US SEC Climate Disclosure Proposal – What it Means for Companies and Investors


The US Securities and Exchange Commission’s (SEC) March 21 proposal brings substantial changes to the nature and extent of climate change disclosures for public corporations paving the way for a different outlook on climate risk for all stakeholders. The 534-page long proposal asks for input on 800 questions with comments due on or before the 20th of May. The adoption of a final rule on any new disclosures is still a function of how soon public input on the proposal is considered and ratified.

While talk about the environment and broader climate change has been a part of the political and legislative discourse in the US for many decades, it is only now that we are beginning to see a policy-level push by the government to nudge corporations toward more transparent environmental reporting. Touted as one of the most expansive and complex disclosure requirements by the SEC yet, the proposal is meant to bring order to uneven climate reporting by different public corporations. It will mandate companies to not just disclose their carbon emissions in much greater detail, but also how they plan to address looming climate risks by replacing current voluntary sustainability reports that feature handpicked metrics. This would allow investors a more holistic view of the company and enable them to make more nuanced comparisons of businesses.

As issues around the environment and its preservation gather more momentum, the US SEC aims to make companies more accountable for their business activities in order to promote sustainability and a more transparent market for investors. Even though the lead time for this proposal to come into effect is as long as 4 years for some types of companies, it is wise to get ahead on a few things to start preparing for what may lie ahead. Let’s delve into some of its specifics in the next section and take a closer look at some of the highlights of the proposed rules.

The US SEC Proposal

While the FASB and IFRS have put out detailed guidance in the past regarding the different ways in which climate-related issues may be disclosed in financial statements, the SEC’s proposal goes above and beyond by proposing reporting changes that are aimed at increasing consistency and transparency across the board. Let’s take a closer look at two proposed regulations and discuss some of the challenges companies might face if these come into effect.

Addendum to Regulation S-K for climate-related disclosures

The US SEC has proposed to add a new subpart to Regulation S-K, requiring a registrant to disclose certain climate-related data. This includes information about climate-related risks that are reasonably likely to have material impacts on its business or consolidated financial statements. It also comprises Green House Gas (GHG) emissions metrics, potentially helping investors evaluate those risks.

Disclosures about climate-related opportunities may also be included by a registrant. The newly proposed subpart also requires attestation by an independent party for accelerated and large accelerated filers regarding certain proposed GHG emissions metrics disclosures.

Potential high impact areas for corporations include:

  1. Physical and transition risks over the short, medium, and long term including how they are thought out as part of business strategy, capital allocation, and financial planning.
  • Scope 1 emissions are direct GHG emissions stemming from sources that are owned or controlled by an organization directly.
  • Scope 2 emissions are indirect GHG emissions stemming from the purchase of electricity, steam, heat or cooling.
  • Scope 3 emissions are those that are beyond the ambit of Scope 1 and Scope 2 emissions and are a result of activities from assets that are not directly owned or controlled by an organization but that the organization indirectly impacts in its value chain. Eg.: transportation of purchased fuels.
  1. The proposal’s insistence on zip code level disclosures of asset locations as well additional disclosures for assets and operations in areas of high water stress.
  2. Disaggregation of GHG emissions data by Scope 1and Scope 2emissions with an aggregate value accompanied by a measure of emissions intensity.
  3. If Scope 3emissions are material or part of a company’s GHG emissions reduction targets, it can represent a significant reporting burden for companies.
  4. An important impact area for the company management is to set up processes for identifying, evaluating, and mitigating climate-related risks.

Addendum to Regulation S-X for Financial Statements Footnote Disclosures

Adding a new article to Regulation S-X, the SEC’s proposal requires the disclosure of certain climate-related financial statement metrics and related data to be included in a note to a registrant’s audited financial statements. These would comprise disaggregated climate-related impacts on existing financial statement line items. The financial statement metrics would be subject to audit by an independent registered public accounting firm. They will also come within the scope of the registrant’s internal control over financial reporting (ICFR).

Potential high impact areas for corporations include:

  1. Companies have to describe the impact of physical and transition risks (as recognized in Regulation S-K) on their financial statement metrics.
  2. Providing contextual information about how each specified metric is derived, including a description of significant inputs and assumptions.
  3. Disclosure of costs and expenditures incurred in meeting GHG emissions reduction targets or other climate-related commitments.
  4. Describe how severe weather events or other natural conditions and transition activities quantitatively affect individual financial statement line items.
  5. Describing how assumptions and estimates are influenced by transition activities and climate-related events.

A Closer Look at Scope 3 Emissions

With the US SEC’s proposal asking for companies to disclose GHG emissions with regard to Scope 3 emissions, companies will need to prepare extensively in order to report this data. As mentioned before, all companies are not required to disclose this information. Companies need to provide this data only if their emissions are material and an investor deems it important when making an investment or voting decisions or if a company has specific targets regarding GHG emissions reductions that include Scope 3 emissions.

While the SEC itself has refused to provide a quantitative metric to establish the materiality of Scope 3 emissions, it proposes the use of the materiality standard noting that a one-size-fits-all approach cannot sufficiently capture the variability in policy, regulatory, and market conditions across companies. It would also be unable to sufficiently capture transition risk tied to GHG emissions or the decisions a company can make about its value chain as a result of it.

Scope 3 emissions are those that result from the upstream or downstream activities in a company’s value chain and can include things like waste generated in its operations, business travel by employees, end of life treatment of its products, distribution, and transportation of raw materials, purchased goods and other inputs, etc.

The inclusion of this data has been contentious as gathering and quantifying this data is rather difficult. Companies now have to work in close collaboration with their upstream suppliers and downstream distributors to help reduce their Scope 1 and 2 emissions which in turn will reduce the company’s Scope 3 emissions.

Leveraging the TCFD and GHG Protocol

The SEC’s proposal draws heavily from the Task Force on Climate-Related Financial Disclosure (TCFD) and the Greenhouse Gas (GHG) Protocol. In recent years, both these frameworks have developed a robust vocabulary and a vast collection of concepts that have been commonly used by companies to provide climate-related disclosures in their sustainability and associated reports. Therefore the SEC’s decision to include these in its proposal is natural, given the familiarity that many investors and registrants already have with these concepts and vocabulary.

As of October 2021, over 2600 organizations globally have expressed interest in the TCFD. Together they total a market capitalization of over $25 trillion USD. They are joined by 1069 financial institutions with Assets Under Management (AUM) of over $194 trillion USD. At the state level, New Zealand, the United Kingdom, Switzerland, and the European Union (EU) among others have proposed mandatory climate disclosures based on the TCFD.

Apart from an endorsement by the G7 Finance Ministers and Central Bank Governors, the TCFD’s recommendations also form part of many other frameworks such as the Carbon Disclosure Project (CDP), the Global Reporting Initiative (GRI), the Climate Disclosure Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB).

With regard to the GHG Protocol, its inclusion provides a uniform method and includes the 7 greenhouse gases as covered by the Kyoto Protocol, and is the most widely used global greenhouse gas accounting standard. It has also been incorporated into various sustainability reporting frameworks such as the TCFD, GRI, CDSB, CDP, Value Reporting Foundation, and the IFRS’ Foundation Prototype. It is responsible for the introduction of scopes in this type of reporting and the reasons we have a better understanding of Scope 1, 2, and 3 emissions.

The SEC believes that some of the compliance burdens can be mitigated by using these two frameworks as they are already widely acknowledged and supported by a host of different entities.


Given the scope of these disclosures, the US SEC is adopting a phased approach that provides registrants with the time and resources required to conceive and create all the necessary systems, procedures, and controls that will enable them to smoothly transition and comply with these requirements. The timeline for compliance with these requirements depends on the type of registrant filing them with the US SEC. The table below gives an overview of these dates:

Compliance Dates
Type of Registrant Disclosures except Scope 3 Scope 3 disclosures 
Smaller reporting company FY 2025 (filing in 2026) Exempt
Non-accelerated filer FY 2024 (filing in 2025) FY 2025 (filing in 2026)
Accelerated filer FY 2024 (filing in 2025) FY 2025 (filing in 2026)
Larger accelerated filer FY 2023 (filing in 2024) FY 2024 (filing in 2025)

In addition to this, large accelerated filers and accelerated filers also need to get their scope 1 and 2 emissions attested for limited and reasonable assurance. All presented periods require comparative disclosures. There are provisions to exclude historical data if it is not reasonably available to the registrant without unreasonable effort and expenses with the implication that certain registrants may need to disclose information for 2022 or 2021.

Next Steps for Companies

The US SEC’s emphasis on storytelling as far as these types of disclosures go is as relevant today as it was a few years ago. While some companies already disclose some form of climate-related data today, there is always an overarching need to convey the company’s view to investors through the management’s lens and give a broader perspective on business activities that is beyond just facts and figures.

Even though the timelines seem like they’re sufficiently far away in time, companies need to move fast and start preparing as soon as they can. This is because the requirements in the proposal are expansive and compliance with them will most likely require new information, new procedures, and new controls. Here are 6 things companies can do today to get a head start:

  1. Identify gaps by reviewing, evaluating, and comparing the new proposal against your current climate-related disclosures in US SEC filings and sustainability reports.
  2. Set up a cross-functional team including Finance, Risk, Audit, Legal, Operations, and IT that can develop a robust strategy on climate-related disclosures and associated risks.
  3. Take a stock of current climate-related data within your company using internal and external sources to establish processes that can define key methodologies and metrics.
  4. Establish a controls framework that sufficiently monitors and enhances business processes and IT controls.
  5. Have a discussion on attestation requirements laid out in the proposal with relevant service providers to identify limitations and requirements.
  6. Conceive and conduct a training program to assess if any changes are required in the Board’s working processes related to oversight of climate risks.

The Way Forward

The United States government has shown its commitment to achieving climate goals by signing an order to achieve net-zero emissions by 2050. In addition to this, it has set other goals for itself like making the electricity grid run entirely on renewable energy from 2035 and for 50% of all car sales to be electric by 2030.

In the midst of this giant push toward sustainability, the US SEC’s proposal fits like a puzzle piece in the United States’ grand plans to create a greener tomorrow. While daunting for companies at this stage, it is a step in the right direction to bolster the overall transparency and comparability of any and all data pertaining to climate change.

At IRIS CARBON®, we believe good data always drive better decisions, and with this proposal, the US SEC is hoping to drive change that will improve the lives of all people in a meaningful and sustainable manner.

We are well equipped to assist companies with the iXBRL tagging of their climate-related disclosures owing to over a decade of experience with the US SEC’s XBRL implementation.

We hope this piece describing the SEC’s climate-related disclosure proposal has helped you understand what your company can expect as far as compliance requirements are concerned.

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