You’ve likely heard that the Securities and Exchange Commission has proposed rule changes that require companies to include certain climate-related disclosures in their registration statements and periodic reports. Here’s the big picture on the proposed environmental, social and governance (ESG) disclosures.
The Task Force on Climate Related Disclosures developed four recommendations on climate-related financial disclosures. These disclosures will give information to investors and others to help them learn how reporting organizations think about and assess climate-related risks and opportunities.
The four areas and summarized recommendations are as follows:
- Governance – The organization’s governance around climate-related risks and opportunities
- Strategy – The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning
- Risk Management – The processes used by the organization to identify, assess and manage climate-related risks
- Metrics and Targets – The metrics and targets used to assess and manage relevant climate-related risks and opportunities
Companies will need to break down Greenhouse Gas Emissions (GHG’s) into three scopes (with varying level of assurance needed) and will be expected to provide both narrative and quantitative climate-related disclosures, both inside and outside of the audited financial statements. Disclosures would be subject to Sarbanes-Oxley Sections 302 and 906 certifications as well as XBRL tagging.
Proposed ESG disclosures may require an organization to:
- Describe the board of director’s oversight of climate-related risks and opportunities.
- Describe management’s role in assessing and managing climate-related risks and opportunities and the processes for identifying, assessing, and managing climate-related risks and if the processes are integrated into the registrant’s overall risk management system.
- Discuss climate-related risks identified that have had (or are reasonably likely to have) a material impact on its consolidated financial statements over the short, medium and long term.
- Provide for financial impact metrics and report events and transition activities on the consolidated financial statements included in the relevant filing.
- Provide for expenditure metrics that disclose the aggregate amount of climate-related costs incurred that are both expensed and capitalized.
Phase-In Periods Start 2023
Dependent on a registrant’s filing status,ESG reporting requirements will be phased in beginning with fiscal year 2023. According to the SEC, assuming the proposed rules are adopted with an effective December 2022 date and the filer has a 12/31 fiscal year end, compliance deadlines are as follows:
|Registrant Type||Disclosure Compliance Date|
|All proosed disclosures, including greenhouse gas emissions metrics: Scope 1, Scope 2, and associated intensity metric, but excluding Scope 3||Greenhouse gas emissions metrics: Scope 3 and associated intensity metric|
|Large Accelerated Filer||Fiscal year 2023 (filed in 2024)||Fiscal year 2024 (filed in 2025)|
|Accelerated Filer||Fiscal year 2024 (filed in 2025)||Fiscal year 2025 (filed in 2026)|
|Fiscal year 2025 (filed in 2026)||Exempted|
|Filer Type||Scopes 1 and 2 GHG Disclosure Compliance Date||Limited Assurance||Reasonable Assurance|
|Large Accelerated Filer||Fiscal year 2023 (filed in 2024)||Fiscal year 2024 (filed in 2025)||Fiscal year 2026 (filed in 2027)|
|Accelerated Filer||Fiscal year 2024 (filed in 2025)||Fiscal year 2025 (filed in 2026)||Fiscal year 2027 (filed in 2028)|
If you want to stay apprised of ESG disclosure requirements, call TGRP Solutions. We can help you build out your ESG program and plan ahead to make sure your SEC reporting team and other support staff are ready and that you have a plan in place when the time comes. Reach out to Jim Lockhart ([email protected]) today to learn how we can help you with these and other issues.