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Game Changer: SEC Proposes Landmark Climate Risk Disclosure Rules

On March 21, 2022, the U.S. Securities and Exchange Commission (the “SEC”) unveiled its proposed climate-related disclosure rules S7-10-22 – The Enhancement and Standardization of Climate-related Disclosures for Investors (the “Proposal”). The Proposal would require U.S. and foreign registrants to disclose prescribed climate-related information in securities filings, including greenhouse gas (“GHG”) emissions, climate-related risks and their associated business impacts and information about any climate-related targets. Notably, Canadian companies with reporting requirements in the United States as foreign registrants would be subject to these proposed new disclosure requirements.

The Proposal is a significant development in the global movement towards mandatory climate-related disclosures, as public issuers from the world’s largest economy will soon be required to make such disclosures for the first time. As commented by former SEC director, Meredith Cross, the Proposal represents “the most extensive, comprehensive and complicated disclosure initiative in decades.”

The disclosures contemplated by the Proposal are similar to those required by the Task Force on Climate-related Disclosures (“TCFD”) and the GHG Protocol, both widely used voluntary frameworks.

The unveiling of the Proposal comes nearly eight months after SEC Chair Gensler first announced plans to develop a climate risk disclosure rule proposal for public reporting issuers. See our coverage of that announcement here. The public consultation period for the Proposal will end on or about May 20, 2022.

Highlights of the Proposal

  1. Applies to all publicly traded companies, including foreign private issuers, subject to an exemption for Canadian issuers filing under the Multi-jurisdictional Disclosure System (“MJDS”);

  2. Requires disclosure of an issuer’s Scope 1 (direct) and 2 (indirect from purchased forms of energy) GHG emissions for all issuers;

  3. Requires disclosure of an issuer’s Scope 3 emissions (indirect from upstream and downstream activities in issuer’s value chain) if material or if the issuer has previously set a GHG emissions reduction target or goal that includes its Scope 3 emissions;

  4. Requires disclosure of an issuer’s governance, strategy and risk assessment and management around climate-related risks;

  5. Requires disclosure of information relating to any net zero or other climate-relate commitments, including the scope of activities and emissions included in the target or commitment, the time horizon and any interim target, the plan to meet the targets, progress toward meeting the target at least each fiscal year, as well as the use of carbon offsets in meeting any climate commitments;

  6. Requires disclosure of the assumptions, parameters analytical frameworks and projected financial impacts for issuers that use scenario analysis to assess the resilience of their business strategy; and

  7. Phases in requirements over a five year period, from FY 2023-2027.

Rationale for the Proposal

The SEC has found that investors are increasingly concerned about the impacts of climate-related risks on businesses and are insisting on disclosure of climate-related information to facilitate informed investment decisions. Although the adoption of voluntary disclosure frameworks has become widespread in recent years, the information shared by issuers and the rigour used in their preparation varies significantly across companies and jurisdictions. The Proposal aims to address these shortcomings by requiring U.S. and foreign issuers to make standardized disclosures that are consistent, comparable, and reliable. Similar motivations were the basis for the Canadian Securities Administrators’ (“CSA”) Proposed National Instrument 51‑107 ‑ Disclosure of ClimateRelated Matters, (“NI 51-107”) which we reported on previously here.

What issuers must comply?

Subject to a proposed exemption for Canadian issuers eligible to report under the MJDS, discussed below, all publicly traded companies, including foreign private issuers, would be required to disclose their climate-related risks and GHG emissions in their registration statements and periodic securities regulatory filings.

The Proposal sets out accommodations and requirements that are specific to the size of an issuer. Issuers would fall into three groups: Large Accelerated Filers[1], Accelerated Filers[2] and Smaller Reporting Companies[3] (“SRCs”).

The Proposed MJDS Carve Out

The SEC does not, at this time, propose to amend Form 40-F, which can be used by Canadian issuers eligible to report under MJDS. However, the SEC has sought comments on whether a Canadian issuer eligible to report under MJDS should be subject to the Proposal or, in the alternative, should be permitted to comply with Canadian climate-related disclosure requirements if certain conditions are met or additional disclosure provided.

What disclosures must be made?

A. Climate-Related Risks

All issuers would be required to disclose the following four types of climate-related information under the Proposal:

  1. Information related to the issuer’s governance of climate-related risks and relevant risk management processes;

  2. Potential and existing material impacts of climate-related risks on the business of the issuer and on its consolidated financial statements, which may occur over the short-, medium- or long-term;

  3. Potential and existing effects of climate-related risks on the issuer’s strategy, business model and outlook; and

  4. Impact of climate-related events (e.g., extreme weather) and transition activities (e.g., legislation) on the line items of the issuer’s consolidated financial statements and the estimates and assumptions used therein.

For registrants that have already established scenario analysis or transition plans, or publicly set climate-related targets or goals, further disclosures would be required under the Proposal to assist investors in understanding the registrant’s climate risk management.

B. GHG Emissions

Under the Proposal, all issuers would be required to disclose the GHG emissions generated directly as a result of the operation of their business (“Scope 1 Emissions”) and the emissions produced as a result of the energy purchased to keep the business functioning (“Scope 2 Emissions”) separately and expressed both by disaggregated constituent GHGs and in the aggregate and in absolute and intensity terms. Accelerated and Large Accelerated Filers would additionally have to obtain third-party assurance on this emissions disclosure.

Scope 3 Emissions, which capture the GHG emissions produced by the suppliers and customers of a business, must also be disclosed under the Proposal if they would be “material” to investors or if they are included in an issuer’s GHG emissions targets. However, the Proposal includes select exceptions and accommodations in recognition of the costs associated with the calculation of Scope 3 Emissions, which are larger and more complex than Scope 1 and 2 Emissions. These accommodations include not requiring SRCs to make Scope 3 Emissions disclosures and providing Scope 3 emissions disclosures with the benefit of a “safe harbour”, which would offer certain protections from liability in the event such disclosures contain inaccuracies.

Any issuers that have publicly pledged to meet climate-related targets would be required to describe certain underlying details, including scope of emissions covered, units of measurements, time horizons, and baseline. Any internal pricing of carbon would also result in requirements to share information on the price and how it is determined.

In addition, issuers would be required to disclose their use of carbon offsets or renewable energy credits (“RECs”) in meeting their climate targets as both of these instruments are subject to regulatory and market risk that could undermine an issuer’s ability to achieve its goals cost-effectively.

The Proposed Presentation of Climate-Related Disclosures

Under the Proposal, registrants would be required to:

  • Provide their climate-related disclosure in their registration statements and annual reports;
  • Provide, in accordance with Regulation S-K, the mandated disclosure in a section of their registration statement or annual report captioned “Climate-Related Disclosure”, or to incorporate this information by reference into that section from another section (e.g., Risk Factors or Management’s Discussion and Analysis (“MD&A”));
  • Provide, in accordance with Regulation S-X, the mandated financial statement metrics and related disclosure in a note to their consolidated financial statements; and
  • Electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL, an open standard used by the SEC that enables documents to provide both human-readable and structured, machine-readable data.

Registrants would also have the option of incorporating information by reference to other filed or submitted reports.

When must issuers comply?

The Proposal includes phase-in periods for each of the three types of filers to provide registrants time to prepare for compliance with the disclosure regime.

The following tables prepared by the SEC illustrate the phase in periods that apply to certain disclosure and assurance requirements. These tables were prepared with two presumptions: (1) the Proposal will be adopted effective December 2022 and (2) the filing corporation has a fiscal year-end of December 31:

A. Phase-in for Disclosures

Registrant Type

Disclosure Compliance Date


All Proposed Disclosures (Excluding Scope 3 Emissions Metrics)

Scope 3 Emissions Metrics

Large Accelerated Filer

FY 2023 (Filed in 2024)

FY 2024 (Filed in 2025)

Accelerated Filer and Non-Accelerated Filer

FY 2024 (Filed in 2025)

FY 2025 (Filed in 2026)

Smaller Reporting Companies

FY 2025 (Filed in 2026)


 B. Phase-in for Assurance

Registrant Type

Scope 1 and 2 GHG Disclosure Compliance Date

Limited Assurance

Reasonable Assurance

Large Accelerated Filer

FY 2023 (Filed in 2024)

FY 2024 (Filed in 2025)

FY 2026 (Filed in 2027)

Accelerated Filer and Non-Accelerated Filer

FY 2024 (Filed in 2025)

FY 2025 (Filed in 2026)

FY 2027 (Filed in 2028)

The Bottom Line

The announcement of the Proposal is a landmark development for climate-related disclosure – not just in the U.S., but internationally.

Given that the CSA, comprised of the securities regulators from each of the ten provinces and three territories of Canada, have already released their proposed mandatory climate-related disclosure rule (NI 51-107), significant questions now arise regarding whether Canada’s proposed disclosure rule should more closely align with the SEC’s Proposal. This implicates not only Canadian issuers with foreign private issuer status in the U.S., but also issuers that report exclusively in Canada, as their reporting practices relative to American competitors may impact their market position and access to capital.

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[1] Large Accelerated Filers are issuers that meet the following conditions as of the end of their fiscal year:

(i) The issuer has an aggregate worldwide market value of voting and non-voting common equity held by non-affiliates over US $700 million; and

(ii) The issuer meets the requirements set out in (II), (III), and (IV) for Accelerated Filers below.

[2] Accelerated Filers are issuers that meet the following conditions as of the end of their fiscal year:

(i) The issuer has an aggregate worldwide market value of voting and non-voting common equity held by non-affiliates between US $75 and US $700 million;

(ii) The issuer is subject to requirements under Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 calendar months;

(iii) The issuer has filed at least one annual report pursuant to the Section(s) outlined in (II); and

(iv) The issuer is not eligible to use the requirements for SRCs under the SRC revenue test.

[3] SRCs are issuers that meet the following conditions as of the end of their fiscal year:

(i) The issuer is not an investment company, an asset-backed issuer, nor a majority-owned subsidiary of a parent company that is not itself a SRC;

(ii) The issuer has a public float of less than US $250 million or had annual revenues of less than US $100 million and either no public float or a public float of less than US  $700 million.



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