# The Enhancement and Standardization of Climate-Related Disclosures for Investors > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-05137 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** March 28, 2024 - **Citation:** 89 FR 21668 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR 210, 229, 230, 232, 239, and 249 [Release Nos. 33-11275; 34-99678; File No. S7-10-22] RIN 3235-AM87 The Enhancement and Standardization of Climate-Related Disclosures for Investors AGENCY: Securities and Exchange Commission. ACTION: Final rules. SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting amendments to its rules under the Securities Act of 1933 (“Securities Act”) and Securities Exchange Act of 1934 (“Exchange Act”) that will require registrants to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a registrant's climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in a registrant's audited financial statements. DATES: Effective date: These final rules are effective on May 28, 2024. Compliance date: See section II.O. for further information on transitioning to the final rules. FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Senior Special Counsel, and Kristin Baldwin, Special Counsel, Office of Rulemaking, at (202) 551-3430, in the Division of Corporation Finance; or Erin Nelson, Senior Special Counsel, and Meagan Van Orden, Professional Accounting Fellow, in the Office of the Chief Accountant, at (202) 551-5300, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adopting amendments to or adding the following rules and forms: Commission reference CFR citation (17 CFR) Regulation S-X Article 8-01 Article 14-01 Article 14-02 § 210.8-01 § 210.14-01 § 210.14-02 Regulation S-K Items 1500 through 1508 Item 601 §§ 229.1500 \through 229.1508 § 229.601 Regulation S-T Item 405 § 232.405 Securities Act 1 Rule 436 Form S-1 Form S-3 Form S-11 Form S-4 Form F-3 Form F-4 § 230.436 § 239.11 § 239.13 § 239.18 § 239.25 § 239.33 § 239.34 Exchange Act 2 Form 10 Form 20-F Form 10-Q Form 10-K § 249.210 § 249.220f § 249.308a § 249.310 1 15 U.S.C. 77a et seq. 2 15 U.S.C. 78a et seq. Table of Contents I. Introduction A. Need for Enhanced and Standardized Climate-Related Disclosures B. Summary of the Final Rules 1. Content of the Climate-Related Disclosures 2. Presentation and Submission of the Climate-Related Disclosures 3. Safe Harbor for Certain Climate-Related Disclosures 4. Phase in Periods II. Discussion A. Overview and Purpose of the Climate-Related Disclosure Rules 1. Proposed Rules 2. Comments 3. Final Rules B. Commission Authority To Adopt Disclosure Rules C. Disclosure of Climate-Related Risks 1. Definitions of Climate-Related Risks and Climate-Related Opportunities (Items 1500 and 1502(a)) 2. Time Horizons and the Materiality Determination (Item 1502(a)) D. Disclosure Regarding Impacts of Climate-Related Risks on Strategy, Business Model, and Outlook 1. Disclosure of Material Impacts (Item 1502(b), (c), and (d)) 2. Transition Plan Disclosure (Items 1500 and 1502(e)) 3. Disclosure of Scenario Analysis If Used (Items 1500 and 1502(f)) 4. Disclosure of a Maintained Internal Carbon Price (Item 1502(g)) E. Governance Disclosure 1. Disclosure of Board Oversight (Item 1501(a)) 2. Disclosure of Management Oversight (Item 1501(b)) F. Risk Management Disclosure (Item 1503) 1. Proposed Rule 2. Comments 3. Final Rule G. Targets and Goals Disclosure (Item 1504) 1. Proposed Rule 2. Comments 3. Final Rule H. GHG Emissions Disclosure (Item 1505) 1. Proposed Rule 2. Comments 3. Final Rule I. Attestation Over GHG Emissions Disclosure (Item 1506) 1. Overview 2. GHG Emissions Attestation Provider Requirements 3. GHG Emissions Attestation Engagement and Report Requirements (Item 1506(a)(2) and (c)) 4. Additional Disclosure by the Registrant (Item 1506(d)) 5. Disclosure of Voluntary Assurance (Item 1506(e)) J. Safe Harbor for Certain Climate-Related Disclosures (Item 1507) 1. Proposed Rules 2. Comments 3. Final Rules K. Financial Statement Effects (Article 14) 1. Introduction 2. Financial Impact Metrics 3. Expenditure Effects 4. Financial Estimates and Assumptions (Rule 14-02(h)) 5. Opportunities 6. Financial Statement Disclosure Requirements 7. Inclusion of Disclosures in the Financial Statements (Rule 14-01(a)) L. Registrants Subject to the Climate-Related Disclosure Rules and Affected Forms 1. Proposed Rules 2. Comments 3. Final Rules M. Structured Data Requirement (Item 1508) 1. Proposed Rules 2. Comments 3. Final Rules N. Treatment for Purposes of the Securities Act and the Exchange Act 1. Proposed Rules 2. Comments 3. Final Rules O. Compliance Date 1. Proposed Rules 2. Comments 3. Final Rules III. Other Matters IV. Economic Analysis A. Baseline and Affected Parties 1. Affected Parties 2. Current Commission Disclosure Requirements 3. Existing State and Other Federal Laws 4. International Disclosure Requirements 5. Current Market Practices B. Broad Economic Considerations 1. Investor Demand for Additional Climate Information 2. Current Impediments to Climate Disclosures C. Benefits and Costs 1. General Discussion of Benefits and Costs 2. Analysis of Specific Provisions 3. Quantifiable Direct Costs on Registrants D. Other Economic Effects E. Effects on Efficiency, Competition, and Capital Formation 1. Efficiency 2. Competition 3. Capital Formation F. Reasonable Alternatives 1. Adopt a More (or Less) Principles-Based Approach to Regulation S-K Disclosures 2. Different Approaches to Assurance Over GHG Emissions Disclosures 3. Different Thresholds for Financial Statement Disclosures 4. Permit Disclosures To Be Furnished Rather ThanFiled 5. Exempt SRCs/EGCs 6. Permit Registrants To Rely on Home-Country Disclosure Frameworks/Substituted Compliance 7. Alternative Tagging Requirements V. Paperwork Reduction Act A. Summary of the Collections of Information B. Current Inventory Update To Reflect $600 per Hour Rather Than $400 per Hour Outside Professional Costs Rate C. Summary of Comment Letters D. Sources of Cost Estimates E. Incremental and Aggregate Burden and Cost Estimates of the Final Rules 1. Calculation of the Paperwork Burden Estimates of the Final Rules 2. Estimated Number of Affected Respondents 3. Summary of the Estimated Burden Hour and Cost Increases Resulting From the Final Rules VI. Final Regulatory Flexibility Act Analysis A. Need for, and Objectives of, the Final Amendments B. Significant Issues Raised by Public Comments 1. Estimate of Affected Small Entities and Impact to Those Entities 2. Consideration of Alternatives C. Small Entities Subject to the Final Amendments D. Projected Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities Statutory Authority I. Introduction Climate-related risks, their impacts, and a public company's response to those risks can significantly affect the company's financial performance and position. 3 Accordingly, many investors and those acting on their behalf—including investment advisers and investment management companies—currently seek information to assess how climate-related risks affect a registrant's business and financial condition and thus the price of the registrant's securities. Investors also seek climate-related information to assess a registrant's management and board oversight of climate-related risks so as to inform their investment and voting decisions. In light of these investor needs, the Commission is adopting rules to require registrants to provide certain information about climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, the registrant's business strategy, results of operations, or financial condition; the governance and management of such risks; and the financial statement effects of severe weather events and other natural conditions in their registration statements and annual reports. This information, alongside disclosures on other risks that companies face, will assist investors in making decisions to buy, hold, sell, or vote securities in their portfolio. 3 See infra section I.A. For purposes of this release, we use the terms “public companies,” “companies,” “registrants,” and “issuers” interchangeably and, unless explained in the text, the use of different terms in different places is not meant to connote a significant difference. Many companies currently provide some information regarding climate-related risks. For example, as discussed in more detail in section IV.A.5 below, some studies show that a third of public companies disclose information about climate-related risks, mostly outside of Commission filings, 4 and nearly 40 percent of all annual reports contain some climate-related discussion. 5 In addition, Commission staff analysis found that approximately 20 percent of public companies provide some information regarding their Scope 1 and 2 greenhouse gas (“GHG”) emissions, often outside of Commission filings, with the highest rate of emissions disclosures found among large accelerated filers. 6 Among companies in the Russell 1000 Index, based on one analysis, these numbers are even higher, with 90 percent publicly disclosing some climate-related information 7 and almost 60 percent providing disclosures regarding their GHG emissions. 8 4 See, e.g., Center for Capital Markets, 2021 Survey Report: Climate Change & ESG Reporting from the Public Company Perspective, available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/08/CCMC_ESG_Report_v4.pdf, discussed infra in Section IV.A.5. 5 See infra notes 2638-2639 and accompanying text. 6 See infra notes 2675-2676 and accompanying text. 7 See infra note 2666 and accompanying text. 8 See infra note 2683 and accompanying text. The climate-related information that these companies currently provide, however, is inconsistent and often difficult for investors to find and/or compare across companies. As a result, investors have expressed the need for more detailed, reliable, and comparable disclosure of information regarding climate-related risks. The requirements adopted in this release meet that need by providing more complete and decision-useful information about the impacts of climate-related risks on registrants, improving the consistency, comparability, and reliability of climate-related information for investors. As a result, investors will be able to make more informed investment and voting decisions. As discussed in more detail throughout this release, disclosure of certain climate-related matters is required in a number of Federal, State, and foreign jurisdictions. 9 Companies currently often provide much of this information outside of Commission filings, in varying levels of detail, and in different documents and formats. Additionally, because of the importance of this information to investors, a variety of third parties have developed climate-related reporting frameworks. 10 Use of reporting frameworks is also often voluntary. Companies may disclose certain information under one or more frameworks, may provide only partial disclosures, or may choose not to provide consistent information year over year. As a result, reporting is fragmented and difficult for investors to compare across companies or across reporting periods. As commenters have indicated, this lack of consistency and comparability increases costs to investors in obtaining and analyzing decision-useful information and impairs investors' ability to make investment or voting decisions in line with their risk preferences. 11 Investors have asked for this information in Commission filings, alongside other disclosures on the business, results of operations, and financial condition of a registrant and information on the other risks companies face to their business, finances, and operations. Requiring these additional disclosures in Commission filings will allow investors to evaluate together the range of risks that a company faces, the existing and potential impacts of those risks, and the way that company management assesses and addresses those risks. Providing these disclosures in Commission filings also will subject them to enhanced liability that provides important investor protections by promoting the reliability of the disclosures. 9 See, e.g., infra sections I.A (discussing certain international initiatives) and II.A.3 (discussing the Inflation Reduction Act and recent California laws). 10 See, e.g., Task Force on Climate-related Financial Disclosures, About, available at https://www.fsb-tcfd.org/about/ ; CDP Worldwide (“CDP”), About us, available at https://www.cdp.net/en/info/about-us ; Sustainability Accounting Standards Board (“SASB”) Standards, About us, available at https://sasb.org/about/ ; and Global Reporting Initiative (“GRI”), About GRI, available at https://www.globalreporting.org/about-gri/ . See also infra notes 148-151. 11 See, e.g., letters from AllianceBernstein (June 17, 2022) (“AllianceBernstein”); Attorneys General from California and 19 other states (June 17, 2022) (“AGs of Cal. et al.” ); California Public Employees' Retirement System (June 15, 2022) (“CalPERS”); California State Teachers' Retirement System (June 17, 2022) (“CalSTRS”); Ceres (June 17, 2022) (“Ceres”); Domini Impact Investments (June 17, 2022) (“Domini Impact”); Trillium Asset Management (Oct. 20, 2022) (“Trillium”); and Wellington Management Company (June 17, 2022) (“Wellington Mgmt.”); see also Proposing Release, section I.B, note 42 and accompanying text; and infra section IV.C. We discuss investors' need for more consistent, comparable, and decision-useful disclosure about registrants' climate-related risks in Sections I.A and II.A.3 below. The Commission has required disclosure of certain environmental matters for the past 50 years, 12 most recently issuing guidance in 2010 (“2010 Guidance”) on how existing rules may require disclosure of climate-related risks and their impacts on a registrant's business or financial condition. 13 Since the Commission issued the 2010 Guidance, there has been growing recognition that climate-related risks affect public companies' business, results of operations, and financial condition. 14 Our experience with the 2010 Guidance and current practices regarding disclosure of this information led us to conclude that, although many companies disclose some climate-related information, there was a need to both standardize and enhance the information available to investors about such matters and thus to propose an updated approach. 15 Since the proposal, ongoing regulatory developments and market practices with respect to disclosure of climate-related risks have only underscored the need for enhanced disclosure requirements in this area. 16 Although current disclosure practices elicit some useful information about climate-related risks, there remain significant deficiencies in the consistency and completeness of this information. We have therefore concluded that additional requirements are appropriate to ensure that investors have access to more complete and reliable information that will enable them to make informed investment and voting decisions. 17 12 See infra notes 202-203 and accompanying text. 13 See Commission Guidance Regarding Disclosure Related to Climate Change, Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8, 2010)] (“2010 Guidance”); and discussion infra notes 204-205 and accompanying text. See also infra section II.B. 14 See, e.g., letters from AllianceBernstein; Alphabet, Autodesk, Dropbox, eBay, Hewlett Packard Enterprise, HP Inc., Intel, Meta, PayPal, and Workday (June 17, 2022) (“Alphabet et al.” ); Amazon (June 17, 2022); CalPERS; CalSTRS; Eni SpA (June 16, 2022) (“Eni SpA”); Pacific Investment Management Company (June 17, 2022) (“PIMCO”); PricewaterhouseCoopers (June 17, 2022) (“PwC”); and Wellington Mgmt. See also infra note 28 (discussing the Financial Stability Oversight Council's (“FSOC's”) Report on Climate-Related Financial Risk 2021). 15 See The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release No. 33-11042 (Mar. 21, 2022) [87 FR 21334 (Apr. 11, 2022)] (“Proposing Release”). 16 See infra Section II.A.3 for a discussion of recent foreign and state regulatory developments regarding the disclosure of climate-related risks, including the announcement by several countries of their intention to adopt laws or regulations implementing the International Sustainability Standards Board's (“ISSB”) climate reporting standard in whole or part; and certain recent California laws requiring the disclosure of climate-related risks and greenhouse gas emissions by certain large companies. 17 Even after adoption of the final rules, the 2010 Guidance will still be relevant because it discusses existing Commission rules, such as those pertaining to a registrant's description of its business and certain legal proceedings, which require disclosure regarding, among other things, compliance with environmental laws and regulations that are only tangentially mentioned in this rulemaking. Registrants should continue to consider the 2010 Guidance as they evaluate their disclosure obligations in their Description of Business, Risk Factors, Legal Proceedings, and Management's Discussion and Analysis. These disclosures should be based on the registrant's specific facts and circumstances. The rules that we are adopting respond to investors' concerns regarding the adequacy of current disclosure practices while taking into account comments received on the proposed rules. In general terms, the final rules will elicit enhanced and more consistent and comparable disclosure about the material risks that companies face and how companies manage those risks by requiring: • A description of any climate-related risks that have materially impacted or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, and financial condition, as well as the actual or potential material impacts of those same risks on its strategy, business model, and outlook; • Specified disclosures, regarding a registrant's activities, if any, to mitigate or adapt to a material climate-related risk or use of transition plans, scenario analysis or internal carbon prices to manage a material climate-related risk; • Disclosure about any oversight by the registrant's board of directors of climate-related risks and any role by management in assessing and managing material climate-related risks; • A description of any processes the registrant uses to assess or manage material climate-related risks; and • Disclosure about any targets or goals that have materially affected or are reasonably likely to materially affect the registrant's business, results of operations, or financial condition. In addition, to facilitate investors' assessment of particular types of risk, the final rules require: • Disclosure of Scope 1 and/or Scope 2 emissions on a phased in basis by certain larger registrants when those emissions are material, and the filing of an attestation report covering the required disclosure of such registrants' Scope 1 and/or Scope 2 emissions, also on a phased in basis; and • Disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. A further summary of the final rules is presented below. 18 18 See infra section I.B. In crafting the final rules, we benefited from extensive public comments. We received over 4,500 unique comment letters on the proposed climate-related disclosure rules and over 18,000 form letters. 19 Commenters included academics, accounting and audit firms, individuals, industry groups, investor groups, law firms, non-governmental organizations, pension funds, professional climate advisors, professional investment advisers and investment management companies, registrants, standard-setters, state government officials, and U.S. Senators and Members of the House of Representatives. Many commenters generally supported the proposal to require climate-related disclosure. Others opposed the proposed rules in whole or in part. In addition, the Commission's Investor Advisory Committee offered broad support for the proposal, with recommendations for certain modifications to the proposed rules, as discussed in more detail below. 20 The Commission's Small Business Capital Formation Advisory Committee made several recommendations, including that the Commission exempt emerging growth companies (“EGCs”) 21 and smaller reporting companies (“SRCs”) 22 from the final rules or otherwise adopt scaled climate-related disclosure requirements for EGCs and SRCs. 23 We considered comments that were supportive as well as those that were critical of aspects of the proposed rules, including comments from investors as to the information they need to make informed investment or voting decisions, as well as concerns expressed by registrants, trade associations, and others with regard to compliance burdens, liability risk, and our statutory authority. After considering all comments, we are adopting final rules with modifications from the proposal to better effectuate our goals in requiring these additional disclosures while limiting the final rules' burdens on registrants. 24 19 These comments are available at https://www.sec.gov/comments/s7-10-22/s71022.htm . Unless otherwise noted, comments referenced in this release pertain to these comments. 20 See U.S. Securities and Exchange Commission Investor Advisory Committee Recommendation Related to Climate-Related Disclosure Rule Proposals (Sept. 21, 2022), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20220921-climate-related-disclosure-recommendation.pdf “IAC Recommendation”). Specifically, the Investor Advisory Committee recommended the following changes to the proposed rules, as discussed in more detail in section II below: (1) adding a requirement for “Management Discussion of Climate-Related Risks & Opportunities”; (2) requiring disclosure of material facility locations; and (3) eliminating the proposed requirement around board expertise. In addition to the IAC Recommendation, in June 2022, the Investor Advisory Committee held a meeting that included a panel discussion regarding climate disclosures. See the minutes for that meeting, including the panelists that participated in the discussion, at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac060922-minutes.pdf . The Investor Advisory Committee was established in Apr. 2012 pursuant to section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (“Dodd-Frank Act”) to advise and make recommendations to the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. 21 An EGC is a registrant that had total annual gross revenues of less than $1.235 billion during its most recently completed fiscal year and has not met the specified conditions for no longer being considered an EGC. See 17 CFR 230.405; 17 CFR 240.12b-2; 15 U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation Adjustments under Titles I and III of the JOBS Act, Release No. 33-11098 (Sep. 9, 2022) [87 FR 57394 (Sep. 20, 2022)]. 22 An SRC is an issuer that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not an SRC 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. 17 CFR 229.10 (defining SRC and also providing how and when an issuer determines whether it qualifies as an SRC); 17 CFR 230.405 (same); 17 CFR 240.12-2 (same). 23 See U.S. Securities and Exchange Commission Small Business Capital Formation Advisory Committee Recommendation Regarding the Enhancement and Standardization of Climate-Related Disclosures for Investors (July 13, 2022), available at https://www.sec.gov/spotlight/sbcfac/sbcfac-climate-related-disclosures-recommendation-050622.pdf (“SBCFAC Recommendation”). In addition, the Small Business Capital Formation Advisory Committee highlights generally in its parting perspectives letter that “exemptions, scaling, and phase-ins for new requirements where appropriate, allows smaller companies to build their businesses and balance the needs of companies and investors while promoting strong and effective U.S. public markets.” See Parting Perspectives Letter, U.S. Securities and Exchange Commission Small Business Capital Formation Advisory Committee (Feb. 28, 2023), available at https://www.sec.gov/files/committee-perspectives-letter-022823.pdf . Finally, we note that participants in the Commission-hosted Small Business Forum in 2023 recommended that the Commission revise the proposed rules to exempt SRCs, non-accelerated filers, EGCs, and other midsized companies and to consider scaling and delayed compliance (“Small Business Forum Recommendation (2023)”); participants in 2022 and 2021 Small Business Forums similarly recommended the Commission provide exemptions or scaled requirements for small and medium-sized companies in connection with any new ESG disclosure requirements adopted by the Commission. See Report on the 42nd Annual Small Business Forum (April 2023), available at https://www.sec.gov/files/2023_oasb_annual_forum_report_508.pdf ; Report on the 41st Annual Small Business Forum (April 2022), available at https://www.sec.gov/files/2022-oasb-annual-forum-report.pdf ; and Report on the 40th Annual Small Business Forum (May 2021), available at https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf . See also U.S. Securities and Exchange Commission Office of the Advocate for Small Business Capital Formation, Annual Report Fiscal Year 2023 (“2023 OASB Annual Report”), available at https://www.sec.gov/files/2023-oasb-annual-report.pdf , at 84-85 (recommending generally that in engaging in rulemaking that affects small businesses, the Commission tailor the disclosure and reporting framework to the complexity and size of operations of companies, either by scaling obligations or delaying compliance for the smallest of the public companies). The Small Business Capital Formation Advisory Committee was established in Dec. 2016 pursuant to the Small Business Advocate Act of 2016 [Public Law 114-284 (2016)] to advise the Commission on rules, regulations, and policies with regard to the Commission's mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, as such rules, regulations, and policies relate to: capital raising by emerging, privately held small businesses (“emerging companies”) and publicly traded companies with less than $250,000,000 in public market capitalization (“smaller public companies”) through securities offerings, including private and limited offerings and initial and other public offerings; trading in the securities of emerging companies and smaller public companies; and public reporting and corporate governance requirements of emerging companies and smaller public companies. 24 See infra section I.B for a summary of changes from the proposed rules, including the addition of materiality qualifiers in certain rule provisions and revisions to make the final rules less prescriptive. As the Commission explained when proposing the climate disclosure rules, 25 while climate-related issues are subject to various other regulatory schemes, our objective is limited to advancing the Commission's mission to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation by providing disclosure to investors of information important to their investment and voting decisions. We are adopting the final rules to advance these investor protection, market efficiency and capital formation objectives, consistent with our statutory authority, and not to address climate-related issues more generally. The final rules should be read in that context. Thus, for example, in those instances where the rules reference materiality—consistent with our existing disclosure rules and market practices—materiality refers to the importance of information to investment and voting decisions about a particular company, not to the importance of the information to climate-related issues outside of those decisions. The Commission has been and remains agnostic about whether or how registrants consider or manage climate-related risks. Investors have expressed a need for this information on risks in valuing the securities they currently hold or are considering purchasing. While we recognize that the rules will impose burdens on registrants, we note that the degree of that burden will vary depending upon the circumstances facing individual registrants, as not every registrant will be required to provide all disclosures specified under the final rules. Moreover, as discussed further throughout the release, we believe that those burdens are justified by the informational benefits of the disclosures to investors. 25 See Proposing Release, section I. A. Need for Enhanced and Standardized Climate-Related Disclosures The importance of climate-related disclosures for investors has grown as investors, 26 companies, and the markets have recognized that climate-related risks 27 can affect a company's business and its current and longer-term financial performance and position in numerous ways. 28 Climate-related natural disasters can damage issuers' assets, disrupt their operations, and increase their costs. 29 Any widespread market-based transition to lower carbon products, practices, and services—triggered, for example, by recent or future changes in consumer preferences 30 or the availability of financing, technology, and other market forces 31 —can lead to material changes in a company's business model or strategy and may have a material impact on a registrant's financial condition or operations. 32 26 Throughout this release, we refer to investors to include retail investors, institutional investors, and other market participants (such as financial analysts, investment advisers, and portfolio managers) that use disclosures in Commission filings as part of their analysis and to help investors. 27 The Commission has a long history of requiring disclosures to investors of information about risks facing registrants. See infra notes 184-191 and accompany text for a discussion of that history. In that time, the Commission has described those risks using differently terminology, but has largely focused on the same concepts. See, e.g., 17 CFR 229.105(a) (Where appropriate, provide under the caption “Risk Factors” a discussion of the material factors that make an investment in the registrant or offering speculative or risky.); Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments, Release No. 33-7386 (Jan. 31, 1997) [62 FR 6044 at n.12 (Feb. 10, 1997)] (Requiring disclosure of qualitative and quantitative information about market risk for derivatives and other financial instruments; Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices, and other relevant market rate or price changes ( e.g., equity prices).); Guides for Preparation and Filing of Registration Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 2490, 2492 (Feb. 15, 1964)] (In many instances the securities to be offered are of a highly speculative nature. The speculative nature may be due to such factors as an absence of operating history of the registrant, an absence of profitable operations in recent periods, the financial position of the registrant or the nature of the business in which the registrant is engaged or proposes to engage. . . In such instances, and particularly where a lengthy prospectus cannot be avoided, there should be set forth immediately following the cover page of the prospectus a carefully organized series of short, concise paragraphs summarizing the principal factors which make the offering speculative with references to other parts of the prospectus where complete information with respect to such factors is set forth.). 28 For example, FSOC's Report on Climate-Related Financial Risk 2021 found that investors and businesses 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. See 2021 FSOC Report, Chapter 1: From Climate-Related Physical Risks to Financial Risks; From Climate-related Transition Risks to Financial Risks. In 2023 FSOC repeated its concern that climate-related risks are an emerging and increasing threat to U.S. financial stability and stated that climate-related financial risk can manifest as and amplify traditional risks, such as credit, market, liquidity, operational, compliance, reputational, and legal risks. See FSOC, Annual Report 2023; see also letters from AGs of Cal. et al.; Ceres; PIMCO; and Wellington Mgmt; infra note 99 and accompanying text. 29 See, e.g., Greg Ritchie, Bloomberg, 90% of World's Biggest Firms Will Have at Least One Asset Exposed to Climate Risk, Fresh Data Show (Sept. 15, 2022) (stating that over 90% of the world's largest companies will have at least one asset financially exposed to climate risks such as wildfires or floods by the 2050s, and more than a third of those companies will see at least one asset lose 20% or more of its value as a result of climate-related events). 30 See, e.g., McKinsey & Company, How electric vehicles will shape the future (Apr. 23, 2022), available at https://www.mckinsey.com/featured-insights/themes/how-electric-vehicles-will-shape-the-future (predicting that by 2035, the major automotive markets will be fully electric). 31 See, e.g., Amrith Ramkumar, Wall Street Journal, JPMorgan Makes One of the Biggest Bets Ever on Carbon Removal (May 23, 2023), available at https://www.wsj.com/articles/jpmorgan-makes-one-of-the-biggest-bets-ever-on-carbon-removal-c7d5fe63 (noting that “JPMorgan Chase has agreed to invest more than $200 million to purchase credits from several companies in the nascent [carbon removal] industry”). 32 See, e.g., BlackRock, Managing the net-zero transition (Feb. 2022), available at https://www.blackrock.com/corporate/literature/whitepaper/bii-managing-the-net-zero-transition-february-2022.pdf (“On top of physical climate risks, companies and asset owners must now grapple with the transition [to a net-zero economy]. Economies will be reshaped as carbon emissions are cut. The transition will involve a massive reallocation of resources. Supply and demand will shift, with mismatches along the way. Value will be created and destroyed across companies.”). In addition to these market forces, changes in law, regulation, or policy may prompt companies to transition to lower carbon products, practices, and services. For example, governments including the United States and others throughout the world have made public commitments to transition to a lower carbon economy. 33 Efforts towards meeting GHG reduction goals 34 could have financial effects that materially impact registrants. 35 Recently both the Federal Government and several State governments have adopted or proposed laws and regulations that incentivize companies to reduce their GHG emissions and transition to a lower carbon economy in a variety of ways. 36 How a registrant assesses and plans in response to such legislative and regulatory efforts and going forward complies with such laws and regulations, may have a significant impact on its financial performance and investors' return on their investment in the company. 33 See United Nations, Net Zero, available at https://www.un.org/en/climatechange/net-zero-coalition (“More than 140 countries, including the biggest polluters—China, the United States, India and the European Union—have set a net-zero target. . . .”). 34 See, e.g., Press Statement, Antony J. Blinken, Secretary of State, The United States Officially Rejoins the Paris Agreement (Feb. 19, 2021), available at https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/ . Over 190 countries have signed the Paris Climate Agreement, which aims to limit global temperature rise. 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 including the U.S. formed a coalition to reduce methane emissions by 30% by 2030. See David Worford, COP26 Net Zero Commitments will Speed Energy Transition, Increase Pressure on Industries, According to Moody's Report, Environment+Energy Leader (Nov. 17, 2021), available at https://www.environmentenergyleader.com/2021/11/cop26-net-zero-commitments-will-speed-energy-transition-increase-pressure-on-industries-according-to-moodys-report/ . At COP27, participating countries (which included the U.S.) reaffirmed their commitment to limit global temperature rise and agreed to provide “loss and damage” funding for vulnerable countries hit hard by climate disasters. See United Nations Climate Change, COP27 Reaches Breakthrough Agreement on New “Loss and Damage” Fund for Vulnerable Countries (Nov. 20, 2022), available at https://unfccc.int/news/cop27-reaches-breakthrough-agreement-on-new-loss-and-damage-fund-for-vulnerable-countries . More recently, at COP 28, participating countries (which included the U.S.) signed an agreement that includes commitments for “deep emissions cuts and scaled-up finance.” See United Nations Climate Change, COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era (Dec. 13, 2023), available at https://unfccc.int/news/cop28-agreement-signals-beginning-of-the-end-of-the-fossil-fuel-era . 35 See, e.g., letter from Eni SpA (“[C]ompanies should discuss the reference scenario in which they are acting, providing information about any emerging trends, demands, uncertainties, commitments or events that are reasonably likely to have material impacts on the company's future profitability and growth prospects in dependence of likely or possible evolution of the regulatory or competitive environment in response to the global need to achieve the goals of the Paris Agreement.”); see also infra note 108 and accompanying text (citing comment letters that stated that, as governments and registrants have increasingly made pledges and enacted laws regarding a transition to a lower carbon economy, more consistent and reliable climate-related disclosure has become particularly important to help investors assess the reasonably likely financial impacts to a registrant's business, results of operations, and financial condition in connection with such governmental pledges or laws and the related financial and operational impacts of a registrant's progress in achieving its publicly announced, climate-related targets and goals). 36 See infra section II.C for examples of Federal law and State regulation that may be sources of climate-related risk, particularly transition risk, for registrants. Further, as reflected in comments received in response to the proposed rules and as discussed throughout this release, investors seek to assess the climate-related risks that registrants face and evaluate how registrants are measuring and responding to those risks. 37 Effective disclosures regarding climate-related risks can help investors better assess how registrants are measuring and responding to those risks. Those assessments can, in turn, inform investment and voting decisions. 37 See, e.g., infra notes 99-106 and accompanying text. We agree with the many commenters that stated that the current state of climate-related disclosure has resulted in inconsistent, difficult to compare, and frequently boilerplate disclosures, and has therefore proven inadequate to meet the growing needs of investors for more detailed, consistent, reliable, and comparable information about climate-related effects on a registrant's business and financial condition to use in making their investment and voting decisions. 38 Since the Commission issued the 2010 Guidance, awareness of climate-related risks to registrants has grown. 39 Retail and institutional investors 40 and investor-led initiatives 41 have increasingly expressed the need for more reliable information about the effects of climate-related risks, as well as information about how registrants have considered and addressed climate-related risks and opportunities when conducting operations and developing business strategy and financial plans. 42 At the same time, many companies have made climate-related commitments to reduce GHG emissions or become “net zero” by a particular date. 43 In response, investors have expressed the need for more detailed information to aid their investment and voting decisions, including insight into the potential impacts on registrants associated with fulfilling such commitments. 44 38 See, e.g., letters from AllianceBernstein; BlackRock, Inc. (June 17, 2022) (“BlackRock”); CalPERS; CalSTRS; Calvert Research and Management (June 17, 2022) (“Calvert”); Decatur Capital Management (May 29, 2022); Domini Impact; Harvard Management Company (June 6, 2022) (“Harvard Mgmt.”); Impax Asset Management (May 12, 2022) (“Impax Asset Mgmt.”); Trillium; and Wellington Mgmt. But see, e.g., letters from the U.S. Chamber of Commerce (June 16, 2022) (“Chamber”) (June 16, 2022); National Association of Manufacturers (June 6, 2022) (“NAM”) (June 6, 2022); and Society for Corporate Governance (June 17, 2022) (“Soc. Corp. Gov.”). 39 See, e.g., supra notes 28-32. 40 Although some commenters stated that only institutional investors have demanded that the Commission adopt climate-related disclosure requirements, see, e.g., letters from Chamber and Soc. Corp. Gov., most individual retail investors and firms advising such investors who submitted comments supported the proposed rules. See, e.g., letters from Barry Gillespie (June 8, 2022); Betterment (June 17, 2022); Helene Marsh (June 7, 2022); and Rodney Smith (June 13, 2022); see also letter from Investment Company Institute (June 17, 2022) (“ICI”) (supporting “key components of the proposal” and noting that its “members, US regulated funds . . . serv[e] more than 100 million investors” and “clearly have a significant interest in how the nature and availability of climate-related risk information provided by public companies evolves” and “analyze this, and other, information in formulating their investment decisions on behalf of those millions of long-term individual investors”). 41 See Proposing Release, section I.C.1 for a discussion of some of these investor-led initiatives. Among other initiatives discussed in the Proposing Release, 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. 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 $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. 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-Statementto-Governments-on-the-Climate-Crisis.pdf. But see letter from Lawrence Cunningham for Twenty Professors of Law and Finance, George Washington University (Feb. 29, 2024) (noting that some large institutional asset managers or investors have recently withdrawn membership from certain of the investor-led initiatives described in the Proposing Release). 42 See, e.g., letters from AllianceBernstein; CalPERS; CalSTRS; Domini Impact; Harvard Mgmt; Impax Asset Mgmt; Trillium; and Wellington Mgmt. 43 See Proposing Release, section I.C.1. See also Dieter Holger and Pierre Bertrand, U.N. Group Recommends Stricter Rules Over Net-Zero Pledges, The Wall Street Journal (Nov. 8, 2022) (stating that roughly 800 of the world's 2,000 largest public companies by revenue have committed to get to net zero emissions by 2050 or sooner); and United Nations, Recognizing growing urgency, global leaders call for concrete commitments for clean, affordable energy for all by 2030 and net-zero emissions by 2050 (May 26, 2021). 44 See, e.g., letters from Calvert; Ceres; Investment Adviser Association (June 17, 2022) (“IAA”); and PIMCO. See also Climate Action 100+, As The 2023 Proxy Season Continues, Investors Are Calling On Climate Action 100+ Focus Companies For More Robust Climate Action (May 9, 2023) (stating that in addition to more robust corporate governance on climate, investors are calling for disclosure on key issues including greenhouse gas emissions targets, transition plans (including policies to ensure a just transition for workers and communities), and reporting on methane measurements); Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark Shows Continued Progress On Ambition Contrasted By A Lack Of Detailed Plans Of Action (Oct. 18, 2023); and Dieter Holger, Corporate Climate Plans Fall Well Short of Targets, With a Few Bright Spots, The Wall Street Journal (Feb. 13, 2023). B. Summary of the Final Rules Having considered the comments received on the proposal, we are adopting the final amendments described in this release with modifications in response to those comments. 45 45 As stated above, the Commission received a large number of comments on the proposal, and we considered all of those comments. Nevertheless, considering the overlapping content and themes in the comments, and for the sake of clarity, we have not cited each individual comment letter in support of or against a particular position in the discussion below. Like the proposed rules, the final rules' reporting framework has structural elements, definitions, concepts, and, in some cases, substantive requirements that are similar to those in the Task Force on Climate-related Financial Disclosure (“TCFD”), an industry-led task force charged with promoting better-informed investment, credit, and insurance underwriting decisions. 46 The TCFD reporting framework was designed to elicit information to help investors better understand a registrant's climate-related risks to make more informed investment decisions. 47 We therefore find that it is an appropriate reference point for the final rules. Indeed, the core categories of the framework, which focus on governance, risk management, strategy, and metrics, 48 align with the type of information called for by existing disclosure requirements within Regulation S-K. 49 Accordingly, where consistent with our objectives, the authority Congress granted, and the comments received, certain provisions in the final rules are similar to the TCFD recommendations. 50 Similarly, we have used concepts developed by the GHG Protocol for aspects of the final rules, as it has become a leading reporting standard for GHG emissions. 51 Because many registrants have elected to follow the TCFD recommendations when voluntarily providing climate-related disclosures, 52 and/or have relied on the GHG Protocol when reporting their GHG emissions, 53 building off these reporting frameworks will mitigate those registrants' compliance burdens and help limit costs. 54 Building off the TCFD framework and the GHG Protocol will also benefit those investors seeking to make comparisons between Commission registrants and foreign companies not registered under the Federal securities laws that make disclosures under the TCFD framework and GHG Protocol, mitigating the challenges they experience when making investment and voting decisions. 55 Nevertheless, while the final rules use concepts from both TCFD and the GHG Protocol where appropriate, the rules diverge from both of those frameworks in certain respects where necessary for our markets and registrants and to achieve our specific investor protection and capital formation goals. 46 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 . In Apr. 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. 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. 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. For background on the TCFD and development of its recommendations, see Proposing Release, section I.D.1. 47 See TCFD, supra note 46, at ii-iii. 48 See TCFD, supra note 4646 (listing governance, strategy, risk management, and metrics and targets as core elements of the TCFD framework). 49 See, e.g., 17 CFR 229.105 (Risk factors), 17 CFR 229.303 (Management's discussion and analysis of financial condition and results of operation), 17 CFR 229.401 (Directors, executive officers, promoters and control persons), and 17 CFR 229.407 (Corporate governance). 50 As discussed below, a number of commenters recommended that the Commission incorporate the TCFD recommendations into the final rules. See infra notes 115-118 and accompanying text. 51 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 . 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. See Greenhouse Gas Protocol, About Us, available at https://ghgprotocol.org/about-us . The GHG Protocol, which is subject to updates periodically, has been broadly incorporated into various sustainability reporting frameworks, including the TCFD. 52 See, e.g., infra note 2690 and accompanying text (describing a report finding that 50 percent of sustainability reports from Russell 1000 companies aligned with the TCFD recommendations). In addition, many registrants submit climate disclosures to the CDP, formerly known as the “Carbon Disclosure Project,” which is aligned with the TCFD framework. See CDP Worldwide (“CDP”), How CDP is aligned to the TCFD, available at https://www.cdp.net/en/guidance/how-cdp-is-aligned-to-the-tcfd (last visited Feb. 21, 2024); CDP, How companies can take action , available at https://www.cdp.net/en/companies (noting that “23,000+ companies representing two thirds of global market capitalization disclosed through CDP in 2023”); see also CDP, About us , available at https://www.cdp.net/en/info/about-us (“CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. . . . CDP was established as the `Carbon Disclosure Project' in 2000, asking companies to disclose their climate impact.”). In addition, several international climate disclosure initiatives are based on the TCFD recommendations. See infra section II.A.3. 53 See infra section II.A; and Proposing Release, section I.D.2; see also infra note 2621 (noting that, in the U.S. and other jurisdictions, GHG emissions quantification and reporting are generally based on the GHG Protocol). 54 See infra note 2760 and accompanying text. 55 Cf. infra notes 2568-2570 and accompanying text. 1. Content of the Climate-Related Disclosures The final rules will create a new subpart 1500 of Regulation S-K and Article 14 of Regulation S-X. In particular, the final rules will require a registrant to disclose information about the following items: • Any climate-related risks identified by the registrant that have had or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, or financial condition in the short-term ( i.e., the next 12 months) and in the long-term ( i.e., beyond the next 12 months); 56 56 See infra section II.D.1. • The actual and potential material impacts of any identified climate-related risks on the registrant's strategy, business model, and outlook, including, as applicable, any material impacts on a non-exclusive list of items; 57 57 See infra sections II.D.1. That non-exclusive list is comprised of the registrant's: (1) business operations, including the types and locations of its operations, (2) products and services, (3) suppliers, purchasers, or counterparties to material contracts, to the extent known or reasonably available, (4) activities to mitigate or adapt to climate-related risks, including adoption of new technologies or processes, and (5) expenditure for research and development. • If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that, in management's assessment, directly result from such mitigation or adaptation activities; 58 58 See infra sections II.D.1. • If a registrant has adopted a transition plan to manage a material transition risk, a description of the transition plan, and updated disclosures in the subsequent years describing the actions taken during the year under the plan, including how the actions have impacted the registrant's business, results of operations, or financial condition, and quantitative and qualitative disclosure of material expenditures incurred and material impacts on financial estimates and assumptions as a direct result of the disclosed actions; 59 59 See infra section II.D.2. • If a registrant uses scenario analysis and, in doing so, determines that a climate-related risk is reasonably likely to have a material impact on its business, results of operations, or financial condition, certain disclosures regarding such use of scenario analysis; 60 60 See infra section II.D.3. • If a registrant's use of an internal carbon price is material to how it evaluates and manages a material climate-related risk, certain disclosures about the internal carbon price; 61 61 See infra section II.D.4. • Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant's material climate-related risks; 62 62 See infra section II.E. • Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant's overall risk management system or processes; 63 63 See infra section II.F. • If a registrant has set a climate-related target or goal that has materially affected or is reasonably likely to materially affect the registrant's business, results of operations, or financial condition, certain disclosures about such target or goal, including material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal; 64 64 See infra section II.G. • If a registrant is a large accelerated filer (“LAF”), 65 or an accelerated filer (“AF”) 66 that is not otherwise exempted, and its Scope 1 emissions and/or its Scope 2 emissions metrics are material, certain disclosure about those emissions; 67 65 An LAF is 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 revenue test in paragraph (2) or (3)(iii)(B) of the SRC definition in Rule 12b-2. 17 CFR 240.12b-2 (defining LAF and providing how and when an issuer determines whether it qualifies as an LAF). 66 An AF is 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; and (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 revenue test in paragraph (2) or (3)(iii)(B) of the SRC definition in Rule 12b-2. 17 CFR 240.12b-2 (defining AF and providing how and when an issuer determines whether it qualifies as an AF). 67 See infra section II.H. The final rules define the terms “Scope 1 emissions” (direct GHG emissions from operations that are owned or controlled by a registrant) and “Scope 2 emissions” (indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by a registrant). • The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds; 68 68 See infra section II.K. • The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (“RECs”) if used as a material component of a registrant's plans to achieve its disclosed climate-related targets or goals; and 69 69 See infra section II.K. • If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted. 70 70 See infra section II.K. In addition, under the final rules, a registrant that is required to disclose Scopes 1 and/or 2 emissions and is an LAF or AF must file an attestation report in respect of those emissions subject to phased in compliance dates. An AF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions. An LAF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions, and then file an attestation report at the reasonable assurance level beginning the seventh fiscal year after the compliance date for disclosure of GHG emissions. The final rules also require a registrant that is not required to disclose its GHG emissions or to include a GHG emissions attestation report pursuant to the final rules to disclose certain information if the registrant voluntarily discloses its GHG emissions in a Commission filing and voluntarily subjects those disclosures to third-party assurance. The final rules reflect a number of modifications to the proposed rules based on the comments we received. As discussed in more detail below, we have revised the proposed rules in several respects, including by: • Adopting a less prescriptive approach to certain of the final rules, including, for example, the climate-related risk disclosure, board oversight disclosure, and risk management disclosure requirements; 71 71 See infra sections II.C.1.c, II.E.1.c, and II.F.3 for discussions of how we made these disclosure requirements less prescriptive as compared to the proposed rules. • Qualifying the requirements to provide certain climate-related disclosures based on materiality, including, for example, disclosures regarding impacts of climate-related risks, use of scenario analysis, and maintained internal carbon price; • Eliminating the proposed requirement to describe board members' climate expertise; • Eliminating the proposed requirement for all registrants to disclose Scope 1 and Scope 2 emissions and instead requiring such disclosure only for LAFs and AFs, on a phased in basis, and only when those emissions are material and with the option to provide the disclosure on a delayed basis; • Exempting SRCs and EGCs from the Scope 1 and Scope 2 emissions disclosure requirement; • Modifying the proposed assurance requirement covering Scope 1 and Scope 2 emissions for AFs and LAFs by extending the reasonable assurance phase in period for LAFs and requiring only limited assurance for AFs; • Eliminating the proposed requirement to provide Scope 3 emissions disclosure (which the proposal would have required in certain circumstances); • Removing the requirement to disclose the impact of severe weather events and other natural conditions and transition activities on each line item of a registrant's consolidated financial statements; • Focusing the required disclosure of financial statement effects on capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions in the notes to the financial statements; • Requiring disclosure of material expenditures directly related to climate-related activities as part of a registrant's strategy, transition plan and/or targets and goals disclosure requirements under subpart 1500 of Regulation S-K rather than under Article 14 of Regulation S-X; • Extending a safe harbor from private liability for certain disclosures, other than historic facts, pertaining to a registrant's transition plan, scenario analysis, internal carbon pricing, and targets and goals; 72 72 In addition, the existing safe harbors for forward-looking statements under the Securities Act and Exchange Act will be available for other aspects of the climate-related disclosures. See Securities Act section 27A [15 U.S.C. 77z-2], Exchange Act section 21E [15 U.S.C. 78u-5], 17 CFR 230.175 (“Securities Act Rule 175”) and 17 CFR 240.3b-6 (“Exchange Act Rule 3b-6”). • Eliminating the proposal to require a private company that is a party to a business combination transaction, as defined by Securities Act Rule 165(f), registered on Form S-4 or F-4 to provide the subpart 1500 and Article 14 disclosures; • Eliminating the proposed requirement to disclose any material change to the climate-related disclosures provided in a registration statement or annual report in a Form 10-Q (or, in certain circumstances, Form 6-K for a registrant that is a foreign private issuer that does not report on domestic forms); and • Extending certain phase in periods. 2. Presentation and Submission of the Climate-Related Disclosures The final rules provide that a registrant (both domestic and foreign private issuer 73 ) must: 73 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. See infra section II.L.3 for a discussion of certain types of registrants (both domestic and foreign private issuer) that are not subject to the final rules. • File the climate-related disclosure in its registration statements and Exchange Act annual reports; 74 74 See infra section II.N.3. • Include the climate-related disclosures required under Regulation S-K, except for any Scopes 1 and/or 2 emissions disclosures, in a separate, appropriately captioned section of its filing or in another appropriate section of the filing, such as Risk Factors, Description of Business, or Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), or, alternatively, by incorporating such disclosure by reference from another Commission filing as long as the disclosure meets the electronic tagging requirements of the final rules; 75 75 See infra section II.A.3. • If required to disclose its Scopes 1 and 2 emissions, 76 provide such disclosure: 76 See, e.g., infra section II.H.3.c (noting that unlike the proposed rules, which would have exempted SRCs from the requirement to disclose Scope 3 emissions, the final rules will exempt SRCs and EGCs from any requirement to disclose its GHG emissions, including its Scopes 1 and 2 emissions). ○ If a registrant filing on domestic forms, in its annual report on Form 10-K, in its quarterly report on Form 10-Q for the second fiscal quarter in the fiscal year immediately following the year to which the GHG emissions metrics disclosure relates incorporated by reference into its Form 10-K,or in an amendment to its Form 10-K filed no later than the due date for the Form 10-Q for its second fiscal quarter; 77 77 See infra section II.H.3.d. ○ If a foreign private issuer not filing on domestic forms, in its annual report on Form 20-F, or in an amendment to its annual report on Form 20-F, which shall be due no later than 225 days after the end of the fiscal year to which the GHG emissions metrics disclosure relates; 78 and 78 See infra section II.H.3.d. ○ If filing a Securities Act or Exchange Act registration statement, as of the most recently completed fiscal year that is at least 225 days prior to the date of effectiveness of the registration statement; • If required to disclose Scopes 1 and 2 emissions, provide such disclosure for the registrant's most recently completed fiscal year and, to the extent previously disclosed, for the historical fiscal year(s) included in the filing; 79 79 See infra section II.H.3.d. • If required to provide an attestation report over Scope 1 and Scope 2 emissions, provide such attestation report and any related disclosures in the filing that contains the GHG emissions disclosures to which the attestation report relates; 80 80 See infra section II.I. • Provide the financial statement disclosures required under Regulation S-X for the registrant's most recently completed fiscal year, and to the extent previously disclosed or required to be disclosed, for the historical fiscal year(s) included in the filing, in a note to the registrant's audited financial statements; 81 and 81 See infra section II.K. • Electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL. 82 82 See infra section II.M.3. 3. Safe Harbor for Certain Climate-Related Disclosures The final rules provide a safe harbor for climate-related disclosures pertaining to transition plans, scenario analysis, the use of an internal carbon price, and targets and goals, provided pursuant to Regulation S-K sections 229.1502(e), 229.1502(f), 229.1502(g), and 229.1504. The safe harbor provides that all information required by the specified sections, except for historical facts, is considered a forward-looking statement for purposes of the Private Securities Litigation Reform Act (“PSLRA”) 83 safe harbors for forward-looking statements provided in section 27A of the Securities Act 84 and section 21E of the Exchange Act 85 (“PSLRA safe harbors”). 86 83 Public Law 104-67, 109 Stat. 737. 84 15 U.S.C. 77z-2. 85 15 U.S.C. 78u-5. 86 See infra sections II.D and II.J.3. 4. Phase in Periods As discussed in more detail below, 87 the final rules will be phased in for all registrants, with the compliance date dependent upon the status of the registrant as an LAF, an AF, a non-accelerated filer (“NAF”), 88 SRC, or EGC, and the content of the disclosure. 87 See infra section II.O. 88 Although Rule 12b-2 defines the terms “accelerated filer” and “large accelerated filer,” see supra notes 65-66, it does not define the term “non-accelerated filer.” If an issuer does not meet the definition of AF or LAF, it is considered a NAF. See Accelerated Filer and Large Accelerated Filer Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178, 17179 n.5 (Mar. 26, 2020)]. II. Discussion A. Overview and Purpose of the Climate-Related Disclosure Rules 1. Proposed Rules a. Consistent, Comparable, and Reliable Disclosures for Investors The Commission proposed the climate-related disclosure rules in order to elicit more consistent, comparable, and reliable information for investors to enable them to make informed assessments of the impact of climate-related risks on current and potential investments. 89 Accordingly, the Commission proposed to amend Regulation S-K to add a new subpart 1500 that would require a registrant to disclose: any material climate-related impacts on its strategy, business model, and outlook; its governance of climate-related risks; its climate-related risk management; GHG emissions metrics; and climate-related targets and goals, if any. 90 89 See Proposing Release, section I.B. 90 See id. The Commission also proposed to amend Regulation S-X to add a new article (Article 14), which would have required a registrant to disclose in a note to its financial statements certain disaggregated climate-related financial statement metrics. 91 The proposed rules would have required disclosure falling under the following three categories of information: financial impact metrics; expenditure metrics; and financial estimates and assumptions. The Commission proposed the financial statement metrics requirement to increase transparency about how climate-related risks impact a registrant's financial statements. 92 Under the proposed amendments to both Regulation S-K and Regulation S-X, disclosure of climate-related opportunities would be optional. 91 See id. 92 See Proposing Release, section II.A.1. As noted above, the proposed rules were modeled on the TCFD disclosure framework. 93 The TCFD framework consists of 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. 94 The Commission proposed to model its climate-related disclosure rules on the TCFD framework given that many registrants and their investors are already familiar with the framework and are making disclosures voluntarily consistent with the framework. The Commission indicated that this should help to mitigate both the compliance burden for registrants and any burdens faced by investors in analyzing the new disclosures and would facilitate comparability across registrants. 95 93 See supra section I.B. 94 See TCFD, supra note 4646, at iv. 95 See Proposing Release, section II.A.1. b. Proposed Location of the Disclosure In proposing to include the climate-related disclosure rules in Regulation S-K and Regulation S-X, the Commission stated its belief that the proposed disclosure would be fundamental to investors' understanding of 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 financial condition. 96 The Commission proposed to require a registrant to include the climate-related disclosure in Securities Act or Exchange Act registration statements and Exchange Act annual reports in a separately captioned “Climate-Related Disclosure” section and in the financial statements. The Commission stated that the proposed presentation would facilitate review of the climate-related disclosure by investors alongside other relevant company financial and non-financial information and further the comparability of the disclosure across registrants. 97 96 See Proposing Release, section II.A.2. 97 See id. The Commission also proposed to permit a registrant to incorporate by reference disclosure from other parts of the registration statement or annual report ( e.g., Risk Factors, MD&A, Description of Business, or the financial statements) or from other filed or submitted reports into the Climate-Related Disclosure section if it would be responsive to the topics specified in the proposed Regulation S-K items and if the registrant satisfied the incorporation by reference requirements under the Commission's rules and forms. As the Commission explained, allowing incorporation by reference for the Regulation S-K climate-related disclosure would be consistent with the treatment of other types of business disclosure under our rules and would provide some flexibility for registrants while reducing redundancy in disclosure. 98 98 See id. 2. Comments Many commenters, including both investors and registrants, stated that climate-related risks can have material impacts on companies' financial position or performance. 99 Commenters indicated that when it is available, information about climate-related risks is currently used to assess the future financial performance of public companies and inform investment decision-making. 100 Some commenters provided specific examples of how that type of information helps investors make investment decisions today. 101 However, many commenters stated that the Commission's current reporting requirements do not yield adequate or sufficient information regarding climate-related risks. 102 Many commenters also expressed the view that the current, largely voluntary reporting of climate-related information under various third-party frameworks, which differ in certain respects, has allowed registrants to selectively choose which climate-related disclosures to provide and has failed to produce complete, consistent, reliable, and comparable information with the level of detail needed by investors to assess the financial impact of climate-related risks on registrants. 103 Commenters stated that, despite the Commission's issuance of the 2010 Guidance, registrants often provided climate-related disclosure that is boilerplate, with some being or bordering on “greenwashing.” 104 Commenters further indicated that investors, both institutional and retail, 105 were in need of more consistent and comparable climate-related disclosure to enable them to make fully informed decisions and ensure securities are priced to better reflect climate-related risk. 106 Commenters indicated that adoption of mandatory, climate-related disclosure rules would improve the timeliness, quality, and reliability of climate-related information, which would facilitate investors' comparison of climate-related risks and lead to more accurate securities valuations. 107 Commenters also stated that, as governments and registrants have increasingly made pledges and enacted laws regarding a transition to a lower carbon economy, more consistent and reliable climate-related disclosure has become particularly important to help investors assess the reasonably likely financial impacts to a registrant's business, results of operations, and financial condition in connection with such governmental pledges or laws and the related financial and operational impacts of a registrant's progress in achieving its publicly announced, climate-related targets and goals. 108 99 See, e.g., letters from AllianceBernstein; Alphabet et al.; Amazon (June 17, 2022); Americans for Financial Reform Education Fund, Public Citizen, Sierra Club, Ocean Conservancy, and the Sunrise Project (June 16, 2022) (“Amer. for Fin. Reform, Sunrise Project et al.” ); Bloomberg L.P. (June 22, 2022) (“Bloomberg”); CalPERS (June 15, 2022); CalSTRS (June 17, 2022); Calvert; Ceres; Harvard Mgmt.; IAA; Miller/Howard; Morningstar, Inc. (June 16, 2022) (“Morningstar”); Soros Fund; and Wellington Mgmt. 100 See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; CalPERS; CalSTRS; Calvert; Ceres; Miller/Howard; Soros Fund; and Wellington Mgmt. 101 See, e.g., letters from CalSTRS; Calvert; and Wellington Mgmt. 102 See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; As You Sow (June 21, 2022); BlackRock; Bloomberg; Boston Common Asset Mgmt.; CalPERS; CalSTRS; Calvert; Ceres; Consumer Federation of America (June 17, 2022) (“CFA”); Franklin Templeton Investments (June 17, 2022) (“Franklin Templeton”); Harvard Mgmt.; IAA; Miller/Howard; Morningstar; New York State Comptroller (June 3, 2022) (“NY St. Comptroller”); Principles for Responsible Investment (Consultation Response) (June 17, 2022) (“PRI”); Soros Fund; Union of Concerned Scientists (June 17, 2022) (“UCS”); US SIF (June 17, 2022); and Wellington Mgmt. 103 See, e.g., letters from BlackRock; Bloomberg; Calvert; Ceres; Franklin Templeton; Miller/Howard; PRI; and US SIF. 104 See, e.g., letters from Ceres; Interfaith Center on Corporate Responsibility (June 17, 2022) (“ICCR”); and Maple-Brown Abbott (May 31, 2022) (“Maple-Brown”). As the Commission stated when proposing the climate disclosure rules, there does not appear to be a universally accepted definition of “greenwashing.” See Proposing Release, section IV.C.1. The Commission did not define greenwashing in the Proposing Release and is not defining it now. As a general matter, others have defined greenwashing to mean the set of activities conducted by firms or funds to falsely convey to investors that their investment products or practices are aligned with environmental or other ESG principles. See Proposing Release, section IV.C.1. See also OICU-IOSCO Supervisory Practices to Address Greenwashing, (Dec 2023), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD750.pdf . 105 See, e.g., letters from Americans for Financial Reform Education Fund and Public Citizen (June 16, 2022) (“Amer. for Fin. Reform and Public Citizen”) (noting that the commenters commissioned a survey of retail investors and describing the results of that survey as “show[ing] that investors care about climate-related risks and opportunities of public companies, support the SEC requiring climate-related disclosures with third-party audit, and would factor the information disclosed into their investment practices”); Ceres (Dec. 2, 2022); and PRI; see also supra note 40 (noting that most individual retail investors and firms advising such investors who submitted comments supported the proposed rules and citing comment letters from some retail investors and investment advisers in support of that proposition); infra note 139 (citing several comment letters in support of the proposition that retail investors have stated that they found much of the voluntary climate-related reporting to be lacking in quality and completeness and difficult to compare and as a result have incurred costs and inefficiencies when attempting to assess climate-related risks and their effect on the valuation of a registrant's securities). But see, e.g., letter from Soc. Corp. Gov. (asserting that the retail investor survey in the letter from Amer. for Fin. Reform and Public Citizen “do[es] not support the position that retail investors demand more climate-related information in companies' SEC filings, and certainly not the detailed disclosures that would be required under the Proposed Rule” based on its criticisms of the questions in the survey and calculation methodologies that the letter Amer. for Fin. Reform and Public Citizen used to report findings from the survey). 106 See, e.g., letters from Bloomberg; Ceres; and Miller/Howard. 107 See, e.g., letters from CalSTRS (stating that “[u]sing the TCFD framework as the basis for guiding issuers to more comparable disclosures would help [investors] more easily compare companies' approach to climate risk management in a timelier fashion”); Ceres (stating that “the proposed rule would promote both allocative and informational efficiency” and that “[t]imely, comparable information about each company's climate related risks and opportunities would improve informational efficiency, leading to more accurate valuation”); and PwC (stating that “[m]andatory disclosure in annual filings—including the notes to the financial statements—would enhance comparability while ensuring that the timeliness, quality, and reliability of climate information is commensurate with that of the financial data”). 108 See, e.g., letters from Amer. for Fin. Reform (Dec. 1, 2022) (stating that, with passage of the Inflation Reduction Act, investors will need the Commission's proposed climate-related disclosures to determine which companies and sectors are best positioned and ready to capitalize on the IRA's GHG reduction incentives over the coming decade, and to analyze the progress towards and profitability of companies' transition strategies in this new investment context); CalPERS; and Ceres. Other commenters, however, opposed adoption of the proposed rules and requested either that the Commission rescind the proposal or make significant revisions in the final rules. 109 Some of these commenters, while opposing specific aspects of the proposed rules, agreed with the overall intent of the proposal or otherwise stated that rules requiring climate-related information were appropriate and would be helpful to investors. 110 As discussed in more detail below, other commenters asserted that the Commission lacks statutory authority to adopt the proposed climate-related disclosure rules. 111 Other commenters asserted that current voluntary reporting practices are sufficient to serve the needs of investors and markets, and so the proposed rules are unnecessary. 112 Similarly, some opposing commenters stated that, because in their view the Commission's current disclosure regime already requires a registrant to disclose climate-related risks if material, adoption of the proposed rules would impose a significant burden on registrants while resulting in little additional benefit for investors. 113 Opposing commenters further stated that, because the proposed rules were overly prescriptive and not bound in every instance by materiality, their adoption would result in the disclosure of a large volume of immaterial information that would be confusing for investors. 114 109 See, e.g., letters from American Bar Association, Business Law Section (June 24, 2022) (“ABA”); Chamber; David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation (June 17, 2022) (“D. Burton, Heritage Fdn.”); NAM; and Soc. Corp. Gov. See also Form Letter AG. 110 See letters from Bank of America (June 17,2022) (“BOA”) (“Various stakeholders, including asset owners and asset managers, will benefit from consistent, standardized disclosures addressing climate-related risks and opportunities to help them make decisions on where best to deploy capital in alignment with investor goals.”); Bank Policy Institute (June 16, 2022) (“BPI”); Dominion Energy, Inc. (June 17, 2022) (“Dominion Energy”) (“We believe climate-related disclosures are important to our investors and support the Commission's efforts to design rules and guidance to provide investors with the disclosures that they need in order to make informed decisions.”); Long-Term Stock Exchange (June 17, 2022) (“LTSE”) (stating that climate “represents an investment risk, and investors deserve to understand what public companies are doing to address this issue. . . [w]e believe the proposal represents a significant step toward standardizing, clarifying and verifying disclosures so as to enable investors to make more informed investment decisions. . .”); United Air. (June 17, 2022); and Walmart Inc. (June 17, 2022) (“Walmart”) (“The Company supports the adoption of rules that can facilitate the disclosure of consistent, comparable, and reliable material climate-related information.”). 111 See infra section II.B. Some of these commenters stated that the Commission exceeded its statutory authority when issuing the proposed rules because those rules would require disclosure of information that is not financially material and is only of general or environmental interest. See, e.g., letters from Boyden Gray (June 17, 2022); D. Burton, Heritage Fdn.; and National Ocean Industries Association (June 17, 2022) (“NOIA”). 112 See, e.g., letters from Chamber; NAM; and Soc. Corp. Gov. 113 See, e.g., letters from Attorneys General of the States of Texas, Alaska, Arkansas, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina, and Utah (June 17, 2022) (“AGs of TX et al.” ); Cato Institute (June 17, 2022) (“Cato Inst.”); and Society for Mining, Metallurgy, & Exploration (June 17, 2022) (“SMME”). 114 See, e.g., letters from American Petroleum Institute (June 17, 2022) (“API”); Business Roundtable (June 17, 2022); Chamber; ConocoPhillips (June 17, 2022); Fenwick & West (June 17, 2022) (“Fenwick West”); Soc. Corp. Gov.; and Williams Companies (June 17, 2022) (“Williams Cos.”). Many commenters supported basing the Commission's climate disclosure rules on the TCFD framework. 115 Commenters stated that because the TCFD framework has been widely accepted globally by both issuers and investors, its use as a model for the Commission's rules would help elicit climate-related disclosures that are consistent, comparable, and reliable. 116 Commenters also stated that basing the Commission's climate disclosure rules on the TCFD framework would benefit investors because of their familiarity with the framework and its usefulness in understanding the connection between climate-related risk and financial impact. 117 Commenters also stated that basing the Commission's climate-related disclosure rules on the TCFD framework, with which many registrants are familiar and already using, should help mitigate the compliance burden. 118 115 See, e.g., letters from AllianceBernstein; Alphabet et al.; As You Sow; Alan Beller, Daryl Brewster, Robert G. Eccles, Camen X. W. Lu, David A. Katz, and Leo E. Strine, Jr. (June 16, 2022) (“Beller et al.” ); BHP (June 13, 2022); Bloomberg; BNP Paribas (June 16, 2022); BP Americas (June 17, 2022) (“BP”); CalPERS; CalSTRS; Chevron (June 17, 2022); CEMEX (June 17, 2022); Dell Technologies (May 19, 2022) (“Dell”); Eni SpA; Etsy, Inc. (June 16, 2022) (“Etsy”); Fidelity Investments (June 17, 2022) (“Fidelity”); Harvard Mgmt.; Impax Asset Mgmt.; IAC Recommendation; Maple-Brown; Miller/Howard; Natural Resources Defense Council (June 17, 2022) (“NRDC”); New York City Office of Comptroller (June 17, 2022) (“NY City Comptroller”); PIMCO; PRI; PwC; Unilever PLC (June 17, 2022) (“Unilever”); and The Vanguard Group, Inc. (June 17, 2022) (“Vanguard”). 116 See, e.g., letters from Beller et al.; BNP Paribas; CalPERS; CEMEX; Chevron; Eni SpA; Harvard Mgmt.; NRDC; NY City Comptroller; PIMCO; PRI; Unilever; and Vanguard. 117 See, e.g., letters from CalSTRS; NRDC; and PRI. 118 See, e.g., letters from Alphabet et al.; Eni SpA; Harvard Mgmt.; PRI; and Unilever. One commenter expressed support for basing the rule proposal on the TCFD framework while also stating that the Commission should consider requiring the use of the International Sustainability Standards Board's (“ISSB”) climate reporting standard. 119 This commenter noted that, like the rule proposal, the ISSB climate reporting standard is based on the TCFD framework. This commenter, among others, stated that requiring the use of, or basing the Commission's climate disclosure rules on, the ISSB climate reporting standard would contribute substantially to the establishment of a global climate disclosure baseline, which would reduce the reporting burden on companies listed in multiple jurisdictions. 120 Some commenters, however, opposed basing the Commission's climate disclosure rules on the TCFD framework. One commenter stated that the Commission should not base its rules on a disclosure framework, such as the TCFD framework, that has not been developed by a U.S. regulatory agency because there is no process in place for domestic companies, such as oil and gas companies, to provide their input into potential changes to the framework. 121 Another commenter stated that the Commission should not base its climate disclosure rules on the TCFD because, in its view, there is currently no third-party framework, including the TCFD, capable of providing reliable and consistent metrics for climate-related risks. 122 A different commenter disputed that U.S. companies have widely adopted the TCFD framework and recommended instead that the Commission base its climate disclosure rules on the EPA's Greenhouse Gas Reporting Program, with which many U.S. registrants are familiar. 123 119 See letter from CalSTRS. 120 See id.; see also letters from Douglas Hileman Consulting LLC (May 2, 2022) (“D. Hileman Consulting”); T Rowe Price (June 16, 2022); and Vodafone Group Plc (June 17, 2022) (“Vodafone”) (stating that the Commission should allow the use of the ISSB climate reporting standard as an alternative reporting regime to the Commission's climate disclosure rules). 121 See letter from Petroleum Alliance of Oklahoma (June 16, 2022) (“Petrol. OK”). 122 See letter from Reason Foundation (June 17, 2022) (“Reason Fnd.”). 123 See letter from Western Midstream Partners, LP (June 15, 2022) (“Western Midstream”). Commenters expressed mixed views regarding the proposed location of the climate-related disclosure rules. Many commenters supported the proposed placement of climate-related disclosure rules in a new subpart of Regulation S-K and the placement of the proposed financial metrics in a new article of Regulation S-X. 124 Commenters stated that amending Regulation S-K and Regulation S-X to include climate-related disclosure requirements would facilitate the presentation of climate-related business and financial information as part of a registrant's regular business reporting 125 and appropriately reflect the fact that information about climate-related risks is essential to investors' decision-making and fundamental to understanding the nature of a company's operating prospects and financial performance. 126 Commenters further stated that requiring climate-related disclosures in annual filings, including the notes to the financial statements, would enhance the accessibility, comparability, and reliability of such disclosures for investors. 127 124 See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Attorneys General from California and 19 other states (June 17, 2022) (“AGs of Cal. et al. ”); Bloomberg; CalSTRS; Eni SpA; Miller/Howard; Morningstar; New York State Insurance Fund (June 17, 2022) (“NY SIF”); PRI; PwC; and SKY Harbor Capital Management (June 16, 2022) (“SKY Harbor”). 125 See, e.g., letter from Amer. for Fin. Reform, Sunrise Project et al. 126 See, e.g., letters from AGs of Cal. et al.; CalSTRS; and PRI. 127 See, e.g., letters from Bloomberg; and PwC. Many other commenters, however, opposed adoption of the proposed financial metrics under Regulation S-X because of various concerns relating to implementation and interpretation of the proposed financial metrics. 128 A number of these commenters recommended instead requiring disclosure of the financial impact of climate-related events as part of a registrant's MD&A pursuant to 17 CFR 229.303 (“Item 303 of Regulation S-K”). 129 128 See, e.g., letters from ABA; AllianceBernstein; Alphabet et al.; BOA; BlackRock; Business Roundtable; Cleary Gottlieb Steen & Hamilton LLP (June 16, 2022) (“Cleary Gottlieb”); FedEx Corporation (June 17, 2022) (“FedEx”); General Motors Company (June 17, 2022) (“GM”); Grant Thornton LLP (June 17, 2022) (“Grant Thornton”); National Association of Manufacturers (June 6, 2022) (“NAM”); Securities Industry and Financial Markets Association (June 17, 2022) (“SIFMA”); Soc. Corp. Gov.; Sullivan & Cromwell (June 17, 2022) (“Sullivan Cromwell”); Trillium; Unilever; and Walmart. See infra section II.K for further discussion of these comments. 129 See, e.g., letters from AllianceBernstein; Alphabet et al.; Cleary Gottlieb; IAC Recommendation; GM; Grant Thornton; SIFMA; Soc. Corp. Gov.; Unilever (recommending placement of the financial disclosure in either a registrant's MD&A or its Operating and Financial Review (“OFR”)); and Walmart. Commenters also had mixed views on the proposed placement of the climate-related disclosures in a separately captioned section of a registration statement or annual report. Several commenters supported the proposed placement because it would facilitate access to and comparability of the climate-related disclosures for investors. 130 Commenters also supported the proposed alternative to permit registrants to incorporate by reference climate-related disclosures from other sections of a filing or from other filings because it would avoid duplication in the filing, would add flexibility regarding the presentation of the disclosures, and would be consistent with the Commission's incorporation by reference rules regarding other types of disclosure. 131 Some of the commenters specifically recommended allowing registrants to include climate-related governance disclosure in their proxy statements, which could then be incorporated by reference into their annual reports. 132 130 See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; (supporting placement of the climate-related disclosure in a separate section as well as in other existing sections of the annual report or registration statement, as applicable); Breckinridge Capital Advisors (June 17, 2022); CEMEX; CFA; Eni SpA; Clifford Howard (June 17, 2022) (“C. Howard”); Institute for Agriculture and Trade Policy (June 17, 2022) (“IATP”); PRI; PwC; and SKY Harbor. 131 See, e.g., letters from CalSTRS; CEMEX; Eni SpA; IAA; and PwC. 132 See, e.g., ABA; BlackRock; Business Roundtable; CalSTRS; GM; C. Howard; ICCR; Microsoft; Morningstar; PwC; SIFMA; Shearman & Sterling (June 20, 2022) (“Shearman Sterling”); and Sullivan Cromwell. Some commenters opposed placing climate-related disclosures in a separate section of a filing, asserting that existing sections, such as MD&A and Risk Factors, are more appropriate places to provide the climate-related disclosures and stating that it should be up to each registrant to determine the most suitable place for such disclosure. 133 Some commenters recommended that the Commission require some or all of the climate-related disclosures to be included in a new, separate report to be furnished to the Commission following the filing of the annual report because of concerns about the timing and liability for disclosures related to GHG emissions, financial metrics, and certain other aspects of the climate-related disclosures. 134 133 See, e.g., letters from AGs of TX et al.; Brendan Herron (Nov. 1, 2022) (“B. Herron”); FedEx; Reason Fnd.; Soc. Corp, Gov.; and Unilever. 134 See, e.g., letters from BlackRock; Chevron; ConocoPhillips; FedEx; D. Hileman Consulting; HP Inc. (June 17, 2022) (“HP”); PIMCO; and Sullivan Cromwell. 3. Final Rules As discussed in greater detail below, we are adopting climate-related disclosure rules because, as many commenters have indicated, despite an increase in climate-related information being provided by some companies since the Commission issued its 2010 Guidance, there is a need to improve the consistency, comparability, and reliability of climate-related disclosures for investors. 135 As climate-related risks have become more prevalent, 136 investors have increasingly sought information from registrants about the actual and potential impacts of climate-related risks on their financial performance or position. 137 Both institutional 138 and retail investors 139 have stated that they found much of the voluntary climate-related reporting to be lacking in quality and completeness and difficult to compare and as a result have incurred costs and inefficiencies when attempting to assess climate-related risks and their effect on the valuation of a registrant's securities. Moreover, although the 2010 Guidance reflects that climate-related information may be called for by current Commission disclosure requirements, climate-related information has often been provided outside of Commission filings, such as in sustainability reports or other documents posted on registrants' websites, which are not subject to standardized disclosure rules, and, as noted by some commenters, are not necessarily prepared with the informational needs of investors in mind. 140 Such information also may not be prepared with the same level of rigor that results from the disclosure controls and procedures (“DCP”) required for disclosure in Commission filings, 141 and as a result may not be as reliable. 142 135 See supra notes 102 and 103 and accompanying text. The Commission also stated in the Proposing Release that, as part of its filing review process, Commission staff had assessed the extent to which registrants currently disclose climate-related risks in their filings. Proposing Release at 21339. The staff noted that, since 2010, disclosures climate-related disclosures 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. Id. The staff also observed significant inconsistency in the depth and specificity of disclosures by registrants across industries and within the same industry. Id. The staff 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. Id. In addition, the disclosures in registrants' Forms 10-K frequently contained general, boilerplate discussions that provide limited information as to the registrants' assessment of their climate-related risks or their impact on the companies' business. Id. 136 See, e.g., US Global Change Research Program, The Fifth National Climate Assessment (2023) (stating that extreme weather events cause direct economic losses through infrastructure damage, disruptions in labor and public services, and losses in property values, and that the United States currently experiences an extreme weather event causing a billion dollars or more in costs and losses every three weeks compared to one such event every four months in the 1980s). 137 See, e.g., letters from BlackRock; Bloomberg; Boston Common Asset Mgmt; Breckinridge Capital Advisors; Calvert; Ceres; CFA; East Bay Municipal Utility District Employee Retirement System (June 6, 2022) (“East Bay Mun.”) (“[B]ecause climate-related impacts or risks can materially affect a company's financial position and operations, we support the inclusion of some climate-related information in the financial statements; this also promotes consistency in information across a company's reporting.”); Harvard Mgmt.; Impax Asset Mgmt; Parnassus Investments (June 14, 2022) (“Parnassus”) (“We commend the Commission for understanding the urgency and materiality of the disclosure categories addressed in the Proposed Rule. This demonstrates a recognition that the decisions companies and investors make today regarding emissions and climate-related matters can have financial impacts in the short-, medium-, and long-term.”); Rockefeller Asset Management (June 1, 2022); Rebecca Palacios (June 6, 2022) (“R. Palacios”) (“[I]t is vital for you to require climate-related disclosures in order to meet the SECs mandate to protect investors ensure fair, orderly, and efficient markets and facilitate capital formation.”); (“Rockefeller Asset Mgmt.”) (“Our fundamental research and company engagements have revealed that climate related risks and opportunities are increasingly relevant to company valuations.”); PIMCO; PRI; SKY Harbor; Trillium; Allyson Tucker, Chief Executive Officer, Washington State Investment Board (June 17, 2022) (“We also support the SEC's inclusion of a greenhouse gas (GHG) emissions reporting requirement in line with the Greenhouse Gas Protocol because this information is critical to our understanding of the quality of a company's earnings in the face of climate change and the energy transition.”); and Vanguard. See also Form Letter AM. 138 See, e.g., letters from AllianceBernstein; Franklin Templeton; Harvard Mgmt.; Miller/Howard; Trillium; and Wellington Mgmt. 139 See, e.g., letters from Americans for Financial Reform Education Fund, Public Citizen, Ocean Conservancy, Sierra Club, Evergreen Action and 72 additional undersigned organizations (June 17, 2022) (“Amer. for Fin. Reform, Evergreen Action et al. ”); Amer. for Fin. Reform and Public Citizen; Americans for Financial Reform, on behalf of 64,357 advocates (June 16, 2022) (“Enclosed are 64,357 petition signatures supporting the [Commission's] proposed rule on climate-related financial disclosures that would provide investors with the long-awaited and necessary information they and their investment advisors need to make informed investment decisions.”); see also letter from Betterment (June 17, 2022) (noting that, based on responses of 3,000 retail investors to a survey the commenter conducted, “a reasonable interpretation . . . would be that 95% of respondents would potentially consider GHG emissions reporting . . . as material to whether they would purchase a security” and asserting that “[a] retail investor's exposure to equities via index funds makes the uniform availability of standardized climate-related disclosure at the company level that much more critical, and the Proposed Rule would drastically improve the efficiency and robustness of the underlying process that produces such low fee, diversified investing products” (emphasis in original)). In addition, the Commission received many unique letters from individual investors expressing their support for the proposed rules, with several stating that there was a need for more consistent and comparable disclosure about climate-related risk from registrants. See, e.g., letters from Kim Leslie Shafer (June 16, 2022) (“[A]s an investor and a citizen, I support the SEC prescribing consistent, comparable, reliable and mandatory disclosure of climate-related information.”); Neetin Gulati (June 17, 2022); Sandy Spears (June 16, 2022); R. Palacios. 140 See letter from PwC (expressing concern about permitting registrants to incorporate by reference from their sustainability reports or corporate responsibility reports because such reports “may be prepared using a basis of presentation designed for a stakeholder group with different information needs than investors and other providers of capital”). 141 See Rule 13a-15 and Rule 15d-15 [17 CFR 240.13a-15 and 17 CFR 240.15d-15]. Pursuant to Exchange Act Rules 13a-15 and 15d-15, a company's principal executive officer and principal financial officer must make certifications regarding the maintenance and effectiveness of disclosure controls and procedures. These rules define “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is (1) “recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms,” and (2) “accumulated and communicated to the company's management . . . as appropriate to allow timely decisions regarding required disclosure.” 142 See, e.g., letter from Ceres; see also letter from Calvert (stating that “we believe the disclosures mandated by the SEC in the proposed rule should be filed in annual reports, as well as quarterly reports where appropriate” because “it is supported by disclosure controls, CEO/CFO certification, audit requirements and a level of scrutiny by management appropriate for climate risks”). Consistent with and as authorized by our enabling statutes, we are adopting the climate-related disclosure requirements discussed herein, so that investors will have the information they need to make informed investment and voting decisions by evaluating a registrant's exposure to material climate-related risks. We modeled the proposed disclosure requirements in large part on the TCFD framework. As discussed in the Proposing Release and as many commenters noted, that framework has been widely accepted by issuers and investors. 143 The TCFD framework focuses on matters that are material to an investment or voting decision and is grounded in concepts that tie climate-related risk disclosure considerations to matters that may affect the results of operations, financial condition, or business strategy of a registrant. Because the TCFD framework is intended to elicit disclosure of climate-related risks that have materially affected or are reasonably likely to materially affect the business, results of operations, or financial condition of a company, it served as an appropriate model for the Commission's proposed climate-related disclosure rules. We therefore disagree with commenters that stated that the Commission's proposed rules would require disclosure of information that is primarily of general or environmental interest and not of financial interest. 144 The final rules continue to reflect many of the TCFD's recommendations, modified based on the input of commenters, which will enhance the usefulness and comparability of the required climate-related disclosures for investors and better serve their informational needs when making investment and voting decisions. 145 143 See supra notes 115 and 116 and accompanying text. 144 See supra note 111 and accompanying text. 145 See supra note 107 and accompanying text. At the same time, in consideration of some commenters' concerns, 146 we have revised the proposed climate-related disclosure requirements in certain respects to reduce the likelihood that the final rules result in disclosures that could be less useful for investors and costly for registrants to produce and to provide added flexibility for registrants regarding the content and presentation of the disclosure. Modeling the climate-related disclosure requirements on the TCFD framework while also adopting these revisions will help mitigate the compliance burden of the final rules, particularly for registrants that are already providing climate-related disclosures based on the TCFD framework or soon will be doing so pursuant to other laws or regulations. 147 146 See, e.g., supra note 109 and accompanying text. 147 See supra sections I.B. In this regard, we note that some commenters recommended that the Commission require or allow the use of the ISSB's climate-related disclosure standards as an alternative to the Commission's climate disclosure rules. See supra note 120 and accompanying text. While we acknowledge that there are similarities between the ISSB's climate-related disclosure standards and the final rules, and that registrants may operate or be listed in jurisdictions that will adopt or apply the ISSB standards in whole or in part, those jurisdictions have not yet integrated the ISSB standards into their climate-related disclosure rules. Accordingly, at this time we decline to recognize the use of the ISSB standards as an alternative reporting regime. In this regard, we note certain ongoing developments related to climate-risk reporting: • The formation of the ISSB by the IFRS Foundation 148 in November 2021, which consolidated several sustainability disclosure organizations into a single organization. 149 In June 2023, the ISSB issued General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) and Climate-related Disclosures (“IFRS S2”). 150 Notably, IFRS S1 and S2 integrate the recommendations of the TCFD. 151 148 The IFRS Foundation refers to the International Financial Reporting Standards Foundation, whose mission is to develop high-quality IFRS Standards that bring transparency, accountability, and efficiency to financial markets around the world. See IFRS—Who we are, available at https://www.ifrs.org/about-us/who-we-are/ . 149 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/ . See also Proposing Release, section I.C.2. 150 IFRS S1 sets out the general requirements for a company to disclose information about its sustainability related risks and opportunities. IFRS S2 sets out the requirements for companies to disclose information about their climate-related risks and opportunities, building on the requirements in IFRS S1. See IFRS—Project Summary IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (June 2023), available at https://www.ifrs.org/content/dam/ifrs/project/general-sustainability-related-disclosures/project-summary.pdf . 151 Concurrent with the release of its 2023 status report, the TCFD fulfilled its remit and transferred to the ISSB its responsibility for tracking company activities on climate-related disclosure. Fin. Stability Bd., FSB Roadmap for Addressing Financial Risks from Climate Change Progress Report (July 13, 2023), available at https://www.fsb.org/wp-content/uploads/P130723.pdf . As discussed infra , the TCFD recommendations are incorporated into the ISSB standards. Although the TCFD has disbanded, in this release we continue to refer to “TCFD recommendations” as distinct from ISSB standards, both for clarity and because not all jurisdictions that implemented TCFD-aligned disclosure requirements have implemented the broader and more recent ISSB standards. • Several jurisdictions have announced plans to adopt, apply, or otherwise be informed by the ISSB standards, including Australia, Brazil, Canada, Hong Kong, Japan, Malaysia, Nigeria, Singapore, and the United Kingdom (“UK”), although it is not yet clear how specifically the ISSB standards may be incorporated into certain foreign legal frameworks. 152 152 For example, the UK has announced that its Sustainability Disclosure Standards (“SDS”) will be based on the ISSB Standards. See Dep't of Bus. & Trade, UK Sustainability Disclosure Standards, Gov.UK (Aug. 2, 2023), available at https://www.gov.uk/guidance/uk-sustainability-disclosure-standards . Australia recently published draft legislation mandating comprehensive climate-related reporting and assurance for large and medium-sized companies that is aligned with the ISSB Standards. See Australian Government-the Treasury, Climate-related financial disclosure: exposure draft legislation (Jan. 12, 2024), available at https://treasury.gov.au/consultation/c2024-466491 . • Other jurisdictions were already well advanced in the process of adopting climate disclosure rules when the ISSB standards were announced. For example, in 2022, the European Union (“EU”) adopted the Corporate Sustainability Reporting Directive (“CSRD”), 153 which requires certain large and listed companies and other entities, including non-EU entities, to report on sustainability-related issues in line with the European Sustainability Reporting Standards (“ESRS”). 154 153 See Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG . In adopting the CSRD, 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. 154 See id. The CSRD requires large companies and listed companies to publish regular reports on the social and environmental risks they face, and how their activities impact people and the environment. In July 2023, the European Commission (“EC”) adopted the delegated act containing the first set of ESRS under the CSRD and the ESRS became effective on Jan. 1, 2024, for companies within scope of the first phase of reporting under the CSRD. See EC, Corporate sustainability reporting, available at https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en (last visited Feb. 6, 2024). See also EC Press Release, The Commission Adopts the European Sustainability Reporting Standards (July 31, 2023), available at https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en . Separate reporting standards will be developed for SMEs and certain non-EU companies operating in the EU. See EC, Questions and Answers on the Adoption of European Sustainability Reporting Standards (July 31, 2023), https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043 . • California recently adopted the Climate-Related Financial Risk Act (Senate Bill 261), which will require certain public and private U.S. companies that do business in California and have over $500 million in annual revenues to disclose their climate-related financial risks and measures based on the TCFD recommendations or a comparable disclosure regime in a report published biennially on the company's website commencing no later than January 2026. 155 155 See SB-261, Greenhouse gases: climate-related financial risk (Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB261 . • In addition, California recently adopted the Climate Corporate Data Accountability Act (Senate Bill 253), which will require certain public and private U.S. companies that do business in California and have over $1 billion in annual revenues to disclose their GHG emissions (Scopes 1 and 2 emissions by 2026 and Scope 3 emissions by 2027). 156 156 See SB-253, Climate Corporate Data Accountability Act (Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253 . The Act directs the California Air Resources Board (CARB) to adopt regulations to implement the requirements of the Act, with disclosures being required as early as 2026, subject to the CARB's finalization of the rules. The Act further requires the disclosure of Scope 1 and Scope 2 emissions to be subject to assurance, which must be performed at a limited assurance level beginning in 2026 and at a reasonable assurance level beginning in 2030. See SB-253, section II.c.1.F.ii. The statute is currently subject to litigation. See Compl., Chamber of Commerce v. California Air Resources Board, No. 2:24-cv-00801 (D. C.D. Cal. Jan. 30, 2024). These laws may reduce the compliance burden of the final rules to the extent they impose similar requirements for registrants that are subject to them. However, the disclosure required by these laws will appear in documents outside of Commission filings and therefore will not be subject to the same liability, DCPs, and other investor protections as the climate-related disclosures required under the final rules. In addition, these laws may serve different purposes than the final rules or apply different materiality or other standards. For example, the California laws were adopted to protect the health and safety of California residents, 157 among other reasons, whereas we are adopting the final rules to enhance disclosures of emergent risks companies face so that investors can have the information they need to make informed investment and voting decisions. Regardless of the extent of overlap with other jurisdictions' reporting requirements and consistent with the Commission's mission, the final rules are tailored to the particular needs of investors and the specific situations of Commission registrants, as documented in the comment file, and are designed to work within the existing framework of U.S. securities laws that call for disclosure about the material risks that companies face. Integrating the required disclosures into the existing framework of U.S. securities laws will provide investors with more complete information about a company, the risks it faces, and its business, finances, a [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%3A2024-05137. Public record. Not legal advice.