Impacts of Proposed SEC Climate Related Risk Disclosure Requirements


On March 21, 2022 the Securities and Exchange Commission (SEC) announced a comprehensive rule on carbon disclosure requirements for publicly traded companies. The proposed rule will require companies to disclose climate related risks in their annual SEC filing. Notably, the rule will require companies to disclose:

  • Climate-related risks which have or likely will have a material impact on business and the tools, management, and plan to combat them
  • Scope 1, 2 and 3 GHG emission’s associated to the reporting business
  • Progress towards goal achievement if public sustainability goals have already been made
  • Climate-related financial metrics to be included in a company’s audited financial statement
  • If climate impact on any financial line is greater than 1% it must be reported in a financial reporting statement

The following will outline the key components of the SEC Climate Change Disclosure requirement, the reasoning behind it, how businesses will be impacted, and what it means for corporate sustainability going forward.

Insights were generated with materials from Alturus, the Securities and Exchange Commission, White & Case, GreenBiz Group, and Forbes Media.

Comprehensive Disclosure Overview:

Reporting companies will be required to disclose the following:

Oversight and Governance:

  • The personnel and corporate governance overseeing climate-related risk
  • If an internal carbon price has been set, and information on how the price is set

Emissions Data:

  • Direct GHG emissions (Scope 1) and indirect GHG emissions from purchased energy (Scope 2), separately disclosed, in absolute terms, without including offsets and in terms of intensity (per unit of economic value or production)
  • Indirect emissions from upstream and downstream activities in a company’s value chain (Scope 3), if material, or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions, in absolute terms, not including offsets, and in terms of intensity

Sustainability Goals:

  • If publicly stated sustainability goals have been made, information regarding:
    • The scope of activities and emissions included in the target, the defined time horizon, and interim targets by which the target is intended to be achieved
    • How the reporting company plans to achieve these goals
    • Relevant data to indicate whether the company is making progress toward meeting the stated goal and how such progress has been achieved, providing updates each fiscal year
    • If the use of carbon offsets or RECs have been used as part of the plan to achieve climate goals
    • If carbon offsets or RECs are used, info on the amount of carbon reduction represented by the offset or the amount of generated renewable energy represented by the REC

Climate-Related Risks:

  • Number of identified climate related risks which have or potentially will have material impact on business and consolidated financial statements
  • How identified climate-related risks have affected or are likely to affect the reporting company’s strategy, business model and outlook
  • Process for identifying, assessing, and managing climate related risks and how this process is integrated into overall risk and process management
  • If a transition plan has been adopted as part of its climate-related risk management strategy, a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks
  • Scenarios, descriptions, assumptions, and parameters used to assess the resilience of business strategy to climate related risks
  • Impact of climate related events and transition activities on the line items of a companies consolidated financial statements

Reporting companies will be required to present disclosures in the following:

  • In registration statements and Exchange Act annual reports (Ex: Form 10-K)
  • Provide the Regulation S-K mandated climate-related disclosure in a separate, appropriately captioned section of its registration statement or annual report
  • Provide the Regulation S-X mandated climate-related financial statement metrics and related disclosure in a note to its consolidated financial statements
  • Electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL; and
  • If an accelerated or large accelerated filer, obtain an attestation report from an independent attestation service provider covering, at a minimum, Scopes 1 and 2 emissions disclosure.

Reporting companies will be required to begin reporting on climate related risks according to the following tables. Note, the table assumes that the rules will become effective in December 2022 and the reporting company’s fiscal year ends December 31st.

Registrant Type Disclosure Compliance Date
All proposed disclosures, including GHG emissions metrics: Scope 1, Scope 2, and associated intensity metric, but excluding Scope 3 GHG 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 and Non-Accelerated Filer Fiscal year 2024 (filed in 2025) Fiscal year 2025 (filed in 2026)
SRC 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)



When a new Administration took office in 2020, and appointed Gary Gensler to Chair the SEC, it was expected that there would be a new climate-risk related disclosure requirement announced. Aligned with President Biden’s promise of an aggressive climate agenda, Gensler hinted at the possibility of a new set of emission disclosure requirements. What very few people anticipated was the speed at which the SEC announced the new proposition.

Previously, publicly announced corporate sustainability goals were enough to appease investors and stakeholders. In fact, over 60% of the Fortune 500 have set goals to achieve Net Zero carbon emissions by 2040. The problem lies in that only 50% provide concrete details on how this will be achieved – and this is only for Net-Zero by 2040 goals, there are countless interim commitments.

Many companies already voluntarily release annual “sustainability reports” on their website, however, as the SEC correctly took note on, these disclosures vary widely in terms of completeness, content, and format. The SEC saw that the inconsistency of these reports does not provide investors with reliable and comparable information to make informed decisions on the impact of climate risks on current and potential investments. The new Climate-Related Disclosure rules aim to provide investors with information about environmental risks facing companies and create a standard climate disclosure across investment opportunities.

Impacts to the Reporting Company:

The proposed regulation will impact each company differently. Depending on previously stated goals, work done on carbon accounting and complexity of supplier (Scope 3) emissions, companies now have a full array of emissions to not only account for, but accurately report on. The following will explain what the rule means for companies with previous public sustainability goals, breakdown the impacts on Scope 1, 2 and 3 emissions measurement and reporting and the financial disclosure requirements companies must now report on.


Impacts to Companies with Previously Made Sustainability Goals

A contributing factor driving the SEC to propose these rules was inconsistency amongst reporting companies’ sustainability reports, and very little public disclosure on actual progress towards these goals. These inconsistencies make it difficult for investors and stakeholders to make informed decisions on investments. The SEC argues that because of this, requiring companies to disclose this level of information is within their jurisdiction. Following the release of the proposed rules SEC Chair Gary Gensler said, “Companies and investors alike would benefit from the clear rules of the road proposed in this release. I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance. Today’s proposal thus is driven by the needs of investors and issuers”.

For companies which have publicly announced emission reduction goals, they will now be required under the proposed regulation to disclose in their annual SEC filings:

  • What the emission reduction goals are
  • Progress towards goal achievement
  • The means used towards goal achievement
  • The unit of measurement used
  • Proposed timeline of goal achievement
  • Baseline used to measure and verify progress
  • If the timeline and goal is consistent with one or more goals established by a climate-related treaty, law, regulation, policy, or organization (I.e., SBTi, UN SDGs)
  • If the reporting company has publicly made interim goals, they will be required to report on progress and means towards these as well


Impacts to Scope 1 Measurement and Reporting:

Scope 1 emissions are direct emissions attributed, but not limited, to facilities, equipment, and vehicles directly owned by the reporting company. All reporting companies will be required to disclose the total Scope 1 emissions and distribution of direct emissions across owned asset types.

This is a non-financial disclosure requiring companies which previously did not have methods of Scope 1 carbon accounting in place to determine methodologies which accurately report the distribution and total sum of Scope 1 emissions enterprise wide. To account for Scope 1 emissions reporting companies must take an inventory of owned assets and their attributed emissions. Third party accounting firms and energy-as-a-service providers can assist in this process.


Impacts to Scope 2 Measurement and Reporting:

Scope 2 emissions are indirect emissions that result from the purchase of utilities by a customer. These emissions do not originate on the reporting company’s site, rather on the site of the utility or energy provider, regardless it is the reporting company’s responsibility to account for the attributed emissions. All reporting companies will be required to disclose the total Scope 2 emissions and distribution of emissions across purchased utility types. In addition to the power source’s attributed emissions, the reporting company will also have to disclose information on the source of the power. It is important to note that the source of power has become of increasing interest to investors and stakeholders. There has been a rise in demand for responsibly sourced power, fueled by the green transition. Tony Zabiegala, chief operating officer at Strategic Wealth Partners, told Forbes in May 2021- “I wouldn’t touch coal stocks with a 10-foot pole now [or] in the future. With worldwide government regulation getting tighter and tighter, this presents major headwinds for coal companies. Plus, with the push for alternative energy, investors are already looking to position assets towards clean energy stocks rather than fossil fuel type of energy companies”.

The reporting requirements for Scope 1 and Scope 2 emissions are largely lumped together (non-financial). This is because both Scopes, even though they are direct and indirect, are accounted for through asset owned/bought emissions, allowing for more accurate reporting relative to Scope 3.


Impacts to Scope 3 Measurement and Reporting:

Scope 3 emissions are indirect emissions through the company’s upstream and downstream value chain, including the use of consumer products, on average making up 70% of a company’s total carbon emissions. Even though Scope 3 emissions make up such a large percentage of total emissions, they are the hardest to account for and report on. Investors understand this is where most company’s climate-related risks originate, making this area an interest to the SEC as well. As a result, the proposed regulation heavily focuses on Scope 3 emissions.

Even though Scope 3 emissions do not originate at the reporting company’s site, they are still responsible for reporting on them since they are necessary to operations. It is possible for companies to take steps to limit their Scope 3 emissions even without owning the assets. Companies can work with their suppliers and downstream distributers to take steps to reduce their Scope 1 and 2 emissions, resulting in a decrease of the reporting companies Scope 3 emissions.  Put simply, a reporting companies Scope 3 emissions are another entities Scope 1 and 2 emissions. Any support the reporting company can offer to decarbonize their supply chain will not only result in a decrease of Scope 3 emissions but will improve the environmental performance of the other entities as well.

Under the proposed rule, if there is a substantial likelihood that a reasonable investor would consider Scope 3 emissions important, then the reporting company must disclose this information, even if Scope 3 emissions are not necessarily material. Smaller reporting companies are excluded from this rule.

If suppliers and distributers do not already have emission accounting mechanisms in place, then it falls on the reporting company to rely on estimates and assumptions on their value chain’s emissions. The SEC understands the liability for value chain information which the reporting company faces, so a safe harbor under the Federal securities laws is incorporated into the rule. The safe harbor provides that disclosure of Scope 3 emissions are not fraudulent statements unless it is revealed that the disclosure was released without proper due diligence or was disclosed other than in good faith.


Impacts on Financial Statements:

              The proposed rule will also require the reporting company to disclose the impact of climate-related events (severe weather, flooding, sea level rise etc.), and transition events (economic activities on the way to reduce GHG emissions) on the line-items of a consolidated financial statement. The reporting company will be required to disclose whether a line-item impact is the result of a climate-related risk or transition activity so that investors can better understand the nature of the risk and strategies in place to mitigate it.


Path Forward: 

The proposed set of climate related risk disclosures are the most comprehensive set of emissions reporting regulations enforced by the SEC. The proposed filings far surpass anything companies would historically disclose voluntarily and creates a problem for those who have made public goals with little progress or are entirely behind in their reporting framework. Companies which fail to comply with these regulations will not only face fines from the SEC but will also suffer market consequences as investors look to secure their investments in companies with mitigated and managed climate-related risks.

Companies will need to take immediate action to ensure compliance with the proposed regulation. In line with industry best practices, consulting a strategic decarbonization service provider is the strongest path forward. Companies offering this service analyze enterprise emissions then identify and implement decarbonization projects with material impacts at no upfront cost to the reporting company. Typically structured through an “as-a-service” contract, reporting companies receive all the benefits of enterprise-wide decarbonization with limited risk and no upfront capital expenditure.

Alturus is a leader in providing strategic decarbonization services to the world’s largest energy users, guaranteeing sustainability goals ahead of schedule and at no upfront cost. Starting with a high-level overview of enterprise-wide emissions, Alturus identifies, funds, and implements projects which immediately reduce energy costs while lowering emissions and improving facility efficiency. To learn how Alturus can help your enterprise achieve its sustainability goals while complying with SEC regulation contact a member of our team at