SEC moves forward with climate disclosure proposal

Seen as a step in the right direction, the proposal lays out plans for disclosures related to climate-related risk and greenhouse gas emissions.

By GreenPortfolio Team

March 22, 2022

SEC Building

On March 21, 2022, the Securities and Exchange Commission (SEC) moved forward on its proposal to mandate climate-related disclosures by public companies, with Commissioners voting 3 to 1 in favor of the rule.


In his statement supporting the proposal, SEC Chairman Gary Gensler highlighted the need for investors to be able to access “consistent, comparable and decision-useful information.” The new rule is aimed at improving the quality and reliability of climate disclosure as well as setting standardized metrics that allow for consistency across companies and time.

The SEC climate disclosure requirements, which are open to public comment for 60 days, follows existing frameworks that have already been widely adopted by many companies like the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.


Implementation would be phased in over the course of three years with larger companies required to incorporate the new disclosure starting in their Fiscal Year 2023 statements. 

The proposed rule

With guidance last issued in 2010, the much-anticipated draft rule sets standards for two key areas of climate-related disclosure: 1) climate-related risks and 2) greenhouse gas (GHG) emissions.

Climate-Related Risk:

Companies must disclose processes for identifying and managing climate-related risks, impact to their business and financial statements in the near and long term; and management and board oversight along with corporate governance. Additional disclosure on how transition plans, scenario analysis, and internal carbon prices are determined, if used by the company, are also required.


Greenhouse Gas Emissions:

Direct GHG emissions, known as Scope 1, as well as indirect emissions from purchased electricity and energy, known as Scope 2, must be disclosed, not including carbon offsets purchased. Larger companies must provide third party verification of emissions data – a requirement that will be phased in and strengthened over time.

Weather event climate risk

Amongst the most essential and debated parts of the proposed rule is the inclusion of disclosure on Scope 3 emissions – indirect emissions from a company’s supply chain or consumption of its products – which is mandated if material or if it’s listed as part of a company’s climate targets. Smaller companies are exempt.

In her statement, SEC Commissioner Allison Herren Lee, a supporter of the proposal, noted that there is potential to strengthen guidance on the criteria for materiality and to add accountability by requiring companies that do not disclose Scope 3 emissions to provide the basis for this determination.


Commissioner Lee also indicated that while in early stages today, Scope 3 disclosure, which is not subject to verification like  Scope 1 and 2, may benefit from phased in verification requirements as the quality and quantity of emissions data grows.

drafting a proposal

GreenPortfolio’s support for quality climate disclosure

We support the SEC rule, which will strengthen the standardization and reliability of disclosure on climate risk and emissions data. As more companies are making claims about their green credentials, quality disclosure will enable investors and consumers to better compare progress versus peer companies and over time.


In certain sectors, Scope 3 emissions can make up a sizable portion of a company’s emissions and we look forward to more clarity on how the final rule will address gaps left by limiting disclosure to that considered material.

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