II 117th CONGRESS 1st Session S. 1217 IN THE SENATE OF THE UNITED STATES April 19, 2021 Ms. Warren (for herself, Mr. Schatz , Mr. Whitehouse , Mr. Blumenthal , Mrs. Feinstein , Mr. Van Hollen , Mr. Markey , Ms. Klobuchar , Ms. Smith , Mrs. Gillibrand , Mr. Merkley , Mr. Bennet , Mr. Carper , Mr. Schumer , and Mr. Booker ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to require certain disclosures relating to climate change, and for other purposes.

1. Short title This Act may be cited as the Climate Risk Disclosure Act of 2021 . 2. Sense of Congress It is the sense of Congress that— (1) climate change poses a significant and increasing threat to the growth and stability of the economy of the United States; (2) many sectors of the economy of the United States, and many businesses in the United States, are exposed to climate-related risk, which may include exposure to— (A) the physical impacts of climate change, including the rise of the average global temperature, accelerating sea-level rise, desertification, ocean acidification, intensification of storms, increase in heavy precipitation, more frequent and intense temperature extremes, more severe droughts, and longer wildfire seasons; (B) the economic disruptions and security threats that result from the physical impacts described in subparagraph (A), including conflicts over scarce resources, conditions conducive to violent extremism, the spread of infectious diseases, and forced migration; (C) the transition impacts that result as the global economy transitions to a clean and renewable energy, low-emissions economy, including financial impacts as climate change causes fossil fuel assets to become stranded and it becomes uneconomic for companies to develop fossil fuel assets as policymakers act to limit the worst impacts of climate change by keeping the rise in average global temperature to 1.5 degrees Celsius above pre-industrial levels; and (D) actions by Federal, State, Tribal, and local governments to limit the worst effects of climate change by enacting policies that keep the global average surface temperature rise to 1.5 degrees Celsius above pre-industrial levels; (3) assessing the potential impact of climate-related risks on national and international financial systems is an urgent concern; (4) companies have a duty to disclose financial risks that climate change presents to their investors, lenders, and insurers; (5) the Securities and Exchange Commission (referred to in this Act as the Commission ) has a duty to promote a risk-informed securities market that is worthy of the trust of the public as families invest for their futures; (6) investors, lenders, and insurers are increasingly demanding climate risk information that is consistent, comparable, reliable, and clear; (7) including standardized, material climate change risk and opportunity disclosure that is useful for decision makers in annual reports to the Commission will increase transparency with respect to risk accumulation and exposure in financial markets; (8) requiring companies to disclose climate-related risk exposure and risk management strategies will encourage a smoother transition to a clean and renewable energy, low-emissions economy and guide capital allocation to mitigate, and adapt to, the effects of climate change and limit damages associated with climate-related events and disasters; and (9) a critical component in fighting climate change is a transparent accounting of the risks that climate change presents and the implications of continued inaction with respect to climate change. 3. Disclosures relating to climate change Section 13 of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m ) is amended by adding at the end the following: (s) Disclosures relating to climate change (1) Definitions In this subsection: (A) 1.5 degree scenario The term 1.5 degree scenario means a scenario that aligns with greenhouse gas emissions pathways that aim for limiting global warming to 1.5 degrees Celsius above pre-industrial levels. (B) Appropriate climate principals The term appropriate climate principals means— (i) the Administrator of the Environmental Protection Agency; (ii) the Administrator of the National Oceanic and Atmospheric Administration; (iii) the Director of the Office of Management and Budget; (iv) the Secretary of the Interior; (v) the Secretary of Energy; and (vi) the head of any other Federal agency, as determined appropriate by the Commission. (C) Baseline scenario The term baseline scenario means a widely-recognized analysis scenario in which levels of greenhouse gas emissions, as of the date on which the analysis is performed, continue to grow, resulting in an increase in the global average temperature of 1.5 degrees Celsius or more above pre-industrial levels. (D) Carbon dioxide equivalent The term carbon dioxide equivalent means the number of metric tons of carbon dioxide emissions with the same global warming potential as 1 metric ton of another greenhouse gas, as determined under table A–1 of subpart A of part 98 of title 40, Code of Federal Regulations, as in effect on the date of enactment of this subsection. (E) Climate change The term climate change means a change of climate that is— (i) attributed directly or indirectly to human activity that alters the composition of the global atmosphere; and (ii) in addition to natural climate variability observed over comparable time periods. (F) Commercial development of fossil fuels The term commercial development of fossil fuels includes— (i) exploration, extraction, processing, exporting, transporting, refining, and any other significant action with respect to oil, natural gas, or coal, any byproduct thereof, or any other solid or liquid hydrocarbons that are commercially produced; or (ii) acquiring a license for any activity described in clause (i). (G) Covered issuer The term covered issuer means an issuer that is required to file an annual report under subsection (a) or section 15(d). (H) Direct and indirect greenhouse gas emissions The term direct and indirect greenhouse gas emissions includes, with respect to a covered issuer— (i) all direct greenhouse gas emissions released by the covered issuer; (ii) all indirect greenhouse gas emissions with respect to electricity, heat, or steam purchased by the covered issuer; (iii) significant indirect emissions, other than the emissions described in clause (ii), emitted in the value chain of the covered issuer; and (iv) all indirect greenhouse gas emissions that are attributable to assets owned or managed, including assets that are partially owned or managed, by the covered issuer. (I) Fossil fuel reserve The term fossil fuel reserve has the meaning given the term reserves under the final rule of the Commission titled Modernization of Oil and Gas Reporting (74 Fed. Reg. 2158; published January 14, 2009). (J) Greenhouse gas The term greenhouse gas — (i) means carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, sulfur hexafluoride, nitrogen triflouride, and chlorofluorocarbons; (ii) includes any other anthropogenically-emitted gas that the Administrator of the Environmental Protection Agency determines, after notice and comment, to contribute to climate change; and (iii) includes any other anthropogenically-emitted gas that the Intergovernmental Panel on Climate Change determines to contribute to climate change. (K) Greenhouse gas emissions The term greenhouse gas emissions means the emissions of greenhouse gas, expressed in terms of metric tons of carbon dioxide equivalent. (L) Physical risks The term physical risks means financial risks to long-lived fixed assets, locations, operations, or value chains that result from exposure to physical climate-related effects, including— (i) financial risks to long-lived fixed assets, locations, operations, or value chains resulting from— (I) increased average global temperatures and increased frequency of temperature extremes; (II) increased severity and frequency of extreme weather events; (III) increased flooding; (IV) sea level rise; (V) ocean acidification; (VI) increased frequency of wildfires; (VII) decreased arability of farmland; and (VIII) decreased availability of fresh water; and (ii) any other financial risks to long-lived fixed assets, locations, operations, or value chains determined appropriate by the Commission, in consultation with the appropriate climate principals. (M) Social cost of carbon The term social cost of carbon means the social cost of carbon, as described in the technical support document entitled Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , published by the Interagency Working Group on Social Cost of Greenhouse Gases, United States Government, in August 2016 or any successor or substantially related estimate of the monetized damages associated with an incremental increase in carbon dioxide emissions in a given year. (N) Transition risks The term transition risks means financial risks that are attributable to climate change mitigation and adaptation, including efforts to reduce greenhouse gas emissions and strengthen resilience to the impacts of climate change, including— (i) costs relating to— (I) international treaties and agreements; (II) Federal, State, and local policy; (III) new technologies; (IV) changing markets; (V) reputational impacts relevant to changing consumer behavior; and (VI) litigation; and (ii) assets that may lose value or become stranded due to any of the costs described in subclauses (I) through (VI) of clause (i). (O) Value chain The term value chain — (i) means the total lifecycle of a product or service, both before and after production of the product or service, as applicable; and (ii) may include the sourcing of materials, production, transportation, and disposal with respect to the product or service described in clause (i). (2) Findings Congress finds that— (A) short-, medium-, and long-term financial and economic risks and opportunities relating to climate change, and the national and global reduction of greenhouse gas emissions, constitute information that issuers— (i) may reasonably expect to affect shareholder decision making; and (ii) should regularly identify, evaluate, and disclose; and (B) the disclosure of information described in subparagraph (A) should— (i) identify, and evaluate— (I) material physical and transition risks posed by climate change; and (II) the potential financial impact of the risks described in subclause (I); (ii) detail any implications that the risks described in clause (i)(I) have on corporate strategy; (iii) detail any board-level oversight of material climate-related risks and opportunities; (iv) allow for intra- and cross-industry comparison, to the extent practicable, of climate-related risk exposure through the inclusion of standardized industry-specific and sector-specific disclosure metrics, as identified by the Commission, in consultation with the appropriate climate principals; (v) allow for tracking of performance over time with respect to mitigating climate risk exposure; and (vi) incorporate a price on greenhouse gas emissions in financial analyses that reflects, at minimum, the social cost of carbon that is attributable to issuers. (3) Disclosure Each covered issuer, in any annual report filed by the covered issuer under subsection (a) or section 15(d), shall, in accordance with any rules issued by the Commission under this subsection, include in each such report information regarding— (A) the identification of, the evaluation of potential financial impacts of, and any risk-management strategies relating to— (i) physical risks posed to the covered issuer by climate change; and (ii) transition risks posed to the covered issuer by climate change; (B) a description of any established corporate governance processes and structures to identify, assess, and manage climate-related risks; (C) a description of specific actions that the covered issuer is taking to mitigate identified risks; (D) a description of the resilience of any strategy the covered issuer has for addressing climate risks when differing climate scenarios are taken into consideration; and (E) a description of how climate risk is incorporated into the overall risk management strategy of the covered issuer. (4) Rule of construction Nothing in paragraph (3) may be construed as precluding a covered issuer from including, in an annual report submitted under subsection (a) or section 15(d), any information not explicitly referenced in such paragraph. (5) Rulemaking The Commission, in consultation with the appropriate climate principals, shall, not later than 2 years after the date of enactment of this subsection, issue rules with respect to the information that a covered issuer is required to disclose pursuant to this subsection and such rules shall— (A) establish climate-related risk disclosure rules, which shall— (i) be, to the extent practicable, specialized for industries within specific sectors of the economy, which shall include— (I) the sectors of finance, insurance, transportation, electric power, mining, and non-renewable energy; and (II) any other sector determined appropriate by the Commission, in consultation with the appropriate climate principals; (ii) include reporting standards for estimating and disclosing direct and indirect greenhouse gas emissions by a covered issuer, and any affiliates of the covered issuer, which shall— (I) disaggregate, to the extent practicable, total emissions of each specified greenhouse gas by the covered issuer; and (II) include greenhouse gas emissions by the covered issuer during the period covered by the disclosure; (iii) include reporting standards for disclosing, with respect to a covered issuer— (I) the total amount of fossil fuel-related assets owned or managed by the covered issuer; and (II) the percentage of fossil fuel-related assets as a percentage of total assets owned or managed by the covered issuer; (iv) specify requirements for, and the disclosure of, input parameters, assumptions, and analytical choices to be used in climate scenario analyses required under subparagraph (B)(ii), including— (I) present value discount rates; and (II) time frames to consider, including 5-, 10-, and 20-year time frames; and (v) include reporting standards and guidance with respect to the information required under subparagraph (B)(iii); (B) require that a covered issuer, with respect to a disclosure required under this subsection— (i) incorporate into such disclosure— (I) quantitative analysis to support any qualitative statement made by the covered issuer; (II) the rules established under subparagraph (A); (III) industry-specific metrics that comply with the requirements under subparagraph (A)(i); (IV) specific risk management actions that the covered issuer is taking to address identified risks; (V) a discussion of the short-, medium-, and long-term resilience of any risk management strategy, and the evolution of applicable risk metrics, of the covered issuer under each scenario described in clause (ii); and (VI) the total cost attributable to the direct and indirect greenhouse gas emissions of the covered issuer, using, at minimum, the social cost of carbon; (ii) consider, when preparing any qualitative or quantitative risk analysis statement contained in the disclosure— (I) a baseline scenario that includes physical risks with respect to climate change; (II) a 1.5 degree scenario; and (III) any additional climate analysis scenario considered appropriate by the Commission, in consultation with the appropriate climate principals; (iii) if the covered issuer engages in the commercial development of fossil fuels, include in the disclosure— (I) an estimate of the total and a disaggregated amount of direct and indirect greenhouse gas emissions of the covered issuer that are attributable to— (aa) combustion; (bb) flared hydrocarbons; (cc) process emissions; (dd) directly vented emissions; (ee) fugitive emissions or leaks; and (ff) land use changes; (II) a description of— (aa) the sensitivity of fossil fuel reserve levels to future price projection scenarios that incorporate the social cost of carbon; (bb) the percentage of the reserves of the covered issuer that will be developed under the scenarios established in clause (ii), as well as a forecast for the development prospects of each reserve under those scenarios; (cc) the potential amount of direct and indirect greenhouse gas emissions that are embedded in proved and probable reserves, with each such calculation presented as a total and in subdivided categories by the type of reserve; (dd) the methodology of the covered issuer for detecting and mitigating fugitive methane emissions, which shall include the frequency with which applicable assets of the covered issuer are observed for methane leaks, the processes and technology that the covered issuer uses to detect methane leaks, the percentage of assets of the covered issuer that the covered issuer inspects under that methodology, and quantitative and time-bound reduction goals of the issuer with respect to methane leaks; (ee) the amount of water that the covered issuer withdraws from freshwater sources for use and consumption in operations of the covered issuer; and (ff) the percentage of the water described in item (ee) that comes from regions of water stress or that face wastewater management challenges; and (III) any other information that the Commission determines is— (aa) necessary; (bb) appropriate to safeguard the public interest; or (cc) directed at ensuring that investors are informed in accordance with the findings described in paragraph (2); (C) require that a covered issuer include in such a disclosure any other information, or use any climate-related or greenhouse gas emissions metric, that the Commission, in consultation with the appropriate climate principals, determines is— (i) necessary; (ii) appropriate to safeguard the public interest; or (iii) directed at ensuring that investors are informed in accordance with the findings described in paragraph (2); and (D) establish how and where the required disclosures shall be addressed in the annual financial filing of the covered issuer. (6) Formatting The Commission shall require covered issuers to disclose information under this subsection in an interactive data format and shall develop standards for such format, which shall include electronic tags for information that the Commission determines is— (A) necessary; (B) appropriate to safeguard the public interest; or (C) directed at ensuring that investors are informed in accordance with the findings described in paragraph (2). (7) Periodic update of rules The Commission shall periodically update the rules issued under this subsection. (8) Compilation of information disclosed The Commission shall, to the maximum extent practicable, make a compilation of the information disclosed by covered issuers under this subsection publicly available on the website of the Commission and update such compilation at least once each year. (9) Reports (A) Report to Congress The Commission shall— (i) conduct an annual assessment regarding the compliance of covered issuers with the requirements of this subsection; (ii) submit to the appropriate congressional committees a report that contains the results of each assessment conducted under clause (i); and (iii) make each report submitted under clause (ii) accessible to the public. (B) GAO report The Comptroller General of the United States shall periodically evaluate, and report to the appropriate congressional committees on, the effectiveness of the Commission in carrying out and enforcing this subsection. . 4. Backstop If, 2 years after the date of enactment of this Act, the Commission has not issued the rules required under subsection (s) of section 13 of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m ), as added by section 3 of this Act, and until the date on which the Commission issues those rules, a covered issuer (as defined in such subsection (s)) shall be deemed to be in compliance with such subsection (s) if disclosures set forth in the annual report of that covered issuer satisfy the recommendations of the Task Force on Climate-related Financial Disclosures of the Financial Stability Board, as reported in June 2017, or any successor report, and as supplemented or adjusted by such rules, guidance, or other comments from the Commission. 5. Authorization of appropriations There are authorized to be appropriated to the Commission such sums as may be necessary to carry out this Act and the amendments made by this Act.