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SEC Approves Final Climate Disclosure Rule

The Securities and Exchange Commission on March 6 approved in a 3-2 vote its final climate disclosure rule.

Generally, the final rule requires registrants under U.S. securities laws 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.”

The SEC said that the rule is needed to promote consistency and reliability in reporting on these matters, noting that many companies disclose climate information in a wide range of voluntary reporting regimes but that such reporting does not currently provide investors with the information they are seeking due to its lack of uniformity in practices among disclosing entities.

Nevertheless, the reporting requirements are patterned after the substantive requirements in the Task Force on Climate-related Financial Disclosure and the Greenhouse Gas Protocol.

Accordingly, the rule requires reporting of Scope 1 and 2 emissions and the effects of severe weather or other natural events.

It also requires reporting on actions and processes to manage and mitigate climate risk, oversight of climate issues by the registrant’s board of directors, and climate-related targets.

The preamble to the proposed rule states that the Commission modified its proposed rule in response to comments received.

The final rule’s modifications to the proposal include: exempting small entities from disclosing Scope 1 and 2 emissions, eliminating the requirement to describe board member climate expertise, and eliminating the requirement to report Scope 3 emissions altogether.

The final rule also extends 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 by labeling such disclosures “forward-looking” statements for purposes of the Private Securities Litigation Reform Act.

The final rule also extends the proposal’s phase-in periods for compliance with the rule. The final rule’s compliance dates depend on registrant status as a large accelerated filer, and accelerated filer, or a non-accelerated filer.

The final rule will become effective 60 days following publication of the adopting release in the Federal Register.

APPA Said Proposed Rule Would Harm Public Power

In June 2022, the American Public Power Association said the proposed climate-related disclosure rule issued by the SEC would have an adverse effect on its members, even though those members, as not-for-profit providers of electric power, are not publicly traded or directly subject to the proposed rule.

More than three million businesses receive their power from a publicly owned electric utility, APPA noted in its comments.

In some instances, these businesses are publicly traded companies that would be required to comply with the proposed rule if finalized, including the proposed requirement that all publicly traded companies disclose their “Scope 2” emissions (i.e., the amount of greenhouse gas emissions attributed to the company’s purchase of electricity).

As a result, if finalized, the proposed rule “will have a significant adverse effect on public power utilities through increased costs to provide information to public power utility customers for their SEC filings. These increased costs will not be borne by shareholders or investors, but by the citizens of the communities that own the public power utilities,” APPA said.

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