New SEC Plan Requires Emissions Disclosure from Companies

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The Securities and Exchange Commission (SEC) recently proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.

The required information about climate-related risks also would include disclosure of a registrant's greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.

The proposed rule changes would require a registrant to disclose information about:

1. The registrant’s governance of climate- related risks and relevant risk management processes.
2. How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium- or long-term.
3. How any identified climate-related risks have affected or are likely to affect the registrant's strategy, business model and outlook.
4. The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant's consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

For registrants that already conduct scenario analysis, have developed transition plans, or publicly set climate-related targets or goals, the proposed amendments would require certain disclosures to enable investors to understand those aspects of the registrants’ climate risk management.

Three Scopes

The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions.

API senior vice president of Policy, Economics and Regulatory Affairs Frank Macchiarola issued the following statement in response to the SEC’s proposed climate disclosure rule: “The U.S. oil and natural gas industry has a long history of sustainability reporting, and achieving greater comparability and transparency across those efforts is a leading priority,” Macchiarola said. “We are concerned that the commission's sweeping proposal could require non-material disclosures and create confusion for investors and capital markets. As the commission pursues a final rule, we encourage them to collaborate with our industry and build on private-sector efforts that are already underway to improve consistency and comparability of climate-related reporting.”