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*The US Securities and Exchange Commission (SEC) has proposed rules to improve and standardise climate-related disclosures, but has not yet finalised or enforced these rules. In terms of timing, the SEC had indicated an April release date for final climate-related disclosure rules as part of its broader regulatory agenda. However, this timeline could change and the SEC may update these requirements or provide additional guidance.
The SEC's climate-related disclosures will require public companies to report on their climate-related risks and how these risks affect their business and financial condition, as well as the company's strategies to mitigate these risks.
The goal is to provide investors with a clearer picture of the material risks and opportunities that climate change poses to their investments, so that they can make more informed decisions.
As a non-US company, SEC climate-related disclosures can affect you in two ways:
- You may have a reporting obligation under SEC climate-related disclosures.
- You may be a supplier to a company that is subject to this requirement, and they may request information about your ESG performance to meet their own reporting requirements, particularly with respect to Scope 3 greenhouse gas (GHG) emissions.
1. Is your company in scope? What is your reporting deadline?
Non-US companies, also known as foreign private issuers, that are listed on US stock exchanges or otherwise required to file reports with the SEC are in scope for these disclosures. This includes companies that have American Depository Receipts (ADRs) or securities traded on US exchanges, and those that voluntarily file reports with the SEC.
Reporting deadlines for non-U.S. companies with respect to SEC climate-related disclosures depend on the specific rules established by the SEC and may vary based on the company's fiscal year end or the effective date of the SEC rules. Typically, the SEC provides for a phased approach to compliance, allowing larger companies to comply first, followed by smaller reporting companies.
2. What are your disclosure requirements?
Greenhouse gas emissions: Direct GHG emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). Indirect emissions from upstream and downstream activities in their value chain (Scope 3), where these are material or where the company has set a GHG emissions target that includes Scope 3 emissions.
Climate-related risks: Information on how climate change may affect your business operations, financial performance and strategy. This includes both physical risks (such as extreme weather events) and transition risks (such as regulatory changes).
Risk management strategies: How your company manages and mitigates climate-related risks.
Impact on financial statements: Explanation of the impact of climate-related risks on your financial condition and operations.
Governance: How your company's governance structures and processes address climate-related risks.
3. What are your formatting and assurance requirements?
Disclosures are required to be included in registration statements and periodic reports, with certain information required in the financial statements themselves, and thus subject to the audit process as part of the financial statement audit.
For Scope 1 and Scope 2 emissions, the proposed rules require a phased approach to assurance:
- Initially, companies will be required to obtain limited assurance on these disclosures, moving to reasonable assurance after a period of time.
- Large accelerated filers and accelerated filers are subject to these assurance requirements with specific compliance dates based on their filing status.
- The proposed rules provide for a phased approach to compliance, with different compliance dates for large accelerated filers, accelerated filers, non-accelerated filers and smaller reporting companies. Large accelerated filers will be required to comply with the Scope 1 and Scope 2 emissions disclosure and assurance requirements earlier than smaller companies.
