Policy Briefing — SEC Climate Disclosure Proposal
Public companies must prepare for the SEC’s March 2022 climate disclosure proposal by hardening governance, data, and assurance capabilities so that Scope 1–3 emissions, climate risks, and transition plans can be reported with the same rigor as financial statements.
Executive briefing: The U.S. Securities and Exchange Commission’s March 21, 2022 proposal on "The Enhancement and Standardization of Climate-Related Disclosures for Investors" would amend Regulation S-K and Regulation S-X so that public companies disclose governance structures, strategy, risk management practices, and metrics tied to climate risks alongside audited financial statements. Large accelerated filers would start reporting Scope 1 and Scope 2 greenhouse-gas (GHG) emissions in Form 10-K filings for fiscal years ending in 2023 (filed in 2024), extend to Scope 3 emissions where material or included in targets one year later, and build toward limited and then reasonable assurance over emissions attestation. The proposal mirrors Task Force on Climate-Related Financial Disclosures (TCFD) pillars and leans on the Greenhouse Gas Protocol for measurement, signaling that investor-grade climate reporting will soon be treated as part of core disclosure controls.
Understand the regulatory context and timeline
The SEC’s proposed rule introduces new subparts to Regulation S-K (Items 1500–1507) requiring narrative disclosures, and a new Article 14 in Regulation S-X for financial statement footnotes on climate-related impacts. Registrants would have to describe governance oversight, management’s role, and board expertise related to climate risk; outline strategy and risk management processes; quantify the financial effects of severe weather and transition activities; and break out capitalized costs, expenditures, and losses attributable to climate events. Scope 1 and Scope 2 emissions must be reported in both absolute and intensity terms, with accelerated and large accelerated filers obtaining independent attestation. Scope 3 disclosures become mandatory when material or when registrants have set Scope 3 targets, though there is a safe harbor for liability. Smaller reporting companies receive an exemption from Scope 3 reporting but must still discuss governance and risk.
Compliance would phase in by filer status. Large accelerated filers would begin disclosing Scope 1 and Scope 2 metrics for fiscal years ending on or after the proposal’s effective date plus one year (expected FY2023), add limited assurance the following year, and escalate to reasonable assurance by fiscal year 2026 filings. Accelerated filers follow one year behind, while non-accelerated filers and smaller reporting companies have an additional year to provide quantitative metrics. Scope 3 data, when required, become due one year after Scope 1 and Scope 2 reporting starts. Foreign private issuers filing on Form 20-F are included. The SEC emphasizes integration with existing disclosure controls and procedures (DCP) under Exchange Act Rules 13a-15 and 15d-15, meaning audit committees will need to treat climate data as subject to internal control over financial reporting (ICFR) principles.
Operational priorities for the next 12–18 months
Chief financial officers, chief sustainability officers, and disclosure committees should begin by mapping where climate-relevant data already reside across enterprise resource planning (ERP) systems, energy management platforms, travel and logistics systems, procurement, and risk registers. For Scope 1 (direct emissions) and Scope 2 (purchased energy), companies must ensure meter readings, utility invoices, and fuel purchase records can be consolidated, unit-consistent, and mapped to GHG Protocol emission factors with version control. Align reporting per facility and per business unit to support intensity metrics such as emissions per revenue or per unit of production. Build reconciliation procedures so that totals tie to financial statement accounts for energy expense, fuel consumption, and capitalized assets.
Scope 3 readiness is harder and will require scenario planning even if materiality has not yet been concluded. Organizations should run a robust materiality assessment using the 15 GHG Protocol categories, estimating data availability, calculation complexity, and likely investor scrutiny. Supply-chain emission factors (Categories 1 and 11) will demand coordination with procurement and major vendors, while financed emissions or use-phase emissions may require specialized modelling. Establish data hierarchies that prefer supplier-specific data, followed by hybrid methods and finally economic input-output proxies, documenting assumptions for audit trails.
Metrics embedded in Regulation S-X Article 14 demand cross-functional collaboration between finance, legal, risk, and engineering teams. Accounting departments need to track climate-related capital expenditures and operating expenses, including spending on renewable energy, resilience upgrades, or carbon offsets. Risk teams should inventory acute (e.g., hurricane, wildfire) and chronic (e.g., sea-level rise, drought) physical risks across facilities, tying them to enterprise risk management (ERM) registers with probability and impact scoring. Scenario analyses that align with Network for Greening the Financial System (NGFS) pathways will support the qualitative and quantitative description of transition risks such as policy changes, market shifts, or technology disruption.
Disclosure controls must evolve to cover climate data. Create process narratives and control matrices for each data stream, assign control owners, and embed segregation of duties where adjustments or estimates occur. Incorporate climate metrics into Sarbanes-Oxley Section 302 certifications and include them in quarterly disclosure committee agendas. Pilot internal audit walkthroughs of emission calculations and resilience cost tracking, documenting evidence sufficient for external assurance providers.
Governance and oversight expectations
Boards will be required to describe climate expertise in their disclosures, so nominating and governance committees should inventory current competencies, provide training, or recruit directors with climate, sustainability, or energy transition experience. Clarify which board committee—risk, audit, or sustainability—owns climate oversight, and update charters accordingly. Management should define reporting cadences so directors receive dashboards covering emissions performance, progress against transition plans, physical risk mitigation investments, and regulatory developments.
Risk management functions must align climate risk with enterprise frameworks. Integrate climate considerations into strategic planning cycles, capital allocation decisions, and mergers and acquisitions due diligence. Ensure that stress testing and scenario analysis incorporate carbon pricing assumptions, supply-chain disruption probabilities, and reputational risk indicators. Public communications plans should be rehearsed for investor questions, proxy advisor surveys, and rating agency assessments once the SEC proposal advances.
Legal and compliance teams should monitor ongoing SEC comment periods, potential revisions, and coordination with other regulators such as the California Air Resources Board or the European Financial Reporting Advisory Group (EFRAG). Harmonize disclosures with forthcoming International Sustainability Standards Board (ISSB) IFRS S2 standards, as investors will expect alignment across jurisdictions. Establish escalation paths for whistleblower tips or allegations of greenwashing to demonstrate a strong compliance culture.
Sourcing and technology considerations
Delivering investor-grade climate data requires upgrading tooling and third-party relationships. Evaluate carbon accounting platforms that natively support GHG Protocol methodologies, audit trails, and assurance-ready workflows—examples include Persefoni, Watershed, Sphera, and ServiceNow Sustainability Management. Procurement teams should run competitive assessments that evaluate data integration capabilities (API connectivity to ERP, energy management, and IoT systems), support for location-based and market-based Scope 2 calculations, and the ability to maintain emission factor libraries sourced from EPA eGRID, IEA, and DEFRA datasets. Contract for implementation support that includes control design documentation and tester training.
For Scope 3 data, develop supplier engagement programs that combine contract clauses with capacity-building. Key vendors should be required to disclose emissions data or participate in CDP Supply Chain reporting. Establish supplier scorecards that reward decarbonization progress and integrate them into sourcing decisions. Where data gaps persist, partner with lifecycle assessment experts, sector-specific consortia, or cloud-based marketplaces (e.g., AWS Customer Carbon Footprint Tool, Microsoft Cloud for Sustainability) to collect credible estimates. Document quality ratings and error margins for each dataset to prepare for auditor scrutiny.
Assurance readiness will hinge on selecting qualified attestation partners—likely the company’s financial statement auditor or a specialized engineering firm. Issue requests for information outlining expected timelines, attestation methodologies (limited vs. reasonable assurance), sampling approaches, and independence considerations. Coordinate with internal audit to perform readiness assessments covering documentation completeness, version control, and evidence retention. Implement enterprise content management repositories for policies, calculation workpapers, and sign-offs.
Companies with transition plans or climate targets must ensure they are backed by operational roadmaps. Sourcing teams should align capital projects—renewable energy procurement, fleet electrification, building retrofits—with credible vendors and financing mechanisms such as power purchase agreements (PPAs) or sustainability-linked loans. Monitor climate innovation partnerships (e.g., First Movers Coalition, Clean Energy Buyers Association) that can accelerate decarbonization while satisfying disclosure expectations.
Next steps for disclosure leaders
Stand up an internal task force that reports jointly to the CFO and general counsel, integrating sustainability, operations, investor relations, and IT. Conduct a gap assessment against the SEC proposal, TCFD, and existing voluntary reports to prioritize remediation. Build a disclosure calendar that sequences data collection, management review, external assurance, and board approval. Pilot draft disclosures in the upcoming Form 10-K or sustainability report to gather feedback from investors, rating agencies, and lenders. Maintain scenario planning and regulatory watchlists so the company can pivot should the final rule adjust timelines or scopes. By treating climate information as part of the financial control environment now, registrants will be prepared to comply swiftly once the SEC finalizes the climate disclosure rule.
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