# The Enhancement and Standardization of Climate-Related Disclosures for Investors > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-06342 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** April 11, 2022 - **Citation:** 87 FR 21334 ## Text 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 climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant's climate-related 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. 1 15 U.S.C. 77a et seq. 2 15 U.S.C. 78a et seq. 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 Climate-Related 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 Climate-Related Disclosure Rules and Affected Forms K. Structured Data Requirement L. Treatment for Purposes of Securities Act and Exchange Act M. Compliance Date 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 Climate-Related 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 climate-related 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 climate-related 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 3 See, 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. 78 l, 78m, and 78o]. 4 See, 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)]. 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 decision-making. 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 climate-related 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 climate-related 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. 5 S&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. 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 companies consider in making investment and voting decisions. 6 Investors have noted that climate-related 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 6 See 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%20on%20Climate-Related%20Market%20Risk%20-%20Managing%20Climate%20Risk%20in%20the%20U.S.%20Financial%20System%20for%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). 7 See, e.g., letters from Amalgamated Bank (June 14, 2021); and Norges Bank Investment Management (June 13, 2021). 8 See, e.g., letter from Principles for Responsible Investment (PRI) (Consultation Response) (June 11, 2021). 9 See, 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). 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 SEC-reporting companies and their investors are an essential component of this system. 13 10 In 2020 alone, a record 22 separate climate-related 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-its-4th-warmest-year-on-record-fueled-by-record-warm-december. 11 See 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. 12 See 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. 13 See, 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.”). 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 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. 14 See, e.g., 2021 FSOC Report, Chapter 1: From Climate-related Physical Risks to Financial Risks. 15 See, e.g., Why the automotive future is electric, McKinsey & Company (Sept. 7, 2021), at https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/why-the-automotive-future-is-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-worlds-largest-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-engage-suppliers-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”). 16 See, e.g., World Economic Forum, First Movers Coalition is tackling the climate crisis, at https://www.weforum.org/our-impact/first-movers-coalition-is-tackling-the-climate-crisis/#:~:text=The%20First%20Movers%20Coalition%2C%20which%20was%20launched%20at,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 scale-up 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-a-core-principle-for-business-heres-how-leaders-can-act (“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-jones-indices-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”). 17 See, 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-risk-and-energy-transition.pdf. 18 See 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). 19 See, 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/news-issuances/bulletins/2021/bulletin-2021-62a.pdf. Consistent, comparable, and reliable disclosures on the material climate-related 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 climate-related disclosures and are also moving towards the adoption of climate-related disclosure standards. 20 20 See infra Section I.C.2. 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. 21 See 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. 22 See, e.g., supra notes 6, 10, and 12. 23 See, 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 Climate-related 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 climate-related information in greater detail in Section I.C below. 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 24 See 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/lee-climate-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. 25 See infra Section II.M. 26 See Section II.G.3. 27 See id. 28 See 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. 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 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 29 See 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”). 30 See 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]. 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 31 See 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”). 32 See Release No. 33-9106, Section III. 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. 33 See Release No. 33-9106, Section I. 34 The 2010 Guidance also applies to corresponding disclosure requirements in Form 20-F by foreign private issuers. 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 climate-related 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. 35 Our 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. 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. 36 See Acting Chair Allison Herren Lee Public Statement, Public Input Welcomed on Climate Change Disclosures. 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, standard-setters, state government officials, and US Senators and Members of the House of Representatives. 37 The 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. Many of these commenters, including investors with trillions of dollars of assets under management collectively, 38 supported implementation of climate-related 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 third-party frameworks, because it has not produced consistent, comparable, reliable information for investors and their advisors, who otherwise have difficulty obtaining that information. 42 38 See, 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, 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). 39 See, 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). 40 Several 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/. 41 See letter from SASB. 42 See, 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). 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 climate-related 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 43 See, e.g., letters from American Enterprise Institute (June 10, 2021); CO 2 Coalition (June 1, 2021); the Heritage Foundation (June 13, 2021); Steve Milloy (June 1, 2021); Berkeley T. Rulon-Miller (Apr. 9, 2021); and the Texas Public Policy Foundation (June 11, 2021). 44 See, e.g., letters from American Enterprise Institute; the Cato Institute; the Heritage Foundation; and Texas Public Policy Foundation. 45 See, 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. 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 climate-related 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 46 The 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/sample-letter-climate-change-disclosures. 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 climate-related 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 47 See, e.g., letter from Pricewaterhouse Coopers. 48 See 17 CFR 240.13a-15 and 17 CFR 240.15d-15. 49 We 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 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. 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 decision-useful information that is necessary or appropriate to protect investors. 50 See supra note 42 and accompanying text. 51 See 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). 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 climate-related 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. 52 See 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. 53 See, 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.”). 54 Providing a more standardized framework for climate-related disclosures would be consistent with the Recommendation from the Investor-as-Owner Subcommittee of the SEC Investor Advisory Committee Relating to ESG Disclosure (May 14, 2020) (“IAC Recommendation”), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/recommendation-of-the-investor-as-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. 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 55 See supra note 23. 56 There is some overlap in the signatories to the listed initiatives. • 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 57 See 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-investors-managing-more-than-usd-37-trillion-in-assets-urge-governments-to-step-up. • 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 58 See 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-to-Governments-on-the-Climate-Crisis.pdf. • 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 59 PRI 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. 60 See 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-update-celebrating-4000-signatories-and-supporting-the-evolution-of-ri/8033.article. • The Net Zero Asset Managers Initiative, which was formed by an international group of asset managers, has 128 signatories that collectively manage $43 trillion in assets as of July 2021; 61 61 See 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-asset-managers-initiative-announces-41-new-signatories-with-sector-seeing-net-zero-tipping-point. • 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 62 See Climate Action 100+, About Climate Action 100+, available at https://www.climateaction100.org/about/ (indicating that the initiative is engaging companies on strengthening climate-related financial disclosures). • 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 63 See 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/request-environmental-information#d52d69887a88f63e15931b5db2cbe80d. 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 64 We discuss the TCFD in greater detail in Section I.D.1 below. 65 See 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). 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 66 According 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). 67 See 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/stock-news/86696470/global-survey-shows-race-to-decarbonization-is-on#:~:text=Global%20Survey%20Shows%20Race%20to%20Decarbonization%20is%20on%3A,December%2001%202021%20-%2007%3A01AM%20PR%20Newswire%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-a-core-principle-for-business-heres-how-leaders-can-act. 68 See, 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). 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 third-party 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. 69 See supra note 42. 70 See IAC Recommendation. The IAC Recommendation noted that more than 125 third-party 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. 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 71 See GRI, About GRI, available at https://www.globalreporting.org/about-gri/. 72 See 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. 73 See CDSB, About the Climate Disclosure Standards Board, available at https://www.cdsb.net/our-story. 74 See Value Reporting Foundation, Understanding the Value Reporting Foundation, available at https://www.valuereportingfoundation.org/. 75 See TCFD, About, available at https://www.fsb-tcfd.org/about/. 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 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 76 For 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 has similarly reported growth in the number of companies and countries supporting its climate-related 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). 77 See 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. 80 See, e.g., TCFD, 2021 Status Report (indicating that there is a need to improve companies' climate-related disclosures, particularly regarding governance and risk management, to better align with the TCFD's recommendations). 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 81 See CDP, ANALYSIS OF CA100+ COMPANY DATA (2020), available at https://cdn.cdp.net/cdp-production/cms/reports/documents/000/005/312/original/Analysis_of_CA100__Data_for_CDP_Investor_Signatories_v5.pdf?1596046258 . 82 See 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. 83 See TCFD 2020 Status Report (Sept. 2020), available at https://assets.bbhub.io/company/sites/60/2020/09/2020-TCFD_Status-Report.pdf. 84 See 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-can-climate-change-disclosures-protect-reputation-and-value. 85 For 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. 86 See, 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.”). 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 87 The IFRS Foundation refers to the International Financial Reporting Standards Foundation, which was established to develop a single set of “high-quality,” enforceable, and globally accepted accounting standards. See IFRS—Who we are, available at https://www.ifrs.org/about-us/who-we-are/. 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-consultation-paper-feedback-statement.pdf. • 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 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. • 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 standards that an ISSB might eventually develop; 91 91 See 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.netdna-ssl.com/wp-content/uploads/Reporting-on-enterprise-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-consolidation-with-cdsb-vrf-publication-of-prototypes/. • 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 92 See 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-foundation-announces-issb-consolidation-with-cdsb-vrf-publication-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. • Several jurisdictions, including the European Union, 94 are developing or revising their mandatory climate-related disclosure regimes to provide investors with more consistent, useful climate-related financial information, including associated assurance requirements and data tagging to facilitate the use of the information. 95 94 Proposal 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. 95 See 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). 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. 96 A 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. 97 See, e.g., letter from Natural Resources Defense Council (stating that most companies providing climate-related information do so using the three-part (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). 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 climate-related 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 98 See infra Section II.A.1 and notes 145 through 149. 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 climate-related disclosures developed by the TCFD has been refined and garnered global support as a reliable framework for climate-related financial reporting. 101 99 See 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/. 100 See 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-TCFD-Report-11052018.pdf. 101 See, e.g., Climate Action 100+, The Three Asks, available at https://www.climateaction100.org/approach/the-three-asks/ (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-to-the-tcfd (explaining how the CDP has aligned its questionnaires to elicit disclosures aligned with the TCFD's recommendations). 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 climate-related financial risks: Governance, strategy, risk management, and metrics and targets. 102 102 See TCFD, TCFD_Booklet_FNL_Digital_March-2020.pdf ( bbhub.io ) (Mar. 2021), available at https://assets.bbhub.io/company/sites/60/2020/10/TCFD_Booklet_FNL_Digital_March-2020.pdf. 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 climate-risk 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. 103 According 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/ 104 See 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.website-files.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.ga-institute.com/fileadmin/ga_institute/images/FlashReports/2021/Russell-1000/G_A-Russell-Report-2021-Final.pdf?vgo_ee=NK5m02JiOOHgDiUUST7fBRwUnRnlmwiuCIJkd9A7F3A%3D. We discuss the findings of this report, and other similar findings, in greater detail in Section IV.A.5.c below. 105 See TCFD, 2021 Status Report. 106 See id. 107 See 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). 108 HM Treasury, G7 Finance Ministers and Central Bank Governors Communique—Policy Paper (June 2021), available at https://www.gov.uk/government/publications/g7-finance-ministers-meeting-june-2021-communique/g7-finance-ministers-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). 2. The Greenhouse Gas Protocol Quantitative greenhouse gas (“GHG”) emissions data can enable investors to assess a registrant's exposure to climate-related 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. 113 109 See, 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). 110 See infra Section II.G.1 and note 412. 111 See, 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). 112 See, 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. 113 See, 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-inventory-guidance. 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. 114 See Greenhouse Gas Protocol, About Us | Greenhouse Gas Protocol ( ghgprotocol.org ), available at https://ghgprotocol.org/about-us. 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 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. 119 115 See 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. 116 See 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/corporate-standard. 117 Id. 118 The 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-Accounting-Reporing-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-greenhouse-gas-protocol-carbon-removals-and-land-sector-initiative. 119 See Section II.G.1, below, for a more extensive discussion of Scope 3 categories and emissions. 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. 120 See id. 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 climate-related 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. 124 121 See infra Sections II.B through E and II.G through I. 122 See 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). 123 See 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). 124 See infra Section II.H. 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 climate-related 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”). 126 125 See infra Section II.F. 126 See infra Sections II.F.2 and 3. 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; 127 127 See infra Section II.D. • 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; 128 128 See infra Sections II.B and C. • How any identified climate-related risks have affected or are likely to affect the registrant's strategy, business model, and outlook; 129 129 See infra Section II.C. • 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; 130 130 See infra Section II.E. • 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. 132 131 See infra Sections II.F.2 and 3. 132 See infra Sections II.F.4. • Scopes 1 and 2 GHG emissions metrics, separately disclosed, expressed: ○ Both by disaggregated constituent greenhouse gases and in the aggregate, and ○ In absolute and intensity terms; 133 133 See infra Section II.G.1. • 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. 134 134 See infra Section II.I. 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): 135 135 As 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. • To provide the climate-related disclosure in its registration statements and Exchange Act annual reports; 136 136 See infra Section II.A.2. • 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”); 137 137 See id. • 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; 138 138 See infra Section II.F. • To electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL; 139 and 139 See infra Section II.K. • To file rather than furnish the climate-related disclosure. 140 140 See infra Section II.L. 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. 141 See infra Section II.H. 142 See infra Section II.H.1 (providing further details on the proposed timing of the minimum attestation requirements). 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 143 See 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. • 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 non-accelerated 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). 144 144 See infra Section II.M. 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 SASB 146 or 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. 145 See, 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). 146 See, 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. (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). 147 See, 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). 148 See, e.g., letters from Adobe; Alphabet Inc. et al.; BNP Paribas; bp; Chevron; ConocoPhilips; and Walmart. 149 See, e.g., letters from Alberta Investment Management Corporation; BlackRock; CalPERS; CALSTRS; Impact Investors, Inc.; and San Francisco Employees Retirement System. 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 climate-related 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. 153 150 See, e.g., letters from BNP Paribas; Deutsche Bank (June 11, 2021); and Institute of International Bankers. 151 See, e.g., letters from AllianceBernstein; CALSTRS; Investment Company Institute; and NY State Comptroller. 152 See supra note 95 and accompanying text. 153 See, e.g., letters from BNP Paribas; bp; and Chevron. 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 climate-related 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. 154 Proponents 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). 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 climate-related targets and goals, if any. 159 155 See proposed 17 CFR 229.1501. 156 See proposed 17 CFR 229.1502. 157 See proposed 17 CFR 229.1503. 158 See proposed 17 CFR 229.1504. 159 See proposed 17 CFR 229.1506. 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 climate-related risks and opportunities, which is similar to our proposed financial statement metrics. 165 160 See proposed 17 CFR 210.14-01 and 14-02. 161 See proposed 17 CFR 210.14-02(c) and (d). 162 See proposed 17 CFR 210.14-02(e) and (f). 163 See proposed 17 CFR 210.14-02(g) and (h). 164 See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017), Section B.3 (Financial Impacts). 165 See 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. 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 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. 166 See, 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); C [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-06342. Public record. Not legal advice.