SEC’s March 6 Meeting: What’s Next for Climate Disclosures?

1st March 2024

The Securities Exchange Commission (SEC) has announced that their open meeting agenda for March 6 will include whether to adopt the proposed Enhancement and Standardization of Climate-Related Disclosures for Investors the Climate Risk Disclosure Proposal). Originally proposed in the Spring of 2022, the SEC has taken several opportunities to delay finalizing their proposed rules. This waiting period may be coming to an end next Wednesday. The SEC announced the agenda for their upcoming meeting by publishing a Sunshine Act notice, which states the matters to be considered and how people may livestream the meeting.  

 What’s at Stake?

To refresh, the SEC proposed a series of rules regarding climate-related disclosures which would apply to funds that are registered with the SEC. As we discussed in June, the proposed rules, which include form amendments, seek to establish and provide consistent standards for environmental, social, and governance (ESG) related disclosures. These rules would require reporting parties to make disclosures in periodic SEC reports and registration statements.  

As proposed back in 2022, the Climate Risk Disclosure Proposal requires both qualitative and quantitative climate-related risk disclosures. For example, qualitative risk disclosures should include a description of risks, the potential environmental impacts of that investment, and opportunities that are included in the investment opportunity. Alternatively, the quantitative metrics are in accordance with XBRL and will need to be, in part, attested by an independent attestation service provider.  

 Categories of Funds

The Climate Risk Disclosure Proposal also proposes three categories of funds to reflect differences in sustainability-related objectives. Funds will only fall into one of these categories if they are considering any ESG factors at all. However, this is a broad range especially considering the prevalence of good governance screenings. The proposed categories are Integrated Funds, ESG-Focused Funds, and Impact Funds. Under the proposal, funds in these categories will require varying levels of additional disclosures, from form disclosures to detailed information, including the fund’s ESG-related strategy, the portfolio’s carbon footprint, and how the fund considers greenhouse gas emissions.  

Public Response and Adjustments

Since the proposal in 2022, the SEC has received hundreds of comments, which have been in consideration for drafting the final rule. For example, the final rule is stated to exclude the proposed requirements for big companies to report their Scope 3  emissions, which come from indirect sources such as supply chains and consumers, according to Bloomberg Law.  

 What’s Next?

The final rule as will be adopted is yet to be revealed to the public, but it is expected to include some amendments from the proposal and will certainly provide timelines for compliance. While the adoption has been a long time coming since it was proposed nearly 2 years ago, compliance will look different for companies depending on which category they may fall into.  

Practical Guidance and Assistance

For personalised insights and assistance with navigating these regulatory changes or if you have questions or concerns about your compliance status, reach out to our experts at Zeidler Group.

Author

Madeline Gegg