk 

Disclosure Survey.735 Survey question 

topics include climate risk governance, 

climate risk management, modeling and 

analytics, stakeholder engagement, and 

greenhouse gas management. In fiscal 

year 2020, there were 66 publicly traded 

insurance companies that may be 

required to provide disclosure pursuant 

to these state law provisions and that 

also would be subject to the proposed 

rules. 

There also exist Federal- and statelevel reporting requirements related to 

greenhouse gas (GHG) emissions. 

Federal GHG reporting requirements 

consist of the U.S. Environmental 

Protection Agency’s (EPA) 2009 

Mandatory Reporting of Greenhouse 

Gases Rule.736 This rule requires large 

direct emitters and suppliers of fossil 

fuels to report their emissions to the 

EPA.737 Specifically, the rule requires 

each facility that directly emits more 

than 25,000 metric tons of CO2e per year 

to report these direct emissions. 

Additionally, facilities that supply 

certain products that would result in 

over 25,000 metric tons of CO2e if those 

products were released, combusted, or 

oxidized must similarly report these 

‘‘supplied’’ emissions.738 The resulting 

emissions data are then made public 

through their website. 

Due to the nature of the EPA’s 

reporting requirements, their emissions 

data does not allow a clean 

disaggregation across the different 

scopes of emissions for a given 

registrant. The EPA requires reporting of 

facility-level direct emissions, which 

can contribute to a registrant’s Scope 1 

emissions (but can typically be 

considered a subset, to the extent that 

the registrant has other non-reporting 

facilities), and facility-level supplied 

emissions, which can contribute to a 

registrant’s Scope 3 emissions (but can 

also be very different from it).739 Gases 

required to be reported by the EPA 

include all those referenced by the GHG 

Protocol and included within the 

proposed definition of ‘‘greenhouse 

gases.’’ 740 The EPA estimates that the 

required reporting under their rule 

covers 85–90% of all GHG emissions 

from over 8,000 facilities in the United 

States.741

In addition, at least 17 states have 

specific GHG emissions reporting 

requirements.742 States’ rules vary with 

respect to reporting thresholds and 

emissions calculation methodologies, 

but most tend to focus on direct 

emissions (i.e., Scope 1), with certain 

exceptions. For example, New York 

requires the reporting of direct 

emissions from any owner or operator of 

a facility that directly emits or has the 

potential to emit 100 tons per year or 

more of GHGs, and 100,000 tons per 

year or more of carbon dioxide 

equivalent (CO2e).743 Colorado excludes 

oil and gas that is exported out of state, 

but includes both imported and 

exported electricity when calculating 

the state’s emissions inventory.744

California requires annual reporting of 

GHG emissions by industrial sources 

that emit more than 10,000 metric tons 

of CO2e, transportation and natural gas 

fuel suppliers, and electricity 

importers.745 As a result of these federal 

and state-level emissions reporting 

requirements, some registrants affected 

by the proposed rules may already have 

in place certain processes and systems 

to measure and disclose their emissions. 

4. International Disclosure 

Requirements 

Issuers with operations abroad may 

also be subject to those jurisdictions’ 

disclosure requirements. Many 

jurisdictions’ current and/or proposed 

requirements are based on the TCFD’s 

framework for climate-related financial 

reporting.746 In 2015, the Financial 

Stability Board (FSB) established the 

TCFD, an industry-led task force 

charged with developing a framework 

for assessing and disclosing climaterelated financial risk. In 2017, the TCFD 

published disclosure recommendations 

that provide a framework to evaluate 

climate-related risks and opportunities 

through an assessment of their projected 

short-, medium-, and long-term 

financial impact on an issuer. The 

framework establishes eleven disclosure 

topics related to four pillars that reflect 

how companies operate: Governance, 

strategy, risk management, and metrics 

and targets.747 The TCFD forms the 

framework for the recently published 

climate prototype standard that the IFRS 

Foundation is considering as a potential 

model for standards by the IFRS 

Foundation’s International 

Sustainability Standards Board (ISSB). 

As of September 2021, the TCFD 


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748See TCFD, 2021 Status Report (Oct. 2021), 

available at https://assets.bbhub.io/company/sites/ 

60/2021/07/2021-TCFD-Status_Report.pdf. 749For example, the United Kingdom’s Financial 

Conduct Authority (FCA) issued a policy statement 

in 2021 expanding its TCFD-aligned disclosure 

requirements to standard issuers and formally 

incorporating references to the TCFD’s Oct. 2021 

guidance on metrics, targets and transition plans 

and updated implementation annex. This policy 

will apply for accounting periods beginning on or 

after Jan. 1, 2022. The FCA requirements are 

currently on a comply-or-explain basis; the FCA has 

announced that it plans to consult on making these 

requirements mandatory alongside future proposals 

adapting the rules to any future ISSB climate 

standard, once issued. See FCA, PS21/23: 

Enhancing Climate-Related Disclosures by Standard 

Listed Companies (Dec. 2021), available at https:// 

www.fca.org.uk/publication/policy/ps21-23.pdf. In 

addition, the United Kingdom has adopted TCFDaligned disclosure requirements for asset managers 

and certain asset owners, effective Jan. 1, 2022, with 

certain phase-ins. See FCA, PS21/24: Enhancing 

Climate-Related Disclosures by Asset Managers, Life 

Insurers and FCA-Regulated Pension Providers 

(Dec. 2021), available at https://www.fca.org.uk/ 

publication/policy/ps21-24.pdf. 

750 In the European Union, the European 

Commission (EC) adopted a proposal for a 

Corporate Sustainability Reporting Directive 

(CSRD), which would revise existing company 

reporting rules and aim to provide more comparable 

and consistent information to investors. The CSRD 

proposal enlarges the scope of the reporting 

requirements and would cover nearly 50,000 

companies in the European Union. The CSRD 

proposal acknowledges the importance of the IFRS’ 

efforts to establish the ISSB and seeks compatibility 

with the TCFD recommendations, along with other 

international frameworks. The EC aims to have the 

new CSRD reporting requirements in place for 

reporting year 2023. See Proposal for Directive of 

the European Parliament and of the Council 

amending Directive 2013/34/EU, Directive 2004/ 

109/EC, Directive 2006/43/EC and Regulation (EU) 

No 537/2014, as regards corporate sustainability 

reporting, COM (2021) 189 final (Apr. 21, 2021), 

available at https://eur-lex.europa.eu/legal-content/ 

EN/TXT/?uri=CELEX:52021PC018. Additionally, 

the EC is progressing work on reporting standards 

for meeting the proposed CSRD requirement. The 

European Financial Reporting Advisory Group 

(‘‘EFRAG’’) published a climate standard prototype 

in Sept. 2021 that is based on the TCFD framework. 

See EFRAG, Climate Standard Working Paper, 

(Sept. 8, 2021), available at https://www.efrag.org/ 

News/Project-527/EFRAG-PTF-ESRS-welcomesClimate-standard-prototype-working-paper?

AspxAutoDetectCookieSupport=1. 

751 Japan’s Financial Services Agency (FSA) is 

planning to make it mandatory for large companies 

to make climate-related disclosures aligned with the 

TCFD framework from as early as Apr. 2022. In 

addition, climate disclosures have been part of 

Japan’s corporate governance code since June 2021; 

however, the code is not legally binding and the 

disclosures were introduced on a ‘comply-orexplain’ basis. In Apr. 2022, the Tokyo Stock 

Exchange (TSE) will be replacing its First and 

Second sections, the ‘‘Mothers’’ market for startups 

and the tech-focused JASDAQ, with three new 

segments: Prime, Standard and Growth. According 

to Nikkei, companies listed on the Prime market 

will be required to comply with disclosure 

requirements aligned with the TCFD 

recommendations starting in Apr. 2022. See Japan’s 

FSA to Mandate Climate Disclosures from Apr. 

2022, (Oct. 2021), available at https://

www.esginvestor.net/japans-fsa-to-mandateclimate-disclosures-from-april-2022/. 

752The Canadian Securities Administrators (CSA) 

is considering proposed climate-related disclosure 

requirements largely consistent with the TCFD 

recommendations, with a few exceptions. The 

proposed requirements would elicit disclosure by 

issuers related to the four pillars of the TCFD 

recommendations (Governance, Strategy, Risk 

management, and Metrics and targets). The CSA 

anticipates that the proposed requirements would 

come into force in 2022 and would be phased in 

over one and three year periods. See Consultation: 

Climate-Related Disclosure Update and CSA and 

Request for Comment, available at https://

www.osc.ca/sites/default/files/2021-10/ 

csa_20211018_51-107_disclosure-update.pdf. 

753See TCFD 2021 Status Report, available at 

https://assets.bbhub.io/company/sites/60/2021/07/ 

2021-TCFD-Status_Report.pdf. 

754One limitation of using this keyword search is 

that it is unable to discern the extent or quality of 

climate-related disclosures, nor can it determine 

specific sub-topics within climate-related 

disclosures. For these reasons, the analysis was 

supplemented by natural language processing (NLP) 

analysis, as described later in this section. 

reported that eight jurisdictions have 

implemented formal TCFD-aligned 

disclosure requirements for domestic 

issuers: Brazil, the European Union, 

Hong Kong, Japan, New Zealand, 

Singapore, Switzerland, and the United 

Kingdom.748 In these jurisdictions, 

disclosures are already being provided 

by in-scope issuers or are expected to 

start between 2022 and 2025. Plans to 

expand the scope of current 

requirements have also been announced 

in several countries, including the 

United Kingdom,749 the European 

Union,750 and Japan.751 In addition, 

several other jurisdictions have 

proposed TCFD-aligned disclosure 

requirements, issued policies or 

guidance in line with the TCFD 

recommendations, or otherwise 

indicated support for the TCFD 

recommendations, including Australia, 

Canada,752 Denmark, France, Ireland, 

Italy, Malaysia, Norway, Russia and 

South Korea.753 Insofar as issuers have 

operations abroad, they would already 

be subject to these mandatory disclosure 

requirements, policies and guidance. 

5. Current Market Practices 

a. Climate-Related Disclosures in SEC 

Filings 

The Commission’s staff reviewed 

6,644 annual reports (Forms 10–K, 40– 

F, and 20–F) submitted from June 27, 

2019 until December 31, 2020 to 

determine how many contain any of the 

following keywords: ‘‘climate change’’, 

‘‘climate risk’’, or ‘‘global warming’’. 

The presence of any of the keywords in 

any part of the annual report is 

indicative of some form of climaterelated disclosure.754 Table 1 (presented 

as a graph in Figure 1) shows that 33% 

of all annual reports contain some 

disclosure related to climate change, 

with a greater proportion coming from 

foreign registrants (the corresponding 

percentages for Forms 20–F and 40–F 

are 39% and 73%, respectively). Table 

2 (presented as a graph in Figure 2) 

provides a breakdown by accelerated 

filer status. Among large accelerated 

filers, 49% of filings discussed climate 

change, while the figures for accelerated 

filers and non-accelerated filers are 29% 

and 17%, respectively. Table 3 

(presented as a graph in Figure 3), 

which provides a breakdown by 

industry groups, shows that the 

industries with the highest percentage 

of annual reports containing climaterelated disclosure include maritime 

transportation, electric services, oil and 

gas, steel manufacturing, and rail 

transportation, among others. 

BILLING CODE 8011–01–P 

TABLE 1—FILINGS WITH CLIMATE-RELATED KEYWORDS BY FORM TYPE

Form Has keyword All filings Percent 

10–K ............................................................................................................................................. 1,785 5,791 31 

20–F ............................................................................................................................................. 286 729 39 

40–F ............................................................................................................................................. 91 124 73 

Total ...................................................................................................................................... 2,162 6,644 33 

This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec. 31, 2020. For each form 

type, the table indicates how many contain any of the climate-related keywords, which include ‘‘climate change,’’ ‘‘climate risk,’’ and ‘‘global 

warming.’’ 


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TABLE 2—FILINGS WITH CLIMATE-RELATED KEYWORDS BY ACCELERATED FILER STATUS

Filer status Has keyword All filings Percent 

LAF .............................................................................................................................................. 1,117 2,280 49 

AF ................................................................................................................................................ 371 1,290 29 

NAF .............................................................................................................................................. 465 2,754 17 

Other ............................................................................................................................................ 209 320 65 

Total ...................................................................................................................................... 2,162 6,644 33 

This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec. 31, 2020. Filer status consists of large accelerated filers (LAF), accelerated filers (AF), and non-accelerated filers (NAF). For each filer status, the table indicates how 

many contain any of the climate-related keywords, which include ‘‘climate change,’’ ‘‘climate risk,’’ and ‘‘global warming.’’ 


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Figure 1. Filings with Climate-related Keywords by Form Type 

6,000 

4,000 

"' gJl 

.... 

:= 

μ... 

2,000 

0 

10-K 

Has Keyword: 

Yes 

20-F 

Form Type 

No 

40-F 

Figure 2. Filings with Climate-related Keywords by Accelerated Filer Status 

3,000 

Has Keyword: 

Yes No 

2,000 

"' 

-~ := 

μ... 

1,000 

iii 

LAF AF NAF Other 

Filer Status 
Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21417 

TABLE 3—FILINGS WITH CLIMATE-RELATED KEYWORDS BY INDUSTRY

Industry Has keyword All filings Percent 

Maritime Transportation ............................................................................................................... 64 68 94 

Electric Services .......................................................................................................................... 154 171 90 

Oil and Gas .................................................................................................................................. 169 202 84 

Steel Manufacturing ..................................................................................................................... 14 17 82 

Rail Transportation ...................................................................................................................... 8 10 80 

Paper and Forest Products ......................................................................................................... 20 28 71 

Insurance ..................................................................................................................................... 46 66 70 

Passenger Air and Air Freight ..................................................................................................... 23 34 68 

Trucking Services ........................................................................................................................ 14 22 64 

Mining .......................................................................................................................................... 109 198 55 

Beverages, Packaged Foods and Meats .................................................................................... 56 109 51 

Construction Materials ................................................................................................................. 54 118 46 

Automotive ................................................................................................................................... 11 26 42 

Real Estate Management and Development .............................................................................. 274 661 41 

Capital Goods .............................................................................................................................. 41 110 37 

Technology Hardware & Equipment ............................................................................................ 61 177 34 

Agriculture .................................................................................................................................... 11 32 34 

Textiles and Apparel .................................................................................................................... 12 36 33 

Not in Peer Group ....................................................................................................................... 478 1,431 33 

Consumer Retailing ..................................................................................................................... 138 558 25 

Banking ........................................................................................................................................ 158 754 21 

Chemicals .................................................................................................................................... 131 922 14 

Interactive Media and Services ................................................................................................... 116 894 13 

Total ...................................................................................................................................... 2,162 6,644 33 

This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec. 31, 2020. For each industry, 

the table indicates how many contain any of the climate-related keywords, which include ‘‘climate change,’’ ‘‘climate risk,’’ and ‘‘global warming.’’ 


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0% 

Figure 3. Filings with Climate-related Keywords by Industry 

i l j 

1 t I 

i ! ~ ! 

Media and Se:rlvices ~ ,, 

l 

! 

I ! pment 1 

l 

1 

I 

I I 

j 

! 

! ! 

1 

l 

j 

I 

10% 20% 30% 40% 50% 60% 70% 80% 

Percent of Filings that Contain Climate-Related Keywords 

90% 100% 
Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21419 

755The specific NLP method used in this analysis 

is word embedding, which utilizes Google’s 

publicly available, pre-trained word vectors that are 

then applied to the text of climate-related 

disclosures within regulatory filings. While this 

NLP analysis can be used to identify the general 

topic and the extent of disclosures, it is limited in 

its ability to discern the quality or decisionusefulness of disclosures from investors’ 

perspective. 

Using the same sample of annual 

reports, additional analysis was 

conducted by Commission’s staff using 

natural language processing (NLP), 

which can provide insight on the 

semantic meaning of individual 

sentences within registrants’ climaterelated disclosures and classify them 

into topics (i.e. clusters).755 The NLP 

analysis suggests that climate-related 

disclosures can be broadly organized 

into four topics: Business impact, 

emissions, international climate 

accords, and physical risks. The 

analysis finds significant heterogeneity, 

both within the quantity and content, of 

climate-related disclosures across 

industries, as shown in Figures 4 and 5. 

Figure 4 presents the intensity of 

disclosure for domestic filings. The 

intensity refers to sentences per firm, 

which is calculated by taking the 

aggregate number of sentences in an 

industry and dividing it by the total 

number of firms within the industry 

(including those that do not discuss 

climate change at all). Thus, the 

intensity represents a more comparable 

estimate across industries. 

Figure 4 shows that firms in the 

following industries have the most 

ample climate-related discussion, on 

average: Electric services, oil and gas, 

steel manufacturing, passenger air and 

air freight, and maritime transportation. 

The majority of the discussion is on 

business impact, followed by emissions, 

international climate accords, and 

physical risks. Figure 5 presents the 

corresponding information for foreign 

filings (Forms 40–F and 20–F). Overall, 

the analysis indicates that the majority 

of the disclosure is focused on transition 

risks, with comparatively fewer 

mentions of physical risk. 


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Figure 4. Clustered Intensity by Industry for Forms 10-K 

;:i !llttfi¥i'.$~ij~,J~;\~:iilt~~;~110};;~i2)\:1{·i.~;Jii){1;·:!,;i{:;/,{},';:\10\~ 

\;~jli~'.~3J!iii~~f ::I;t~tt~l~?fi;:~lri~~\;~if {'t~l)t\t!~!l~Ii1t~i~1\;t:1 , 

!I\ffilitrill~~'.i 

Business Impact 

Emissions 

111 International Climate Accords 

■ Physical Ri~ks 

0 5 15 20 25 

Intensi~y 

This figure presents the analysis of Form 10-K annual filings submitted to the Commission between June 27, 2019, 

and Dec. 31, 2020. Natural language processing (NLP) is used to analyze sentences contained within the annual 

filings and classify them into four broad topics (i.e. clusters): business impact, emissions, international climate 

accords, and physical risks. Intensity refers to sentences per firm, which is calculated by taking the aggregate 

number of sentences in an industry and dividing it by the total number of firms within the industry 
Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21421 

756See P. Bolstad, S. Frank, E. Gesick, and D. 

Victor, Flying Blind: What Do Investors Really 

Know About Climate Change Risks in the U.S. 

Equity and Municipal Debt Markets, Hutchins 

Center Working Paper 67 (2020). 757 Id. The methodology uses a series of keywords 

to determine whether a company provides climaterelated disclosures. Some keywords may occur in 

non-climate contexts, with the authors noting that 

the statistics are biased. 

BILLING CODE 8011–01–C 

The staff’s findings are consistent 

with academic studies that have looked 

at the extent of climate-related 

disclosures by SEC registrants. Bolstad 

et al. (2020) systematically reviewed 

Form 10–K filings from Russell 3000 

firms over the last 12 years and found 

that the majority of climate-related 

disclosure is focused on transition risks 

as opposed to physical risks.756 They 

further report that while 35% of Russell 

3000 firms provided climate-related 

information in 2009, this figure grew to 

60% in 2020,757 representing a 

significant increase. They also found 

that the extent of disclosure for a given 

report has increased. In 2009, firms 

mentioned climate risks 8.4 times on 

average in their Form 10–K. This figure 

grew to 19.1 times in 2020. 


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J:ligu,re 5, C!ustere,q lt1te11,sity by I11,q11stry for foreignFi,lings {F()flllS 1o~F cllld 20~!<} 

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\ \ ' 

iii{~~iilt!lii~ii-

:'tii~ij~fig(;:0::iii'Ill\ .. 

I1\,~,ijijij~t\iltlalvare & Equipment 

Insurance 

!:i'.!i!~i)-s 

ij:\~~,i-

;,;imj;;,91111Group 

iJ·'u~t-nd Apparel 

:~:tf'limlllltioni Materials 

Yf:~.3111L 1 s : ~ .... ~~; 

~):l,_ger Afr and Air Freitht 

?ti"lractive Media and Services 

);~gl Estate Management ahd Development ! t \ 

;~- Agriculture i ; 

tllh Transportation 

},i;a_itomotive ! 

:,{11:onsumer R~tailing 

0 5 15 

Intensity 

Business Impact 

Emi13sions 

1111 Intetnational Climat~ Accords 

■ Phy~ ical Risks 

20 25 30 

This figure presents the analysis of Forms 40-F and 20-F annual filings submitted to the Commission between June 

27, 2019, and Dec. 31, 2020. Natural language processing (NLP) is used to analyze sentences contained within the 

annual filings and classify them into four broad topics (i.e. clusters): business impact, emissions, international 

climate accords, and physical risks. Intensity refers to sentences per firm, which is calculated by taking the 

aggregate number of sentences in an industry and dividing it by the total number of firms within the industry. 
21422 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

758See Climate Change & ESG Reporting from the 

Public Company Perspective (2021), available at 

https://www.centerforcapitalmarkets.com/wpcontent/uploads/2021/08/CCMC_ESG_Report_

v4.pdf. 

759 Governance & Accountability Institute Inc. 

(‘‘G&A, Inc.’’) is a consulting and research 

organization providing services to publicly traded 

and privately owned companies to help enhance 

their public environmental, social and governance 

(ESG) and sustainability profiles. 

760See G & A Inc., Sustainability Reporting in 

Focus (2021), available at https://www.gainstitute.com/research/ga-research-collection/ 

sustainability-reporting-trends/2021-sustainabilityreporting-in-focus.html. 

761CDP operates a global disclosure system that 

enables companies, cities, states and regions to 

measure and manage their environmental risks, 

opportunities and impacts. Despite not being a 

framework like GRI, SASB and TCFD, CDP’s 

questionnaires gather both qualitative and 

quantitative information from across governance, 

strategy, risk, impact and performance. To aid 

comparability and ensure comprehensiveness, CDP 

includes sector-specific questions and data points. 

In 2018, CDP aligned its climate change 

questionnaire with the TCFD. 

762The CDP Climate High Impact sample 

identifies companies deemed high impact based on 

two main considerations—market cap and GHG 

emissions. 

763See Letter from CDP North America (Dec. 13, 

2021). 

764See Letter from Aron Szapiro, Head of Policy 

Research, Morningstar (June 9, 2021). 

765 Id. The comment letter does not disaggregate 

the disclosure rate across the different scopes of 

emissions. 

766See State and Trends of ESG Disclosure Policy 

Measures Across IPSF Jurisdictions, Brazil, and the 

US, International Platform on Sustainable Finance 

(2021) (The disclosure rates are calculated using 

data from Refinitiv), available at https://

ec.europa.eu/info/sites/default/files/business_

economy_euro/banking_and_finance/documents/ 

211104-ipsf-esg-disclosure-report_en.pdf. 

767See Section IV.C.2.3. 

768The SASB standards are designed for 

communication by companies to investors about 

how sustainability issues impact long-term 

enterprise value. SASB standards guide the 

disclosure of financially material sustainability 

information by companies to their investors. SASB 

standards, which are available for 77 industries, 

identify the subset of ESG issues most relevant to 

financial performance in each industry. The SASB 

standards can be both complementary with the core 

elements of the TCFD recommendations, as well as 

used by organizations to operationalize them. See 

https://www.sasb.org/about/sasb-and-other-esgframeworks/. 

769The GRI standards outline both how and what 

to report regarding the material economic, social 

and environmental impacts of an organization on 

sustainable development. For 33 potentially 

material sustainability topics, the GRI standards 

contain disclosure requirements. Three series of 

GRI standards support the reporting process: The 

GRI Topic Standards, each dedicated to a particular 

topic and listing disclosures relevant to that topic; 

the GRI Sector Standards, which are applicable to 

specific sectors; and the GRI Universal Standards, 

which apply to all organizations. The GRI 

Standards can be used in sustainability reports, as 

well as in annual or integrated reports that are 

oriented at a broad range of stakeholders. See 

https://www.globalreporting.org/standards/. 

770The TCFD recommended disclosures cover 

four core elements: Governance, Strategy, Risk 

Management and Metrics and Targets. Each element 

has two or three specific disclosures (as shown in 

Table 4) to be made in the organization’s 

mainstream report (i.e. annual financial filings). 

These are meant to generate comparable, consistent 

and reliable information on climate-related risks. 

The TCFD provides both general, and in some 

cases, sector-specific guidance for each disclosure, 

while simultaneously framing the context for 

disclosure, and offering suggestions on what and 

how to disclose in the mainstream report. See 

https://www.fsb-tcfd.org/recommendations/. 

771See supra note 761. 

772See supra note 760. 

773Of the Russell 1000 reporting companies, 39% 

indicate that they are in alignment with SASB 

standards, while the other 14% simply mention the 

standards. 

774Of those reporters utilizing the GRI standards, 

G&A finds that a small portion (5%) utilizes the 

‘‘Comprehensive’’ level of reporting, the majority 

(64%) chose to report in accordance with the 

‘‘Core’’ option, while the remaining portion (31%) 

b. Additional Trends in Climate-Related 

Disclosures 

While Commission staff reviewed 

certain firms’ sustainability reports for 

climate-related disclosures, they did not 

conduct a systematic review of a large, 

representative sample of sustainability 

reports. However, as discussed below, a 

number of industry and advocacy 

groups have examined the scope of 

voluntary ESG reporting, including 

climate-related disclosures and their 

findings could be relevant to an 

assessment of the proposed rules’ 

impact. 

The U.S. Chamber of Commerce’s 

Center for Capital Markets 

Competitiveness (CCMC), in 

collaboration with several other 

organizations, conducted a survey 

(‘‘CCMC Survey’’) on a sample of U.S. 

public companies—436 companies 

across 17 industries that range from 

small to large in terms of market 

capitalization.758 According to the 

survey, over half of the companies 

(52%) are currently publishing a 

corporate social responsibility (CSR), 

sustainability, ESG or similar report 

whose content commonly includes 

information regarding climate-related 

risks. The most frequently discussed 

topics there are energy (74%), emissions 

(70%), environmental policy (69%), 

water (59%), climate mitigation strategy 

(57%), and supplier environmental 

policies (35%). Among the registrants 

that report climate-related information 

to the public, the majority disclose such 

information via external reports or 

company websites rather than 

regulatory filings. Similar to the 

Commission staff review, the CCMC 

Survey finds that about a third (34%) of 

the respondents disclose climate 

change, greenhouse gas emissions, or 

energy sourcing in their SEC filings 

information on risks. Among these 

firms, 82% disclose such information in 

Risk Factors, 26% in the MD&A, 19% in 

the Description of Business, and 4% in 

Legal Proceedings. 

The Governance & Accountability 

Institute 759 (‘‘G&A’’) analyzed 

sustainability reports by the companies 

belonging to the Russell 1000 Index and 

found that in 2020, 70% published 

sustainability reports—up from 65% in 

2019 and 60% in 2018.760

Other sources confirm that, at least 

within samples of larger firms, a 

sizeable portion already measure and 

disclose their emissions, though not 

necessarily through their regulatory 

filings. The CDP 761 reports that out of 

the 524 U.S. companies in their Climate 

High Impact Sample,762 402 disclosed 

through the CDP system in 2021, up 

from 379 in 2020, and 364 in 2019. Out 

of the sample of reviewed companies, 

22.1% (89 out of 402 companies) 

reported Scope 3 emissions in 2021. 

This reflects an increase from the 

previous two years, during which 18% 

(67 out of 379 companies) reported such 

information in 2020, and 17% (62 out of 

364 companies) in 2019.763 One 

commenter stated that there is 

significant variation in disclosure rates 

of GHG emissions across various 

industries.764 The commenter, using a 

sample of the 1,100 U.S. companies 

included within the Sustainalytics 

dataset, reports that the disclosure rate 

of material Scopes 1, 2, and 3 emissions 

is 59.5%.765 Furthermore, the 

International Platform on Sustainable 

Finance found that among the U.S. 

listed firms present in the Refinitiv 

dataset, 10.8% disclosed Scope 1 

emissions in 2019, representing 55.4% 

of U.S. market capitalization.766 To the 

extent that registrants’ current climaterelated disclosures overlap with the 

proposed rules, registrants may face 

lower incremental compliance costs, as 

discussed in further detail below.767

c. Use of Third-Party Frameworks 

Some companies follow existing 

third-party reporting frameworks when 

developing climate-related disclosures 

for SEC filings or to be included in CSR, 

sustainability, ESG, or similar reports. 

For instance, the CCMC Survey finds 

that 59% of respondents follow one or 

more such frameworks. Among these 

respondents, 44% use the SASB,768

31% use the GRI,769 29% use the 

TCFD,770 and 24% use the CDP.771

Similar statistics on the usage of 

different reporting frameworks are also 

provided by other studies. The G&A 

report 772 finds that 53% of the Russel 

1000 reporters either mention or align 

with SASB,773 52% utilized GRI 

reporting standards,774 30% either 


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utilizes ‘‘GRI-Referenced’’ reports, which are not 

fully in accordance with the GRI standards. GRIReferenced reports contain the GRI Content Index 

and reference certain disclosures. 

775Of the Russell 1000 reporting companies, 17% 

indicate that they are in alignment with the TCFD 

recommendations, while the other 13% simply 

mention the recommendations. 

776See White & Case and the Society for 

Corporate Governance: A Survey and In-Depth 

Review of Sustainability Disclosures by Small- and 

Mid-Cap Companies, available at https://

www.whitecase.com/publications/article/surveyand-depth-review-sustainability-disclosures-smalland-mid-cap-companies (Among the firms 

reviewed, 41 firms (51%) provided some form of 

voluntary sustainability disclosure on their 

websites. Further, only nine of those 41 firms 

indicated the reporting standards with which they 

aligned their reporting, with the majority of the 

nine companies not following any one set of 

standards completely. Additionally, six firms 

followed the GRI, while three firms stated that they 

follow both the TCFD and SASB). 

777See How CDP is Aligned to the TCFD (2018), 

available at https://www.cdp.net/en/guidance/howcdp-is-aligned-to-the-tcfd. 

778The Corporate Reporting Dialogue is a 

platform, convened by the Value Reporting 

Foundation, to promote greater coherence, 

consistency and comparability between corporate 

reporting frameworks, standards and related 

requirement. See Driving Alignment in Climaterelated Reporting, Corporate Reporting Dialogue 

(2019), available at https://

www.integratedreporting.org/wp-content/uploads/ 

2019/09/CRD_BAP_Report_2019.pdf. 

779See Moody’s Analytics, TCFD-Aligned 

Reporting by Major U.S. and European 

Corporations, (2022), available at https://

www.moodysanalytics.com/articles/pa/2022/tcfd_

aligned_reporting_by_major_us_and_european_

corporations. To arrive at these statistics, Moody’s 

conducted an artificial intelligence (AI) based 

review of all public filings, including financial 

filings, annual reports, integrated reports, 

sustainability reports, and other publicly available 

reports that were associated with companies’ 

annual reporting on sustainability. Non-public 

disclosures, such as CDP reports, were not included 

in the analysis. 

780See Commitments to Net Zero Double in Less 

Than a Year, United Nations Climate Change (Sept. 

21, 2020), available at https://unfccc.int/news/ 

commitments-to-net-zero-double-in-less-than-ayear. 

781See Section I. 

782See, e.g., J. Eaglesham, Climate Promises by 

Businesses Face New Scrutiny, The Wall Street 

Journal (2021), available at www.wsj.com/articles/ 

climate-promises-by-businesses-face-new-scrutiny11636104600. 

mention or align with TCFD 

recommendations,775 and 40% 

responded to the CDP Climate Change 

questionnaire. The law firm White & 

Case also conducted an in-depth review 

of website sustainability disclosures by 

80 small- and mid-cap firms across five 

different industries and found 

comparable numbers.776

While these various frameworks are 

distinct, they overlap in their alignment 

with the TCFD. In particular, the CDP 

questionnaire fully incorporates the 

TCFD framework and thus exhibits full 

alignment.777 The Corporate Reporting 

Dialogue 778 also provides a detailed 

assessment of the various frameworks’ 

degrees of alignment with each TCFD 

disclosure item, ranging from maximum 

to minimum alignment as follows: Full, 

Reasonable, Moderate, Very Limited, 

and None. They report that the GRI 

exhibits ‘‘Reasonable’’ alignment, while 

the SASB generally exhibits ‘‘Moderate’’ 

or ‘‘Reasonable’’ alignment with the 

majority of the TCFD disclosure items. 

Thus, companies that report following 

the CDP, SASB, or GRI frameworks are, 

to varying degrees, already producing 

disclosures that are in line with parts of 

the TCFD. However, because each 

framework takes different approaches 

(e.g. intended audience, reporting 

channel) and because certain differences 

exist in the scope and definitions of 

certain elements, investors may find it 

difficult to compare disclosures under 

each framework. Table 4 reports the rate 

of disclosure for each TCFD disclosure 

element for a sample of 659 U.S. 

companies in 2020/21. 

TABLE 4—DISCLOSURE RATE OF TCFD ELEMENTS AMONG U.S. FIRMS 779

TCFD disclosure element 

Rate of 

disclosure 

(%) 

Governance: 

(a) Describe the board’s oversight of climate-related risks and opportunities ............................................................................ 17 

(b) Describe management’s role in assessing and managing climate-related risks and opportunities ...................................... 10 

Strategy: 

(a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long 

term ........................................................................................................................................................................................... 45 

(b) Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial 

planning ..................................................................................................................................................................................... 34 

(c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2 °C or lower scenario ............................................................................................................................................... 5 

Risk Management: 

(a) Describe the organization’s processes for identifying and assessing climate-related risks .................................................. 15 

(b) Describe the organization’s processes for managing climate-related risks ........................................................................... 17 

(c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management ................................................................................................................................................. 16 

Metrics and Targets: 

(a) Describe the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy 

and risk management process ................................................................................................................................................. 21 

(b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks .......... 19 

(c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance 

against targets .......................................................................................................................................................................... 25 

d. Climate-Related Targets, Goals, and 

Transition Plan Disclosures 

Carbon reduction targets or goals have 

become an increasing focus for both 

companies and countries.780 For 

example, 191 countries, including the 

United States and European Union, 

have signed the Paris Climate 

Agreement. The agreement aims to 

strengthen the global response to the 

threat of climate change by keeping a 

rise in global temperatures to well 

below 2 °Celsius above pre-industrial 

levels this century, as well as pursue 

efforts to limit the temperature increase 

even further to 1.5° degrees Celsius.781

As of 2020, according to one source, 

about two-thirds of S&P 500 companies 

have established a target for carbon 

emissions—a number that has nearly 

doubled over the past decade.782

Approximately one-fifth of these 

companies have science-based targets 

in-line with a 1.5 degree Celsius limit 


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783See memorandum, dated Nov. 30, 2021, 

concerning staff meeting with representatives of 

Persefoni. This statistic is compiled by Persefoni 

using information from the Science Based Targets 

Initiative. This and the other staff memoranda 

referenced below are available at https://

www.sec.gov/comments/s7-10-22/s71022.htm. 784As of Jan. 25, 2022, The Climate Pledge has 

acquired 217 signatories. See The Climate Pledge, 

available at https://www.theclimatepledge.com/us/ 

en/Signatories. 

785For example, the percentage of both global and 

U.S. companies with water reduction targets grew 

by 4% in 2019 on a year-over-year basis. This 

represented 28% of major global companies (i.e. 

those listed on the S&P Global 1200 index) and 27% 

of major (i.e. those listed in the S&P 500 index)) 

U.S. companies publicly disclosing these targets. 

See State of Green Business 2021, available at 

https://www.spglobal.com/marketintelligence/en/ 

news-insights/research/state-of-green-business2021. 

786See S. Lu, The Green Bonding Hypothesis: 

How do Green Bonds Enhance the Credibility of 

Environmental Commitments? (2021), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=3898909. 

787See C. Flammer, Corporate Green Bonds, 

Journal of Financial Economics, 499–516 (2021). 

(Green bonds may only be a partial solution to 

achieving credible targets given that they have 

implications beyond commitment.) 

788See supra note 760. 

789Other studies also report evidence of thirdparty assurance among smaller samples of 

companies analyzed. For example, according to a 

recent study by the International Federation of 

Accountants, in 2019, 99 out of the 100 largest U.S. 

firms by market capitalization provided some form 

of sustainability disclosure, which may contain 

climate-related information among other 

sustainability-related topics. Seventy of those firms 

obtained some level of third-party assurance, with 

the vast majority being ‘‘limited assurance’’ 

according to the study. Of the 70 firms that obtained 

assurance, the study reports that 54 obtained 

‘‘limited assurance,’’ eight obtained ‘‘reasonable 

assurance,’’ five obtained ‘‘moderate assurance,’’ 

and three did not disclose any assurance. Of the 81 

unique assurance reports examined in the study, 

nine were found to be issued by an auditing firm, 

while 72 were issued by another service provider. 

See International Federation of Accountants 

(‘‘IFAC’’), The State of Play in Sustainability 

Assurance (2021), available at https://www.ifac.org/ 

knowledge-gateway/contributing-global-economy/ 

publications/state-play-sustainability-assurance. 

Among the sample of 436 companies included in 

the CCMC Survey, 28% disclosed that they engaged 

a third party to provide some form of assurance 

regarding their climate-related disclosure (the 

frequency of these disclosures was 52% among the 

436 companies in the sample). See supra note 758. 

790See 2021 Global Investor Statement to 

Governments on the Climate Crisis (2021) (this 

statement has been signed by 733 investors 

collectively managing over US$52 trillion in assets), 

available at https://theinvestoragenda.org/wpcontent/uploads/2021/09/2021-Global-InvestorStatement-to-Governments-on-the-ClimateCrisis.pdf; See also Alexander Karsner, Testimony 

Before the House Financial Services Subcommittee 

on National Security, International Development 

and Monetary Policy (Sept. 11, 2019), available at 

https://financialservices.house.gov/uploadedfiles/ 

hhrg-116-ba10-wstate-karsnera-20190911.pdf. A 

recent report examined how climate change could 

affect 22 different sectors of the U.S. economy and 

found that if global temperatures rose 2.8 °C from 

pre-industrial levels by 2100, climate change could 

cost $396 billion each year. If temperatures 

increased by 4.5 °C, the yearly costs would reach 

$520 billion. See Jeremy Martinich and Allison 

Crimmins, Climate Damages and Adaptation 

Potential Across Diverse Sectors of the United 

States, Nature Climate Change 9, 397–404 (2019); 

available at https://www.nature.com/articles/ 

s41558-019-0444-6. Similarly, the Swiss Re Institute 

estimated how global warming could affect 48 

countries—representing 90% of the world 

economy—and found that the decrease in GDP in 

North America could range from ¥3.1% if Paris 

Agreement targets are met (a well-below 2 °C 

increase), to ¥9.5% if no mitigating actions are 

taken (3.2 °C increase); See The Economics of 

Climate Change: No Action Not an Option, 

available at https://www.swissre.com/dam/ 

jcr:e73ee7c3-7f83-4c17-a2b8-8ef23a8d3312/swissre-institute-expertise-publication-economics-ofclimate-change.pdf. 791See, e.g., Emirhan Ilhan, Climate Risk 

Disclosure and Institutional Investors, Swiss Fin. 

Inst. Research Paper Series (Working Paper No. 19– 

66), (last revised Jan. 7, 2020), available at https:// 

ssrn.com/abstract=3437178 (noting that a survey of 

439 large institutional investors shows that 79% of 

respondents believe that climate risk reporting is as 

important as traditional financial reporting, and 

almost one-third consider it to be more important); 

See also Macquaire Asset Management 2021 ESG 

Survey Report (2021), available at https://

www.mirafunds.com/assets/mira/our-approach/ 

sustainability/mam-esg-survey/mam-2021-esgsurvey-report.pdf (noting that in a survey of 180 

global institutional real assets investors, including 

asset managers, banks, consultants and investment 

advisors, foundations and endowments, insurance 

companies, and pension funds, who combined 

represent more than $21 trillion of assets under 

management, more than half of responding 

investors selected climate change as their primary 

ESG concern). 

792See PWC, The Economic Realities of ESG (Oct. 

28, 2021), available at https://www.pwc.com/gx/en/ 

on global warming.783 In addition, a 

growing number of companies or 

organizations have signed on to the 

Climate Pledge, which indicates a 

commitment to achieve net-zero 

emissions by 2040.784 The trend in 

companies disclosing other climaterelated targets (e.g. water usage) has also 

been increasing over time.785

Despite the increasing prevalence in 

stated targets and goals, monitoring 

which firms are taking steps to 

implement them is difficult given the 

lack of required recurring standardized 

metrics for progress. Absent such a 

monitoring device, investors have 

insufficient information to gauge the 

credibility of the targets. Moreover, 

without knowing the specific strategy 

that registrants intend on adopting in 

pursuit of their targets, investors are 

unable to determine how the targets will 

impact the company’s financial position 

(e.g., a company that plans to only 

purchase offsets may face different risks 

and costs over time than a company that 

invests in renewable energy or carbon 

capture technology).786

Consistent with this need for an 

oversight or monitoring mechanism, 

research suggests that the prevalence of 

‘‘green bonds’’ and positive cumulative 

abnormal stock returns surrounding 

their announcements may arise, at least 

in part, because they help signal 

credible value-enhancing targets in the 

absence of mandatory standardized 

public disclosures.787 These findings 

suggest a demand for such an oversight 

or monitoring mechanism for targets 

and goals among investors that would 

facilitate their understanding of 

registrants’ stated climate-related targets 

and progress and the impact on the 

registrant’s business. 

e. Third-Party Assurance of ClimateRelated Disclosures

Among the companies that provide 

climate-related disclosures, a 

considerable portion include some form 

of third-party assurance for these 

disclosures. The G&A study 788 finds 

that 35% of Russell 1000 index firms, 

which are virtually all large accelerated 

filers, obtained third-party assurance for 

their sustainability reports in 2020, up 

from 24% in the year prior. The rate of 

assurance is concentrated among the 

larger half of the sample firms (i.e., the 

S&P 500 firms). Among the firms that 

obtained assurance, however, only 3% 

obtained assurance for the entire report. 

The remaining firms were evenly split 

between obtaining assurance on 

specified sections only and GHG 

emissions only. Regarding the level of 

assurance, the overwhelming majority 

(90%) obtained limited assurance while 

only 7% obtained reasonable assurance. 

Regarding service providers, 14% of 

firms received assurance from an 

accounting firm, 31% from small 

consultancy/boutique firms, and 55% 

from engineering firms. Because these 

statistics are limited to Russell 1000 

firms, corresponding figures for the full 

sample of U.S. registrants may be lower 

to the extent that the practice of 

obtaining third-party assurance is 

concentrated in large firms.789

B. Broad Economic Considerations

1. Investors’ Demand for Climate

Information

Investors have expressed a need for 

information on climate-related risks as 

they relate to companies’ operations and 

financial condition.790 The results of 

multiple recent surveys indicate that 

climate risks are among the most 

important priorities for a broad set of 

large asset managers.791 PWC reported 

in their Annual Global CEO Survey that 

in 2016, only 39% of asset and wealth 

management CEOs reported that they 

were concerned about the threats posed 

by physical risks brought about climate 

change, whereas this figure increased to 

70% in 2021.792


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services/audit-assurance/corporate-reporting/esginvestor-survey.html. 

793See Section IV.A.5.d. 

794See Morrow and Sodali, Institutional Investor 

Survey (2021), available at https://

higherlogicdownload.s3.amazonaws.com/ 

GOVERNANCEPROFESSIONALS/a8892c7c-6297- 

4149-b9fc-378577d0b150/UploadedImages/ 

Institutional_Investor_Survey_2021.pdf. 

795See https://www.esgtoday.com/state-street-torequire-companies-to-provide-tcfd-aligned-climatedisclosures/. 

796See BlackRock Investment Stewardship (BIS), 

Policies Updated Summary (2022), https://

www.blackrock.com/corporate/literature/fact-sheet/ 

blk-responsible-investment-engprinciples-globalsummary.pdf. 

797Climate Action 100+ is composed of 615 

global investors across 33 markets with more than 

US$60 trillion in AUM. See Climate Action 100+, 

available at https://www.climateaction100.org/ 

about/. 

798As of Apr. 2018, GIC was signed by 409 

investors representing more than U.S. $24 trillion 

in AUM, available at https://

climateinitiativesplatform.org/index.php/Global_

Investor_Coalition_on_Climate_Change_(GIC). 

799 IIGCC has more than 330 members, mainly 

pension funds and asset managers, across 22 

countries, with over $33 trillion in AUM. See The 

Institutional Investors Group on Climate Change, 

available at https://www.iigcc.org/. 

800The TPI is supported globally by 108 investors 

with more than $29 trillion combined AUM. See 

Transition Pathway Initiative, available at https:// 

www.transitionpathwayinitiative.org/. 

801For example, Climate Action 100+ launched in 

2017 with 225 investors with more than USD $26.3 

trillion AUM to engage with 100+ of the world’s 

highest emitting companies to reduce material 

climate risks. In 2021, Climate Action 100+ has 

grown to 615 investors, $60 trillion in assets, 

engaging with 167 companies that represent 80%+ 

of global industrial emissions. 

802See P. Kru ̈ ger, Corporate Goodness and 

Shareholder Wealth, 115(2) Journal of Financial 

Economics 304–329 (2015); G. Capelle-Blancard, A. 

Petit, Every Little Helps? ESG News and Stock 

Market Reaction, Journal of Business Ethics 157, 

543–565 (2019); and G. Serafeim and A. Yoon, 

Which Corporate ESG News Does the Market React 

To? (Forthcoming) Financial Analysts Journal 

(2021) (for evidence of stock market responses to 

ESG news). See also A. Bernstein, M. Gustafson, 

and R. Lewis, Disaster on the Horizon: The Price 

Effect of Sea Level Rise, 134.2 Journal of Financial 

Economics 253–300 (2019) A. Bernstein, S. Billings, 

M. Gustafson, and R. Lewis, Partisan Residential 

Sorting on Climate Change Risk (Forthcoming), 

Journal of Financial Economics (2021); M. Baldauf, 

L. Garlappi, and C. Yannelis, Does Climate Change 

Affect Real Estate Prices? Only If You Believe In It, 

33 (3) Review of Financial Studies 1256–1295 

(2020) (for evidence of responses of investor 

demand in equilibrium prices and investment 

choice (based on heterogeneous preferences and 

beliefs) in real estate markets). 

803A recent 2021 proxy season review by the 

Harvard Law School found that shareholder 

climate-related proposals have increased for the 

second consecutive year. The authors also note that, 

in 2021, environmental proposals were withdrawn 

at a meaningfully higher rate relative to the prior 

year. This is an indication of stronger commitments 

from companies to take actions towards the 

specified environmental goals, or at the very least 

provide the related disclosures. Many companies 

may prefer engaging with a proponent rather than 

taking the proposal to a vote. See 2021 Proxy 

Season Review: Shareholder Proposals on 

Environmental Matters, available at https://

corpgov.law.harvard.edu/2021/08/11/2021-proxyseason-review-shareholder-proposals-onenvironmental-matters/. 

804See S.M. Hartzmark and A.B. Sussman, Do 

Investors Value Sustainability? A Natural 

Experiment Examining Ranking and Fund Flows, 74 

(6) The Journal of Finance 2789–2837 (2019). Data 

from fund tracker Morningstar Inc. compiled by 

Goldman Sachs Group Inc. shows that, since the 

start of 2019, a net $473 billion has flowed into 

stock mutual and exchange-traded funds with 

environmental goals as part of their mandates, 

compared to a net $103 billion going into all other 

stock funds. See Scott Patterson and Amrith 

Ramkumar, Green Finance Goes Mainstream, Lining 

Up Trillions Behind Global Energy Transition, Wall 

Street Journal (May 22, 2021), available at https:// 

www.wsj.com/articles/green-finance-goesmainstream-lining-up-trillions-behind-globalenergy-transition-11621656039?mod=article_inline. 

805See Section IV.B.2.b. 

806See IOSCO, Report on Sustainability-Related 

Registrant Disclosures (2021), available at https://

www.iosco.org/library/pubdocs/pdf/ 

IOSCOPD678.pdf. 

807See GAO, Climate-Related Risks (2018) 

available at https://www.gao.gov/assets/gao-18- 

188.pdf (reporting that ‘‘investors may find it 

difficult to navigate through the filings to identify, 

compare, and analyze the climate-related 

disclosures across filings’’). 

Investors’ demand for climate-related 

information may also be related to the 

transition risks that companies face (e.g. 

changes in future regulation, shifts in 

investor, consumer, counterparty 

preferences or other market conditions, 

and other technological challenges or 

innovations). For example, the United 

States’ commitment to the Paris 

Agreement may have contributed to 

investors’ demand for information on 

registrants’ emissions and exposure to 

potential transition risk, as well as 

whether they have in place emissions 

targets with credible pathways of 

achievement.793 The 2021 Institutional 

Investors Survey solicited the views of 

42 global institutional investors 

managing over $29 trillion in assets 

(more than a quarter of global assets 

under management (AUM)) and found 

that climate risk remains the number 

one investor engagement priority. A 

significant majority (85%) of surveyed 

investors cite climate risk as the leading 

issue driving their engagements with 

companies. These institutional investors 

also indicated that they consider climate 

risk to be material to their investment 

portfolios and are demanding robust 

and quantifiable disclosure around its 

impacts and the plan to transition to net 

zero.794

State Street Global Advisors (SSGA) 

and Blackrock, two of the world’s 

largest investment managers, recently 

announced the focus areas for their asset 

stewardship program for 2022, with 

climate change at the top of their 

priority list. One of the key expectations 

set by SSGA this year is a requirement 

for companies to provide disclosures 

aligned with TCFD recommendations, 

including reporting on board oversight 

on climate-related risks and 

opportunities, Scope 1 and 2 GHG 

emissions, and targets for emissions 

reduction.795 Similarly, Blackrock 

expects to continue encouraging 

companies to demonstrate that their 

plans are resilient under likely 

decarbonization pathways, and to ask 

that companies disclose a net zeroaligned business plan that is consistent 

with their business model to 

demonstrate how their targets are 

consistent with the long-term economic 

interests of their shareholders.796

Investors, including large institutional 

investors, have also formed initiatives 

aimed in part at improving corporate 

disclosures on climate-related risks. 

These initiatives include the Climate 

Disclosure Project, Climate Action 

100+,797 the Global Investor Coalition 

on Climate Change (‘‘GIC’’),798 the 

Institutional Investors Group on Climate 

Change (‘‘IIGCC’’),799 and the Transition 

Pathway Initiative (‘‘TPI’’),800 with 

many of these groups seeing increasing 

membership in recent years.801 In 

addition to stated demand, revealed 

preferences from investment decisions 

and asset price responses to ESG-related 

news and climate change risk suggest 

substantive demand for information on 

climate-related risks.802 Investors have 

also demonstrated their interest in 

climate-related issues through an 

increase in climate-related shareholder 

proposals 803 and increased flows into 

mutual funds with environmental goals 

in their investment mandates.804

2. Impediments to Voluntary ClimateRelated Disclosures 

a. General Impediments to Voluntary 

Climate-Related Disclosures 

In practice, however, investors’ 

demand for climate-related information 

is often met by inconsistent and 

incomplete disclosures due to the 

considerable variation in the coverage, 

specificity, location, and reliability of 

information related to climate risk. 

Multiple third-party reporting 

frameworks and data providers have 

emerged over the years; however, these 

resources lack mechanisms to ensure 

compliance and can contribute to 

reporting fragmentation.805 Due to 

deficiencies in current climate-reporting 

practices, investor demand for 

comparable and reliable information 

does not appear to have been met.806 As 

a result, investors may face difficulties 

locating and assessing climate-related 

information when making their 

investment or voting decisions.807


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808Agency problems are those conflicts of interest 

between shareholders (i.e., the principals) and 

managers (i.e., the agents) of a firm. 

809See Beyer, Cohen, Lys, and Walther, The 

Financial Reporting Environment: Review of The 

recent Literature, J. Acct. Econ. 296–343 (2010) for 

a more technical and detailed discussion of these 

and other additional assumptions. 

810See for example R.E. Verrecchia, Discretionary 

Disclosure, 5 Journal of Accounting and Economics 

365–380 (1983). 

811See Robert Freeman and Senyo Tse, An 

Earnings Prediction Approach to Examining 

Intercompany Information Transfers, 15(4) J. Acct. 

Econ. 509–523 (1992). 

812 It is worth noting that in some cases, 

undertaking costly signals can allow agents to 

credibly signal their type to investors. In these 

cases, costly disclosures can lead to a separating 

equilibrium where it may otherwise not exist. See 

D. Kreps and J. Sobel, 2(1) Signaling, Handbook of 

Game Theory with Economic Applications, 849– 

867 (1994); J. Riley, Silver Signals: Twenty-Five 

Years of Screening and Signaling, 39(1) Journal of 

Economic Literature 432–478, (2001). 

813See E. Einhorn. Voluntary Disclosure Under 

Uncertainty About the Reporting Objective, 43 

Journal of Accounting and Economics 245–274 

(2007). 

814See E. Einhorn, and A. Ziv, Biased Voluntary 

Disclosure, Review of Accounting Studies 420–442 

(2012) (Biases in reporting can be any number of 

costs in these models. These include not only 

inefficient actual investments associated with the 

cost of distorted reporting, but also the risk of 

litigation, reputation erosion, and/or future 

flexibility in reporting.). 

815 If misrepresentation becomes sufficiently 

costly, then there may be no managers who find it 

advantageous to misrepresent, despite any potential 

benefits. In this case, purposeful misrepresentation 

would not occur, thereby fulfilling one of the 

assumptions of the standard full revelation 

argument. Clear guidelines for disclosure and 

imposed costs upon the discovery of 

misrepresentation are important mechanisms for 

enforcing and promoting the transmission of 

information to investors. 

816See V. Crawford, J. Sobel, Strategic 

Information Transformation, 50 Econometrica 

1431–1451 (1982). 

Below we describe some key market 

failures with regard to disclosure, for 

example (1) disclosures are not costless; 

(2), there are agency problems; 808 (3) 

managers may inaccurately present 

information; and (4) investor responses 

may be unpredictable and nonunfirm.809 In addition, there may be 

other problems, e.g. a lack of 

consistency, that may indicate 

Commission action. 

(1) Disclosures Are Not Costless 

In practice, firms can still approach 

full disclosure voluntarily if there are 

costs to disclosure, as long as these costs 

are relatively low.810 This is not the 

case, however, if individual firms’ 

private benefits of disclosure are also 

small, yet those same disclosures 

provide positive informational 

externalities. For example, disclosures 

by one registrant may provide investors 

with useful information via inference 

with respect to peer firms. Consistent 

with this theory, research in the 

accounting literature has documented 

that earnings announcements by one 

firm can provide predictive signals 

about the earnings of other firms in the 

same industry.811 In these cases, 

disclosures can benefit investors in the 

aggregate (though not necessarily 

investors of a specific firm) by allowing 

them to make comparisons across firms, 

which can aid in their capital allocation 

decisions. 

This illustrates how, theoretically, in 

the absence of mandated disclosure 

requirements, registrants fully 

internalize the costs of disclosure but 

not the benefits, which may lead them 

to rationally under-disclose relative to 

what is optimal from the investors’ 

perspective.812 As a result, a tension can 

exist between investors (in the 

aggregate) and managers, where 

investors prefer more disclosure and 

managers prefer less. In such instances, 

there may be scope for regulation to 

substantially increase information 

provision since absent regulation, 

investors are not able to fully ascertain 

the risks and opportunities that firms 

face. 

(2) Agency Problems 

In order for voluntary disclosure to 

result in the complete revelation of all 

relevant private information, there 

would need to be no agency problems 

(i.e., no conflicts of interest between 

managers and shareholders) such that 

managers’ sole objective with respect to 

such disclosures would be to maximize 

shareholder information and, 

ultimately, shareholder value. However, 

if managers have other objectives and 

incentives for making voluntary 

disclosures (i.e., there exist agency 

problems), then the voluntary 

disclosures may not result in the same 

complete information.813 Moreover, 

when agency problems exist, investors 

can no longer be sure if the absence of 

disclosure under a voluntary regime 

reflects good or bad news for the firm, 

given that some managers may have 

self-serving incentives. For example, 

managers may have career concerns 

which could incentivize them to 

withhold disclosing information they 

expect to be favorably received until it 

is useful to balance out bad news. In 

contrast, when the disclosure 

requirements are mandatory, the 

relevant, complete information should 

be disclosed regardless of managers’ 

objectives or incentives, and investors 

would accordingly have more 

confidence in the completeness of the 

resulting disclosures. For these reasons, 

the benefits of a mandatory reporting 

regime may be more pronounced in 

settings in which disclosure-related 

conflicts of interests exist between 

managers and shareholders. 

(3) Misrepresentation by Managers 

If investors are unable to verify that 

managerial disclosures are complete and 

truthful (e.g., if investors have difficulty 

in determining the extent of managers’ 

selective disclosure of metrics or 

methods of computation, exaggeration, 

obfuscation, outright misreporting, etc.), 

then voluntary disclosures may not be 

fully revealing. For example, managers 

may be able to engage in misleading 

reporting (i.e., they can apply a 

favorable bias to their disclosures), but 

they incur a cost that increases with the 

magnitude of the misreporting.814 Under 

these circumstances, theoretical 

research suggests that, in equilibrium, 

they may not accurately report their 

private information. This is because 

investors would not be able to 

distinguish truthful disclosures from 

those that are misleading (i.e., favorably 

biased). In this setting, all managers 

would then have an incentive to 

misreport by providing disclosures with 

a favorable bias, the extent of which 

depends on the cost of misreporting. 

Furthermore, because misreporting 

comes at a cost, this would violate the 

assumption of costless disclosure, 

which can exacerbate the issue of 

incomplete disclosures.815

If, on the other hand, misreporting has 

no costs for managers, then this results 

in what is referred to as a cheap talk 

equilibrium.816 In this setting, any 

misalignment of incentives between 

managers and investors could again 

result in a situation in which not all 

relevant private information is fully 

revealed. While this could be driven by 

agency problems stemming from 

managerial self-interest, it also occurs 

when investors have heterogeneous 

preferences that cause differing 

incentives or if managers are concerned 

with strategic disclosures that may be 

viewed by not only investors, but also 

competitors, regulators, and customers. 

In this case, a mandatory reporting 

regime would be beneficial to investors 

to the extent that voluntary disclosures 

are unverifiable and possibly 

misleading. These include situations 

where managers obfuscate certain 

information in their disclosures, convey 

information in a complex or difficult 

manner, or conceal the discretionary 

choices with respect to what was 

reported. 


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817See J. Suijs, Voluntary Disclosure Of 

Information When Firms Are Uncertain Of Investor 

Response, 43 Journal of Accounting and Economics 

391–410 (2007). 

818See R.A. Dye, Investor Sophistication and 

Voluntary Disclosures, 3 Review of Accounting 

Studies 261–287 (1998). 

819Longer horizons, for example, tend to involve 

changes in chronic physical risks—sea-level rise, 

drought, etc. Shorter-term horizons may, instead, be 

relevant for any increase in acute physical risks 

such as hurricanes, wildfires, and heatwaves. See 

ING Climate Risk Report 2020, available at https:// 

www.ing.com/MediaEditPage/ING-Climate-Riskreport-2020.htm. 

820A stream of literature examines the association 

of climate-related disclosures with corporate 

governance structures and managerial 

characteristics. See, e.g., M. K(l(c ̧ and C. Kuzey, The 

Effect of Corporate Governance on Carbon Emission 

Disclosures: Evidence from Turkey, 11–1 

International Journal of Climate Change Strategies 

and Management 35–53 (2019). See also S. Yunus, 

E.T. Evangeline, and S. Abhayawansa, 

Determinants of Carbon Management Strategy 

Adoption: Evidence from Australia’s Top 200 

Publicly Listed Firms, 31–2 Managerial Auditing 

Journal 156–179 (2016). 

821Henry M. Paulson Jr., Short-Termism and the 

Threat From Climate Change, Perspectives on the 

Long Term: Building a Stronger Foundation for 

Tomorrow (Apr. 2015), available at https://

www.mckinsey.com/business-functions/strategyand-corporate-finance/our-insights/short-termismand-the-threat-from-climate-change. 

822Factors including corporate executive 

compensation and attention to quarterly earnings 

and reporting are thought to contribute to excessive 

focus on short-term goals. See, e.g., Short-Termism 

Revisited, available at https://corpgov.law.

harvard.edu/2020/10/11/short-termism-revisited/. 

823See How to Take the Long-Term View in a 

Short-Term World, Moral Money (Financial Times), 

(Feb. 25, 2021), available at https://www.ft.com/ 

content/5bc1580d-911e-4fe3-b5b5-d8040f060fe1. 

824See Richard Mahony and Diane Gargiulo, The 

State of Climate Risk Disclosure: A Survey of U.S. 

Companies (2019) (A recent survey conducted on 

the members of the Society for Corporate 

Governance (SCG) about the state of U.S. climate 

risk disclosures revealed that tying executive 

compensation to progress on climate goals is 

beginning to emerge among some companies, but it 

is far from a common practice. Only 6% of 

respondents said their board linked compensation 

to climate objectives.), available at https://

www.dfinsolutions.com/sites/default/files/ 

documents/2019-10/TCFD_II_Climate_Disclosure_

V10_revisedFINAL.pdf. 

825See, e.g., TCFD, Recommendations of the Task 

Force on Climate-Related Financial Disclosures, at 

16 (June 2017), available at https://www.fsbtcfd.org/wp-content/uploads/2017/06/FINAL-2017- 

TCFD-Report-11052018.pdf. 

826 In other words, this assumes that all investors 

uniformly interpret (and react to) managers’ 

disclosures or their absence and that investors’ 

interpretation and reaction is known to managers. 

See, e.g., A. Beyer, D.A. Cohen, T.Z. Lys, and B.R. 

Walther, The Financial Reporting Environment: 

Review of the Recent Literature, 50 (2) Journal of 

Accounting and Economics 296–343 (2010). 

827See, e.g., TCFD, Recommendations of the Task 

Force on Climate-Related Financial Disclosures, at 

16 (June 2017), available at https://www.fsbtcfd.org/wp-content/uploads/2017/06/FINAL-2017- 

TCFD-Report-11052018.pdf. 

(4) Uncertain Investor Responses 

Another condition necessary for 

voluntary reporting to be fully revealing 

is that managers must be certain of 

investor responses to disclosures. 

However, if investors have 

heterogeneous prior beliefs, such that 

managers cannot determine whether 

investors will consider a given 

disclosure good or bad news, then not 

all managers will choose to disclose, 

resulting in certain private information 

remaining undisclosed.817 Similarly, if 

there are varying levels of sophistication 

among investors in their ability to 

understand disclosures, then again, 

some managers may be uncertain about 

how reports may be interpreted, leading 

them to abstain from some 

disclosures.818 In this respect, 

mandatory disclosure is more likely to 

benefit investors in settings where the 

types of disclosures are complex or 

divisive, such that managers may not be 

certain how they will be perceived by 

investors with differing prior beliefs 

and/or sophistication. 

b. Climate-Specific Factors That 

Exacerbate Impediments to Voluntary 

Disclosure 

In the context of climate-related 

disclosure, these impediments may be 

made worse due to agency problems 

arising from the potentially long-term 

nature of certain climate-related risks 

and other issues related to the 

complexity and uncertainty of climaterelated factors. We explore each of these 

impediments in further detail. 

Impediments to climate-related 

disclosures may be exacerbated due to 

agency problems related to potential 

conflicts between short-term 

profitability and long-term climate risk 

horizons. Physical and transition risks 

can materialize over time horizons 

ranging from the immediate future to 

several decades.819 Likewise, 

shareholders may have interests in 

maximizing their investment returns 

over both the short- and long-term. 

Agency problems can worsen to the 

extent that the investment horizons of a 

firm’s shareholders and its management 

are misaligned.820 If management 

prioritizes short-term results 821 due to 

pressures to perform along certain 

metrics,822 management may fail to 

assess and provide relevant disclosures 

on certain climate-related risks,823

particularly those that are medium- or 

long-term in nature.824 Stock-based 

management compensation has the 

potential to mitigate this issue, provided 

that the stock price reflects the value of 

the company in the long-run. However, 

under the current regime, certain 

climate-related risks may be 

unobservable or obfuscated, and hence 

not fully reflected into stock prices, 

giving short-term-focused managers an 

incentive to initiate or continue projects 

exposed to these risks to maximize their 

compensation at the expense of longterm shareholder value. 

Impediments to voluntary climaterelated disclosures can also be 

exacerbated due to the uncertainty and 

complexity of climate-related risks and 

the multidimensional nature of the 

information being disclosed. First, this 

uncertainty and complexity may lead to 

misrepresentation of disclosures, which, 

as discussed previously, violates a 

condition for the full revelation of 

material information in a voluntary 

reporting environment. The complexity 

of these risks has led to many types of 

methodologies, metrics, and statements 

that can be provided to communicate 

potential economic impacts and 

risks.825 This multitude of choices to 

represent such risks may therefore allow 

managers substantial discretion to 

selectively choose metrics that appear 

favorable. If this managerial discretion 

is more difficult to be verified by 

investors, managers may face lower 

costs for their misreporting. Moreover, 

the complex and multidimensional 

nature of certain climate-related risks 

may further impede investors’ abilities 

to detect misreporting. This could lead 

to a cheap-talk equilibrium, which, as 

previously discussed, could lead to 

climate-related information remaining 

undisclosed. 

The uncertainty and complexity of 

climate-related risks may also be an 

impediment to voluntary disclosure if 

managers are less able to anticipate how 

investors may respond to such 

disclosures. As noted above, predictable 

investor responses to disclosures is one 

of the key assumptions necessary for the 

full revelation of material information in 

a voluntary reporting environment.826

Uncertainty in responses means 

mandatory disclosures have the 

potential to improve information 

provision to investors. The challenge in 

anticipating investor responses to 

climate-related disclosure may stem, in 

part, from the fact that the impact of 

these risks on registrants’ financial 

outcomes and operations can vary 

significantly. This challenge may be 

compounded by the uncertainty 

surrounding the future path of climate 

change and the evolving nature of the 

science and methodologies measuring 

their economic impacts.827 The 

uncertainty and complexity of climaterelated risks are likely to cause 

substantial heterogeneity with respect to 

investors’ interpretation of related 

disclosures and their understanding of 

firms’ exposures to such risks, resulting 

in heterogeneous and unpredictable 


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828See, e.g., M.J. Fishman and K.M. Hagerty, 

Mandatory versus Voluntary Disclosure in Markets 

With Informed and Uninformed Customers, 19 (1) 

Journal of Law, Economics, & Organization 45–63 

(2003); P. Bond and Y. Zeng, Silence Is Safest: 

Information Disclosure When the Audience’s 

Preferences Are Uncertain (forthcoming), Journal, of 

Financial Economics (2021); D. Butler, and D. Read, 

Unravelling Theory: Strategic (Non-) Disclosure of 

Online Ratings, 12 Games 73 (2021). 

829See J.A. Bingler, M. Kraus, and M. Leippold, 

Cheap Talk and Cherry-Picking: What Climate Bert 

Has to Say on Corporate Climate Risk Disclosures 

(2021) available at, https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=3796152. 

830Carbon Disclosure Project (‘‘CDP’’), Pitfalls of 

Climate-Related Disclosures (2020), available at 

Pitfalls-of-Climate-Related-Disclosure.pdf 

(rackcdn.com). 

831See SASB, The State Of Disclosure: An 

Analysis of the Effectiveness of Sustainability 

Disclosure in SEC Filings, (2017), available at 

https://www.sasb.org/knowledge-hub/state-ofdisclosure-2017/. 

832The SASB reports that about 50% of SEC 

registrants provide generic or boilerplate 

sustainability information in their regulatory filings. 

833See Vincent P. Crawford and Joel Sobel, 

Strategic Information Transmission, Econometrica: 

Journal of the Econometric Society 1431–1451 

(1982). 

834See, e.g., Robert Forsythe, Russell Lundholm 

and Thomas Rietz, Cheap Talk, Fraud, and Adverse 

Selection In Financial Markets: Some Experimental 

Evidence, 12 (3) The Review of Financial Studies 

481–518 (July 1999), available at https://doi.org/ 

10.1093/revfin/12.3.0481. 

835The TCFD, the SASB, the GRI, the Principles 

for Responsible Investment, the PCAF, and the CDP 

(among others), have all developed standards and 

systems that aim to help firms and investors 

identify, measure, and communicate climate-related 

information and incorporate that information into 

their business practices. Multiple frameworks have 

emerged, in part, because each seeks to provide 

different information or fulfill different functions 

when it comes to disclosing information related to 

climate-related risks or other ESG factors that may 

be important to investors. 

836See Climate Risk Disclosures & Practices, 

available at https://climatedisclosurelab.duke.edu/ 

wp-content/uploads/2020/10/Climate-RiskDisclosures-and-Practices.pdf. 

837See Section IV.A.5. A recent survey of 

members of the Society for Corporate Governance 

(SCG) regarding the state of U.S. climate risk 

disclosures revealed that companies are using many 

of the existing frameworks to present emissions, 

environmental data, and other information on ESG 

issues. Many of the respondents indicated that their 

companies are now reporting using CDP, GRI, SASB 

and other standards, with corporate registrants 

expressing a desire for greater clarity regarding how 

to make adequate climate disclosures. The survey 

results indicate that many companies are grappling 

with how best to provide useful information to 

investors regarding complex and interrelated risks. 

See Richard Mahony and Diane Gargiulo, The State 

of Climate Risk Disclosure: A Survey of U.S. 

Companies (2019), available at https://

www.dfinsolutions.com/sites/default/files/ 

documents/2019-10/TCFD_II_Climate_Disclosure_

V10_revisedFINAL.pdf. 

838See Lee Reiners and Charlie Wowk, ClimateRisk-Disclosures-and-Practices (2021), available at 

https://climatedisclosurelab.duke.edu/wp-content/ 

uploads/2020/10/Climate-Risk-Disclosures-andPractices.pdf. 

839A past study using ESG disclosure data in 

Bloomberg on US-listed firms, found that, on 

average, from 2007 to 2015, firms provided only 

about 18% (median: 13%) of the prescribed SASB 

disclosure items (which serve as benchmark for 

financially material disclosures). See J. Grewal, C. 

Hauptmann and G. Serafeim, Material 

Sustainability Information and Stock Price 

Informativeness, Journal of Business Ethics 

(Forthcoming) (2020), available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=2966144. 

840See H.B. Christensen, L. Hail, and C. Leuz, 

Mandatory CSR and Sustainability Reporting: 

Economic Analysis and Literature Review, Review 

of Accounting Studies 1–73 (2021). 

investor responses. In this circumstance, 

managers may prefer to withhold 

applicable disclosures.828

Due to these impediments, companies 

may not report (or may report only 

limited amounts of) relevant climaterelated information, and hence, the 

stock price that investors observe may 

not reflect the companies’ true 

exposures to physical and transition 

risks.829 Even when companies assess 

and disclose climate-related risks, 

reporting fragmentation can present 

substantial obstacles to investors in 

processing this information.830 This is 

because disclosures currently vary 

considerably in terms of coverage, 

location, and presentation across 

companies, making it difficult for 

investors to navigate through different 

information sources and filings to 

identify, compare, and analyze climaterelated information.831 Moreover, these 

disclosures are often vague and 

boilerplate, creating further challenges 

for investors.832 While it may seem that 

more information is always better, when 

the incentives of investors and managers 

diverge, evidence suggests such 

amorphous statements could reduce the 

quality of communication both in 

theory 833 and in practice.834

The current regulatory regime leaves 

substantial uncertainty around the type 

of climate-related information that 

should be disclosed and how it should 

be presented. Multiple third-party 

climate reporting frameworks have 

emerged to try to fill this reporting 

gap.835 Due to the voluntary nature of 

third-party frameworks, however, 

companies often disclose some but not 

all components, and the components 

that are disclosed may not be the same 

across companies.836 The location, 

format, and granularity of the 

information provided may also vary, 

although the substance may be similar. 

This has resulted in considerable 

heterogeneity in firms’ existing 

disclosure practices.837 The wide range 

of reporting practices and frameworks 

makes it difficult to assess how much 

material climate-related information 

firms currently are disclosing and may 

leave opportunities for companies to 

omit unfavorable information.838 Some 

studies point to the potential for 

substantial underreporting of material 

climate-related information within the 

current voluntary reporting regime.839

The proposed rules aim to address 

these market failures by requiring more 

specificity around the way registrants 

disclose climate-related risks and their 

impacts on business activities and 

operations in the short, medium, and 

long-term. By requiring comprehensive 

and standardized climate-related 

disclosures along several dimensions, 

including disclosure on governance, 

business strategy, risk management, 

financial statement metrics, GHG 

emissions, and targets and goals, the 

proposed rules would provide investors 

with climate-related information that is 

more comparable, consistent, and 

reliable and presented in a centralized 

location. 

C. Benefits and Costs 

Below we discuss the anticipated 

economic effects that may result from 

the proposed rules. Where possible, we 

have attempted to quantify these 

economic effects, including the benefits 

and costs. In many cases, however, we 

are unable to reliably quantify these 

potential benefits and costs. For 

example, existing empirical evidence 

does not allow us to reliably estimate 

how enhancements in climate-related 

disclosure affect information processing 

by investors or firm monitoring. 

Nevertheless, there is a large body of 

studies examining the effects of 

corporate disclosure in general, as well 

as a subset focusing on sustainabilityrelated disclosures (e.g. ESG- or CSRrelated disclosures).840 We draw on 

existing empirical evidence and 

theoretical arguments from these studies 

to the extent they are applicable to 

disclosures on climate-related 

information specifically. 

Similarly, we qualitatively describe 

the factors that may affect disclosure 

costs but we are unable to accurately 

quantify these costs. Costs related to 

preparing climate-related disclosures 

are generally private information known 

only to the issuing firm, hence such data 

are not readily available to the 

Commission. There is also likely 

considerable variation in these costs 

depending on a given firm’s size, 

industry, complexity of operations, and 

other characteristics, which makes 

comprehensive estimates difficult to 

obtain. 

We encourage commenters to provide 

us with relevant data or empirical 

evidence related to the costs of 

preparing climate-related disclosures 

and, more generally, to provide us with 


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841One study documents how investors can use 

information from one firm to make inferences of 

other similar firms in the context of earnings 

announcements. See supra note 812. 

842By proposing to treat the proposed required 

climate-related disclosures as ‘‘filed,’’ we are 

therefore subjecting them to potential liability 

under Exchange Act Section 18, except for 

disclosures made on Form 6–K. The proposed filed 

climate-related disclosures would also be subject to 

potential Section 11 liability if included in or 

incorporated by reference into a Securities Act 

registration statement. See Section II.C.4 

(discussions within). 

843See Section II.H.k. 

844A review of several academic papers reveal 

that there is no universally accepted definition of 

‘‘greenwashing.’’ Though the term ‘‘greenwashing’’ 

is often used in industry discussions regarding ESG, 

the Commission does not define ‘‘greenwashing’’ in 

this proposal, rules, or form amendments. 

Greenwashing is typically described as the set of 

activities conducted by firms or funds to falsely 

convey to investors that their investment products 

or practices are aligned with environmental or other 

ESG principles. 

845See Ruoke Yang, What Do We Learn From 

Ratings About Corporate Social Responsibility?, 

R&R Journal of Financial Intermediation (2021), 

available at https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=3165783. 

846Florian Berg, Julian Ko ̈lbel, Roberto Rigobon, 

Aggregate Confusion: The Divergence of ESG 

Ratings, MIT Sloan School (Working Paper 5822– 

19) (May 17, 2020), available at https://ssrn.com/ 

abstract=3438533 or http://dx.doi.org/10.2139/ 

ssrn.3438533. Authors found that the correlations 

between six different ESG ratings are on average 

0.54, and range from 0.38 to 0.71, while the 

correlations between credit ratings were 0.99. See 

also OECD, OECD Business and Finance Outlook 

2020, Sustainable and Resilient Finance (Sept. 29, 

2020), available at https://www.oecd.org/daf/oecdbusiness-and-finance-outlook-26172577.htm. OECD 

analyzed different rating providers, such as 

Bloomberg, MSCI and Refinitiv and found wide 

differences in the ESG ratings assigned, with an 

average correlation of 0.4. When OECD analysis 

then compared ESG ratings with the issuer credit 

rating by major providers, it found that credit scores 

for selected issuers vary much less. See also 

International Monetary Fund, Global Financial 

Stability Report (Oct. 2019), available at https://

www.imf.org/en/Publications/GFSR/Issues/2019/ 

10/01/global-financial-stability-report-october-2019. 

It found that only 37% of Lipper ethical funds also 

carry a sustainable designation by Bloomberg. 

847See OECD Business and Finance Outlook 

2020, Sustainable and Resilient Finance (Sept. 29, 

2020); H. Friedman, M. Heinle, and I. Luneva, A 

Theoretical Framework for Environmental and 

Social Impact Reporting (Working Paper) (2021). 

848See J. Grewal, E.J. Riedl, and G. Serafeim, 

Market Reaction to Mandatory Nonfinancial 

Disclosure, 65 (7) Management Science 3061–3084 

(2019). 

849See V. Jouvenot and P. Kruger, Mandatory 

Corporate Carbon Disclosure: Evidence from a 

Natural Experiment (Working Paper) (2021); P. 

Bolton and M. Kacperzcyk, Signaling through 

Carbon Disclosure (Working Paper) (2020). 

850E. Ilhan, Z. Sautner, G. Vilkov, Carbon Tail 

Risk, 34 (3) Review of Financial Studies 1540–1571 

(2021). 

851See supra note 802. 

852See supra note 804. 

any type of data that would allow us to 

quantitatively assess the costs and 

benefits of the proposed rules. 

1. Benefits 

The primary benefit of the proposed 

rules is that investors would have access 

to more comparable, consistent, and 

reliable disclosures with respect to 

registrants’ climate-related risks. As 

discussed in the previous sections, 

investors currently face obstacles in 

accessing comparable, consistent, and 

reliable climate-related information due 

to a combination of registrants not 

disclosing this information at all, or 

registrants disclosing this information 

but with varying degrees of coverage 

and specificity and in varying formats 

and locations, including company 

websites, standalone reports, and SEC 

filings. 

Investors are expected to benefit from 

the required disclosures given that 

material climate-related information 

would be provided to the market more 

consistently across registrants of 

different sizes and filer status, whether 

domestic or foreign issuers, and 

regardless of industry. Investors are also 

expected to benefit from the more 

consistent content of the disclosures. 

Specifically, the proposed rules would 

enhance comparability by requiring 

registrants to provide disclosures on a 

common set of qualitative and 

quantitative climate-related disclosure 

topics in their filings. 

In addition to the standardized 

content, investors are expected to 

benefit from a common location of the 

disclosures in regulatory filings. The 

proposed rules would require registrants 

to place all relevant climate-related 

disclosures in Securities Act or 

Exchange Act registration statements 

and Exchange Act annual reports in a 

separately captioned ‘‘Climate-Related 

Disclosure’’ section, or alternatively, to 

incorporate by reference from another 

section, such as Risk Factors, 

Description of Business, or MD&A. By 

mandating that standardized climaterelated information be disclosed, and 

requiring it to be placed in a centralized 

location within regulatory filings, the 

proposed rules could reduce investors’ 

search costs and improve their 

information-processing efficiency. 

These factors can also lead to positive 

information externalities—as more firms 

disclose how measures of climate risk 

affect their business operations, 

investors would gain a better 

understanding of how those same 

climate risks may affect other similar 

firms.841

Furthermore, by requiring this 

information to be filed with the 

Commission as opposed to posted on 

company websites or furnished as 

exhibits to regulatory filings, the 

proposed rules are expected to improve 

the reliability of information provided 

to investors moving forward.842 Several 

commenters indicated that the treatment 

of climate-related disclosures as filed 

would help improve investor 

confidence in the accuracy and 

completeness of such disclosures.843

Recent academic work provides 

evidence of firms’ engagement in 

obfuscation and other misleading efforts 

(so-called ‘‘greenwashing’’) 844 to 

manipulate the set of information 

available on corporate websites and 

sustainability reports with the goal of 

attaining higher ESG ratings, which are 

relied upon, in particular, by 

unsophisticated investors for the value 

of institutional certification.845 Direct 

disclosures may also reduce reliance on 

these ESG ratings, which are not 

necessarily standardized nor fully 

transparent with respect to their 

methodologies. In fact, several studies 

found low correlations of classifications 

across ESG providers.846 Additionally, a 

study suggested that models and metrics 

used by ESG providers for appropriately 

classifying funds are not always 

transparent and consistent across ESG 

providers.847

As discussed in Section IV.B.1, 

surveys of institutional investors 

indicate that climate risk is one of the 

most prominent issues driving their 

investment decisions and engagements 

with companies. Evidence from the 

stock market response appears 

consistent with this, with increased 

mandatory ESG disclosure being 

associated with aggregate stock price 

movement.848 Such stock price effects 

tend to display cross-sectional 

heterogeneity with, for example, firms 

disclosing large GHG emissions 

experiencing price declines.849 Similar 

effects have also been observed in 

derivatives markets.850 Investor 

responses in real estate markets 

potentially affected by physical risks,851

as well as revealed preferences from 

flows into mutual funds with 

environmental goals in their investment 

mandates,852 provide further evidence 

of investors’ interest in disclosures 

pertaining climate risks. Taken together, 

the mandatory and standardized nature 

of the proposed climate-related 

disclosures could benefit investors by 

improving their ability to assess these 

risks and their impact on registrants’ 

financial condition and operations, 

thereby allowing investors to make 

better-informed investment decisions 

and enhancing investor protection. 


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853Asymmetric information occurs when one 

party to an economic transaction possesses greater 

material knowledge than the other party. Adverse 

selection occurs when the more knowledgeable 

party only chooses to transact in settings that, based 

on their private information, is advantageous for 

them. Less informed parties aware of their 

informational disadvantage might be less inclined 

to transact at all for fear of being taken advantage 

of. See George Akerlof, The Market for ‘Lemons, 

Quality Uncertainty and the Market Mechanism, 84 

(3) Quarterly Journal of Economics 488–500 (1970). 

854See R.E. Verrecchia, Essays on Disclosure, 32 

Journal of Accounting and Economics 1–3, 97–180 

(2001). 

855See R. Lambert, C. Leuz, and R.E. Verrecchia, 

Accounting Information, Disclosure, and the Cost of 

Capital, 45 (2) Journal of Accounting Research 385– 

420 (2007). 

856 In 2021, the CDP coordinated with 168 

financial institutions, with a combined AUM of $17 

trillion USD, to engage over 1,300 companies to 

request climate-related information, among other 

topics. See CDP Non-Disclosure Campaign: 2021 

Results, available at https://cdn.cdp.net/cdpproduction/cms/reports/documents/000/006/069/ 

original/CDP_2021_Non-Disclosure_Campaign_

Report_10_01_22_%281%29.pdf?1642510694. 

857See supra note 830 (A recent study, for 

example, shows that absent mandatory 

requirements from regulators, voluntary disclosures 

following third-party frameworks are generally of 

poor quality and that firms making these 

disclosures cherry-pick to report primarily nonmaterial climate risk information.). 

858See World Economic Forum, How to Set Up 

Effective Climate Governance on Corporate Boards: 

Guiding Principles and Questions (2019), available 

at https://www3.weforum.org/docs/WEF_Creating_

effective_climate_governance_on_corporate_

boards.pdf. In addition, there are a number of 

academic studies examining the association of 

climate-related disclosures with corporate 

governance structures and managerial 

characteristics. See, e.g., M. K(l(c ̧ and C. Kuzey, The 

Effect of Corporate Governance on Carbon Emission 

Disclosures: Evidence from Turkey, 11–1 

International Journal of Climate Change Strategies 

and Management 35–53 (2019); S. Yunus, E.T. 

Evangeline, and S. Abhayawansa, Determinants of 

Carbon Management Strategy Adoption: Evidence 

from Australia’s Top 200 Publicly Listed Firms, 31– 

2 Managerial Auditing Journal 156–179 (2016); 

Caroline Flammer, Michael W. Toffel, and Kala 

Viswanathan, Shareholder Activism and Firms’ 

Voluntary Disclosure of Climate Change Risks, 42– 

10 Strategic Management Journal 1850–1879 (Oct. 

2021). 

859Physical and transition climate risks can 

materialize over time horizons ranging from the 

immediate future to several decades. Long horizons, 

for example, tend to involve changes in chronic 

physical risks—(sea-level rise, drought, etc.). 

Shorter-term horizons may, instead, be relevant for 

increase in acute physical risks such as hurricanes, 

wildfires, and heatwaves. See ING Climate Risk 

Report 2020, available at https://www.ing.com/ 

2021-Climate-Report.htm. 

860A report by the Environmental Audit 

Committee of the UK House of Commons on 

Greening Finance, issued in June 2018, found that 

short-termism is a pervasive problem in corporate 

decision making and leaves business ill-equipped to 

consider and incorporate long term risks, such as 

climate change and sustainability. See Envtl. Audi 

Comm., House of Commons, U.K. Parliament, 

Greening Finance: Embedding Sustainability in 

Financial Decision Making (June 6, 2018), available 

at https://publications.parliament.uk/pa/ 

cm201719/cmselect/cmenvaud/1063/106302.htm. 

861See Henry M. Paulson Jr., Short-Termism and 

the Threat From Climate Change, Perspectives on 

the Long Term: Building a Stronger Foundation for 

Tomorrow (Apr. 2015), available at https://

www.mckinsey.com/business-functions/strategyand-corporate-finance/our-insights/short-termismand-the-threat-from-climate-change. 

862Factors including corporate executive 

compensation and attention to quarterly earnings 

and reporting are thought to contribute to excessive 

focus on short-term goals. See, e.g., https://

corpgov.law.harvard.edu/2020/10/11/shorttermism-revisited. 

863See supra note 806; see also Morningstar, 

Corporate Sustainability Disclosures (2021), 

available at https://www.morningstar.com/en-uk/ 

lp/corporate-sustainability-disclosures. 

(‘‘Companies will disclose the good and hide the 

bad while disclosure remains voluntary.’’). 

864See JE Fisch, Making Sustainability Disclosure 

Sustainable, 107 Georgetown Law Journal 923–966 

(2019). See Climate Risk Disclosures & Practices: 

Highlighting the Need for a Standardized 

Regulatory Disclosure Framework to Weather the 

Impacts of Climate Change on Financial Markets, 

(2020), available at https://climatedisclosurelab.

duke.edu/wp-content/uploads/2020/10/ClimateRisk-Disclosures-and-Practices.pdf. 

865See C. Kanodia and D. Lee, Investment and 

Disclosures: The Disciplinary Role of Performance 

Reports, 36(1) Journal of Accounting Research 33– 

55 (1998); P. Healy, and K. Palepu, Information 

Asymmetry, Corporate Disclosure, and the Capital 

Markets: A Review of the Empirical Disclosure 

Literature, 31 (1–3) Journal of Accounting and 

Economics 405–440 (2001); Huang Pinghsun and 

Yan Zhang, Does Enhanced Disclosure Really 

Reduce Agency Costs? Evidence from the Diversion 

of Corporate Resources, 87(1) The Accounting 

Review, 199–229 (2012); R.M. Bushman and A.J. 

Smith, Financial Accounting Information and 

Corporate Governance, 32 (1–3) Journal of 

Accounting and Economics 237–333 (2001); R. 

Lambert, C. Leuz, and R.E. Verrecchia, Accounting 

Information, Disclosure, and the Cost of Capital, 45 

(2) Journal of Accounting Research 385–420 (2007). 

Improving and standardizing climate 

disclosures also could mitigate adverse 

selection problems that may arise in the 

presence of asymmetric information 853

by making more accurate and 

standardized information available to 

the general public.854 Improved 

disclosure could make it easier for 

investors to process information more 

effectively and improve the estimation 

of firm’s future cash flows, leading to 

more accurate firm valuation.855 In 

particular, the enhanced disclosures 

may yield further benefits for the 

disclosures of financial firms. Because 

financial firms can have significant 

exposures to climate-related risks 

through their portfolio companies, any 

enhancements in the portfolio 

companies’ disclosures can 

subsequently be leveraged by these 

financial firms in assessing the risks to 

their portfolios and to the firm as a 

whole.856

Another benefit of the proposed rules 

is that it could allow firm’s shareholders 

to better monitor management’s 

decisions and mitigate certain agency 

problems stemming from management’s 

discretionary choices with respect to 

climate disclosure. Agency problems 

could occur when management act 

opportunistically in their own selfinterest at the expense of shareholders 

by disclosing only certain climaterelated information at their discretion. 

As previously discussed in Section 

IV.B.2.b, management may be motivated 

to selectively disclose only climaterelated information,857 while omitting 

harder to verify risks.858 In the context 

of climate-related risks, agency issues 

may be exacerbated by the potential 

conflicts between short-term 

profitability and long-term climate risk 

horizons 859 and the misalignment of 

interests and incentives between longterm shareholders and management,860

whereby the latter may unduly focus on 

short-term results 861 given pressures to 

demonstrate performance.862 Under the 

current regime, many climate-related 

risks may be unobservable or 

obfuscated, giving short-term-focused 

managers an incentive to initiate 

projects exposed to these risks without 

properly informing investors. 

Agency problems might be 

exacerbated by registrants’ use of 

boilerplate language or selective 

disclosure (i.e., ‘‘cherry picking’’),863

which might reduce transparency and 

impair investors’ ability to effectively 

monitor firm management. The lack of 

a standardized disclosure framework 

could make it easier for registrants to 

forego the use of certain metrics or 

scopes and omit information that might 

otherwise indicate shortcomings.864

Previous studies have found that more 

detailed reporting can mitigate agency 

problems as it facilitates the scrutiny 

and discipline of firm management, 

allowing investors to monitor firms’ 

operations more closely and thus 

evaluate whether managers have acted 

in the best interests of shareholders.865

By requiring registrants to provide 

comprehensive and detailed climaterelated information to investors, the 

proposed rules are expected to reduce 

the likelihood of unreliable or 

boilerplate disclosures. This can enable 

investors to better monitor firm’s 

management, reducing agency problems 

and ultimately strengthening investor 

protection. In the following sections, we 

discuss how specific aspects of the 

proposed rules could contribute to the 

aforementioned benefits. 

The proposed rules would mandate 

more detailed and comprehensive 

disclosure with respect to climaterelated risks. More consistent, 

comparable, and reliable disclosures 

could lead to capital market benefits in 

the form of improved liquidity, lower 

costs of capital, and higher asset prices 


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866See Section IV.D for more information on 

capital market benefits. 

(or firm valuations).866 These benefits 

would stem from reductions in 

information asymmetries brought about 

by the required disclosure of climaterelated information, both among 

investors and between firms and their 

investors. In the first case, less 

information asymmetry among investors 

could mitigate adverse selection 

problems by reducing the informational 

advantage of informed traders. This is 

likely to improve stock liquidity which, 

in turn, can attract more investors, 

thereby reducing the cost of capital. In 

the second case, less information 

asymmetry between firms and their 

investors could allow investors to better 

estimate future cash flows, which could 

reduce investors’ uncertainty, as well as 

the risk premium they demand, thus 

lowering the costs of capital for 

registrants. Economic theory illustrates 

how, all else equal, a drop in the cost 

of capital leads to a boost in equity 

valuation, which can further benefit 

investors. 

a. Disclosure Regarding Climate-Related 

Risks and Their Impacts on Strategy, 

Business Model, and Outlook 

The proposed rules would require 

registrants to identify their climaterelated risks that are reasonably likely to 

have a material impact on the 

registrant’s business or consolidated 

financial statements over the short, 

medium, and long-term and describe the 

actual and potential impacts of those 

risks on its strategy, business model, 

and outlook. Registrants would 

specifically be required to disclose 

impacts on, or any resulting significant 

changes made to, their: (i) Business 

operations, including the types and 

locations of its operations; (ii) products 

or services; (iii) supply chain or value 

chain; (iv) activities to mitigate or adapt 

to climate-related risks; and (v) 

expenditures for research and 

development. 

If, as part of its net emissions 

reduction strategy, a registrant uses 

carbon offsets or RECs, the proposed 

rules would require it to disclose 

specific information around the role that 

carbon offsets or RECs play in the 

registrant’s climate-related business 

strategy. If a registrant uses an internal 

carbon price, the proposed rules would 

require it to disclose information around 

the boundaries for measurement of 

overall CO2e, the price per metric ton of 

CO2e, as well as how the total price is 

estimated to change over time, if 

applicable. Similarly, to the extent that 

the registrant uses analytical tools such 

as scenario analysis, the proposed rules 

would require a description of those 

analytical tools, including the 

assumptions and methods used. 

The specific disclosures required by 

the proposed rules are expected to 

improve investors’ understanding of 

what the registrant considers to be the 

relevant short-, medium-, and long-term 

climate-related risks that are reasonably 

likely to have a material impact on its 

business, taking into consideration the 

useful life of the organization’s assets or 

infrastructure and the fact that climaterelated risks may manifest themselves 

over the medium and longer terms. 

Compared to the baseline, investors 

would be better able to identify and 

assess how climate-related risks may 

affect a registrant’s businesses, strategy, 

and financial planning in several areas, 

including products and services, supply 

chain and/or value chain, adaptation 

and mitigation activities, investment in 

research and development, operations 

(including types of operations and 

location of facilities), acquisitions or 

divestments, and access to capital. 

Investors would gain insight into how 

climate-related risks may serve as an 

input to the registrant’s financial 

planning process and the time period(s) 

used for this process. 

For example, investors may gain 

better insights into the registrant’s 

estimated costs of any operational 

changes expected to be implemented to 

achieve emission reduction targets. 

Alternatively, investors may gain 

valuable information on how certain 

climate events may impact the 

registrant’s property, workforce, or its 

production schedule across the different 

physical sites where the registrant 

conducts business. Adverse climaterelated events may impact the useful 

lives and/or valuation reserves of 

balance sheet assets. For example, sea 

level increases and other climate related 

patterns may adversely impact the 

estimated useful lives of coastal 

facilities. Similarly, more extreme 

weather patterns may adversely impact 

agricultural regions and the value of 

related equipment and lands. This 

information is expected to be useful for 

investors in assessing how climaterelated risks are managed, and whether 

and how these risks may affect a 

registrant’s financial condition and 

results of operations. The required 

disclosure around the role that carbon 

offsets or RECs play in the registrant’s 

climate-related business strategy could 

help investors better understand that 

strategy, including how resilient it is to 

changes in costs or the availability or 

value of offsets or RECs over the short, 

medium and long-term. The required 

disclosures around internal carbon 

price, when used by a registrant, could 

provide investors with more 

standardized and detailed information 

regarding how the registrant developed 

a particular business strategy and help 

investors assess whether a registrant’s 

internal carbon pricing practice is 

reasonable and whether its overall 

evaluation and planning regarding 

climate-related factors is sound. The 

required disclosure around the 

assumptions and methods used by a 

registrant when employing analytical 

tools or conducting scenario analysis 

can improve investors’ assessment of 

the resiliency of a registrant’s strategy 

and business model in light of 

foreseeable climate-related risks and 

improve investors’ ability to compare 

said resiliency among registrants. 

The proposed requirement to identify 

material climate-related risks over the 

short-, medium-, and long-term could 

also help mitigate agency problems 

deriving from the potential 

misalignment of planning horizons 

between the firm’s shareholders and its 

managers. The information required to 

be disclosed about the firm’s business 

operations, products or services, supply 

or value chain, activities to mitigate or 

adapt to climate-related risks, and 

expenditure for research and 

development could allow investors to 

assess how climate-related issues may 

impact the registrant’s financial 

performance (e.g., revenues, costs) and 

financial condition (e.g., assets, 

liabilities). These disclosures should 

allow investors to gain valuable insights 

on how resources are being used by 

management to mitigate climate-related 

risks and to facilitate investors’ 

evaluation of whether managers are 

taking appropriate steps to address such 

risks. 

b. Governance Disclosure 

The proposed rules would require a 

registrant to disclose information 

concerning the board’s oversight of 

climate-related risks as well as 

management’s role in assessing and 

managing those risks. The proposed 

rules would require a registrant to 

disclose whether any member of its 

board of directors has expertise in 

climate-related matters and the 

processes and frequency by which the 

board discusses climate-related factors. 

When describing management’s role in 

assessing and managing climate-related 

factors, a registrant would be required to 

disclose whether certain management 

positions are responsible for assessing 

and managing climate-related factors 

and the processes by which the 

responsible managers are informed 


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21432 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

867Transition plans would be defined as a 

registrant’s strategy and implementation plan to 

reduce climate-related physical and transition risks 

and increase climate-related opportunities, 

including by reducing its own emissions. If the 

registrant has made a public commitment to reduce 

its GHG emissions by a certain date, it must 

disclose such date and its plan to achieve its public 

commitment. 868See Section IV.C.1.f for a more detailed 

discussion of the potential benefits of targets and 

goals disclosure. 

869The choice of a one percent threshold is 

consistent with what the Commission currently 

uses in other contexts for disclosure of certain items 

within the financial statements and without (e.g., 

§§ 210.5–03.1(a), 210.12–13, and 229.404(d)). 

about and manage climate-related 

factors. 

The disclosures required by the 

proposed rules should enable investors 

to better understand how the firm is 

informed about climate-related factors 

and how frequently the firm considers 

such factors as part of its business 

strategy, risk management, and financial 

oversight. Investors would be expected 

to gain better information around 

whether the organization has assigned 

climate-related responsibilities to 

management-level positions or 

committees and, if so, whether those 

responsibilities include assessing and/or 

managing climate-related risks. As a 

result, investors may be better able to 

understand and evaluate the processes 

by which management is informed 

about and monitors climate-related 

risks. For example, investors may be 

better positioned to assess whether and 

how the firm’s board and management 

consider climate-related risks when 

reviewing and guiding business strategy 

and major plans of action, when setting 

and monitoring implementation of risk 

management policies and performance 

objectives, and when reviewing and 

approving annual budgets. 

With detailed information about 

climate expertise among the registrant’s 

directors, investors could more 

effectively evaluate the firm’s 

governance practices related to the 

identification and management of 

climate-related risks. In particular, 

investors may be able to exercise closer 

oversight of management’s actions as 

they assess implementation of risk 

management policies and performance 

objectives, review and approve annual 

budgets, and oversee major capital 

expenditures, acquisitions, and 

divestitures. 

c. Risk Management Disclosure 

The proposed rules would require 

registrants to describe their processes 

for identifying, assessing, and managing 

climate-related risks. This includes 

disclosure on how registrants assess 

materiality, whether they consider 

likely future regulatory actions, how 

they prioritize, mitigate, or adapt to 

climate-related risks, and overall how 

climate-related factors are integrated 

into the registrants’ risk management 

systems or processes. Registrants would 

also be required to provide detailed 

descriptions on any transition plans,867

as applicable, including relevant targets 

and metrics, how physical and 

transition risks are managed, and 

actions taken and progress made toward 

the plan’s targets or goals.868

The disclosures required by the 

proposed disclosures could inform 

investors regarding how proactive and 

diligent registrants may be with respect 

to climate-related risks. Investors can 

use this information to acquire a more 

detailed understanding of how resilient 

registrants’ risk management systems 

may be towards climate-related risks, 

which could contribute to betterinformed investment or voting 

decisions. These disclosures could 

allow investors to better monitor and 

assess whether registrants have in place 

adequate risk management systems and 

whether they are aligned with investor 

preferences. 

Conversely, investors may be better 

able to detect whether certain 

registrants’ risk management systems 

would fail to account for certain types 

of climate factors such as change in 

consumer preferences, adjustments of 

business models, and technological 

challenges or innovations, which may 

have implications on companies’ 

operations and financial conditions. 

These disclosures may also allow 

investors to assess whether registrants 

are evaluating these risks over specific 

time horizons, which may be 

particularly relevant in cases in which 

management may be more concerned 

with short-term performance while 

neglecting longer term risks. 

Accordingly, this provision could help 

address agency problems related to the 

misalignment of planning horizons. 

d. Financial Statement Metrics 

The proposed rules would require 

registrants to disclose certain 

disaggregated climate-related metrics in 

its financial statements under the 

following categories: (i) Financial 

impact metrics; (ii) financial 

expenditure metrics; and (iii) financial 

assumptions. The proposed rules would 

require a registrant to disclose the 

impact of climate-related events (severe 

weather events and other natural 

conditions and physical risks identified 

by the registrant) and transition 

activities (including transition risks 

identified by the registrant) on its 

consolidated financial statements, if the 

disclosure threshold is met. For each 

type of metric, the provisions would 

require the registrant to disclose 

contextual information to enable the 

reader to understand how it derived the 

metric, including a description of 

significant inputs and assumptions used 

to calculate the specified metrics, thus 

providing the necessary transparency 

for facilitating investors’ understanding 

and peer comparisons. To avoid 

potential confusion and to maintain 

consistency with the rest of the financial 

statements, the proposed financial 

statement metrics would be required to 

be calculated using financial 

information that is consistent with the 

scope of the rest of the registrant’s 

consolidated financial statements 

included in the filing. The proposed 

rules would specify the basis of 

calculation for the climate-related 

financial statement metrics and clarify 

how to apply these accounting 

principles when calculating the climaterelated financial statement metrics. 

With respect to financial impact 

metrics, the proposed rules would 

require a registrant to disclose the 

impacts arising from climate-related 

events, including physical risks 

identified by the registrant and severe 

weather events and natural conditions, 

such as flooding, drought, wildfires, 

extreme temperatures, and sea level rise. 

In addition to physical risks, registrants 

also would be required to disclose the 

financial impact of transition activities 

(including transition risks identified by 

the registrant), such as efforts to reduce 

GHG emissions or otherwise mitigate 

exposure to transition risks on any 

relevant line items in the registrant’s 

consolidated financial statements. The 

proposed rule would require registrants 

to reflect the impact of the climaterelated events or transition activities on 

each line item of the registrant’s 

consolidated financial statements (e.g., 

line items of the consolidated income 

statement, balance sheet, or cash flow 

statement) unless the aggregate impact 

of the events and transition activities is 

less than one percent of the total line 

item. By exempting such line item 

reporting when the aggregate impact of 

the events is less than one percent, the 

proposed rule would reduce overall 

costs for firms associated with 

disclosures for instances where the 

impact is likely to be quite small, while 

providing assurance to investors that 

more significant impacts are reflected in 

line item reporting.869

We expect that the proposed financial 

statement metrics impact would provide 

additional transparency into the nature 


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870See supra note 830 and 806. 871Such audits could increase the probability of 

discovering and penalizing any misrepresentation. 

Since this would increase the expected costs of 

engaging in misrepresentation, as discussed in 

Section IV.B.2, this would also be likely to increase 

the odds of accurate revelation of material 

information. 872See Section II.F.5. 873See M. DeFond and J.A. Zhang, A Review of 

Archival Auditing Research, 58(2–3) Journal of 

Accounting and Economics 275–326 (2014); V.K. 

Krishnan, The Association Between Big 6 Auditor 

Industry Expertise and the Asymmetric Timeliness 

of Earnings 20 Journal of Accounting, Auditing and 

Finance 209–228 (2005); W. Kinney and R. Martin, 

Does Auditing Reduce Bias in Financial Reporting? 

A Review of Audit-Related Adjustment Studies, 13 

Auditing: A Journal of Practice & Theory 149–156 

(1994); K.B. Behn, J.H. Choi, and T. Kang, (2008), 

Audit Quality and Properties of Analyst Earnings 

Forecasts 83 The Accounting Review 327–349 

(2008). Some commenters expressed similar views. 

See, e.g., Comment Letters from CAQ, Ceres; Impax 

Asset Management; San Francisco Employees’ 

Retirement System; and UNEP–FI. 

of a registrant’s business and the 

significance of many of the climaterelated risks and impacts on its overall 

financial condition. Such disclosures 

are expected to provide investors with 

valuable insights into potential changes 

to, among others, revenue or costs from 

disruptions to business operations or 

supply chains; impairment charges and 

changes to the carrying amount of assets 

due to the assets being exposed to 

physical risks; revenue or cost due to 

new emissions pricing or regulations 

resulting in the loss of a sales contract 

and; operating, investing, or financing 

cash flow from changes in upstream 

costs, such as transportation of raw 

materials. Separately reporting the 

financial statement impacts from the 

specified climate-related events and 

transition activities could improve 

comparability of both the registrant’s 

year-to-year disclosure and between the 

disclosures of different registrants. 

Because the risks presented by the 

climate-related events and transition 

activities may be correlated across 

different registrants and across time, 

future climate-related risks could 

manifest in such a way that a large 

subset of registrants are affected, making 

them potentially a non-diversifiable 

risk. In this case, separate financial 

impact disclosures could inform 

investors of their exposure to these risks 

not just for a single registrant, but across 

all the registrants in their portfolios. 

Such disclosures could be beneficial as 

they would be informative of both 

individual registrant exposures to 

climate-related risks, and the level of 

climate-related risks in the aggregate, 

thus allowing investors to more 

effectively evaluate and manage the risk 

of their entire portfolio. Moreover, to the 

extent that registrants are not aware of 

climate-related risks in the aggregate, 

these disclosures would allow for a 

greater understanding of the climaterelated risks they face, providing them 

the opportunity to make more informed 

investment decisions taking into 

account such risks. 

With respect to financial expenditure 

metrics, the proposed rules would 

require a registrant to disclose the 

positive and negative impacts associated 

with the same climate-related events 

and transition activities as the proposed 

financial impact metrics. The 

expenditure metrics would require a 

registrant to separately aggregate 

amounts of expenditure expensed and 

capitalized costs incurred during the 

fiscal years presented. For each of those 

categories, a registrant would be 

required to disclose separately the 

amount incurred during the fiscal years 

presented toward positive and negative 

impacts associated with the specified 

climate-related events and to mitigate 

exposure to transition risks. The 

expenditure metrics would also be 

subject to the same disclosure threshold 

as the financial impact metrics, which 

should promote consistency and clarity. 

Together, these disclosures are 

expected to provide investors with 

information about the total expenditure 

toward or capitalized costs incurred for 

specified climate-related events. As 

such, they are expected to increase the 

resilience of assets or operations, retire 

or shorten the estimated useful lives of 

impacted assets, relocate assets or 

operations at risk, or otherwise reduce 

the future impact of severe weather 

events and other natural conditions on 

business operations. The proposed rules 

also would provide investors with 

information about the amount of 

expenditure expensed or capitalized 

costs incurred for climate-related 

transition activities related, among 

others, to research and development of 

new technologies, purchase of assets, 

infrastructure, or products that are 

intended to reduce GHG emissions, 

increase energy efficiency, or improve 

other resource efficiency. 

With respect to financial assumptions, 

the proposed rules would require 

registrants to disclose whether the 

estimates and assumptions used to 

produce the consolidated financial 

statements were impacted by risks and 

uncertainties associated with, or known 

impacts from, severe weather events and 

other natural conditions, such as 

flooding, drought, wildfires, extreme 

temperatures, and sea level rise. If so, 

the registrant would be required to 

provide a qualitative description of how 

such events have impacted the 

development of the estimates and 

assumptions used to prepare such 

financial statements. Similarly, if the 

estimates and assumptions were 

impacted by potential transition risks, 

the registrant would be required to 

provide a qualitative description of how 

the development of the estimates and 

assumptions were impacted by such a 

transition. We expect that the proposed 

disclosures would provide transparency 

to investors on the impact of climaterelated events and transition activities 

on the estimates and assumptions used 

by the registrant to prepare the financial 

statements and allow investors to 

evaluate the reasonableness of the 

registrant’s estimates and assumptions. 

Prior evidence shows that existing 

climate-related disclosures often contain 

boilerplate language or are ‘‘cherrypicked’’ to present information that is 

favorable to the company.870

Accordingly, registrants under the 

current regulatory regime may choose to 

provide only brief, qualitative 

descriptions of certain climate-related 

factors while omitting concrete, 

quantitative information on how 

climate-related factors can impact 

individual financial statement line 

items. The proposed rule may mitigate 

these types of agency problems by 

requiring registrants to disclose specific, 

quantitative metrics according to 

standardized scopes and methodologies, 

thereby helping investors processing 

information more effectively. 

The proposed financial metrics would 

be part of the financial statements and 

thus audited by an independent public 

accounting firm in accordance with 

existing Commission rules and PCAOB 

auditing standards.871 Subjecting these 

climate-related disclosures to reasonable 

assurance pursuant to an audit would 

require the auditor to assess the risk of 

material misstatement related to the 

estimates and judgments, including 

through evaluation of the method of 

measurement and reasonableness of the 

assumptions used, and to understand 

management’s risk management 

processes, including the accuracy of the 

proposed disclosure, thereby alleviating 

possible concerns about the data’s 

reliability and comparability, and 

improving investor confidence in such 

disclosure.872 Academic research finds 

that assurance procedures can increase 

the relevance and reliability of 

disclosures, particularly for those 

involving significant estimation 

uncertainties. 873

e. GHG Emissions Metrics 

The proposed rules would require all 

registrants to disclose Scope 1 and 

Scope 2 GHG emissions. Given the 


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874See Section IV.A.3. 

875See supra note 737. 

876See Section IV.A.3. 

877See H.B. Christensen, E. Floyd, L.Y. Liu, and 

M Maffett, The Real Effects of Mandated 

Information on Social Responsibility in Financial 

Reports: Evidence from Mine-Safety Records, 64 (2– 

3) Journal of Accounting and Economics 284–304 

(2017). 

possibility of a transition to a lowercarbon economy, investors and other 

market participants may be concerned 

about registrants that have high GHG 

emissions since these registrants may be 

more exposed to certain transition risks, 

such as regulations that restrict 

emissions or the potential impacts of 

changing consumer preferences or 

market conditions. Should a transition 

to a low-carbon economy gain 

momentum, registrants with higher 

amounts of Scope 1 and 2 emissions 

may be more likely to face sharp 

declines in cash flows, either from 

greater costs of emissions or the need to 

scale back on high-emitting activities, 

among other reasons, as compared to 

firms with lower amounts of such 

emissions. 

Understanding the extent of this 

potential exposure to transition risks 

could help investors in assessing their 

risk exposures with respect to the 

companies in which they invest. Greater 

consistency in emissions disclosures 

can further benefit investors as it can 

facilitate comparisons between the 

registrants and their peers and assist in 

understanding the overall risk of their 

portfolios. As described below, 

emissions disclosures would also help 

inform investors about the extent to 

which a company has been or is 

following through with its disclosed 

strategies and transition plans. As 

further discussed in Section IV.D, we 

expect this provision to lower 

uncertainty for investors, thereby 

reducing the cost of capital. This may 

make it easier to raise equity and debt, 

or to obtain loan financing. 

Besides the direct risk to cash flows 

through cost of emissions or the need to 

scale back on high-emitting activities, 

such a transition could also cause a 

registrant’s assets to suffer from 

unanticipated or premature writedowns, devaluations, and/or adverse 

adjustments in reserves. The proposed 

Scope 1 and 2 emission disclosures 

would allow investors to identify 

registrants whose assets may be more 

likely to become obsolete or nonperforming or lose economic value 

ahead of their anticipated useful life due 

to a potential transition to a lowercarbon economy, and more generally 

allow investors to discern whether 

certain investments are unlikely to earn 

the anticipated economic return due to 

such transition. The proposed 

disclosures would also allow investors 

to more closely monitor whether a 

firm’s management is properly 

accounting for the impairment of such 

stranded assets to ensure that they are 

recorded on the balance sheet as a loss 

of profit and are not carried at more 

than their recoverable amount. Given 

the significant possibility that Scope 1 

and 2 emissions will affect the valuation 

of the registrant through impacts on 

earnings, cost of capital, investor 

demand, or potentially some other 

channel, investor protection would be 

enhanced by requiring disclosure of this 

information. 

Moreover, by specifying that the 

information should be provided by all 

registrants, investors would benefit from 

having access to a more comprehensive 

set of emissions data against which to 

measure a registrant’s progress in 

meeting any stated emissions goals or 

otherwise managing its climate-related 

risks, as a part of assessing the 

registrant’s overall business and 

financial condition. In the absence of 

the proposed rules, some registrants 

may choose to selectively omit 

quantitative emissions metrics. The 

resulting state of disclosures is less 

meaningful and less transparent, making 

it significantly more difficult for 

investors to assess the degree of risk in 

individual firms, to compare across 

firms, and to value securities. 

As discussed in Section IV.A, some 

registrants currently report emissions 

via the EPA’s 2009 mandatory 

Greenhouse Gas Reporting Program.874

However, the nature of the reporting 

requirements and the resulting data is 

more suited to the purpose of building 

a national inventory of GHG emissions, 

not of assessing emissions-related risks 

to individual registrants. Specifically, 

direct emitters must report their 

emissions at the facility-level (not 

registrant-level) and suppliers of certain 

products must report their ‘‘supplied 

emissions,’’ conditional on these 

emissions exceeding a specified 

threshold.875 In addition, as previously 

discussed, the EPA emissions data does 

not allow a clean disaggregation across 

the different scopes of emissions for a 

given registrant.876 From the point of 

view of an investor seeking greater 

information regarding a registrant, the 

EPA’s emissions data may be difficult 

for investors to use, because the data are 

made public by facility and not by 

company. While each facility is 

matched to its parent company, this 

company may not be the entity 

registered with the SEC and thus of 

interest to investors. Taken together, the 

EPA emissions data is not well suited to 

enabling investors to fully assess the 

degree to which each registrant is 

exposed to transition risks. 

The proposed rules would result in 

more comprehensive and tailored 

emissions information by requiring 

disclosure of Scope 1, Scope 2, and in 

some cases Scope 3 emissions by 

registrants in SEC filings. Prior evidence 

has shown that when information that is 

already publicly available elsewhere is 

included within SEC filings, the public 

becomes more aware of the 

information.877 While there are 

numerous differences with regard to 

EPA reporting, this evidence suggests 

that even were these differences not to 

exist, and the only change were to be 

inclusion in SEC filings, there would 

nonetheless be an advantage in 

improving consistency and reliability 

and decreasing search costs. 

The proposed rules would also 

provide informational benefits beyond 

the voluntary disclosure of emissions in 

sustainability reports. While currently 

disclosed information reflects investor 

demand, the overall information 

disclosed to the market may be biased 

due to its voluntary nature, in that 

companies that have more favorable 

data (e.g., lower emissions) may be more 

likely to make these voluntary 

disclosures. Requiring all registrants to 

provide consistent disclosures, as 

proposed, would reduce the bias that 

can result from a voluntary regime. 

Moreover, as discussed above, locating 

the information in SEC filings may make 

it more accessible to investors and 

contribute to greater consistency and 

reliability. 

Specific provisions are designed to 

facilitate comparability across 

registrants and industries. For example, 

requiring the disclosure of GHG 

intensity in terms of metric tons of CO2e 

per unit of total revenue and per unit of 

production would allow investors to 

directly assess the efficiency of the 

registrant’s operations and compare 

across different industries and firms of 

varying size. Increased standardization 

in the reporting of these metrics may 

allow investors to assess more 

effectively a registrant’s transition risk 

against that of its competitors. As 

another example, the proposed rules 

would require a registrant to set the 

organizational boundaries for its GHG 

emissions disclosure using the same 

scope of entities, operations, assets, and 

other holdings within its business 

organization structure as those included 

in its consolidated financial statements. 

Requiring a consistent approach would 


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878Unlike the GHG Protocol, which currently 

provides different options for setting organizational 

boundaries, the proposed rules would require that 

the scope of consolidation and reporting be 

consistent for financial data and GHG emissions 

data. 879The proposed rules include a safe harbor for 

Scope 3 emissions disclosure from certain forms of 

liability under the federal securities laws. 

880 In calculating Scope 3 emissions, registrants 

have the flexibility to choose a methodology they 

deem fit, however, the specific methodology must 

be disclosed. Estimates or ranges are permitted. 

Emissions reporting must be presented as CO2e as 

well as disaggregated into the different types of 

GHGs. 

881See Eric Rosenbaum, Climate experts are 

worried about the toughest carbon emissions for 

companies to capture (Aug. 18, 2021) available at 

https://www.cnbc.com/2021/08/18/apple-amazonexxon-and-the-toughest-carbon-emissions-tocapture.html#:∼:text=Scope%203%20carbon

%20emissions%2C%20or,as%2085%25%20

to%2095%25. 

882See also MSCI, Emissions: Seeing the Full 

Picture (Sept. 17, 2020), available at https://

www.msci.com/www/blog-posts/scope-3-carbonemissions-seeing/02092372761. 

883The MSCI ACWI Investable Market Index (IMI) 

captures large, mid and small cap representation 

across 23 Developed Markets and 25 Emerging 

Markets countries, covering approximately 99% of 

the global equity investment opportunity set. 

884 Ibid. 885Scope 3 upstream and downstream emissions 

represents a substantial portion of global GHG 

emissions. For example, according to a recent 

report, Scope 3 downstream emissions that happen 

after a product or service leaves a company’s 

control/ownership represented about 49% of global 

GHG emissions in 2019. Capital goods (87%), banks 

(81%) and retailing (80%) were among the 

industries with the highest percentage of Scope 3 

downstream emissions relative to their total 

emissions. These downstream emissions can come 

from a variety of sources. For example, capital 

goods activities include emissions from raw 

material manufacturing and transport. Banks emit 

few GHGs to run their operations—but finance the 

emissions of other companies through loans and 

investments. See State of Green Business 2021, 

available at https://www.spglobal.com/market

intelligence/en/news-insights/research/state-ofgreen-business-2021. 

886See, e.g. I Ben-David, Y. Jang, S. Kleimeier, 

and M. Viehs, Exporting Pollution: Where Do 

Multinational Firms Emit CO2? 36 (107) Economic 

Policy 377–437 (2021); X. Li and Y.M. Zhou, 

Offshoring Pollution While Offshoring Production? 

38 Strategic Management Journal 2310–2329 (2017). 

887See R. Dai, R. Duan, H. Liang, and L. Ng, 

Outsourcing Climate Change (SSRN Working Paper) 

(2021), available here https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=3765485. 

avoid potential investor confusion about 

the reporting scope used in the financial 

statements and enhance comparability 

across registrants,878 helping investors 

in assessing a registrant’s transition risk 

against that of its competitors. 

The proposal would also require nonSRC registrants to disclose Scope 3 

emissions if material or if the registrant 

has a target or goal related to Scope 3.879

In addition, specified registrants would 

also be required to disclose the 

methodology used to compute 

emissions, the breakdown of the 

different GHGs, as well as upstream and 

downstream activities, and data 

quality.880 Scope 3 emissions GHG 

emissions can represent the majority of 

the carbon footprint for many 

companies, in some cases as high as 

85% to 95%.881 For example, according 

to Morgan Stanley Capital International 

(MSCI), the Scope 3 emissions of the 

integrated oil and gas industry are more 

than six times the level of its Scope 1 

and 2 emissions.882 Companies may 

have indirect control over their Scope 3 

emissions through choices they make, 

for example in selecting suppliers, 

designing products, or sourcing inputs 

more efficiently. Nevertheless, the 

majority of companies do not typically 

report this information. As of July 10, 

2020, for example, within the sample of 

companies belonging to the MSCI ACWI 

Investable Market Index (IMI),883 the 

total Scope 3 average intensity was 

almost three times greater than the 

combined Scope 1 and 2 intensity. Yet, 

only 18% of constituents of the MSCI 

ACWI IMI reported Scope 3 emissions, 

with even lower reporting percentages 

when looking at the individual Scope 3 

categories.884

The reporting of Scope 3 emissions 

for these registrants would provide 

additional benefits for investors. Scope 

3 emissions information may be 

material in a number of situations to 

help investors gain a more complete 

picture of the transition risks to which 

a registrant may be exposed. Relative to 

registrants with substantial Scope 1 and 

2 emissions, future regulations that 

restrict emissions may impact 

registrants with high Scope 3 emissions 

differently. In certain industries, a 

transition to lower-emission products or 

processes may already be underway, 

triggered by existing policies, a shift in 

consumer preferences, technological 

changes, or other market forces. 

Registrants with significant Scope 3 

emissions may be more likely to face 

disruptions not only in their cash flows, 

but also in their business models or 

value chains to the extent that these 

registrants are compelled to make 

changes in their products, suppliers, 

distributors, or other commercial 

partners.885 Moreover, if consumer 

demand changes to favor less carbon 

intensive products, companies with 

high Scope 3 emissions may see a 

marked reduction in demand for their 

products, and companies that are not 

aware of these risks could be less 

profitable relative to those that 

understand these risks and are prepared 

to mitigate them. Alternatively, 

companies that can source inputs that 

involve less GHG emissions could 

achieve potential cost savings and those 

that could produce products that 

generate less GHG emissions by the end 

user could potentially enjoy higher 

demand. Some registrants may plan to 

shift their activities to capitalize on 

these changes and thus may need to 

allocate capital to invest in lower 

emissions equipment or to create new 

types of products. Investors would need 

information about the registrants’ full 

GHG emissions footprint and intensity 

to determine and compare how exposed 

a registrant is to the financial risks 

associated with a transition to lowercarbon economy. 

Over the last few years, a number of 

studies have shown that firms try to 

reduce their local carbon footprints by 

outsourcing their carbon emissions to 

suppliers in states or countries with 

weaker environmental policies.886

These studies provide evidence of the 

substitutional relationship between 

direct and outsourced GHG emissions. 

Recent studies have also analyzed the 

substitution effects between Scope 1 

and Scope 3 GHG emission activities of 

U.S. firms. The findings show that the 

relative share of Scope 1 emissions out 

of a firm’s total emissions tend to fall at 

the expense of the rising proportion of 

its supplier-generated Scope 3 

emissions and that a firm’s imports 

further augment the substitutional 

relationship between its Scope 1 and 

Scope 3 emissions.887 In addition to the 

outsourcing incentives related to 

regulatory arbitrage, the authors of these 

studies posit that firms may also be 

outsourcing emissions abroad to exploit 

investors’ current difficulties in 

assessing the firm’s carbon emissions 

through imports along the upstream 

supply chain. By requiring the 

disclosure of Scope 3 GHG emissions, 

the proposed rules would make it more 

difficult for non-SRC registrants to avoid 

investors’ scrutiny by outsourcing all or 

part of their activities abroad. 

Finally, as described in Section 

IV.A5.d, many companies have set 

emissions targets, and it is not always 

clear whether these targets pertain to 

Scope 3 emissions or not. As explained 

in Section IV.C.1.g, registrants would be 

required to disclose whether the targets 

pertain to Scope 3 emissions, and as 

described above, if they do, they would 

need to report such emissions. Without 

reporting of Scope 3 emissions amounts 

and categories, investors would not 

have the information they need to 

understand the scale and scope of 

actions the company may need to take 

to fulfill its commitment, and thus the 

overall financial implications of a 

registrant’s targets. For example, a 

registrant’s disclosure of its Scope 3 


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888See J. van Binsbergen, Duration-Based Stock 

Valuation: Reassessing Stock Market Performance 

and Volatility (2021), available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3611428; D. Greenwald, M. Leombroni, H. 

Lustig, and S. van Nieuwerburgh, Financial and 

Total Wealth Inequality with Declining Interest 

Rates (2021), available at https://papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=3789220. Both of these 

papers find that the Macauley duration of equity, 

the weighted average length of time which investors 

will receive the cash flows from the asset, is in 

excess of 35 years as of 2019. This indicates that 

changes in cash flows in the distant future can 

impact equity prices today. 889See Section II.G.3. 

890See IFAC Charts the Way Forward for 

Assurance of Sustainability Information (Dec. 6, 

2021), available at https://www.ifac.org/newsevents/2021-12/ifac-charts-way-forward-assurancesustainability-information. 

891See Section II.H.1 for more information. 

892See PCAOB, AS 2110 Identifying and 

Assessing Risks of Material Misstatement (2010). 

emissions, together with the proposed 

financial statement metrics, could allow 

investors to assess the potential 

(additional) investments the registrant 

may need to make to meet a certain goal. 

Moreover, as described further below, 

reporting of Scope 3 emissions gives a 

quantitative metric for investors to 

track, thus reducing opportunities for 

misleading claims on the part of the 

registrant. 

Because the value of a firm’s equity is 

largely derived from expected future 

cash flows, disclosure of Scope 1, 2, and 

3 emissions can help investors 

incorporate risks associated with such 

future cash flows into asset values 

today. Indeed, the academic literature 

indicates that equity is a long-term 

asset, meaning that even risks related to 

regulatory changes in the distant future 

could be priced today.888 Thus, for 

many registrants, reasonable investors 

may view GHG emissions as necessary 

to assess the registrants’ exposure to 

climate-related risks, particularly 

transition risks, and whether they have 

developed strategies to reduce their 

carbon footprint in the face of potential 

regulatory, policy, and market 

constraints. This may be particularly 

important in light of the investor 

demand documented in IV.B.1 and the 

potential price impact, as discussed in 

IV.D. 

f. Assurance of GHG Scopes 1 and 2 

Emissions Disclosures for Large 

Accelerated Filers and Accelerated 

Filers 

The proposed rules would require 

registrants that are large accelerated 

filers and accelerated filers to provide 

an attestation report for the registrant’s 

Scope 1 and 2 GHG emissions 

disclosures. Large accelerated filers 

constitute approximately 31% of the 

universe of registrants that filed annual 

reports during calendar year 2020 (1,950 

out of 6,220), but account for 93.6% of 

market cap within the same universe. 

Accelerated filers constitute 

approximately 10% of the universe of 

registrants that filed annual reports 

during calendar year 2020 (645 out of 

6,220) and account for 0.9% of market 

cap within the same universe. 

The proposed rules provide specific 

transition periods for obtaining 

attestation reports. Large accelerated 

filers would be required to provide 

Scopes 1 and 2 emissions disclosures in 

the fiscal year immediately following 

rule adoption. Next, they would be 

required to obtain limited assurance 

over these disclosures in fiscal years 2 

and 3 after adoption. They would then 

be required to obtain reasonable 

assurance over these disclosures in 

fiscal year 4 after adoption and going 

forward. Accelerated filers would follow 

the same timeline but with a delay of 

one fiscal year. Specifically, accelerated 

filers would be required to provide 

Scopes 1 and 2 emissions disclosures in 

fiscal year 2 after adoption. Next, they 

would be required to obtain limited 

assurance over these disclosures fiscal 

years 3 and 4 after adoption. They 

would then be required to obtain 

reasonable assurance over these 

disclosures in fiscal year 5 after 

adoption and going forward. 

The proposed transition periods for 

assurance over large accelerated filers’ 

and accelerated filers’ Scopes 1 and 2 

GHG emission disclosures are intended 

to provide these registrants time to 

familiarize themselves with the GHG 

emissions disclosure requirements, 

develop the relevant DCP, and provide 

the market with an opportunity to 

develop enough expertise to satisfy the 

increased demand for GHG emission 

assurance services. We expect that 

during the proposed transition periods, 

the market for assurance services would 

further mature with respect to 

institutional knowledge, procedural 

efficiency, and overall competition, thus 

lowering costs for registrants and 

improving the quality of service. 

Although Scope 3 GHG emissions can 

constitute a large portion of a 

registrant’s total emission, the proposed 

rules would exclude Scope 3 GHG 

emission disclosures from the 

attestation requirement due to the 

unique challenges associated with their 

measurement, which is based on data 

sources not owned by the registrant,889

as well as the potential higher costs 

associated with their verification. 

Section IV.A.5.e above discusses 

survey evidence on the frequency with 

which firms obtain assurance in 

sustainability reports. This evidence 

suggests that a significant fraction of 

large companies already obtain some 

form, albeit limited, of assurance. 

Practices appear to be fragmented with 

respect to the levels of assurance 

provided, the assurance standards used, 

the types of service providers, and the 

scope of disclosures covered by the 

assurance. One consequence of such 

fragmentation has been a lack of clarity 

about the nature of assurance provided, 

which can lead to confusion for 

investors when assessing the quality of 

disclosures. Moreover, as noted above, 

the voluntary nature of the reporting 

could result in biased or incomplete 

data. The fact, however, that a 

significant proportion of large 

companies already obtain some form of 

assurance over this information is 

indicative of investors’ and companies’ 

need for such disclosures to be reliable. 

The importance of assurance for 

climate-related information also is 

highlighted by the International 

Federation of Accountants, which 

recently published its Vision for HighQuality Sustainability Assurance.890 As 

discussed earlier, contrary to other 

quantitative information that is 

provided outside of the financial 

statements, and which is typically 

derived from the same books and 

records that are used to generate a 

registrant’s audited financial statements, 

GHG emissions disclosures are not 

developed from information that is 

included in the registrant’s books and 

records.891 Accordingly, such 

quantitative disclosure is not be subject 

to audit procedures as part of the audit 

of the financial statements in the same 

filing. Because of this, the proposed 

requirement of a third-party attestation 

report may be particularly beneficial to 

verify the reliability of such quantitative 

information and enhance its accuracy. 

In general, subjecting climate-related 

disclosures to assurance would require 

the assurance provider to assess the risk 

of material misstatements related to the 

estimates and judgments, including 

through evaluation of the method of 

measurement and reasonableness of the 

assumptions used, and an 

understanding of management’s risk 

management processes, including the 

risks identified and the actions taken to 

address those risks.892 Moreover, by 

specifying minimum standards for the 

assurance provided with respect to GHG 

Scope 1 and 2 emissions disclosures, we 

expect the proposed rules to promote 

accuracy and consistency in the 

reporting of this information, while also 

providing investors with a baseline level 


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893See K. Hodge, K., N. Subramaniam, J. Stewart, 

Assurance of Sustainability Reports: Impact on 

Report Users’ Confidence and Perceptions of 

Information Credibility, (19) Australian Accounting 

Review 178–194 (2009), available at https://doi.org/ 

10.1111/j.1835-2561.2009.00056.x. 

894See supra note 874. 

895See, e.g., K. Hodge, K., N. Subramaniam, and 

J. Stewart, Assurance of Sustainability Reports: 

Impact on Report Users’ Confidence and 

Perceptions of Information Credibility, 19 

Australian Accounting Review 178–194 (2009), 

available at https://doi.org/10.1111/j.1835-2561.

2009.00056.x; Mark Sheldon, User Perceptions of 

CSR Disclosure Credibility with Reasonable, 

Limited and Hybrid Assurances (Dissertation) 

(2016) available at https://vtechworks.lib.vt.edu/ 

bitstream/handle/10919/65158/Sheldon_MD_D_

2016.pdf. This absence of evidence, however, is not 

necessarily evidence of absence. It is possible that 

reasonable assurance can have benefits over limited 

assurance that are not easily identifiable. 

896See R.J. Casey and J.H. Grenier, Understanding 

and contributing to the enigma of corporate social 

responsibility (CSR) assurance in the United States, 

34(1) Auditing: A Journal of Practice & Theory 97, 

97–130 (2015). The authors also find that the lower 

costs of capital are in excess of estimated assurance 

costs (i.e., 5% to 10% of total audit fees) for the 

majority of companies. We acknowledge, however, 

that the benefits cited in this study may be 

overstated to the extent that they reflect a selection 

bias. Specifically, companies that anticipate a net 

loss due to assurance would choose to forgo 

obtaining such assurance, thereby removing 

themselves from the treatment group. This potential 

limitation in interpreting such findings is also 

supported by evidence of systematic differences in 

companies voluntarily reporting higher assurance 

levels. See C.H. Cho, G. Michelon, D.M. Patten, and 

R.W. Roberts, CSR report assurance in the USA: An 

empirical investigation of determinants and effects, 

5(2) Sustainability Accounting, Management and 

Policy Journal 130, 130–148 (2014), available at 

https://doi.org/10.1108/SAMPJ-01-2014-0003. 

897See N. Tepalagul, and L. Lin, Auditor 

Independence And Audit Quality: A Literature 

Review, 30(1) Journal of Accounting, Auditing & 

Finance 101–121 (2015) (for a more detailed 

discussion on academic evidence on independence 

in auditing). 

898See Marco Grotteria, and Roberto Gomez 

Cram, Do Financial Investors Underreact To 

Voluntary Corporate Disclosure? (Working Paper) 

(2022). 

of reliability against which to evaluate 

the disclosures.893

Academic research finds that 

assurance procedures can increase the 

relevance and reliability of 

disclosures,894 particularly for those 

involving significant estimation 

uncertainties. While most of this 

academic evidence focuses on the 

effects of reasonable assurance 

procedures, we cannot preclude the 

possibility that such findings may have 

implications for limited assurance as 

well. Experimental evidence has found 

that both limited and reasonable 

assurance can increase perceived 

reliability of sustainability reports, but 

those same studies do not find a 

statistically significant difference 

between limited and reasonable 

assurance.895 Obtaining assurance for 

sustainability reports, which as noted 

above is typically limited assurance, has 

also been associated with firms with 

lower costs of capital, increased analyst 

coverage, and decreased analyst forecast 

errors and forecast dispersion.896

The proposed rules would require the 

attestation report to identify the criteria 

against which the subject matter was 

measured or evaluated, the level of 

assurance provided, the nature of the 

engagement, and the attestation 

standard used. In particular, the 

proposed rules would require the 

attestation report to include a 

description of the work performed as a 

basis for the attestation provider’s 

conclusion and for that conclusion to be 

provided pursuant to standards that are 

established by a body or group that has 

followed due process procedures, 

including the broad distribution of the 

framework for public comment. We 

expect this provision would help ensure 

that the standards upon which the 

attestation report is based were the 

result of a transparent and reasoned 

process. In this way, the requirement 

should help to protect investors who 

may rely on the attestation report by 

limiting the standards used to those that 

are appropriate for the subject matter 

and purpose. Further, we expect this 

provision to enhance the transparency 

of the GHG emissions attestation report 

for investors by providing them with 

additional information about the general 

procedures undertaken by the 

attestation provider. For example, under 

the proposed rules, an attestation report 

providing limited assurance would need 

to state that the procedures performed 

vary in nature and timing from, and are 

less extensive than, a reasonable 

assurance engagement, thus helping 

investors understand the level of 

assurance provided. 

The GHG emissions attestation report 

would also be required to include a 

statement that describes any significant 

limitations associated with the 

measurement or evaluation of the 

subject matter against the criteria. The 

provision would require disclosure 

about the estimation uncertainties 

inherent in the quantification of GHG 

emissions, driven by reasons such as the 

state of the science and assumptions 

used in the measurement and reporting 

processes. By eliciting disclosure with 

respect to the procedures undertaken by 

the attestation provider, such as 

inquiries and analytical procedures, and 

the methodology used in the attestation 

process, the proposed provision would 

enhance the transparency of the GHG 

emissions attestation quality, thus 

allowing investors to gain a better 

understanding of the emission related 

information. This could help investors 

process emission related information 

more effectively. More informed 

investment decisions by investors also 

may benefit registrants by lowering their 

cost of capital. 

The proposed rules would also 

require registrants to disclose whether 

the attestation provider has a license 

from any licensing or accreditation body 

to provide assurance and whether the 

GHG emissions attestation engagement 

is subject to any oversight inspection 

program and record-keeping 

requirements with respect to the work 

performed for the GHG emissions 

attestation. These requirements are 

expected to benefit investors by helping 

them to better understand the 

qualifications of the GHG emissions 

attestation provider, which in turn 

would allow them to make better 

informed decisions about the reliability 

of such information. 

Finally, the proposed rules would 

require that the GHG emissions 

attestation report be prepared and 

signed by a provider that is an expert in 

GHG emissions and independent with 

respect to the registrant, and any of its 

affiliates, for whom it is providing the 

attestation report. These qualification 

and independence requirements should 

help ensure that the attestation provider 

is capable of exercising informed, 

objective and impartial judgment. 

Academic research has found that the 

independence of assurance providers 

can be important in certain settings for 

disclosure quality.897 Academic 

research has also found that equity 

prices respond to analyst forecast even 

after management has released the exact 

same information, highlighting more 

generally the perceived value of external 

evaluations of firm disclosures and 

resulting investor confidence in the 

related disclosures.898

g. Targets and Goals Disclosure 

The proposed rules would require a 

registrant to disclose whether it has set 

any climate-related targets or goals and, 

if so, how it intends to meet those 

targets and goals. Such climate-related 

targets or goals might relate to the 

reduction of GHG emissions or address 

energy usage, water usage, conservation 

or ecosystem restoration. Associated 

disclosure would include the scope of 

activities and emissions included in the 

target, the unit of measurement, and the 

defined time horizon. Additionally, 

disclosures include the baseline 

emissions for measuring progress, any 

interim targets, how it intends to meet 

these targets or goals, and data showing 

any progress toward achieving these 

targets, including how that progress was 


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899As of Jan. 25, 2022, The Climate Pledge has 

acquired 217 signatories. See The Climate Pledge, 

available at https://www.theclimatepledge.com/us/ 

en/Signatories. 

900See S. Lu, The Green Bonding Hypothesis: 

How do Green Bonds Enhance the Credibility of 

Environmental Commitments? (2021), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=3898909. 

901See supra Sections II.G.1.b. and III C.1.e. 

902See id. 

903For example, structuring climate-related 

disclosures would enable more advanced analyses 

than those described in the aforementioned 

Commission staff review that used keyword 

searches and NLP. See supra IV.A.5.a. 

904The findings on XBRL cited in the following 

paragraphs are not necessarily focused on climaterelated disclosures and metrics, but we expect the 

findings to be generally applicable and to result in 

similar benefits for investors. 

905See, e.g., Y. Cong, J. Hao, and L. Zou, The 

Impact of XBRL Reporting on Market Efficiency, 28 

J. Info. Sys. 181 (2014) (finding support for the 

hypothesis that ‘‘XBRL reporting facilitates the 

generation and infusion of idiosyncratic 

information into the market and thus improves 

market efficiency’’); Y. Huang, J.T. Parwada, Y.G. 

Shan, and, J. Yang, Insider Profitability and Public 

Information: Evidence From the XBRL Mandate 

(Working Paper) (2019) (finding XBRL adoption 

levels the informational playing field between 

insiders and non-insiders); J. Efendi, J.D. Park, and 

C. Subramaniam, Does the XBRL Reporting Format 

Provide Incremental Information Value? A Study 

Using XBRL Disclosures During the Voluntary Filing 

Program, 52 Abacus 259 (2016) (finding XBRL 

filings have larger relative informational value than 

HTML filings); J. Birt, K. Muthusamy, and P. Bir, 

XBRL and the Qualitative Characteristics of Useful 

Financial Information, 30 Account. Res. J. 107 

(2017) (finding ‘‘financial information presented 

with XBRL tagging is significantly more relevant, 

understandable and comparable to non-professional 

investors’’); S.F. Cahan, S. Chang, W.Z. Siqueira, 

and K. Tam, The Roles of XBRL and Processed 

XBRL in 10–K Readability, J. Bus. Fin. Account. 

(2021) (finding Form 10–K file size reduces 

readability before XBRL’s adoption since 2012, but 

increases readability after XBRL adoption, 

indicating ‘‘more XBRL data improves users’ 

understanding of the financial statements’’). 

906See, e.g., P.A. Griffin, H.A. Hong, J.B. Kim, and 

J.H. Lim, The SEC’s XBRL Mandate and Credit Risk: 

Evidence on a Link between Credit Default Swap 

Pricing and XBRL Disclosure, 2014 American 

Accounting Association Annual Meeting (2014) 

(attributing the negative association between XBRL 

information and credit default swap spreads to ‘‘(i) 

a reduction in firm default risk from better outside 

monitoring and (ii) an increase in the quality of 

information about firm default risk from lower 

achieved, and details about any carbon 

offsets of RECs that have been used. 

For example, in 2019 Amazon and 

Global Optimism co-founded The 

Climate Pledge, a commitment to net 

zero carbon by 2040. Since then, a 

growing list of major companies and 

organizations have signed on to the 

Climate Pledge, which indicates a 

commitment to the following three 

principles: (i) Measure and report 

greenhouse gas emissions on a regular 

basis; (ii) Implement decarbonization 

strategies in line with the Paris 

Agreement; (iii) Neutralize any 

remaining emissions with additional 

offsets to achieve net zero annual carbon 

emissions by 2040.899 The proposed 

rules would help to make such 

commitments more transparent by 

requiring disclosure on the unit of 

measurement, time horizon, and 

baseline for measuring progress, 

including how that progress was 

achieved (e.g., through efficiency 

improvements, renewable energy 

adoption, materials reductions, and 

other carbon emission elimination 

strategies). 

Such standardized reporting as a form 

of an oversight or monitoring 

mechanism might be critical in 

overcoming agency problems in the 

presence of asymmetric information. 

Investment in achieving targets could be 

value-enhancing in the long-run, but 

reduce cash flow in the short-run. 

Companies may decide that it is an 

optimal strategy to bear the costs up 

front of shifting its operations to those 

that have fewer emissions or upgrading 

their equipment, rather than bearing the 

risk that these costs will be borne in an 

unpredictable and possibly disorderly 

way in the future. In the absence of a 

means to credibly convey that efforts to 

achieve these long-term targets are being 

undertaken diligently, however, 

investors might be unable to observe 

which registrants are actually following 

through on such actions. For example, 

if registrants are incurring costs in the 

short-run to undertake investments to 

reduce Scope 1, 2, and 3 emissions, 

reducing short-run profitability, but are 

unable to convey to investors that they 

are meaningfully following through on 

achieving potential long-term valueenhancing strategies, there could be a 

disincentive for investors to invest in 

the firm, thus undermining its value in 

the long-run. This has been put forth as 

one potential explanation for some 

private sector attempts at addressing 

these problems, such as green bonds, 

which commit firms to recurring, more 

standardized disclosure requirements 

for progress in achieving stated targets 

and goals.900 The proposed rules would 

provide enhanced transparency about 

targets and goals so that investors can 

identify registrants with credible goals 

and track their progress over time. This 

can not only reduce incentives for 

misleading goal disclosures, but can 

also allow investors to recognize goals 

that generate long-term value despite 

short run costs, which can attract capital 

and increase firm value. 

As explained above, the pursuit of 

targets could have a material impact, 

either in the short-term or long-term, on 

a registrant’s operations or financial 

condition.901 At this time, however, 

there is little consistency with respect to 

the extent of disclosure and the relevant 

details concerning such climate-related 

targets and goals. This can result in 

insufficient information for investors’ 

monitoring or decision-making needs. 

The proposed disclosure could provide 

more comparable, consistent, and 

reliable metrics of any climate-related 

targets or goals. It would require a 

registrant to clearly define baselines for 

targets, the scope of activities and 

emissions covered by the target, the unit 

of measurement, the defined time 

horizon, and how progress is made 

towards the targets. For example, the 

disclosure would require the registrant 

to state whether or not the targets 

pertain to Scope 3 emissions. If targets 

do include Scope 3 emissions, 

disclosure of Scope 3 emission sources 

and amounts would be required so that 

investors would understand the scale 

and scope of changes the company 

would need to undertake, and thus the 

full financial impact of meeting the 

target.902 Such disclosures would also 

enable investors to monitor progress 

firm management has made and plans to 

make towards achieving climate-related 

targets or goals, assess the credibility of 

its goal, and evaluate the effectiveness 

of the company’s investments to achieve 

its goals. As described above, this 

required disclosure could make targets 

more credible and serves as an oversight 

or monitoring mechanism. 

h. Structured Data Requirement 

Under the proposed rules, the new 

climate-related disclosures would be 

tagged in the Inline XBRL structured 

data language. The provision requiring 

Inline XBRL tagging of climate-related 

disclosures would benefit investors by 

making those disclosures more readily 

available for aggregation, comparison, 

filtering, and other enhanced analytical 

methods.903 These benefits are expected 

to reduce search costs and substantially 

improve investors’ informationprocessing efficiency.904 XBRL 

requirements for public company 

financial statement disclosures have 

been observed to reduce informationprocessing costs, thereby decreasing 

information asymmetry and increasing 

transparency by incorporating more 

company-specific information into the 

financial markets.905 In addition, the 

proposed Inline XBRL requirement for 

the climate-related disclosures may 

further limit agency problems, as XBRL 

requirements for financial statement 

tagging have been observed to facilitate 

external monitoring of firms through the 

aforementioned reduction of 

information processing costs.906


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information cost’’); J.Z. Chen, H.A. Hong, J.B. Kim, 

and J.W. Ryou, Information Processing Costs and 

Corporate Tax Avoidance: Evidence from the SEC’s 

XBRL Mandate, 40 (2) J. Account Pub. Pol. (2021) 

(finding XBRL reporting decreases likelihood of 

firm tax avoidance, because ‘‘XBRL reporting 

reduces the cost of IRS monitoring in terms of 

information processing, which dampens managerial 

incentives to engage in tax avoidance behavior’’). 

907Additional information intermediaries that 

have used XBRL disclosures may include financial 

media, data aggregators and academic researchers. 

See, e.g., N. Trentmann, Companies Adjust 

Earnings for Covid–19 Costs, but Are They Still a 

One-Time Expense? The Wall Street Journal (2020), 

available at https://www.wsj.com/articles/ 

companies-adjust-earnings-for-covid-19-costs-butare-they-still-a-one-time-expense-11600939813 

(citing XBRL research software provider Calcbench 

as data source); Bloomberg Lists BSE XBRL Data, 

XBRL.org (2018), available at https://www.xbrl.org/ 

news/bloomberg-lists-bse-xbrl-data/; R. Hoitash, 

and U. Hoitash, Measuring Accounting Reporting 

Complexity with XBRL, 93 Account. Rev. 259–287 

(2018). See 2019 Pension Review First Take: Flat to 

Down, Goldman Sachs Asset Management (2020) 

(an example of asset manager use of XBRL data), 

available at https://www.gsam.com/content/dam/ 

gsam/pdfs/common/en/public/articles/2020/2019_

Pension_First_Take.pdf?sa=n&rd=n (citing XBRL 

research software provider Idaciti as a data source). 

908See, e.g., A.J. Felo, J.W. Kim, and J. Lim, Can 

XBRL Detailed Tagging of Footnotes Improve 

Financial Analysts’ Information Environment?, 28 

Int’l J. Account. Info. Sys. 45 (2018); Y. Huang, Y.G. 

Shan, and J.W. Yang., Information Processing Costs 

and Stock Price Informativeness: Evidence from the 

XBRL Mandate, 46 Aust. J. Mgmt., 110–131 (2020) 

(finding ‘‘a significant increase of analyst forecast 

accuracy post-XBRL’’); M. Kirk, J. Vincent, and D. 

Williams, From Print to Practice: XBRL Extension 

Use and Analyst Forecast Properties (Working 

Paper 2016) (finding ‘‘the general trend in forecast 

accuracy post-XBRL adoption is positive’’); C. Liu, 

T. Wang, and L.J. Yao, XBRL’s Impact on Analyst 

Forecast Behavior: An Empirical Study, 33 J. 

Account. Pub. Pol. 69–82 (2014) (finding 

‘‘mandatory XBRL adoption has led to a significant 

improvement in both the quantity and quality of 

information, as measured by analyst following and 

forecast accuracy’’). But see S.L. Lambert, K. 

Krieger, and N. Mauck, Analysts’ Forecasts 

Timeliness and Accuracy Post-XBRL, 27 Int’l. J. 

Account. Info. Mgmt. 151–188 (2019) (finding 

significant increases in frequency and speed of 

analyst forecast announcements, but no significant 

increase in analyst forecast accuracy post-XBRL). 

909See, e.g., A. Lawrence, J. Ryans, and E. Sun, 

Investor Demand for Sell-Side Research, 92 

Account. Rev. 123–149 (2017) (finding the ‘‘average 

retail investor appears to rely on analysts to 

interpret financial reporting information rather than 

read the actual filing’’); D. Bradley, J. Clarke, S. Lee, 

and C. Ornthanalai, Are Analysts’ 

Recommendations Informative? Intraday Evidence 

on the Impact of Time Stamp Delays, 69 J. Finance 

645–673 (2014) (concluding ‘‘analyst 

recommendation revisions are the most important 

and influential information disclosure channel 

examined’’). 

910For example, these costs may include the 

revelation of trade secrets, the disclosure of 

profitable customers and markets, or the exposure 

of operating weakness to competing firms, unions, 

regulators, investors, customers or suppliers. These 

costs are commonly referred to as ‘‘proprietary 

costs.’’ 

911See Paperwork Reduction Act, Public Law 

104–13, 109 Stat 163 (1995) (codified at 44 U.S.C. 

3501 et seq.). See infra Section V. 

912The following estimates are applicable to 

registrants filing form 10–K that have no existing 

climate-related disclosure processes or expertise. 

All estimates are rounded to the nearest $5,000. 

Investors with access to XBRL 

analysis software may directly benefit 

from the availability of the climaterelated disclosures in Inline XBRL, 

whereas other investors may indirectly 

benefit from the processing of Inline 

XBRL disclosures by asset managers and 

by information intermediaries such as 

financial analysts.907 In that regard, 

XBRL requirements for public company 

financial statement disclosures have 

been observed to increase the number of 

companies followed by analysts, 

decrease analyst forecast dispersion, 

and, in some cases, improve analyst 

forecast accuracy.908 Should similar 

impacts on the analysts’ informational 

environment arise from climate-related 

disclosure tagging requirements, this 

would likely benefit retail investors, 

who have generally been observed to 

rely on analysts’ interpretation of 

financial disclosures rather than directly 

analyzing those disclosures 

themselves.909

2. Costs 

Below we discuss the anticipated 

direct and indirect costs of the proposed 

rules. Direct costs would include 

compliance burdens for registrants in 

their efforts to meet the new disclosure 

requirements. These direct costs could 

potentially be significant; however, the 

incremental costs would be lower to the 

extent that registrants already provide 

the required disclosures. Indirect costs 

may include heightened litigation risk 

and the potential disclosure of 

proprietary information.910 We proceed 

by discussing these various costs. 

a. Direct Costs 

The primary direct costs that the 

proposed rules would impose on 

registrants are compliance costs. To the 

extent that they are not already 

gathering the information required to be 

disclosed under the proposed rules, 

registrants may need to re-allocate inhouse personnel, hire additional staff, 

and/or secure third-party consultancy 

services. Registrants may also need to 

conduct climate-related risk 

assessments, collect information or data, 

measure emissions (or, with respect to 

Scope 3 emissions, gather data from 

relevant upstream and downstream 

entities), integrate new software or 

reporting systems, seek legal counsel, 

and obtain assurance on applicable 

disclosures (i.e., Scopes 1 and 2 

emissions). In addition, even if a 

registrant already gathers and reports 

the required information, some or all of 

this information may be in locations 

outside of SEC filings (such as 

sustainability reports posted on 

company websites or emissions data 

reported to the EPA). These registrants 

may face lower incremental costs by 

virtue of already having the necessary 

processes and systems in place to 

generate such disclosures; however they 

may still incur some additional costs 

associated with preparing this 

information for inclusion in SEC filings. 

(1) General Cost Estimates 

In this section, we review sources that 

provide insight into the magnitude of 

the potential costs associated with the 

proposed rules. With some exceptions 

discussed in further detail, these 

sources provide information at the level 

of general costs for climate disclosures. 

We acknowledge that these sources are 

limited in scope or representativeness 

and thus may not directly reflect 

registrants’ compliance costs. For 

instance, some third-party sources may 

present cost estimates that do not 

include all items required under the 

proposed rules (e.g., assurance costs), or 

else they may aggregate the costs of 

multiple items (including those not 

required under the proposed rules) into 

a single cost figure. However, these 

sources may serve as useful references 

to the extent that they overlap with 

specific disclosure elements required in 

the proposed rules. For example, thirdparty cost estimates of preparing TCFD 

reports or completing the CDP 

questionnaire can offer a rough 

approximation of potential compliance 

costs due to their similarity with the 

proposed rules. Below, we request 

further data to assist us in estimating 

potential costs. 

As discussed in Section V, for 

purposes of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’),911 we estimate the 

annual costs over the first six years of 

compliance with the proposed rules.912

For non-SRC registrants, the costs in the 

first year of compliance are estimated to 

be $640,000 ($180,000 for internal costs 

and $460,000 for outside professional 

costs), while annual costs in subsequent 

years are estimated to be $530,000 

($150,000 for internal costs and 

$380,000 for outside professional costs). 

For SRC registrants, the costs in the first 

year of compliance are estimated to be 

$490,000 ($140,000 for internal costs 

and $350,000 for outside professional 

costs), while annual costs in subsequent 

years are estimated to be $420,000 

($120,000 for internal costs and 

$300,000 for outside professional costs). 

These costs are expected to decrease 

over time for various reasons, including 

increased institutional knowledge, 


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913See memorandum, dated Feb. 4, 2022, 

concerning staff meeting with representatives of 

S&P Global. 

914This cost range pertains to clients’ use of the 

commenter’s ‘‘TCFD Suite’’, which consists of the 

following modules: Benchmarking/gap assessment, 

management interviews, physical risk assessment, 

and various transition risk assessments, including 

policy risk analysis, market risk assessment, 

technology risk assessment, and reputation risk 

assessment. This cost range excludes the cost of 

additional services, such as target-setting ($20,000 

to $30,000) and calculating GHG footprints ($75,000 

to $125,000 for Scopes 1, 2, and 3), the latter of 

which is discussed in further detail in the following 

subsection. 

915The commenter reports that should the TCFD 

requirements change based on new science, 

projections, and business changes, costs of the 

TCFD Suite in future years may range from 

$125,000 to $175,000. 

916See L. Reiners and K. Torrent, The Cost of 

Climate Disclosure: Three Case Studies on the Cost 

of Voluntary Climate-Related Disclosure, Climate 

Risk Disclosure Lab (2021), available at https://

climatedisclosurelab.duke.edu/wp-content/ 

uploads/2021/12/The-Cost-of-ClimateDisclosure.pdf. 

917 Incremental costs would be minimal to the 

extent that the mandatory disclosure rule overlaps 

with their current reporting practices. The 

respondents acknowledge that actual incremental 

costs would depend on the contents of the final 

rule. 

918The company allocates three employees to 

produce climate-related disclosures. Two 

employees in Legal and Compliance devote a 

combined 80 hours per year on this task, while one 

employee in Management and Administration 

devotes two hours per year. 

919The company reports that approximately onethird of these third-party costs is associated with 

designing the annual sustainability report and 

associated web page, while the remaining twothirds is associated with report writing and 

consulting work on the voluntary frameworks. 

920These annual costs reflect a larger scope of 

climate-related disclosures (e.g., multiple 

frameworks, sustainability report, etc.) relative to 

the initial cost, which is specific to TCFD reporting 

only. Nevertheless, because these estimates 

aggregate the costs of reporting under the TCFD in 

addition to other climate disclosure framework, 

these estimates can serve as an upper bound of 

what annual costs may be specific to TCFD 

reporting only. 

921 Internal costs include the cost of 

approximately 20 employees working part-time on 

climate-related disclosures from Nov. until Mar. 

and one full-time consultant. 

922Auditors review data quality and data 

collection procedures, while consultants help 

prepare substantive disclosures, advise on 

adherence to the voluntary climate disclosure 

frameworks, and prepare web updates. 923The company notes that the bulk of its annual 

costs comes from producing chapter 7 of its 

Universal Registration Document, issued under the 

EU’s Prospectus Regulation (Regulation (EU) 2017/ 

1129). Chapter 7 pertains to the extra-financial 

performance statement of the consolidated firm. 924See Letter from Society for Corporate 

Governance (June 11, 2021). 

operational efficiency, and competition 

within the market for relevant services. 

One commenter provided cost 

estimates for their services in assisting 

client companies prepare TCFD-aligned 

disclosures.913 For companies that have 

no prior experience in GHG analysis or 

climate-related disclosures, the 

commenter estimates initial costs to 

range from $150,000 to $200,000 to 

prepare TCFD-aligned disclosures.914

Companies that have already calculated 

their carbon footprints and only need 

assistance with TCFD reporting may 

expect costs of $50,000 to $200,000, 

with the average cost of approximately 

$100,000. Ongoing costs for their 

services are expected to be zero 

conditional upon the TCFD 

requirements remaining unchanged,915

however the reporting company may 

still incur internal costs in preparing 

these disclosures on an annual basis. 

Another source presents survey 

results of climate-related disclosure 

costs for three unnamed companies, 

which consist of a European-based 

multinational large-cap financial 

institution, a US-based large-cap 

industrial manufacturing company, and 

a US-based mid-cap waste management 

company.916 The survey reports that 

each firm has ‘‘already established 

robust in-house climate disclosure 

systems that can easily be leveraged to 

comply with any new disclosure rule,’’ 

as evidenced by their concurrent 

reporting under multiple climate 

disclosure frameworks (e.g., TCFD, CDP, 

SASB, GRI, etc.). The respondents 

indicate that anticipated incremental 

costs of a mandatory climate disclosure 

rule are therefore expected to be 

minimal.917 All respondents disclose 

Scopes 1, 2, and 3 emissions, while 

none of them obtain third-party 

assurance for their climate-related 

disclosures. 

The mid-cap waste management 

company estimates that the cost of 

producing their first TCFD report was 

less than $10,000. The company’s 

reported annual costs consist of 

employee costs ($12,600) 918 and thirdparty costs ($60,000 to $160,000).919

However, the reported annual costs may 

be less applicable to potential 

compliance costs as they combine 

additional costs associated with several 

other activities not necessarily required 

in the proposed rules, including its 

adherence to multiple climate 

disclosure frameworks (e.g., TCFD, GRI, 

SASB, and CDP) and designing its 

annual sustainability report and 

associated web page.920 Overall, the 

company reports that its total costs 

related to producing climate-related 

disclosures across these multiple 

frameworks are less than 5% of its total 

SEC compliance-related costs. 

The large-cap industrial 

manufacturing company reports that the 

costs of preparing its first CDP 

questionnaire was no more than 

$50,000. Additionally, the combined 

costs of producing its first TCFD, SASB, 

and GRI disclosures were between 

$200,000 and $350,000. Reported 

annual costs include internal costs 

(between $200,000 and $350,000) 921

and the cost for auditors and 

consultants ($400,000).922 These cost 

estimates, however, may overestimate 

potential compliance costs to the extent 

that they include disclosure items or 

activities not required in the proposed 

rules. The company reports that their 

annual costs of producing its voluntary 

climate-related disclosures are less than 

0.1% of their revenues. 

The multinational financial 

institution reports that the cost of 

producing its first TCFD report, SASB 

report, and CDP questionnaire were 

each less than $100,000 given that such 

information overlaps with what the 

company already discloses under the 

EU’s Prospectus Regulation (Regulation 

(EU) 2017/1129). The company 

estimates annual costs ranging from 

$250,000 and $500,000 to produce these 

disclosures, but as before, this range 

may combine the costs of activities that 

are not required in the proposed 

rules.923 Similar to the industrial 

manufacturing company, this company 

also notes that the annual costs of 

producing its voluntary climate-related 

disclosures are less than 0.1% of their 

revenues. 

Some commenters also provided 

estimates of climate-related disclosure 

costs for individual firms. One 

commenter provided a breakdown of 

such costs for seven unnamed large cap 

firms across six different industries.924

Headcount requirements ranged from 

two to 20 full-time equivalent 

employees. One large-cap firm in the 

energy industry reported that its TCFD 

reporting process involved 40 

employees and six months of nearly 

full-time participation by 20 core team 

members. Employee hours spent on 

climate reporting ranged from 7,500 to 

10,000 annually. Fees for external 

advisory services ranged from $50,000 

to $1.35 million annually, which 

generally included legal counsel and 

consulting services related to 

environmental engineering, emissions, 

climate science, modeling, or 

sustainability reporting. Another 

commenter, a Fortune 500 energy 

infrastructure firm, reported that it 

employs a full-time, management level 

director that spends about 25% of his 

time developing sustainability reports 

and other ESG initiatives. This 

commenter also reported that it pays a 

third-party consulting firm more than 


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925See Letter from Williams Companies, Inc. 

(June 12, 2021). 

926See U.K. Dep’t for Bus., Energy, & Indus. 

Strategy, Mandating Climate-Related Financial 

Disclosures by Publicly Quoted Companies, Large 

Private Companies and Limited Liability 

Partnerships (LLPs), Final Stage Impact Assessment 

(Oct. 1, 2021), available at https://assets.publishing.

service.gov.uk/government/uploads/system/ 

uploads/attachment_data/file/1029317/climaterelated-financial-disclosure-consultation-finalstage-impact-assessment.pdf (The UK’s climaterelated disclosure rules would apply to Relevant 

Public Interest Entities (PIEs), including Premium 

and Standard Listed Companies with over 500 

employees, UK registered companies with securities 

admitted to AiM with more than 500 employees, 

Limited Liability Partnership (LLPs) within the 

threshold of the ‘‘500 test,’’ and UK registered 

companies which are not included in the categories 

above and are within the threshold of the ‘‘500 

test.’’). 

927 In the final stage impact assessment, the cost 

estimate provided for familiarization costs assumes 

that scenario analysis is required. Because the 

proposed rules do not require scenario analysis, this 

number references familiarization costs provided in 

the initial impact assessment, which assumes no 

scenario analysis. See U.K. Dep’t for Bus., Energy, 

& Indus. Strategy, Mandating Climate-Related 

Financial Disclosures by Publicly Quoted 

Companies, Large Private Companies and Limited 

Liability Partnerships (LLPs), Consultation Impact 

Assessment (Jan. 29, 2021), available at https://

assets.publishing.service.gov.uk/government/ 

uploads/system/uploads/attachment_data/file/ 

972423/impact-assessment.pdf. 

928This number excludes the cost of scenario 

analysis since this is not required under the 

proposed rules. 

929We note that these numbers do not include the 

costs of measuring and reporting Scope 3 emissions 

since this is not required under the UK proposed 

rules. 

930These numbers have been converted from GBP 

based on the 2021 average exchange rate of $1.3757 

USD/GBP, rounded to the nearest $100. We note 

that the impact assessment also provides estimates 

of incremental costs associated with each 

subsidiary; however, these costs are not included in 

the estimates cited above for the sake of brevity. 

Signposting costs refer to the ‘‘additional annual 

cost to those in scope to upload the required 

reporting documentation and signposting to this 

documentation within their annual report.’’ 

931See supra note 783. Legal and audit fees are 

not included in these cost estimates. 932See memorandum, dated Jan. 21, 2022, 

concerning staff meeting with representatives of 

Ledger8760, available at https://www.sec.gov/ 

comments/s7-10-22/s71022.htm. 

$250,000 annually to assist in its ESG 

and sustainability report process.925

The UK’s Department for Business, 

Energy & Industrial Strategy, as part of 

its Green Finance Strategy, has released 

a final stage impact assessment (the ‘‘UK 

impact assessment’’) of their proposed 

rules that would also require certain 

TCFD-aligned disclosures from firms 

and asset managers listed on UK 

financial markets.926 The UK impact 

assessment provides a breakdown of 

estimated average compliance costs per 

affected entity. Under the assumption 

that affected entities have no preexisting climate-related disclosure 

practices or expertise, the UK impact 

assessment estimates that first-year onetime costs would include familiarization 

costs ($17,300 927 plus $2,600 per 

subsidiary, as applicable) and legal 

review ($4,400). They also estimate 

recurring annual governance disclosure 

costs ($12,500), strategy disclosure costs 

($17,900 928), risk management 

disclosure costs ($14,900), metrics and 

targets disclosure costs ($104,400 in the 

first year and $80,500 in subsequent 

years 929), internal audit costs ($30,300), 

and signposting costs ($100).930 For 

companies with subsidiaries, the costs 

of collecting information from 

subsidiaries and processing this 

information are expected to be $4,300 

for the parent company and $1,700 for 

each subsidiary. In total, the study 

estimates that a company with no preexisting climate-related disclosure 

practices or expertise could incur costs 

of $201,800 in the first year and 

$177,900 in subsequent years, plus 

additional costs due to subsidiaries, as 

applicable. This cost estimation 

methodology is conditional upon 

assumptions regarding the number of 

required staff, the rank or title of the 

staff, and the required labor hours, 

which are then matched with local wage 

data to estimate final costs. 

It is important to note that all of these 

cost estimates are conditional on 

specific assumptions and can vary 

significantly depending on firm 

characteristics, such as firm size, 

industry, business model, the 

complexity of the firm’s corporate 

structure, starting level of internal 

expertise, etc. In addition, we note that, 

in certain cases, these cost estimates 

may represent a registrant’s optimal 

response to investor demand, and thus 

may exceed the minimum cost 

necessary to fulfill mandatory reporting 

of climate-related risks. We are 

accordingly requesting comments 

regarding compliance costs, including 

cost data that can be used to generate 

more accurate, granular, and reliable 

cost estimates that are more 

representative of the full set of affected 

registrants. 

(2) Cost Estimates Specific to Emissions 

In this section, we review the 

available evidence, which provides 

some insight into the scope of the 

compliance costs associated with 

reporting GHG emissions. We are 

cognizant of the type of costs that 

registrants will incur to report GHG 

emissions, e.g. resources, systems, 

design and implementation of DCP, 

external consulting services. In light of 

the limited information available, 

however, we are unable to fully and 

accurately quantify these costs. 

Accordingly, we are requesting 

comments regarding cost data for GHG 

emissions reporting. 

One commenter reports that their 

services in calculating client companies’ 

GHG footprints (Scopes 1, 2, and 3 

emissions) would initially cost $75,000 

to $125,000 if the client company has no 

prior experience in this area.931 Ongoing 

costs amount to approximately $40,000 

assuming no material changes in Scope 

3 emissions (i.e., assess Scopes 1 and 2 

only). If there are material changes to 

Scope 3 emissions, ongoing costs would 

range from $75,000 to $125,000 (i.e., 

assess Scopes 1, 2, and 3). 

Another commenter, a climate 

management and accounting platform, 

provided cost estimates of the 

measurement and reporting of 

emissions. This commenter’s estimates 

are disaggregated across scopes of 

emissions as well as ‘‘low maturity’’ vs 

‘‘high maturity’’ companies with respect 

to emissions reporting. Low maturity 

companies are defined as those that 

have no formal understanding of GHG 

emission calculations and have no 

related policies or programs in place. 

Accordingly, these companies have not 

organized or collected any data for such 

a calculation. High maturity companies 

are defined as those that have the 

aforementioned understanding, policies, 

programs, and data. Therefore, high 

maturity companies are expected to face 

lower incremental costs. The 

commenter estimates that the average 

first-year startup cost of assessing 

Scopes 1 and 2 emissions amount to 

$45,000 and $25,000 for companies of 

low and high maturity, respectively. 

Including the assessment of Scope 3 

emissions would increase the costs by 

$80,000 and $25,000 for companies of 

low and high maturity, respectively. 

The commenter indicated that it expects 

these costs to decrease over time as 

software solutions simplify the process 

and reduce the burden on companies. 

Additional cost estimates are 

provided by another commenter, which 

is an organization that assists 

companies, communities, and other 

organizations in accurately assessing 

emissions data across all scopes of 

emissions.932 According to their pricing 

structure, initial one-time costs amount 

to $10,000, which includes identifying 

data input needs, developing the design 

and organization of user interfaces, 

establishing software and IT systems, 

and reporting emissions from prior 

years to the extent that historic data is 

available. Ongoing costs, which 

includes a subscription fee and data 

management fee, amount to $12,000 

plus $1,200 per building that is covered 


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933See memorandum, dated Jan. 14, 2022, 

concerning staff meeting with representatives of 

South Pole. These numbers have been converted 

from EUR based on the 2021 average exchange rate 

of $1.183 USD/EUR, rounded to the nearest $100. 

934See Section IV.A.3 for more information on 

the EPA mandatory Greenhouse Gas Reporting 

Program. 

935See EPA, Regulatory Impact Analysis for the 

Mandatory Reporting of Greenhouse Gas Emissions 

(Sept. 2009), available at https://www.epa.gov/sites/ 

default/files/2015-07/documents/regulatoryimpact

analysisghg.pdf. The EPA notes that several facility 

types do not currently report emissions (or the 

existence of such disclosure practices cannot be 

confirmed), therefore the cost estimates for these 

facility types reflect full start-up costs to meet the 

reporting requirements. 

936The EPA defines a small entity as (1) a small 

business, as defined by SBA’s regulations at 13 CFR 

part 121.201; (2) a small governmental jurisdiction 

that is a government of a city, county, town, school 

district, or special district with a population of less 

than 50,000; or (3) a small organization that is any 

not-for-profit enterprise that is independently 

owned and operated and is not dominant in its 

field. 

937See Letter from PCAF (Dec. 21, 2021). 

938The 18 survey respondents consist of 2 

insurance companies, 13 banks (commercial, 

investment, or development), 1 asset owner, and 2 

asset managers. Respondents’ asset size ranges from 

less than a $1bn USD to $500bn USD. The average 

assets covered by this disclosure activity was 

approximately $5–20bn USD. 

939 Data on audit fees is from Audit Analytics, 

which provides all fee data disclosed by SEC 

registrants in electronic filings since Jan. 1, 2000. 

940See R.J. Casey and J.H. Grenier, Understanding 

and Contributing to the Enigma of Corporate Social 

Responsibility (CSR) Assurance in the United 

States, 97 Auditing: A Journal of Practice & Theory 

130 (2015). 

941See Section IV.C.1.e for more information on 

how the proposed rules compare to the EPA’s 

emissions reporting requirements. 

942See Section IV.A.5.a. 

943E.g., Morningstar reports that over 35% of S&P 

500 revenues came from foreign markets, while this 

percentage is around 20% for the revenues coming 

from companies belonging to the Russell 2000 

index. See, https://www.morningstar.com/articles/ 

918437/your-us-equity-fund-is-more-global-thanyou-think. 

944See Section IV.A.4 for a discussion on 

International Disclosure Requirements. 

in the calculation of emissions. Another 

organization that offers similar services, 

among others, indicates that their fees 

for GHG accounting for Scopes 1, 2, and 

3 can range from $11,800 to 

$118,300.933 Their fees for applying the 

PCAF method on investment and 

lending portfolios range from $11,800 to 

$35,500. They note that the assessment 

process take approximately 1–3 months 

depending on the complexity and 

availability of data. 

The EPA has also sought to quantify 

the costs of measuring and reporting 

emissions in accordance with the 

mandatory Greenhouse Gas Reporting 

Program, which generally requires 

facility-level reporting of emissions 

from large emitters and from large 

suppliers of certain products (e.g., 

entities that produce gasoline that will 

eventually be consumed downstream by 

the end-user).934 The EPA estimated 

that the rule would impose small 

expected costs on the facilities under its 

purview. The EPA estimated that, for 

most sectors, the costs represent at most 

0.1% of sales.935 For small entities,936

the EPA estimated that the costs are on 

average less than 0.5% of sales. While 

the EPA’s emissions reporting 

requirements, as discussed above, may 

elicit some of the information required 

under our proposed rules, given that the 

requirements are different, the actual 

compliance costs would differ 

accordingly. 

A survey conducted by PCAF 

provides some estimates of the costs of 

assessing financed emissions.937

Financed emissions, which can be one 

component of Scope 3 emissions for 

certain financial institutions, can be 

described as the emissions generated by 

companies in which a financial 

institution invests or to which it 

otherwise has exposure. The PCAF 

survey of 18 unnamed financial 

institutions 938 found that typical staff 

time ranged between 50 and 100 days 

and the costs for contracting external 

support was less than $20,000 for the 

majority of respondents. These 

estimates may provide some sense of the 

costs that may be incurred by those 

financial institutions that would be 

required to report Scope 3 emissions 

under the proposed rules. 

(3) Cost Estimates of Assurance for 

Scopes 1 and 2 Emissions Disclosures 

Registrants that are accelerated filers 

and large accelerated filers will incur 

additional costs in obtaining assurance 

of Scopes 1 and 2 emissions disclosures. 

The Commission estimates these costs 

starting with data on these filers’ 

median audit fees in fiscal year 2020, 

which is $989,566 and $2,781,962 for 

accelerated filers and large accelerated 

filers, respectively.939 Next, an 

academic study suggests that assurance 

costs for sustainability reports (which 

serve as a common location for climaterelated information, in addition to other 

non-financial topics) may range from 

5% to 10% of total audit fees.940 We 

take the minimum, median, and 

maximum percentages (5%, 7.5%, and 

10%, respectively) and apply further 

adjustments based on (i) emissions 

disclosures typically compromising 

only a portion of CSR reports, (ii) the 

potential fee premium related to 

attestation report included in SEC 

filings, and (iii) the average pricing 

difference between limited and 

reasonable assurance. For limited 

assurance, we estimate that accelerated 

filers will incur costs ranging from 

$30,000 to $60,000 (with a median of 

$45,000), while large accelerated filers 

will incur costs ranging from $75,000 to 

$145,000 (with a median of $110,000). 

For reasonable assurance, we estimate 

that accelerated filers will incur costs 

ranging from $50,000 to $100,000 (with 

a median of $75,000), while large 

accelerated filers will incur costs 

ranging from $115,000 to $235,000 (with 

a median of $175,000). 

On the one hand, these estimates may 

underestimate actual costs as they are 

based on relative costs of assurance for 

financial statements, and assurance on 

emissions may differ in important ways. 

On the other hand, the costs may be 

lower in the future to the extent that the 

market for assurance services matures 

with respect to institutional knowledge, 

procedural efficiency, and overall 

competition. We request additional data 

that may assist in accurately assessing 

the costs of obtaining assurance over 

emissions disclosures. 

(4) Factors That Affect Direct Costs 

Incremental compliance costs may be 

relatively lower for registrants that 

already meet some of the disclosure and 

tagging requirements. For instance, 

registrants that are currently subject to 

the EPA’s Greenhouse Gas Reporting 

Program would face lower incremental 

costs in reporting certain scopes of 

emissions relative to a firm that has no 

emissions measurement systems in 

place.941 Similarly, registrants that 

already provide extensive qualitative 

disclosures on climate-related risks, 

which tend to be large accelerated filers 

and registrants in high emission 

industries,942 may face lower 

incremental costs in meeting certain 

disclosure requirements. As discussed 

in Section IV.A.5.a, the Commission’s 

staff reviewed 6,644 recent annual 

reports (Forms 10–K, 40–F, and 20–F) 

and found that 33% of them contained 

disclosures related to climate change, 

the majority of which discussed 

information related to business impact, 

emissions, international climate 

accords, and physical risks. Registrants 

with operations in foreign 

jurisdictions 943 where disclosure 

requirements are based on the TCFD’s 

framework for climate-related financial 

reporting, would also face lower 

incremental costs.944 Moreover, costs 

may also be mitigated by the proposed 

transition period, which would allow 

firms to more gradually transition to the 

new reporting regime. 

Several industry reports also 

document how a sizeable portion of U.S. 


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945See Letter from Mike Kreidler, Office of the 

Insurance Commissioner, State of Washington (June 

14, 2021). 

946For example, during fiscal year 2020, median 

audit fees as percentage of revenue for large 

accelerated filers and accelerated filers was 0.16%, 

while the corresponding figure for non-accelerated 

filers was 1.1%. 

947See supra note 760. See also discussion of the 

Commission staff’s review using climate-related 

keyword searches in Section IV.A.5.a. 

948Because higher proportional fixed costs for 

smaller firms may be particularly acute with respect 

to assessing Scope 3 emissions, the proposed rules 

exempt SRCs from providing Scope 3 emissions 

disclosures. Since SRCs are a small fraction of the 

market, the overall benefit to investors would not 

be as large as for non-SRCs, while avoiding high 

fixed costs that could put them at a potential 

competitive disadvantage. 

949An AICPA survey of 1,032 reporting 

companies with $75 million or less in market 

capitalization in 2018 found an average cost of 

$5,850 per year, a median cost of $2,500 per year, 

and a maximum cost of $51,500 per year for fully 

outsourced XBRL creation and filing, representing 

a 45% decline in average cost and a 69% decline 

in median cost since 2014. See M. Cohn, AICPA 

Sees 45% Drop in XBRL Costs for Small Companies, 

Accounting Today (Aug. 15, 2018) (stating that a 

2018 NASDAQ survey of 151 listed registrants 

found an average XBRL compliance cost of $20,000 

per quarter, a median XBRL compliance cost of 

$7,500 per quarter, and a maximum, XBRL 

compliance cost of $350,000 per quarter in XBRL 

costs per quarter), available at https://

www.accountingtoday.com/news/aicpa-sees-45- 

drop-in-xbrl-costs-for-small-reporting-companies 

(retrieved from Factiva database). See also Letter 

from Nasdaq, Inc., Mar. 21, 2019 to the Request for 

Comment on Earnings Releases and Quarterly 

Reports; Release No. 33–10588 (Dec. 18, 2018) 83 

FR 65601 (Dec. 21, 2018). 

950See 17 CFR 229.601(b)(101); 17 CFR 232.405 

(for requirements related to tagging financial 

statements (including footnotes and schedules) in 

Inline XBRL). See also 17 CFR 229.601(b)(104); 17 

CFR 232.406 for requirements related to tagging 

cover page disclosures in Inline XBRL. Beginning 

in 2024, filers of most fee-bearing forms will also 

be required to structure filing fee information in 

Inline XBRL, although the Commission will provide 

an optional web tool that will allow filers to 

provide those tagged disclosures without the use of 

Inline XBRL compliance services or software. See 

17 CFR 229.601(b)(108) and 17 CFR 232.408; Filing 

Fee Disclosure and Payment Methods 

Modernization, Release No. 33–10997 (Oct. 13, 

2021), 86 FR 70166 (Dec. 9, 2021). 

951See Section IV.A.5. 

companies report climate-related 

information under one or more thirdparty frameworks that are either fully or 

partially aligned with the TCFD 

disclosure elements. For example, the 

CCMC survey (G&A study) reports that 

among their sample of U.S. public 

companies, 44% (53%) use the SASB, 

31% (52%) use the GRI, 29% (30%) use 

the TCFD, and 24% (40%) use the CDP. 

Moody’s analytics provides a detailed 

view for a sample of 659 U.S. companies 

of the existing disclosure rate across the 

different TCFD disclosure elements that 

range from a high of 45% disclosure rate 

for Risks and Opportunities—Strategy 

(a), to a low of 5% for Risks and 

Opportunities—Strategy (c) (see Table 

4). Since the proposed rules are broadly 

consistent with the TCFD framework, 

we would expect lower incremental 

compliance costs for registrants that 

provide most or all disclosures 

according to the TCFD or related 

frameworks, including the CDP, which 

has fully integrated the TCFD disclosure 

elements into its disclosure 

questionnaire, and other frameworks 

and/or standards partly aligned with the 

TCFD recommendations. 

Similarly, registrants in the insurance 

industry may also face lower 

incremental costs due to their existing 

disclosure practices. As discussed in 

Section IV.A.3, a large subset of 

insurance firms are required to disclose 

their climate-related risk assessment 

and strategy via the NAIC Climate Risk 

Disclosure Survey. A comment by a 

state insurance commissioner stated that 

because this survey overlaps extensively 

with the TCFD recommendations, these 

firms should be able to easily switch to 

reporting via the TCFD disclosure 

framework.945 This is because the 

proposed rules are broadly consistent 

with the TCFD. We expect that 

registrants in the insurance industry 

may be able to adapt more easily to 

providing disclosure under these rules. 

Section IV.A.5.e reports survey 

evidence on the frequency with which 

firms obtain assurance in sustainability 

reports. This evidence suggests that a 

significant fraction of large companies 

already obtain some form, albeit limited, 

of assurance. To the extent that large 

accelerated filers and accelerated filers 

already voluntarily obtain some form of 

assurance over their GHG emissions, 

these registrants would face lower 

incremental costs associated with 

complying with the proposed rules’ 

assurance requirements. These 

registrants tend to bear proportionately 

lower compliance costs than smaller 

issuers due to the fixed cost components 

of such compliance.946 Additionally, as 

the market for assurance matures, the 

Commission staff expects these costs to 

decrease over time. 

Incremental costs may be higher for 

smaller firms considering that they are 

less likely to have climate-related 

disclosure systems and processes 

already in place.947 If smaller firms were 

to face higher proportional fixed costs in 

meeting the disclosure requirements, 

this may potentially put them at a 

competitive disadvantage to larger 

firms.948 Conversely, incremental costs 

for smaller firms may be lower to the 

extent that they have less complexity 

with respect to their assets and 

operations, which may allow them to 

assess climate-risk exposures or 

measure emissions at lower cost. 

With respect to the Inline XBRL 

tagging requirements, various 

preparation solutions have been 

developed and used by operating 

companies to fulfill their structuring 

requirements, and some evidence 

suggests that, for smaller companies, 

XBRL compliance costs have decreased 

over time.949 The incremental 

compliance costs associated with Inline 

XBRL tagging of climate-related 

disclosures would also be mitigated by 

the fact that filers that would be subject 

to the proposed requirements would 

also be subject to other Inline XBRL 

requirements for other disclosures in 

Commission filings, including financial 

statement and cover page disclosures in 

certain periodic reports and registration 

statements.950 As such, the proposal 

would not impose Inline XBRL 

compliance requirements on filers that 

would otherwise not be subject to such 

requirements, and filers may be able to 

leverage existing Inline XBRL 

preparation processes and/or expertise 

in complying with the proposed 

climate-related disclosure tagging 

requirements. 

We expect that the number of 

registrants committed to preparing 

climate-related disclosures will increase 

in the future, independently from our 

proposed rules. As discussed in Section 

IV.B.1, a sizeable and growing portion of 

global investors consider climate change 

as the leading issue driving their 

engagements with companies and is 

demanding robust disclosure around its 

impacts and the plan to mitigate 

climate-related risks. Consistent with 

this increasing demand for climaterelated information, recent trends 

showed an uptick in climate-related 

disclosures, particularly within samples 

of larger firms, though not necessarily 

through their regulatory filings.951

Furthermore, the market for related 

services (e.g., GHG accounting services, 

auditors, and other consultants, etc.) 

may become more competitive, driving 

down costs. To the extent that these 

trends continue in the future, we would 

expect that the incremental costs for 

complying with the proposed rules 

would become lower for an increasing 

number of firms. 

b. Indirect Costs 

In addition to the direct costs of 

preparing climate-related disclosures, 

the proposed rules could also lead to 

indirect costs. For example, the 

proposed rules may result in additional 

litigation risk since the proposed 

climate-related disclosures may be new 


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21444 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

952See supra note 841. 

953As previously noted, registrants would be able 

to use the existing safe harbors for forward-looking 

statements that were added to the Securities Act 

and Exchange Act pursuant to the PSLRA assuming 

all conditions of those safe harbor provisions are 

met. See supra note 219. 

954Compliance would be required in a registrant’s 

fiscal year ending no earlier than two years after the 

effective date of any adopted rules. An additional 

one year phase-in would be provided for registrants 

that are not large accelerated filers, while 

complying with Scope 3 emissions reporting would 

also be provided with an additional one year phasein. 

955Proprietary costs are generally relevant for 

reporting that involves information about a firms’ 

business operations or production processes and 

disclosures that are specific, detailed and processoriented. See, e.g., C. Leuz, A. Triantis, and T.Y. 

Wang, Why Do Firms Go Dark? Causes and 

Economic Consequences of Voluntary SEC 

Deregistrations, 45(2) Journal of Accounting and 

Economics 181–208 (2008); D.A. Bens, P. G. Berger, 

and S.J. Monahan, Discretionary Disclosure in 

Financial Reporting: An Examination Comparing 

Internal Firm Data to Externally Reported Segment 

Data, 86 (2) The Accounting Review 417–449 

(2011). 

956See Letter from Financial Executives 

International’s (FEI) Committee on Corporate 

Reporting (CCR) (June 10, 2021). 

957The assumption that first year’s costs are 

greater than subsequent years’ is consistent with the 

cost estimation models of the EPA’s Greenhouse 

Gas Reporting Program and the UK’s proposal of 

mandatory TCFD-aligned disclosure. 

958See Section IV.B.2.a.(4). 

959See supra note 806. 

960 Id. 

961TCFD, Status Report: Task Force on Climaterelated Financial Disclosures, (June 2019), available 

at https://www.fsb-tcfd.org/wp-content/uploads/

2019/06/2019-TCFD-Status-Report-FINAL053119.pdf. 

and unfamiliar to many registrants.952

The proposed rules would significantly 

expand the type and amount of 

information registrants are required to 

provide about climate-related risks. 

Registrants unfamiliar preparing these 

disclosures may face significant 

uncertainty and novel compliance 

challenges. To the extent this leads to 

inadvertent non-compliance, registrants 

may face additional exposure to 

litigation or enforcement action. 

However, certain factors may mitigate 

this concern. First, existing and 

proposed safe harbors 953 would provide 

protection from liability for certain 

statements by registrants, including 

projections regarding future impacts of 

climate-related risks on a registrant’s 

consolidated financial statements and 

climate-related targets and goals. 

Second, the proposed rules would 

include phase-in periods after the 

effective date to provide registrants with 

sufficient time to become familiar with 

and meet the proposed disclosure 

requirements.954

Another potential indirect cost is the 

possibility that certain provisions of the 

proposed rules may force registrants to 

disclose proprietary information.955

Under the proposed rules, registrants 

would be required to disclose a wide 

range of climate-related information, 

including potential impacts on its 

business operations or production 

processes, types and locations of its 

operations, products or services, supply 

chain and/or value chain. Registrants 

would be further required to disclose 

whether they have emissions-related 

targets and metrics or an internal carbon 

price, and if they do, what they are. To 

the extent that a registrant’s business 

model or strategy relies on the 

confidentiality of such information, the 

required disclosures may put the 

registrant at a competitive disadvantage. 

c. Other Cost Considerations 

Although the proposed rules may 

impose significant compliance costs, we 

expect these costs to decrease over time, 

both from firm-specific and market-wide 

contexts. From the firm-specific context, 

registrant disclosing climate-related 

information for the first time is likely to 

incur initial fixed costs to develop and 

implement the necessary processes and 

controls.956 Once the firm invests in the 

institutional knowledge and systems to 

prepare the disclosures, the procedural 

efficiency of these processes and 

controls should subsequently improve, 

leading to lower costs in following 

years.957

Establishing a framework for 

standardized climate-related disclosures 

could also reduce uncertainty for 

registrants over the specific content to 

disclose and could mitigate disclosure 

burdens to the extent that it reduces 

information requests from third parties. 

Before registrants can take any tangible 

steps toward preparing climate-related 

disclosures, they must first determine 

which specific climate-related 

discussions, metrics, and analyses are 

most appropriate to disclose—a process 

that, under the current regime, can 

involve significant uncertainty. 

Furthermore, the uncertain, complex, 

and multidimensional nature unique to 

climate-related risks, combined with the 

unpredictability of investor responses to 

such disclosures,958 can also make it 

costly for management to determine the 

risks which meet the materiality 

threshold. 

By implementing a standardized 

climate disclosure framework, the 

proposed rules could potentially reduce 

the burden that registrants may face in 

the environment of diverging voluntary 

frameworks and help clarify for 

registrants what they should disclose, 

where and when to make their 

disclosures, and what structure or 

methodology to use.959 While a more 

principles-based approach would 

provide additional flexibility for 

registrants, it also may impose certain 

costs if they are unsure of what climaterelated measures are needed to satisfy 

legal requirements. Such an approach 

could entail additional judgment on the 

part of management, or result in 

registrants erring on the side of caution 

in complex matters such as climaterelated disclosures. This could 

ultimately translate into spending more 

resources to determine appropriate 

compliance with the Commission’s 

applicable reporting standards. The 

proposed rules should provide legal 

certainty around climate-related 

disclosure and therefore mitigate the 

compliance burdens associated with the 

existing regulatory framework. 

Furthermore, some registrants 

currently receive multiple, diverse 

requests for climate-related information 

from different parties, such as investors, 

asset managers, and data service 

providers. Responding to such thirdparty request can be costly and 

inefficient 960 and may put significant 

and sometimes competing demands on 

registrants.961 A standardized climate 

disclosure framework could potentially 

reduce information requests from third 

parties to the extent that such requests 

overlap with the disclosures required 

under the proposed rules. We 

acknowledge, however, that registrants 

that currently use third-party 

frameworks to disclose climate-related 

information may incur certain costs of 

switching from their existing practice to 

our proposed disclosure framework. 

From a market-wide context, 

mandated climate disclosures may 

heighten demand for certain data or 

third-party services related to preparing 

the required disclosures, including 

assistance with the reporting of 

emissions data. In the short term, there 

could be a potential increase in the 

prices of such services to extent that the 

initial growth in demand exceeds the 

supply. In the long term, however, this 

heightened demand is expected to spur 

competition, innovation, and other 

economies of scale that could over time 

lower associated costs for such services 

and data and improve their availability. 

Moreover, the aggregate accumulation of 

institutional knowledge may lead to a 

broad convergence of disclosure-related 

best practices, which could further 

reduce the costs of the proposed 

disclosures. 

Overall, the market effects deriving 

from competition and innovation could 

enhance the efficiency and availability 

of relevant data and services, thereby 


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962See supra note 841. 

963A recent study by McKinsey found that 85% 

of investors either agreed or strongly agreed that 

‘‘more standardization of sustainability reporting’’ 

would help them allocate capital more effectively, 

and 83% either agreed or strongly agreed that it 

would help them manage risk more effectively. See 

Sara Bernow et al., More Than Values: The ValueBased Sustainability Reporting That Investors 

Want, McKinsey & Company (Aug. 7, 2019), 

available at https://www.mckinsey.com/∼/media/

McKinsey/Business%20Functions/Sustainability/

Our%20Insights/More%20than%20values%20The

%20value%20based%20sustainability

%20reporting%20that%20investors%20want/More

%20than%20values-VF.pdf. 

964See S. Kleimeier, and M. Viehs, Carbon 

Disclosure, Emission Levels, and the Cost of Debt, 

Emission Levels, and the Cost of Debt, SSRN (2018), 

available at https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=2719665. 

965See Lazard Climate Center (2021), available at 

https://www.lazard.com/media/451920/lazardclimate-center-presentation-december-2021.pdf. 

The report examined more than 16,000 companies 

from 2016 through 2020 and found that investors 

are actively and directly pricing some transition 

risk into valuations, however the effects vary 

significantly across different types of GHGs, market 

cap, and sectors. Large cap companies (≤$50 billion) 

experience greater valuation discounts, while big 

emitters, such as energy companies, showed the 

starkest correlation. On average, a 10% decrease in 

a large U.S. energy company’s emissions 

corresponded with a 3.9% increase in its price-toearnings ratio. 

966See supra note 850 (Jouvenout and Kruger, 

2021). 

967 Id. See also J. Grewal, E.J. Riedl, and G. 

Serafeim, Market Reaction to Mandatory 

Nonfinancial Disclosure, 65 (7) Management 

Science 3061–3084 (2019); See supra note 850 

(Bolton and Kacperczyk, 2020). The first paper in 

particular finds a negative aggregate stock market 

response to the passage of a mandatory ESG 

disclosure rules in the EU. These results, however, 

should be interpreted with caution. For one, the 

empirical design is based on matching, but there are 

reasons to believe that the treatment and control 

groups differ along important dimensions. Further, 

there is no event study plot, and results are not 

shown for cumulative abnormal returns after 

controlling for common risk factors like the FamaFrench 3-factor model. It is therefore difficult to 

discern whether the passage of the disclosure rules 

is actually driving the aggregate market response. 

968For example, the passage of disclosure rules 

may signal more stringent enforcement of emissions 

rules going forward, leading to an increase in the 

risk of regulation. Therefore, it is difficult to 

disentangle the pure effect of disclosure rules on 

stock performance and the cost of capital. 

969See H. Hong, F.W. Li, J. Xu. Climate Risks And 

Market Efficiency, 208.1 Journal of Econometrics 

265–28 (2019). 

970See, e.g., K. Alok, W. Xin, C. Zhang, Climate 

Sensitivity And Predictable Returns, available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=3331872. 

971See P. Krueger, Z. Sautner, L.T. Starks, The 

Importance of Climate Risks for Institutional 

Investors, 33(3) The Review of Financial Studies, 

1067–1111 (2020). 

972See, e.g., N. Bhattacharya, Y.J. Cho, J.B. Kim, 

Leveling the Playing Field Between Large and Small 

Institutions: Evidence from the SEC’s XBRL 

Mandate, 93(5) The Accounting Review 51–71 

(2018); B. Li, Z. Liu, W. Qiang, and B. Zhang, The 

Impact of XBRL Adoption on Local Bias: Evidence 

from Mandated U.S. Filers, 39(6) Journal of 

Accounting and Public Policy (2020); W. Sassi, H. 

Ben Othman, and K. Hussainey, The Impact of 

Mandatory Adoption of XBRL on Firm’s Stock 

Liquidity: A Cross-Country Study, 19(2) Journal of 

Financial Reporting and Accounting 299–324 

Continued 

lowering costs. These positive 

externalities from standard reporting 

practices can provide additional marketwide cost savings to the extent that they 

reduce duplicative effort in the 

production and acquisition of 

information.962

D. Anticipated Effects on Efficiency, 

Competition, and Capital Formation 

1. Efficiency 

As discussed in Section IV.B.2, the 

complexity, uncertainty, and long-term 

nature of climate risks make it unlikely 

that voluntary disclosure of such risks 

would be fully revealing. Therefore, as 

detailed in Section IV.C.1, mandating 

that climate-related disclosures be 

presented in a comparable and 

consistent manner and in a machinereadable language (Inline XBRL) is 

likely to enhance the information 

environment for investors. In doing so, 

the proposed rules are expected to 

improve market efficiency and price 

discovery by enabling climate-related 

information to be more fully 

incorporated into asset prices. Improved 

efficiency could inform the flow of 

capital and allow climate-related risks 

to be borne by those who are most 

willing and able to bear them.963

These expected improvements in 

market efficiency are broadly consistent 

with empirical research. If climaterelated information is relevant for asset 

prices, and therefore market efficiency, 

then the effective disclosure of climaterelated information would be expected 

to cause differential asset price/ 

financing cost responses across firms 

and settings. Empirical evidence is 

largely consistent with this expectation. 

Academic studies have found evidence 

that among firms that voluntarily report 

emissions via the CDP questionnaire, 

those with higher emissions (relative to 

their size and industry peers) pay higher 

loan spreads.964 A recent report from 

Lazard Ltd. also found a significant 

relationship between carbon dioxide 

emissions and a company’s price-toearnings ratio.965 Even in settings with 

mandatory disclosure, evidence is 

consistent with abnormally positive 

stock returns on announcement date for 

low-emitters and negative returns for 

high-emitters.966

While the disclosure of climaterelated information can improve market 

efficiency, investor response to such 

disclosures can vary depending on 

specific circumstances, thereby 

highlighting the limitations of the 

aforementioned studies.967 For example, 

if increased disclosure causes investors 

to realize that their portfolios are more 

exposed to climate risk than previously 

known, valuations may fall and costs of 

capital may increase as investors 

reallocate capital to balance this risk. 

Further, aggregate pricing effects could 

also be due to a better understanding of 

future regulatory risks firms face.968

Studies find, however, that cumulative 

abnormal stock returns around the 

announcement date are negatively 

correlated with firms’ mandatorily 

disclosed emission levels. This 

consistent with mandatory reporting of 

climate-related information improving 

price discovery and market efficiency. 

Empirical research has also 

documented evidence of market 

inefficiencies with respect to climaterelated risks. For example, one study 

finds that stock prices of food 

companies (i.e. food processing and 

agricultural companies) may exhibit 

mispricing with respect to drought 

exposure.969 The study documents that 

drought-exposed firms report reduced 

future profitability, indicating that 

drought exposure is a financial risk. In 

an efficient market, this risk should 

result in trading activity that decreases 

the current stock price and increases the 

expected return (to compensate 

investors for bearing this risk). The 

study, however, finds that droughtexposed firms deliver lower future 

returns relative to firms with less 

exposure, suggesting that the market 

initially under-reacts to drought 

exposure. In other words, the market 

may fail to sufficiently incorporate the 

risk of drought exposure into the current 

stock price, resulting in investors 

holding mispriced assets and bearing 

risk for which they are not appropriately 

compensated. Another study finds, 

through similar reasoning, that stock 

prices may exhibit mispricing with 

respect to temperature changes induced 

by climate change.970 According to 

survey evidence of global institutional 

investors, respondents believe that 

equity valuations do not fully reflect 

climate-related risks.971 Mandatory 

disclosures may help address these 

inefficiencies as it would provide 

investors with the information 

necessary to better incorporate climaterelated risks into asset prices. 

These capital market benefits can be 

further strengthened by the requirement 

to tag the climate-related disclosures in 

Inline XBRL, as XBRL requirements 

have been observed to reduce 

informational advantages of informed 

traders, increase stock liquidity, and 

reduce cost of capital.972 These benefits 


lotter on DSK11XQN23PROD with PROPOSALS3
21446 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

(2021); C. Ra and H. Lee, XBRL Adoption, 

Information Asymmetry, Cost of Capital, and 

Reporting Lags, 10 IBusiness, 93–118 (2018); S.C. 

Lai, Y.S. Lin, Y.H. Lin, and H.W. Huang, XBRL 

Adoption and Cost of Debt, International Journal of 

Accounting & Information Management (2015); Y. 

Cong, J. Hao, and L. Zou, The Impact of XBRL 

Reporting on Market Efficiency, 28(2) Journal of 

Information Systems 181–207 (2014). 

973Systemic risk refers to the risk of a breakdown 

of an entire system, rather than simply the failure 

of individual parts. In a financial context, 

systematic risk denotes the risk of a cascading 

failure in the financial sector, caused by linkages 

within the financial system, resulting in a severe 

economic downturn. 

974See Facts + Statistics: Global Catastrophes, 

Insurance Information Institute, available at https:// 

www.iii.org/fact-statistic/facts-statistics-globalcatastrophes. 

975The Office of the Comptroller of the Currency 

(OCC) recently requested feedback on draft 

principles designed to support the identification 

and management of climate-related financial risks 

at OCC-regulated institutions with more than $100 

billion in total consolidated assets. See Principles 

for Climate-Related Financial Risk Management for 

Large Banks, Office of the Comptroller of the 

Currency (2021), available at https://occ.gov/newsissuances/news-releases/2021/nr-occ-2021-138.

html?source=email. 

976 Gregg Gelzinis and Graham Steele, Climate 

Change Threatens the Stability of the Financial 

System, Center for American Progress (Nov. 21, 

2019, 12:01 a.m.), available at https://

www.americanprogress.org/issues/economy/ 

reports/2019/11/21/477190/climate-changethreatens-stability-financial-system. 

977See The Availability Of Data with Which to 

Monitor and Assess Climate-Related Risks to 

Financial Stability, The Financial Stability Board 

(‘‘FSB’’) (July 7, 2021) (stating that the availability 

of data with which to monitor and assess climaterelated risks to financial stability), available at 

https://www.fsb.org/2021/07/the-availability-ofdata-with-which-to-monitor-and-assess-climaterelated-risks-to-financial-stability/. 

978The Implications of Climate Change for 

Financial Stability, FSB, available at https://

www.iii.org/fact-statistic/facts-statistics-globalcatastrophes (2021). 

979Physical risks can have immediate and direct 

effects on asset values, but they also present longterm indirect risks. By damaging assets that serve 

as collateral for loans or that underpin other 

investments, reducing property values, increasing 

insurance premiums or decreasing insurance 

coverage, diminishing agricultural capacity, and 

causing labor forces to migrate, the physical 

consequences of climate change could have 

profound and long term effects on financial markets 

more generally. See Jonathan Woetzel et al., Climate 

Risk and Response: Physical Hazards and 

Socioeconomic Impacts, McKinsey Global Institute 

(Jan. 2020), available at https://www.mckinsey.com/ 

business-functions/sustainability/our-insights/ 

climate-risk-and-response-physical-hazards-andsocioeconomic-impacts. 

980A recent report by an advisory committee to 

the Commodity Futures Trading Commission 

(CFTC) concluded that ‘‘climate change poses a 

major risk to the stability of the U.S. financial 

system and to its ability to sustain the American 

economy.’’ See Report of the Climate-Related 

Market Risk Subcommittee, Market Risk Advisory 

Committee of the U.S. Commodity Futures Trading 

Commission, Managing Climate Risk in the U.S. 

Financial System (2020). The Office of the 

Comptroller of the Currency (OCC) has identified 

the effects of climate change and the transition to 

a low carbon economy as presenting emerging risks 

to banks and the financial system. See, e.g., 

Semiannual Risk Perspective, 2–4 (Fall 2021), 

available at https://www.occ.treas.gov/publicationsand-resources/publications/semiannual-riskperspective/files/pub-semiannual-risk-perspectivefall-2021.pdf. 

981See The Availability Of Data with Which to 

Monitor and Assess Climate-Related Risks to 

Financial Stability, (July 7, 2021) (stating that the 

availability of data with which to monitor and 

assess climate-related risks to financial stability), 

available at https://www.fsb.org/2021/07/theavailability-of-data-with-which-to-monitor-andassess-climate-related-risks-to-financial-stability/. 

may also have valuation implications. 

The discounted cash flow model 

illustrates how, all else equal, a drop in 

the cost of capital leads to a boost in 

equity valuation, which can further 

benefit investors. 

There are also important efficiency 

implications in relation to systemic 

risks.973 The increasing frequency and 

severity of climate events can 

potentially lead to destabilizing losses 

for insurance companies,974 banks,975

and other financial intermediaries with 

direct and indirect exposures to 

different affected industries and assets. 

Some commentators state that, in 

addition to physical risks, the financial 

system could be destabilized also by 

potentially rapid and unexpected losses 

to carbon-intensive assets caused by a 

disorderly transition to a low-carbon 

economy or a shift in the market’s 

perception of climate risks.976 With 

insufficient and inconsistent 

disclosures, asset prices may not fully 

reflect climate-related risks. 

Consequently, market participants may 

inadvertently accumulate large 

exposures to such risks, leaving them 

vulnerable to considerable unexpected 

and potentially sudden losses.977

In the face of such losses, financial 

intermediaries may be forced to sell off 

assets at fire-sale prices to generate 

enough cash to pay claims or to 

otherwise meet the time-sensitive cash 

demands of creditors and 

counterparties. This fire-sale dynamic 

could push down asset prices as well as 

the value of firms holding similar assets 

due to mark-to-market losses, 

potentially increasing risk premia and 

correlations across asset classes.978

Stress from large, complex, and 

interconnected financial institutions, or 

correlated stress across smaller market 

participants, could be transmitted and 

propagate through the financial 

system,979 causing disruptions in the 

provision of financial services.980 A 

more efficient allocation of capital 

brought about the disclosure required by 

the proposed rules could reduce the 

probability and magnitude of disorderly 

price corrections or dislocations, 

thereby strengthening financial system 

resilience.981

2. Competition 

The provisions included in the 

proposed rules are expected to increase 

comparability among registrants by 

demanding climate-related information 

in a consistent manner and with 

machine-readable data language (Inline 

XBRL). More standardized climate 

reporting could improve competition 

among registrants as it could reduce 

their costs for both producing such 

information due to enhanced 

efficiencies of scale across the economy 

and the cost for acquiring and 

processing said information by 

investors. 

As discussed in Section IV.C.2, 

positive externalities from standard 

reporting practices can provide marketwide cost savings to registrants in the 

long-term, to the extent that they reduce 

duplicative effort in registrants’ 

production and acquisition of 

information (e.g. certain data or thirdparty services related to preparing the 

required disclosures, including the 

reporting of emissions data, may 

become cheaper in the long run as the 

heightened demand spur competition, 

innovation, and other economies of 

scale). These cost savings could be 

particularly helpful for smaller 

registrants, or those that are capital 

constrained, which otherwise may not 

be able to provide the same amount, or 

level of detail, of climate-related 

disclosures as registrants with greater 

resources. 

More standardized reporting should 

also reduce investors’ costs for acquiring 

and processing climate-related 

information by facilitating investors’ 

analysis of a registrant’s disclosure and 

assessing its climate-related risks 

against those of its competitors. The 

placement of climate-related 

information in SEC filings with 

machine-readable data language (Inline 

XBRL), rather than external reports or 

company websites, should also make it 

easier for investors to find and compare 

this information. 

Overall, we expect that by 

standardizing reporting practices, the 

proposed rules would level the playing 

field among firms, making it easier for 

investors to assess the climate-related 

risks of a registrant against those of its 

competitors. The effects of peer 

benchmarking can contribute to 

increased competition for companies in 

search for capital both across and within 

industries, whereby firms can be more 

easily assessed and compared by 

investors against alternative options. 

Failure to implement the proposed 

rules could lead to an informational gap 

between U.S. registrants and companies 


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982See, https://www.morningstar.com/articles/ 

918437/your-us-equity-fund-is-more-global-thanyou-think. 

983See Section IV.B.2. 

984See D.W. Diamond and R.E. Verrecchia, 

Disclosure, Liquidity, and the Cost of Capital, 46 J. 

Fin.1325 (1991) (this study finds that revealing 

public information to reduce information 

asymmetry can reduce a firm’s cost of capital 

through increased liquidity); See also C. Leuz and 

R.E. Verrecchia, The Economic Consequences of 

Increased Disclosure, 38 J. Acct. Res. 91 (2000). 

Several studies provide both theoretical and 

empirical evidence of the link between information 

asymmetry and cost of capital. See, e.g., T.E. 

Copeland and D. Galai, Information Effects on the 

Bid-Ask Spread, 38 J. Fin. 1457 (1983) (proposing 

a theory of information effects on the bid-ask 

spread); D. Easley and M. O’Hara, Information and 

the Cost of Capital, 59 J. Fin. 1553 (2004) (This 

study shows that differences in the composition of 

information between public and private information 

affect the cost of capital, with investors demanding 

a higher return to hold stocks with greater private 

information.). 

985See R.E. Verrecchia, Essays on Disclosure, 

32(1–3) Journal of Accounting and Economics 97– 

180 (2001). 

986See supra note 841; See also D.W. Diamond 

and R.E. Verrecchia, Disclosure, Liquidity, and the 

Cost of Capital, 46(4) The Journal of Finance 1325– 

1359 (1991). 

987See J. Grewal, C. Hauptmann, and G. Serafeim, 

Material Sustainability Information and Stock Price 

Informativeness, Journal of Business Ethics 1–32 

(2020); M.E. Barth, S.F. Cahan, L. Chen, and E.R. 

Venter, Integrated Report Quality: Share Price 

Informativeness and Proprietary Costs, Socially 

Responsible Investment eJournal (2021). 

988See D.S. Dhaliwal et al., Voluntary 

Nonfinancial Disclosure and the Cost of Equity 

Capital: The Initiation of Corporate Social 

Responsibility Reporting, 86.1 The Accounting 

Review 59–100 (2011; S. Kleimeier, and M. Viehs, 

Carbon Disclosure, Emission Levels, and the Cost of 

Debt, Emission Levels, and the Cost of Debt (2018); 

E.M. Matsumura, R. Prakash, and S.C. Vera-Munoz. 

Climate Risk Materiality and Firm Risk, available at 

SSRN 2983977 (2020). 

989See B. Downar, J. Ernstberger, S. Reichelstein, 

S. Schwenen, and A. Zaklan, The Impact of Carbon 

Disclosure Mandates on Emissions and Financial 

Operating Performance, Review of Accounting 

Studies 1–39 (2021); S. Tomar, Greenhouse Gas 

Disclosure and Emissions Benchmarking (Working 

Paper) (2021), available at: https://papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=3448904; See supra 

note 850 (Jouvenout and Kruger, 2021). 

990See supra note 841. 

operating in foreign jurisdictions which 

require climate-related disclosures. For 

example, such a gap may increase 

investors’ uncertainty when assessing 

climate-related risks of U.S. registrants 

vis-a`-vis foreign competitors and place 

U.S. registrants at a competitive 

disadvantage, with the potential to deter 

investments and hence increase U.S. 

registrants’ cost of capital. This 

informational gap may also pose 

obstacles to U.S. companies transacting 

with counterparts and businesses in 

their supply-chain operating in foreign 

jurisdictions which require Scope 3 

emission disclosures. According to 

Morningstar, more than 35% of S&P 500 

firms’ total revenues came from foreign 

markets, while this percentage is around 

20% for the revenues of Russell 2000 

firms.982 Lack of standardized 

disclosures around Scope 1 and 2 GHG 

emission by U.S. companies, which may 

in part be due to the aforementioned 

impediments to voluntary disclosure,983

may obstruct foreign counterparts from 

accurately assessing their Scope 3 GHG 

emissions, thus putting U.S. registrants 

at a competitive disadvantage over other 

foreign companies which may be 

publicly disclosing such information. 

3. Capital Formation 

More consistent, comparable, and 

reliable disclosures could lead to 

capital-market benefits in the form of 

improved liquidity, lower costs of 

capital, and higher asset prices (or firm 

valuations).984 Enhanced disclosures 

(e.g., accurate GHG emissions 

disclosures) can reduce the time 

necessary for processing registrant’s 

relevant information, thus increasing 

efficiency for registrants in their access 

to capital and allowing the market to 

more efficiently assess its cost. These 

benefits would stem from reductions in 

information asymmetries brought about 

by the required disclosure of climaterelated information. More comparable, 

consistent, and reliable climate-related 

disclosures could reduce information 

asymmetries, both among investors and 

between firms and their investors. 

In the first case, less information 

asymmetry among investors could 

mitigate adverse selection problems by 

reducing the informational advantage of 

informed traders.985 This is likely to 

improve stock liquidity (i.e., narrower 

bid-ask spreads), which could attract 

more investors and reduce the cost of 

capital. In the second case, less 

information asymmetry between firms 

and their investors could allow 

investors to better estimate future cash 

flows, which could reduce investors’ 

uncertainty, as well as the risk premium 

they demand, thus lowering the costs of 

capital.986

Recent studies provide some 

supporting empirical evidence of these 

effects within the context of ESG- or 

climate-related disclosure. These 

studies have found that, when firms 

voluntarily provide material 

sustainability disclosures, they also 

experience improvements in liquidity 

(e.g. smaller bid-ask spreads).987 In 

addition, firms that choose to disclose 

emissions have lower costs of equity 

and loan spreads.988 While firms’ 

decisions about whether and when to 

disclose emissions data may be 

correlated with other factors as well 

asset prices/financing costs, this would 

be consistent with such disclosures 

reducing the costs of capital for firms (to 

the extent that some of these effects are 

driven by the disclosures themselves). 

E. Other Economic Effects 

The proposed rules may have some 

effects on firm behavior. Prior empirical 

evidence supports the notion that, in 

response to mandatory ESG-related 

disclosure rules, firms tend to report 

actions that appear more ‘‘favorable’’ 

with respect to the corresponding 

disclosures. These decisions would be 

made by a firm’s management with the 

goal of maximizing firm value in 

response to the new disclosure mandate. 

To the extent that these actions reduce 

firms’ exposures to physical and 

transition risks, this could lower the 

return that investors require for 

investing in these firms, hence 

facilitating capital formation. This could 

reduce volatility of stock returns due to 

enhanced resiliency against such risks. 

Empirical evidence shows that 

mandatory reporting of GHG emissions 

results in reduced aggregate reported 

emissions among affected firms.989

Academic research shows that 

mandatory ESG-related disclosure often 

contributes, not only to increased 

monitoring by investors or other 

stakeholders, but also to enhanced peer 

benchmarking by firms as they can more 

easily compare themselves with their 

competitors.990 These changes may 

reflect market responses by companies 

and investors to the newly disclosed 

information. Accordingly, registrants 

may change their behavior in response 

to the proposed disclosure requirements 

by reducing exposures to certain 

physical or transition risks. However, 

this could also come with the potential 

cost of lower productivity, profitability, 

or market share in the short-term. 

Registrants might respond to the 

proposed disclosures by devoting more 

resources to climate-related governance 

and risk management in an effort to 

address indirect effects on their 

business arising from the disclosures. 

For example, the proposed rules require 

disclosure of members of the board or 

management that have prior climate 

expertise. Some registrants may respond 

by giving more weight to climate 

expertise when searching for directors, 

which may lead them to deviate from 

the board composition that would have 

been in place absent the proposed rules. 

Similarly, the proposed rules would 

require disclosure on how climaterelated risks can impact registrants’ 

consolidated financial statements, 

among others. Registrants may respond 

by taking measures to minimize 


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991See supra note 841. 

992See Carlyle, Private Equity Industry’s FirstEver ESG Data Convergence Project Announces 

Milestone Commitment of Over 100 LPs and GPs 

(Jan. 28, 2022), available at https://www.carlyle.

com/media-room/news-release-archive/privateequity-industrys-first-ever-esg-data-convergenceproject-announces-over-100-lps-gps. 

negative impacts in order to put forth 

more favorable metrics. For example, 

registrants may move assets or 

operations away from geographic areas 

with higher physical risk exposures or 

may seek to decrease GHG emissions. 

The provision on GHG Emissions 

would also require scope 1, 2, and 3 (if 

material or the registrant has a set a 

target or goal for scope 3) emission 

disclosures. These emission disclosures 

may induce firms to use peer 

benchmarking to decide whether to 

investigate and reevaluate their energy 

usage 991 or otherwise reduce emissions 

based on anticipated market reactions to 

the disclosed information. This process 

may provide certain registrants with 

incentives to search for alternative 

energy sources or find different 

suppliers, which could increase costs. 

Conversely, it could also prompt certain 

firms to reduce nonessential activities 

and improve operational efficiency, 

which could lead to lower operating 

costs. 

The provision requiring assurance of 

GHG Scopes 1 and 2 emissions 

disclosures would only apply to 

accelerated filers. Non-accelerated filers 

would, instead, be required only to state 

whether any of their GHG emissions 

disclosures were subject to third-party 

assurance, and if so, at what level. By 

asking all registrants, including nonaccelerated filers, to disclose climaterelated information within SEC filings, 

however, the proposed rules may 

motivate more non-accelerated filers to 

voluntarily seek assurance over these 

types of disclosures, than if the same 

information had been disclosed on 

companies’ websites or sustainability 

reports. Certain non-accelerated filers 

may also voluntarily decide to attain 

assurance over their GHG emission 

disclosures in order to enhance their 

reliability and prevent these disclosures 

from being perceived by investors as 

less reliable compared to those provided 

by accelerated filers. 

As another example, the proposed 

rules would require the disclosure of the 

location (via ZIP code) of firm assets or 

operations, which could allow investors 

to assess firms’ exposures to physical 

risk at a more granular level. This may 

allow investors to more easily diversify 

these geographic-driven risks or expose 

themselves to such risks, if they choose 

to, more deliberately. This may cause 

some firms to relocate assets or 

operations to geographical areas less 

exposed to physical risks and/or give 

preferences to such areas for future 

business activity. It may also cause 

some firms with higher geographic 

exposures to physical risks to alter 

overall operational risk and strategies. 

The proposed rules might also affect 

the networks firms choose to operate in. 

For example, a firm may choose to 

change some suppliers or disengage 

with certain clients due to the effect that 

they may have on the firm’s Scope 3 

emissions. This may be particularly 

relevant for certain financial institutions 

that are impacted by their portfolio 

firms’ emissions or climate-related risks. 

These financial institutions may be less 

willing to extend credit to firms for 

which it is difficult to measure climate 

risk exposure information, potentially 

increasing the cost of capital for these 

firms. 

However, there are certain factors that 

may mitigate this effect. First, the 

proposed rules establish a phase-in 

period, which is intended to give 

financial institutions and their 

prospective borrowers sufficient time to 

prepare the required disclosures. 

Second, analytical tools, data, and 

related methodologies (such as those 

related to measuring/reporting GHG 

emissions) are developing rapidly and 

increasing in availability. Finally, 

frameworks like the PCAF to measure 

financed emissions would allow 

financial institutions to compute 

proxies for the emissions of their clients 

in a systematic and comparable manner 

even in the absence of actual emissions 

data. 

The proposed rules could also cause 

some firms to pursue avoidance 

strategies. The provision on Targets and 

Goals would require a registrant to 

disclose whether it has set any climaterelated targets or goals and the specific 

plans in place to achieve those 

objectives and metrics to monitor 

progress. This may disincentivize 

certain firms from making such 

commitments and providing the 

associated disclosures in SEC filings. 

Risk of litigation or enforcement actions, 

could result in registrants being more 

cautious in their decision to set climaterelated targets. Other firms, however, 

may find the existence of mandatory 

disclosures around climate-related 

targets and goals to be beneficial for 

signaling credible value-enhancing 

commitments to investors. More 

credible and standardized disclosures 

on climate-related targets and goals 

could make registrants’ communication 

more effective and facilitate investors’ 

understanding of related progress, hence 

providing additional incentives for 

making such commitments. 

More generally, if compliance costs 

with the proposed rules are high, this 

could influence the marginal firm’s 

decision to exit public markets or 

refrain from going public in the first 

place in order to circumvent the 

disclosure requirements. Firms may 

choose this strategy if they believe the 

potential compliance costs from the 

proposed rules outweigh the benefits of 

being registered public company. 

Uptake of this avoidance strategy may 

widen the transparency gap between 

public and private firms, negatively 

affecting capital markets’ information 

efficiency, and potentially reduce the 

size of the stock market. However, it is 

unlikely that a significant number of 

firms would pursue this avoidance 

strategy given that it would come with 

significant disadvantages, such as 

higher costs of capital, limited access to 

capital markets, and limits to their 

growth potential. Moreover, recent 

trends in private markets indicate that 

industry’s top leaders are working 

toward a standard set of metrics for 

tracking their portfolio companies’ ESG 

progress. The pressure on private 

companies to disclose information on 

climate-related risks is rapidly 

escalating within the private industry, 

hence diminishing the potential 

incentive for registrants to go private in 

order to avoid climate-related disclosure 

requirements. For example, since its 

launch in September 2021, the ESG Data 

Convergence Project, which seeks to 

standardize ESG metrics and provide a 

mechanism for comparative reporting 

for the private market industry, has 

announced a milestone commitment of 

over 100 leading general partners and 

limited partners to its partnership 

representing $8.7 trillion USD in AUM 

and over 1,400 underlying portfolio 

companies across the globe. The initial 

data for the project includes, among 

others, greenhouse gas emissions and 

renewable energy metrics.992

F. Reasonable Alternatives

1. Requirements Limited to Only Certain

Classes of Filers

One alternative would be to require 

the proposed disclosures only from 

larger registrants, such as large 

accelerated filers or non-SRCs. While 

the proposed rules already provide 

certain exemptions for SRCs (e.g., Scope 

3 emissions disclosures and assurance 

requirements), this alternative would 

exempt smaller registrants from the 

entirety of the proposed rules. The main 

benefit of this alternative is that it 


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993SASB research shows climate risk is nearly 

ubiquitous but highly differentiated across 77 

industries. See SASB Publishes Updated Climate 

Risk Technical Bulletin (Apr. 13, 2021), available at 

https://www.globenewswire.com/news-release/ 

2021/04/13/2208855/0/en/SASB-PublishesUpdated-Climate-Risk-Technical-Bulletin.html. 

would avoid imposing potentially 

significant compliance costs on smaller 

registrants, which are more likely to be 

resource-constrained. However, 

considering that SRCs make up 

approximately 50% of registrants (and 

registrants that are not large accelerated 

filers make up approximately 70%), this 

alternative would also considerably 

undermine one of the primary objectives 

of the proposed rules, which is to 

achieve consistent, comparable, and 

reliable disclosures of climate-related 

information. Furthermore, climaterelated risks are impacting or are 

expected to impact every sector of the 

economy,993 further highlighting the 

need for enhanced disclosures from all 

registrants. In an effort to arrive at an 

appropriate balance between these costs 

and benefits, the proposed rules exempt 

SRCs from some, but not all, disclosure 

requirements. 

2. Require Scenario Analysis 

Another alternative would be to 

require registrants to conduct scenario 

analysis and include the related 

information in their disclosures. 

Consistent, comparable, and reliable 

disclosures of scenario analysis could 

inform investors with respect to the 

resilience of registrants’ business 

strategies and operations across a range 

of plausible future climate scenarios. 

Disclosure of scenario analysis could 

deliver informational benefits to 

investors beyond that which would be 

provided under the proposed rules. It 

could help investors assess issues that 

have high uncertainty by evaluating the 

impact on and the resiliency of the 

registrant under multiple plausible 

future scenarios, such as a temperature 

increase of 1.5°C, 2°C, and 3°C above 

pre-industrial levels. It could also allow 

investors to proactively manage risk as 

they would be better able to assess the 

range of potential threats and 

opportunities, evaluate different 

management actions, and adapt 

accordingly. Furthermore, since some 

climate-related risks may only manifest 

over longer horizons, scenario analysis 

could assist investors in determining 

whether registrants have incorporated 

such risks into their long-term strategy. 

Investors could subsequently 

incorporate this information into asset 

prices, thereby more accurately pricing 

climate-related risks and contributing to 

market efficiency. 

Both scenario analysis methodologies 

and climate science, however, continue 

to advance and develop, which may 

pose significant challenges for some 

registrants. Specifically, the required 

data may be unavailable or costly to 

obtain. Furthermore, some registrants 

may lack the necessary expertise, 

requiring them to hire external 

consultants to conduct the analysis. 

These challenges may pose undue 

burdens with respect to difficulty and/ 

or costs to some registrants, such as 

smaller companies and those that 

otherwise have no prior experience in 

scenario analysis. For these reasons, the 

Commission is not proposing to 

mandate scenario analysis and related 

disclosure at this time. 

3. Require Specific External Protocol for 

GHG Emissions Disclosure 

Another alternative would be to 

require registrants to follow an external 

protocol (e.g., GHG protocol) for 

reporting emissions. Requiring a 

specific protocol may potentially benefit 

investors by providing a more consistent 

and comparable framework in reporting 

emissions, thus facilitating investors’ 

information processing. However, there 

also may be certain drawbacks. 

First, the organizational boundaries 

adopted by external protocols may 

create inconsistencies with the way 

companies would report information 

about their GHG emissions vis-a`-vis the 

rest of their financial statements. The 

GHG Protocol, for example, requires that 

a company base its organizational 

boundaries on either an equity share 

approach or a control approach, which 

may differ from the way registrants set 

their scope for the purpose of reporting 

information in their financial 

statements. The proposed rules would 

require a registrant to set the 

organizational boundaries for its GHG 

emissions disclosure using the same 

scope of entities, operations, assets, and 

other holdings as those included in its 

consolidated financial statements. 

Requiring a consistent scope of 

consolidation and reporting between 

financial data and GHG emissions data 

should help avoid potential investor 

confusion about the reporting scope 

used in determining a registrant’s GHG 

emissions and the reporting scope used 

for the financial statement metrics. 

Furthermore, requiring companies to 

follow a specific external protocol might 

limit flexibility for registrants and thus 

reduce their ability to report emissions 

in a manner that is tailored to their 

specific circumstances. For example, 

registrants following an existing but 

different protocol, which nevertheless 

provides relevant emissions 

information, would be required to 

switch protocols, incurring additional 

cost. 

Requiring compliance with a specific 

protocol could also reduce the scope for 

innovation in driving the most 

appropriate forms of disclosure within 

these overarching guidelines (e.g., the 

methodologies pertaining to the 

measurement of GHG emissions, 

particularly Scope 3 emissions, are still 

evolving). Additionally, requiring 

compliance with a specific external 

protocol as of the date of the adoption 

of any final rules may become 

problematic in the future to the extent 

that the external protocol’s 

methodologies shift or evolve such that 

the version incorporated by reference 

into the final rules becomes outdated or 

inconsistent with improving 

methodologies. While we expect that 

many registrants will choose to follow 

many of the standards and guidance 

provided by the GHG Protocol when 

calculating their GHG emissions, not 

requiring compliance with the GHG 

Protocol would provide some flexibility 

to the Commission’s climate-related 

disclosure regime and enable registrants 

to follow new and potentially less costly 

methodologies as they emerge. 

4. Permit GHG Emissions Disclosures To 

Be ‘‘Furnished’’ Instead of ‘‘Filed’’ 

Another alternative would be to 

permit Scopes 1, 2, and 3 emissions 

disclosures to be considered 

‘‘furnished’’ instead of ‘‘filed,’’ which 

may limit the incremental risk of being 

held liable under Section 18 of the 

Exchange Act for these disclosures. This 

may also benefit some registrants as 

their Scopes 1 and 2 emissions 

disclosures would not be automatically 

incorporated into Securities Act 

registration statements and thereby not 

be subject to Section 11 liability. We 

note that this could have a lower 

incremental impact on Scope 3 

emissions disclosures since Scope 3 

emissions disclosures are covered under 

a proposed safe harbor provision and 

hence already afforded other liability 

protections. However, reduced liability 

in general may lead to the applicable 

disclosures being perceived as less 

reliable by investors, which could have 

adverse effects on registrants’ stock 

liquidity or costs of capital. For these 

reasons, the Commission is not 

proposing to permit emissions 

disclosures to be furnished at this time. 

5. Do Not Require Scope 3 Emissions for 

Registrants With a Target or Goal 

Related to Scope 3 

Another alternative would be to not 

require Scope 3 emissions disclosures if 


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994See supra, note 888. 

995See supra, note 893. 

996See Section II.G.3 

997See AICPA, AU–C 940, An Audit of Internal 

Control Over Financial Reporting That Is Integrated 

With an Audit of Financial Statements (2021), 

available at https://www.aicpa.org/content/dam/ 

aicpa/research/standards/auditattest/downloadable

documents/au-c-00940.pdf. 998Potentially consistent with this, though in a 

different setting, academic evidence surrounding 

Section 404 of the Sarbanes-Oxley Act (SOX) finds 

lower accruals and discretionary accruals for small 

firms whose 2002 float (prior to when firms could 

have known and therefore tried to alter their float 

to avoid the regulation) made them likely to be just 

above the requirements for compliance, relative to 

those just below. Iliev, Peter (2010). The effect of 

SOX Section 404: Cost, earnings quality and stock 

prices. Journal of Finance, 65, 1163–1196. 

999Also potentially consistent with this, prior 

academic studies of Section 404 of SOX find 

significantly higher auditing fees, negative stock 

returns, and reduced innovation, though no clear 

evidence of a decline in investment, for marginally 

complying small firms near the float requirement 

threshold. See Iliev, Peter (2010). The effect of SOX 

Section 404: Cost, earnings quality and stock prices. 

Journal of Finance, 65, 1163–1196; Gao, Huasheng, 

and Jin Zhang (2019). SOX Section 404 and 

corporate innovation. Journal of Financial and 

Quantitative Analysis 54(2): 759–787; Albuquerque, 

Ana and Julie Lei Zhu (2019). Has Section 404 of 

the Sarbanes-Oxley Act discouraged corporate 

investment? New evidence from a natural 

experiment. Management Science 65(7): 3423–3446. 

such emissions are part of a target or 

goal from any registrant. This would 

allow certain registrants to avoid the 

potentially significant costs and 

difficulties associated with measuring 

and reporting Scope 3 emissions. This 

could potentially deprive investors of 

important information necessary to 

assess registrants’ exposures to certain 

risks associated with trying to achieve 

targets or transition plans. Scope 3 

emissions can provide investors with a 

more complete picture of how targets or 

transition plans might impact risks (e.g., 

future regulations restricting emissions 

or changes in market conditions that 

disfavor high emissions products or 

services) of the registrant through the 

value chain. This can be particularly 

important considering that Scope 3 

emissions can make up the vast majority 

of total emissions for many 

registrants.994 Furthermore, some firms 

can give the appearance of low (direct) 

emissions by shifting high-emission 

activities elsewhere in their value 

chain.995 Mandatory disclosure of Scope 

3 emissions for registrants with a target 

or goal related to Scope 3 emissions can 

help prevent such misrepresentation. 

6. Exempt EGCs From Scope 3 

Emissions Disclosure Requirements 

Another alternative would be to retain 

the exemption for SRCs, as currently 

proposed, but also extend it to EGCs. 

EGCs may similarly face resource 

constraints related to company size or 

age, hence this alternative would allow 

EGCs to avoid the costs of Scope 3 

emissions measurement and reporting. 

Given that the designations of SRC and 

EGC are not mutually exclusive, 

however, EGCs that are also SRCs would 

be covered under the exemption as 

currently proposed. Conversely, EGCs 

that are not SRCs are relatively less 

resource-constrained since they, by 

definition, have greater revenues and/or 

public float, and therefore may be better 

positioned to provide Scope 3 emissions 

disclosures. 

7. Eliminate Exemption for SRCs From 

Scope 3 Reporting 

Another alternative would be to 

eliminate the exemption for SRCs. 

Because SRCs make up approximately 

half of domestic filers in terms of 

numbers (though considerably less in 

terms of market cap), this alternative 

could address data gaps with respect to 

Scope 3 emissions, with the potential to 

benefit all investors. As discussed in 

Section II.G.3, however, this alternative 

may pose fixed costs (e.g. data gathering 

and verification), that would fall 

disproportionately on SRCs. Also, 

because SRCs are a small fraction of the 

market, the overall benefit to investors 

would be limited. 

8. Remove Safe Harbor for Scope 3 

Emissions Disclosures 

The proposed rules provide a safe 

harbor for Scope 3 emissions 

disclosures. An alternative would be to 

remove this safe harbor for Scope 3 

emissions disclosures. This alternative 

would strengthen accountability for 

Scope 3 emissions disclosures. It also 

would significantly increase registrants’ 

exposure to litigation over the accuracy 

of such disclosures. While rigorous 

liability in many contexts can provide 

incentives that promote reliable 

disclosures, an accommodation may be 

warranted for Scope 3 emissions due to 

the challenges associated with their 

measurement and disclosure.996

9. Require Large Accelerated Filers and 

Accelerated Filers To Provide a 

Management Assessment and To Obtain 

an Attestation Report Covering the 

Effectiveness of Controls Over GHG 

Emissions Disclosures 

The proposed rules would require 

assurance over Scopes 1 and 2 

emissions disclosure from large 

accelerated filers and accelerated filers. 

In addition to such assurance, we could 

require these filers to also obtain either 

a separate assessment by management 

and disclosure on the effectiveness of 

controls over GHG emissions 

disclosures or an attestation report 

specifically covering the effectiveness of 

controls over GHG emissions 

disclosures, or both. Specifically, 

management could be required to 

include a statement in the annual report 

on their responsibility for the design 

and evaluation of controls over GHG 

emission disclosures, as well as to 

disclose their conclusion regarding the 

effectiveness of controls over GHG 

emissions disclosures, in addition to the 

existing DCP evaluation and disclosure. 

In addition, we could require a GHG 

emissions attestation provider to obtain 

reasonable assurance on whether 

material weaknesses exist regarding 

management’s assessment of the 

effectiveness of controls over GHG 

emissions disclosures as of the 

measurement date. The GHG emissions 

attestation provider could also be 

required to issue an attestation report on 

the effectiveness of controls over GHG 

emissions disclosures.997

By requiring GHG emissions 

attestation providers to assess not just 

the disclosures, but also the controls 

over GHG emissions disclosures (i.e., 

the underlying mechanisms, rules, and 

procedures associated with generating 

such disclosures), this alternative could 

further strengthen the integrity of the 

disclosed information. In the context of 

emissions, GHG emissions attestation 

providers may evaluate and test the 

effectiveness of registrants’ controls 

related to the collection, calculation, 

estimation, and validation of GHG 

emissions data and disclosure. These 

processes could strengthen disclosure 

credibility as they reduce the likelihood 

of errors or fraud and their ensuing 

misstatements.998 Investors would 

benefit from any resulting improvement 

in disclosure reliability for reasons 

discussed in prior sections: It would 

allow investors to make better-informed 

investment decisions, allow applicable 

information to be better incorporated 

into asset prices, and contribute to a 

more efficient allocation of capital. 

Registrants may also benefit via reduced 

costs of capital and increased stock 

liquidity. 

However, this alternative would also 

impose additional assurance costs.999

Given that GHG emissions measurement 

and disclosure are developing areas, it 

is unclear what exact controls are or 

would be in effect, making it difficult to 

anticipate precisely what such 

attestation would entail. These 

uncertainties pose further difficulties in 

obtaining informative cost estimates 

and, accordingly, accurate assessments 

of how burdensome such a requirement 

would be to registrants. This leaves the 


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1000See, e.g., K. Hodge, K., N. Subramaniam, and 

J. Stewart, Assurance of Sustainability Reports: 

Impact on Report Users’ Confidence and 

Perceptions of Information Credibility, 19 

Australian Accounting Review 178–194 (2009), 

available at https://doi.org/10.1111/j.1835- 

2561.2009.00056.x; Mark Sheldon, User Perceptions 

of CSR Disclosure Credibility with Reasonable, 

Limited and Hybrid Assurances (Dissertation) 

(2016) available at https://vtechworks.lib.vt.edu/ 

bitstream/handle/10919/65158/Sheldon_MD_D_

2016.pdf. 

1001See C.H. Cho, G. Michelon, D.M. Patten, and 

R.W. Roberts, CSR report assurance in the USA: An 

empirical investigation of determinants and effects, 

5 (2) Sustainability Accounting, Management and 

Policy Journal 130, 130–148 (2014), available at 

https://doi.org/10.1108/SAMPJ-01-2014-0003. 

1002See Section IV.C.2.(3) for cost estimates of 

assurance over emissions disclosures. 

1003 Inline XBRL requirements for business 

development companies will take effect beginning 

Aug. 1, 2022 (for seasoned issuers) and Feb. 1, 2023 

(for all other issuers). If the proposed Inline XBRL 

requirements are adopted in the interim, they will 

not apply to business development companies prior 

to the aforementioned effectiveness dates. See supra 

note 706. 

possibility that the costs could outweigh 

the incremental benefits given that the 

proposed rules already require 

assurance for Scopes 1 and 2 emissions 

disclosures for applicable registrants. 

For these reasons, the Commission is 

not proposing at this time to require an 

attestation report on the effectiveness of 

controls over GHG emissions 

disclosures. 

10. Require Reasonable Assurance for 

Scopes 1 and 2 Emissions Disclosures 

From All Registrants 

Another alternative would be to 

require reasonable assurance for Scopes 

1 and 2 emissions disclosures from all 

registrants. As described above, 

requiring assurance can benefit 

investors in several ways, including 

enhanced reliability of disclosures, 

which would allow investors to make 

better-informed investment decisions 

However, because costs increase with 

the level of assurance, requiring 

reasonable assurance may be 

particularly burdensome for affected 

registrants (i.e., smaller firms) as they 

would be more likely to incur 

proportionately higher compliance costs 

due to the fixed cost components of 

such compliance, regardless of whether 

or not there is a transition period before 

this requirement takes effect. While the 

benefits of assurance could be 

approximately proportional to 

registrant’s market value, the costs are 

not. In an effort to arrive at an 

appropriate balance between these 

factors, the proposed rules would 

require reasonable assurance (after a 

specified transition period) only from 

large accelerated filers and accelerated 

filers because the benefits to investors 

are more likely to justify the costs for 

these firms. 

11. Require Limited, Not Reasonable, 

Assurance for Large Accelerated Filers 

and/or Accelerated Filers and/or Other 

Filers 

Obtaining reasonable assurance 

generally costs more than obtaining 

limited assurance. Current market 

practice appears to favor obtaining 

limited assurance over sustainability 

reports, if assurance is obtained at all. 

Experimental evidence suggests 

assurance (relative to none) may 

increase perceived reliability of 

sustainability reports, but is yet to 

provide evidence that reasonable 

assurance increases perceived reliability 

of sustainability reports relative to 

limited assurance.1000 We acknowledge, 

however, that experimental findings 

from lab settings may not necessarily 

reflect the behavior or preferences of 

experienced investors in actual financial 

markets. Furthermore, other research 

often exhibits a selection bias (i.e., 

companies that voluntarily decide to 

obtain a higher-than-required level of 

assurance are systematically different 

across several dimensions), making it 

difficult to determine the causal effect of 

the different levels of assurance.1001

One possibility to mitigate the 

additional costs of reasonable assurance 

would be to maintain the requirement 

that large accelerated filers obtain 

reasonable assurance, but allow 

accelerated filers to obtain limited 

assurance without any scaling up to a 

reasonable assurance. Another 

possibility would be to require limited 

assurance, but expand the assurance 

requirement to a broader scope of 

registrants including non-accelerated 

filers and smaller reporting companies. 

However, these possibilities have the 

disadvantage of lack of consistency, 

which could lead to confusion among 

investors. 

12. In Lieu of Requiring Assurance, 

Require Disclosure About Any 

Assurance Obtained Over GHG 

Emissions Disclosures 

Another alternative would be to 

require all registrants to disclose what 

type of assurance they are receiving, if 

any, in lieu of requiring assurance. This 

would potentially allow affected 

registrants to avoid the costs of 

obtaining limited assurance and/or 

reasonable assurance.1002 Additionally, 

registrants would have the flexibility to 

choose any level of assurance (i.e., none, 

limited, or reasonable assurance) but 

still be required to disclose their choice 

for transparency. This alternative, 

however, may reduce the reliability and 

comparability of these disclosures 

relative to the standardized assurance 

requirements within the proposed rules. 

In addition, as it does not set any 

minimum requirements for the 

assurance, this alternative would not 

address the fragmentation and selective 

disclosure issues that characterize the 

current, voluntary reporting regime. 

13. Permit Host Country Disclosure 

Frameworks 

Another alternative would be to 

permit alternative compliance using 

host country disclosure frameworks that 

the Commission deems suitable. Such 

an alternative would be beneficial for 

registrants that already comply with 

another country’s disclosure 

requirements since they could avoid 

incurring additional costs to comply 

with the Commission’s rules. This 

flexibility, however, may fail to address 

or may even exacerbate growing 

concerns from investors that climaterelated disclosures lack comparability 

and consistency. While it might be 

individually optimal for a given firm to 

use their existing host country 

disclosure frameworks, the potential 

lack of consistency and comparability of 

the disclosure between these firms and 

other registrant might impose costs on 

investors. Investors might not able to 

compare across firms using different 

disclosure presentations, or may have to 

incur additional costs in order to do so. 

14. Alternative Tagging Requirements 

With respect to Inline XBRL tagging, 

one alternative is to change the scope of 

disclosures required to be tagged. We 

could, for example, remove the tagging 

requirements for climate-related 

disclosures for all or a subset of 

registrants (such as smaller reporting 

companies). As another example, we 

could require only a subset of proposed 

climate-related disclosures, such as the 

quantitative climate-related metrics, to 

be tagged in Inline XBRL. Narrowing the 

scope of climate-related disclosures to 

be tagged could provide some 

incremental cost savings for registrants 

compared to the proposal, because 

incrementally less time would be 

required to select and review the 

particular tags to apply to the climaterelated disclosures. 

We expect this incremental cost 

savings to be low because all affected 

registrants are or in the near future will 

be required to tag certain of their 

disclosures (including both quantitative 

and qualitative disclosures) in Inline 

XBRL.1003 Moreover, narrowing the 

scope of tagging requirements would 


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1004To illustrate, using a search string such as 

‘‘climate change’’ or ‘‘greenhouse gas’’ to search 

through the text of all filings from a particular filer 

population so as to determine the trends in 

narrative climate-related disclosure among that 

population over time, could return many narrative 

disclosures outside of the climate-related 

disclosures. Examples of this would be a 

description of pending environmental litigation, 

existing government regulations and agency names, 

and broader regulatory risk factors. 

1005See R. Kaplan and K. Ramanna, How to Fix 

ESG Reporting (2021), available at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3900146. 

1006See 44 U.S.C. 3501 et seq. 

1007 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

1008The proposed amendments would also 

indirectly affect Forms S–3 and F–3. Registrants 

filing Forms S–3 and F–3 are able to incorporate by 

reference their annual reports filed on Forms 10– 

K or 20–F. Because the proposed amendments 

would affect Forms 10–K and 20–F, and are not 

expected to affect Forms S–3 and F–3 except when 

Forms 10–K and 20–F are incorporated by reference 

into those Securities Act forms, we are not 

separately accounting for the PRA burden related to 

Forms S–3 and F–3. 

diminish the extent of informational 

benefits that would accrue to investors 

by reducing the volume of climaterelated information that would become 

less costly to process and easier to 

compare across time and registrants. For 

example, an alternative whereby only 

quantitative climate-related disclosures 

would be tagged would inhibit investors 

from efficiently extracting/searching 

climate-related disclosures about 

registrants’ governance; strategy, 

business model, and outlook; risk 

management; and targets and goals, thus 

creating the need to manually run 

searches for these disclosures through 

entire documents.1004 Such an 

alternative would also inhibit the 

automatic comparison/redlining of these 

disclosures against prior periods, and 

the performance of targeted artificial 

intelligence or machine learning 

assessments (tonality, sentiment, risk 

words, etc.) of specific narrative 

climate-related disclosures outside the 

financial statements rather than the 

entire unstructured document. 

G. Request for Comment 

We request comment on all aspects of 

our economic analysis, including the 

potential costs and benefits of the 

proposed rules and alternatives thereto, 

and whether the proposed rules, if 

adopted, would promote efficiency, 

competition, and capital formation or 

have an impact on investor protection. 

In addition, we also seek comment on 

alternative approaches to the proposed 

rules and the associated costs and 

benefits of these approaches. 

Commenters are requested to provide 

empirical data, estimation 

methodologies, and other factual 

support for their views, in particular, on 

costs and benefits estimates. 

Specifically, we seek comment with 

respect to the following questions: 

• Are there any costs and benefits to 

any entity that are not identified or 

misidentified in the above analysis? 

• Are there any effects on efficiency, 

competition, and capital formation that 

are not identified or misidentified in the 

above analysis? 

• Are there any other alternative 

approaches to improving climate-related 

disclosure that we should consider? If 

so, what are they and what would be the 

associated costs or benefits of these 

alternative approaches? For example, 

what would be the costs and benefits of 

implementing a new, comprehensive 

system, for reporting and transferring 

GHG emissions across corporate supply 

and distribution chains, as described by 

Kaplan and Ramanna (2021)? 1005

• Are there any sources of data that 

could provide a more precise estimation 

of the potential compliance costs that 

registrants may incur if the proposed 

rules are adopted? 

• Have we accurately estimated the 

costs of disclosing Scope 1 and 2 

emissions? If not, please provide 

alternative estimates of these costs. 

• Have we accurately estimated the 

costs of disclosing Scope 3? If not, 

please provide alternative estimates of 

these costs. 

• Are there any additional sources of 

information to estimate the costs of 

complying with the Scopes 1, 2, and 3 

GHG emissions disclosure requirements 

and the costs of obtaining limited and 

reasonable assurance for these 

disclosures? 

• Would any data sources allow these 

compliance cost estimates to be 

apportioned to separate provisions of 

the proposed rules? Furthermore, how 

would these cost estimates vary across 

time horizons? For example, the first 

year of implementation may come with 

higher start-up costs while subsequent 

years may come with lower costs. 

• Have we accurately characterized 

the cost of limited assurance and 

reasonable assurance over Scopes 1 and 

2 emissions? If not, please provide an 

estimate of these costs. Similarly, is 

there data that can show how the costs 

of limited assurance and reasonable 

assurance differ for large accelerated, 

accelerated and non-accelerated filers? 

• How are the costs of obtaining 

limited assurance and reasonable 

assurance likely to change over time 

(e.g., over the five years following 

adoption or compliance with a specified 

level of assurance)? What would be the 

costs and benefits of providing a longer 

transition period for obtaining assurance 

over Scopes 1 and 2 emissions 

disclosures? 

V. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

Certain provisions of our rules and 

forms that would be affected by the 

proposed amendments contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).1006 The Commission is 

submitting the proposal to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.1007

The hours and costs associated with 

preparing and filing the forms and 

reports constitute reporting and cost 

burdens imposed by each collection of 

information. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information requirement unless it 

displays a currently valid OMB control 

number. Compliance with the 

information collections is mandatory. 

Responses to the information collections 

are not kept confidential and there is no 

mandatory retention period for the 

information disclosed. The titles for the 

affected collections of information are: 

• Form S–1 (OMB Control No. 3235– 

0065); 

• Form F–1 (OMB Control No. 3235– 

0258); 

• Form S–4 (OMB Control No. 3235– 

0324); 

• Form F–4 (OMB Control No. 3235– 

0325); 

• Form S–11 (OMB Control No. 3235– 

0067); 

• Form 10 (OMB Control No. 3235– 

0064); 

• Form 10–K (OMB Control No. 

3235–0063); 

• Form 10–Q (OMB Control No. 

3235–0070); 

• Form 20–F (OMB Control No. 3235– 

0288); and 

• Form 6–K (OMB Control No. 3235– 

0116).1008

The proposed amendments would 

require U.S. registrants filing Securities 

Act registration statements on Forms S– 

1, S–4, and S–11 to include the climaterelated disclosures required under 

proposed subpart 1500 of Regulation S– 

K and proposed Article 14 of Regulation 

S–X. The proposed amendments would 

also require foreign private issuers to 

include the proposed climate-related 

disclosures when filing Securities Act 

registration statements on Forms F–1 

and F–4. The proposed amendments 

would further require U.S. registrants 

and foreign private issuers to include 


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1009See letter from Society for Corporate 

Governance. 

1010See Climate Risk Disclosure Lab The Cost of 

Climate Disclosure: Three Case Studies on the Cost 

of Voluntary Climate-Related Disclosure (Dec. 

2021), available at https://climatedisclosurelab.

duke.edu/wp-content/uploads/2021/12/The-Costof-Climate-Disclosure.pdf. 

1011See UK Department for Business, Energy, and 

Industrial Strategy, Final Stage Impact Assessment 

(Oct. 1, 2021), available at https://assets.publishing.

service.gov.uk/government/uploads/system/ 

uploads/attachment_data/file/1029317/climaterelated-financial-disclosure-consultation-finalstage-impact-assessment.pdf; see also UK 

Department for Business, Energy, and Industrial 

Strategy, Initial Impact Assessment (Jan. 29, 2021), 

available at https://assets.publishing.service.gov.uk/ 

government/uploads/system/uploads/attachment_

data/file/972423/impact-assessment.pdf . The 

scope of the impact assessment included companies 

listed on the London Stock Exchange with over 500 

employees, UK registered companies admitted to 

AIM with over 500 employees, and certain other 

companies. 

1012See memorandum, dated Feb. 4, 2022, 

concerning staff meeting with representatives of 

S&P Global. This and the other staff memoranda 

referenced below are available at https://www-draft.

sec.gov/comments/s7-10-22/s71022.htm. 

1013See memorandum, dated Nov. 30, 2021, 

concerning staff meeting with representatives of 

Persefoni; and memorandum, dated Jan. 14, 2022, 

concerning staff meeting with representatives of 

South Pole. 

1014See supra Section I.B. 

1015See letter from Society for Corporate 

Governance. This commenter also stated that fees 

for external climate advisory services ranged from 

$50,000 to $1.35 million annually. 

1016 7,500 hrs. + 10,000 hrs. + 2,940 hrs. = 20,440 

hrs.; 20,440/3 = 6,813 hrs. 

1017See supra Section IV.C.2 for a more detailed 

discussion of these reported costs. 

1018 $250,000 + $500,000 = $750,000. $750,000/2 

= $375,000. 

1019This metric is based on a reported national 

annual average salary for a climate specialist of 

$114,463. See glassdoor, How much does a Climate 

Change Specialist make? (Dec. 2021), available at 

https://www.glassdoor.com/Salaries/climatechange-specialist-salary-SRCH_KO0,25.htm. 

$114,463/2080 hrs. = $55/hr. $375,000/$55/hr. = 

6,818 hrs. (rounded to nearest dollar). 

1020 $200,000 + $350,000 = $550,000. $550,000/2 

= $275,000. $275,000/$55/hr. = 5,000 hrs. 

1021 6,818 hrs. + 5,000 hrs. + 82 hrs. = 11,900 hrs.; 

11,900 hrs./3 = 3,967 hrs. 

1022Unlike this PRA analysis, which assumes that 

some of the paperwork burden will be borne by inhouse personnel and some by outside professionals, 

the UK Impact Assessment assumed that all of the 

work would be done by in-house personnel. 

1023The UK Impact Assessment’s estimated 

number of hours for each TCFD-aligned disclosure 

topic per company was: 225 hrs. for governance; 

295 hrs. for strategy; 245 hrs. for risk management; 

and (in Year 1) 2,227 hrs. for metrics and targets, 

which included one in-house climate-related expert 

working full-time. 

1024This estimate was 85 hrs. 

1025The primary difference between the Initial 

Impact Assessment and Final Impact Assessment 

concerned the estimated ‘‘familiarization’’ costs. 

The Final Impact Assessment assumed that the rule 

would require scenario analysis and added 

additional hours for in-house personnel to become 

familiar with scenario analysis methodology. 

Continued 

the proposed climate-related disclosures 

in their Exchange Act annual reports 

filed, respectively, on Forms 10–K and 

20–F and in Exchange Act registration 

statements filed, respectively, on Forms 

10 and 20–F. Registrants would be 

required to include the climate-related 

information required under proposed 

subpart 1500 in a part of the registration 

statement or annual report that is 

separately captioned as Climate-Related 

Disclosure. Registrants would be 

required to include the climate 

information required under Article 14 in 

a note to the financial statements, which 

would be subject to audit. Further, as 

described below, accelerated filers and 

large accelerated filers would be 

required to include an attestation report 

covering their Scopes 1 and 2 emissions 

disclosure, subject to phase-ins. In 

addition, U.S. registrants and foreign 

private issuers would be required to 

report material changes to the climate 

information disclosed in their Exchange 

Act reports on, respectively, Forms 10– 

Q and 6–K. A description of the 

proposed amendments, including the 

need for the climate information and its 

proposed use, as well as a description 

of the likely respondents, can be found 

in Section II above, and a discussion of 

the economic effects of the proposed 

amendments can be found in Section IV 

above. 

B. Summary of the Proposed 

Amendments’ Effects on the Collections 

of Information 

Our estimates of the paperwork 

burden associated with the proposed 

amendments are based primarily on 

climate-related reporting cost estimates 

from six sources: A comment letter from 

the Society for Corporate Governance 

(‘‘Society’’) that provided some hour 

and cost estimates for climate reporting 

by large-cap companies; 1009 a report by 

the Climate Risk Disclosure Lab at Duke 

University School of Law’s Global 

Financial Markets Center that presents 

survey results of climate-related 

disclosure costs for three unnamed 

companies; 1010 an impact assessment 

conducted by the United Kingdom’s 

Department for Business, Energy, and 

Industrial Strategy for a rule that, 

similar to the Commission’s proposed 

rules, would require TCFD-aligned 

disclosures from all listed firms; 1011

two cost estimates from a data analytics 

firm—one that covered primarily risk 

assessment and analysis pursuant to the 

TCFD framework, and the other for 

calculating GHG emissions; 1012 and cost 

estimates for GHG emissions 

measurement and reporting from two 

climate management firms.1013

In response to Acting Chair Lee’s 

request for public input about climate 

disclosures,1014 Society submitted the 

results of a survey it had conducted on 

a small number of public large-cap 

companies about the costs of their 

current climate reporting. According to 

this commenter, two companies 

estimated that the number of employee 

hours spent on climate reporting ranged 

from 7,500 to 10,000 annually, while a 

third company estimated the number of 

annual employee hours spent on climate 

reporting to be 2,940 hours.1015 The 

average annual employee hours spent 

on climate reporting for these large-cap 

companies was 6,813 hours.1016

The Climate Risk Disclosure Lab’s 

report presents the results of its survey 

of one European large-cap financial 

institution, one US large-cap industrial 

manufacturing company, and one US 

mid-cap waste management company 

about their climate-related disclosure 

costs.1017 The European financial 

institution reported annual climaterelated disclosure costs ranging from 

$250,000 to $500,000, which averages to 

$375,000 annually.1018 For PRA 

purposes, we have converted this dollar 

cost average to 6,818 burden hours 

using a metric of $55/hour.1019 The US 

industrial manufacturing company 

disclosed annual climate-related 

disclosure costs for its employees and 

one full-time consultant ranging from 

$200,000 to $350,000, which averages to 

$275,000 annually. We have similarly 

converted this dollar cost average to 

5,000 burden hours.1020 The US waste 

management company reported that its 

employees spent 82 hours annually to 

produce its climate-related disclosures. 

The average annual internal burden 

hours spent on climate reporting for 

these three companies comes to 3,967 

hours.1021

The UK Impact Assessment estimated 

on an ongoing, annual basis the number 

of hours and costs that it would take inhouse personnel 1022 to gather data and 

prepare and provide disclosure for each 

of the following TCFD-aligned topics: 

Governance, strategy, risk management, 

and metrics and targets.1023 The impact 

assessment also estimated on an annual, 

ongoing basis the number of hours and 

costs that it would take a parent 

company’s personnel to collect and 

process climate-related data from its 

subsidiaries.1024 The impact assessment 

further estimated on a one-time basis 

the number of hours and costs that it 

would take in-house personnel to 

become familiar with and review the 

new climate-related reporting 

requirements and related guidance.1025


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Because our proposed rules do not require scenario 

analysis, we are using the familiarization estimate 

of the Initial Impact Assessment (323 hrs.) when 

totaling the estimated hours required to comply 

with the UK’s proposed climate disclosure rules. 

We have added to the familiarization estimate the 

number of hours (77 hrs.) that the Final Impact 

Assessment estimated for the one-time legal review 

of the new climate disclosure requirements by inhouse personnel. 

1026 400 hrs. (familiarization and review) + 195 

hrs. (governance) + 295 hrs. (strategy) + 245 hrs. 

(risk management) + 2,227 hrs. (metrics and targets) 

+ 85 hrs. (parent co. processing) = 3,447 hrs. For 

purposes of the PRA, we have allocated 

approximately half of the hours pertaining to 

familiarization and review and parent company 

processing between the qualitative TCFD-aligned 

disclosure and the GHG emissions metrics and 

targets disclosure. This results in 977.5 hrs. 

allocated to the qualitative TCFD-aligned disclosure 

and 2,469.5 hrs. allocated to the GHG emissions 

metrics and targets disclosure. 

1027See memorandum concerning staff meeting 

with representatives of S&P Global. $150,000 + 

$200,000 = $350,000; $350,000/2 = $175,000. 

1028See id. 

1029 $175,000 + $100,000 = $275,000; $275,000/2 

= $137,500. 

1030 $137,500/$55/hr. = 2,500 hrs. 

1031See memorandum concerning staff meeting 

with representatives of S&P Global. Although the 

proposed rules would require the disclosure of a 

registrant’s Scope 3 emissions only if they are 

material, this cost estimate is relevant for 

determining the upper bound of the proposed rules’ 

estimated PRA burden. 

1032 $75,000 + $125,000 = $200,000; $200,000/2 = 

$100,000. 

1033Although the proposed rules would not 

require a registrant to set GHG emissions targets, 

they would require certain disclosures if the 

registrant does set targets. We have therefore 

included S&P Global’s cost estimate for targets for 

purposes of determining the upper bound of the 

proposed rules’ estimated PRA burden. However, 

because setting targets would be voluntary under 

the proposed rules, the estimated PRA burden may 

overstate the potential burden. 

1034 $125,000/$55/hr. = 2,273 hrs. 

1035 2,500 hrs. + 2,273 hrs. = 4,773 hrs. 

1036See memorandum concerning staff meeting 

with representatives of Persefoni. $50,000 + 

$125,000 = $175,000; $175,000/2 = $87,500; 

$87,500/$55/hr. = 1,591 hrs. 

1037See memorandum concerning staff meeting 

with representatives of South Pole. $11,800 + 

$118,300 = $130,100; $130,100/2 = $65,050; 

$65,050/$55/hr. = 1,183 hrs. 

1038See supra note 1033 (2,469.5 hrs./3,447 hrs. 

= 72 percent). 

1039See supra note 1042 (2,273 hrs./4,773 hrs. = 

48 percent). 

1040For the Society for Corporate Governancederived estimate, this results in 3,406.5 hrs. for each 

of the qualitative TCFD-aligned disclosure and the 

GHG emissions metrics and targets disclosure. For 

the Climate Lab-derived burden estimate, this 

results in 1,983.5 burden hrs. for each of the 

qualitative and quantitative disclosures. 

1041 3,406.5 hrs. (Society) + 1,983.5 hrs. (Climate 

Lab) + 977.5 hrs. (UK) +2,500 hrs. (S&P Global) = 

8,867.5 hrs.; 8,867.5/4 = 2,217 hrs. (rounded to the 

nearest whole number). 

1042 3,406.5 hrs. (Society) + 1,983.5 hrs. (Climate 

Lab) + 2,469.5 hrs. (UK) + 2,273 hrs. (S&P Global) 

+ 1,591 hrs. (Persefoni) + 1,183 hrs. (South Pole) = 

12,906.5 hrs.; 12,906.5 hrs./6 = 2,151 hrs. 

The total number of hours that the 

Impact Assessment estimated it would 

take a company to comply with the 

TCFD-aligned disclosure requirements 

in the first year came to 3,447 hours, of 

which 977.5 hours pertained to 

qualitative, TCFD-aligned disclosure 

and 2,469.5 hours pertained to GHG 

emissions metrics and targets 

disclosure.1026

We also have considered cost 

estimates from S&P Global, a data 

analytics firm that provides ESG 

consulting services, including climaterelated data collection and analysis, 

among other services. This firm 

provided one cost estimate for preparing 

TCFD-aligned disclosures primarily 

covering physical risk and transition 

risk assessment and analysis, which, for 

a company lacking any experience in 

climate reporting, ranged from $150,000 

to $200,000 (an average of $175,000) in 

the first year of reporting.1027 For a 

company with prior experience in GHG 

emissions reporting but requiring 

assistance with TCFD-aligned reporting, 

the firm estimated average costs of 

$100,000.1028 This results in an average 

cost estimate for all companies for 

TCFD-aligned disclosures, excluding 

GHG emissions calculation and 

reporting, of $137,500 in the first year 

of TCFD-aligned reporting.1029 For PRA 

purposes, we have converted this dollar 

cost average to 2,500 burden hours.1030

This data analytics firm provided a 

separate cost estimate for calculating a 

company’s Scopes 1, 2, and 3 

emissions.1031 For the initial calculation 

of a company’s GHG emissions, 

including all three scopes, the cost 

estimate ranged from $75,000 to 

$125,000 (an average of $100,000).1032

The firm also estimated that the setting 

and reporting of GHG emissions targets 

would on average add an additional 

$25,000, resulting in an average firstyear cost estimate for GHG emissions 

metrics and targets of $125,000.1033 For 

PRA purposes, we have converted this 

dollar cost average to 2,273 burden 

hours.1034 This results in a total 

incremental burden increase (for both 

TCFD-aligned disclosures and GHG 

emissions calculation) in the first year 

of climate-related reporting of 4,773 

burden hours.1035

We also considered the cost estimates 

for GHG emissions measurement and 

reporting provided by two climate 

management firms, Persefoni and South 

Pole. Persefoni estimated that, 

depending on the maturity of a 

company’s emissions reporting program, 

a company’s average first-year costs for 

measuring and reporting Scopes 1, 2, 

and 3 emissions ranged from $50,000 to 

$125,000, which averages to $87,500, or 

1,591 hours.1036 South Pole estimated 

annual costs for measuring and 

reporting Scopes 1, 2 and 3 emissions as 

ranging from $11,800 to $118,300, 

which averages to $65,050, or 1,183 

hours.1037

The UK Impact Assessment estimated 

that the calculation and reporting of 

GHG emissions metrics and related 

targets would take the greatest amount 

of time, constituting approximately 72 

percent of the total incremental 

burden.1038 The data analytics firm, 

however, estimated that GHG emissions 

metrics and targets would constitute 

approximately 48 percent of the total 

incremental burden.1039 The burden 

estimates provided by the abovereferenced commenter and Climate Lab 

did not allocate between GHG emissions 

and non-GHG emissions climate 

reporting. For purposes of the PRA, we 

have allocated the burden estimates 

from the commenter and Climate Lab 

equally between the qualitative TCFDaligned disclosure and the GHG 

emissions metrics and targets 

disclosure.1040

Based on the above sources, we 

estimate that the proposed qualitative 

TCFD-aligned disclosures would result 

in an average incremental burden hour 

increase of 2,217 hrs. for each affected 

collection of information for the first 

year of climate reporting.1041 We 

estimate that the proposed GHG 

emissions metrics and targets disclosure 

would result in an average incremental 

burden hour increase of 2,151 hours for 

each affected collection of information 

for the first year of reporting.1042

In addition to GHG emissions metrics, 

the proposed rules would require the 

disclosure of certain climate-related 

financial statement metrics. Although 

the TCFD recommends the disclosure of 

metrics pertaining to the financial 

impacts of climate-related events and 

conditions, it is unclear whether the 

above sources’ burden estimates for 

TCFD-aligned disclosure would include 

financial statement metrics. Based on 

staff experience reviewing financial 

statements, we estimate that preparation 

of the financial statements to present the 

proposed financial statement metrics 

would require 70 additional burden 

hours per filing. To ensure that our PRA 

estimates cover the burden associated 

with the proposed climate-related 

financial statement metrics, we have 

included this amount, in addition to the 

burden estimate for GHG emissions 

metrics and targets, in the estimated 

overall PRA burden of the proposed 

rules. 

The proposed rules would require a 

registrant to present the climate-related 

financial statement metrics and 

associated disclosures in a note to its 


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1043This belief is based on post-implementation 

review observations and activities from accounting 

standards that provided further disaggregation of 

information and that are analogous to the proposed 

financial statement metrics requirements, as 

discussed supra Section II.F.2.a (e.g., segment 

reporting and disaggregation of revenue). See 

FASB’s post-implementation review report on 

FASB Statement No. 131, Disclosures about 

Segments of an Enterprise and Related Information 

(Dec. 2012), 11, (‘‘Preparers’ incremental costs to 

implement and comply with Statement 131 

generally were not significant and were in line with 

expectations’’), available at https://www.accounting

foundation.org/cs/Satellite?c=Document_C&

cid=1176160621900&pagename=

Foundation%2FDocument_C%2FDocumentPage. 

See also FASB’s Board Meeting Handout, postimplementation review of Topic 606, Revenue with 

Contracts with Customers Our (July 28, 2021) 

(While the post-implementation review is still 

ongoing, most users agreed that the disaggregated 

[revenue] disclosure is helpful (par. 16) and users 

noted that although they incurred costs to become 

familiar with the new standard, update models, or 

maintain dual models during the transition period, 

most of those costs were nonrecurring. For users 

that are generalists or that cover sectors that did not 

have significant changes to revenue recognition 

measurement or timing under Topic 606, the costs 

were not significant. (par. 20), available at https:// 

www.fasb.org/cs/ContentServer?c=Document_C&

cid=1176176976563&d=&pagename=

FASB%2FDocument_C%2FDocumentPage. 

1044The staff estimated a range of 0.5% to 2.5%, 

which averages to 1.5%. 

1045This is based on staff review of Audit 

Analytics data for 2020. 

1046Based on staff review of filings made in 2020, 

large accelerated filers filed approximately 31% of 

domestic forms and approximately 37% of Form 

20–Fs in 2020. For PRA purposes, we have used 

37% as a proxy for the percentage of all foreign 

private issuer forms filed by large accelerated filers 

in 2020. 

1047Based on staff review of filings made in 2020, 

accelerated filers filed approximately 11% of 

domestic forms and 15% of Form 20–Fs in 2020. 

1048See supra Section IV.C.2.a.3. for the basis of 

this limited assurance cost estimate. 

1049See id. 

1050 In order to capture three years of the cost of 

a reasonable assurance attestation report required 

for accelerated filers and large accelerated filers, 

which requirement does not commence until the 

fourth fiscal year following the proposed rules’ 

compliance date, we have used a six-year average 

when calculating the estimated paperwork burden 

effects of the proposed rules. 

1051 0 + $110,000 + $110,000 + $175,000 + 

$175,000 + $175,000 = $745,000; $745,000/6 = 

$124,167. 

1052See supra Section IV.C.2.a.3. for the basis of 

this limited assurance cost estimate. 

1053See id. 

1054 0 + $45,000 + $45,000 + $75,000 + $75,000 

+ $75,000 = $315,000; $315,000/6 = $52,500. 

1055See proposed 17 CFR 229.1505(e). 

1056S&P Global estimated a similar reduction in 

costs in subsequent years, the magnitude of which 

depends on the extent of material changes to the 

TCFD-aligned disclosure and the GHG emissions 

metrics. 

financial statements, which would be 

audited. Because the audit of such 

information would be part of the 

registrant’s overall audit of its financial 

statements, we expect the incremental 

audit costs associated with these 

climate-related financial statement 

metrics and disclosures to be 

modest.1043 We are conservatively 

estimating that auditing the note 

pertaining to the climate-related 

financial statement metrics and 

associated disclosures would add audit 

fees of $15,000 to the overall costs 

associated with the audit of the 

registrant’s financial statements. We 

derived this estimate by first estimating 

costs as an average percentage of total 

audit fees (1.5%) 1044 and then applying 

that percentage to median audit fees of 

$690,000,1045 which results in $10,350. 

To be conservative, we have increased 

this amount to $15,000 for estimated 

audit fees. We believe that this estimate 

represents the average cost of the 

incremental efforts that may be 

incurred, taking into consideration 

factors such as the scale and complexity 

of different registrants and the extent of 

impact by climate-related events (e.g., 

location of operations, nature of 

business). This cost also takes into 

consideration the need to understand 

and evaluate the registrants’ processes 

and internal controls associated with 

the reporting of the climate-related 

financial statement metrics and 

associated disclosures. 

The proposed rules would require a 

registrant that is a large accelerated 

filer 1046 or an accelerated filer 1047 to 

include, in the relevant filing, an 

attestation report covering the 

disclosure of its Scope 1 and Scope 2 

emissions and to provide certain related 

disclosures. Following a one-year phasein period in which no attestation report 

would be required, for filings made for 

the second and third fiscal years 

following the compliance date for the 

GHG emissions disclosure requirement, 

large accelerated filers would be 

required to obtain an attestation report 

for their Scopes 1 and 2 emissions 

disclosure, at minimum, at a limited 

assurance level. We estimate the cost of 

a limited assurance attestation report 

covering a large accelerated filer’s 

Scopes 1 and 2 emissions to be 

$110,000.1048 Commencing with the 

fourth fiscal year following the 

compliance date and thereafter, a large 

accelerated filer would be required to 

obtain an attestation report covering its 

Scopes 1 and 2 emissions disclosure at 

a reasonable assurance level. We 

estimate the cost for such a reasonable 

assurance attestation report to be 

$175,000.1049 This results in an initial 

six-year average 1050 assurance cost for a 

large accelerated filer’s Scopes 1 and 2 

emissions of $124,167.1051

Following a one-year phase-in period 

in which no attestation report would be 

required, for filings made for the second 

and third fiscal years following the 

compliance date for the GHG emissions 

disclosure requirement, accelerated 

filers would be required to obtain an 

attestation report for their Scopes 1 and 

2 emissions disclosure, at minimum, at 

a limited assurance level. We estimate 

the cost of a limited assurance 

attestation report covering an 

accelerated filer’s Scopes 1 and 2 

emissions to be $45,000.1052

Commencing with the fourth fiscal year 

following the compliance date and 

thereafter, an accelerated filer would be 

required to obtain an attestation report 

covering its Scopes 1 and 2 emissions 

disclosure at a reasonable assurance 

level. We estimate the cost for such a 

reasonable assurance attestation report 

to be $75,000.1053 This results in an 

initial six-year average assurance cost 

for an accelerated filer’s Scopes 1 and 2 

emissions of $52,500.1054

The proposed rules would require a 

registrant that is not required to include 

a GHG emissions attestation report to 

state whether any of the registrant’s 

GHG emissions disclosures were subject 

to third-party attestation or verification. 

If so, the registrant would be required to 

identify the provider of assurance or 

verification and disclose certain 

additional information, such as the level 

and scope of assurance or verification 

provided, among other matters.1055 The 

burden and costs for this disclosure are 

encompassed within the estimated 

overall internal burden and costs for the 

proposed GHG emissions disclosure. 

The UK Impact Assessment assumed 

a 25 percent reduction in hour and cost 

estimates for the work required to 

comply with the GHG emissions metrics 

and targets disclosure requirement in 

Year 2 compared to Year 1 because 

initial implementation of the metrics 

and targets framework would not need 

to be repeated. We believe this 

assumption is reasonable and have 

made a similar reduction after the first 

year of compliance when calculating the 

four-year average for the estimated 

paperwork burden hour effect of the 

proposed rules. We also have assumed 

a 10 percent reduction in the hour and 

cost estimates for preparing and 

providing the disclosures for the other 

TCFD-aligned topics in Years 2 through 

6 compared to Year 1. We believe that 

this assumption is reasonable because 

the burden hours and costs associated 

with becoming familiar with the other 

TCFD disclosure topics would not need 

to be repeated.1056 We believe that the 

reduction in the compliance burden and 

costs for the metrics and targets 

disclosure requirement would be greater 


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1057 In 2020, there were 6,220 domestic filers + 

740 foreign private issuer (fpi) filers = 6,960 

affected filers. 3,110 domestic filers + 740 fpi filers 

= 3,850 non-SRC filers. 3,850/6,960 = 55%. 3,110 

filers were SRCs in 2020. 3,110/6,960 = 45%. See 

supra Section IV.B. 

1058This is generally consistent with some of the 

cost estimates obtained for calculating and 

reporting Scopes 1, 2, and 3 emissions. For 

example, Persefoni indicated that the annual GHG 

emissions costs for a company having experience 

calculating and reporting GHG emissions would 

double if it included Scope 3 emissions after 

calculating Scopes 1 and 2 emissions. See supra 

note 1020. In addition, S&P Global indicated that 

a company’s annual ongoing reporting costs of 

Scopes 1 and 2 emissions would, at a minimum, 

increase from $40,000 to $75,000 if it included 

Scope 3 emissions. See supra note 1019. 

1059See, e.g., Instruction 2 to the definition of 

smaller reporting company under 17 CFR 230.405. 

1060 0 + (40 hrs. × 5) = 200 hrs.; 200 hrs./6 = 33 

hrs. (rounded to nearest whole number). 

than the reduction for the other TCFDaligned disclosure topics because the 

initial work to implement a climate data 

collection and reporting framework to 

comply with the metrics and targets 

requirement would be greater than the 

initial framework required for the other 

disclosure requirements. 

SRCs, which comprise 50 percent of 

domestic filers, and 45 percent of total 

affected registrants,1057 would bear a 

lesser compliance burden because those 

registrants would not be subject to the 

proposed disclosure requirement 

pertaining to Scope 3 emissions, which, 

of the three types of GHG emissions, 

poses the greatest challenge to calculate 

and report. We accordingly estimate that 

the increase in the PRA burden 

pertaining to the GHG emissions 

requirement for SRCs filing on domestic 

forms would be approximately 50% less 

than the increased burden for the GHG 

emissions requirement for non-SRC 

registrants.1058 Smaller foreign private 

issuers that file on the foreign private 

issuer forms would not be eligible for 

this adjustment because those foreign 

private issuers are excluded from the 

definition of, and therefore cannot be, 

SRCs.1059

In addition to requiring the annual 

climate disclosures, the proposed rules 

would require a registrant to disclose 

any material change to its climaterelated disclosures reported in its 

annual Exchange Act annual report 

(Form 10–K or 20–F) on a Form 10–Q 

(if a domestic filer) or a Form 6–K (if a 

foreign private issuer filer). We would 

not expect a registrant to report such a 

material change until its second year of 

compliance, at the earliest. Based on the 

staff’s assessment of the amount of time 

it would take to determine that there has 

been a material change in the previously 

reported climate disclosure, particularly 

concerning its GHG emissions metrics, 

and to prepare disclosures regarding the 

material change, if any, we estimate a 

burden hour increase of 40 hours per 

form, or an initial six-year average of 33 

hours per form.1060

The following table summarizes the 

estimated paperwork burden effects of 

the proposed amendments for non-SRC 

and SRC registrants associated with the 

affected collections of information. 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21457 

PRA TABLE 1—ESTIMATED

PAPERWORK

BURDEN

EFFECTS OF THE

PROPOSED

AMENDMENTS FOR

NON-SRC AND SRC REGISTRANTS 1

Collections of information Proposed disclosure item 

Estimated 

PRA burden 

hour effect for 

non-SRC registrants 

(year 1) 

(hrs) 

Estimated 

PRA burden 

hour effect for 

SRC 

registrants 

(year 1) 

(hrs) 

Estimated 

PRA burden 

hour effect for 

non-SRC registrants 

(for each year 

2 through 6) 

(hrs) 

Estimated 

PRA burden 

hour effect for 

SRC 

registrants 

(for each year 

2 through 6) 

(hrs) 

Estimated 

PRA burden 

hour effect for 

non-SRC 

registrants 

(6 year average) 

(hrs) 

Estimated 

PRA burden 

hour effect for 

SRC 

registrants 

(6 year average) 

(hrs) 

Estimated 

average annual 

assurance costs 

for climate-related 

financial 

statement metrics 

(6 year average) 

Estimated 

average annual 

assurance costs 

for Scopes 1 and 

2 emissions disclosure by AFs 2

(6 year average) 

Estimated 

average 

annual 

assurance costs 

for Scopes 1 and 

2 emissions 

disclosure by 

LAFs 3

(6 year average) 

Forms S–1,S–4, 

S–11,10, and 10–K.

Climate-related disclosures 

regarding governance, strategy, and risk management.

+2,217 +2,217 +1,995 +1,995 +2,032 +2,032 +$15,000 +$52,500 $124,167 

Financial statement metrics +70 +70 +63 +63 +64 

+1,703 

+64 

GHG emissions metrics 

and targets.

+2,151 +1,076 +1,613 +807 +852 

Total ............... ............................................ +4,438 +3,363 +3,671 +2,865 +3,799 +2,948 +$15,000 +$52,500 $124,167 

Forms F–1, F–4, 

and 20–F.

Climate-related disclosures 

regarding governance, strategy, and risk management.

Financial statement metrics GHG emissions metrics 

and targets.

+2,217 

+70 

+2,151 

NA +1,995 

+63 

+1,613 

NA. +2,032 

+64 

+1,703 

NA +$15,000 +$52,500 $124,167 

Financial statement metrics +70 ........................ +63 ........................ +64 GHG emissions metrics 

and targets.

+2,151 ........................ +1,613 ........................ +1,703 

Total ............... ............................................ +4,438 ........................ +3,671 ........................ +3,799 ........................ +$15,000 +$52,500 $124,167 

Forms 10–Q and 

6–K.

Material change to 10–K/ 

20–F.

0 ........................ +40 ........................ +33 ........................ 0 0 0 

1All numbers rounded to nearest whole number. 2Accelerated Filers. 3 Large Accelerated Filers. 


lotter on DSK11XQN23PROD with PROPOSALS3
21458 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

1061We recognize that the costs of retaining 

outside professionals may vary depending on the 

nature of the professional services, but for purposes of this PRA analysis, we estimate that such costs 

would be an average of $400 per hour. 

C. Incremental and Aggregate Burden 

and Cost Estimates for the Proposed 

Amendments 

Below we estimate the incremental 

and aggregate increase in paperwork 

burden resulting from the proposed 

amendments. These estimates represent 

the average burden for all issuers, both 

large and small. In deriving our 

estimates, we recognize that the burdens 

will likely vary among individual 

registrants based on a number of factors, 

including the nature of their business, 

the size and complexity of their 

operations, and whether they are subject 

to similar climate-related disclosure 

requirements in other jurisdictions or 

already preparing similar disclosures on 

a voluntary basis. For purposes of the 

PRA, the burden is to be allocated 

between internal burden hours and 

outside professional costs. The table 

below sets forth the percentage 

estimates we typically use for the 

burden allocation for each affected 

collection of information. We also 

estimate that the average cost of 

retaining outside professionals is $400 

per hour.1061

PRA TABLE 2—STANDARD ESTIMATED BURDEN ALLOCATION FOR SPECIFIED COLLECTIONS OF INFORMATION

Collection of information Internal 

(%) 

Outside 

professionals 

(%) 

Forms S–1, F–1, S–4, F–4, S–11, 10, and 20–F ................................................................................................... 25 75 

Forms 10–K, 10–Q, and 6–K .................................................................................................................................. 75 25 

We estimate that the proposed 

amendments would change the burden 

per response, but not the frequency, of 

the existing collections of information. 

The burden increase estimates for each 

collection of information were 

calculated by multiplying the number of 

responses by the increased estimated 

average amount of time it would take to 

prepare and review the disclosure 

required under the affected collection of 

information (using the estimated threeyear average increase). Since 50 percent 

of the domestic filers in 2020 were nonSRCs and 50 percent were SRCs, we 

assume for purposes of our PRA 

estimates that 50 percent of each 

domestic collection of information was 

filed by non-SRCs and 50 percent by 

SRCs. The table below illustrates the 

incremental change to the annual 

compliance burden of the affected 

collections of information, in hours and 

costs. 


lotter on DSK11XQN23PROD with PROPOSALS3
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PRA TABLE 3—CALCULATION OF THE INCREMENTAL

CHANGE IN

BURDEN

ESTIMATES OF

CURRENT

RESPONSES

RESULTING FROM THE

PROPOSED

AMENDMENTS1

Collection of 

information Filed by 

Number of 

estimated affected respondents 

Burden hour 

annual 

increase per 

affected 

respondent 

Increase in 

burden hours 

for affected 

respondents 

Increase in 

internal burden 

hours 

for affected 

respondents 

Increase in 

professional hours 

for affected 

respondents 

Climate-related 

financial statement 

metrics 

assurance costs 

for 

affected 

respondents 2

GHG emissions 

assurance costs 

for AFs 3

GHG emissions 

assurance costs 

for LAFs 4

Increase in 

professional costs 

for 

affected 

respondents 

(A) (B) (C) = (A) × (B) (D) = (C) × 0.25 or 

0.75 

(E) = (C) × 

0.75 or 0.25 

(F) = (A) × 

$15,000 

(G) = (A) × 

0.11 or 0.15 

× $52,500 

(H) = (A) × 0.31 or 

0.37 × $124,167 

(I) = (E) × $400 + 

(F) + (G) + (H) 

S–1 ................... Non-SRCs ........ 447 .................... 3,799 1,698,153 .............................. .............................. .............................. .............................. .............................. ..............................S–1 ................... SRCs ................ 447 .................... 2,948 1,317,756 .............................. .............................. .............................. .............................. .............................. ..............................

S–1 (Total) .......................... 894 .................... ........................ 3,015,909 753,977 2,261,932 $13,410,000 $5,145,000 $34,394,259 $957,722,059 

S–4 ................... Non-SRCs ........ 294 .................... 3,799 1,116,906 .............................. .............................. .............................. .............................. .............................. ..............................S–4 ................... SRCs ................ 294 .................... 2,948 866,712 .............................. .............................. .............................. .............................. .............................. ..............................

S–4 (Total) .......................... 588 .................... ........................ 1,983,618 495,905 1,487,714 8,820,000 3,412,500 22,598,394 629,916,494 

S–11 ................. Non-SRCs ........ 34 ...................... 3,799 129,166 .............................. .............................. .............................. .............................. .............................. ..............................S–11 ................. SRCs ................ 33 ...................... 2,948 97,284 .............................. .............................. .............................. .............................. .............................. ..............................

S–11 (Total) .......................... 67 ...................... ........................ 226,450 56,613 169,838 1,005,000 367,500 2,607,507 71,915,207 

10 ...................... Non-SRCs ........ 108 .................... 3,799 410,292 .............................. .............................. .............................. .............................. .............................. ..............................10 ...................... SRCs ................ 108 .................... 2,948 318,384 .............................. .............................. .............................. .............................. .............................. ..............................

10 (Total) ... .......................... 216 .................... ........................ 728,676 182,169 546,507 3,240,000 1,260,000 8,319,189 231,421,989 

10–K ................. Non-SRCs ........ 4,146 ................. 3,799 15,750,654 .............................. .............................. .............................. .............................. .............................. ..............................10–K ................. SRCs ................ 4,146 ................. 2,948 12,222,408 .............................. .............................. .............................. .............................. .............................. ..............................

10–K (Total) .......................... 8,292 ................. ........................ 27,973,062 20,979,797 6,993,266 124,380,000 47,880,000 319,233,357 3,288,799,757 

10–Q ................. Non-SRCs ........ 11,463 ............... 33 378,279 .............................. .............................. .............................. .............................. .............................. ..............................10–Q ................. SRCs ................ 11,462 ............... 33 378,246 .............................. .............................. .............................. .............................. .............................. ..............................

10–Q 

(Total).

.......................... 22,925 ............... ........................ 756,525 567,394 189,131 0 0 0 75,652,400 

F–1 ................... Both .................. 66 ...................... 3,799 250,734 62,684 188,051 990,000 525,000 2,980,008 79,715,408 F–4 ................... Both .................. 39 ...................... 3,799 148,161 37,040 111,121 585,000 315,000 1,738,338 47,086,738 20–F ................. Both .................. 729 .................... 3,799 2,769,471 692,368 2,077,103 10,935,000 5,722,500 33,525,090 881,023,790 6–K ................... Both .................. 34,794 ............... 33 1,148,202 861,152 287,051 0 0 0 114,820,400 

1All numbers rounded to nearest whole number. 2We have not assumed assurance costs for Form 10–Q or Form 6–K because these forms typically have only marginal assurance costs. We expect these forms to be filed in the 2nd year, at the earliest. 3AFs filed 11% of domestic forms and 15% of foreign private issuer forms in 2020. 4 LAFs filed 31% of domestic forms and 37% of foreign private issuer forms in 2020. 


lotter on DSK11XQN23PROD with PROPOSALS3
21460 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

The table below illustrates the 

program change expected to result from 

the proposed rule amendments together with the total requested change in 

reporting burden and costs. 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21461 

PRA TABLE 4—REQUESTED

PAPERWORK

BURDEN

UNDER THE

PROPOSED

AMENDMENTS

Collection of Information 

Current burden Program change Requested change in burden 

Current annual 

responses 

Current internal burden 

hours 

Current external 

cost burden 

Number of affected responses Change in in- ternal burden hours Change in exter- nal costs Annual re- sponses Internal bur- den hours External cost bur- den 

(A) (B) (C) (D) (E) (F) (G) (H) = (B) + (E) (I) = (C) + (F) 

S–1 ........................................................................ 894 146,067 $178,922,043 894 753,977 $957,722,059 894 900,044 $1,134,929,102 S–4 ........................................................................ 588 562,362 677,255,579 588 495,905 629,916,494 588 1,058,267 1,306,034,573 S–11 ...................................................................... 67 12,229 14,943,768 67 56,613 71,915,207 67 68,842 86,736,475 10 .......................................................................... 216 11,855 14,091,488 216 182,169 231,421,989 216 194,024 245,093,477 10–K ...................................................................... 8,292 14,188,040 1,893,793,119 8,292 20,979,797 3,288,799,757 8,292 35,167,837 5,166,632,876 10–Q ..................................................................... 22,925 3,182,333 421,490,754 22,925 567,394 75,652,400 22,925 3,749,727 497,143,154 F–1 ........................................................................ 66 26,707 32,293,375 66 62,684 79,715,408 66 89,391 111,833,783 F–4 ........................................................................ 39 14,049 17,073,825 39 37,040 47,086,738 39 51,089 64,055,563 20–F ...................................................................... 729 479,261 576,824,025 729 692,368 881,023,790 729 1,171,629 1,455,940,315 6–K ........................................................................ 34,794 227,031 30,270,780 34,794 861,152 114,820,400 34,794 1,088,183 145,091,180 

Total ............................................................... ........................ 18,849,934 3,856,958,756 ........................ 24,689,099 6,378,073,242 ........................ 43,539,033 10,235,031,998 


lotter on DSK11XQN23PROD with PROPOSALS3
21462 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

1062We request comment pursuant to 44 U.S.C. 

3506(c)(2)(B). 

1063 5 U.S.C. 601 et seq. 

1064 5 U.S.C. 603(a). 1065 5 U.S.C. 601(6). 

D. Request for Comment 

We request comment in order to: 

• Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the agency, including 

whether the information would have 

practical utility; 

• Evaluate the accuracy of our 

estimate of the burden of the proposed 

collections of information, including 

any assumptions used; 

• Determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; 

• Evaluate whether there are ways to 

minimize the burden of the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology; 

and 

• Evaluate whether the proposed 

amendments would have any effects on 

any other collections of information not 

previously identified in this section.1062

Any member of the public may direct 

to us any comments about the accuracy 

of these burden estimates and any 

suggestions for reducing these burdens. 

Persons submitting comments on the 

collection of information requirements 

should direct the comments to the 

Office of Management and Budget, 

Attention: Desk Officer for the 

Securities and Exchange Commission, 

Office of Information and Regulatory 

Affairs, Washington, DC 20503, and 

should send a copy to Vanessa A. 

Countryman, Secretary, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–1090, with 

reference to File No. S7–10–22. 

Requests for materials submitted to 

OMB by the Commission with regard to 

these collections of information should 

be in writing, refer to File No. S7–10– 

22, and be submitted to the Securities 

and Exchange Commission, Office of 

FOIA Services, 100 F Street NE, 

Washington, DC 20549–2736. OMB is 

required to make a decision concerning 

the collection of information between 30 

and 60 days after publication of this 

release. Consequently, a comment to 

OMB is best assured of having its full 

effect if OMB receives it within 30 days 

of publication. 

VI. Initial Regulatory Flexibility Act 

Analysis 

This Initial Regulatory Flexibility Act 

Analysis (‘‘IRFA’’) has been prepared, 

and made available for public comment, 

in accordance with the Regulatory 

Flexibility Act (‘‘RFA’’).1063 It relates to 

the proposal to add new subpart 1500 to 

Regulation S–K and new Article 14 to 

Regulation S–X, which would require 

registrants to provide certain climaterelated disclosures in their Securities 

Act and Exchange Act registration 

statements and Exchange Act reports. 

As required by the RFA, this IRFA 

describes the impact of these proposed 

amendments of Regulations S–K and S– 

X on small entities.1064

A. Reasons for, and Objectives of, the 

Proposed Action 

We are proposing to require 

registrants to provide certain climaterelated information in their registration 

statements and annual reports, 

including certain information about 

climate-related financial risks and 

climate-related financial metrics in their 

financial statements. The disclosure of 

this information would provide 

consistent, comparable, and decisionuseful information to investors to enable 

them to make informed judgments about 

the impact of climate-related risks on 

current and potential investments. 

Information about climate-related risks 

can have an impact on public 

companies’ financial performance or 

position and may be material to 

investors in making investment or 

voting decisions. For this reason, many 

investors—including shareholders, 

investment advisors, and investment 

management companies—currently seek 

information about climate-related risks 

from companies to inform their 

investment decision-making. 

Furthermore, many companies have 

begun to provide some of this 

information voluntarily in response to 

investor demand and in recognition of 

the potential financial effects of climaterelated risks on their businesses. We are 

concerned that the existing voluntary 

disclosures of climate-related risks do 

not adequately protect investors. For 

this reason, mandatory disclosures may 

be necessary or appropriate to improve 

the consistency, comparability, and 

reliability of this information. The 

reasons for, and objectives of, the 

proposed amendments are discussed in 

more detail in Section II above. 

B. Legal Basis 

We are proposing the amendments 

contained in this release under the 

authority set forth in Sections 7, 10, 

19(a), and 28 of the Securities Act, as 

amended, and Sections 3(b), 12, 13, 15, 

23(a), and 36 of the Exchange Act, as 

amended. 

C. Small Entities Subject to the 

Proposed Rules 

The proposed amendments would 

affect some issuers that are small 

entities. The RFA defines ‘‘small entity’’ 

to mean ‘‘small business,’’ ‘‘small 

organization,’’ or ‘‘small governmental 

jurisdiction.’’ 1065 For purposes of the 

RFA, under 17 CFR 240.0–10(a), an 

issuer, other than an investment 

company, is a ‘‘small business’’ or 

‘‘small organization’’ if it had total 

assets of $5 million or less on the last 

day of its most recent fiscal year and, 

under 17 CFR 230.157, is also engaged 

or proposing to engage in an offering of 

securities that does not exceed $5 

million. 

The proposed rules would apply to a 

registrant when filing a Securities Act or 

Exchange Act registration statement or 

an Exchange Act annual or other 

periodic report. We estimate that there 

are 1,004 registrants that are small 

entities that would be affected by the 

proposed rules. 

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

The proposed amendments would 

require a registrant, including a small 

entity, to disclose certain climaterelated information, including data 

about their GHG emissions, when filing 

a Securities Act or Exchange Act 

registration statement or Exchange Act 

annual or other periodic report. In 

particular, like larger registrants, small 

entities would be required to disclose 

information about: The oversight of 

their boards and management regarding 

climate-related risks; any material 

impacts of climate-related risks on their 

consolidated financial statements, 

business, strategy, and outlook; their 

risk management of climate-related 

risks; climate-related targets or goals, if 

any; and certain financial statement 

metrics. In addition, like other 

registrants, small entities would be 

required to disclose their Scopes 1 and 

2 emissions. We anticipate that the 

nature of any benefits or costs 

associated with the above proposed 

amendments would be similar for large 

and small entities. Accordingly, we refer 

to the discussion of the proposed 

amendments’ economic effects on all 

affected parties, including small 

entities, in Section IV.C. Consistent with 

that discussion, we anticipate that the 

economic benefits and costs likely 

would vary widely among small entities 

based on a number of factors, including 

the nature and conduct of their 

businesses, which makes it difficult to 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21463 

1066See supra Section II.G.3 and II.L (discussing 

the proposed exemption from Scope 3 emissions 

disclosure for smaller reporting companies). 

1067See supra Section II.L (discussing the 

proposed additional two years for smaller reporting 

companies to comply with the proposed rules 

compared to large accelerated filers). 1068 5 U.S.C. 801 et seq. 

project the economic impact on small 

entities with precision. However, we 

request comment on how the proposed 

amendments would affect small entities. 

While small entities would not be 

exempt from the full scope of the 

proposed amendments, they would be 

exempt from the Scope 3 emissions 

disclosure requirements, which would 

likely impose the greatest compliance 

burden for registrants due to the 

complexity of data gathering, 

calculation, and assessment required for 

that type of emissions.1066 Small entities 

would also have a longer transition 

period to comply with the proposed 

rules than other registrants.1067 We 

believe that these accommodations 

would reduce the proposed rules’ 

compliance burden for small entities 

that, compared to larger registrants with 

more resources, may be less able to 

absorb the costs associated with 

reporting of Scope 3 emissions and may 

need additional time to allocate the 

resources necessary to begin providing 

climate-related disclosures. 

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The proposed rules do not duplicate 

or conflict with other existing federal 

rules. As discussed in Section IV, some 

registrants currently report certain GHG 

emissions via the EPA’s 2009 mandatory 

Greenhouse Gas Reporting Program. 

However, as discussed above, the 

reporting requirements of the EPA’s 

program and the resulting data are 

different and more suited to the purpose 

of building a national inventory of GHG 

emissions rather than allowing investors 

to assess emissions-related risks to 

individual registrants. 

F. Significant Alternatives 

The RFA directs us to consider 

alternatives that would accomplish our 

stated objectives, while minimizing any 

significant economic impact on small 

entities. In connection with the 

proposed amendments, we considered 

the following alternatives: 

• Establishing different compliance or 

reporting requirements that take into 

account the resources available to small 

entities; 

• Clarifying, consolidating, or 

simplifying compliance and reporting 

requirements under the rules for small 

entities; 

• Using performance rather than 

design standards; and 

• Exempting small entities from all or 

part of the requirements. 

As discussed above, the proposed 

amendments would exempt small 

entities from certain GHG emissions 

disclosure requirements that would 

likely impose the greatest compliance 

burden on registrants compared to other 

proposed disclosure requirements. In 

addition, while there would be a 

transition period for all registrants to 

comply with the proposed amendments, 

small entities would have an additional 

two more years to comply with the 

proposed rules than large accelerated 

filers and an additional year compared 

to other registrants. We believe that this 

scaled and phased-in approach would 

help minimize the economic impact of 

the proposed amendments on small 

entities. We are not, however, proposing 

a complete exemption from the 

proposed amendments for SRCs 

because, due to their broad impact 

across industries and jurisdictions, 

climate-related risks may materially 

impact the operations and financial 

condition of domestic and foreign 

issuers, both large and small. 

For similar reasons, other than the 

exemption for reporting Scope 3 

emissions by SRCs, we are not 

proposing to clarify, consolidate, or 

simplify the proposed disclosure 

requirements for small entities. A key 

objective of the proposed amendments 

is to elicit consistent, comparable and 

reliable information about climaterelated risks across registrants. 

Alternative compliance requirements for 

small entities could undermine that 

goal. 

The proposed amendments are 

primarily based on performance 

standards with some provisions that are 

more like design standards. For 

example, while the proposed 

amendments include certain concepts, 

such as scopes, developed by the GHG 

Protocol, they do not require a registrant 

to use the GHG Protocol’s methodology 

when calculating its GHG emissions if 

another methodology better suits its 

circumstances. Using a performance 

standard for calculation of GHG 

emissions would provide registrants 

with some flexibility regarding how to 

comply with the proposed GHG 

emissions requirement while still 

providing useful information for 

investors about the various scopes of 

emissions. Similarly, the proposed 

amendments would require a registrant 

that is a large accelerated filer or an 

accelerated filer to include an 

attestation report covering its Scopes 1 

and 2 emissions that would require the 

report to meet certain minimum criteria 

while permitting the filer, at its option, 

to obtain additional levels of assurance. 

In contrast, the proposed amendments 

would require all registrants, including 

small entities, to express their GHG 

emissions both disaggregated by each 

constituent greenhouse gas and in the 

aggregate, expressed in terms of carbon 

dioxide equivalent (CO2e). Using a 

design standard for the expression of a 

registrant’s GHG emissions would 

enhance the comparability of this 

disclosure for investors. 

Request for Comment 

We encourage the submission of 

comments with respect to any aspect of 

this IRFA. In particular, we request 

comments regarding: 

• How the proposed rule and form 

amendments can achieve their objective 

while lowering the burden on small 

entities; 

• The number of small entity 

companies that may be affected by the 

proposed rule and form amendments; 

• The existence or nature of the 

potential effects of the proposed 

amendments on small entity companies 

discussed in the analysis; 

• How to quantify the effects of the 

proposed amendments; and 

• Whether there are any federal rules 

that duplicate, overlap, or conflict with 

the proposed amendments. 

Commenters are asked to describe the 

nature of any effect and provide 

empirical data supporting the extent of 

that effect. Comments will be 

considered in the preparation of the 

Final Regulatory Flexibility Analysis, if 

the proposed rules are adopted, and will 

be placed in the same public file as 

comments on the proposed rules 

themselves. 

VII. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),1068 the Commission 

must advise OMB as to whether the 

proposed amendments constitute a 

‘‘major’’ rule. Under SBREFA, a rule is 

considered ‘‘major’’ where, if adopted, it 

results in or is likely to result in: 

• An annual effect on the U.S. 

economy of $100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment on whether our 

proposal would be a ‘‘major rule’’ for 

purposes of SBREFA. In particular, we 

request comment and empirical data on: 


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• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential adverse effect on 

competition, investment, or innovation. 

VIII. Statutory Authority 

The amendments contained in this 

release are being proposed under the 

authority set forth in Sections 7, 10, 

19(a), and 28 of the Securities Act, as 

amended, and Sections 3(b), 12, 13, 15, 

23(a), and 36 of the Exchange Act, as 

amended. 

List of Subjects in 17 CFR Parts 210, 

229, 232, 239, and 249 

Accountants; Accounting; 

Administrative practice and procedure, 

Reporting and recordkeeping 

requirements, Securities. 

For the reasons set out in the 

preamble, the Commission is proposing 

to amend title 17, chapter II of the Code 

of Federal Regulations as follows: 

PART 210—FORM AND CONTENT OF 

AND REQUIREMENTS FOR FINANCIAL 

STATEMENTS, SECURITIES ACT OF 

1933, SECURITIES EXCHANGE ACT 

OF 1934, INVESTMENT COMPANY ACT 

OF 1940, INVESTMENT ADVISERS ACT 

OF 1940, AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 

■ 1. The authority citation for part 210 

continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 

77z–2, 77z–3, 77aa(25), 77aa(26), 77nn(25), 

77nn(26), 78c, 78j–1, 78l, 78m, 78n, 78o(d), 

78q, 78u-5, 78w, 78ll, 78mm, 80a–8, 80a20, 

80a–29, 80a–30, 80a–31, 80a–37(a), 80b–3, 

80b–11, 7202 and 7262, and sec. 102(c), Pub. 

L. 112–106, 126 Stat. 310 (2012), unless 

otherwise noted. 

■ 2. Amend § 210.8–01 by revising 

paragraph (b) to read as follows: 

§ 210.8–01 General requirements for 

Article 8. 

* * * * * 

(b) Smaller reporting companies 

electing to prepare their financial 

statements with the form and content 

required in Article 8 need not apply the 

other form and content requirements in 

17 CFR part 210 (Regulation S–X) with 

the exception of the following: 

(1) The report and qualifications of 

the independent accountant shall 

comply with the requirements of 

§§ 210.2–01 through 210.2–07 (Article 

2); and 

(2) The description of accounting 

policies shall comply with § 210.4– 

08(n); 

(3) Smaller reporting companies 

engaged in oil and gas producing 

activities shall follow the financial 

accounting and reporting standards 

specified in § 210.4–10 with respect to 

such activities; and 

(4) Sections 210.14–01 and 210.14–02 

(Article 14). 

* * * * * 

■ 3. Add an undesignated center 

heading and §§ 210.14–01 and 210.14– 

02 to read as follows: 

Article 14—Climate-Related Disclosure 

§ 210.14–01 Climate-related disclosure 

instructions. 

(a) General. A registrant must include 

disclosure pursuant to § 210.14–02 in 

any filing that is required to include 

disclosure pursuant to subpart 229.1500 

of this chapter and that also requires the 

registrant to include its audited 

financial statements. The disclosure 

pursuant to § 210.14–02 must be 

included in a note to the financial 

statements included in such filing. 

(b) Definitions. The definitions in 

§ 229.1500 (Item 1500 of Regulation S– 

K) apply to this Article 14 of Regulation 

S–X. 

(c) Basis of calculation. When 

calculating the metrics in this Article 

14, except where otherwise indicated, a 

registrant must: 

(1) Use financial information that is 

consistent with the scope of the rest of 

its consolidated financial statements 

included in the filing; and 

(2) Whenever applicable, apply the 

same accounting principles that it is 

required to apply in preparation of the 

rest of its consolidated financial 

statements included in the filing. 

(d) Historical periods. Disclosure 

must be provided for the registrant’s 

most recently completed fiscal year, and 

for the historical fiscal year(s) included 

in the consolidated financial statements 

in the filing (e.g., a registrant that is 

required to include balance sheets as of 

the end of its two most recent fiscal 

years and income statements and cash 

flow statements as of the end of its three 

most recent fiscal years would be 

required to disclose two years of the 

climate-related metrics that correspond 

to balance sheet line items and three 

years of the climate-related metrics that 

correspond to income statement or cash 

flow statement line items). 

§ 210.14–02 Climate-related metrics. 

(a) Contextual information. Provide 

contextual information, describing how 

each specified metric was derived, 

including a description of significant 

inputs and assumptions used, and, if 

applicable, policy decisions made by 

the registrant to calculate the specified 

metrics. 

(b) Disclosure thresholds. (1) 

Disclosure of the financial impact on a 

line item in the registrant’s consolidated 

financial statements pursuant to 

paragraphs (c) and (d) of this section 

(including any impacts included 

pursuant to paragraphs (i) and (j) of this 

section) is not required if the sum of the 

absolute values of all the impacts on the 

line item is less than one percent of the 

total line item for the relevant fiscal 

year. 

(2) Disclosure of the aggregate amount 

of expenditure expensed or the 

aggregate amount of capitalized costs 

incurred pursuant to paragraphs (e) and 

(f) of this section (including any impacts 

included pursuant to paragraphs (i) and 

(j) of this section) is not required if such 

amount is less than one percent of the 

total expenditure expensed or total 

capitalized costs incurred, respectively, 

for the relevant fiscal year. 

(c) Financial impacts of severe 

weather events and other natural 

conditions. Disclose the impact of 

severe weather events and other natural 

conditions, such as flooding, drought, 

wildfires, extreme temperatures, and sea 

level rise on any relevant line items in 

the registrant’s consolidated financial 

statements during the fiscal years 

presented. Disclosure must be 

presented, at a minimum, on an 

aggregated line-by-line basis for all 

negative impacts and, separately, at a 

minimum, on an aggregated line-by-line 

basis for all positive impacts. Impacts 

may include, for example: 

(1) Changes to revenues or costs from 

disruptions to business operations or 

supply chains; 

(2) Impairment charges and changes 

to the carrying amount of assets (such as 

inventory, intangibles, and property, 

plant and equipment) due to the assets 

being exposed to severe weather, 

flooding, drought, wildfires, extreme 

temperatures, and sea level rise; 

(3) Changes to loss contingencies or 

reserves (such as environmental 

reserves or loan loss allowances) due to 

impact from severe weather events; and 

(4) Changes to total expected insured 

losses due to flooding or wildfire 

patterns. 

(d) Financial impacts related to 

transition activities. Disclose the impact 

of any efforts to reduce GHG emissions 

or otherwise mitigate exposure to 

transition risks on any relevant line 

items in the registrant’s consolidated 

financial statements during the fiscal 

years presented. Disclosure must be 

presented, at a minimum, on an 

aggregated line-by-line basis for all 

negative impacts and, separately, at a 

minimum, on an aggregated line-by-line 


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basis for all positive impacts. Impacts 

may include, for example: 

(1) Changes to revenue or cost due to 

new emissions pricing or regulations 

resulting in the loss of a sales contract; 

(2) Changes to operating, investing, or 

financing cash flow from changes in 

upstream costs, such as transportation 

of raw materials; 

(3) Changes to the carrying amount of 

assets (such as intangibles and property, 

plant, and equipment) due to, among 

other things, a reduction of the asset’s 

useful life or a change in the asset’s 

salvage value by being exposed to 

transition activities; and 

(4) Changes to interest expense driven 

by financing instruments such as 

climate-linked bonds issued where the 

interest rate increases if certain climaterelated targets are not met. 

(e) Expenditure to mitigate risks of 

severe weather events and other natural 

conditions. Disclose separately the 

aggregate amount of expenditure 

expensed and the aggregate amount of 

capitalized costs incurred during the 

fiscal years presented to mitigate the 

risks from severe weather events and 

other natural conditions, such as 

flooding, drought, wildfires, extreme 

temperatures, and sea level rise. For 

example, a registrant may be required to 

disclose the amount of expense or 

capitalized costs, as applicable, to 

increase the resilience of assets or 

operations, retire or shorten the 

estimated useful lives of impacted 

assets, relocate assets or operations at 

risk, or otherwise reduce the future 

impact of severe weather events and 

other natural conditions on business 

operations. 

(f) Expenditure related to transition 

activities. Disclose separately the 

aggregate amount of expenditure 

expensed and the aggregate amount of 

capitalized costs incurred during the 

fiscal years presented to reduce GHG 

emissions or otherwise mitigate 

exposure to transition risks. For 

example, a registrant may be required to 

disclose the amount of expense or 

capitalized costs, as applicable, related 

to research and development of new 

technologies, purchase of assets, 

infrastructure, or products that are 

intended to reduce GHG emissions, 

increase energy efficiency, offset 

emissions (purchase of energy credits), 

or improve other resource efficiency. A 

registrant that has disclosed GHG 

emissions reduction targets or other 

climate-related commitments must 

disclose the expenditures and costs 

related to meeting its targets, 

commitments, and goals, if any, in the 

fiscal years presented. 

(g) Financial estimates and 

assumptions impacted by severe 

weather events and other natural 

conditions. Disclose whether the 

estimates and assumptions the registrant 

used to produce the consolidated 

financial statements were impacted by 

exposures to risks and uncertainties 

associated with, or known impacts from, 

severe weather events and other natural 

conditions, such as flooding, drought, 

wildfires, extreme temperatures, and sea 

level rise. If yes, provide a qualitative 

description of how the development of 

such estimates and assumptions were 

impacted by such events. 

(h) Financial estimates and 

assumptions impacted by transition 

activities. Disclose whether the 

estimates and assumptions the registrant 

used to produce the consolidated 

financial statements were impacted by 

risks and uncertainties associated with, 

or known impacts from, a potential 

transition to a lower carbon economy or 

any climate-related targets disclosed by 

the registrant. If yes, provide a 

qualitative description of how the 

development of such estimates and 

assumptions were impacted by such a 

potential transition or the registrant’s 

disclosed climate-related targets. 

(i) Impact of identified climate-related 

risks. A registrant must also include the 

impact of any climate-related risks 

(separately by physical risks and 

transition risks, as defined in 

§ 229.1500(c) of this chapter), identified 

by the registrant pursuant to 

§ 229.1502(a) of this chapter, on any of 

the financial statement metrics 

disclosed pursuant to paragraphs (c) 

through (h) of this section. 

(j) Impact of climate-related 

opportunities. A registrant may also 

include the impact of any opportunities 

arising from severe weather events and 

other natural conditions, any impact of 

efforts to pursue climate-related 

opportunities associated with transition 

activities, and the impact of any other 

climate-related opportunities, including 

those identified by the registrant 

pursuant to § 229.1502(a) of this 

chapter, on any of the financial 

statement metrics disclosed pursuant to 

paragraphs (c) through (h) of this 

section. If a registrant makes a policy 

decision to disclose the impact of an 

opportunity, it must do so consistently 

for the fiscal years presented, including 

for each financial statement line item 

and all relevant opportunities identified 

by the registrant. 

PART 229—STANDARD 

INSTRUCTIONS FOR FILING FORMS 

UNDER SECURITIES ACT OF 1933, 

SECURITIES EXCHANGE ACT OF 1934 

AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975— 

REGULATION S–K 

■ 4. The authority citation for part 229 

continues to read as follows: 

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 

77k, 77s, 77z–2, 77z-3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 

77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 

78n, 78n–1, 78o, 78u-5, 78w, 78ll, 78 mm, 

80a–8, 80a–9, 80a–20, 80a–29, 80a–30, 80a– 

31(c), 80a37, 80a–38(a), 80a–39, 80b–11 and 

7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. 

L. 111–203, 124 Stat. 1904 (2010); and sec. 

102(c), Pub. L. 112–106, 126 Stat. 310 (2012). 

■ 5. Add subpart 229.1500 (‘‘ClimateRelated Disclosure’’) to read as follows: 

Subpart 229.1500—Climate-Related 

Disclosure 

Sec. 

229.1500 (Item 1500) Definitions. 

229.1501 (Item 1501) Governance. 

229.1502 (Item 1502) Strategy, business 

model, and outlook. 

229.1503 (Item 1503) Risk management. 

229.1504 (Item 1504) GHG emissions 

metrics. 

229.1505 (Item 1505) Attestation of Scope 1 

and Scope 2 emissions disclosure. 

229.1506 (Item 1506) Targets and goals. 

229.1507 (Item 1507) Interactive data 

requirement. 

Subpart 229.1500—Climate-Related 

Disclosure 

§ 229.1500 (Item 1500) Definitions. 

As used in this subpart, these terms 

have the following meanings: 

(a) Carbon offsets represents an 

emissions reduction or removal of 

greenhouse gases (‘‘GHG’’) in a manner 

calculated and traced for the purpose of 

offsetting an entity’s GHG emissions. 

(b) Climate-related opportunities 

means the actual or potential positive 

impacts of climate-related conditions 

and events on a registrant’s consolidated 

financial statements, business 

operations, or value chains, as a whole. 

(c) Climate-related risks means the 

actual or potential negative impacts of 

climate-related conditions and events 

on a registrant’s consolidated financial 

statements, business operations, or 

value chains, as a whole. Climaterelated risks include the following: 

(1) Physical risks include both acute 

risks and chronic risks to the registrant’s 

business operations or the operations of 

those with whom it does business. 

(2) Acute risks are event-driven and 

may relate to shorter term extreme 

weather events, such as hurricanes, 

floods, and tornadoes, among other 

events. 


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(3) Chronic risks relate to longer term 

weather patterns and related effects, 

such as sustained higher temperatures, 

sea level rise, drought, and increased 

wildfires, as well as related effects such 

as decreased arability of farmland, 

decreased habitability of land, and 

decreased availability of fresh water. 

(4) Transition risks are the actual or 

potential negative impacts on a 

registrant’s consolidated financial 

statements, business operations, or 

value chains attributable to regulatory, 

technological, and market changes to 

address the mitigation of, or adaptation 

to, climate-related risks, such as 

increased costs attributable to changes 

in law or policy, reduced market 

demand for carbon-intensive products 

leading to decreased prices or profits for 

such products, the devaluation or 

abandonment of assets, risk of legal 

liability and litigation defense costs, 

competitive pressures associated with 

the adoption of new technologies, 

reputational impacts (including those 

stemming from a registrant’s customers 

or business counterparties) that might 

trigger changes to market behavior, 

consumer preferences or behavior, and 

registrant behavior. 

(d) Carbon dioxide equivalent 

(‘‘CO2e’’) means the common unit of 

measurement to indicate the global 

warming potential (‘‘GWP’’) of each 

greenhouse gas, expressed in terms of 

the GWP of one unit of carbon dioxide 

(‘‘CO2’’). 

(e) Emission factor means a 

multiplication factor allowing actual 

GHG emissions to be calculated from 

available activity data or, if no activity 

data is available, economic data, to 

derive absolute GHG emissions. 

Examples of activity data include 

kilowatt-hours of electricity used, 

quantity of fuel used, output of a 

process, hours of operation of 

equipment, distance travelled, and floor 

area of a building. 

(f) Global warming potential (‘‘GWP’’) 

means a factor describing the global 

warming impacts of different 

greenhouse gases. It is a measure of how 

much energy will be absorbed in the 

atmosphere over a specified period of 

time as a result of the emission of one 

ton of a greenhouse gas, relative to the 

emissions of one ton of carbon dioxide 

(CO2).

(g) Greenhouse gases (‘‘GHG’’) means 

carbon dioxide (CO2), methane (‘‘CH4’’), 

nitrous oxide (‘‘N2O’’), nitrogen 

trifluoride (‘‘NF3’’), hydrofluorocarbons 

(‘‘HFCs’’), perfluorocarbons (‘‘PFCs’’), 

and sulfur hexafluoride (‘‘SF6’’). 

(h) GHG emissions means direct and 

indirect emissions of greenhouse gases 

expressed in metric tons of carbon 

dioxide equivalent (CO2e), of which: 

(1) Direct emissions are GHG 

emissions from sources that are owned 

or controlled by a registrant. 

(2) Indirect emissions are GHG 

emissions that result from the activities 

of the registrant, but occur at sources 

not owned or controlled by the 

registrant. 

(i) GHG intensity (or carbon intensity) 

means a ratio that expresses the impact 

of GHG emissions per unit of economic 

value (e.g., metric tons of CO2e per unit 

of total revenues, using the registrant’s 

reporting currency) or per unit of 

production (e.g., metric tons of CO2e per 

product produced). 

(j) Internal carbon price means an 

estimated cost of carbon emissions used 

internally within an organization. 

(k) Location means a ZIP code or, in 

a jurisdiction that does not use ZIP 

codes, a similar subnational postal zone 

or geographic location. 

(l) Operational boundaries means the 

boundaries that determine the direct 

and indirect emissions associated with 

the business operations owned or 

controlled by a registrant. 

(m) Organizational boundaries means 

the boundaries that determine the 

operations owned or controlled by a 

registrant for the purpose of calculating 

its GHG emissions. 

(n) Renewable energy credit or 

certificate (‘‘REC’’) means a credit or 

certificate representing each megawatthour (1 MWh or 1,000 kilowatt-hours) of 

renewable electricity generated and 

delivered to a power grid. 

(o) Scenario analysis means a process 

for identifying and assessing a potential 

range of outcomes of various possible 

future climate scenarios, and how 

climate-related risks may impact a 

registrant’s operations, business 

strategy, and consolidated financial 

statements over time. For example, 

registrants might use scenario analysis 

to test the resilience of their strategies 

under certain future climate scenarios, 

such as those that assume global 

temperature increases of 3 °C, 2 °C, and 

1.5 °C above pre-industrial levels. 

(p) Scope 1 emissions are direct GHG 

emissions from operations that are 

owned or controlled by a registrant. 

(q) Scope 2 emissions are indirect 

GHG emissions from the generation of 

purchased or acquired electricity, steam, 

heat, or cooling that is consumed by 

operations owned or controlled by a 

registrant. 

(r) Scope 3 emissions are all indirect 

GHG emissions not otherwise included 

in a registrant’s Scope 2 emissions, 

which occur in the upstream and 

downstream activities of a registrant’s 

value chain. 

(1) Upstream activities in which 

Scope 3 emissions might occur include: 

(i) A registrant’s purchased goods and 

services; 

(ii) A registrant’s capital goods; 

(iii) A registrant’s fuel and energy 

related activities not included in Scope 

1 or Scope 2 emissions; 

(iv) Transportation and distribution of 

purchased goods, raw materials, and 

other inputs; 

(v) Waste generated in a registrant’s 

operations; 

(vi) Business travel by a registrant’s 

employees; 

(vii) Employee commuting by a 

registrant’s employees; and 

(viii) A registrant’s leased assets 

related principally to purchased or 

acquired goods or services. 

(2) Downstream activities in which 

Scope 3 emissions might occur include: 

(i) Transportation and distribution of 

a registrant’s sold products, goods or 

other outputs; 

(ii) Processing by a third party of a 

registrant’s sold products; 

(iii) Use by a third party of a 

registrant’s sold products; 

(iv) End-of-life treatment by a third 

party of a registrant’s sold products; 

(v) A registrant’s leased assets related 

principally to the sale or disposition of 

goods or services; 

(vi) A registrant’s franchises; and 

(vii) Investments by a registrant. 

(s) Transition plan means a 

registrant’s strategy and implementation 

plan to reduce climate-related risks, 

which may include a plan to reduce its 

GHG emissions in line with its own 

commitments or commitments of 

jurisdictions within which it has 

significant operations. 

(t) Value chain means the upstream 

and downstream activities related to a 

registrant’s operations. Upstream 

activities in connection with a value 

chain may include activities by a party 

other than the registrant that relate to 

the initial stages of a registrant’s 

production of a good or service (e.g., 

materials sourcing, materials processing, 

and supplier activities). Downstream 

activities in connection with a value 

chain may include activities by a party 

other than the registrant that relate to 

processing materials into a finished 

product and delivering it or providing a 

service to the end user (e.g., 

transportation and distribution, 

processing of sold products, use of sold 

products, end of life treatment of sold 

products, and investments). 


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§ 229.1501 (Item 1501) Governance. 

(a)(1) Describe the board of director’s 

oversight of climate-related risks. 

Include the following, as applicable: 

(i) The identity of any board members 

or board committee responsible for the 

oversight of climate-related risks; 

(ii) Whether any member of the board 

of directors has expertise in climaterelated risks, with disclosure in such 

detail as necessary to fully describe the 

nature of the expertise; 

(iii) The processes by which the board 

of directors or board committee 

discusses climate-related risks, 

including how the board is informed 

about climate-related risks, and the 

frequency of such discussion; 

(iv) Whether and how the board of 

directors or board committee considers 

climate-related risks as part of its 

business strategy, risk management, and 

financial oversight; and 

(v) Whether and how the board of 

directors sets climate-related targets or 

goals, and how it oversees progress 

against those targets or goals, including 

the establishment of any interim targets 

or goals. 

(2) If applicable, a registrant may also 

describe the board of director’s 

oversight of climate-related 

opportunities. 

(b)(1) Describe management’s role in 

assessing and managing climate-related 

risks. Include the following, as 

applicable: 

(i) Whether certain management 

positions or committees are responsible 

for assessing and managing climaterelated risks and, if so, the identity of 

such positions or committees and the 

relevant expertise of the position 

holders or members in such detail as 

necessary to fully describe the nature of 

the expertise; 

(ii) The processes by which such 

positions or committees are informed 

about and monitor climate-related risks; 

and 

(iii) Whether and how frequently such 

positions or committees report to the 

board or a committee of the board on 

climate-related risks. 

(2) If applicable, a registrant may also 

describe management’s role in assessing 

and managing climate-related 

opportunities. 

§ 229.1502 (Item 1502) Strategy, business 

model, and outlook. 

(a) Describe any climate-related risks 

reasonably likely to have a material 

impact on the registrant, including on 

its business or consolidated financial 

statements, which may manifest over 

the short, medium, and long term. If 

applicable, a registrant may also 

disclose the actual and potential 

impacts of any climate-related 

opportunities when responding to any 

of the provisions in this section. 

(1) Discuss such climate-related risks, 

specifying whether they are physical or 

transition risks and the nature of the 

risks presented. 

(i) For physical risks, describe the 

nature of the risk, including if it may be 

categorized as an acute or chronic risk, 

and the location and nature of the 

properties, processes, or operations 

subject to the physical risk. 

(A) If a risk concerns the flooding of 

buildings, plants, or properties located 

in flood hazard areas, disclose the 

percentage of those assets (square 

meters or acres) that are located in flood 

hazard areas in addition to their 

location. 

(B) If a risk concerns the location of 

assets in regions of high or extremely 

high water stress, disclose the amount of 

assets (e.g., book value and as a 

percentage of total assets) located in 

those regions in addition to their 

location. Also disclose the percentage of 

the registrant’s total water usage from 

water withdrawn in those regions. 

(ii) For transition risks, describe the 

nature of the risk, including whether it 

relates to regulatory, technological, 

market (including changing consumer, 

business counterparty, and investor 

preferences), liability, reputational, or 

other transition-related factors, and how 

those factors impact the registrant. A 

registrant that has significant operations 

in a jurisdiction that has made a GHG 

emissions reduction commitment may 

be exposed to transition risks related to 

the implementation of the commitment. 

(2) Describe how the registrant defines 

short-, medium-, and long-term time 

horizons, including how it takes into 

account or reassesses the expected 

useful life of the registrant’s assets and 

the time horizons for the registrant’s 

climate-related planning processes and 

goals. 

(b) Describe the actual and potential 

impacts of any climate-related risks 

identified in response to paragraph (a) 

of this section on the registrant’s 

strategy, business model, and outlook. 

(1) Include impacts on the registrant’s: 

(i) Business operations, including the 

types and locations of its operations; 

(ii) Products or services; 

(iii) Suppliers and other parties in its 

value chain; 

(iv) Activities to mitigate or adapt to 

climate-related risks, including 

adoption of new technologies or 

processes; 

(v) Expenditure for research and 

development; and 

(vi) Any other significant changes or 

impacts. 

(2) Include the time horizon for each 

described impact (i.e., in the short, 

medium, or long term, as defined in 

response to paragraph (a) of this 

section). 

(c) Discuss whether and how any 

impacts described in response to 

paragraph (b) of this section are 

considered as part of the registrant’s 

business strategy, financial planning, 

and capital allocation. Provide both 

current and forward-looking disclosures 

that facilitate an understanding of 

whether the implications of the 

identified climate-related risks have 

been integrated into the registrant’s 

business model or strategy, including 

how any resources are being used to 

mitigate climate-related risks. Include in 

this discussion how any of the metrics 

referenced in § 210.14–02 of this chapter 

and § 229.1504 or any of the targets 

referenced in § 229.1506 relate to the 

registrant’s business model or business 

strategy. If applicable, include in this 

discussion the role that carbon offsets or 

RECs play in the registrant’s climaterelated business strategy. 

(d) Provide a narrative discussion of 

whether and how any climate-related 

risks described in response to paragraph 

(a) of this section have affected or are 

reasonably likely to affect the 

registrant’s consolidated financial 

statements. The discussion should 

include any of the climate-related 

metrics referenced in § 210.14–02 of this 

chapter that demonstrate that the 

identified climate-related risks have had 

a material impact on reported financial 

condition or operations. 

(e)(1) If a registrant maintains an 

internal carbon price, disclose: 

(i) The price in units of the 

registrant’s reporting currency per 

metric ton of CO2e; 

(ii) The total price, including how the 

total price is estimated to change over 

time, if applicable; 

(iii) The boundaries for measurement 

of overall CO2e on which the total price 

is based if different from the GHG 

emission organizational boundary 

required pursuant to § 229.1504(e)(2); 

and 

(iv) The rationale for selecting the 

internal carbon price applied. 

(2) Describe how the registrant uses 

any internal carbon price described in 

response to paragraph (e)(1) of this 

section to evaluate and manage climaterelated risks. 

(3) If a registrant uses more than one 

internal carbon price, it must provide 

the disclosures required by this section 

for each internal carbon price, and 

disclose its reasons for using different 

prices. 


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(f) Describe the resilience of the 

registrant’s business strategy in light of 

potential future changes in climaterelated risks. Describe any analytical 

tools, such as scenario analysis, that the 

registrant uses to assess the impact of 

climate-related risks on its business and 

consolidated financial statements, and 

to support the resilience of its strategy 

and business model. If the registrant 

uses scenario analysis to assess the 

resilience of its business strategy to 

climate-related risks, disclose the 

scenarios considered (e.g., an increase of 

no greater than 3 °C, 2 °C, or 1.5 °C 

above pre-industrial levels), including 

parameters, assumptions, and analytical 

choices, and the projected principal 

financial impacts on the registrant’s 

business strategy under each scenario. 

The disclosure should include both 

qualitative and quantitative information. 

§ 229.1503 (Item 1503) Risk management. 

(a) Describe any processes the 

registrant has for identifying, assessing, 

and managing climate-related risks. If 

applicable, a registrant may also 

describe any processes for identifying, 

assessing, and managing climate-related 

opportunities when responding to any 

of the provisions in this section. 

(1) When describing any processes for 

identifying and assessing climaterelated risks, disclose, as applicable, 

how the registrant: 

(i) Determines the relative 

significance of climate-related risks 

compared to other risks; 

(ii) Considers existing or likely 

regulatory requirements or policies, 

such as GHG emissions limits, when 

identifying climate-related risks; 

(iii) Considers shifts in customer or 

counterparty preferences, technological 

changes, or changes in market prices in 

assessing potential transition risks; and 

(iv) Determines the materiality of 

climate-related risks, including how it 

assesses the potential scope and impact 

of an identified climate-related risk, 

such as the risks identified in response 

to § 229.1502. 

(2) When describing any processes for 

managing climate-related risks, disclose, 

as applicable, how the registrant: 

(i) Decides whether to mitigate, 

accept, or adapt to a particular risk; 

(ii) Prioritizes whether to address 

climate-related risks; and 

(iii) Determines how to mitigate any 

high priority risks. 

(b) Disclose whether and how any 

processes described in response to 

paragraph (a) of this section are 

integrated into the registrant’s overall 

risk management system or processes. If 

a separate board or management 

committee is responsible for assessing 

and managing climate-related risks, a 

registrant should disclose how that 

committee interacts with the registrant’s 

board or management committee 

governing risks. 

(c)(1) If the registrant has adopted a 

transition plan as part of its climaterelated risk management strategy, 

describe the plan, including the relevant 

metrics and targets used to identify and 

manage any physical and transition 

risks. To allow for an understanding of 

the registrant’s progress to meet the 

plan’s targets or goals over time, a 

registrant must update its disclosure 

about the transition plan each fiscal year 

by describing the actions taken during 

the year to achieve the plan’s targets or 

goals. 

(2) If the registrant has adopted a 

transition plan, discuss, as applicable: 

(i) How the registrant plans to 

mitigate or adapt to any identified 

physical risks, including but not limited 

to those concerning energy, land, or 

water use and management; 

(ii) How the registrant plans to 

mitigate or adapt to any identified 

transition risks, including the following: 

(A) Laws, regulations, or policies that: 

(1) Restrict GHG emissions or 

products with high GHG footprints, 

including emissions caps; or 

(2) Require the protection of high 

conservation value land or natural 

assets; 

(B) Imposition of a carbon price; and 

(C) Changing demands or preferences 

of consumers, investors, employees, and 

business counterparties. 

(3) If applicable, a registrant that has 

adopted a transition plan as part of its 

climate-related risk management 

strategy may also describe how it plans 

to achieve any identified climate-related 

opportunities, such as: 

(i) The production of products that 

may facilitate the transition to a lower 

carbon economy, such as low emission 

modes of transportation and supporting 

infrastructure; 

(ii) The generation or use of 

renewable power; 

(iii) The production or use of low 

waste, recycled, or other consumer 

products that require less carbon 

intensive production methods; 

(iv) The setting of conservation goals 

and targets that would help reduce GHG 

emissions; and 

(v) The provision of services related to 

any transition to a lower carbon 

economy. 

§ 229.1504 (Item 1504) GHG emissions 

metrics. 

(a) General. Disclose a registrant’s 

GHG emissions, as defined in 

§ 229.1500(h), for its most recently 

completed fiscal year, and for the 

historical fiscal years included in its 

consolidated financial statements in the 

filing, to the extent such historical GHG 

emissions data is reasonably available. 

(1) For each required disclosure of a 

registrant’s Scopes 1, 2, and 3 

emissions, disclose the emissions both 

disaggregated by each constituent 

greenhouse gas, as specified in 

§ 229.1500(g), and in the aggregate, 

expressed in terms of CO2e. 

(2) When disclosing a registrant’s 

Scopes 1, 2, and 3 emissions, exclude 

the impact of any purchased or 

generated offsets. 

(b) Scopes 1 and 2 emissions. (1) 

Disclose the registrant’s total Scope 1 

emissions and total Scope 2 emissions 

separately after calculating them from 

all sources that are included in the 

registrant’s organizational and 

operational boundaries. 

(2) When calculating emissions 

pursuant to paragraph (b)(1) of this 

section, a registrant may exclude 

emissions from investments that are not 

consolidated, are not proportionately 

consolidated, or that do not qualify for 

the equity method of accounting in the 

registrant’s consolidated financial 

statements. 

(c) Scope 3 emissions. (1) Disclose the 

registrant’s total Scope 3 emissions if 

material. A registrant must also disclose 

its Scope 3 emissions if it has set a GHG 

emissions reduction target or goal that 

includes its Scope 3 emissions. 

Disclosure of a registrant’s Scope 3 

emissions must be separate from 

disclosure of its Scopes 1 and 2 

emissions. If required to disclose Scope 

3 emissions, identify the categories of 

upstream or downstream activities that 

have been included in the calculation of 

the Scope 3 emissions. If any category 

of Scope 3 emissions is significant to the 

registrant, identify all such categories 

and provide Scope 3 emissions data 

separately for them, together with the 

registrant’s total Scope 3 emissions. 

(2) If required to disclose Scope 3 

emissions, describe the data sources 

used to calculate the registrant’s Scope 

3 emissions, including the use of any of 

the following: 

(i) Emissions reported by parties in 

the registrant’s value chain, and 

whether such reports were verified by 

the registrant or a third party, or 

unverified; 

(ii) Data concerning specific activities, 

as reported by parties in the registrant’s 

value chain; and 

(iii) Data derived from economic 

studies, published databases, 

government statistics, industry 

associations, or other third-party 

sources outside of a registrant’s value 


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chain, including industry averages of 

emissions, activities, or economic data. 

(3) A smaller reporting company, as 

defined by §§ 229.10(f)(1), 230.405, and 

240.12b–2 of this chapter, is exempt 

from, and need not comply with, the 

disclosure requirements of this 

paragraph (c). 

(d) GHG intensity. (1) Using the sum 

of Scope 1 and 2 emissions, disclose 

GHG intensity in terms of metric tons of 

CO2e per unit of total revenue (using the 

registrant’s reporting currency) and per 

unit of production relevant to the 

registrant’s industry for each fiscal year 

included in the consolidated financial 

statements. Disclose the basis for the 

unit of production used. 

(2) If Scope 3 emissions are otherwise 

disclosed, separately disclose GHG 

intensity using Scope 3 emissions only. 

(3) If a registrant has no revenue or 

unit of production for a fiscal year, it 

must disclose another financial measure 

of GHG intensity or another measure of 

GHG intensity per unit of economic 

output, as applicable, with an 

explanation of why the particular 

measure was used. 

(4) A registrant may also disclose 

other measures of GHG intensity, in 

addition to metric tons of CO2e per unit 

of total revenue (using the registrant’s 

reporting currency) and per unit of 

production, if it includes an explanation 

of why a particular measure was used 

and why the registrant believes such 

measure provides useful information to 

investors. 

(e) Methodology and related 

instructions. (1) A registrant must 

describe the methodology, significant 

inputs, and significant assumptions 

used to calculate its GHG emissions. 

The description of the registrant’s 

methodology must include the 

registrant’s organizational boundaries, 

operational boundaries (including any 

approach to categorization of emissions 

and emissions sources), calculation 

approach (including any emission 

factors used and the source of the 

emission factors), and any calculation 

tools used to calculate the GHG 

emissions. A registrant’s description of 

its approach to categorization of 

emissions and emissions sources should 

explain how it determined the 

emissions to include as direct 

emissions, for the purpose of calculating 

its Scope 1 emissions, and indirect 

emissions, for the purpose of calculating 

its Scope 2 emissions. 

(2) The organizational boundary and 

any determination of whether a 

registrant owns or controls a particular 

source for GHG emissions must be 

consistent with the scope of entities, 

operations, assets, and other holdings 

within its business organization as those 

included in, and based upon the same 

set of accounting principles applicable 

to, the registrant’s consolidated 

financial statements. 

(3) A registrant must use the same 

organizational boundaries when 

calculating its Scope 1 emissions and 

Scope 2 emissions. If required to 

disclose Scope 3 emissions, a registrant 

must also apply the same organizational 

boundaries used when determining its 

Scopes 1 and 2 emissions as an initial 

step in identifying the sources of 

indirect emissions from activities in its 

value chain over which it lacks 

ownership and control and which must 

be included in the calculation of its 

Scope 3 emissions. Once a registrant has 

determined its organizational and 

operational boundaries, a registrant 

must be consistent in its use of those 

boundaries when calculating its GHG 

emissions. 

(4) A registrant may use reasonable 

estimates when disclosing its GHG 

emissions as long as it also describes the 

assumptions underlying, and its reasons 

for using, the estimates. 

(i) When disclosing its GHG emissions 

for its most recently completed fiscal 

year, if actual reported data is not 

reasonably available, a registrant may 

use a reasonable estimate of its GHG 

emissions for its fourth fiscal quarter, 

together with actual, determined GHG 

emissions data for the first three fiscal 

quarters, as long as the registrant 

promptly discloses in a subsequent 

filing any material difference between 

the estimate used and the actual, 

determined GHG emissions data for the 

fourth fiscal quarter. 

(ii) In addition to the use of 

reasonable estimates, a registrant may 

present its estimated Scope 3 emissions 

in terms of a range as long as it discloses 

its reasons for using the range and the 

underlying assumptions. 

(5) A registrant must disclose, to the 

extent material and as applicable, any 

use of third-party data when calculating 

its GHG emissions, regardless of the 

particular scope of emissions. When 

disclosing the use of third-party data, it 

must identify the source of such data 

and the process the registrant undertook 

to obtain and assess such data. 

(6) A registrant must disclose any 

material change to the methodology or 

assumptions underlying its GHG 

emissions disclosure from the previous 

fiscal year. 

(7) A registrant must disclose, to the 

extent material and as applicable, any 

gaps in the data required to calculate its 

GHG emissions. A registrant’s GHG 

emissions disclosure should provide 

investors with a reasonably complete 

understanding of the registrant’s GHG 

emissions in each scope of emissions. If 

a registrant discloses any data gaps 

encountered when calculating its GHG 

emissions, it must also discuss whether 

it used proxy data or another method to 

address such gaps, and how its 

accounting for any data gaps has 

affected the accuracy or completeness of 

its GHG emissions disclosure. 

(8) When determining whether its 

Scope 3 emissions are material, and 

when disclosing those emissions, in 

addition to emissions from activities in 

its value chain, a registrant must 

include GHG emissions from outsourced 

activities that it previously conducted as 

part of its own operations, as reflected 

in the financial statements for the 

periods covered in the filing. 

(9) If required to disclose Scope 3 

emissions, when calculating those 

emissions, if there was any significant 

overlap in the categories of activities 

producing the Scope 3 emissions, a 

registrant must describe the overlap, 

how it accounted for the overlap, and 

the effect on its disclosed total Scope 3 

emissions. 

(f) Liability for Scope 3 emissions 

disclosures. (1) A statement within the 

coverage of paragraph (f)(2) of this 

section that is made by or on behalf of 

a registrant is deemed not to be a 

fraudulent statement (as defined in 

paragraph (f)(3) of this section), unless 

it is shown that such statement was 

made or reaffirmed without a reasonable 

basis or was disclosed other than in 

good faith. 

(2) This paragraph (f) applies to any 

statement regarding Scope 3 emissions 

that is disclosed pursuant to 

§§ 229.1500 through 229.1506 and made 

in a document filed with the 

Commission. 

(3) For the purpose of this paragraph 

(f), the term fraudulent statement shall 

mean a statement that is an untrue 

statement of material fact, a statement 

false or misleading with respect to any 

material fact, an omission to state a 

material fact necessary to make a 

statement not misleading, or that 

constitutes the employment of a 

manipulative, deceptive, or fraudulent 

device, contrivance, scheme, 

transaction, act, practice, course of 

business, or an artifice to defraud as 

those terms are used in the Securities 

Act of 1933 or the Securities Exchange 

Act of 1934 or the rules or regulations 

promulgated thereunder. 

§ 229.1505 Attestation of Scope 1 and 

Scope 2 emissions disclosure. 

(a) Attestation. (1) A registrant that is 

required to provide Scope 1 and Scope 

2 emissions disclosure pursuant to 


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§ 229.1504 and that is an accelerated 

filer or a large accelerated filer must 

include an attestation report covering 

such disclosure in the relevant filing. 

For filings made by an accelerated filer 

or a large accelerated filer for the second 

and third fiscal years after the 

compliance date for § 229.1504, the 

attestation engagement must, at a 

minimum, be at a limited assurance 

level and cover the registrant’s Scope 1 

and Scope 2 emissions disclosure. For 

filings made by an accelerated filer or 

large accelerated filer for the fourth 

fiscal year after the compliance date for 

§ 229.1504 and thereafter, the attestation 

engagement must be at a reasonable 

assurance level and, at a minimum, 

cover the registrant’s Scope 1 and Scope 

2 emissions disclosures. 

(2) Any attestation report required 

under this section must be provided 

pursuant to standards that are publicly 

available at no cost and are established 

by a body or group that has followed 

due process procedures, including the 

broad distribution of the framework for 

public comment. An accelerated filer or 

a large accelerated filer obtaining 

voluntary assurance prior to the first 

required fiscal year must comply with 

subparagraph (e) of this section. 

Voluntary assurance obtained by an 

accelerated filer or a large accelerated 

filer thereafter must follow the 

requirements of paragraphs (b) through 

(d) of this section and must use the 

same attestation standard as the 

required assurance over Scope 1 and 

Scope 2. 

(b) GHG emissions attestation 

provider. The GHG emissions attestation 

report required by paragraph (a) of this 

section must be prepared and signed by 

a GHG emissions attestation provider. A 

GHG emissions attestation provider 

means a person or a firm that has all of 

the following characteristics: 

(1) Is an expert in GHG emissions by 

virtue of having significant experience 

in measuring, analyzing, reporting, or 

attesting to GHG emissions. Significant 

experience means having sufficient 

competence and capabilities necessary 

to: 

(i) Perform engagements in 

accordance with professional standards 

and applicable legal and regulatory 

requirements; and 

(ii) Enable the service provider to 

issue reports that are appropriate under 

the circumstances. 

(2) Is independent with respect to the 

registrant, and any of its affiliates, for 

whom it is providing the attestation 

report, during the attestation and 

professional engagement period. 

(i) A GHG emissions attestation 

provider is not independent if such 

attestation provider is not, or a 

reasonable investor with knowledge of 

all relevant facts and circumstances 

would conclude that such attestation 

provider is not, capable of exercising 

objective and impartial judgment on all 

issues encompassed within the 

attestation provider’s engagement. 

(ii) In determining whether a GHG 

emissions attestation provider is 

independent, the Commission will 

consider: 

(A) Whether a relationship or the 

provision of a service creates a mutual 

or conflicting interest between the 

attestation provider and the registrant 

(or any of its affiliates), places the 

attestation provider in the position of 

attesting such attestation provider’s own 

work, results in the attestation provider 

acting as management or an employee of 

the registrant (or any of its affiliates), or 

places the attestation provider in a 

position of being an advocate for the 

registrant (or any of its affiliates); and 

(B) All relevant circumstances, 

including all financial or other 

relationships between the attestation 

provider and the registrant (or any of its 

affiliates), and not just those relating to 

reports filed with the Commission. 

(iii) The term ‘‘affiliates’’ as used in 

this section has the meaning provided 

in 17 CFR 210.2–01, except that 

references to ‘‘audit’’ are deemed to be 

references to the attestation services 

provided pursuant to this section. 

(iv) The term ‘‘attestation and 

professional engagement period’’ as 

used in this section means both: 

(A) The period covered by the 

attestation report; and 

(B) The period of the engagement to 

attest to the registrant’s GHG emissions 

or to prepare a report filed with the 

Commission (‘‘the professional 

engagement period’’). The professional 

engagement period begins when the 

GHG attestation service provider either 

signs an initial engagement letter (or 

other agreement to attest a registrant’s 

GHG emissions) or begins attest 

procedures, whichever is earlier. 

(c) Attestation report requirements. 

The GHG emissions attestation report 

required by paragraph (a) of this section 

must be included in the separately 

captioned ‘‘Climate-Related Disclosure’’ 

section in the filing. The form and 

content of the attestation report must 

follow the requirements set forth by the 

attestation standard (or standards) used 

by the GHG emissions attestation 

provider. Notwithstanding the 

foregoing, at a minimum the report must 

include the following: 

(1) An identification or description of 

the subject matter or assertion being 

reported on, including the point in time 

or period of time to which the 

measurement or evaluation of the 

subject matter or assertion relates; 

(2) An identification of the criteria 

against which the subject matter was 

measured or evaluated; 

(3) A statement that identifies the 

level of assurance provided and 

describes the nature of the engagement; 

(4) A statement that identifies the 

attestation standard (or standards) used; 

(5) A statement that describes the 

registrant’s responsibility to report on 

the subject matter or assertion being 

reported on; 

(6) A statement that describes the 

attestation provider’s responsibilities in 

connection with the preparation of the 

attestation report; 

(7) A statement that the attestation 

provider is independent, as required by 

paragraph (a) of this section; 

(8) For a limited assurance 

engagement, a description of the work 

performed as a basis for the attestation 

provider’s conclusion; 

(9) A statement that describes 

significant inherent limitations, if any, 

associated with the measurement or 

evaluation of the subject matter against 

the criteria; 

(10) The GHG emissions attestation 

provider’s conclusion or opinion, based 

on the applicable attestation standard(s) 

used; 

(11) The signature of the attestation 

provider (whether by an individual or a 

person signing on behalf of the 

attestation provider’s firm); 

(12) The city and state where the 

attestation report has been issued; and 

(13) The date of the report. 

(d) Additional disclosures by the 

registrant. In addition to including the 

GHG emissions attestation report 

required by paragraph (a) of this section, 

a large accelerated filer and an 

accelerated filer must disclose the 

following information within the 

separately captioned ‘‘Climate-Related 

Disclosure’’ section in the filing, after 

requesting relevant information from 

any GHG emissions attestation provider 

as necessary: 

(1) Whether the attestation provider 

has a license from any licensing or 

accreditation body to provide assurance, 

and if so, identify the licensing or 

accreditation body, and whether the 

attestation provider is a member in good 

standing of that licensing or 

accreditation body; 

(2) Whether the GHG emissions 

attestation engagement is subject to any 

oversight inspection program, and if so, 

which program (or programs); and 

(3) Whether the attestation provider is 

subject to record-keeping requirements 

with respect to the work performed for 


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the GHG emissions attestation 

engagement and, if so, identify the 

record-keeping requirements and the 

duration of those requirements. 

(e) Disclosure of voluntary attestation. 

A registrant that is not required to 

include a GHG emissions attestation 

report pursuant to paragraph (a) of this 

section must disclose within the 

separately captioned ‘‘Climate-Related 

Disclosure’’ section in the filing the 

following information if the registrant’s 

GHG emissions disclosures were subject 

to third-party attestation or verification: 

(1) Identify the provider of such 

attestation or verification; 

(2) Describe the attestation or 

verification standard used; 

(3) Describe the level and scope of 

attestation or verification provided; 

(4) Briefly describe the results of the 

attestation or verification; 

(5) Disclose whether the third-party 

service provider has any other business 

relationships with or has provided any 

other professional services to the 

registrant that may lead to an 

impairment of the service provider’s 

independence with respect to the 

registrant; and 

(6) Disclose any oversight inspection 

program to which the service provider 

is subject (e.g., the AICPA’s peer review 

program). 

§ 229.1506 (Item 1506) Targets and goals. 

(a)(1) A registrant must provide 

disclosure pursuant to this section if it 

has set any targets or goals related to the 

reduction of GHG emissions, or any 

other climate-related target or goal (e.g., 

regarding energy usage, water usage, 

conservation or ecosystem restoration, 

or revenues from low-carbon products) 

such as actual or anticipated regulatory 

requirements, market constraints, or 

other goals established by a climaterelated treaty, law, regulation, policy, or 

organization. 

(2) A registrant may provide the 

disclosure required by this section as 

part of its disclosure in response to 

§ 229.1502 or § 229.1503. 

(b) If the registrant has set climaterelated targets or goals, disclose the 

targets or goals, including, as applicable, 

a description of: 

(1) The scope of activities and 

emissions included in the target; 

(2) The unit of measurement, 

including whether the target is absolute 

or intensity based; 

(3) The defined time horizon by 

which the target is intended to be 

achieved, and whether the time horizon 

is consistent with one or more goals 

established by a climate-related treaty, 

law, regulation, policy, or organization; 

(4) The defined baseline time period 

and baseline emissions against which 

progress will be tracked with a 

consistent base year set for multiple 

targets; 

(5) Any interim targets set by the 

registrant; and 

(6) How the registrant intends to meet 

its climate-related targets or goals. For 

example, for a target or goal regarding 

net GHG emissions reduction, the 

discussion could include a strategy to 

increase energy efficiency, transition to 

lower carbon products, purchase carbon 

offsets or RECs, or engage in carbon 

removal and carbon storage. 

(c) Disclose relevant data to indicate 

whether the registrant is making 

progress toward meeting the target or 

goal and how such progress has been 

achieved. A registrant must update this 

disclosure each fiscal year by describing 

the actions taken during the year to 

achieve its targets or goals. 

(d) If carbon offsets or RECs have been 

used as part of a registrant’s plan to 

achieve climate-related targets or goals, 

disclose the amount of carbon reduction 

represented by the offsets or the amount 

of generated renewable energy 

represented by the RECS, the source of 

the offsets or RECs, a description and 

location of the underlying projects, any 

registries or other authentication of the 

offsets or RECs, and the cost of the 

offsets or RECs. 

§ 229.1507 (Item 1507) Interactive data 

requirement. 

Provide the disclosure required by 

this Subpart 1500 in an Interactive Data 

File as required by § 232.405 of this 

chapter (Rule 405 of Regulation S–T) in 

accordance with the EDGAR Filer 

Manual. 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 6. The general authority citation for 

part 232 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, 7201 et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

■ 7. Amend § 232.405 by adding 

paragraphs (b)(1)(iii), (b)(3)(i)(C), and 

(b)(4) as follows: 

§ 232.405 Interactive Data File 

submissions. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) As applicable, the disclosure set 

forth in paragraph (4) of this section. 

* * * * * 

(3) * * * 

(i) * * * 

(C) The disclosure set forth in 

paragraph (4) of this section. 

(4) An Interactive Data File must 

consist of the disclosure provided under 

17 CFR 229 (Regulation S–K) and 

related provisions that is required to be 

tagged, including, as applicable: 

(i) The climate-related information 

required by Subpart 1500 of Regulation 

S–K (§§ 229.1500 through 229.1507 of 

this chapter). 

* * * * * 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 8. The general authority citation for 

part 239 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m,78n, 

78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 

and 80a–37; and sec. 107, Pub. L. 112–106, 

126 Stat. 312, unless otherwise noted. 

* * * * * 

■ 9. Amend Form S–1 (referenced in 

§ 239.11) by adding Item 11(o) to Part I 

to read as follows: 

Note: The text of Form S–1 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM S–1 

* * * * * 

PART I—INFORMATION REQUIRED 

IN PROSPECTUS 

* * * * * 

Item 11. Information With Respect to 

the Registrant. 

* * * * * 

(o) Information required by Subpart 

1500 of Regulation S–K (17 CFR 

229.1500 through 229.1507), in a part of 

the registration statement that is 

separately captioned as Climate-Related 

Disclosure. Pursuant to Rule 411 (17 

CFR 230.411) and General Instruction 

VII of this form, a registrant may 

incorporate by reference disclosure from 

other parts of the registration statement 

(e.g., Risk Factors, Business, 

Management’s Discussion and Analysis, 

or the financial statements) or from a 

separately filed annual report or other 

periodic report into the Climate-Related 

Disclosure item if it is responsive to the 

topics specified in Items 1500 through 

1507 of Regulation S–K. 

* * * * * 

■ 10. Amend Form S–11 (referenced in 

§ 239.18) by adding Item 9 to Part I to 

read as follows: 

Note: The text of Form S–11 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 


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21472 Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 

FORM S–11 

* * * * * 

PART I. INFORMATION REQUIRED IN 

PROSPECTUS 

* * * * * 

Item 9. Climate-related disclosure. 

Provide the information required by 

Subpart 1500 of Regulation S–K (17 CFR 

229.1500 through 229.1507), in a part of 

the registration statement that is 

separately captioned as Climate-Related 

Disclosure. Pursuant to Rule 411 (17 

CFR 230.411) and General Instruction H 

of this form, a registrant may 

incorporate by reference disclosure from 

other parts of the registration statement 

(e.g., Risk Factors, Management’s 

Discussion and Analysis, or the 

financial statements) or from a 

separately filed annual report or other 

periodic report into the Climate-Related 

Disclosure item if it is responsive to the 

topics specified in Items 1500 through 

1507 of Regulation S–K. 

* * * * * 

■ 11. Amend Form S–4 (referenced in 

§ 239.25) by: 

■ a. Adding paragraph (k) to Item 14 to 

Part I; and 

■ b. Adding paragraph (b)(11) to Item 17 

to Part I. 

The additions read as follows: 

Note: The text of Form S–4 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM S–4 

* * * * * 

PART I 

INFORMATION REQUIRED IN THE 

PROSPECTUS 

* * * * * 

Item 14. Information With Respect to 

Registrants Other Than S–3 Registrants. 

* * * * * 

(k) Information required by Subpart 

1500 of Regulation S–K (17 CFR 

229.1500 through 229.1507), in a part of 

the registration statement that is 

separately captioned as Climate-Related 

Disclosure. Pursuant to Rule 411 (17 

CFR 230.411) a registrant may 

incorporate by reference disclosure from 

other parts of the registration statement 

(e.g., Risk Factors, Description of 

Business, Management’s Discussion and 

Analysis, or the financial statements) 

into the Climate-Related Disclosure item 

if it is responsive to the topics specified 

in Items 1500 through 1507 of 

Regulation S–K. 

* * * * * 

Item 17. Information With Respect to 

Companies Other Than S–3 Companies. 

* * * * * 

(b) * * * 

(11) Information required by Items 

1500–1507 of Regulation S–K (17 CFR 

229.1500 through § 229.1507), in a part 

of the registration statement that is 

separately captioned as Climate-Related 

Disclosure of Company Being Acquired. 

* * * * * 

■ 12. Amend Form F–4 (referenced in 

§ 239.34) by: 

■ a. Adding paragraph (k) to Item 14 to 

Part I; and 

■ b. Amending paragraph (3) to Item 

17(b) to Part I. 

The additions read as follows: 

Note: The text of Form F–4 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM F–4 

* * * * * 

PART I 

INFORMATION REQUIRED IN THE 

PROSPECTUS 

* * * * * 

Item 14. Information With Respect to 

Foreign Registrants Other Than F–3 

Registrants. 

* * * * * 

(k) Item 3.E of Form 20–F, climaterelated disclosure. 

* * * * * 

Item 17. Information With Respect to 

Foreign Companies Other Than F–3 

Companies. 

* * * * * 

(b) * * * 

(3) Item 3.E of Form 20–F, climaterelated disclosure; 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 13. The authority citation for part 249 

continues to read as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b) Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3) Pub. L. 112–106, 126 Stat. 309 

(2012), Sec. 107 Pub. L. 112–106, 126 Stat. 

313 (2012), Sec. 72001 Pub. L. 114–94, 129 

Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 

116–222, 134 Stat. 1063 (2020), unless 

otherwise noted. 

* * * * * 

Section 249.220f is also issued under 

secs. 3(a), 202, 208, 302, 306(a), 401(a), 

401(b), 406 and 407, Pub. L. 107–204, 

116 Stat. 745, and secs. 2 and 3, Pub. L. 

116–222, 134 Stat. 1063. 

Section 249.308a is also issued under 

secs. 3(a) and 302, Pub. L. 107–204, 116 

Stat. 745. 

* * * * * 

Section 249.310 is also issued under 

secs. 3(a), 202, 208, 302, 406 and 407, 

Pub. L. 107–204, 116 Stat. 745. 

* * * * * 

■ 14. Amend Form 10 (referenced in 

§ 249.210) by adding Item 3.A 

(‘‘Climate-Related Disclosure’’) to read 

as follows: 

Note: The text of Form 10 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM 10 

* * * * * 

Item 3.A Climate-Related Disclosure. 

Provide the information required by 

Subpart 1500 of Regulation S–K (17 CFR 

229.1500 through 229.1507), in a part of 

the registration statement that is 

separately captioned as Climate-Related 

Disclosure. Pursuant to Exchange Act 

Rule 12b–23 (17 CFR 240.12b–23) and 

General Instruction F of this form, a 

registrant may incorporate by reference 

disclosure from other parts of the 

registration statement (e.g., Risk Factors, 

Business, Management’s Discussion and 

Analysis, or the financial statements) 

into the Climate-Related Disclosure item 

if it is responsive to the topics specified 

in Item 1500 through 1507 of Regulation 

S–K. 

* * * * * 

■ 15. Amend Form 20–F (referenced in 

§ 249.220f) by adding Item 3.E 

(‘‘Climate-related disclosure’’) to Part I 

to read as follows: 

Note: The text of Form 20–F does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM 20–F 

* * * * * 

PART I 

* * * * * 

Item 3. Key Information 

* * * * * 

E. Climate-Related Disclosure 

1. Required disclosure. The company 

must provide disclosure responsive to 

the topics specified in Subpart 1500 of 

Regulation S–K (17 CFR 229.1500 

through 229.1507) in a part of the 

registration statement or annual report 

that is separately captioned as ClimateRelated Disclosure. 

2. Incorporation by reference. 

Pursuant to Rule 12b–23 (17 CFR 

240.12b–23), the company may 

incorporate by reference disclosure from 

other parts of the registration statement 


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Federal Register / Vol. 87, No. 69 / Monday, April 11, 2022 / Proposed Rules 21473 

or annual report (e.g., Risk Factors, 

Information on the Company, Operating 

and Financial Review and Prospects, or 

the financial statements) into the 

Climate-Related Disclosure item if it is 

responsive to the topics specified in 

Item 1500 through 1507 of Regulation 

S–K. 

* * * * * 

■ 16. Amend Form 6–K (referenced in 

§ 249.306) by adding the phrase 

‘‘climate-related disclosure;’’ before the 

phrase ‘‘and any other information 

which the registrant deems of material 

importance to security holders.’’ in the 

second paragraph of General Instruction 

B. 

■ 17. Amend Form 10–Q (referenced in 

§ 249.308a) by adding Item 1.B 

(‘‘Climate-Related disclosure’’) to Part II 

(‘‘Other Information’’) to read as 

follows: 

Note: The text of Form 10–Q does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM 10–Q 

* * * * * 

Item 1B. Climate-Related Disclosure. 

Disclose any material changes to the 

disclosures provided in response to Item 

6 (‘‘Climate-related disclosure’’) of Part 

II to the registrant’s Form 10–K (17 CFR 

229.310). 

* * * * * 

■ 18. Amend Form 10–K (referenced in 

§ 249.310) by: 

■ a. Revising paragraph (1)(g) of General 

Instruction J (‘‘Use of this Form by 

Asset-backed Issuers’’); and 

■ b. Adding Item 6 (‘‘Climate-Related 

Disclosure’’) to Part II to read as follows: 

The revision and addition read as 

follows: 

Note: The text of Form 10–K does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

FORM 10–K 

* * * * * 

GENERAL INSTRUCTIONS 

* * * * * 

J. Use of This Form by Asset-Backed 

Issuers. 

* * * * * 

(1) * * * 

(g) Item 6, Climate-Related Disclosure; 

* * * * * 

Part II 

* * * * * 

Item 6. Climate-Related Disclosure 

Provide the disclosure required by 

Subpart 1500 of Regulation S–K (17 CFR 

229.1500 through 229.1507) in a part of 

the annual report that is separately 

captioned as Climate-Related 

Disclosure. Pursuant to Rule 12b–23 (17 

CFR 240.12b–23) and General 

Instruction G of this form, a registrant 

may incorporate by reference disclosure 

from other parts of the registration 

statement or annual report (e.g., Risk 

Factors, Business, Management’s 

Discussion and Analysis, or the 

financial statements) into the ClimateRelated Disclosure item if it is 

responsive to the topics specified in 

Item 1500 through 1507 of Regulation 

S–K. 

* * * * * 

By the Commission. 

Dated: March 21, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–06342 Filed 4–8–22; 8:45 am] 

BILLING CODE 8011–01–P 


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