[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Rules and Regulations]
[Pages 21668-21921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05137]



[[Page 21667]]

Vol. 89

Thursday,

No. 61

March 28, 2024

Part II





Securities and Exchange Commission





-----------------------------------------------------------------------





17 CFR Parts 210, 229, et al.





The Enhancement and Standardization of Climate-Related Disclosures for 
Investors; Final Rule

  Federal Register / Vol. 89 , No. 61 / Thursday, March 28, 2024 / 
Rules and Regulations  

[[Page 21668]]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR 210, 229, 230, 232, 239, and 249

[Release Nos. 33-11275; 34-99678; File No. S7-10-22]
RIN 3235-AM87


The Enhancement and Standardization of Climate-Related 
Disclosures for Investors

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting amendments to its rules under the Securities Act of 1933 
(``Securities Act'') and Securities Exchange Act of 1934 (``Exchange 
Act'') that will require registrants to provide certain climate-related 
information in their registration statements and annual reports. The 
final rules will require information about a registrant's climate-
related risks that have materially impacted, or are reasonably likely 
to have a material impact on, its business strategy, results of 
operations, or financial condition. In addition, under the final rules, 
certain disclosures related to severe weather events and other natural 
conditions will be required in a registrant's audited financial 
statements.

DATES: 
    Effective date: These final rules are effective on May 28, 2024.
    Compliance date: See section II.O. for further information on 
transitioning to the final rules.

FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Senior Special 
Counsel, and Kristin Baldwin, Special Counsel, Office of Rulemaking, at 
(202) 551-3430, in the Division of Corporation Finance; or Erin Nelson, 
Senior Special Counsel, and Meagan Van Orden, Professional Accounting 
Fellow, in the Office of the Chief Accountant, at (202) 551-5300, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to or adding the 
following rules and forms:

------------------------------------------------------------------------
                                      Commission       CFR citation (17
                                       reference             CFR)
------------------------------------------------------------------------
Regulation S-X..................  Article 8-01......  Sec.   210.8-01
                                  Article 14-01.....  Sec.   210.14-01
                                  Article 14-02.....  Sec.   210.14-02
Regulation S-K..................  Items 1500 through  Sec.  Sec.
                                   1508.               229.1500 \through
                                  Item 601..........   229.1508
                                                      Sec.   229.601
Regulation S-T..................  Item 405..........  Sec.   232.405
Securities Act \1\..............  Rule 436..........  Sec.   230.436
                                  Form S-1..........  Sec.   239.11
                                  Form S-3..........  Sec.   239.13
                                  Form S-11.........  Sec.   239.18
                                  Form S-4..........  Sec.   239.25
                                  Form F-3..........  Sec.   239.33
                                  Form F-4..........  Sec.   239.34
Exchange Act \2\................  Form 10...........  Sec.   249.210
                                  Form 20-F.........  Sec.   249.220f
                                  Form 10-Q.........  Sec.   249.308a
                                  Form 10-K.........  Sec.   249.310
------------------------------------------------------------------------
\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.

Table of Contents

I. Introduction
    A. Need for Enhanced and Standardized Climate-Related 
Disclosures
    B. Summary of the Final Rules
    1. Content of the Climate-Related Disclosures
    2. Presentation and Submission of the Climate-Related 
Disclosures
    3. Safe Harbor for Certain Climate-Related Disclosures
    4. Phase in Periods
II. Discussion
    A. Overview and Purpose of the Climate-Related Disclosure Rules
    1. Proposed Rules
    2. Comments
    3. Final Rules
    B. Commission Authority To Adopt Disclosure Rules
    C. Disclosure of Climate-Related Risks
    1. Definitions of Climate-Related Risks and Climate-Related 
Opportunities (Items 1500 and 1502(a))
    2. Time Horizons and the Materiality Determination (Item 
1502(a))
    D. Disclosure Regarding Impacts of Climate-Related Risks on 
Strategy, Business Model, and Outlook
    1. Disclosure of Material Impacts (Item 1502(b), (c), and (d))
    2. Transition Plan Disclosure (Items 1500 and 1502(e))
    3. Disclosure of Scenario Analysis If Used (Items 1500 and 
1502(f))
    4. Disclosure of a Maintained Internal Carbon Price (Item 
1502(g))
    E. Governance Disclosure
    1. Disclosure of Board Oversight (Item 1501(a))
    2. Disclosure of Management Oversight (Item 1501(b))
    F. Risk Management Disclosure (Item 1503)
    1. Proposed Rule
    2. Comments
    3. Final Rule
    G. Targets and Goals Disclosure (Item 1504)
    1. Proposed Rule
    2. Comments
    3. Final Rule
    H. GHG Emissions Disclosure (Item 1505)
    1. Proposed Rule
    2. Comments
    3. Final Rule
    I. Attestation Over GHG Emissions Disclosure (Item 1506)
    1. Overview
    2. GHG Emissions Attestation Provider Requirements
    3. GHG Emissions Attestation Engagement and Report Requirements 
(Item 1506(a)(2) and (c))
    4. Additional Disclosure by the Registrant (Item 1506(d))
    5. Disclosure of Voluntary Assurance (Item 1506(e))
    J. Safe Harbor for Certain Climate-Related Disclosures (Item 
1507)
    1. Proposed Rules
    2. Comments
    3. Final Rules
    K. Financial Statement Effects (Article 14)
    1. Introduction
    2. Financial Impact Metrics
    3. Expenditure Effects
    4. Financial Estimates and Assumptions (Rule 14-02(h))
    5. Opportunities
    6. Financial Statement Disclosure Requirements
    7. Inclusion of Disclosures in the Financial Statements (Rule 
14-01(a))

[[Page 21669]]

    L. Registrants Subject to the Climate-Related Disclosure Rules 
and Affected Forms
    1. Proposed Rules
    2. Comments
    3. Final Rules
    M. Structured Data Requirement (Item 1508)
    1. Proposed Rules
    2. Comments
    3. Final Rules
    N. Treatment for Purposes of the Securities Act and the Exchange 
Act
    1. Proposed Rules
    2. Comments
    3. Final Rules
    O. Compliance Date
    1. Proposed Rules
    2. Comments
    3. Final Rules
III. Other Matters
IV. Economic Analysis
    A. Baseline and Affected Parties
    1. Affected Parties
    2. Current Commission Disclosure Requirements
    3. Existing State and Other Federal Laws
    4. International Disclosure Requirements
    5. Current Market Practices
    B. Broad Economic Considerations
    1. Investor Demand for Additional Climate Information
    2. Current Impediments to Climate Disclosures
    C. Benefits and Costs
    1. General Discussion of Benefits and Costs
    2. Analysis of Specific Provisions
    3. Quantifiable Direct Costs on Registrants
    D. Other Economic Effects
    E. Effects on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    F. Reasonable Alternatives
    1. Adopt a More (or Less) Principles-Based Approach to 
Regulation S-K Disclosures
    2. Different Approaches to Assurance Over GHG Emissions 
Disclosures
    3. Different Thresholds for Financial Statement Disclosures
    4. Permit Disclosures To Be Furnished Rather ThanFiled
    5. Exempt SRCs/EGCs
    6. Permit Registrants To Rely on Home-Country Disclosure 
Frameworks/Substituted Compliance
    7. Alternative Tagging Requirements
V. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Current Inventory Update To Reflect $600 per Hour Rather Than 
$400 per Hour Outside Professional Costs Rate
    C. Summary of Comment Letters
    D. Sources of Cost Estimates
    E. Incremental and Aggregate Burden and Cost Estimates of the 
Final Rules
    1. Calculation of the Paperwork Burden Estimates of the Final 
Rules
    2. Estimated Number of Affected Respondents
    3. Summary of the Estimated Burden Hour and Cost Increases 
Resulting From the Final Rules
VI. Final Regulatory Flexibility Act Analysis
    A. Need for, and Objectives of, the Final Amendments
    B. Significant Issues Raised by Public Comments
    1. Estimate of Affected Small Entities and Impact to Those 
Entities
    2. Consideration of Alternatives
    C. Small Entities Subject to the Final Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Agency Action To Minimize Effect on Small Entities
Statutory Authority

I. Introduction

    Climate-related risks, their impacts, and a public company's 
response to those risks can significantly affect the company's 
financial performance and position.\3\ Accordingly, many investors and 
those acting on their behalf--including investment advisers and 
investment management companies--currently seek information to assess 
how climate-related risks affect a registrant's business and financial 
condition and thus the price of the registrant's securities. Investors 
also seek climate-related information to assess a registrant's 
management and board oversight of climate-related risks so as to inform 
their investment and voting decisions. In light of these investor 
needs, the Commission is adopting rules to require registrants to 
provide certain information about climate-related risks that have 
materially impacted, or are reasonably likely to have a material impact 
on, the registrant's business strategy, results of operations, or 
financial condition; the governance and management of such risks; and 
the financial statement effects of severe weather events and other 
natural conditions in their registration statements and annual reports. 
This information, alongside disclosures on other risks that companies 
face, will assist investors in making decisions to buy, hold, sell, or 
vote securities in their portfolio.
---------------------------------------------------------------------------

    \3\ See infra section I.A. For purposes of this release, we use 
the terms ``public companies,'' ``companies,'' ``registrants,'' and 
``issuers'' interchangeably and, unless explained in the text, the 
use of different terms in different places is not meant to connote a 
significant difference.
---------------------------------------------------------------------------

    Many companies currently provide some information regarding 
climate-related risks. For example, as discussed in more detail in 
section IV.A.5 below, some studies show that a third of public 
companies disclose information about climate-related risks, mostly 
outside of Commission filings,\4\ and nearly 40 percent of all annual 
reports contain some climate-related discussion.\5\ In addition, 
Commission staff analysis found that approximately 20 percent of public 
companies provide some information regarding their Scope 1 and 2 
greenhouse gas (``GHG'') emissions, often outside of Commission 
filings, with the highest rate of emissions disclosures found among 
large accelerated filers.\6\ Among companies in the Russell 1000 Index, 
based on one analysis, these numbers are even higher, with 90 percent 
publicly disclosing some climate-related information \7\ and almost 60 
percent providing disclosures regarding their GHG emissions.\8\
---------------------------------------------------------------------------

    \4\ See, e.g., Center for Capital Markets, 2021 Survey Report: 
Climate Change & ESG Reporting from the Public Company Perspective, 
available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/08/CCMC_ESG_Report_v4.pdf, discussed infra in Section 
IV.A.5.
    \5\ See infra notes 2638-2639 and accompanying text.
    \6\ See infra notes 2675-2676 and accompanying text.
    \7\ See infra note 2666 and accompanying text.
    \8\ See infra note 2683 and accompanying text.
---------------------------------------------------------------------------

    The climate-related information that these companies currently 
provide, however, is inconsistent and often difficult for investors to 
find and/or compare across companies. As a result, investors have 
expressed the need for more detailed, reliable, and comparable 
disclosure of information regarding climate-related risks. The 
requirements adopted in this release meet that need by providing more 
complete and decision-useful information about the impacts of climate-
related risks on registrants, improving the consistency, comparability, 
and reliability of climate-related information for investors. As a 
result, investors will be able to make more informed investment and 
voting decisions.
    As discussed in more detail throughout this release, disclosure of 
certain climate-related matters is required in a number of Federal, 
State, and foreign jurisdictions.\9\ Companies currently often provide 
much of this information outside of Commission filings, in varying 
levels of detail, and in different documents and formats. Additionally, 
because of the importance of this information to investors, a variety 
of third parties have developed climate-related reporting 
frameworks.\10\ Use of reporting frameworks is also often voluntary. 
Companies may disclose certain information under one

[[Page 21670]]

or more frameworks, may provide only partial disclosures, or may choose 
not to provide consistent information year over year. As a result, 
reporting is fragmented and difficult for investors to compare across 
companies or across reporting periods. As commenters have indicated, 
this lack of consistency and comparability increases costs to investors 
in obtaining and analyzing decision-useful information and impairs 
investors' ability to make investment or voting decisions in line with 
their risk preferences.\11\ Investors have asked for this information 
in Commission filings, alongside other disclosures on the business, 
results of operations, and financial condition of a registrant and 
information on the other risks companies face to their business, 
finances, and operations. Requiring these additional disclosures in 
Commission filings will allow investors to evaluate together the range 
of risks that a company faces, the existing and potential impacts of 
those risks, and the way that company management assesses and addresses 
those risks. Providing these disclosures in Commission filings also 
will subject them to enhanced liability that provides important 
investor protections by promoting the reliability of the disclosures.
---------------------------------------------------------------------------

    \9\ See, e.g., infra sections I.A (discussing certain 
international initiatives) and II.A.3 (discussing the Inflation 
Reduction Act and recent California laws).
    \10\ See, e.g., Task Force on Climate-related Financial 
Disclosures, About, available at https://www.fsb-tcfd.org/about/; 
CDP Worldwide (``CDP''), About us, available at https://www.cdp.net/en/info/about-us; Sustainability Accounting Standards Board 
(``SASB'') Standards, About us, available at https://sasb.org/about/
; and Global Reporting Initiative (``GRI''), About GRI, available at 
https://www.globalreporting.org/about-gri/. See also infra notes 
148-151.
    \11\ See, e.g., letters from AllianceBernstein (June 17, 2022) 
(``AllianceBernstein''); Attorneys General from California and 19 
other states (June 17, 2022) (``AGs of Cal. et al.''); California 
Public Employees' Retirement System (June 15, 2022) (``CalPERS''); 
California State Teachers' Retirement System (June 17, 2022) 
(``CalSTRS''); Ceres (June 17, 2022) (``Ceres''); Domini Impact 
Investments (June 17, 2022) (``Domini Impact''); Trillium Asset 
Management (Oct. 20, 2022) (``Trillium''); and Wellington Management 
Company (June 17, 2022) (``Wellington Mgmt.''); see also Proposing 
Release, section I.B, note 42 and accompanying text; and infra 
section IV.C. We discuss investors' need for more consistent, 
comparable, and decision-useful disclosure about registrants' 
climate-related risks in Sections I.A and II.A.3 below.
---------------------------------------------------------------------------

    The Commission has required disclosure of certain environmental 
matters for the past 50 years,\12\ most recently issuing guidance in 
2010 (``2010 Guidance'') on how existing rules may require disclosure 
of climate-related risks and their impacts on a registrant's business 
or financial condition.\13\ Since the Commission issued the 2010 
Guidance, there has been growing recognition that climate-related risks 
affect public companies' business, results of operations, and financial 
condition.\14\ Our experience with the 2010 Guidance and current 
practices regarding disclosure of this information led us to conclude 
that, although many companies disclose some climate-related 
information, there was a need to both standardize and enhance the 
information available to investors about such matters and thus to 
propose an updated approach.\15\ Since the proposal, ongoing regulatory 
developments and market practices with respect to disclosure of 
climate-related risks have only underscored the need for enhanced 
disclosure requirements in this area.\16\ Although current disclosure 
practices elicit some useful information about climate-related risks, 
there remain significant deficiencies in the consistency and 
completeness of this information. We have therefore concluded that 
additional requirements are appropriate to ensure that investors have 
access to more complete and reliable information that will enable them 
to make informed investment and voting decisions.\17\
---------------------------------------------------------------------------

    \12\ See infra notes 202-203 and accompanying text.
    \13\ See Commission Guidance Regarding Disclosure Related to 
Climate Change, Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 
8, 2010)] (``2010 Guidance''); and discussion infra notes 204-205 
and accompanying text. See also infra section II.B.
    \14\ See, e.g., letters from AllianceBernstein; Alphabet, 
Autodesk, Dropbox, eBay, Hewlett Packard Enterprise, HP Inc., Intel, 
Meta, PayPal, and Workday (June 17, 2022) (``Alphabet et al.''); 
Amazon (June 17, 2022); CalPERS; CalSTRS; Eni SpA (June 16, 2022) 
(``Eni SpA''); Pacific Investment Management Company (June 17, 2022) 
(``PIMCO''); PricewaterhouseCoopers (June 17, 2022) (``PwC''); and 
Wellington Mgmt. See also infra note 28 (discussing the Financial 
Stability Oversight Council's (``FSOC's'') Report on Climate-Related 
Financial Risk 2021).
    \15\ See The Enhancement and Standardization of Climate-Related 
Disclosures for Investors, Release No. 33-11042 (Mar. 21, 2022) [87 
FR 21334 (Apr. 11, 2022)] (``Proposing Release'').
    \16\ See infra Section II.A.3 for a discussion of recent foreign 
and state regulatory developments regarding the disclosure of 
climate-related risks, including the announcement by several 
countries of their intention to adopt laws or regulations 
implementing the International Sustainability Standards Board's 
(``ISSB'') climate reporting standard in whole or part; and certain 
recent California laws requiring the disclosure of climate-related 
risks and greenhouse gas emissions by certain large companies.
    \17\ Even after adoption of the final rules, the 2010 Guidance 
will still be relevant because it discusses existing Commission 
rules, such as those pertaining to a registrant's description of its 
business and certain legal proceedings, which require disclosure 
regarding, among other things, compliance with environmental laws 
and regulations that are only tangentially mentioned in this 
rulemaking. Registrants should continue to consider the 2010 
Guidance as they evaluate their disclosure obligations in their 
Description of Business, Risk Factors, Legal Proceedings, and 
Management's Discussion and Analysis. These disclosures should be 
based on the registrant's specific facts and circumstances.
---------------------------------------------------------------------------

    The rules that we are adopting respond to investors' concerns 
regarding the adequacy of current disclosure practices while taking 
into account comments received on the proposed rules. In general terms, 
the final rules will elicit enhanced and more consistent and comparable 
disclosure about the material risks that companies face and how 
companies manage those risks by requiring:
     A description of any climate-related risks that have 
materially impacted or are reasonably likely to have a material impact 
on the registrant, including on its strategy, results of operations, 
and financial condition, as well as the actual or potential material 
impacts of those same risks on its strategy, business model, and 
outlook;
     Specified disclosures, regarding a registrant's 
activities, if any, to mitigate or adapt to a material climate-related 
risk or use of transition plans, scenario analysis or internal carbon 
prices to manage a material climate-related risk;
     Disclosure about any oversight by the registrant's board 
of directors of climate-related risks and any role by management in 
assessing and managing material climate-related risks;
     A description of any processes the registrant uses to 
assess or manage material climate-related risks; and
     Disclosure about any targets or goals that have materially 
affected or are reasonably likely to materially affect the registrant's 
business, results of operations, or financial condition.
    In addition, to facilitate investors' assessment of particular 
types of risk, the final rules require:
     Disclosure of Scope 1 and/or Scope 2 emissions on a phased 
in basis by certain larger registrants when those emissions are 
material, and the filing of an attestation report covering the required 
disclosure of such registrants' Scope 1 and/or Scope 2 emissions, also 
on a phased in basis; and
     Disclosure of the financial statement effects of severe 
weather events and other natural conditions including costs and losses.
    A further summary of the final rules is presented below.\18\
---------------------------------------------------------------------------

    \18\ See infra section I.B.
---------------------------------------------------------------------------

    In crafting the final rules, we benefited from extensive public 
comments. We received over 4,500 unique comment letters on the proposed 
climate-related disclosure rules and over 18,000 form letters.\19\ 
Commenters included academics, accounting and audit firms, individuals, 
industry groups, investor groups, law firms, non-governmental 
organizations, pension funds, professional climate advisors, 
professional investment advisers and investment management companies, 
registrants, standard-setters, state

[[Page 21671]]

government officials, and U.S. Senators and Members of the House of 
Representatives. Many commenters generally supported the proposal to 
require climate-related disclosure. Others opposed the proposed rules 
in whole or in part. In addition, the Commission's Investor Advisory 
Committee offered broad support for the proposal, with recommendations 
for certain modifications to the proposed rules, as discussed in more 
detail below.\20\ The Commission's Small Business Capital Formation 
Advisory Committee made several recommendations, including that the 
Commission exempt emerging growth companies (``EGCs'') \21\ and smaller 
reporting companies (``SRCs'') \22\ from the final rules or otherwise 
adopt scaled climate-related disclosure requirements for EGCs and 
SRCs.\23\ We considered comments that were supportive as well as those 
that were critical of aspects of the proposed rules, including comments 
from investors as to the information they need to make informed 
investment or voting decisions, as well as concerns expressed by 
registrants, trade associations, and others with regard to compliance 
burdens, liability risk, and our statutory authority. After considering 
all comments, we are adopting final rules with modifications from the 
proposal to better effectuate our goals in requiring these additional 
disclosures while limiting the final rules' burdens on registrants.\24\
---------------------------------------------------------------------------

    \19\ These comments are available at https://www.sec.gov/comments/s7-10-22/s71022.htm. Unless otherwise noted, comments 
referenced in this release pertain to these comments.
    \20\ See U.S. Securities and Exchange Commission Investor 
Advisory Committee Recommendation Related to Climate-Related 
Disclosure Rule Proposals (Sept. 21, 2022), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20220921-climate-related-disclosure-recommendation.pdf ``IAC 
Recommendation''). Specifically, the Investor Advisory Committee 
recommended the following changes to the proposed rules, as 
discussed in more detail in section II below: (1) adding a 
requirement for ``Management Discussion of Climate-Related Risks & 
Opportunities''; (2) requiring disclosure of material facility 
locations; and (3) eliminating the proposed requirement around board 
expertise. In addition to the IAC Recommendation, in June 2022, the 
Investor Advisory Committee held a meeting that included a panel 
discussion regarding climate disclosures. See the minutes for that 
meeting, including the panelists that participated in the 
discussion, at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac060922-minutes.pdf. The Investor Advisory 
Committee was established in Apr. 2012 pursuant to section 911 of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. 
L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (``Dodd-Frank 
Act'') to advise and make recommendations to the Commission on 
regulatory priorities, the regulation of securities products, 
trading strategies, fee structures, the effectiveness of disclosure, 
and initiatives to protect investor interests and to promote 
investor confidence and the integrity of the securities marketplace.
    \21\ An EGC is a registrant that had total annual gross revenues 
of less than $1.235 billion during its most recently completed 
fiscal year and has not met the specified conditions for no longer 
being considered an EGC. See 17 CFR 230.405; 17 CFR 240.12b-2; 15 
U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation Adjustments 
under Titles I and III of the JOBS Act, Release No. 33-11098 (Sep. 
9, 2022) [87 FR 57394 (Sep. 20, 2022)].
    \22\ An SRC is an issuer that is not an investment company, an 
asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-
owned subsidiary of a parent that is not an SRC and that: (1) had a 
public float of less than $250 million; or (2) had annual revenues 
of less than $100 million and either: (i) no public float; or (ii) a 
public float of less than $700 million. 17 CFR 229.10 (defining SRC 
and also providing how and when an issuer determines whether it 
qualifies as an SRC); 17 CFR 230.405 (same); 17 CFR 240.12-2 (same).
    \23\ See U.S. Securities and Exchange Commission Small Business 
Capital Formation Advisory Committee Recommendation Regarding the 
Enhancement and Standardization of Climate-Related Disclosures for 
Investors (July 13, 2022), available at https://www.sec.gov/spotlight/sbcfac/sbcfac-climate-related-disclosures-recommendation-050622.pdf (``SBCFAC Recommendation''). In addition, the Small 
Business Capital Formation Advisory Committee highlights generally 
in its parting perspectives letter that ``exemptions, scaling, and 
phase-ins for new requirements where appropriate, allows smaller 
companies to build their businesses and balance the needs of 
companies and investors while promoting strong and effective U.S. 
public markets.'' See Parting Perspectives Letter, U.S. Securities 
and Exchange Commission Small Business Capital Formation Advisory 
Committee (Feb. 28, 2023), available at https://www.sec.gov/files/committee-perspectives-letter-022823.pdf. Finally, we note that 
participants in the Commission-hosted Small Business Forum in 2023 
recommended that the Commission revise the proposed rules to exempt 
SRCs, non-accelerated filers, EGCs, and other midsized companies and 
to consider scaling and delayed compliance (``Small Business Forum 
Recommendation (2023)''); participants in 2022 and 2021 Small 
Business Forums similarly recommended the Commission provide 
exemptions or scaled requirements for small and medium-sized 
companies in connection with any new ESG disclosure requirements 
adopted by the Commission. See Report on the 42nd Annual Small 
Business Forum (April 2023), available at https://www.sec.gov/files/2023_oasb_annual_forum_report_508.pdf; Report on the 41st Annual 
Small Business Forum (April 2022), available at https://www.sec.gov/files/2022-oasb-annual-forum-report.pdf; and Report on the 40th 
Annual Small Business Forum (May 2021), available at https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf. See 
also U.S. Securities and Exchange Commission Office of the Advocate 
for Small Business Capital Formation, Annual Report Fiscal Year 2023 
(``2023 OASB Annual Report''), available at https://www.sec.gov/files/2023-oasb-annual-report.pdf, at 84-85 (recommending generally 
that in engaging in rulemaking that affects small businesses, the 
Commission tailor the disclosure and reporting framework to the 
complexity and size of operations of companies, either by scaling 
obligations or delaying compliance for the smallest of the public 
companies). The Small Business Capital Formation Advisory Committee 
was established in Dec. 2016 pursuant to the Small Business Advocate 
Act of 2016 [Public Law 114-284 (2016)] to advise the Commission on 
rules, regulations, and policies with regard to the Commission's 
mission of protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation, as such 
rules, regulations, and policies relate to: capital raising by 
emerging, privately held small businesses (``emerging companies'') 
and publicly traded companies with less than $250,000,000 in public 
market capitalization (``smaller public companies'') through 
securities offerings, including private and limited offerings and 
initial and other public offerings; trading in the securities of 
emerging companies and smaller public companies; and public 
reporting and corporate governance requirements of emerging 
companies and smaller public companies.
    \24\ See infra section I.B for a summary of changes from the 
proposed rules, including the addition of materiality qualifiers in 
certain rule provisions and revisions to make the final rules less 
prescriptive.
---------------------------------------------------------------------------

    As the Commission explained when proposing the climate disclosure 
rules,\25\ while climate-related issues are subject to various other 
regulatory schemes, our objective is limited to advancing the 
Commission's mission to protect investors, maintain fair, orderly, and 
efficient markets, and promote capital formation by providing 
disclosure to investors of information important to their investment 
and voting decisions. We are adopting the final rules to advance these 
investor protection, market efficiency and capital formation 
objectives, consistent with our statutory authority, and not to address 
climate-related issues more generally. The final rules should be read 
in that context. Thus, for example, in those instances where the rules 
reference materiality--consistent with our existing disclosure rules 
and market practices--materiality refers to the importance of 
information to investment and voting decisions about a particular 
company, not to the importance of the information to climate-related 
issues outside of those decisions. The Commission has been and remains 
agnostic about whether or how registrants consider or manage climate-
related risks. Investors have expressed a need for this information on 
risks in valuing the securities they currently hold or are considering 
purchasing. While we recognize that the rules will impose burdens on 
registrants, we note that the degree of that burden will vary depending 
upon the circumstances facing individual registrants, as not every 
registrant will be required to provide all disclosures specified under 
the final rules. Moreover, as discussed further throughout the release, 
we believe that those burdens are justified by the informational 
benefits of the disclosures to investors.
---------------------------------------------------------------------------

    \25\ See Proposing Release, section I.
---------------------------------------------------------------------------

A. Need for Enhanced and Standardized Climate-Related Disclosures

    The importance of climate-related disclosures for investors has 
grown as investors,\26\ companies, and the markets

[[Page 21672]]

have recognized that climate-related risks \27\ can affect a company's 
business and its current and longer-term financial performance and 
position in numerous ways.\28\ Climate-related natural disasters can 
damage issuers' assets, disrupt their operations, and increase their 
costs.\29\ Any widespread market-based transition to lower carbon 
products, practices, and services--triggered, for example, by recent or 
future changes in consumer preferences \30\ or the availability of 
financing, technology, and other market forces \31\--can lead to 
material changes in a company's business model or strategy and may have 
a material impact on a registrant's financial condition or 
operations.\32\
---------------------------------------------------------------------------

    \26\ Throughout this release, we refer to investors to include 
retail investors, institutional investors, and other market 
participants (such as financial analysts, investment advisers, and 
portfolio managers) that use disclosures in Commission filings as 
part of their analysis and to help investors.
    \27\ The Commission has a long history of requiring disclosures 
to investors of information about risks facing registrants. See 
infra notes 184-191 and accompany text for a discussion of that 
history. In that time, the Commission has described those risks 
using differently terminology, but has largely focused on the same 
concepts. See, e.g., 17 CFR 229.105(a) (Where appropriate, provide 
under the caption ``Risk Factors'' a discussion of the material 
factors that make an investment in the registrant or offering 
speculative or risky.); Disclosure of Accounting Policies for 
Derivative Financial Instruments and Derivative Commodity 
Instruments and Disclosure of Quantitative and Qualitative 
Information About Market Risk Inherent in Derivative Financial 
Instruments, Other Financial Instruments, and Derivative Commodity 
Instruments, Release No. 33-7386 (Jan. 31, 1997) [62 FR 6044 at n.12 
(Feb. 10, 1997)] (Requiring disclosure of qualitative and 
quantitative information about market risk for derivatives and other 
financial instruments; Market risk is the risk of loss arising from 
adverse changes in market rates and prices, such as interest rates, 
foreign currency exchange rates, commodity prices, and other 
relevant market rate or price changes (e.g., equity prices).); 
Guides for Preparation and Filing of Registration Statements, 
Release No. 33-4666 (Feb. 7, 1964) [29 FR 2490, 2492 (Feb. 15, 
1964)] (In many instances the securities to be offered are of a 
highly speculative nature. The speculative nature may be due to such 
factors as an absence of operating history of the registrant, an 
absence of profitable operations in recent periods, the financial 
position of the registrant or the nature of the business in which 
the registrant is engaged or proposes to engage. . . In such 
instances, and particularly where a lengthy prospectus cannot be 
avoided, there should be set forth immediately following the cover 
page of the prospectus a carefully organized series of short, 
concise paragraphs summarizing the principal factors which make the 
offering speculative with references to other parts of the 
prospectus where complete information with respect to such factors 
is set forth.).
    \28\ For example, FSOC's Report on Climate-Related Financial 
Risk 2021 found that investors and businesses may experience direct 
financial effects from climate-related risks and observed that the 
costs would likely be broadly felt as they are passed through supply 
chains and to customers and as they reduce firms' ability to service 
debt or produce returns for investors. See 2021 FSOC Report, Chapter 
1: From Climate-Related Physical Risks to Financial Risks; From 
Climate-related Transition Risks to Financial Risks. In 2023 FSOC 
repeated its concern that climate-related risks are an emerging and 
increasing threat to U.S. financial stability and stated that 
climate-related financial risk can manifest as and amplify 
traditional risks, such as credit, market, liquidity, operational, 
compliance, reputational, and legal risks. See FSOC, Annual Report 
2023; see also letters from AGs of Cal. et al.; Ceres; PIMCO; and 
Wellington Mgmt; infra note 99 and accompanying text.
    \29\ See, e.g., Greg Ritchie, Bloomberg, 90% of World's Biggest 
Firms Will Have at Least One Asset Exposed to Climate Risk, Fresh 
Data Show (Sept. 15, 2022) (stating that over 90% of the world's 
largest companies will have at least one asset financially exposed 
to climate risks such as wildfires or floods by the 2050s, and more 
than a third of those companies will see at least one asset lose 20% 
or more of its value as a result of climate-related events).
    \30\ See, e.g., McKinsey & Company, How electric vehicles will 
shape the future (Apr. 23, 2022), available at https://www.mckinsey.com/featured-insights/themes/how-electric-vehicles-will-shape-the-future (predicting that by 2035, the major automotive 
markets will be fully electric).
    \31\ See, e.g., Amrith Ramkumar, Wall Street Journal, JPMorgan 
Makes One of the Biggest Bets Ever on Carbon Removal (May 23, 2023), 
available at https://www.wsj.com/articles/jpmorgan-makes-one-of-the-biggest-bets-ever-on-carbon-removal-c7d5fe63 (noting that ``JPMorgan 
Chase has agreed to invest more than $200 million to purchase 
credits from several companies in the nascent [carbon removal] 
industry'').
    \32\ See, e.g., BlackRock, Managing the net-zero transition 
(Feb. 2022), available at https://www.blackrock.com/corporate/literature/whitepaper/bii-managing-the-net-zero-transition-february-2022.pdf (``On top of physical climate risks, companies and asset 
owners must now grapple with the transition [to a net-zero economy]. 
Economies will be reshaped as carbon emissions are cut. The 
transition will involve a massive reallocation of resources. Supply 
and demand will shift, with mismatches along the way. Value will be 
created and destroyed across companies.'').
---------------------------------------------------------------------------

    In addition to these market forces, changes in law, regulation, or 
policy may prompt companies to transition to lower carbon products, 
practices, and services. For example, governments including the United 
States and others throughout the world have made public commitments to 
transition to a lower carbon economy.\33\ Efforts towards meeting GHG 
reduction goals \34\ could have financial effects that materially 
impact registrants.\35\ Recently both the Federal Government and 
several State governments have adopted or proposed laws and regulations 
that incentivize companies to reduce their GHG emissions and transition 
to a lower carbon economy in a variety of ways.\36\ How a registrant 
assesses and plans in response to such legislative and regulatory 
efforts and going forward complies with such laws and regulations, may 
have a significant impact on its financial performance and investors' 
return on their investment in the company.
---------------------------------------------------------------------------

    \33\ See United Nations, Net Zero, available at https://www.un.org/en/climatechange/net-zero-coalition (``More than 140 
countries, including the biggest polluters--China, the United 
States, India and the European Union--have set a net-zero target. . 
. .'').
    \34\ See, e.g., Press Statement, Antony J. Blinken, Secretary of 
State, The United States Officially Rejoins the Paris Agreement 
(Feb. 19, 2021), available at https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/. Over 190 countries 
have signed the Paris Climate Agreement, which aims to limit global 
temperature rise. Moreover, at the UN Climate Change Conference (COP 
26), the United States committed to become net zero by 2050, China 
by 2060, and India by 2070. Further, over 100 countries including 
the U.S. formed a coalition to reduce methane emissions by 30% by 
2030. See David Worford, COP26 Net Zero Commitments will Speed 
Energy Transition, Increase Pressure on Industries, According to 
Moody's Report, Environment+Energy Leader (Nov. 17, 2021), available 
at https://www.environmentenergyleader.com/2021/11/cop26-net-zero-commitments-will-speed-energy-transition-increase-pressure-on-industries-according-to-moodys-report/. At COP27, participating 
countries (which included the U.S.) reaffirmed their commitment to 
limit global temperature rise and agreed to provide ``loss and 
damage'' funding for vulnerable countries hit hard by climate 
disasters. See United Nations Climate Change, COP27 Reaches 
Breakthrough Agreement on New ``Loss and Damage'' Fund for 
Vulnerable Countries (Nov. 20, 2022), available at https://unfccc.int/news/cop27-reaches-breakthrough-agreement-on-new-loss-and-damage-fund-for-vulnerable-countries. More recently, at COP 28, 
participating countries (which included the U.S.) signed an 
agreement that includes commitments for ``deep emissions cuts and 
scaled-up finance.'' See United Nations Climate Change, COP28 
Agreement Signals ``Beginning of the End'' of the Fossil Fuel Era 
(Dec. 13, 2023), available at https://unfccc.int/news/cop28-agreement-signals-beginning-of-the-end-of-the-fossil-fuel-era.
    \35\ See, e.g., letter from Eni SpA (``[C]ompanies should 
discuss the reference scenario in which they are acting, providing 
information about any emerging trends, demands, uncertainties, 
commitments or events that are reasonably likely to have material 
impacts on the company's future profitability and growth prospects 
in dependence of likely or possible evolution of the regulatory or 
competitive environment in response to the global need to achieve 
the goals of the Paris Agreement.''); see also infra note 108 and 
accompanying text (citing comment letters that stated that, as 
governments and registrants have increasingly made pledges and 
enacted laws regarding a transition to a lower carbon economy, more 
consistent and reliable climate-related disclosure has become 
particularly important to help investors assess the reasonably 
likely financial impacts to a registrant's business, results of 
operations, and financial condition in connection with such 
governmental pledges or laws and the related financial and 
operational impacts of a registrant's progress in achieving its 
publicly announced, climate-related targets and goals).
    \36\ See infra section II.C for examples of Federal law and 
State regulation that may be sources of climate-related risk, 
particularly transition risk, for registrants.
---------------------------------------------------------------------------

    Further, as reflected in comments received in response to the 
proposed rules and as discussed throughout this release, investors seek 
to assess the climate-related risks that registrants face and evaluate 
how registrants are measuring and responding to those risks.\37\ 
Effective disclosures regarding climate-related risks can help 
investors better assess how registrants are measuring and responding to 
those

[[Page 21673]]

risks. Those assessments can, in turn, inform investment and voting 
decisions.
---------------------------------------------------------------------------

    \37\ See, e.g., infra notes 99-106 and accompanying text.
---------------------------------------------------------------------------

    We agree with the many commenters that stated that the current 
state of climate-related disclosure has resulted in inconsistent, 
difficult to compare, and frequently boilerplate disclosures, and has 
therefore proven inadequate to meet the growing needs of investors for 
more detailed, consistent, reliable, and comparable information about 
climate-related effects on a registrant's business and financial 
condition to use in making their investment and voting decisions.\38\ 
Since the Commission issued the 2010 Guidance, awareness of climate-
related risks to registrants has grown.\39\ Retail and institutional 
investors \40\ and investor-led initiatives \41\ have increasingly 
expressed the need for more reliable information about the effects of 
climate-related risks, as well as information about how registrants 
have considered and addressed climate-related risks and opportunities 
when conducting operations and developing business strategy and 
financial plans.\42\ At the same time, many companies have made 
climate-related commitments to reduce GHG emissions or become ``net 
zero'' by a particular date.\43\ In response, investors have expressed 
the need for more detailed information to aid their investment and 
voting decisions, including insight into the potential impacts on 
registrants associated with fulfilling such commitments.\44\
---------------------------------------------------------------------------

    \38\ See, e.g., letters from AllianceBernstein; BlackRock, Inc. 
(June 17, 2022) (``BlackRock''); CalPERS; CalSTRS; Calvert Research 
and Management (June 17, 2022) (``Calvert''); Decatur Capital 
Management (May 29, 2022); Domini Impact; Harvard Management Company 
(June 6, 2022) (``Harvard Mgmt.''); Impax Asset Management (May 12, 
2022) (``Impax Asset Mgmt.''); Trillium; and Wellington Mgmt. But 
see, e.g., letters from the U.S. Chamber of Commerce (June 16, 2022) 
(``Chamber'') (June 16, 2022); National Association of Manufacturers 
(June 6, 2022) (``NAM'') (June 6, 2022); and Society for Corporate 
Governance (June 17, 2022) (``Soc. Corp. Gov.'').
    \39\ See, e.g., supra notes 28-32.
    \40\ Although some commenters stated that only institutional 
investors have demanded that the Commission adopt climate-related 
disclosure requirements, see, e.g., letters from Chamber and Soc. 
Corp. Gov., most individual retail investors and firms advising such 
investors who submitted comments supported the proposed rules. See, 
e.g., letters from Barry Gillespie (June 8, 2022); Betterment (June 
17, 2022); Helene Marsh (June 7, 2022); and Rodney Smith (June 13, 
2022); see also letter from Investment Company Institute (June 17, 
2022) (``ICI'') (supporting ``key components of the proposal'' and 
noting that its ``members, US regulated funds . . . serv[e] more 
than 100 million investors'' and ``clearly have a significant 
interest in how the nature and availability of climate-related risk 
information provided by public companies evolves'' and ``analyze 
this, and other, information in formulating their investment 
decisions on behalf of those millions of long-term individual 
investors'').
    \41\ See Proposing Release, section I.C.1 for a discussion of 
some of these investor-led initiatives. Among other initiatives 
discussed in the Proposing Release, in 2019, more than 630 investors 
collectively managing more than $37 trillion signed the Global 
Investor Statement to Governments on Climate Change urging 
governments to require climate-related financial reporting. See 
United Nations Climate Change, 631 Institutional Investors Managing 
More than USD 37 Trillion in Assets Urge Governments to Step up 
Climate Ambition (Dec. 9, 2019), available at https://unfccc.int/news/631-institutional-investors-managing-more-than-usd-37-trillion-in-assets-urge-governments-to-step-up. This investor initiative 
continued as the Investor Agenda's 2021 Global Investor Statement to 
Governments on the Climate Crisis, which was signed by 733 global 
institutional investors, including some of the largest investors, 
with more than $52 trillion in assets under management in the 
aggregate. This statement called for governments to implement a 
number of measures, including mandating climate risk disclosure. See 
The Investor Agenda, 2021 Global Investor Statement to Governments 
on the Climate Crisis (Oct. 27, 2021), available at https://theinvestoragenda.org/wp-content/uploads/2021/09/2021-Global-Investor-Statementto-Governments-on-the-Climate-Crisis.pdf. But see 
letter from Lawrence Cunningham for Twenty Professors of Law and 
Finance, George Washington University (Feb. 29, 2024) (noting that 
some large institutional asset managers or investors have recently 
withdrawn membership from certain of the investor-led initiatives 
described in the Proposing Release).
    \42\ See, e.g., letters from AllianceBernstein; CalPERS; 
CalSTRS; Domini Impact; Harvard Mgmt; Impax Asset Mgmt; Trillium; 
and Wellington Mgmt.
    \43\ See Proposing Release, section I.C.1. See also Dieter 
Holger and Pierre Bertrand, U.N. Group Recommends Stricter Rules 
Over Net-Zero Pledges, The Wall Street Journal (Nov. 8, 2022) 
(stating that roughly 800 of the world's 2,000 largest public 
companies by revenue have committed to get to net zero emissions by 
2050 or sooner); and United Nations, Recognizing growing urgency, 
global leaders call for concrete commitments for clean, affordable 
energy for all by 2030 and net-zero emissions by 2050 (May 26, 
2021).
    \44\ See, e.g., letters from Calvert; Ceres; Investment Adviser 
Association (June 17, 2022) (``IAA''); and PIMCO. See also Climate 
Action 100+, As The 2023 Proxy Season Continues, Investors Are 
Calling On Climate Action 100+ Focus Companies For More Robust 
Climate Action (May 9, 2023) (stating that in addition to more 
robust corporate governance on climate, investors are calling for 
disclosure on key issues including greenhouse gas emissions targets, 
transition plans (including policies to ensure a just transition for 
workers and communities), and reporting on methane measurements); 
Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark 
Shows Continued Progress On Ambition Contrasted By A Lack Of 
Detailed Plans Of Action (Oct. 18, 2023); and Dieter Holger, 
Corporate Climate Plans Fall Well Short of Targets, With a Few 
Bright Spots, The Wall Street Journal (Feb. 13, 2023).
---------------------------------------------------------------------------

B. Summary of the Final Rules

    Having considered the comments received on the proposal, we are 
adopting the final amendments described in this release with 
modifications in response to those comments.\45\
---------------------------------------------------------------------------

    \45\ As stated above, the Commission received a large number of 
comments on the proposal, and we considered all of those comments. 
Nevertheless, considering the overlapping content and themes in the 
comments, and for the sake of clarity, we have not cited each 
individual comment letter in support of or against a particular 
position in the discussion below.
---------------------------------------------------------------------------

    Like the proposed rules, the final rules' reporting framework has 
structural elements, definitions, concepts, and, in some cases, 
substantive requirements that are similar to those in the Task Force on 
Climate-related Financial Disclosure (``TCFD''), an industry-led task 
force charged with promoting better-informed investment, credit, and 
insurance underwriting decisions.\46\ The TCFD reporting framework was 
designed to elicit information to help investors better understand a 
registrant's climate-related risks to make more informed investment 
decisions.\47\ We therefore find that it is an appropriate reference 
point for the final rules. Indeed, the core categories of the 
framework, which focus on governance, risk management, strategy, and 
metrics,\48\ align with the type of information called for by existing 
disclosure requirements within Regulation S-K.\49\ Accordingly, where 
consistent with our objectives, the authority Congress granted, and the 
comments received, certain provisions in the final rules are similar to 
the TCFD recommendations.\50\ Similarly, we have used concepts 
developed by the GHG Protocol for aspects of the final rules, as it has 
become a leading reporting standard for GHG emissions.\51\ Because

[[Page 21674]]

many registrants have elected to follow the TCFD recommendations when 
voluntarily providing climate-related disclosures,\52\ and/or have 
relied on the GHG Protocol when reporting their GHG emissions,\53\ 
building off these reporting frameworks will mitigate those 
registrants' compliance burdens and help limit costs.\54\ Building off 
the TCFD framework and the GHG Protocol will also benefit those 
investors seeking to make comparisons between Commission registrants 
and foreign companies not registered under the Federal securities laws 
that make disclosures under the TCFD framework and GHG Protocol, 
mitigating the challenges they experience when making investment and 
voting decisions.\55\ Nevertheless, while the final rules use concepts 
from both TCFD and the GHG Protocol where appropriate, the rules 
diverge from both of those frameworks in certain respects where 
necessary for our markets and registrants and to achieve our specific 
investor protection and capital formation goals.
---------------------------------------------------------------------------

    \46\ See TCFD, Recommendations of the Task Force on Climate-
related Financial Disclosures (June 2017), available at https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf. In Apr. 2015, the Group of 20 Finance Ministers 
directed the Financial Stability Board (``FSB'') to evaluate ways in 
which the financial sector could address climate-related concerns. 
The FSB concluded that better information was needed to facilitate 
informed investment decisions and to help investors and other market 
participants to better understand and take into account climate-
related risks. The FSB established the TCFD. Since then, the 
framework for climate-related disclosures developed by the TCFD has 
been refined and garnered global support as a reliable framework for 
climate-related financial reporting. For background on the TCFD and 
development of its recommendations, see Proposing Release, section 
I.D.1.
    \47\ See TCFD, supra note 46, at ii-iii.
    \48\ See TCFD, supra note 4646 (listing governance, strategy, 
risk management, and metrics and targets as core elements of the 
TCFD framework).
    \49\ See, e.g., 17 CFR 229.105 (Risk factors), 17 CFR 229.303 
(Management's discussion and analysis of financial condition and 
results of operation), 17 CFR 229.401 (Directors, executive 
officers, promoters and control persons), and 17 CFR 229.407 
(Corporate governance).
    \50\ As discussed below, a number of commenters recommended that 
the Commission incorporate the TCFD recommendations into the final 
rules. See infra notes 115-118 and accompanying text.
    \51\ See World Business Council for Sustainable Development and 
World Resources Institute, The Greenhouse Gas Protocol, A Corporate 
Accounting and Reporting Standard REVISED EDITION, available at 
https://ghgprotocol.org/corporate-standard. The GHG Protocol was 
created through a partnership between the World Resources Institute 
and the World Business Council for Sustainable Development, which 
agreed in 1997 to collaborate with businesses and NGOs to create a 
standardized GHG accounting methodology. See Greenhouse Gas 
Protocol, About Us, available at https://ghgprotocol.org/about-us. 
The GHG Protocol, which is subject to updates periodically, has been 
broadly incorporated into various sustainability reporting 
frameworks, including the TCFD.
    \52\ See, e.g., infra note 2690 and accompanying text 
(describing a report finding that 50 percent of sustainability 
reports from Russell 1000 companies aligned with the TCFD 
recommendations). In addition, many registrants submit climate 
disclosures to the CDP, formerly known as the ``Carbon Disclosure 
Project,'' which is aligned with the TCFD framework. See CDP 
Worldwide (``CDP''), How CDP is aligned to the TCFD, available at 
https://www.cdp.net/en/guidance/how-cdp-is-aligned-to-the-tcfd (last 
visited Feb. 21, 2024); CDP, How companies can take action, 
available at https://www.cdp.net/en/companies (noting that ``23,000+ 
companies representing two thirds of global market capitalization 
disclosed through CDP in 2023''); see also CDP, About us, available 
at https://www.cdp.net/en/info/about-us (``CDP is a not-for-profit 
charity that runs the global disclosure system for investors, 
companies, cities, states and regions to manage their environmental 
impacts. . . . CDP was established as the `Carbon Disclosure 
Project' in 2000, asking companies to disclose their climate 
impact.''). In addition, several international climate disclosure 
initiatives are based on the TCFD recommendations. See infra section 
II.A.3.
    \53\ See infra section II.A; and Proposing Release, section 
I.D.2; see also infra note 2621 (noting that, in the U.S. and other 
jurisdictions, GHG emissions quantification and reporting are 
generally based on the GHG Protocol).
    \54\ See infra note 2760 and accompanying text.
    \55\ Cf. infra notes 2568-2570 and accompanying text.
---------------------------------------------------------------------------

1. Content of the Climate-Related Disclosures
    The final rules will create a new subpart 1500 of Regulation S-K 
and Article 14 of Regulation S-X. In particular, the final rules will 
require a registrant to disclose information about the following items:
     Any climate-related risks identified by the registrant 
that have had or are reasonably likely to have a material impact on the 
registrant, including on its strategy, results of operations, or 
financial condition in the short-term (i.e., the next 12 months) and in 
the long-term (i.e., beyond the next 12 months); \56\
---------------------------------------------------------------------------

    \56\ See infra section II.D.1.
---------------------------------------------------------------------------

     The actual and potential material impacts of any 
identified climate-related risks on the registrant's strategy, business 
model, and outlook, including, as applicable, any material impacts on a 
non-exclusive list of items; \57\
---------------------------------------------------------------------------

    \57\ See infra sections II.D.1. That non-exclusive list is 
comprised of the registrant's: (1) business operations, including 
the types and locations of its operations, (2) products and 
services, (3) suppliers, purchasers, or counterparties to material 
contracts, to the extent known or reasonably available, (4) 
activities to mitigate or adapt to climate-related risks, including 
adoption of new technologies or processes, and (5) expenditure for 
research and development.
---------------------------------------------------------------------------

     If, as part of its strategy, a registrant has undertaken 
activities to mitigate or adapt to a material climate-related risk, a 
quantitative and qualitative description of material expenditures 
incurred and material impacts on financial estimates and assumptions 
that, in management's assessment, directly result from such mitigation 
or adaptation activities; \58\
---------------------------------------------------------------------------

    \58\ See infra sections II.D.1.
---------------------------------------------------------------------------

     If a registrant has adopted a transition plan to manage a 
material transition risk, a description of the transition plan, and 
updated disclosures in the subsequent years describing the actions 
taken during the year under the plan, including how the actions have 
impacted the registrant's business, results of operations, or financial 
condition, and quantitative and qualitative disclosure of material 
expenditures incurred and material impacts on financial estimates and 
assumptions as a direct result of the disclosed actions; \59\
---------------------------------------------------------------------------

    \59\ See infra section II.D.2.
---------------------------------------------------------------------------

     If a registrant uses scenario analysis and, in doing so, 
determines that a climate-related risk is reasonably likely to have a 
material impact on its business, results of operations, or financial 
condition, certain disclosures regarding such use of scenario analysis; 
\60\
---------------------------------------------------------------------------

    \60\ See infra section II.D.3.
---------------------------------------------------------------------------

     If a registrant's use of an internal carbon price is 
material to how it evaluates and manages a material climate-related 
risk, certain disclosures about the internal carbon price; \61\
---------------------------------------------------------------------------

    \61\ See infra section II.D.4.
---------------------------------------------------------------------------

     Any oversight by the board of directors of climate-related 
risks and any role by management in assessing and managing the 
registrant's material climate-related risks; \62\
---------------------------------------------------------------------------

    \62\ See infra section II.E.
---------------------------------------------------------------------------

     Any processes the registrant has for identifying, 
assessing, and managing material climate-related risks and, if the 
registrant is managing those risks, whether and how any such processes 
are integrated into the registrant's overall risk management system or 
processes; \63\
---------------------------------------------------------------------------

    \63\ See infra section II.F.
---------------------------------------------------------------------------

     If a registrant has set a climate-related target or goal 
that has materially affected or is reasonably likely to materially 
affect the registrant's business, results of operations, or financial 
condition, certain disclosures about such target or goal, including 
material expenditures and material impacts on financial estimates and 
assumptions as a direct result of the target or goal or actions taken 
to make progress toward meeting such target or goal; \64\
---------------------------------------------------------------------------

    \64\ See infra section II.G.
---------------------------------------------------------------------------

     If a registrant is a large accelerated filer 
(``LAF''),\65\ or an accelerated filer (``AF'') \66\ that is not 
otherwise exempted, and its Scope 1 emissions and/or its Scope 2 
emissions metrics are material, certain disclosure about those 
emissions; \67\
---------------------------------------------------------------------------

    \65\ An LAF is an issuer after it first meets the following 
conditions as of the end of its fiscal year: (i) the issuer had an 
aggregate worldwide market value of the voting and non-voting common 
equity held by its non-affiliates of $700 million or more, as of the 
last business day of the issuer's most recently completed second 
fiscal quarter; (ii) the issuer has been subject to the requirements 
of Section 13(a) or 15(d) of the Exchange Act for a period of at 
least twelve calendar months; (iii) the issuer has filed at least 
one annual report pursuant to Section 13(a) or 15(d) of the Exchange 
Act; and (iv) the issuer is not eligible to use the requirements for 
SRCs under the revenue test in paragraph (2) or (3)(iii)(B) of the 
SRC definition in Rule 12b-2. 17 CFR 240.12b-2 (defining LAF and 
providing how and when an issuer determines whether it qualifies as 
an LAF).
    \66\ An AF is an issuer after it first meets the following 
conditions as of the end of its fiscal year: (i) the issuer had an 
aggregate worldwide market value of the voting and non-voting common 
equity held by its non-affiliates of $75 million or more, but less 
than $700 million, as of the last business day of the issuer's most 
recently completed second fiscal quarter; (ii) the issuer has been 
subject to the requirements of Section 13(a) or 15(d) of the 
Exchange Act for a period of at least twelve calendar months; and 
(iii) the issuer has filed at least one annual report pursuant to 
Section 13(a) or 15(d) of the Exchange Act; and (iv) the issuer is 
not eligible to use the requirements for SRCs under the revenue test 
in paragraph (2) or (3)(iii)(B) of the SRC definition in Rule 12b-2. 
17 CFR 240.12b-2 (defining AF and providing how and when an issuer 
determines whether it qualifies as an AF).
    \67\ See infra section II.H. The final rules define the terms 
``Scope 1 emissions'' (direct GHG emissions from operations that are 
owned or controlled by a registrant) and ``Scope 2 emissions'' 
(indirect GHG emissions from the generation of purchased or acquired 
electricity, steam, heat, or cooling that is consumed by operations 
owned or controlled by a registrant).

---------------------------------------------------------------------------

[[Page 21675]]

     The capitalized costs, expenditures expensed, charges, and 
losses incurred as a result of severe weather events and other natural 
conditions, such as hurricanes, tornadoes, flooding, drought, 
wildfires, extreme temperatures, and sea level rise, subject to 
applicable one percent and de minimis disclosure thresholds; \68\
---------------------------------------------------------------------------

    \68\ See infra section II.K.
---------------------------------------------------------------------------

     The capitalized costs, expenditures expensed, and losses 
related to carbon offsets and renewable energy credits or certificates 
(``RECs'') if used as a material component of a registrant's plans to 
achieve its disclosed climate-related targets or goals; and \69\
---------------------------------------------------------------------------

    \69\ See infra section II.K.
---------------------------------------------------------------------------

     If the estimates and assumptions a registrant uses to 
produce the financial statements were materially impacted by risks and 
uncertainties associated with severe weather events and other natural 
conditions, such as hurricanes, tornadoes, flooding, drought, 
wildfires, extreme temperatures, and sea level rise, or any disclosed 
climate-related targets or transition plans, a qualitative description 
of how the development of such estimates and assumptions was 
impacted.\70\
---------------------------------------------------------------------------

    \70\ See infra section II.K.
---------------------------------------------------------------------------

    In addition, under the final rules, a registrant that is required 
to disclose Scopes 1 and/or 2 emissions and is an LAF or AF must file 
an attestation report in respect of those emissions subject to phased 
in compliance dates. An AF must file an attestation report at the 
limited assurance level beginning the third fiscal year after the 
compliance date for disclosure of GHG emissions. An LAF must file an 
attestation report at the limited assurance level beginning the third 
fiscal year after the compliance date for disclosure of GHG emissions, 
and then file an attestation report at the reasonable assurance level 
beginning the seventh fiscal year after the compliance date for 
disclosure of GHG emissions. The final rules also require a registrant 
that is not required to disclose its GHG emissions or to include a GHG 
emissions attestation report pursuant to the final rules to disclose 
certain information if the registrant voluntarily discloses its GHG 
emissions in a Commission filing and voluntarily subjects those 
disclosures to third-party assurance.
    The final rules reflect a number of modifications to the proposed 
rules based on the comments we received. As discussed in more detail 
below, we have revised the proposed rules in several respects, 
including by:
     Adopting a less prescriptive approach to certain of the 
final rules, including, for example, the climate-related risk 
disclosure, board oversight disclosure, and risk management disclosure 
requirements; \71\
---------------------------------------------------------------------------

    \71\ See infra sections II.C.1.c, II.E.1.c, and II.F.3 for 
discussions of how we made these disclosure requirements less 
prescriptive as compared to the proposed rules.
---------------------------------------------------------------------------

     Qualifying the requirements to provide certain climate-
related disclosures based on materiality, including, for example, 
disclosures regarding impacts of climate-related risks, use of scenario 
analysis, and maintained internal carbon price;
     Eliminating the proposed requirement to describe board 
members' climate expertise;
     Eliminating the proposed requirement for all registrants 
to disclose Scope 1 and Scope 2 emissions and instead requiring such 
disclosure only for LAFs and AFs, on a phased in basis, and only when 
those emissions are material and with the option to provide the 
disclosure on a delayed basis;
     Exempting SRCs and EGCs from the Scope 1 and Scope 2 
emissions disclosure requirement;
     Modifying the proposed assurance requirement covering 
Scope 1 and Scope 2 emissions for AFs and LAFs by extending the 
reasonable assurance phase in period for LAFs and requiring only 
limited assurance for AFs;
     Eliminating the proposed requirement to provide Scope 3 
emissions disclosure (which the proposal would have required in certain 
circumstances);
     Removing the requirement to disclose the impact of severe 
weather events and other natural conditions and transition activities 
on each line item of a registrant's consolidated financial statements;
     Focusing the required disclosure of financial statement 
effects on capitalized costs, expenditures expensed, charges, and 
losses incurred as a result of severe weather events and other natural 
conditions in the notes to the financial statements;
     Requiring disclosure of material expenditures directly 
related to climate-related activities as part of a registrant's 
strategy, transition plan and/or targets and goals disclosure 
requirements under subpart 1500 of Regulation S-K rather than under 
Article 14 of Regulation S-X;
     Extending a safe harbor from private liability for certain 
disclosures, other than historic facts, pertaining to a registrant's 
transition plan, scenario analysis, internal carbon pricing, and 
targets and goals; \72\
---------------------------------------------------------------------------

    \72\ In addition, the existing safe harbors for forward-looking 
statements under the Securities Act and Exchange Act will be 
available for other aspects of the climate-related disclosures. See 
Securities Act section 27A [15 U.S.C. 77z-2], Exchange Act section 
21E [15 U.S.C. 78u-5], 17 CFR 230.175 (``Securities Act Rule 175'') 
and 17 CFR 240.3b-6 (``Exchange Act Rule 3b-6'').
---------------------------------------------------------------------------

     Eliminating the proposal to require a private company that 
is a party to a business combination transaction, as defined by 
Securities Act Rule 165(f), registered on Form S-4 or F-4 to provide 
the subpart 1500 and Article 14 disclosures;
     Eliminating the proposed requirement to disclose any 
material change to the climate-related disclosures provided in a 
registration statement or annual report in a Form 10-Q (or, in certain 
circumstances, Form 6-K for a registrant that is a foreign private 
issuer that does not report on domestic forms); and
     Extending certain phase in periods.
2. Presentation and Submission of the Climate-Related Disclosures
    The final rules provide that a registrant (both domestic and 
foreign private issuer \73\) must:
---------------------------------------------------------------------------

    \73\ As defined by Commission rules, a foreign private issuer is 
any foreign issuer other than a foreign government except an issuer 
meeting the following conditions as of the last business day of its 
most recently completed second fiscal quarter: more than 50% of the 
outstanding voting securities of such issuer are directly or 
indirectly owned of record by residents of the United States; and 
either the majority of its executive officers or directors are 
United States citizens or residents, more than 50% of the assets of 
the issuer are located in the United States, or the business of the 
issuer is administered principally in the United States. See 17 CFR 
230.405 and 17 CFR 240.3b-4. See infra section II.L.3 for a 
discussion of certain types of registrants (both domestic and 
foreign private issuer) that are not subject to the final rules.
---------------------------------------------------------------------------

     File the climate-related disclosure in its registration 
statements and Exchange Act annual reports; \74\
---------------------------------------------------------------------------

    \74\ See infra section II.N.3.
---------------------------------------------------------------------------

     Include the climate-related disclosures required under 
Regulation S-K, except for any Scopes 1 and/or 2 emissions disclosures, 
in a separate, appropriately captioned section of its filing or in 
another appropriate section of the filing, such as Risk Factors, 
Description of Business, or Management's Discussion and Analysis of 
Financial Condition and Results of Operations (``MD&A''), or, 
alternatively, by incorporating such disclosure by reference from 
another Commission filing as long as the disclosure meets the

[[Page 21676]]

electronic tagging requirements of the final rules; \75\
---------------------------------------------------------------------------

    \75\ See infra section II.A.3.
---------------------------------------------------------------------------

     If required to disclose its Scopes 1 and 2 emissions,\76\ 
provide such disclosure:
---------------------------------------------------------------------------

    \76\ See, e.g., infra section II.H.3.c (noting that unlike the 
proposed rules, which would have exempted SRCs from the requirement 
to disclose Scope 3 emissions, the final rules will exempt SRCs and 
EGCs from any requirement to disclose its GHG emissions, including 
its Scopes 1 and 2 emissions).
---------------------------------------------------------------------------

    [cir] If a registrant filing on domestic forms, in its annual 
report on Form 10-K, in its quarterly report on Form 10-Q for the 
second fiscal quarter in the fiscal year immediately following the year 
to which the GHG emissions metrics disclosure relates incorporated by 
reference into its Form 10-K,or in an amendment to its Form 10-K filed 
no later than the due date for the Form 10-Q for its second fiscal 
quarter; \77\
---------------------------------------------------------------------------

    \77\ See infra section II.H.3.d.
---------------------------------------------------------------------------

    [cir] If a foreign private issuer not filing on domestic forms, in 
its annual report on Form 20-F, or in an amendment to its annual report 
on Form 20-F, which shall be due no later than 225 days after the end 
of the fiscal year to which the GHG emissions metrics disclosure 
relates; \78\ and
---------------------------------------------------------------------------

    \78\ See infra section II.H.3.d.
---------------------------------------------------------------------------

    [cir] If filing a Securities Act or Exchange Act registration 
statement, as of the most recently completed fiscal year that is at 
least 225 days prior to the date of effectiveness of the registration 
statement;
     If required to disclose Scopes 1 and 2 emissions, provide 
such disclosure for the registrant's most recently completed fiscal 
year and, to the extent previously disclosed, for the historical fiscal 
year(s) included in the filing; \79\
---------------------------------------------------------------------------

    \79\ See infra section II.H.3.d.
---------------------------------------------------------------------------

     If required to provide an attestation report over Scope 1 
and Scope 2 emissions, provide such attestation report and any related 
disclosures in the filing that contains the GHG emissions disclosures 
to which the attestation report relates; \80\
---------------------------------------------------------------------------

    \80\ See infra section II.I.
---------------------------------------------------------------------------

     Provide the financial statement disclosures required under 
Regulation S-X for the registrant's most recently completed fiscal 
year, and to the extent previously disclosed or required to be 
disclosed, for the historical fiscal year(s) included in the filing, in 
a note to the registrant's audited financial statements; \81\ and
---------------------------------------------------------------------------

    \81\ See infra section II.K.
---------------------------------------------------------------------------

     Electronically tag both narrative and quantitative 
climate-related disclosures in Inline XBRL.\82\
---------------------------------------------------------------------------

    \82\ See infra section II.M.3.
---------------------------------------------------------------------------

3. Safe Harbor for Certain Climate-Related Disclosures
    The final rules provide a safe harbor for climate-related 
disclosures pertaining to transition plans, scenario analysis, the use 
of an internal carbon price, and targets and goals, provided pursuant 
to Regulation S-K sections 229.1502(e), 229.1502(f), 229.1502(g), and 
229.1504. The safe harbor provides that all information required by the 
specified sections, except for historical facts, is considered a 
forward-looking statement for purposes of the Private Securities 
Litigation Reform Act (``PSLRA'') \83\ safe harbors for forward-looking 
statements provided in section 27A of the Securities Act \84\ and 
section 21E of the Exchange Act \85\ (``PSLRA safe harbors'').\86\
---------------------------------------------------------------------------

    \83\ Public Law 104-67, 109 Stat. 737.
    \84\ 15 U.S.C. 77z-2.
    \85\ 15 U.S.C. 78u-5.
    \86\ See infra sections II.D and II.J.3.
---------------------------------------------------------------------------

4. Phase in Periods
    As discussed in more detail below,\87\ the final rules will be 
phased in for all registrants, with the compliance date dependent upon 
the status of the registrant as an LAF, an AF, a non-accelerated filer 
(``NAF''),\88\ SRC, or EGC, and the content of the disclosure.
---------------------------------------------------------------------------

    \87\ See infra section II.O.
    \88\ Although Rule 12b-2 defines the terms ``accelerated filer'' 
and ``large accelerated filer,'' see supra notes 65-66, it does not 
define the term ``non-accelerated filer.'' If an issuer does not 
meet the definition of AF or LAF, it is considered a NAF. See 
Accelerated Filer and Large Accelerated Filer Definitions, Release 
No. 34-88365 (Mar. 12, 2020) [85 FR 17178, 17179 n.5 (Mar. 26, 
2020)].
---------------------------------------------------------------------------

II. Discussion

A. Overview and Purpose of the Climate-Related Disclosure Rules

1. Proposed Rules
a. Consistent, Comparable, and Reliable Disclosures for Investors
    The Commission proposed the climate-related disclosure rules in 
order to elicit more consistent, comparable, and reliable information 
for investors to enable them to make informed assessments of the impact 
of climate-related risks on current and potential investments.\89\ 
Accordingly, the Commission proposed to amend Regulation S-K to add a 
new subpart 1500 that would require a registrant to disclose: any 
material climate-related impacts on its strategy, business model, and 
outlook; its governance of climate-related risks; its climate-related 
risk management; GHG emissions metrics; and climate-related targets and 
goals, if any.\90\
---------------------------------------------------------------------------

    \89\ See Proposing Release, section I.B.
    \90\ See id.
---------------------------------------------------------------------------

    The Commission also proposed to amend Regulation S-X to add a new 
article (Article 14), which would have required a registrant to 
disclose in a note to its financial statements certain disaggregated 
climate-related financial statement metrics.\91\ The proposed rules 
would have required disclosure falling under the following three 
categories of information: financial impact metrics; expenditure 
metrics; and financial estimates and assumptions. The Commission 
proposed the financial statement metrics requirement to increase 
transparency about how climate-related risks impact a registrant's 
financial statements.\92\ Under the proposed amendments to both 
Regulation S-K and Regulation S-X, disclosure of climate-related 
opportunities would be optional.
---------------------------------------------------------------------------

    \91\ See id.
    \92\ See Proposing Release, section II.A.1.
---------------------------------------------------------------------------

    As noted above, the proposed rules were modeled on the TCFD 
disclosure framework.\93\ The TCFD framework consists of four core 
themes that provide a structure for the assessment, management, and 
disclosure of climate-related financial risks: governance, strategy, 
risk management, and metrics and targets.\94\ The Commission proposed 
to model its climate-related disclosure rules on the TCFD framework 
given that many registrants and their investors are already familiar 
with the framework and are making disclosures voluntarily consistent 
with the framework. The Commission indicated that this should help to 
mitigate both the compliance burden for registrants and any burdens 
faced by investors in analyzing the new disclosures and would 
facilitate comparability across registrants.\95\
---------------------------------------------------------------------------

    \93\ See supra section I.B.
    \94\ See TCFD, supra note 4646, at iv.
    \95\ See Proposing Release, section II.A.1.
---------------------------------------------------------------------------

b. Proposed Location of the Disclosure
    In proposing to include the climate-related disclosure rules in 
Regulation S-K and Regulation S-X, the Commission stated its belief 
that the proposed disclosure would be fundamental to investors' 
understanding of the nature of a registrant's business and its 
operating prospects and financial performance and, therefore, should be 
presented together with other disclosure about the registrant's 
business and financial condition.\96\ The Commission proposed to 
require a registrant to include the climate-related disclosure in 
Securities

[[Page 21677]]

Act or Exchange Act registration statements and Exchange Act annual 
reports in a separately captioned ``Climate-Related Disclosure'' 
section and in the financial statements. The Commission stated that the 
proposed presentation would facilitate review of the climate-related 
disclosure by investors alongside other relevant company financial and 
non-financial information and further the comparability of the 
disclosure across registrants.\97\
---------------------------------------------------------------------------

    \96\ See Proposing Release, section II.A.2.
    \97\ See id.
---------------------------------------------------------------------------

    The Commission also proposed to permit a registrant to incorporate 
by reference disclosure from other parts of the registration statement 
or annual report (e.g., Risk Factors, MD&A, Description of Business, or 
the financial statements) or from other filed or submitted reports into 
the Climate-Related Disclosure section if it would be responsive to the 
topics specified in the proposed Regulation S-K items and if the 
registrant satisfied the incorporation by reference requirements under 
the Commission's rules and forms. As the Commission explained, allowing 
incorporation by reference for the Regulation S-K climate-related 
disclosure would be consistent with the treatment of other types of 
business disclosure under our rules and would provide some flexibility 
for registrants while reducing redundancy in disclosure.\98\
---------------------------------------------------------------------------

    \98\ See id.
---------------------------------------------------------------------------

2. Comments
    Many commenters, including both investors and registrants, stated 
that climate-related risks can have material impacts on companies' 
financial position or performance.\99\ Commenters indicated that when 
it is available, information about climate-related risks is currently 
used to assess the future financial performance of public companies and 
inform investment decision-making.\100\ Some commenters provided 
specific examples of how that type of information helps investors make 
investment decisions today.\101\ However, many commenters stated that 
the Commission's current reporting requirements do not yield adequate 
or sufficient information regarding climate-related risks.\102\ Many 
commenters also expressed the view that the current, largely voluntary 
reporting of climate-related information under various third-party 
frameworks, which differ in certain respects, has allowed registrants 
to selectively choose which climate-related disclosures to provide and 
has failed to produce complete, consistent, reliable, and comparable 
information with the level of detail needed by investors to assess the 
financial impact of climate-related risks on registrants.\103\ 
Commenters stated that, despite the Commission's issuance of the 2010 
Guidance, registrants often provided climate-related disclosure that is 
boilerplate, with some being or bordering on ``greenwashing.'' \104\ 
Commenters further indicated that investors, both institutional and 
retail,\105\ were in need of more consistent and comparable climate-
related disclosure to enable them to make fully informed decisions and 
ensure securities are priced to better reflect climate-related 
risk.\106\ Commenters indicated that adoption of mandatory, climate-
related disclosure rules would improve the timeliness, quality, and 
reliability of climate-related information, which would facilitate 
investors' comparison of climate-related risks and lead to more 
accurate securities valuations.\107\ Commenters also stated that, as 
governments and registrants have increasingly made pledges and enacted 
laws regarding a transition to a lower carbon economy, more consistent 
and reliable climate-related disclosure has become particularly 
important to help investors assess the reasonably likely financial 
impacts to a registrant's business, results of operations, and 
financial condition in connection with such governmental pledges or 
laws and the related financial and operational impacts of a 
registrant's progress in achieving its publicly announced, climate-
related targets and goals.\108\
---------------------------------------------------------------------------

    \99\ See, e.g., letters from AllianceBernstein; Alphabet et al.; 
Amazon (June 17, 2022); Americans for Financial Reform Education 
Fund, Public Citizen, Sierra Club, Ocean Conservancy, and the 
Sunrise Project (June 16, 2022) (``Amer. for Fin. Reform, Sunrise 
Project et al.''); Bloomberg L.P. (June 22, 2022) (``Bloomberg''); 
CalPERS (June 15, 2022); CalSTRS (June 17, 2022); Calvert; Ceres; 
Harvard Mgmt.; IAA; Miller/Howard; Morningstar, Inc. (June 16, 2022) 
(``Morningstar''); Soros Fund; and Wellington Mgmt.
    \100\ See, e.g., letters from AllianceBernstein; Amer. for Fin. 
Reform, Sunrise Project et al.; CalPERS; CalSTRS; Calvert; Ceres; 
Miller/Howard; Soros Fund; and Wellington Mgmt.
    \101\ See, e.g., letters from CalSTRS; Calvert; and Wellington 
Mgmt.
    \102\ See, e.g., letters from AllianceBernstein; Amer. for Fin. 
Reform, Sunrise Project et al.; As You Sow (June 21, 2022); 
BlackRock; Bloomberg; Boston Common Asset Mgmt.; CalPERS; CalSTRS; 
Calvert; Ceres; Consumer Federation of America (June 17, 2022) 
(``CFA''); Franklin Templeton Investments (June 17, 2022) 
(``Franklin Templeton''); Harvard Mgmt.; IAA; Miller/Howard; 
Morningstar; New York State Comptroller (June 3, 2022) (``NY St. 
Comptroller''); Principles for Responsible Investment (Consultation 
Response) (June 17, 2022) (``PRI''); Soros Fund; Union of Concerned 
Scientists (June 17, 2022) (``UCS''); US SIF (June 17, 2022); and 
Wellington Mgmt.
    \103\ See, e.g., letters from BlackRock; Bloomberg; Calvert; 
Ceres; Franklin Templeton; Miller/Howard; PRI; and US SIF.
    \104\ See, e.g., letters from Ceres; Interfaith Center on 
Corporate Responsibility (June 17, 2022) (``ICCR''); and Maple-Brown 
Abbott (May 31, 2022) (``Maple-Brown''). As the Commission stated 
when proposing the climate disclosure rules, there does not appear 
to be a universally accepted definition of ``greenwashing.'' See 
Proposing Release, section IV.C.1. The Commission did not define 
greenwashing in the Proposing Release and is not defining it now. As 
a general matter, others have defined greenwashing to mean the set 
of activities conducted by firms or funds to falsely convey to 
investors that their investment products or practices are aligned 
with environmental or other ESG principles. See Proposing Release, 
section IV.C.1. See also OICU-IOSCO Supervisory Practices to Address 
Greenwashing, (Dec 2023), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD750.pdf.
    \105\ See, e.g., letters from Americans for Financial Reform 
Education Fund and Public Citizen (June 16, 2022) (``Amer. for Fin. 
Reform and Public Citizen'') (noting that the commenters 
commissioned a survey of retail investors and describing the results 
of that survey as ``show[ing] that investors care about climate-
related risks and opportunities of public companies, support the SEC 
requiring climate-related disclosures with third-party audit, and 
would factor the information disclosed into their investment 
practices''); Ceres (Dec. 2, 2022); and PRI; see also supra note 40 
(noting that most individual retail investors and firms advising 
such investors who submitted comments supported the proposed rules 
and citing comment letters from some retail investors and investment 
advisers in support of that proposition); infra note 139 (citing 
several comment letters in support of the proposition that retail 
investors have stated that they found much of the voluntary climate-
related reporting to be lacking in quality and completeness and 
difficult to compare and as a result have incurred costs and 
inefficiencies when attempting to assess climate-related risks and 
their effect on the valuation of a registrant's securities). But 
see, e.g., letter from Soc. Corp. Gov. (asserting that the retail 
investor survey in the letter from Amer. for Fin. Reform and Public 
Citizen ``do[es] not support the position that retail investors 
demand more climate-related information in companies' SEC filings, 
and certainly not the detailed disclosures that would be required 
under the Proposed Rule'' based on its criticisms of the questions 
in the survey and calculation methodologies that the letter Amer. 
for Fin. Reform and Public Citizen used to report findings from the 
survey).
    \106\ See, e.g., letters from Bloomberg; Ceres; and Miller/
Howard.
    \107\ See, e.g., letters from CalSTRS (stating that ``[u]sing 
the TCFD framework as the basis for guiding issuers to more 
comparable disclosures would help [investors] more easily compare 
companies' approach to climate risk management in a timelier 
fashion''); Ceres (stating that ``the proposed rule would promote 
both allocative and informational efficiency'' and that ``[t]imely, 
comparable information about each company's climate related risks 
and opportunities would improve informational efficiency, leading to 
more accurate valuation''); and PwC (stating that ``[m]andatory 
disclosure in annual filings--including the notes to the financial 
statements--would enhance comparability while ensuring that the 
timeliness, quality, and reliability of climate information is 
commensurate with that of the financial data'').
    \108\ See, e.g., letters from Amer. for Fin. Reform (Dec. 1, 
2022) (stating that, with passage of the Inflation Reduction Act, 
investors will need the Commission's proposed climate-related 
disclosures to determine which companies and sectors are best 
positioned and ready to capitalize on the IRA's GHG reduction 
incentives over the coming decade, and to analyze the progress 
towards and profitability of companies' transition strategies in 
this new investment context); CalPERS; and Ceres.

---------------------------------------------------------------------------

[[Page 21678]]

    Other commenters, however, opposed adoption of the proposed rules 
and requested either that the Commission rescind the proposal or make 
significant revisions in the final rules.\109\ Some of these 
commenters, while opposing specific aspects of the proposed rules, 
agreed with the overall intent of the proposal or otherwise stated that 
rules requiring climate-related information were appropriate and would 
be helpful to investors.\110\ As discussed in more detail below, other 
commenters asserted that the Commission lacks statutory authority to 
adopt the proposed climate-related disclosure rules.\111\ Other 
commenters asserted that current voluntary reporting practices are 
sufficient to serve the needs of investors and markets, and so the 
proposed rules are unnecessary.\112\ Similarly, some opposing 
commenters stated that, because in their view the Commission's current 
disclosure regime already requires a registrant to disclose climate-
related risks if material, adoption of the proposed rules would impose 
a significant burden on registrants while resulting in little 
additional benefit for investors.\113\ Opposing commenters further 
stated that, because the proposed rules were overly prescriptive and 
not bound in every instance by materiality, their adoption would result 
in the disclosure of a large volume of immaterial information that 
would be confusing for investors.\114\
---------------------------------------------------------------------------

    \109\ See, e.g., letters from American Bar Association, Business 
Law Section (June 24, 2022) (``ABA''); Chamber; David R. Burton, 
Senior Fellow in Economic Policy, The Heritage Foundation (June 17, 
2022) (``D. Burton, Heritage Fdn.''); NAM; and Soc. Corp. Gov. See 
also Form Letter AG.
    \110\ See letters from Bank of America (June 17,2022) (``BOA'') 
(``Various stakeholders, including asset owners and asset managers, 
will benefit from consistent, standardized disclosures addressing 
climate-related risks and opportunities to help them make decisions 
on where best to deploy capital in alignment with investor 
goals.''); Bank Policy Institute (June 16, 2022) (``BPI''); Dominion 
Energy, Inc. (June 17, 2022) (``Dominion Energy'') (``We believe 
climate-related disclosures are important to our investors and 
support the Commission's efforts to design rules and guidance to 
provide investors with the disclosures that they need in order to 
make informed decisions.''); Long-Term Stock Exchange (June 17, 
2022) (``LTSE'') (stating that climate ``represents an investment 
risk, and investors deserve to understand what public companies are 
doing to address this issue. . . [w]e believe the proposal 
represents a significant step toward standardizing, clarifying and 
verifying disclosures so as to enable investors to make more 
informed investment decisions. . .''); United Air. (June 17, 2022); 
and Walmart Inc. (June 17, 2022) (``Walmart'') (``The Company 
supports the adoption of rules that can facilitate the disclosure of 
consistent, comparable, and reliable material climate-related 
information.'').
    \111\ See infra section II.B. Some of these commenters stated 
that the Commission exceeded its statutory authority when issuing 
the proposed rules because those rules would require disclosure of 
information that is not financially material and is only of general 
or environmental interest. See, e.g., letters from Boyden Gray (June 
17, 2022); D. Burton, Heritage Fdn.; and National Ocean Industries 
Association (June 17, 2022) (``NOIA'').
    \112\ See, e.g., letters from Chamber; NAM; and Soc. Corp. Gov.
    \113\ See, e.g., letters from Attorneys General of the States of 
Texas, Alaska, Arkansas, Idaho, Indiana, Kentucky, Louisiana, 
Mississippi, Missouri, Montana, South Carolina, and Utah (June 17, 
2022) (``AGs of TX et al.''); Cato Institute (June 17, 2022) (``Cato 
Inst.''); and Society for Mining, Metallurgy, & Exploration (June 
17, 2022) (``SMME'').
    \114\ See, e.g., letters from American Petroleum Institute (June 
17, 2022) (``API''); Business Roundtable (June 17, 2022); Chamber; 
ConocoPhillips (June 17, 2022); Fenwick & West (June 17, 2022) 
(``Fenwick West''); Soc. Corp. Gov.; and Williams Companies (June 
17, 2022) (``Williams Cos.'').
---------------------------------------------------------------------------

    Many commenters supported basing the Commission's climate 
disclosure rules on the TCFD framework.\115\ Commenters stated that 
because the TCFD framework has been widely accepted globally by both 
issuers and investors, its use as a model for the Commission's rules 
would help elicit climate-related disclosures that are consistent, 
comparable, and reliable.\116\ Commenters also stated that basing the 
Commission's climate disclosure rules on the TCFD framework would 
benefit investors because of their familiarity with the framework and 
its usefulness in understanding the connection between climate-related 
risk and financial impact.\117\ Commenters also stated that basing the 
Commission's climate-related disclosure rules on the TCFD framework, 
with which many registrants are familiar and already using, should help 
mitigate the compliance burden.\118\
---------------------------------------------------------------------------

    \115\ See, e.g., letters from AllianceBernstein; Alphabet et 
al.; As You Sow; Alan Beller, Daryl Brewster, Robert G. Eccles, 
Camen X. W. Lu, David A. Katz, and Leo E. Strine, Jr. (June 16, 
2022) (``Beller et al.''); BHP (June 13, 2022); Bloomberg; BNP 
Paribas (June 16, 2022); BP Americas (June 17, 2022) (``BP''); 
CalPERS; CalSTRS; Chevron (June 17, 2022); CEMEX (June 17, 2022); 
Dell Technologies (May 19, 2022) (``Dell''); Eni SpA; Etsy, Inc. 
(June 16, 2022) (``Etsy''); Fidelity Investments (June 17, 2022) 
(``Fidelity''); Harvard Mgmt.; Impax Asset Mgmt.; IAC 
Recommendation; Maple-Brown; Miller/Howard; Natural Resources 
Defense Council (June 17, 2022) (``NRDC''); New York City Office of 
Comptroller (June 17, 2022) (``NY City Comptroller''); PIMCO; PRI; 
PwC; Unilever PLC (June 17, 2022) (``Unilever''); and The Vanguard 
Group, Inc. (June 17, 2022) (``Vanguard'').
    \116\ See, e.g., letters from Beller et al.; BNP Paribas; 
CalPERS; CEMEX; Chevron; Eni SpA; Harvard Mgmt.; NRDC; NY City 
Comptroller; PIMCO; PRI; Unilever; and Vanguard.
    \117\ See, e.g., letters from CalSTRS; NRDC; and PRI.
    \118\ See, e.g., letters from Alphabet et al.; Eni SpA; Harvard 
Mgmt.; PRI; and Unilever.
---------------------------------------------------------------------------

    One commenter expressed support for basing the rule proposal on the 
TCFD framework while also stating that the Commission should consider 
requiring the use of the International Sustainability Standards Board's 
(``ISSB'') climate reporting standard.\119\ This commenter noted that, 
like the rule proposal, the ISSB climate reporting standard is based on 
the TCFD framework. This commenter, among others, stated that requiring 
the use of, or basing the Commission's climate disclosure rules on, the 
ISSB climate reporting standard would contribute substantially to the 
establishment of a global climate disclosure baseline, which would 
reduce the reporting burden on companies listed in multiple 
jurisdictions.\120\ Some commenters, however, opposed basing the 
Commission's climate disclosure rules on the TCFD framework. One 
commenter stated that the Commission should not base its rules on a 
disclosure framework, such as the TCFD framework, that has not been 
developed by a U.S. regulatory agency because there is no process in 
place for domestic companies, such as oil and gas companies, to provide 
their input into potential changes to the framework.\121\ Another 
commenter stated that the Commission should not base its climate 
disclosure rules on the TCFD because, in its view, there is currently 
no third-party framework, including the TCFD, capable of providing 
reliable and consistent metrics for climate-related risks.\122\ A 
different commenter disputed that U.S. companies have widely adopted 
the TCFD framework and recommended instead that the Commission base its 
climate disclosure rules on the EPA's Greenhouse Gas Reporting Program, 
with which many U.S. registrants are familiar.\123\
---------------------------------------------------------------------------

    \119\ See letter from CalSTRS.
    \120\ See id.; see also letters from Douglas Hileman Consulting 
LLC (May 2, 2022) (``D. Hileman Consulting''); T Rowe Price (June 
16, 2022); and Vodafone Group Plc (June 17, 2022) (``Vodafone'') 
(stating that the Commission should allow the use of the ISSB 
climate reporting standard as an alternative reporting regime to the 
Commission's climate disclosure rules).
    \121\ See letter from Petroleum Alliance of Oklahoma (June 16, 
2022) (``Petrol. OK'').
    \122\ See letter from Reason Foundation (June 17, 2022) 
(``Reason Fnd.'').
    \123\ See letter from Western Midstream Partners, LP (June 15, 
2022) (``Western Midstream'').
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposed location of 
the climate-related disclosure rules. Many commenters supported the 
proposed placement of climate-related disclosure rules in a new subpart 
of Regulation S-K and the placement of the proposed financial metrics 
in a new article of

[[Page 21679]]

Regulation S-X.\124\ Commenters stated that amending Regulation S-K and 
Regulation S-X to include climate-related disclosure requirements would 
facilitate the presentation of climate-related business and financial 
information as part of a registrant's regular business reporting \125\ 
and appropriately reflect the fact that information about climate-
related risks is essential to investors' decision-making and 
fundamental to understanding the nature of a company's operating 
prospects and financial performance.\126\ Commenters further stated 
that requiring climate-related disclosures in annual filings, including 
the notes to the financial statements, would enhance the accessibility, 
comparability, and reliability of such disclosures for investors.\127\
---------------------------------------------------------------------------

    \124\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Attorneys General from California and 19 other 
states (June 17, 2022) (``AGs of Cal. et al.''); Bloomberg; CalSTRS; 
Eni SpA; Miller/Howard; Morningstar; New York State Insurance Fund 
(June 17, 2022) (``NY SIF''); PRI; PwC; and SKY Harbor Capital 
Management (June 16, 2022) (``SKY Harbor'').
    \125\ See, e.g., letter from Amer. for Fin. Reform, Sunrise 
Project et al.
    \126\ See, e.g., letters from AGs of Cal. et al.; CalSTRS; and 
PRI.
    \127\ See, e.g., letters from Bloomberg; and PwC.
---------------------------------------------------------------------------

    Many other commenters, however, opposed adoption of the proposed 
financial metrics under Regulation S-X because of various concerns 
relating to implementation and interpretation of the proposed financial 
metrics.\128\ A number of these commenters recommended instead 
requiring disclosure of the financial impact of climate-related events 
as part of a registrant's MD&A pursuant to 17 CFR 229.303 (``Item 303 
of Regulation S-K'').\129\
---------------------------------------------------------------------------

    \128\ See, e.g., letters from ABA; AllianceBernstein; Alphabet 
et al.; BOA; BlackRock; Business Roundtable; Cleary Gottlieb Steen & 
Hamilton LLP (June 16, 2022) (``Cleary Gottlieb''); FedEx 
Corporation (June 17, 2022) (``FedEx''); General Motors Company 
(June 17, 2022) (``GM''); Grant Thornton LLP (June 17, 2022) 
(``Grant Thornton''); National Association of Manufacturers (June 6, 
2022) (``NAM''); Securities Industry and Financial Markets 
Association (June 17, 2022) (``SIFMA''); Soc. Corp. Gov.; Sullivan & 
Cromwell (June 17, 2022) (``Sullivan Cromwell''); Trillium; 
Unilever; and Walmart. See infra section II.K for further discussion 
of these comments.
    \129\ See, e.g., letters from AllianceBernstein; Alphabet et 
al.; Cleary Gottlieb; IAC Recommendation; GM; Grant Thornton; SIFMA; 
Soc. Corp. Gov.; Unilever (recommending placement of the financial 
disclosure in either a registrant's MD&A or its Operating and 
Financial Review (``OFR'')); and Walmart.
---------------------------------------------------------------------------

    Commenters also had mixed views on the proposed placement of the 
climate-related disclosures in a separately captioned section of a 
registration statement or annual report. Several commenters supported 
the proposed placement because it would facilitate access to and 
comparability of the climate-related disclosures for investors.\130\ 
Commenters also supported the proposed alternative to permit 
registrants to incorporate by reference climate-related disclosures 
from other sections of a filing or from other filings because it would 
avoid duplication in the filing, would add flexibility regarding the 
presentation of the disclosures, and would be consistent with the 
Commission's incorporation by reference rules regarding other types of 
disclosure.\131\ Some of the commenters specifically recommended 
allowing registrants to include climate-related governance disclosure 
in their proxy statements, which could then be incorporated by 
reference into their annual reports.\132\
---------------------------------------------------------------------------

    \130\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; (supporting placement of the climate-related 
disclosure in a separate section as well as in other existing 
sections of the annual report or registration statement, as 
applicable); Breckinridge Capital Advisors (June 17, 2022); CEMEX; 
CFA; Eni SpA; Clifford Howard (June 17, 2022) (``C. Howard''); 
Institute for Agriculture and Trade Policy (June 17, 2022) 
(``IATP''); PRI; PwC; and SKY Harbor.
    \131\ See, e.g., letters from CalSTRS; CEMEX; Eni SpA; IAA; and 
PwC.
    \132\ See, e.g., ABA; BlackRock; Business Roundtable; CalSTRS; 
GM; C. Howard; ICCR; Microsoft; Morningstar; PwC; SIFMA; Shearman & 
Sterling (June 20, 2022) (``Shearman Sterling''); and Sullivan 
Cromwell.
---------------------------------------------------------------------------

    Some commenters opposed placing climate-related disclosures in a 
separate section of a filing, asserting that existing sections, such as 
MD&A and Risk Factors, are more appropriate places to provide the 
climate-related disclosures and stating that it should be up to each 
registrant to determine the most suitable place for such 
disclosure.\133\ Some commenters recommended that the Commission 
require some or all of the climate-related disclosures to be included 
in a new, separate report to be furnished to the Commission following 
the filing of the annual report because of concerns about the timing 
and liability for disclosures related to GHG emissions, financial 
metrics, and certain other aspects of the climate-related 
disclosures.\134\
---------------------------------------------------------------------------

    \133\ See, e.g., letters from AGs of TX et al.; Brendan Herron 
(Nov. 1, 2022) (``B. Herron''); FedEx; Reason Fnd.; Soc. Corp, Gov.; 
and Unilever.
    \134\ See, e.g., letters from BlackRock; Chevron; 
ConocoPhillips; FedEx; D. Hileman Consulting; HP Inc. (June 17, 
2022) (``HP''); PIMCO; and Sullivan Cromwell.
---------------------------------------------------------------------------

3. Final Rules
    As discussed in greater detail below, we are adopting climate-
related disclosure rules because, as many commenters have indicated, 
despite an increase in climate-related information being provided by 
some companies since the Commission issued its 2010 Guidance, there is 
a need to improve the consistency, comparability, and reliability of 
climate-related disclosures for investors.\135\ As climate-related 
risks have become more prevalent,\136\ investors have increasingly 
sought information from registrants about the actual and potential 
impacts of climate-related risks on their financial performance or 
position.\137\ Both

[[Page 21680]]

institutional \138\ and retail investors \139\ have stated that they 
found much of the voluntary climate-related reporting to be lacking in 
quality and completeness and difficult to compare and as a result have 
incurred costs and inefficiencies when attempting to assess climate-
related risks and their effect on the valuation of a registrant's 
securities. Moreover, although the 2010 Guidance reflects that climate-
related information may be called for by current Commission disclosure 
requirements, climate-related information has often been provided 
outside of Commission filings, such as in sustainability reports or 
other documents posted on registrants' websites, which are not subject 
to standardized disclosure rules, and, as noted by some commenters, are 
not necessarily prepared with the informational needs of investors in 
mind.\140\ Such information also may not be prepared with the same 
level of rigor that results from the disclosure controls and procedures 
(``DCP'') required for disclosure in Commission filings,\141\ and as a 
result may not be as reliable.\142\
---------------------------------------------------------------------------

    \135\ See supra notes 102 and 103 and accompanying text. The 
Commission also stated in the Proposing Release that, as part of its 
filing review process, Commission staff had assessed the extent to 
which registrants currently disclose climate-related risks in their 
filings. Proposing Release at 21339. The staff noted that, since 
2010, disclosures climate-related disclosures have generally 
increased, but there is considerable variation in the content, 
detail, and location (i.e., in reports filed with the Commission, in 
sustainability reports posted on registrant websites, or elsewhere) 
of climate-related disclosures. Id. The staff also observed 
significant inconsistency in the depth and specificity of 
disclosures by registrants across industries and within the same 
industry. Id. The staff found significantly more extensive 
information in registrants' sustainability reports and other 
locations such as their websites as compared with their reports 
filed with the Commission. Id. In addition, the disclosures in 
registrants' Forms 10-K frequently contained general, boilerplate 
discussions that provide limited information as to the registrants' 
assessment of their climate-related risks or their impact on the 
companies' business. Id.
    \136\ See, e.g., US Global Change Research Program, The Fifth 
National Climate Assessment (2023) (stating that extreme weather 
events cause direct economic losses through infrastructure damage, 
disruptions in labor and public services, and losses in property 
values, and that the United States currently experiences an extreme 
weather event causing a billion dollars or more in costs and losses 
every three weeks compared to one such event every four months in 
the 1980s).
    \137\ See, e.g., letters from BlackRock; Bloomberg; Boston 
Common Asset Mgmt; Breckinridge Capital Advisors; Calvert; Ceres; 
CFA; East Bay Municipal Utility District Employee Retirement System 
(June 6, 2022) (``East Bay Mun.'') (``[B]ecause climate-related 
impacts or risks can materially affect a company's financial 
position and operations, we support the inclusion of some climate-
related information in the financial statements; this also promotes 
consistency in information across a company's reporting.''); Harvard 
Mgmt.; Impax Asset Mgmt; Parnassus Investments (June 14, 2022) 
(``Parnassus'') (``We commend the Commission for understanding the 
urgency and materiality of the disclosure categories addressed in 
the Proposed Rule. This demonstrates a recognition that the 
decisions companies and investors make today regarding emissions and 
climate-related matters can have financial impacts in the short-, 
medium-, and long-term.''); Rockefeller Asset Management (June 1, 
2022); Rebecca Palacios (June 6, 2022) (``R. Palacios'') (``[I]t is 
vital for you to require climate-related disclosures in order to 
meet the SECs mandate to protect investors ensure fair, orderly, and 
efficient markets and facilitate capital formation.''); 
(``Rockefeller Asset Mgmt.'') (``Our fundamental research and 
company engagements have revealed that climate related risks and 
opportunities are increasingly relevant to company valuations.''); 
PIMCO; PRI; SKY Harbor; Trillium; Allyson Tucker, Chief Executive 
Officer, Washington State Investment Board (June 17, 2022) (``We 
also support the SEC's inclusion of a greenhouse gas (GHG) emissions 
reporting requirement in line with the Greenhouse Gas Protocol 
because this information is critical to our understanding of the 
quality of a company's earnings in the face of climate change and 
the energy transition.''); and Vanguard. See also Form Letter AM.
    \138\ See, e.g., letters from AllianceBernstein; Franklin 
Templeton; Harvard Mgmt.; Miller/Howard; Trillium; and Wellington 
Mgmt.
    \139\ See, e.g., letters from Americans for Financial Reform 
Education Fund, Public Citizen, Ocean Conservancy, Sierra Club, 
Evergreen Action and 72 additional undersigned organizations (June 
17, 2022) (``Amer. for Fin. Reform, Evergreen Action et al.''); 
Amer. for Fin. Reform and Public Citizen; Americans for Financial 
Reform, on behalf of 64,357 advocates (June 16, 2022) (``Enclosed 
are 64,357 petition signatures supporting the [Commission's] 
proposed rule on climate-related financial disclosures that would 
provide investors with the long-awaited and necessary information 
they and their investment advisors need to make informed investment 
decisions.''); see also letter from Betterment (June 17, 2022) 
(noting that, based on responses of 3,000 retail investors to a 
survey the commenter conducted, ``a reasonable interpretation . . . 
would be that 95% of respondents would potentially consider GHG 
emissions reporting . . . as material to whether they would purchase 
a security'' and asserting that ``[a] retail investor's exposure to 
equities via index funds makes the uniform availability of 
standardized climate-related disclosure at the company level that 
much more critical, and the Proposed Rule would drastically improve 
the efficiency and robustness of the underlying process that 
produces such low fee, diversified investing products'' (emphasis in 
original)). In addition, the Commission received many unique letters 
from individual investors expressing their support for the proposed 
rules, with several stating that there was a need for more 
consistent and comparable disclosure about climate-related risk from 
registrants. See, e.g., letters from Kim Leslie Shafer (June 16, 
2022) (``[A]s an investor and a citizen, I support the SEC 
prescribing consistent, comparable, reliable and mandatory 
disclosure of climate-related information.''); Neetin Gulati (June 
17, 2022); Sandy Spears (June 16, 2022); R. Palacios.
    \140\ See letter from PwC (expressing concern about permitting 
registrants to incorporate by reference from their sustainability 
reports or corporate responsibility reports because such reports 
``may be prepared using a basis of presentation designed for a 
stakeholder group with different information needs than investors 
and other providers of capital'').
    \141\ See Rule 13a-15 and Rule 15d-15 [17 CFR 240.13a-15 and 17 
CFR 240.15d-15]. Pursuant to Exchange Act Rules 13a-15 and 15d-15, a 
company's principal executive officer and principal financial 
officer must make certifications regarding the maintenance and 
effectiveness of disclosure controls and procedures. These rules 
define ``disclosure controls and procedures'' as those controls and 
procedures designed to ensure that information required to be 
disclosed by the company in the reports that it files or submits 
under the Exchange Act is (1) ``recorded, processed, summarized and 
reported, within the time periods specified in the Commission's 
rules and forms,'' and (2) ``accumulated and communicated to the 
company's management . . . as appropriate to allow timely decisions 
regarding required disclosure.''
    \142\ See, e.g., letter from Ceres; see also letter from Calvert 
(stating that ``we believe the disclosures mandated by the SEC in 
the proposed rule should be filed in annual reports, as well as 
quarterly reports where appropriate'' because ``it is supported by 
disclosure controls, CEO/CFO certification, audit requirements and a 
level of scrutiny by management appropriate for climate risks'').
---------------------------------------------------------------------------

    Consistent with and as authorized by our enabling statutes, we are 
adopting the climate-related disclosure requirements discussed herein, 
so that investors will have the information they need to make informed 
investment and voting decisions by evaluating a registrant's exposure 
to material climate-related risks. We modeled the proposed disclosure 
requirements in large part on the TCFD framework. As discussed in the 
Proposing Release and as many commenters noted, that framework has been 
widely accepted by issuers and investors.\143\ The TCFD framework 
focuses on matters that are material to an investment or voting 
decision and is grounded in concepts that tie climate-related risk 
disclosure considerations to matters that may affect the results of 
operations, financial condition, or business strategy of a registrant. 
Because the TCFD framework is intended to elicit disclosure of climate-
related risks that have materially affected or are reasonably likely to 
materially affect the business, results of operations, or financial 
condition of a company, it served as an appropriate model for the 
Commission's proposed climate-related disclosure rules. We therefore 
disagree with commenters that stated that the Commission's proposed 
rules would require disclosure of information that is primarily of 
general or environmental interest and not of financial interest.\144\ 
The final rules continue to reflect many of the TCFD's recommendations, 
modified based on the input of commenters, which will enhance the 
usefulness and comparability of the required climate-related 
disclosures for investors and better serve their informational needs 
when making investment and voting decisions.\145\
---------------------------------------------------------------------------

    \143\ See supra notes 115 and 116 and accompanying text.
    \144\ See supra note 111 and accompanying text.
    \145\ See supra note 107 and accompanying text.
---------------------------------------------------------------------------

    At the same time, in consideration of some commenters' 
concerns,\146\ we have revised the proposed climate-related disclosure 
requirements in certain respects to reduce the likelihood that the 
final rules result in disclosures that could be less useful for 
investors and costly for registrants to produce and to provide added 
flexibility for registrants regarding the content and presentation of 
the disclosure. Modeling the climate-related disclosure requirements on 
the TCFD framework while also adopting these revisions will help 
mitigate the compliance burden of the final rules, particularly for 
registrants that are already providing climate-related disclosures 
based on the TCFD framework or soon will be doing so pursuant to other 
laws or regulations.\147\
---------------------------------------------------------------------------

    \146\ See, e.g., supra note 109 and accompanying text.
    \147\ See supra sections I.B. In this regard, we note that some 
commenters recommended that the Commission require or allow the use 
of the ISSB's climate-related disclosure standards as an alternative 
to the Commission's climate disclosure rules. See supra note 120 and 
accompanying text. While we acknowledge that there are similarities 
between the ISSB's climate-related disclosure standards and the 
final rules, and that registrants may operate or be listed in 
jurisdictions that will adopt or apply the ISSB standards in whole 
or in part, those jurisdictions have not yet integrated the ISSB 
standards into their climate-related disclosure rules. Accordingly, 
at this time we decline to recognize the use of the ISSB standards 
as an alternative reporting regime.
---------------------------------------------------------------------------

    In this regard, we note certain ongoing developments related to 
climate-risk reporting:
     The formation of the ISSB by the IFRS Foundation \148\ in 
November 2021, which consolidated several sustainability disclosure 
organizations into a single organization.\149\ In June

[[Page 21681]]

2023, the ISSB issued General Requirements for Disclosure of 
Sustainability-related Financial Information (``IFRS S1'') and Climate-
related Disclosures (``IFRS S2'').\150\ Notably, IFRS S1 and S2 
integrate the recommendations of the TCFD.\151\
---------------------------------------------------------------------------

    \148\ The IFRS Foundation refers to the International Financial 
Reporting Standards Foundation, whose mission is to develop high-
quality IFRS Standards that bring transparency, accountability, and 
efficiency to financial markets around the world. See IFRS--Who we 
are, available at https://www.ifrs.org/about-us/who-we-are/.
    \149\ See IFRS Foundation, IFRS Foundation announces 
International Sustainability Standards Board, consolidation with 
CDSB and VRF, and publication of prototype disclosure requirements 
(Nov. 3, 2021), available at https://www.ifrs.org/news-and-events/news/2021/11/ifrs-foundation-announces-issb-consolidation-with-cdsb-vrf-publication-of-prototypes/. See also Proposing Release, section 
I.C.2.
    \150\ IFRS S1 sets out the general requirements for a company to 
disclose information about its sustainability related risks and 
opportunities. IFRS S2 sets out the requirements for companies to 
disclose information about their climate-related risks and 
opportunities, building on the requirements in IFRS S1. See IFRS--
Project Summary IFRS Sustainability Disclosure Standards, IFRS S1 
General Requirements for Disclosure of Sustainability-related 
Financial Information and IFRS S2 Climate-related Disclosures (June 
2023), available at https://www.ifrs.org/content/dam/ifrs/project/general-sustainability-related-disclosures/project-summary.pdf.
    \151\ Concurrent with the release of its 2023 status report, the 
TCFD fulfilled its remit and transferred to the ISSB its 
responsibility for tracking company activities on climate-related 
disclosure. Fin. Stability Bd., FSB Roadmap for Addressing Financial 
Risks from Climate Change Progress Report (July 13, 2023), available 
at https://www.fsb.org/wp-content/uploads/P130723.pdf. As discussed 
infra, the TCFD recommendations are incorporated into the ISSB 
standards. Although the TCFD has disbanded, in this release we 
continue to refer to ``TCFD recommendations'' as distinct from ISSB 
standards, both for clarity and because not all jurisdictions that 
implemented TCFD-aligned disclosure requirements have implemented 
the broader and more recent ISSB standards.
---------------------------------------------------------------------------

     Several jurisdictions have announced plans to adopt, 
apply, or otherwise be informed by the ISSB standards, including 
Australia, Brazil, Canada, Hong Kong, Japan, Malaysia, Nigeria, 
Singapore, and the United Kingdom (``UK''), although it is not yet 
clear how specifically the ISSB standards may be incorporated into 
certain foreign legal frameworks.\152\
---------------------------------------------------------------------------

    \152\ For example, the UK has announced that its Sustainability 
Disclosure Standards (``SDS'') will be based on the ISSB Standards. 
See Dep't of Bus. & Trade, UK Sustainability Disclosure Standards, 
Gov.UK (Aug. 2, 2023), available at https://www.gov.uk/guidance/uk-sustainability-disclosure-standards. Australia recently published 
draft legislation mandating comprehensive climate-related reporting 
and assurance for large and medium-sized companies that is aligned 
with the ISSB Standards. See Australian Government-the Treasury, 
Climate-related financial disclosure: exposure draft legislation 
(Jan. 12, 2024), available at https://treasury.gov.au/consultation/c2024-466491.
---------------------------------------------------------------------------

     Other jurisdictions were already well advanced in the 
process of adopting climate disclosure rules when the ISSB standards 
were announced. For example, in 2022, the European Union (``EU'') 
adopted the Corporate Sustainability Reporting Directive 
(``CSRD''),\153\ which requires certain large and listed companies and 
other entities, including non-EU entities, to report on sustainability-
related issues in line with the European Sustainability Reporting 
Standards (``ESRS'').\154\
---------------------------------------------------------------------------

    \153\ See Directive (EU) 2022/2464 of the European Parliament 
and of the Council of 14 December 2022 amending Regulation (EU) No 
537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 
2013/34/EU, as regards corporate sustainability reporting (Text with 
EEA relevance), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG. In 
adopting the CSRD, the EU explained that there exists a widening gap 
between the sustainability information, including climate-related 
data, companies report and the needs of the intended users of that 
information, which may mean that investors are unable to take 
sufficient account of climate-related risks in their investment 
decisions.
    \154\ See id. The CSRD requires large companies and listed 
companies to publish regular reports on the social and environmental 
risks they face, and how their activities impact people and the 
environment. In July 2023, the European Commission (``EC'') adopted 
the delegated act containing the first set of ESRS under the CSRD 
and the ESRS became effective on Jan. 1, 2024, for companies within 
scope of the first phase of reporting under the CSRD. See EC, 
Corporate sustainability reporting, available at https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en (last visited Feb. 6, 2024). See also EC 
Press Release, The Commission Adopts the European Sustainability 
Reporting Standards (July 31, 2023), available at https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en. Separate reporting standards will 
be developed for SMEs and certain non-EU companies operating in the 
EU. See EC, Questions and Answers on the Adoption of European 
Sustainability Reporting Standards (July 31, 2023), https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043.
---------------------------------------------------------------------------

     California recently adopted the Climate-Related Financial 
Risk Act (Senate Bill 261), which will require certain public and 
private U.S. companies that do business in California and have over 
$500 million in annual revenues to disclose their climate-related 
financial risks and measures based on the TCFD recommendations or a 
comparable disclosure regime in a report published biennially on the 
company's website commencing no later than January 2026.\155\
---------------------------------------------------------------------------

    \155\ See SB-261, Greenhouse gases: climate-related financial 
risk (Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB261.
---------------------------------------------------------------------------

     In addition, California recently adopted the Climate 
Corporate Data Accountability Act (Senate Bill 253), which will require 
certain public and private U.S. companies that do business in 
California and have over $1 billion in annual revenues to disclose 
their GHG emissions (Scopes 1 and 2 emissions by 2026 and Scope 3 
emissions by 2027).\156\
---------------------------------------------------------------------------

    \156\ See SB-253, Climate Corporate Data Accountability Act 
(Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253. The Act directs 
the California Air Resources Board (CARB) to adopt regulations to 
implement the requirements of the Act, with disclosures being 
required as early as 2026, subject to the CARB's finalization of the 
rules. The Act further requires the disclosure of Scope 1 and Scope 
2 emissions to be subject to assurance, which must be performed at a 
limited assurance level beginning in 2026 and at a reasonable 
assurance level beginning in 2030. See SB-253, section II.c.1.F.ii. 
The statute is currently subject to litigation. See Compl., Chamber 
of Commerce v. California Air Resources Board, No. 2:24-cv-00801 (D. 
C.D. Cal. Jan. 30, 2024).
---------------------------------------------------------------------------

    These laws may reduce the compliance burden of the final rules to 
the extent they impose similar requirements for registrants that are 
subject to them. However, the disclosure required by these laws will 
appear in documents outside of Commission filings and therefore will 
not be subject to the same liability, DCPs, and other investor 
protections as the climate-related disclosures required under the final 
rules. In addition, these laws may serve different purposes than the 
final rules or apply different materiality or other standards. For 
example, the California laws were adopted to protect the health and 
safety of California residents,\157\ among other reasons, whereas we 
are adopting the final rules to enhance disclosures of emergent risks 
companies face so that investors can have the information they need to 
make informed investment and voting decisions. Regardless of the extent 
of overlap with other jurisdictions' reporting requirements and 
consistent with the Commission's mission, the final rules are tailored 
to the particular needs of investors and the specific situations of 
Commission registrants, as documented in the comment file, and are 
designed to work within the existing framework of U.S. securities laws 
that call for disclosure about the material risks that companies face. 
Integrating the required disclosures into the existing framework of 
U.S. securities laws will provide investors with more complete 
information about a company, the risks it faces, and its business, 
finances, and results of operations while affording investors the 
protections of the securities laws for this information.
---------------------------------------------------------------------------

    \157\ See SB-253, supra note 156, at section 1 (stating that 
``Californians are already facing devastating wildfires, sea level 
rise, drought, and other impacts associated with climate change that 
threaten the health and safety of Californians. . .'').
---------------------------------------------------------------------------

    We acknowledge the concerns expressed by some commenters about 
relying on a third-party framework, such as the TCFD, that may not 
afford affected parties the ability to provide input on potential 
future changes.\158\ While we considered the TCFD framework in both 
proposing and now adopting the Commission's own climate-related 
disclosure rules, the final rules do not incorporate the TCFD 
recommendations or its procedures. Any future updates to the TCFD 
framework or any successor framework will have no bearing or impact on 
the

[[Page 21682]]

final rules without future action by the Commission. Any consideration 
of such updates by the Commission will be subject to the Commission's 
own procedures, and any subsequent rulemaking to reflect those updates 
will be subject to the Administrative Procedure Act's requirements, 
including notice and comment, as well as requirements under other 
relevant laws. The final rules also do not follow every TCFD 
recommendation. For example, unlike the TCFD, which recommends the 
disclosure of executive compensation that is linked to climate-related 
risk management considerations, we have elected not to include such a 
requirement in the final rules, as discussed below.\159\
---------------------------------------------------------------------------

    \158\ See letter from Petrol. OK.
    \159\ See TCFD, Implementing the Recommendations of the Task 
Force on Climate-related Financial Disclosures (Oct. 2021), 
available at https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Implementing_Guidance.pdf; infra section II.E.2.
---------------------------------------------------------------------------

    Like the proposed rules, the final rules amend Regulation S-K by 
adding a new section (subpart 1500) composed of the climate-related 
disclosure rules, other than for the financial statement disclosures, 
and Regulation S-X by adding a new article (Article 14) to govern the 
financial statement disclosures. We continue to believe that it is 
appropriate to amend Regulation S-K and Regulation S-X to require 
climate-related disclosures in Securities Act or Exchange Act 
registration statements and Exchange Act reports. Information about 
climate-related risks and their financial impacts is fundamental in 
many cases to understanding a company's financial condition and 
operating results and prospects and therefore should be treated like 
other business and financial information, including information on 
risks to the company.\160\
---------------------------------------------------------------------------

    \160\ See supra notes 125 and 126 and accompanying text.
---------------------------------------------------------------------------

    The proposed rules would have required a registrant to include its 
climate-related disclosures, other than its financial statement 
disclosures, either in a separately captioned ``Climate-Related 
Disclosure'' section in the registration statement or Exchange Act 
annual report or in other parts of the Commission filing that would 
then be incorporated by reference into the separately captioned 
section. While some commenters supported this proposal because it would 
facilitate the comparability of the disclosures among registrants,\161\ 
other commenters stated that existing parts of the registration 
statement or annual report could be more appropriate for placement of 
the climate-related disclosures, and indicated that it should be up to 
each registrant to determine the most suitable place for the 
disclosures according to the context of the disclosures and structure 
of the filing.\162\
---------------------------------------------------------------------------

    \161\ See supra note 130 and accompanying text.
    \162\ See, e.g., letter from Unilever.
---------------------------------------------------------------------------

    While enhancing the comparability of climate-related disclosures 
remains an important objective of the rulemaking, we also recognize the 
benefits of granting each registrant sufficient flexibility to 
determine the most appropriate location within a filing for the 
disclosures based on its particular facts and circumstances. Therefore, 
the final rules leave the placement of the climate-related disclosures, 
other than the financial statement disclosures, largely up to each 
registrant. Further, we are adopting as proposed structured data 
requirements that will enable automated extraction and analysis of the 
information required by the final rules, further facilitating 
investors' ability to identify and compare climate-related disclosures, 
regardless of where they are presented.\163\ A registrant may elect to 
place most of the subpart 1500 disclosures in a separately captioned 
``Climate-Related Disclosure'' section. Alternatively, a registrant may 
elect to include these climate-related disclosures in applicable, 
currently existing parts of the registration statement or annual report 
(e.g., Risk Factors, Description of Business, or MD&A). If it chooses 
the latter alternative, then the registrant should consider whether 
cross-referencing the other disclosures in the separately captioned 
section would enhance the presentation of the climate-related 
disclosures for investors.
---------------------------------------------------------------------------

    \163\ See discussion of 17 CFR 229.1508 infra section II.M.
---------------------------------------------------------------------------

    A registrant may also incorporate by reference some of the climate-
related disclosures from other filed registration statements or 
Exchange Act reports if the incorporated disclosure is responsive to 
the topics specified in the Regulation S-K climate-related disclosure 
items and if the registrant satisfies the incorporation by reference 
requirements under the Commission's rules and forms.\164\ In addition, 
any climate-related disclosure that is being incorporated by reference 
must include electronic tags that meet the final rules' structured data 
requirement.\165\ As commenters noted, allowing incorporation by 
reference of climate-related disclosures will avoid duplication in the 
filing, add flexibility regarding the presentation of the disclosures, 
and be consistent with the Commission's incorporation by reference 
rules regarding other types of disclosure.\166\
---------------------------------------------------------------------------

    \164\ See 17 CFR 230.411 and 17 CFR 240.12b-23.
    \165\ See 17 CFR 229.1508.
    \166\ See supra note 131 and accompanying text.
---------------------------------------------------------------------------

    Some commenters recommended that we permit a registrant to include 
disclosure regarding its climate-related corporate governance in its 
proxy statement, together with its discussion of other corporate 
governance matters, which would then be incorporated by reference into 
the registrant's Form 10-K.\167\ Form 10-K currently permits the 
incorporation by reference pursuant to General Instruction G.3 of 
certain corporate governance matters from a proxy statement involving 
the election of directors.\168\ While disclosure pursuant to Item 401 
of Regulation S-K, which pertains to the identification and business 
experience of directors and executive officers, is permitted to be 
incorporated by reference from the proxy statement, disclosure pursuant 
to Item 407(h) of Regulation S-K, which pertains to the board's 
leadership structure and its role in risk oversight, is not one of the 
enumerated matters permitted to be incorporated by reference from the 
proxy statement. As discussed below, the final rules do not include the 
proposed provisions that would have most likely elicited disclosure 
drawn from the information required by Item 401 (i.e., the proposed 
requirements to identify the board members responsible for the 
oversight of climate-related risks and to disclose whether any board 
member has expertise in climate-related risks).\169\ Additionally, the 
retained governance provisions of the final rules require disclosure 
that is relevant to understanding more generally the board's oversight 
of climate-related risks and management's role in assessing and 
managing such risks, and do not necessarily pertain to the election of 
directors. For these reasons, while the final rules do not preclude 
incorporation by reference from a registrant's proxy statement to the 
extent allowed by existing rules,\170\ we decline to expressly permit 
the disclosure to be incorporated by reference from a registrant's 
proxy statement pursuant to General Instruction G.3 of Form 10-K.
---------------------------------------------------------------------------

    \167\ See, e.g., letters from Microsoft; and SIFMA.
    \168\ See General Instruction G.3 of Form 10-K, which pertains 
to information permitted under Part III of Form 10-K, including, 
among other matters, Item 401 and certain provisions of Item 407.
    \169\ See infra section II.E.1.
    \170\ See supra note 164 and accompanying text.
---------------------------------------------------------------------------

    Placement of the new disclosures required by the final rules in 
Commission filings further serves our

[[Page 21683]]

investor protection goals because it will subject these disclosures to 
DCPs. These controls and procedures will enhance not only the 
reliability of the climate-related disclosures themselves, including 
both qualitative climate-related information and quantitative climate-
related data, but also their accuracy and consistency.\171\
---------------------------------------------------------------------------

    \171\ See supra notes 141-142 and accompanying text. As we have 
stated before, a company's disclosure controls and procedures should 
not be limited to disclosure specifically required, but should also 
ensure timely collection and evaluation of ``information potentially 
subject to [required] disclosure,'' ``information that is relevant 
to an assessment of the need to disclose developments and risks that 
pertain to the [company's] businesses,'' and ``information that must 
be evaluated in the context of the disclosure requirement of 
Exchange Act Rule 12b-20.'' Certification of Disclosure in 
Companies' Quarterly and Annual Reports, Release No. 33-8124 (Aug. 
28, 2002) [67 FR 57275 (Sept. 9, 2002)].
---------------------------------------------------------------------------

B. Commission Authority To Adopt Disclosure Rules

    Some commenters \172\ asserted that the Commission lacks authority 
to promulgate the proposed rules. We disagree. The rules we are 
adopting fall within the statutory authority conferred by Congress 
through the Securities Act and the Exchange Act.
---------------------------------------------------------------------------

    \172\ See, e.g., letter from Soc. Corp. Gov. (stating that the 
``subject of the Proposed Rule is clearly of great economic and 
political significance,'' and that ``[a]bsent express authorization 
by Congress, we believe that the SEC fundamentally lacks the 
authority to promulgate the Proposed Rule''); see also letters from 
Bernard S. Sharfman (Feb. 6, 2024) (stating that the SEC ``has 
exceeded its delegated authority in promulgating its proposed rule 
on climate-related disclosures by not adhering to the ascertainable 
standards found in the 33 and 34 Acts: `for the protection of 
investors,' promoting `efficiency, competition, and capital 
formation,' and `materiality'''); Lawrence A. Cunningham and 21 
other signatories (Apr. 25, 2022) (``Cunningham et al.'') (stating 
that the ``EPA's empowerment over this topic probably preempts any 
statutory authority the SEC might claim,'' that ``the SEC's mission 
does not include adopting positions intended to promote particular 
conceptions of acceptable corporate behavior,'' and that ``[c]limate 
change is a politically-charged issue'' and the ``Proposal would 
compel corporations and officials to regularly speak on those 
issues''); Patrick Morrisey, Attorney General of West Virginia, and 
the Attorneys General of 23 other states (``Morrissey et al.'') 
(June 15, 2022) (stating that the proposed rule ``sidesteps the 
materiality requirement,'' ``offends the major questions doctrine,'' 
would ``upend the balance between federal and state powers in the 
corporate sphere,'' and that ``if the SEC's understanding of its 
powers were right, then the statutes providing it that authority 
would offend the non-delegation doctrine''); and Andrew N. Vollmer 
(May 9, 2022) (stating that adopting the proposal would ``determine 
significant national environmental policies without direction from 
Congress, creating a high risk of proving to be a futile gesture 
because of the likelihood that a court will overturn final rules''); 
and Andrew N. Vollmer (Apr. 12, 2022) (stating that ``[c]limate-
change information is outside the scope of the subjects Congress has 
allowed the SEC to cover in disclosure rules, and adopting the 
Proposal would have a subject and objective different from the 
disclosure provisions in the federal securities laws''); Jones Day; 
Chamber; Bernard S. Sharfman & James R. Copland (June 16, 2022) 
(``Sharfman et al.'').
---------------------------------------------------------------------------

    In section 7(a)(1) of the Securities Act,\173\ Congress authorized 
the Commission to require, in a publicly filed registration statement, 
that issuers offering and selling securities in the U.S. public capital 
markets include information--such as the general character of the 
issuer's business, the remuneration paid to its officers and directors, 
details of its material contracts, and certain financial information--
specified in Schedule A to that Act, as well as ``such other 
information . . . as the Commission may by rules or regulations require 
as being necessary or appropriate in the public interest or for the 
protection of investors.'' \174\ In addition, under sections 12(b) and 
(g) of the Exchange Act,\175\ issuers of securities traded on a 
national securities exchange or that otherwise have total assets and 
shareholders of record that exceed certain thresholds must register 
those securities with the Commission by filing a registration 
statement. That registration statement must contain ``[s]uch 
information, in such detail, as to the issuer'' regarding, among other 
things, ``the organization, financial structure and nature of the 
[issuer's] business'' as the Commission by rule or regulation 
determines to be in the public interest or for the protection of 
investors.\176\ These same issuers must also provide, as the Commission 
may prescribe ``as necessary or appropriate for the proper protection 
of investors and to insure fair dealing in the security,'' (1) ``such 
information and documents . . . as the Commission shall require to keep 
reasonably current the information and documents required to be 
included in or filed with [a] . . . registration statement,'' and (2) 
such annual and quarterly reports as the Commission may prescribe.\177\
---------------------------------------------------------------------------

    \173\ 15 U.S.C. 77g(a)(1).
    \174\ Securities Act section 7(a)(1) and Schedule A; see also 
Securities Act section 10(a) and (c) [15 U.S.C. 77j(a) and (c)] 
(generally requiring a prospectus to contain much of the same the 
information contained in a registration statement and granting the 
Commission the authority to require additional information in a 
prospectus as ``necessary or appropriate in the public interest or 
for the protection of investors'').
    \175\ 15 U.S.C. 78l(b) and (g).
    \176\ Exchange Act sections 12(b) and 12(g).
    \177\ Exchange Act section 13(a) [15 U.S.C. 78m(a)]. Other 
issuers that are required to comply with the reporting requirements 
of section 13(a) include those that voluntarily register a class of 
equity securities under section 12(g)(1), and issuers that file a 
registration statement under the Securities Act that becomes 
effective, pursuant to section 15(d) [15 U.S.C. 78o].
---------------------------------------------------------------------------

    As the text of each of these provisions demonstrates, Congress not 
only specified certain enumerated disclosures, but also authorized the 
Commission to update and build on that framework by requiring 
additional disclosures of information that the Commission finds 
``necessary or appropriate in the public interest or for the protection 
of investors.'' \178\ When read in the context of these enumerated 
disclosures and the broader context of the Securities Act and Exchange 
Act, these provisions authorize the Commission to ensure that public 
company disclosures provide investors with information important to 
making informed investment and voting decisions.\179\ Such disclosure 
facilitates the securities laws' core objectives of protecting 
investors, facilitating capital formation, and promoting market 
efficiency.\180\
---------------------------------------------------------------------------

    \178\ Securities Act section 7 [15 U.S.C. 77g]; see Exchange Act 
section 13(a) [15 U.S.C. 78m(a)] (``necessary or appropriate for the 
proper protection of investors and to insure fair dealing in the 
security''); see also Exchange Act sections 12, 13, and 15 [15 
U.S.C. 78l, 78m, and 78o].
    \179\ See NAACP v. Fed. Power Comm'n, 425 U.S. 662, 669-70 
(1976) (``[T]he use of the words `public interest' in a regulatory 
statute . . . take meaning from the purposes of the regulatory 
legislation.'').
    \180\ See, e.g., Securities Act of 1933, Pub. L. 73-22, 48 Stat. 
74, 74 (preamble) (``An Act to provide full and fair disclosure of 
the character of securities sold in interstate and foreign commerce 
and through the mails, and to prevent frauds in the sale 
thereof.''); 15 U.S.C. 78b (``Necessity for regulation''); 15 U.S.C. 
77b(b), 78c(f) (protection of investors, efficiency, competition, 
and capital formation); Omnicare, Inc. v. Laborers Dist. Council 
Const. Indus. Pension Fund, 575 U.S. 175, 178 (2015) (``The 
Securities Act of 1933 . . . protects investors by ensuring that 
companies issuing securities (known as `issuers') make a full and 
fair disclosure of information relevant to a public offering.'' 
(quotation omitted)); Basic Inc. v. Levinson, 485 U.S. 224, 230 
(1988) (``The [Exchange] Act was designed to protect investors 
against manipulation of stock prices. Underlying the adoption of 
extensive disclosure requirements was a legislative philosophy: 
There cannot be honest markets without honest publicity . . . . This 
Court repeatedly has described the fundamental purpose of the 
[Exchange] Act as implementing a philosophy of full disclosure.'' 
(quotation omitted)); see also Lorenzo v. SEC, 139 S. Ct. 1094, 1103 
(2019) (``The fundamental purpose'' of the securities laws is 
substituting ``a philosophy of full disclosure for the philosophy of 
caveat emptor.'').
---------------------------------------------------------------------------

    Both courts and the Commission have long recognized as much.\181\ 
The Commission has amended its disclosure requirements dozens of times 
over the last 90 years based on the determination

[[Page 21684]]

that the required information would be important to investment and 
voting decisions. And courts have routinely applied and interpreted the 
Commission's disclosure provisions without suggesting that the 
Commission lacked the authority to promulgate them.\182\ When 
determining that additional ``information'' is ``necessary or 
appropriate'' to protect investors, the Commission has responded to 
marketplace developments, investors' need for information important to 
their decision-making, and advances in economic, financial, and 
investment analysis and analytical frameworks, as well of the costs of 
such disclosures. In addition, the Commission has eliminated existing 
disclosure requirements, or updated and tailored existing disclosures 
for similar reasons.\183\
---------------------------------------------------------------------------

    \181\ See supra note 180; see also Nat'l Res. Def. Council, Inc. 
v. SEC, 606 F.2d 1031, 1050 (D.C. Cir. 1979) (``The SEC . . . was 
necessarily given very broad discretion to promulgate rules 
governing corporate disclosure. The degree of discretion accorded 
the Commission is evident from the language in the various statutory 
grants of rulemaking authority.''); id. at 1045 (``Rather than 
casting disclosure rules in stone, Congress opted to rely on the 
discretion and expertise of the SEC for a determination of what 
types of additional disclosure would be desirable.''); H.R. Rep. No. 
73-1383, at 6-7 (1934).
    \182\ See SEC v. Life Partners Holdings, Inc., 854 F.3d 765 (5th 
Cir. 2017) (applying regulations regarding disclosure of risks and 
revenue recognition); SEC v. Das, 723 F.3d 943 (8th Cir. 2013) 
(applying Regulation S-K provisions regarding related-party 
transactions and executive compensation); Panther Partners Inc v. 
Ikanos Communs., Inc., 681 F.3d 114 (2d Cir. 2012) (applying Item 
303 of Regulation S-K, which requires disclosure of management's 
discussion and analysis of financial condition); SEC v. Goldfield 
Deep Mines Co., 758 F.2d 459 (9th Cir. 1985) (applying disclosure 
requirement for certain legal proceedings).
    \183\ See, e.g., FAST Act Modernization and Simplification of 
Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674, 
12676 (Apr. 2, 2019)] (stating that the amendments ``are intended to 
improve the quality and accessibility of disclosure in filings by 
simplifying and modernizing our requirements'' and ``also clarify 
ambiguous disclosure requirements, remove redundancies, and further 
leverage the use of technology'' which, the Commission expected, 
``will increase investor access to information without reducing the 
availability of material information''); Disclosure Update and 
Simplification, Release No. 33-10532 (Aug. 17, 2018) [83 FR 50148, 
50176-79 (Oct. 4, 2018)] (discussing amendments to, among other 
things, eliminate certain disclosure requirements that ``have become 
obsolete as the regulatory, business, or technological environments 
have changed over time'').
---------------------------------------------------------------------------

    For example, the Commission's predecessor agency,\184\ immediately 
upon enactment of the Securities Act, relied upon Section 7 of that Act 
as authority to adopt Form A-1, the precursor to today's Form S-1 
registration statement, to require disclosure of information important 
to investor decision-making but not specifically enumerated in Schedule 
A of the Securities Act. This information included a list of states 
where the issuer owned property and was qualified to do business, the 
length of time the registrant had been engaged in its business,\185\ 
and a statement of all litigation that may materially affect the value 
of the security to be offered.\186\
---------------------------------------------------------------------------

    \184\ Prior to enactment of the Exchange Act, the Federal Trade 
Commission was empowered with administration of the Securities Act.
    \185\ Items 3 through 5 of Form A-1; see Release No. 33-5 (July 
6, 1933) [not published in the Federal Register]. The Commission's 
disclosure requirements no longer explicitly call for this 
information.
    \186\ This early requirement called for certain information 
related to those legal proceedings, including a description of the 
origin, nature, and names of parties to the litigation. Item 17 of 
Form A-1. The Commission has retained a disclosure requirement 
related to legal proceedings in both Securities Act registration 
statements and in Exchange Act registration statements and periodic 
reports. See 17 CFR 229.103.
---------------------------------------------------------------------------

    The Commission has further exercised its statutory authority to 
require disclosures that provide investors with information on risks 
facing registrants. These specific disclosure items are consistent with 
the Commission's longstanding view that understanding the material 
risks faced by a registrant and how the registrant manages those risks 
can be just as important to assessing its business operations and 
financial condition as knowledge about its physical assets or material 
contracts. These disclosures also reflect investors' increased demand 
for, and growing ability to use, information regarding the risks faced 
by registrants through the application of increasingly sophisticated 
and specialized measurement and analysis frameworks to make investment 
and voting decisions.\187\
---------------------------------------------------------------------------

    \187\ See infra notes 200, 206-207 and accompanying text.
---------------------------------------------------------------------------

    For instance, the Commission in 1982 adopted a rule requiring 
registrants to disclose ``Risk Factors,'' i.e., a ``discussion of the 
material factors that make an investment in the registrant or offering 
speculative or risky.'' \188\ Also, in 1997, the Commission first 
required registrants to disclose quantitative information about market 
risk.\189\ Those rules included requirements to present ``separate 
quantitative information . . . to the extent material'' for different 
categories of market risk, such as ``interest rate risk, foreign 
currency exchange rate risk, commodity price risk, and other relevant 
market risks, such as equity price risk.'' \190\ Under these market 
risk disclosure requirements, registrants must also disclose various 
metrics such as ``value at risk'' and ``sensitivity analysis 
disclosures.'' In addition, registrants must provide certain 
qualitative disclosures about market risk, to the extent material.\191\
---------------------------------------------------------------------------

    \188\ 17 CFR 229.105(a); see also Adoption of Integrated 
Disclosure System, Release No. 33-6383 [47 FR 11380 (Mar. 16, 1982)] 
(``1982 Release''). Prior to 1982, the Commission stated in guidance 
that, if the securities to be offered are of a highly speculative 
nature, the registrant should provide ``a carefully organized series 
of short, concise paragraphs summarizing the principal factors that 
make the offering speculative.'' See Guides for Preparation and 
Filing of Registration Statements, Release No. 33-4666 (Feb. 7, 
1964) [29 FR 2490 (Feb. 15, 1964)]. A guideline to disclose a 
summary of risk factors relating to an offering was first set forth 
by the Commission in 1968 and included consideration of five factors 
that may make an offering speculative or risky, including with 
respect to risks involving ``a registrant's business or proposed 
business.'' See Guide 6, in Guides for the Preparation and Filing of 
Registration Statements, Release No. 33-4936 (Dec. 9, 1968) [33 FR 
18617 (Dec. 17, 1968)].
    \189\ See 17 CFR 229.305; and Disclosure of Accounting Policies 
for Derivative Financial Instruments and Derivative Commodity 
Instruments and Disclosure of Quantitative and Qualitative 
Information About Market Risk Inherent in Derivative Financial 
Instruments, Other Financial Instruments, and Derivative Commodity 
Instruments, Release No. 33-7386 (Jan. 31, 1997) [62 FR 6044 (Feb. 
10, 1997)].
    \190\ 17 CFR 229.305(a)(1).
    \191\ See 17 CFR 229.305(b).
---------------------------------------------------------------------------

    Commission rules have also required disclosures regarding specific 
elements of the risks facing registrants, such as a registrant's 
material legal proceedings,\192\ as part of its description of 
business, the material effects that compliance with government 
regulations, including environmental regulations, may have upon a 
registrant's capital expenditures, earnings, and competitive 
position,\193\ compensation discussion and analysis,\194\ and the 
extent of the board's role in the risk oversight of the 
registrant.\195\ In addition, the Commission has adopted comprehensive 
disclosure regimes related to particular industries,\196\ offering 
structures,\197\ and types of transactions, when it has determined

[[Page 21685]]

that disclosure in those particular areas was justified.\198\
---------------------------------------------------------------------------

    \192\ See 17 CFR 229.103; Modernization of Regulation S-K Items 
101, 103, and 105, Release No. 33-10825 (Aug. 26, 2020) [85 FR 
63726, 63740 (Oct. 8, 2020)] (``The Commission first adopted a 
requirement to disclose all pending litigation that may materially 
affect the value of the security to be offered, describing the 
origin, nature and name of parties to the litigation, as part of 
Form A-1 in 1933.'').
    \193\ See 17 CFR 229.101(c)(2)(i); Adoption of Disclosure 
Regulation and Amendments of Disclosure Forms and Rules, Release No. 
33-5893 (Dec. 23, 1977) [42 FR 65554, 65562 (Dec. 30, 1977)] 
(``Appropriate disclosure shall also be made as to the material 
effects that compliance with Federal, State and local provisions 
which have been enacted or adopted regulating the discharge of 
materials into the environment, or otherwise relating to the 
protection of the environment, may have upon the capital 
expenditures, earnings and competitive position of the registrant 
and its subsidiaries.'').
    \194\ See 17 CFR 229.402; Executive Compensation and Related 
Person Disclosure, Release No. 33-8732 (Aug. 11, 2006 [71 FR 53158 
(Sept. 8, 2006)].
    \195\ See 17 CFR 229.407(h); Proxy Disclosure Enhancements, 
Release No. 33-9089 (Dec. 16, 2009) [74 FR 68334 (Dec. 23, 2009)].
    \196\ See 17 CFR Subpart 1200 (Oil and Gas); 17 CFR Subpart 1300 
(Mining); and 17 CFR Subpart 1400 (Banks and Savings and Loan).
    \197\ See 17 CFR Subpart 1100 (Asset-Backed Securities).
    \198\ See 17 CFR Subpart 900 (Roll-Up Transactions); and 17 CFR 
Subpart 1000 (Mergers and Acquisitions).
---------------------------------------------------------------------------

    Relatedly, the Commission has exercised its statutory authority to 
require registrants to include in registration statements and annual 
reports a narrative explanation of a number of aspects of the issuer's 
business, most prominently in the MD&A.\199\ These requirements are 
``intended to give the investor an opportunity to look at the company 
through the eyes of management by providing both a short and long-term 
analysis of the business of the company,'' and they reflected increased 
investor need for this type of information as an important tool to make 
investment and voting decisions.\200\
---------------------------------------------------------------------------

    \199\ See Amendments to Annual Report Form, Related Forms, 
Rules, Regulations and Guides; Integration of Securities Acts 
Disclosure Systems, Release No. 33-6231 (Sept. 2, 1980) [45 FR 63630 
(Sept. 25, 1980)]. Item 303 of Regulation S-K requires a registrant 
to discuss its financial condition, changes in its financial 
condition, and results of operations, 17 CFR 229.303(a), other 
disclosure items, see, e.g., 17 CFR 229.303(b)(1)(i), (1)(ii)(B), 
and (2)(ii), and requires registrants to ``provide such other 
information that the registrant believes to be necessary to an 
understanding of its financial condition, changes in financial 
condition, and results of operation.'' 17 CFR 229.303(b).
    \200\ Concept Release on Management's Discussion and Analysis of 
Financial Condition and Operations, Release No. 33-6711 (Apr. 17, 
1987) [52 FR 13715 (Apr. 24, 1987)]. The Commission also has stated 
that it is important that investors understand the extent to which 
accounting changes and changes in business activity have affected 
the comparability of year-to-year data and they should be in a 
position to assess the source and probability of recurrence of net 
income (or loss). Id. (quoting Guidelines for Registration and 
Reporting, Release No. 33-5520 (Aug. 14, 1974) [39 FR 31894 (Sept. 
3, 1974)]).
---------------------------------------------------------------------------

    Finally, the Commission for the last fifty years has also required 
disclosure about various environmental matters.\201\ In adopting those 
requirements, the Commission recognized the number of ways that 
environmental issues can impact a company's business and its financial 
performance and determined that these requirements would provide 
information important to investment and voting decisions. Throughout 
the 1970s and early 1980s, the need for specific rules mandating 
disclosure of information relating to litigation and other business 
costs arising out of compliance with Federal, State, and local laws 
relating to environmental protection were the subject of several 
rulemaking efforts, extensive litigation, and public hearings.\202\ As 
a result of this process, in 1982, the Commission adopted rules that 
address disclosure of certain environmental issues.\203\
---------------------------------------------------------------------------

    \201\ In addition to Commission rules requiring disclosures 
regarding specific elements of the risks facing registrants that are 
discussed supra notes 192-198 and accompanying text, the Commission 
has adopted disclosure requirements that are similarly subject to 
substantive regulation under other statutes and by other agencies, 
as discussed infra note 207.
    \202\ See Environmental Disclosure, Interpretive Release No. 33-
6130 (Sept. 27, 1979) [44 FR 56924 (Oct. 3, 1979)] (discussing this 
history); Proposed Amendments to Item 5 of Regulation S -K Regarding 
Disclosure of Certain Environmental Proceedings, Release No. 33-6315 
(May 4, 1981) [46 FR 25638]; NRDC v. SEC, 606 F.2d 1031, 1036-42 
(D.C. Cir. 1979) (same).
    \203\ See 1982 Release (adopting 17 CFR 229.103, which requires 
a registrant to describe its material pending legal proceedings, 
other than ordinary routine litigation incidental to the business, 
and indicating that administrative or judicial proceedings arising 
under Federal, state, or local law regulating the discharge of 
materials into the environment or primarily for the purpose of 
protecting the environment, shall not be deemed ``ordinary routine 
litigation incidental to the business'' and must be described if 
meeting certain conditions). The 1982 Release also moved the 
requirement to disclose information regarding the material effects 
of compliance with Federal, State and local provisions regulating 
the discharge of materials into the environment, or otherwise 
relating to the protection of the environment, on the registrant's 
capital expenditures, earnings and competitive position, as well as 
the disclosure of its material estimated capital expenditures for 
environmental control facilities, to 17 CFR 229.101(c)(1)(xii).
---------------------------------------------------------------------------

    More recently, the Commission published the 2010 Guidance, 
explaining how the Commission's existing disclosure rules may require 
disclosure of the impacts of climate change on a registrant's business 
or financial condition.\204\ And in 2020, the Commission amended its 
disclosure rules to require, to the extent material to an understanding 
of the business taken as a whole, disclosure of the material effects 
that compliance with government regulations, including environmental 
regulations, may have upon the capital expenditures, earnings, and 
competitive position of the registrant and its subsidiaries.\205\
---------------------------------------------------------------------------

    \204\ See 2010 Guidance. As the Commission discussed in the 
guidance, the agency reviewed its full disclosure program relating 
to environmental disclosures in SEC filings in connection with a 
Government Accountability Office review. Among other things, the 
2010 Guidance emphasized that climate change disclosure might, 
depending on the circumstances, be required in a company's 
Description of Business, Risk Factors, Legal Proceedings, and MD&A 
identified certain climate-related issues that companies may need to 
consider in making their disclosures; and stated that registrants 
should consider any financial statement implications of climate 
change issues in accordance with applicable accounting standards.
    \205\ See Modernization of Regulation S-K Items 101, 103, and 
105, Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 
2020)].
---------------------------------------------------------------------------

    Similarly, the Commission is adopting the final rules based on its 
determination that the required disclosures will elicit information 
that investors have indicated is important to their investment and 
voting decisions.\206\ As explained throughout this release, climate-
related risks can affect a company's business and its financial 
performance and position in a number of ways. A growing number of 
investors across a broad swath of the market consider information about 
climate-related risks to be important to their decision-making. These 
investors have expressed the need for more reliable information about 
the effects of climate-related and other severe weather events or other 
natural conditions on issuers' businesses, as well as information about 
how registrants have considered and addressed climate-related risks 
when conducting operations and developing business strategy and 
financial plans. These rules respond to this need by providing 
investors more reliable and decision-useful disclosure of strategies 
and risks that a registrant has determined will likely materially 
impact its business, results of operations, or financial condition. The 
disclosure of such information--whether climate-related or otherwise--
falls within the authority conferred by Congress in the Securities Act 
and the Exchange Act.\207\
---------------------------------------------------------------------------

    \206\ See supra section I.A.
    \207\ The final rules are also consistent with other disclosure 
items that are similarly subject to substantive regulation under 
other statutes and by other agencies. For example, banks, bank 
holding companies, savings and loan associations, and savings and 
loan holding companies are subject to subpart 1400 of Regulation S-K 
despite the substantive jurisdiction and regulation of other state 
and Federal prudential regulators. Similarly, here, the importance 
of climate-related risks to investor decision-making makes them 
appropriate for disclosure regardless of other regimes that 
substantively regulate those issues.
---------------------------------------------------------------------------

    The Regulation S-X provisions of the final rules are also within 
the Commission's authority. In addition to the statutory provisions 
discussed above, the Federal securities laws provide the Commission 
with extensive and specific authority to prescribe financial statement 
disclosures, set accounting standards, and establish accounting 
principles for entities that file financial statements with the 
Commission.
    As noted above, Section 7(a)(1) of the Securities Act specifies 
that a registration statement shall contain, among other things, the 
information specified in Schedule A. Schedule A in turn requires 
disclosure of balance sheet and profit and loss statement (i.e., 
comprehensive income statement) information ``in such detail and in 
such form as the Commission shall prescribe.'' \208\ In addition, 
Section 12(b)

[[Page 21686]]

of the Exchange Act provides the Commission with specific authority to 
require not only balance sheet and income statement disclosure, but 
also ``any further financial statements which the Commission may deem 
necessary or appropriate for the protection of investors.'' \209\
---------------------------------------------------------------------------

    \208\ See Schedule A, paras. 25 and 26. The ``form'' required by 
the Commission includes both financial statements and notes to those 
statements. See 17 CFR 210.1-01(b) (specifying the term ``financial 
statements'' includes all notes to the statements and related 
schedules).
    \209\ 15 U.S.C. 78l(b)(1)(J) through (L).
---------------------------------------------------------------------------

    Section 19(a) of the Securities Act also grants the Commission 
extensive authority to ``make, amend, and rescind such rules and 
regulations as may be necessary to carry out the provisions of,'' the 
Securities Act, which includes ``defining accounting, technical, and 
trade terms used in'' the Securities Act. ``Among other things,'' this 
section grants the Commission the authority to ``prescribe . . . the 
items or details to be shown in the balance sheet and earning 
statement, and the methods to be followed in the preparation of 
accounts, in the appraisal or valuation of assets and liabilities, in 
the determination of depreciation and depletion, in the differentiation 
of recurring and nonrecurring income, in the differentiation of 
investment and operating income, and in the preparation, where the 
Commission deems it necessary or desirable, of consolidated balance 
sheets or income accounts of any person directly or indirectly 
controlling or controlled by the issuer, or any person under direct or 
indirect common control with the issuer.'' \210\ Sections 13 and 23 of 
the Exchange Act grant the Commission similar authority with respect to 
reports filed under that Act.\211\
---------------------------------------------------------------------------

    \210\ 15 U.S.C. 77s(a).
    \211\ 15 U.S.C. 78m(b)(1); see 15 U.S.C. 78w(a)(1) (``The 
Commission . . . shall . . . have the power to make such rules and 
regulations as may be necessary or appropriate to implement the 
provisions of [the Exchange Act] for which [it is] responsible or 
for the execution of the functions vested in [it] by [the Exchange 
Act], and may for such purposes classify persons, securities, 
transactions, statements, applications, reports, and other matters 
within their respective jurisdictions, and prescribe greater, 
lesser, or different requirements for different classes thereof.''); 
see also 15 U.S.C. 7218(c) (``Nothing in the [Sarbanes-Oxley Act of 
2002] . . . shall be construed to impair or limit the authority of 
the Commission to establish accounting principles or standards for 
purposes of enforcement of the securities laws.''); Policy 
Statement: Reaffirming the Status of the FASB as a Designated 
Private-Sector Standard Setter, Release No. 33-8221 (Apr. 25, 2003) 
[68 FR 23333, 23334 (May 1, 2003)] (``While the Commission 
consistently has looked to the private sector in the past to set 
accounting standards, the securities laws, including the Sarbanes-
Oxley Act, clearly provide the Commission with authority to set 
accounting standards for public companies and other entities that 
file financial statements with the Commission.'').
---------------------------------------------------------------------------

    Relying on these provisions, the Commission has prescribed the form 
and content of the financial statements to ensure that investors have 
access to information necessary for investment and voting decisions. 
The Commission adopted Regulation S-X in 1940, which governs the form 
and content of the financial statements, pursuant to its authority 
under, among other provisions, Sections 7 and 19(a) of the Securities 
Act and Sections 12 and 23(a) of the Exchange Act.\212\ Over time, the 
Commission has amended Regulation S-X to add, modify, and eliminate 
requirements, as appropriate, with respect to the form and content of 
the financial statements, taking into consideration the development of 
accounting practices in the marketplace, investors' need for 
information important to their decision-making, as well of the costs of 
such disclosures.
---------------------------------------------------------------------------

    \212\ See Adoption of Regulation S-X, 5 FR 949, 954 (Mar. 6, 
1940).
---------------------------------------------------------------------------

    For example, the Commission has on numerous occasions amended 
Regulation S-X to require the disclosure of particular items of 
information in the balance sheet or in the income statement.\213\ The 
Commission has similarly amended Regulation S-X to require additional 
information in the financial statements with respect to particular 
issuers or types of transactions, when it has determined that action in 
those specific areas was responsive to the information needs of 
investors.\214\
---------------------------------------------------------------------------

    \213\ See Improved Disclosures of Leases, Release No. 33-5401 
(June 6, 1973) [38 FR 16085, 16085 (June 20, 1973)] (proposing 
amendments to Rule 3-16 of Regulation S-X to require disclosure of, 
among other things, total rental expenses and minimum rental 
commitments, explaining that for many years corporate disclosure of 
leased assets ``has not been sufficient to enable investors to 
determine the nature and magnitude of such assets, the size of 
financial commitments undertaken and the impact upon net income of 
this kind of financing''); Improved Disclosures of Leases, Release 
No. 33-5428 (Oct. 23, 1973) [38 FR 29215 (Oct. 23, 1973)] (adopting 
amendments to Rule 3-16); General Revision of Regulation S-X, 
Release No. 6233 (Sept. 25, 1980) [45 FR 63660, 63664 (Sept. 25, 
1980)] (requiring separate disclosure of domestic and foreign pre-
tax income, in part because the Commission had ``seen substantial 
voluntary inclusion by registrants of this tax information in their 
annual reports to shareholders'').
    \214\ See Amendments to Financial Disclosures About Acquired and 
Disposed Businesses, Release No. 33-10786 (May 20, 2020) [85 FR 
54002 (Aug. 31, 2020)] (amending Regulation S-X as part of ``an 
ongoing, comprehensive evaluation of our disclosure requirements'' 
to improve for investors the financial information about acquired 
and disposed businesses); Financial Statements and Periodic Reports 
for Related Issuers and Guarantors, Release No. 33-7878 (Aug. 4, 
2000) [65 FR 51692 (Aug. 24, 2000)] (amending Regulation S-X to 
require additional disclosures relating to guaranteed securities, 
and explaining that the amendments codified Commission staff 
practices over the years and would eliminate uncertainty regarding 
financial statement requirements and ongoing reporting).
---------------------------------------------------------------------------

    Similarly, the Commission is adopting the final rules based on its 
determination that the required financial statement disclosures will 
provide investors with information that is important to their 
investment and voting decisions. Specifically, the Commission is 
exercising its authority to prescribe the content and form of the 
financial statements to require registrants to disclose certain 
information about costs and expenditures related to: (1) severe weather 
events and other natural conditions; and (2) in connection with the 
purchase and use of carbon offsets and RECs, as well as certain 
information about financial estimates and assumptions, in the notes to 
the financial statements. As explained in greater detail below, 
investors have expressed a need for this information,\215\ and we 
believe the final rules will allow investors to make better informed 
investment or voting decisions by eliciting more complete disclosure of 
financial statement effects and by improving the consistency, 
comparability, and reliability of the disclosures.
---------------------------------------------------------------------------

    \215\ See infra notes 1741 and 2133. See also infra note 1961 
(commenters generally supportive of the proposed expenditure 
disclosures).
---------------------------------------------------------------------------

    For similar reasons, we disagree with objections by commenters 
based on the non-delegation and major-questions doctrines.\216\ The 
non-delegation objection is misplaced because the long-standing 
statutory authority that we rely on provides intelligible principles to 
which the Commission must conform in its rulemaking.\217\ Indeed, the 
Supreme Court early in the Commission's history rejected a non-
delegation challenge to one of the securities laws that the Commission 
administered, and the well-tested delegation of rulemaking authority 
that we exercise here likewise falls comfortably within the Court's 
holding that a delegation poses no constitutional difficulty when it 
provides standards that derive ``meaningful content from the purpose of 
the Act, its factual background and the statutory context in which they 
appear.'' \218\ Also, the major-questions objection is misplaced 
because the Commission is not claiming to ``discover in a long-extant 
statute an unheralded power representing a

[[Page 21687]]

transformative expansion in [its] regulatory authority.'' \219\ Nor is 
it seeking to determine national environmental policy or dictate 
corporate policy, as commenters suggest.\220\ Rather, it is adopting 
the final rules based on its long standing authority to require 
disclosures that provide investors with information that is important 
to their investment and voting decisions, as discussed above. 
Consistent with this authority and its traditional role, the Commission 
is agnostic as to whether and how issuers manage climate-related risks 
so long as they appropriately inform investors of material risks.
---------------------------------------------------------------------------

    \216\ See, e.g., letter from Morrisey et al. (June 15, 2022); 
see also note 172.
    \217\ See Gundy v. United States, 139 S. Ct. 2116, 2123 
(plurality op.); see also note 182and accompanying text.
    \218\ Am. Power & Light Co. v. SEC, 329 U.S. 90, 104 (1946).
    \219\ West Virginia v. EPA, 597 U.S. 697, 724 (2022) (quotations 
omitted).
    \220\ See, e.g., letters from Andrew N. Vollmer (May 9, 2022); 
Andrew N. Vollmer (Apr. 12, 2022); Morrisey et al. (June 15, 2022); 
Cunningham et al. (Apr. 25, 2022); Sharfman et al. For similar 
reasons, we disagree with commenters who suggested the disclosures 
required by the final rules impermissibly interfere with state 
corporate law. See, e.g., letters from Morrisey et al. (June 15, 
2022); Cunningham et al. (Apr. 25, 2022) Sharfman et al.
---------------------------------------------------------------------------

    Finally, we disagree with commenters who raised objections to the 
proposed rules on First Amendment grounds.\221\ The required 
disclosures are factual information about certain risks companies face 
to their businesses, finances, and operations-the type of information 
that companies routinely disclose when seeking investments from the 
public. And as discussed throughout this release, these required 
disclosures also advance crucial interests: the final rules respond to 
the growing investor need for more reliable information regarding 
climate-related risks by providing investors with information that is 
important to their investment and voting decisions. Further, the final 
rules have been appropriately tailored to serve those interests, 
including with a number of significant changes having been made from 
the proposal to take account of the burdens imposed by requiring such 
disclosures.
---------------------------------------------------------------------------

    \221\ See, e.g., letters from Cunningham et al. (Apr. 25, 2022); 
Morrisey et al. (June 15, 2022); Sean J. Griffith (June 1, 2022); 
Jones Day; Chamber; Sharfman et al.
---------------------------------------------------------------------------

C. Disclosure of Climate-Related Risks

1. Definitions of Climate-Related Risks and Climate-Related 
Opportunities (Items 1500 and 1502(a))
a. Proposed Rule
    The Commission proposed to require a registrant to disclose any 
climate-related risks reasonably likely to have a material impact on 
the registrant's business or consolidated financial statements.\222\ As 
proposed, a registrant could also optionally disclose the actual and 
potential impacts of any climate-related opportunities it is 
pursuing.\223\ The Commission proposed definitions of ``climate-related 
risks'' and ``climate-related opportunities'' that were substantially 
similar to the TCFD's corresponding definitions of those terms \224\ to 
provide a common terminology that would allow registrants to disclose 
climate-related risks and opportunities in a consistent and comparable 
way. In the Proposing Release, the Commission expressed its belief that 
grounding the definitions in a framework that is already widely 
accepted could help limit the burden on registrants to identify and 
describe climate-related risks while improving the comparability and 
usefulness of the disclosures for investors.\225\
---------------------------------------------------------------------------

    \222\ See Proposing Release, section II.B.1.
    \223\ See id.
    \224\ See TCFD, Recommendations of the Task Force on Climate-
related Financial Disclosures, Appendix 5 available at https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf.
    \225\ See Proposing Release, section II.B.1.
---------------------------------------------------------------------------

    The Commission proposed to define ``climate-related risks'' to mean 
the actual or potential negative impacts of climate-related conditions 
and events on a registrant's consolidated financial statements, 
business operations, or value chains, as a whole.\226\ The Commission 
proposed to define ``value chain'' to mean the upstream and downstream 
activities related to a registrant's operations.\227\ Under the 
proposed definition, upstream activities would include activities by a 
party other than the registrant that relate to the initial stages of a 
registrant's production of a good or service (e.g., materials sourcing, 
materials processing, and supplier activities). Downstream activities 
would include activities by a party other than the registrant that 
relate to processing materials into a finished product and delivering 
it or providing a service to the end user (e.g., transportation and 
distribution, processing of sold products, use of sold products, end of 
life treatment of sold products, and investments).\228\ The Commission 
proposed including a registrant's value chain within the definition of 
climate-related risks to capture the full extent of a registrant's 
potential exposure to climate-related risks.\229\
---------------------------------------------------------------------------

    \226\ See id.
    \227\ See id.
    \228\ See id.
    \229\ See id.
---------------------------------------------------------------------------

    Climate-related conditions and events can present risks related to 
the physical impacts of the climate (``physical risks'') and risks 
related to a potential transition to a lower carbon economy 
(``transition risks''). The Commission proposed to define ``physical 
risks'' to include both acute and chronic risks to a registrant's 
business operations or the operations of those with whom it does 
business.\230\ The Commission proposed to define ``acute risks'' to 
mean event-driven risks related to shorter-term extreme weather events, 
such as hurricanes, floods, and tornadoes.\231\ Under the proposed 
rule, ``chronic risks'' would be defined to mean those risks that a 
business may face as a result of longer term weather patterns and 
related effects, such as sustained higher temperatures, sea level rise, 
drought, and increased wildfires, as well as related effects such as 
decreased arability of farmland, decreased habitability of land, and 
decreased availability of fresh water.\232\ The Commission proposed to 
define transition risks to mean the actual or potential negative 
impacts on a registrant's consolidated financial statements, business 
operations, or value chains attributable to regulatory, technological, 
and market changes to address the mitigation of, or adaptation to, 
climate-related risks.\233\ Transition risks would include, but not be 
limited to, increased costs attributable to climate-related changes in 
law or policy, reduced market demand for carbon-intensive products 
leading to decreased sales, prices, or profits for such products, the 
devaluation or abandonment of assets, risk of legal liability and 
litigation defense costs, competitive pressures associated with the 
adoption of new technologies, reputational impacts (including those 
stemming from a registrant's customers or business counterparties) that 
might trigger changes to market behavior, changes in consumer 
preferences or behavior, or changes in a registrant's behavior.\234\
---------------------------------------------------------------------------

    \230\ See id.
    \231\ See id.
    \232\ See id.
    \233\ See id.
    \234\ See id.
---------------------------------------------------------------------------

    The Commission proposed to require a registrant to specify whether 
an identified climate-related risk is a physical or transition risk so 
that investors can better understand the nature of the risk.\235\ If a 
physical risk, the rule proposal would require a registrant to describe 
the nature of the risk, including whether it may be categorized as an 
acute or chronic risk.\236\ A registrant would also be required to 
describe the location and nature of the properties, processes, or 
operations subject to the physical

[[Page 21688]]

risk.\237\ The rule proposal defined ``location'' to mean a ZIP code 
or, in a jurisdiction that does not use ZIP codes, a similar 
subnational postal zone or geographic location.
---------------------------------------------------------------------------

    \235\ See id.
    \236\ See id.
    \237\ See id.
---------------------------------------------------------------------------

    The Commission proposed to require additional disclosure from a 
registrant that has identified a climate-related risk related to 
flooding or high water stress. As proposed, if a risk concerns the 
flooding of buildings, plants, or properties located in flood hazard 
areas, the registrant would be required to disclose the percentage of 
those assets that are located in flood hazard areas in addition to 
their location.\238\ If a risk concerns the location of assets in 
regions of high or extremely high water stress, as proposed, the 
registrant would be required to disclose the amount of assets (e.g., 
book value and as a percentage of total assets) located in those 
regions in addition to their location. The registrant would also be 
required to disclose the percentage of the registrant's total water 
usage from water withdrawn in those regions.\239\
---------------------------------------------------------------------------

    \238\ See id.
    \239\ See id.
---------------------------------------------------------------------------

    The Commission proposed to require a registrant to describe the 
nature of an identified transition risk, including whether it relates 
to regulatory, technological, market (including changing consumer, 
business counterparty, and investor preferences), liability, 
reputational, or other transition-related factors, and how those 
factors impact the registrant.\240\ In this regard, the proposed rule 
stated that a registrant that has significant operations in a 
jurisdiction that has made a GHG emissions reduction commitment may be 
exposed to transition risks related to the implementation of the 
commitment.\241\
---------------------------------------------------------------------------

    \240\ See id.
    \241\ See id.
---------------------------------------------------------------------------

    As the Commission noted in the Proposing Release, climate-related 
conditions and any transition to a lower carbon economy may also 
present opportunities for registrants and investors.\242\ The rule 
proposal defined ``climate-related opportunities'' to mean the actual 
or potential positive impacts of climate-related conditions and events 
on a registrant's consolidated financial statements, business 
operations, or value chains, as a whole.\243\
---------------------------------------------------------------------------

    \242\ See id.
    \243\ See id.
---------------------------------------------------------------------------

b. Comments
    Many commenters supported the proposal to require a registrant to 
disclose any climate-related risks that are reasonably likely to have a 
material impact on its business or consolidated financial 
statements.\244\ These commenters provided various reasons for 
supporting the proposal. For example, one commenter noted that it views 
material climate-related risks and opportunities as fundamental 
financial factors that impact company cash flows and the valuation 
investors attribute to those cash flows and stated that the proposed 
rules will lead to ``more consistent, comparable, and reliable 
disclosures that will enable investors to make better decisions on how 
and where to allocate capital.'' \245\ Another commenter stated that 
the proposed requirements would provide a thorough foundation for 
disclosure of climate risks, including future risks.\246\ A different 
commenter stated that the proposed disclosure requirement would ensure 
that investors receive specific, comparable details about registrants' 
climate-related risks, which are currently lacking from many 
registrants.\247\ One other commenter stated that, based on its own 
research, most registrants are exposed to climate-related risks, and 
without sufficient information regarding transition risks and physical 
risks facing a registrant, investors may be unable to correctly value a 
registrant's securities, thus potentially paying too high or too low a 
price.\248\ One commenter stated that, because long-term climate-
related risks can quickly become financially impactful, the proposed 
requirement would elicit disclosure that, at a minimum, would indicate 
the quality of a company's governance and risk management.\249\
---------------------------------------------------------------------------

    \244\ See, e.g., letters from Acadian Asset Management (June 14, 
2022) (``Acadian Asset Mgmt.''); AGs of Cal. et al.; 
AllianceBernstein; Amer. for Fin. Reform, Evergreen Action et al.; 
As You Sow; CalPERS; CalSTRS; Center for American Progress (June 17, 
2022) (``Center Amer. Progress''); CFA; Domini Impact; D. Hileman 
Consulting; Eni SpA; IAA; ICI; Impax Asset Mgmt.; KPMG (June 16, 
2022); Moody's Corporation (June 17, 2022) (``Moody's''); 
Morningstar; NY SIF; NY St. Comptroller; PRI; SKY Harbor; 
TotalEnergies SE (June 17, 2022) (``TotalEnergies''); Unilever; and 
Wellington Mgmt.
    \245\ See letter from AllianceBernstein.
    \246\ See letter from Center Amer. Progress.
    \247\ See letter from AGs of Cal. et al.
    \248\ See letter from Wellington Mgmt; see also letter from Farm 
Girl Capital (June 17, 2022) (``FGC'') (stating that ``disclosure of 
material and systemic risks of climate change will help companies 
and investors to understand, price, and manage climate risks and 
opportunities'').
    \249\ See letter from SKY Harbor.
---------------------------------------------------------------------------

    Many commenters supported the proposed definition of climate-
related risk, including that the definition encompass both physical and 
transition risks, and further supported the proposed requirement to 
specify whether an identified climate-related risk is a physical or 
transition risk.\250\ One commenter stated that the proposed definition 
of climate-related risk is comprehensive and would help ensure that 
registrants consider a broad spectrum of climate-related risks.\251\ 
Another commenter expressed approval of the proposed definition of 
climate-related risk because it is substantially similar to the TCFD's 
definition of climate-related risk, which is familiar terminology for 
investors and companies alike and therefore should promote consistent 
and comparable disclosure across companies.\252\ A different commenter 
stated that the definition of climate-related risk should include only 
the actual negative impacts of climate-related conditions and events, 
and not potential negative impacts, as proposed, but agreed that the 
definition should include both physical and transition risks because 
that would be consistent with the TCFD framework.\253\ One other 
commenter stated that the proposed definition of climate-related risk 
is generally ``correct'' because it is similar to the TCFD definition 
and would facilitate comparability of climate-related disclosure, but 
recommended that the Commission address in the definition the 
intersection of climate-related risks and adverse consequences to local 
communities.\254\
---------------------------------------------------------------------------

    \250\ See, e.g., letters from Beller et al.; BHP; CalSTRS; D. 
Hileman Consulting; Eni SpA; IAA; ICI; Impax Asset Mgmt.; KPMG; 
Moody's; Morningstar; TotalEnergies; Unilever; and Wellington Mgmt.
    \251\ See letter from D. Hileman Consulting.
    \252\ See letter from ICI; see also letters from KPMG; and 
Morningstar.
    \253\ See letter from CEMEX.
    \254\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    A number of commenters supported including in the proposed 
definition of physical risk both acute and chronic risks, and further 
supported specifying whether an identified physical risk is acute or 
chronic.\255\ One commenter stated that it supported the proposed 
disclosure of a physical risk, including whether the physical risk is 
acute or chronic, in addition to any transition risk, and noted that 
all these risk categories can have ``financial materiality.'' \256\ 
This commenter did not, however, support requiring the disclosure of 
whether or how an acute risk and chronic risk may affect each other 
because of the complex interaction between the two types of risks.\257\

[[Page 21689]]

Another commenter similarly stated that, while it supported the 
disclosure of acute and chronic risks, because such risks are complex 
and may overlap, the Commission should clarify that companies can 
decide how to categorize acute and chronic risks and, where there may 
be overlap (e.g., wildfires can be both an acute and chronic risk to a 
company), the risk only needs to be identified once.\258\ A different 
commenter stated that it supported the proposed definition of climate-
related risk, which includes acute and chronic risks within physical 
risk, because it aligned with the TCFD framework, and such alignment 
would be of significant benefit because it will help elicit comparable 
disclosures and help reduce the reporting burden.\259\ One other 
commenter, while acknowledging that the proposed definition of physical 
risk aligned with the TCFD framework, recommended that the Commission 
include, in the definition of chronic risk, systemic threats to public 
health and safety.\260\
---------------------------------------------------------------------------

    \255\ See, e.g., letters from Beller et al.; CalSTRS; Eni SpA; 
IAA; Impax Asset Mgmt.; Moody's; and Unilever.
    \256\ See letter from Moody's.
    \257\ See id.; see also letter from Eni SpA.
    \258\ See letter from IAA.
    \259\ See letter from Unilever.
    \260\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    Several commenters supported the proposed requirement to describe 
the location and nature of the properties, processes, or operations 
subject to the physical risk.\261\ Commenters stated that the proposed 
location disclosure would enable investors to more fully assess a 
registrant's exposure to physical risks, such as extreme storm events, 
flooding, water shortages, and drought, which may be geographically 
specific, and whether the registrant is adequately taking steps (e.g., 
through adopting a transition plan) to mitigate or adapt to the 
physical risks.\262\ One commenter stated that ``[i]nvestors and 
investment analysts are often tasked with understanding the risk that 
climate change poses to physical assets that are critical to the 
company's overall business model,'' including both facilities owned by 
the company and those owned by key suppliers, and recommended that the 
Commission ``require the disclosure of the locations of all material 
facilities i.e., geographical concentrations that pose material risks 
of loss.'' \263\ Some of these commenters also supported defining 
location by the ZIP code or other subnational postal zone if the ZIP 
code is not available.\264\ One commenter recommended using geographic 
coordinates to describe the location of assets subject to a material 
physical risk because they would better fit climate models.\265\ 
Another commenter recommended requiring the disclosure of specific 
addresses, and not just ZIP codes, to identify the location of assets 
subject to a material physical risk to enable investors to fully assess 
the registrant's exposure to the physical risk.\266\ This commenter 
also urged the Commission to require the proposed disclosure with 
respect to all of a registrant's locations that are material to its 
businesses rather than only the locations subject to a physical climate 
risk, stating that physical climate risk potentially impacts a 
registrant at all of its locations.\267\
---------------------------------------------------------------------------

    \261\ See, e.g., letters from Amer. for Fin. Reform, Evergreen 
Action et al.; Bloomberg; BMO Global Asset Management (June 17, 
2022) (``BMO Global Asset Mgmt.''); CalSTRS; Domini Impact; IAC 
Recommendation; IATP; Longfellow Investment Management (June 17, 
2022) (``Longfellow Invest. Mgmt.''); Moody's; Morningstar; NY St. 
Comptroller; PRI; TotalEnergies; UCS; and Wellington Mgmt.
    \262\ See, e.g., letters from BMO Global Asset Mgmt.; CalSTRS; 
IATP; and Morningstar.
    \263\ See IAC Recommendation.
    \264\ See, e.g., letters from Amer. for Fin. Reform, Evergreen 
Action et al.; IATP; and TotalEnergies.
    \265\ See letter from CalSTRS.
    \266\ See letter from Wellington Mgmt.
    \267\ See id.
---------------------------------------------------------------------------

    Several commenters supported the proposed requirement to disclose 
the percentage of assets that are located in flood hazard areas if a 
registrant has determined that flooding is a material physical 
risk.\268\ Several commenters also supported the proposed requirement 
to disclose the amount of assets (e.g., book value and as a percentage 
of total assets) located in regions of high or extremely high water 
stress, and the percentage of the registrant's total water usage from 
water withdrawn in those regions, if a registrant has determined that 
high or extremely high water stress is a material physical risk.\269\ 
Commenters stated that the proposed disclosure requirements would help 
investors understand the extent of the water-related risk to which a 
registrant is exposed.\270\ Some commenters generally stressed the 
importance to investors of obtaining quantitative data from registrants 
about the physical risks to which they are subject and recommended that 
the Commission require registrants to similarly provide the percentage 
of assets or other quantitative data relevant to assessing a 
registrant's exposure to other material physical risks, such as 
heatwaves, droughts, and wildfires.\271\
---------------------------------------------------------------------------

    \268\ See, e.g., letters from Anthesis Group (June 16, 2022) 
(``Anthesis''); CalPERS; Domini Impact; Eni SpA; ERM CVS (June 17, 
2022); IAA; Moody's; Morningstar; NRDC; PRI; TotalEnergies; and 
Wellington Mgmt.
    \269\ See, e.g., letters from Anthesis; CalSTRS; Domini Impact; 
ERM CVS; IAA; Moody's; Morningstar; Paradice Investment Management 
(June 17, 2022) (``Paradice Invest. Mgmt.''); TotalEnergies; and 
Wellington Mgmt.
    \270\ See, e.g., letters from ERM CVS; IAA; Moody's; and 
Morningstar.
    \271\ See, e.g., letters from Anthesis; CalPERS; IAA; and 
Morningstar.
---------------------------------------------------------------------------

    With regard to flooding risk disclosure, some commenters 
recommended that the Commission require the use of Federal Emergency 
Management Agency's (``FEMA's'') flood hazard terminology and maps to 
help further the comparability of the disclosure.\272\ One commenter 
recommended the use of a different flood model that it believed was 
more up-to-date and more comprehensive than FEMA's flood mapping.\273\ 
Another commenter supported an approach that would allow for different 
definitions of ``flood hazard area'' or ``water-stressed area'' to be 
used as long as the registrant disclosed the source of the definitions 
together with the methodologies and assumptions used in disclosing the 
water-based physical risk.\274\
---------------------------------------------------------------------------

    \272\ See, e.g., letters from Anthesis; NRDC; and PRI.
    \273\ See letter from CalPERS (recommending use of the First 
Street Foundation Flood Model).
    \274\ See letter from Moody's; see also letter from Wellington 
Mgmt. (stating that, if address-specific locations are not required, 
the Commission should require the disclosure of methodologies and 
data sources used for flooding disclosure).
---------------------------------------------------------------------------

    Several commenters supported the proposed provision requiring a 
registrant to describe the nature of an identified transition risk, 
including whether it relates to regulatory, technological, market 
(including changing consumer, business counterparty, and investor 
preferences), liability, reputational, or other transition-related 
factors, and how those factors impact the registrant.\275\ Some 
commenters also supported the proposed definition of transition 
risk.\276\ Several commenters stated that the Commission should include 
additional examples within the definition of transition risk, including 
the risk of impacts on local and indigenous communities and workers 
caused by a transition to a lower carbon economy.\277\
---------------------------------------------------------------------------

    \275\ See, e.g., letters from Eni SpA; Moody's; Morningstar; SKY 
Harbor; TotalEnergies; and Wellington Mgmt.
    \276\ See, e.g., letters from Eni SpA; Morningstar; SKY Harbor; 
and TotalEnergies.
    \277\ See, e.g., letters from Boston Common Asset Mgmt.; 
CalPERS; Domini Impact; IAA; and ICCR.
---------------------------------------------------------------------------

    Several commenters supported including the negative impacts on a 
registrant's value chain in the definition of climate-related risk, as 
proposed.\278\

[[Page 21690]]

One commenter stated that because information concerning climate-
related risks involving a registrant's value chain may be more 
important to investors than such risks involving a registrant's own 
operations, disclosure of climate-related risks in the value chain 
should be an integrated part of the broader disclosures about the 
material climate-related risks management is assessing, managing, and 
reporting to the board, despite the difficulty of providing such value 
chain information.\279\ Another commenter stated that it supported 
including value chain impacts in the definition of climate-related risk 
as long as such impacts relate to direct impacts on a registrant's 
operations.\280\ Some commenters also supported the proposed definition 
of value chain to mean the upstream and downstream activities related 
to a registrant's operations.\281\ One commenter stated that the 
definition of value chain should be consistent with the definition 
provided by the GHG Protocol.\282\
---------------------------------------------------------------------------

    \278\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Anthesis; Domini Impact; D. Hileman Consulting; Eni 
SpA; Morningstar; NY SIF; PRI; PwC; TotalEnergies; US Technical 
Advisory Group to TC207 (June 17, 2022) (``US TAG TC207''); and 
Wellington Mgmt.
    \279\ See letter from PwC. This commenter provided the following 
examples of when climate-related risks involving a registrant's 
value chain may be more important to investors than such risks 
involving the registrant's own operations: the manufacturer of ``a 
product reliant on a rare mineral for which mining may be limited 
due to emissions created in extraction, precursor manufacturing, and 
transport, or, alternatively, a lender whose primary business is 
financing emissions-intensive operations.''
    \280\ See letter from Eni SpA.
    \281\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Anthesis; and Morningstar.
    \282\ See letter from Morningstar; see also letter from D. 
Hileman Consulting (stating that if the Commission defines value 
chain, it should adopt a definition that is already well-
established, such as the GHG Protocol's definition of value chain).
---------------------------------------------------------------------------

    Many other commenters opposed the proposed climate-related risk 
disclosure requirement.\283\ Some of these commenters contended that 
the Commission's rules already require a registrant to disclose 
material climate risks, and that therefore there is no need for the 
proposed climate-related risk disclosure requirement.\284\ Several 
other commenters stated that the proposed climate-related risk 
disclosure requirement would inundate investors with an extensive 
amount of granular information that is largely immaterial.\285\ 
Commenters provided as an example of such immaterial disclosure the 
proposed requirement to disclose the ZIP codes of assets located in 
flood hazard areas or other regions in which a registrant's assets are 
subject to a material climate-related risk.\286\ Some commenters stated 
that the highly detailed disclosure required by the proposed climate 
risk disclosure rule would confuse investors by causing them to believe 
that a climate-related risk is more important than other disclosed 
risks that are presented in less detail.\287\ Some commenters also 
stated that the overly granular disclosure elicited by the proposed 
rule would potentially require registrants to disclose competitively 
sensitive information.\288\ Other commenters stated that, due to 
uncertainties in climate science, and uncertainties regarding some of 
the underlying concepts upon which the proposed climate risk disclosure 
requirement is based, the disclosure of material climate-related risks 
would be unduly burdensome for many registrants.\289\ Another commenter 
stated that a registrant should only be required to disclose a climate-
related risk that management is assessing, managing, and reporting to 
the board, rather than disclosing information regarding any climate 
risk.\290\
---------------------------------------------------------------------------

    \283\ See, e.g., letters from ABA; American Chemistry Council 
(June 17, 2022) (``Amer. Chem.''); American Fuel and Petrochemical 
Manufacturers (June 17, 2022) (``AFPM''); Biotechnology Innovation 
Organization (June 17, 2022) (``BIO''); Business Roundtable; 
Chamber; Davis Polk (June 9, 2022); Fenwick West; GPA Midstream 
Association (June 17, 2022) (``GPA Midstream''); Insurance Coalition 
(June 17, 2022) (``IC''); Nareit (June 17, 2022) (``Nareit''); 
National Mining Association (June 17, 2022) (``NMA''); Retail 
Industry Leaders Association (June 17, 2022) (``RILA''); and Soc. 
Corp. Gov.
    \284\ See, e.g., letters from AFPM; BIO; and GPA Midstream.
    \285\ See, e.g., letters from ABA; Amer. Chem.; AFPM; Business 
Roundtable; Chamber; Davis Polk; Fenwick West; Nareit; NMA; RILA; 
SIFMA; and Soc. Corp. Gov.
    \286\ See, e.g., letters from ABA; Allstate Corporation (June 
17, 2022) (``Allstate'') (``Requiring information at a granular 
level such as ZIP code would create an operational burden and would 
produce an excessive amount of information that we expect would not 
be decision-useful for most investors.''); Amer. Chem.; AFPM; BOA; 
Business Roundtable; Chamber; Davis Polk; NAM; Nareit; PGIM (June 
17, 2022); RILA; SIFMA; and Soc. Corp. Gov.
    \287\ See, e.g., letters from ABA; Fenwick West; GPA Midstream; 
and Nareit.
    \288\ See, e.g., letters from IC; NAM; National Grid; RILA; and 
Soc. Corp. Gov.
    \289\ See, e.g., letters from NMA; and RILA; see also letter 
from IC (stating that the proposed climate risk disclosure 
requirement raises concerns for insurers because there is no 
consensus scientific method for insurers to distinguish between 
weather-related risks and climate-related risks).
    \290\ See letter from PwC.
---------------------------------------------------------------------------

    Several commenters also opposed the proposed disclosure 
requirements concerning the percentage of assets located in flood zones 
and similar quantitative data for assets located in high water-stressed 
areas.\291\ One commenter stated that flood risks and high water-stress 
risks are not comparable within a firm, across sectors, and across 
regions of the country, so investors are unlikely to make investment 
decisions based on this information.\292\ This commenter further stated 
that the Commission has not justified singling out risks relating to 
flooding and high water stress for detailed prescriptive disclosures, 
which dilutes the importance of other material information.\293\ One 
other commenter stated that the proposed flood risk requirement is not 
necessary because the majority of companies are not subject to such 
physical risk.\294\ Other commenters stated that such granular 
disclosure for water-related physical risks would impose a heavy 
reporting burden for registrants and could raise competitive and 
security risk concerns.\295\
---------------------------------------------------------------------------

    \291\ See, e.g., letters from ABA; AFPM; BOA; and D. Hileman 
Consulting.
    \292\ See letter from AFPM; see also letter from BOA (stating 
that investors would not be able meaningfully to compare water-
stress risks across different companies without standard definitions 
for ``high water-stress'' and ``extreme high water-stress.'').
    \293\ See letter from AFPM; see also letter from ABA (stating 
that by proposing highly prescriptive disclosure requirements, such 
as those based on flood hazard areas or assets of ``high or 
extremely high water stress,'' the Commission may potentially narrow 
disclosures related to the full range of environmental or climate 
issues that are materially relevant to a registrant's business and 
strategy); and D. Hileman Consulting (stating that it is not 
necessary for the Commission to enumerate specific climate-related 
risks, such as flooding or water stress, as there is the risk that 
registrants could downplay other types of risk).
    \294\ See letter from BIO.
    \295\ See, e.g., letters from CEMEX; and NAM.
---------------------------------------------------------------------------

    Several commenters also opposed the proposed transition risk 
disclosure requirement, including the proposed definition of transition 
risk.\296\ Some commenters stated that the proposed requirement would 
result in overly granular disclosure that would not be decision-useful 
for investors and would be burdensome for registrants to produce.\297\ 
One commenter stated that the proposed definition was overly broad and 
would require a registrant to make the difficult determination of 
whether a particular activity was undertaken to address a transition 
risk or was part of a registrant's normal business strategy.\298\ 
Another commenter stated that it would be challenging for companies 
doing business in multiple markets to provide comparable, consistent, 
and reliable

[[Page 21691]]

disclosure about transition risks given complex, dynamic, and varied 
global factors.\299\ Other commenters stated that because the proposed 
definition of transition risk would require a registrant to consider 
impacts on its value chain, the resulting disclosures are likely to be 
overly detailed and could obscure more important information.\300\ One 
other commenter stated that the proposed transition risk disclosure 
requirement would be difficult to comply with because of the 
speculative nature of certain transition risks.\301\ A different 
commenter stated that because of the broad definition of transition 
risk, the Commission should provide additional guidance regarding the 
scope of the transition risk disclosure requirement.\302\
---------------------------------------------------------------------------

    \296\ See, e.g., letters from Airlines for America (June 17, 
2022); Allstate; Alphabet et al.; American Council for Capital 
Formation (June 17, 2022) (``ACCF''); Chamber; Enbridge Inc. (June 
16, 2022) (``Enbridge''); Interstate Natural Gas Association of 
America (June 17, 2022) (``INGAA''); PwC; and United States Council 
for International Business (June 17, 2022) (``USCIB'').
    \297\ See, e.g., letters from ACCF; and Allstate.
    \298\ See letter from Alphabet et al.
    \299\ See letter from USCIB.
    \300\ See letters from Airlines for America; and Chamber.
    \301\ See letter from INGAA.
    \302\ See letter from PwC.
---------------------------------------------------------------------------

    Many commenters opposed including the negative impacts on a 
registrant's value chain in the definition of, and related disclosure 
requirement concerning, its climate-related risks.\303\ Commenters 
stated that the proposed definition would impose impractical burdens on 
registrants by forcing them to obtain and assess climate risk 
information about their third-party suppliers and customers over which 
they have little to no control.\304\ Commenters in the agricultural 
sector were particularly opposed to the proposed definition because it 
would impose costs and burdens on farmer and rancher suppliers, many of 
whom are private entities, to produce the information needed by 
registrants to comply with the proposed climate-related risk 
requirement.\305\ Other commenters stated that, due to the inability to 
obtain such third-party information, the proposed disclosure 
requirement is likely to elicit boilerplate disclosure about the 
climate-related risks of a registrant's value chain.\306\ Because of 
these concerns, several commenters requested that the Commission remove 
the concept of value chain from the scope of the climate risk 
disclosure requirement.\307\ More generally, several commenters stated 
that any Commission climate risk disclosure requirement should be more 
principles-based and grounded on traditional notions of 
materiality.\308\
---------------------------------------------------------------------------

    \303\ See, e.g., letters from Airlines for America; Arizona Farm 
Bureau Federation (June 17, 2022) (``AZ Farm''); California Farm 
Bureau (June 17, 2022) (``CA Farm''); Chamber; CEMEX;D. Burton, 
Heritage Fdn.; Energy Transfer LP (June 17, 2022) (``Energy 
Transfer''); Georgia Farm Bureau (``June 17, 2022) (``GA Farm''); 
GPA Midstream; HP; Indiana Farm Bureau (June 17, 2022) (``IN 
Farm''); National Agricultural Association (June 17, 2022) 
(``NAA''); Pennsylvania Farm Bureau (June 17, 2022) (``PA Farm); 
Soc. Corp. Gov.; United Airlines Holdings, Inc. (June 17, 2022) 
(``United Air''); Western Midstream; and Williams Cos.
    \304\ See, e.g., letters from CEMEX; GPA Midstream; HP; Soc. 
Corp. Gov.; United Air; Western Midstream; and Williams Cos.
    \305\ See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN 
Farm; NAA; and PA Farm.
    \306\ See, e.g., letters from Energy Transfer; HP; and Western 
Midstream.
    \307\ See, e.g., letters from CEMEX; GPA Midstream; HP; NAA; 
United Air; Western Midstream; and Williams Cos.; see also letter 
from Soc. Corp. Gov. (stating that ``the required disclosure should 
be limited to climate-related risks, including value chain-related 
risks, reasonably likely to materially impact the registrant's 
financial statements and operations'').
    \308\ See, e.g., letters from ABA; API; Chamber; NAM; SIFMA; and 
Soc. Corp. Gov.
---------------------------------------------------------------------------

    Many commenters supported the proposed definition of climate-
related opportunities because it is consistent with the TCFD 
definition.\309\ Many commenters also supported keeping the disclosure 
of climate-related opportunities optional, as proposed.\310\ Some of 
these commenters expressed the view that, while disclosure of climate-
related opportunities can provide insight into a registrant's 
management of climate-related risks and its related strategy, mandatory 
disclosure of climate-related opportunities could lead to 
greenwashing.\311\ Some commenters, however, stated that disclosure of 
climate-related opportunities should be mandatory because such 
opportunities are frequently related to the reduction of climate-
related risks and would provide investors with a more balanced 
perspective of the overall impacts of climate on a company's business 
and operating performance.\312\
---------------------------------------------------------------------------

    \309\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Anthesis; CEMEX; NY City Comptroller; and 
TotalEnergies.
    \310\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Anthesis; Bloomberg; CEMEX; Eni SpA; Hannon 
Armstrong (June 17, 2022); IATP; NY City Comptroller; and 
TotalEnergies.
    \311\ See, e.g., letters from Anthesis; Bloomberg; CEMEX; and 
Eni SpA; see also letter from Cleveland-Cliffs, Inc. (June 16, 2022) 
(``Cleveland-Cliffs'') (opposing required disclosure of climate-
related opportunities because such disclosures ``are likely to be 
optimistic, overestimated projections at best'').
    \312\ See, e.g., letters from Morningstar; PwC; and World 
Business Council for Sustainable Development (Jun. 16, 2022) 
(``WBCSD'').
---------------------------------------------------------------------------

c. Final Rules
    We are adopting final rules (Item 1502(a)) to require the 
disclosure of any climate-related risks that have materially impacted 
or are reasonably likely to have a material impact on the registrant, 
including on its business strategy, results of operations, or financial 
condition, with several modifications in response to commenter 
concerns.\313\ We disagree with those commenters who stated that a 
climate-related risk disclosure provision was not necessary because the 
Commission's general risk factors disclosure rule already requires such 
disclosure.\314\ In our view, a separate disclosure provision 
specifically focused on climate-related risks will help investors 
better understand a registrant's assessment of whether its business is, 
or is reasonably likely to be, exposed to a material climate-related 
risk, and thereby enhance investor protection. Many commenters 
indicated that the Commission's current disclosure rules, including the 
general risk factor provision, has not provided investors with 
disclosure of climate-related risks and their financial impacts at the 
level of detail sought by investors that would make the disclosure 
useful for their investment or voting decisions.\315\ The final rules, 
by contrast, are responsive to investors' need for decision-useful 
information regarding registrants' material climate-related risks and 
will help ensure investors receive more consistent, comparable, and 
reliable disclosures about such risks.\316\
---------------------------------------------------------------------------

    \313\ See 17 CFR 229.1502(a).
    \314\ See supra note 284 and accompanying text.
    \315\ See, e.g., supra note 102 and accompanying text; infra 
notes 395-397 and accompanying text.
    \316\ See supra notes 244-249 and accompanying text.
---------------------------------------------------------------------------

    Furthermore, adopting a climate-related risk disclosure rule that 
uses similar definitions (set forth in Item 1500) and is based on the 
climate-related disclosure framework of the TCFD, with which many 
registrants and investors are already familiar, will assist in 
standardizing climate-related risk disclosure and help elicit more 
consistent, comparable, and useful information for investors and limit 
the reporting burden for those registrants that are already providing 
some climate-related disclosure based on the TCFD framework.
    At the same time, we recognize that many commenters expressed 
significant concerns about the scope of the proposed rules, indicating 
that they may elicit too much detail, may be costly or burdensome, 
could result in competitive harm, or may obscure other material 
information.\317\ We have sought to address these concerns by modifying 
the definition of climate-related risks, by making the climate-related 
risk disclosure requirements less prescriptive, and by specifying the 
time frames during which a registrant should describe whether any such 
material

[[Page 21692]]

risks are reasonably likely to manifest, as discussed below.\318\
---------------------------------------------------------------------------

    \317\ See supra notes 283 and 285.
    \318\ See infra section II.C.2.
---------------------------------------------------------------------------

    The proposed rule would have required a registrant to describe any 
climate-related risks reasonably likely to have a material impact on 
the registrant, including on its business or consolidated financial 
statements. We have substituted ``results of operations'' and 
``financial condition'' for ``consolidated financial statements'' here 
and in several of the final rule provisions to be more consistent with 
other Commission rules relevant to risk assessment, such as Item 303 of 
Regulation S-K regarding MD&A. We have used the term ``business 
strategy'' in the final rules to more closely align the final rules 
with the TCFD recommendation regarding the disclosure of the impacts of 
climate-related risks on strategy. These revisions do not create any 
substantive differences compared to the proposed rules but should 
facilitate compliance because many registrants should be familiar with 
the terminology used.
    Similar to the rule proposal, the final rules define climate-
related risks to mean the actual or potential negative impacts of 
climate-related conditions and events on a registrant's business, 
results of operations, or financial condition.\319\ To make a 
registrant's determination of whether it is exposed to a material 
climate-related risk less burdensome, in response to commenters' 
concerns,\320\ we have eliminated the reference to negative climate-
related impacts on a registrant's value chain from the definition of 
climate-related risks. This change means that a climate-related risk 
involving a registrant's value chain would generally not need to be 
disclosed except where such risk has materially impacted or is 
reasonably likely to materially impact the registrant's business, 
results of operations, or financial condition. In addition, because a 
registrant may be able to assess the material risks posed by its value 
chain without having to request input from third parties in its value 
chain, this change will also limit the burdens of climate risk 
assessment on parties in a registrant's value chain that might have 
occurred under the rule proposal.\321\
---------------------------------------------------------------------------

    \319\ See 17 CFR 229.1500.
    \320\ See supra notes 303 and 304 and accompanying text.
    \321\ See supra notes 292303 and 293304 and accompanying text.
---------------------------------------------------------------------------

    Similar to the rule proposal, the definition of climate-related 
risks includes both physical risks and transition risks. Also similar 
to the proposed definition, the final rules define ``physical risks'' 
to include both acute and chronic risks to a registrant's business 
operations.\322\ However, we are not including in the definition acute 
or chronic risks to the operations of those with whom a registrant does 
business, as proposed. This change addresses the concerns of commenters 
regarding burdens associated with obtaining climate risk information 
about their counterparties over which they lack control.\323\
---------------------------------------------------------------------------

    \322\ See 17 CFR 229.1500
    \323\ See, e.g., letter from Chamber.
---------------------------------------------------------------------------

    Similar to the rule proposal, ``acute risks'' is defined as event-
driven risks and may relate to shorter-term severe weather events, such 
as hurricanes, floods, tornadoes, and wildfires.\324\ ``Chronic risks'' 
is defined as those risks that the business may face as a result of 
longer term weather patterns, such as sustained higher temperatures, 
sea level rise, and drought, as well as related effects such as 
decreased arability of farmland, decreased habitability of land, and 
decreased availability of fresh water.\325\ These enumerated risks are 
provided as examples of the types of physical risks to be disclosed and 
many represent physical risks that have already impacted and may 
continue to impact registrants across a wide range of economic 
sectors.\326\
---------------------------------------------------------------------------

    \324\ See 17 CFR 229.1500. See infra section II.K.3.c.v for a 
discussion of the phrase ``severe weather events'' as used in 
subpart 1500 of Regulation S-K and Article 14 of Regulation S-X.
    \325\ See id.
    \326\ As discussed in more detail in section II.K.3.c.v, 
although Article 14 of Regulation S-X requires a registrant to 
disclose certain financial effects of severe weather events and 
other natural conditions, which may include weather events that are 
not climate-related, subpart 1500 of Regulation S-K does not require 
the disclosure of material impacts from non-climate-related weather 
events.
---------------------------------------------------------------------------

    The final rules define ``transition risks'' largely as proposed to 
mean the actual or potential negative impacts on a registrant's 
business, results of operations, or financial condition attributable to 
regulatory, technological, and market changes to address the mitigation 
of, or adaptation to, climate-related risks.\327\ For reasons discussed 
above in relation to the definition of ``climate-related risks,'' we 
are no longer including value chain impacts in the definition of 
``transition risks.'' \328\ The final rules' definition of ``transition 
risks'' includes the same non-exclusive list of examples of transition 
risks as the rule proposal. Transition risks include, but are not 
limited to, increased costs attributable to climate-related changes in 
law or policy, reduced market demand for carbon-intensive products 
leading to decreased sales, prices, or profits for such products, the 
devaluation or abandonment of assets, risk of legal liability and 
litigation defense costs, competitive pressures associated with the 
adoption of new technologies, reputational impacts (including those 
stemming from a registrant's customers or business counterparties) that 
might trigger changes to market behavior, changes in consumer 
preferences or behavior, or changes in a registrant's behavior.\329\
---------------------------------------------------------------------------

    \327\ See 17 CFR 229.1500.
    \328\ As noted above, a registrant would only need to disclose 
the transition risk of a party in its value chain when such 
transition risk has materially impacted or is reasonably likely to 
materially impact the registrant itself.
    \329\ See 17 CFR 229.1500. For example, one source of transition 
risk may be the IRA, Public Law 117-169, which was signed into 
Federal law on Aug. 16, 2022, and includes various initiatives meant 
to encourage companies, states, and consumers to invest in and adopt 
renewable energy and other ``clean energy'' technologies. See The 
White House, Building A Clean Energy Economy: A Guidebook To The 
Inflation Reduction Act's Investments In Clean Energy And Climate 
Action (Dec. 2022) (``Inflation Reduction Act Guidebook''). If, as a 
result of the IRA, consumers, small businesses, and other entities 
switch to more energy efficient products and services, a registrant 
that produces or uses less energy efficient products could face 
material impacts to its business, results of operations, or 
financial condition.
---------------------------------------------------------------------------

    Although some commenters asked the Commission to provide additional 
examples of transition risks in the definition,\330\ we decline to do 
so. The final rules' examples are non-exclusive \331\ and, consistent 
with the TCFD framework, a registrant's description of its material 
transition risks should include any type of transition risk that is 
applicable based on its particular facts and circumstances.\332\ The 
particular type of material transition risk disclosed may be one that 
is not included or only partially included in the definition. Not every 
manifestation of transition risk, however, may apply or be material to 
every registrant and transition risks are dynamic and may change over 
time.
---------------------------------------------------------------------------

    \330\ See supra note 277 and accompanying text.
    \331\ See 17 CFR 229.1500 (definition of transition risk).
    \332\ See, e.g., TCFD, Guidance on Metrics, Targets, and 
Transition Plans section E (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/07/2021-Metrics_Targets_Guidance-1.pdf.
---------------------------------------------------------------------------

    The proposed rules would have required a registrant to disclose 
certain items of information about any material climate-related risk 
that a registrant has identified.\333\ In order to help address 
commenters' concerns that the rule proposal was too burdensome and 
could result in the disclosure of immaterial information, we have 
revised Item 1502, as adopted, to be less prescriptive. In doing so, we 
have sought to strike an

[[Page 21693]]

appropriate balance between providing investors with more consistent 
and decision-useful information about material climate-related risks 
while being conscious of the costs to registrants and investors of 
requiring specified disclosures that may not be relevant in every 
circumstance. The final rules provide that a registrant that has 
identified a climate-related risk pursuant to Item 1502 must disclose 
whether the risk is a physical or transition risk, providing 
information necessary to an understanding of the nature of the risk 
presented and the extent of the registrant's exposure to the risk.\334\ 
The final rules then provide a non-exclusive list of disclosures that a 
registrant must disclose as applicable:
---------------------------------------------------------------------------

    \333\ See Proposing Release, section II.B.1.
    \334\ See 17 CFR 229.1502(a).
---------------------------------------------------------------------------

     If a physical risk, whether it may be categorized as an 
acute or chronic risk, and the geographic location and nature of the 
properties, processes, or operations subject to the physical risk; 
\335\ and
---------------------------------------------------------------------------

    \335\ See 17 CFR 229.1502(a)(1)(i).
---------------------------------------------------------------------------

     If a transition risk, whether it relates to regulatory, 
technological, market (including changing consumer, business 
counterparty, and investor preferences), or other transition-related 
factors, and how those factors impact the registrant.\336\
---------------------------------------------------------------------------

    \336\ See 17 CFR 229.1502(a)(1)(ii).
---------------------------------------------------------------------------

    When proposing the climate-related disclosure rules, the Commission 
stated that in some instances, chronic risks might give rise to acute 
risks. For example, a drought (a chronic risk) might contribute to 
wildfires (an acute risk), or increased temperatures (a chronic risk) 
might contribute to severe storms (an acute risk). In such instances, 
the Commission indicated that a registrant should provide a clear and 
consistent description of the nature of the risk and how it may affect 
a related risk, as well as how those risks have evolved or are expected 
to evolve over time.\337\
---------------------------------------------------------------------------

    \337\ See Proposing Release, section II.B.1.
---------------------------------------------------------------------------

    The final rules require a registrant to provide information 
necessary to an understanding of the nature of the risk presented and 
the extent of the registrant's exposure to the risk. We agree, however, 
with commenters that indicated that requiring a discussion about the 
interaction of two related physical risks may, due to its complexity, 
increase the burden on the registrant without yielding a corresponding 
benefit for investors.\338\ While a registrant may opt to provide such 
discussion, it is not a mandatory disclosure item under the final 
rules. We also agree with commenters that stated that, for complex and 
overlapping physical risks, registrants can determine how best to 
categorize the physical risk as either acute or chronic.\339\ What is 
important is that a registrant describe the climate-related physical 
risks it faces clearly and consistently, including regarding the 
particular categories of physical risk. As a disclosed risk develops 
over time, for example where the category of physical risk has changed 
and/or the nature of the impact to the registrant has evolved, 
depending on the facts and circumstances, the registrant may need to 
describe the changed risk in order for an investor to understand the 
impact or reasonably likely impact of the risk on the registrant, 
including on its business strategy, results of operations, or financial 
condition.
---------------------------------------------------------------------------

    \338\ See, e.g., letters from CEMEX; Eni SpA; and ERM CVS.
    \339\ See letter from IAA.
---------------------------------------------------------------------------

    Some commenters opposed proposed Item 1502 because in their view it 
would be difficult for a registrant to distinguish between a climate-
related physical risk and an ordinary weather risk,\340\ or between a 
business activity in response to a transition risk and one that is part 
of a routine business strategy.\341\ While we recognize that 
application of some of the Commission's climate disclosure rules may 
initially be difficult for certain registrants, we expect that 
compliance will become easier as registrants grow more familiar with 
disclosing how climate-related factors may impact their business 
strategies.\342\ In this regard, we note that many registrants are 
already providing some of the TCFD-recommended disclosures, although in 
a piecemeal fashion and largely outside of the registrant's Commission 
filings. In addition, we have modified the proposed rules in several 
places to require disclosure only if a registrant is already 
undertaking a particular analysis or practice or has already made a 
judgment that a particular risk is climate-related.\343\ Further, the 
lengthy phase in periods for the final rules will provide registrants 
additional time to develop, modify, and implement any processes and 
controls necessary to the assessment and reporting of any material 
climate-related risk.\344\
---------------------------------------------------------------------------

    \340\ In this regard, according to the National Oceanic and 
Atmospheric Administration (``NOAA''), weather refers to short-term 
changes in the atmosphere whereas climate describes what the weather 
is like over a long period of time in a specific area. See NOAA, 
What's the Difference Between Weather and Climate?, available at 
https://www.ncei.noaa.gov/news/weather-vs-climate.
    \341\ See supra notes 289 and 298.
    \342\ We also expect that compliance with the final rules will 
become easier as registrants commence disclosing climate-related 
information pursuant to other jurisdictions' climate disclosure 
requirements, to the extent those requirements are similar to the 
final rules.
    \343\ See, e.g., infra section II.D.
    \344\ See infra section II.O.
---------------------------------------------------------------------------

    The final rules include several changes from the proposal that 
mitigate some of the burdens of Item 1502(a), as it was proposed. For 
example, the rule proposal would have required a registrant to disclose 
the location and nature of the properties, processes, or operations 
subject to the physical risk, and to provide the ZIP code or other 
subnational postal zone.\345\ The final rules we are adopting no longer 
require such disclosure and instead include, as one of the physical 
risk items that a registrant must disclose, as applicable, the 
geographic location and nature of the properties, processes, or 
operations subject to the identified physical risk.\346\ This revision 
is intended to address the concern of many commenters that the proposed 
ZIP code disclosure requirement would be burdensome to produce and 
would likely not provide useful information for many investors.\347\ 
This revision will give registrants the flexibility to determine the 
granularity of any location disclosures based on their particular facts 
and circumstances as long as they provide information necessary to 
understand the extent of the registrant's exposure to the material 
risk.
---------------------------------------------------------------------------

    \345\ See Proposing Release, section II.B.1.
    \346\ See 17 CFR 229.1502(a)(1).
    \347\ See supra note 286 and accompanying text.
---------------------------------------------------------------------------

    The proposal would have called for specific information about 
physical risks, such as disclosures relating to flooding and the 
location of assets in regions of high or extremely high water stress. 
In particular, the rule proposal would have required a registrant that 
faces a material physical risk due to flooding or water stress to 
disclose the percentage of buildings, plants, or properties that are 
located in flood hazard areas or the amount and percentage of assets 
located in water-stressed areas. In a change from the rule proposal, we 
have eliminated this proposed requirement in order to make the final 
rules less burdensome and permit the registrant to determine the 
particular metrics that it should disclose, if any, based on its 
particular facts and circumstances. Instead, the physical risk 
disclosure provision we are adopting is less prescriptive and subject 
to the general condition applicable to both physical and transition 
risk disclosure that, when describing a material climate-related risk, 
a registrant must provide information necessary to an

[[Page 21694]]

understanding of the nature of the risk presented and the extent of the 
registrant's exposure to the risk.\348\
---------------------------------------------------------------------------

    \348\ See 17 CFR 229.1502(a).
---------------------------------------------------------------------------

    These revisions help address the concern of some commenters that 
the proposed disclosure requirements were too prescriptive and could 
result in overly granular and immaterial disclosure.\349\ The less 
prescriptive approach of the final rules also addresses the concern of 
some commenters that the resulting disclosure could cause investor 
confusion by obscuring other disclosed risks that are presented in less 
detail.\350\ We expect that the final rules will elicit disclosures 
more reflective of a registrant's particular business practices.
---------------------------------------------------------------------------

    \349\ See, e.g., letters from ABA; CEMEX; NAM; and SIFMA.
    \350\ See supra note 287 and accompanying text. As described 
below, the addition of materiality qualifiers to certain of the 
final rule's climate risk disclosure requirements will also help 
address this concern by eliciting detailed disclosure only when it 
is material. See infra section II.D.
---------------------------------------------------------------------------

    With respect to those commenters who stated that the required 
metrics disclosure should cover more than just water-related physical 
risks, the less prescriptive approach in the final rules eliminates any 
potential overemphasis on water-related physical risks and gives 
registrants flexibility to describe any physical risks they may be 
facing.\351\ Finally, the revised approach in the final rules will 
allow a registrant's disclosures to adapt to changing circumstances 
over time, while still providing sufficient information for investors 
to understand and assess any such changes.
---------------------------------------------------------------------------

    \351\ See, e.g., letters from CalPERS (recommending that the 
Commission should also require information on areas subject to 
droughts, heatwaves, and wildfires); IAA (recommending that the 
Commission require registrants to provide quantitative details of 
the volume or revenue (percentage) contribution for facilities 
located in areas subject to water scarcity, flood risk, wildfires, 
and other climate-related natural disasters); and Morningstar 
(recommending that the Commission go further in mandating 
quantitative disclosures related to a registrant's assets exposed to 
physical climate risk, as such data is important across economic 
sectors).
---------------------------------------------------------------------------

    Similar to the physical risk rule provision, the final rule 
requires registrants to disclose the nature of any transition risk 
presented and the extent of the registrant's exposure to the risk. It 
also includes a non-exclusive list of disclosures the registrant must 
provide, as applicable, including whether the transition risk relates 
to regulatory, technological, market, or other transition-related 
factors, and how those factors impact the registrant.\352\ Describing 
the nature of an identified transition risk in this manner will help 
investors understand the realized or potential material impacts of the 
identified transition risk and whether and how a registrant intends to 
mitigate or adapt to such risk.
---------------------------------------------------------------------------

    \352\ See 17 CFR 229.1502(a) and 1502(a)(2). In a change from 
the proposal, the final rules omit a specific reference to liability 
and reputational factors from the transition risk disclosure 
required pursuant to Item 1502(a)(2). This change was made in order 
to conform more closely to the definition of ``transition risks'' in 
Item 1500, which refers to ``regulatory, technological, and market 
changes.'' Although this definition refers to impacts to a 
registrant's liability or reputation as non-exclusive examples of 
negative impacts resulting from such changes, the definition of 
transition risks also refers to other examples of negative impacts 
that are not specifically mentioned in Item 1502(a)(2). To 
streamline the Item 1502(a)(2) disclosure requirement, and to avoid 
giving undue emphasis to impacts to a registrant's liability or 
reputation over other transition risk-related impacts, we have 
removed the specific reference to liability and reputational factors 
and have retained the more general reference to ``other transition-
related factors.'' A registrant that, due to regulatory, 
technological, or market changes, has incurred or is reasonably 
likely to incur a material negative impact to its reputation or 
liability will be required to include a description of such impact, 
together with any other material transition-related impact, in its 
disclosure pursuant to Item 1502(a)(2).
---------------------------------------------------------------------------

    Consistent with the rule proposal, the final rule provision states 
that a registrant that has significant operations in a jurisdiction 
that has made a GHG emissions reduction commitment should consider 
whether it may be exposed to a material transition risk related to the 
implementation of the commitment.\353\ Including this guidance within 
the rule text will serve to remind registrants operating in such a 
jurisdiction that they may need to provide disclosure to investors 
about this specific type of transition risk.
---------------------------------------------------------------------------

    \353\ See 17 CFR 229.1502(a)(2).
---------------------------------------------------------------------------

    The proposed rule provisions pertaining to governance, strategy, 
and risk management would have permitted a registrant, at its option, 
to describe any climate-related opportunities it was pursuing when 
responding to those provisions.\354\ In this regard, the Commission 
proposed a definition of ``climate-related opportunities'' that was 
similar to the corresponding definition provided by the TCFD.\355\ 
While we are retaining the optional approach to disclosure related to 
climate-related opportunities, unlike the proposed rules, the final 
rules do not refer to climate-related opportunities and therefore do 
not include a corresponding definition. We are treating the disclosure 
of climate-related opportunities the same as other voluntary 
disclosure. Accordingly, despite the absence of a corresponding 
provision, a registrant may elect to also include disclosure regarding 
any material climate-related opportunities it is pursuing or is 
reasonably likely to pursue in addition to disclosure regarding 
material climate-related risks.\356\
---------------------------------------------------------------------------

    \354\ See Proposing Release, sections II.B through II.E.
    \355\ Compare Proposing Release, section II.B (proposing to 
define ``climate-related opportunities to mean the actual or 
potential positive impacts of climate-related conditions and events 
on a registrant's consolidated financial statements, business 
operations, or value chains, as a whole) with TCFD, Recommendations 
of the Task Force on Climate-related Financial Disclosures, Appendix 
5 (defining ``climate-related opportunity'' to mean ``the potential 
positive impacts related to climate change on an organization'').
    \356\ Registrants have a fundamental obligation not to make 
materially misleading statements or omissions in their disclosures 
and may need to provide such additional information as is necessary 
to keep their disclosures from being misleading. See 17 CFR 230.408 
and 17 CFR 240.12b-20.
---------------------------------------------------------------------------

2. Time Horizons and the Materiality Determination (Item 1502(a))
a. Proposed Rule
    The rule proposal would have required a registrant to describe any 
climate-related risks reasonably likely to have a material impact, 
which may manifest over the short, medium, and long term. The rule 
proposal also would have required the registrant to describe how it 
defines short-, medium-, and long-term time horizons, including how it 
takes into account or reassesses the expected useful life of the 
registrant's assets and the time horizons for its climate-related 
planning processes and goals.\357\
---------------------------------------------------------------------------

    \357\ See Proposing Release, section II.B.
---------------------------------------------------------------------------

b. Comments
    Many commenters supported the proposed requirement to describe any 
material climate-related risk that may manifest over the short, medium, 
and long term.\358\ Commenters stated that the proposed time horizons 
are consistent with the time horizons recommended by the TCFD.\359\ 
Commenters also stated that it is important to assess climate-related 
risks over multiple time periods because of the changing frequency and 
severity of climate-related events.\360\
---------------------------------------------------------------------------

    \358\ See, e.g., letters from Anthesis; Bloomberg; BNP Paribas; 
CalPERS; CalSTRS; CEMEX; CFA; Center for Climate and Energy 
Solutions (June 17, 2022) (``C2ES''); Dell; D. Hileman Consulting; 
Eni SpA; ERM CVS; Harvard Mgmt.; IAA; ICGN; ICI; Moody's; 
Morningstar; PRI; PwC; SKY Harbor; TotalEnergies; US TAG TC207; and 
Wellington Mgmt.
    \359\ See, e.g., letters from Anthesis; and PRI.
    \360\ See, e.g., letters from PRI; and Wellington Mgmt.
---------------------------------------------------------------------------

    Some commenters supported leaving the time periods undefined while 
requiring a registrant to specify how it defines short-, medium-, and 
long-term

[[Page 21695]]

horizons, as proposed.\361\ Commenters stated that the proposed 
approach aligns with the TCFD framework and would provide flexibility 
for registrants by allowing them to choose time periods that best fit 
their particular facts and circumstances.\362\ Other commenters stated 
that the Commission should define short-, medium-, and long-term 
horizons to enhance the comparability of climate risk disclosure.\363\ 
Commenters recommended various definitions for such time periods. For 
example, one commenter stated that the Commission should define short-
term as 5 years, medium-term as 6 to 15 years, and long-term as 16 to 
30 years.\364\ Other commenters recommended defining short-term as one 
year, medium-term as 5 years, and long-term as 10 years.\365\ Another 
commenter recommended defining short-term as 1 to 5 years, medium-term 
as 5 to 20 years, and long-term as 20 to 30 years.\366\ One other 
commenter recommended defining medium-term as 5 to 10 years and long-
term as 10 to 30 years.\367\
---------------------------------------------------------------------------

    \361\ See, e.g., letters from Bloomberg; C2ES; IAA; PRI; SKY 
Harbor; and TotalEnergies.
    \362\ See, e.g., letters from Bloomberg; IAA; J. McClellan (June 
17, 2022); and PRI.
    \363\ See, e.g., letters from CalSTRS; Calvert; CEMEX; Dell; D. 
Hileman Consulting; ERM CVS; ICI; Morningstar; and Wellington Mgmt.
    \364\ See letter from CalSTRS.
    \365\ See letters from Calvert; and ICI.
    \366\ See letter from CEMEX.
    \367\ See letter from US TAG TC207.
---------------------------------------------------------------------------

    Many other commenters opposed the proposed requirement to disclose 
material climate-related risks as manifested over the short, medium, 
and long term.\368\ Commenters stated that the proposed requirement ran 
counter to the traditional materiality standard by which a registrant 
determines if a risk is material to itself as a general matter rather 
than applying that standard over multiple different timeframes, and 
indicated that such an approach could require the registrant to engage 
in multiple different materiality analyses.\369\ Commenters also stated 
that the proposed requirement, which could compel a registrant to 
consider circumstances many years into the future, would elicit risk 
disclosure that is highly speculative.\370\ Some commenters stated 
that, instead of the proposed disclosure requirement, the Commission 
should impose the same temporal standard that registrants use in 
practice when preparing a registrant's MD&A (i.e., when assessing the 
risks that are reasonably likely to have a material impact on future 
operations ``over whatever time period is relevant to a registrant's 
particular facts and circumstances'').\371\ Some commenters recommended 
bifurcating the climate risk disclosures into short-term and long-term 
timeframes, without a medium-term timeframe, similar to certain MD&A 
disclosures.\372\ One of those commenters stated that imposing a 
different temporal standard for climate risk disclosure would pose 
meaningful challenges to management as they seek to adapt their 
strategies and could result in misalignment of climate-related 
disclosures with ``other, potentially more critical, strategically 
relevant disclosure issues, including the financial statements and 
MD&A.'' \373\
---------------------------------------------------------------------------

    \368\ See, e.g., letters from ABA; Alphabet et al.; AFPM; 
American Investment Council (June 17, 2022) (``AIC''); Associated 
General Contractors of America (June 17, 2022) (``AGCA''); BOA; 
``BPI; Cato Inst.; Chamber; Davis Polk; Enbridge; NAM; RILA; SIFMA; 
Soc. Corp. Gov.; and J. Weinstein.
    \369\ See, e.g., letters from Alphabet et al.; AIC; BOA; and 
BPI.
    \370\ See, e.g., letters from AFPM; Cato Inst.; Chamber; Davis 
Polk; RILA; Soc. Corp. Gov.; and J. Weinstein.
    \371\ See, e.g., letters from ABA; and SIFMA; see also letter 
from NAM (stating that the relevant time periods should be short-
term (18 to 24 months) and long-term (anything over 24 months), 
according to the registrant's particular facts and circumstances).
    \372\ See letter from ABA.
    \373\ See id.
---------------------------------------------------------------------------

c. Final Rule
    In a change from the rule proposal, the final rule (Item 1502(a)) 
provides that in describing any climate-related risks that have 
materially impacted or are reasonably likely to have a material impact, 
a registrant should describe whether such risks are reasonably likely 
to manifest in the short-term (i.e., the next 12 months) and separately 
in the long-term (i.e., beyond the next 12 months).\374\ This temporal 
standard is generally consistent with an existing standard in MD&A, 
which was recommended by some commenters.\375\ That MD&A standard 
specifically requires a registrant to analyze its ability to generate 
and obtain adequate amounts of cash to meet its requirements and plans 
for cash in the short-term (i.e., the next 12 months from the most 
recent fiscal period end required to be presented) and separately in 
the long-term (i.e., beyond the next 12 months).\376\ The existing MD&A 
standard also generally requires that a registrant ``provide insight 
into material opportunities, challenges and risks, such as those 
presented by known material trends and uncertainties, on which the 
company's executives are most focused for both the short and long term, 
as well as the actions they are taking to address these opportunities, 
challenges and risks.'' \377\ We are adopting this temporal standard to 
address the concern of commenters that imposition of a different 
temporal standard (and, in particular, one that includes a ``medium 
term'' period) for climate risk disclosure would pose challenges and 
potentially conflict with a registrant's assessment of other risks and 
events that are reasonably likely to have a material impact on its 
future operations.\378\ We note, however, that a registrant is not 
precluded from breaking down its description of risks reasonably likely 
to manifest beyond the next 12 months into components that may include 
more medium- and longer-term risks, if that is consistent with the 
registrant's assessment and management of the climate-related risk.
---------------------------------------------------------------------------

    \374\ See 17 CFR 229.1502(a).
    \375\ See, e.g., letter from ABA.
    \376\ See 17 CFR 229.303(b)(1).
    \377\ See Commission Guidance Regarding Management's Discussion 
and Analysis of Financial Condition and Results of Operation, 
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)]. 
See also Management's Discussion and Analysis of Financial Condition 
and Results of Operations; Certain Investment Company Disclosures, 
Release No. 33-6835 (May 18, 1989) [54 FR 22427 (May 24, 1989)] 
(stating that MD&A is ``an opportunity to look at the company 
through the eyes of management by providing both a short and long-
term analysis of the business of the company'').
    \378\ See supra notes 368-371 and accompanying text.
---------------------------------------------------------------------------

    We are modeling the temporal standard in Item 1502(a) on this MD&A 
standard as recommended by commenters because the materiality 
determination that a registrant will be required to make regarding 
climate-related risks under the final rules is the same as what is 
generally required when preparing the MD&A section in a registration 
statement or annual report. MD&A requires a registrant to disclose 
material events and uncertainties known to management that are 
reasonably likely to cause reported financial information not to be 
necessarily indicative of future operating results or of future 
financial condition.\379\ MD&A further requires the inclusion of 
descriptions and amounts of matters that have had a material impact on 
reported operations as well as matters that are reasonably likely to 
have a material impact on future operations.\380\
---------------------------------------------------------------------------

    \379\ See 17 CFR 229.303(a).
    \380\ See Management's Discussion and Analysis, Selected 
Financial Data, and Supplementary Financial Information, Release No. 
33-10890 (Nov. 19, 2020), [86 FR 2080, 2089 (Jan. 11, 2021)] (``2020 
MD&A Adopting Release'').
---------------------------------------------------------------------------

    When evaluating whether any climate-related risks have materially 
impacted or are reasonably likely to have a material impact on the 
registrant, including on its business strategy,

[[Page 21696]]

results of operations, or financial condition, registrants should rely 
on traditional notions of materiality. As defined by the Commission and 
consistent with Supreme Court precedent, a matter is material if there 
is a substantial likelihood that a reasonable investor would consider 
it important when determining whether to buy or sell securities or how 
to vote or such a reasonable investor would view omission of the 
disclosure as having significantly altered the total mix of information 
made available.\381\ The materiality determination is fact specific and 
one that requires both quantitative and qualitative 
considerations.\382\
---------------------------------------------------------------------------

    \381\ See 17 CFR 230.405 (definition of ``material''); 17 CFR 
240.12b-2 (definition of ``material''). See also Basic Inc. v. 
Levinson, 485 U.S. 224, 231, 232, and 240 (1988) (holding that 
information is material if there is a substantial likelihood that a 
reasonable investor would consider the information important in 
deciding how to vote or make an investment decision; and quoting TSC 
Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449 (1977) to 
further explain that an omitted fact is material if there is ``a 
substantial likelihood that the disclosure of the omitted fact would 
have been viewed by the reasonable investor as having significantly 
altered the `total mix' of information made available.'').
    \382\ See Litwin v. Blackstone Group, L.P., 634 F.3d 706, 720 
(2d Cir. 2011) (``[A] court must consider `both quantitative and 
qualitative factors in assessing an item's materiality,' and that 
consideration should be undertaken in an integrative manner.''). See 
also Business and Financial Disclosure Required by Regulation S-K, 
Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915 (Apr. 22, 2016)] 
(``Concept Release'') (discussing materiality in the context of, 
among other matters, restating financial statements). See also Staff 
Accounting Bulletin No. 99 (Aug. 12, 1999), available at https://www.sec.gov/interps/account/sab99.htm (emphasizing that a registrant 
or an auditor may not substitute a percentage threshold for a 
materiality determination that is required by applicable accounting 
principles). Staff accounting bulletins are not rules or 
interpretations of the Commission, nor are they published as bearing 
the Commission's official approval. They represent interpretations 
and practices followed by the Division of Corporation Finance and 
the Office of the Chief Accountant in administering the disclosure 
requirements of the Federal securities laws. Staff accounting 
bulletins and any other staff statements discussed in this release 
have no legal force or effect: they do not alter or amend applicable 
law, and they create no new or additional obligations for any 
person.
---------------------------------------------------------------------------

    The ``reasonably likely'' component of the rules we are adopting, 
as with the same standard in MD&A regarding known trends, events, and 
uncertainties, is grounded in whether disclosure of the climate-related 
risk would be material to investors and requires that management 
evaluate the consequences of the risk as it would any known trend, 
demand, commitment, event, or uncertainty. Accordingly, management 
should make an objective evaluation, based on materiality, including 
where the fruition of future events is unknown.\383\
---------------------------------------------------------------------------

    \383\ See, e.g., 2020 MD&A Adopting Release. As noted above, the 
materiality determination that a registrant will be required to make 
regarding climate-related risks under the final rules is the same as 
what is generally required when preparing the MD&A section of a 
registration statement or annual report. Accordingly, registrants 
can look to the guidance in the 2020 MD&A Adopting Release regarding 
application of the ``reasonably likely'' standard when considering 
their disclosure obligations under the various components of Item 
1502. According to this guidance, the reasonably likely standard 
``is not intended to, nor does it require, registrants to affirm the 
non-existence or non-occurrence of a material future event.'' 
Rather, ``it requires management to make a thoughtful and objective 
evaluation, based on materiality, including where the fruition of 
future events is unknown.'' 2020 MD&A Adopting Release, 86 FR at 
2093.
---------------------------------------------------------------------------

D. Disclosure Regarding Impacts of Climate-Related Risks on Strategy, 
Business Model, and Outlook

1. Disclosure of Material Impacts (Item 1502(b), (c), and (d))
a. Proposed Rules
    The Commission proposed to require a registrant to describe the 
actual and potential impacts on its strategy, business model, and 
outlook of those climate-related risks that it must disclose pursuant 
to proposed Item 1502(a).\384\ The Commission further proposed to 
require a registrant to include in such description any impacts on its:
---------------------------------------------------------------------------

    \384\ See Proposing Release, section II.C.1.
---------------------------------------------------------------------------

     Business operations, including the types and locations of 
its operations;
     Products or services;
     Suppliers and other parties in its value chain;
     Activities to mitigate or adapt to climate-related risks, 
including adoption of new technologies or processes;
     Expenditure for research and development; and
     Any other significant changes or impacts.
    The proposed rules would have required a registrant to disclose the 
time horizon for each described impact (i.e., as manifested in the 
short, medium, or long term, as defined by the registrant when 
determining its material climate-related risks).\385\
---------------------------------------------------------------------------

    \385\ See id.
---------------------------------------------------------------------------

    When proposing these disclosure requirements, the Commission stated 
that information about how climate-related risks have impacted or are 
likely to impact a registrant's strategy, business model, and outlook 
can be important for purposes of making an investment or voting 
decision about the registrant.\386\ The Commission further noted that, 
in response to a request for public input,\387\ several commenters had 
stated that many registrants included largely boilerplate discussions 
about climate-related risks and failed to provide a meaningful analysis 
of the impacts of those risks on their businesses.\388\ The Commission 
proposed the disclosure requirements about climate-related impacts to 
elicit more robust and company-specific disclosure on this topic.\389\
---------------------------------------------------------------------------

    \386\ See id.
    \387\ See Proposing Release, section I.B.
    \388\ See Proposing Release, section II.C.1.
    \389\ See id.
---------------------------------------------------------------------------

    The proposed rules also would have required a registrant to discuss 
whether and how it has considered the identified impacts as part of its 
business strategy, financial planning, and capital allocation.\390\ In 
this regard, the proposed rules would have required a registrant to 
provide both current and forward-looking disclosures that facilitate an 
understanding of whether the implications of the identified climate-
related risks have been integrated into the registrant's business model 
or strategy, including how resources are being used to mitigate 
climate-related risks. The proposed rules would have required the 
discussion to include how any of the climate-related financial metrics 
referenced in proposed Article 14 of Regulation S-X, the metrics 
referenced in the GHG emissions section of proposed subpart 1500 of 
Regulation S-K, or any of the targets referenced in the targets and 
goals section of proposed subpart 1500, relate to the registrant's 
business model or business strategy.\391\
---------------------------------------------------------------------------

    \390\ See id.
    \391\ See id.
---------------------------------------------------------------------------

    In addition, the proposed rules would have required a registrant to 
provide a narrative discussion of whether and how any of its identified 
climate-related risks have affected or are reasonably likely to affect 
the registrant's consolidated financial statements.\392\ The proposed 
rules would have required this discussion to include any of the 
climate-related financial metrics referenced in proposed Article 14 of 
Regulation S-X that demonstrate that the identified climate-related 
risks have had a material impact on the registrant's reported financial 
condition or operations.\393\ This proposed provision was intended to 
provide climate-related disclosure that is similar to MD&A, and, as 
noted in the discussion above, the proposed rules would allow a 
registrant to provide such disclosure as part of its MD&A.
---------------------------------------------------------------------------

    \392\ See id.
    \393\ See id.
---------------------------------------------------------------------------

b. Comments
    Many commenters supported the Commission's proposal to require a

[[Page 21697]]

registrant to describe the actual and potential impacts on its 
strategy, business model, and outlook of those climate-related risks 
that it has determined are reasonably likely to have a material impact 
on its business or consolidated financial statements.\394\ Commenters 
indicated that detailed information about the actual and potential 
impacts of a registrant's identified climate-related risks is central 
to helping investors do the following: understand the extent to which a 
registrant's business strategy or business model may need to change to 
address those impacts; evaluate management's response to the impacts 
and the resiliency of the registrant's strategy to climate-related 
factors; and assess whether a registrant's securities have been 
correctly valued.\395\ One commenter indicated that investors need more 
detailed information about the effects of climate-related risks because 
such risks can affect a company's operations and financials in a wide 
range of ways, including impacts on revenues, the useful life of 
assets, loan qualification, and insurance costs.\396\ Other commenters 
stated that, despite the importance for investors of information about 
climate-related financial impacts, such information is currently 
underreported.\397\
---------------------------------------------------------------------------

    \394\ See, e.g., letters from AGs of Cal. et al.; Amazon; Amer. 
for Fin. Reform, Sunrise Project et al.; Anthesis; Bloomberg; BNP 
Paribas; Breckinridge Capital Advisors; CalSTRS; Center Amer. 
Progress; Ceres; Eni SpA; D. Hileman Consulting; IAC Recommendation; 
NY St. Comptroller; PIMCO; PRI; PwC; SKY Harbor; Unilever; and 
Wellington Mgmt.
    \395\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CalSTRS; Ceres; Eni SpA; and Wellington Mgmt.
    \396\ See letter from Center Amer. Progress.
    \397\ See, e.g., letters from Ceres; PIMCO; PwC; and Wellington 
Mgmt.
---------------------------------------------------------------------------

    Several commenters also supported the proposed requirement to 
include in the impacts description any impacts on, or any significant 
changes made to, a registrant's business operations, products or 
services, suppliers and other parties in its value chain, activities to 
mitigate or adapt to climate-related risks, including adoption of new 
technologies or processes and expenditure for research and development, 
and any other significant changes or impacts.\398\ Commenters stated 
that the proposed enumerated disclosure items, including impacts 
related to a registrant's supply or value chain, are necessary to 
provide a comprehensive description of a registrant's identified 
climate-related risks, and are consistent with the types of impacts 
that a registrant may face and that are recommended for disclosure by 
the TCFD.\399\ Commenters further stated that the proposed disclosure 
items would help investors understand the extent to which a registrant 
has taken actions to mitigate or adapt to a material climate-related 
risk.\400\ One commenter, however, recommended that the final rules 
should clarify that the list of impacts are examples of impacts, to be 
disclosed if applicable, and not required items of disclosure.\401\
---------------------------------------------------------------------------

    \398\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CalSTRS; Eni SpA; PRI; TotalEnergies; and Wellington 
Mgmt.
    \399\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and PRI.
    \400\ See, e.g., letters from CalSTRS; and Eni SpA.
    \401\ See letter from PwC.
---------------------------------------------------------------------------

    A number of commenters also supported the proposed requirement to 
disclose whether and how a registrant has considered any identified 
impacts as part of its business strategy, financial planning, and 
capital allocation because it would help investors assess a 
registrant's likely resiliency to climate-related impacts and because, 
due to its consistency with the TCFD's recommendations, the proposed 
disclosure requirement would lead to more consistent, comparable, and 
reliable climate-related disclosure.\402\ Several commenters further 
supported the proposed provision requiring a registrant to provide a 
narrative discussion of whether and how any of its identified climate-
related risks have affected or are reasonably likely to affect its 
consolidated financial statements.\403\ Some of those commenters 
recommended that this narrative discussion should be part of a 
registrant's MD&A.\404\ One commenter stated that the proposed 
provision would help investors understand how management views the 
realized or likely impacts of identified climate-related risks on a 
company's consolidated financial statements, which would then assist 
investors in their assessment of a registrant's climate risk 
management.\405\ One commenter recommended adopting a climate 
disclosure framework, similar to MD&A, that focuses on providing 
investors with material climate-related information that management 
uses to make strategic decisions while allowing registrants to tailor 
the disclosure to fit their particular circumstances.\406\ This 
commenter stated that requiring a discussion of climate-related impacts 
from management's perspective and encompassing impacts to the 
registrant, its suppliers, and other parties in its value chain would 
provide investors with what has primarily been missing from current 
Commission filings.\407\ The Commission's Investor Advisory Committee 
similarly recommended requiring a separate ``Management Discussion of 
Climate-Related Risks and Opportunities'' in Form 10-K, similar to the 
disclosure required by Item 303 of Regulation S-K (MD&A), which would 
enhance investor understanding of management's views of climate-related 
risks and opportunities.\408\
---------------------------------------------------------------------------

    \402\ See, e.g., letters from Anthesis; CalPERS; D. Hileman 
Consulting; PRI; and TotalEnergies.
    \403\ See, e.g., letters from AllianceBernstein; Beller et al.; 
BNP Paribas; CalPERS; CEMEX; Eni SpA; ICI; Morningstar; PwC; 
TotalEnergies; and Unilever.
    \404\ See, e.g., letters from AllianceBernstein; Beller et al.; 
and BNP Paribas.
    \405\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \406\ See letter from PwC.
    \407\ See id.
    \408\ See IAC Recommendation.
---------------------------------------------------------------------------

    Several commenters stated that, instead of requiring the disclosure 
of financial metrics concerning climate-related impacts in the 
financial statements, as proposed, the Commission should require 
registrants to consider material climate-related impacts when 
discussing the results of operations, capital resources, and liquidity 
under MD&A.\409\ One commenter, responding to the Commission's proposed 
amendments to Regulation S-X, recommended requiring the disclosure of a 
registrant's actual discrete and separable climate-related 
expenditures, both expensed and capitalized, made during each fiscal 
year, which would be linked to and aligned with the risks, goals, and 
strategies companies would disclose under proposed Item 1502 of 
Regulation S-K.\410\ The commenter's recommended expenditures 
disclosure would be included in the financial statements but would take 
the place of the proposed ``financial impacts'' disclosure under 
Regulation S-X and would be presented in tabular format and cover three 
distinct categories: climate-related events; transition activities for 
publicly disclosed climate-related targets and goals, such as those 
included in a company's sustainability report; and all other transition 
activities.\411\ Another

[[Page 21698]]

commenter stated that if a registrant's financial estimates and 
assumptions are impacted by exposures to uncertainties associated with 
transition risks, the registrant should be required to provide 
qualitative disclosure about such impacts to its financial estimates 
and assumptions in its climate-related disclosure or in its MD&A 
instead of in the financial statements.\412\
---------------------------------------------------------------------------

    \409\ See, e.g., letter from Randi Morrison, Soc. Corp. Gov 
(Sept. 9, 2022); see also letters from ABA; Airlines for America; 
Alphabet et al.; Amer. Bankers; BDO USA LLP; BPI; California 
Resources Corporation (June 17, 2022) (``Cal. Resources''); Can. 
Bankers; CAQ; FEI's Committee on Corporate Reporting (June 17, 2022) 
(``CCR''); Climate Risk Consortia; Connor Grp.; Diageo; Dominion 
Energy; Eni SpA; Grant Thornton; LLP; IIB; IIF; Financial Reporting 
Committee of the Institute of Management Accountants (June 21, 2022) 
(``IMA''); IPA; JLL (June 17, 2022) (``JLL''); Linklaters LLP (June 
17, 2022) (``Linklaters''); Mtg. Bankers; NG; Royal Gold (June 17, 
2022); Shearman Sterling; SIFMA AMG; T. Rowe Price; Unilever; 
Walmart; and Wells Fargo.
    \410\ See letter from Amazon.
    \411\ See id.
    \412\ See letter from IMA.
---------------------------------------------------------------------------

    Many other commenters, however, broadly opposed the proposed 
disclosure requirement regarding impacts from climate-related 
risks.\413\ Some commenters stated that the proposed disclosure 
requirement was unnecessary because the Commission's existing rules 
already require a registrant to disclose material impacts from climate-
related risks.\414\ Some commenters expressed concern that the proposed 
disclosure requirement would result in disclosure of a large volume of 
information that is immaterial to investors and burdensome for 
registrants to produce.\415\ Some commenters stated that the proposed 
requirement to disclose impacts on participants in a registrant's value 
chain was particularly onerous for registrants because of difficulties 
in collecting relevant and reliable information from third 
parties.\416\ In this regard, some commenters stated that suppliers and 
other parties in a registrant's value chain may resist pressure to 
provide the data necessary to assess their climate risk exposure 
because they are private companies concerned about incurring increased 
costs or competitive harm.\417\ Other commenters stated that the 
proposed disclosure requirement was too prescriptive and would not 
allow a registrant to tailor its disclosures according to its 
particular business or industry.\418\ One commenter recommended that we 
delete the term ``business model'' because it is not otherwise used in 
Regulation S-K and might be interpreted by some registrants that do not 
have a business model as implying that they must adopt one.\419\
---------------------------------------------------------------------------

    \413\ See, e.g., letters from American Automotive Leasing 
Association, America Car Rental Association, Truck Renting and 
Leasing Association (June 17, 2022) (``AALA''); American Bankers 
Association (June 17, 2022) (``Amer. Bankers''); Amer. Chem.; AGC; 
CEMEX; Fenwick West; D. Burton, Heritage Fdn.; J. Brendon Herron 
(June 17, 2022) (``J. Herron''); NMA; National Retail Federation 
(June 17, 2022) (``NRF''); RILA; and Walmart.
    \414\ See, e.g., letters from CEMEX; Fenwick West; D. Burton, 
Heritage Fdn; and NMA.
    \415\ See, e.g., letters from AGC; Fenwick West; NMA; NRF; RILA; 
and Walmart.
    \416\ See, e.g., letters from AGC; Soc. Corp. Gov.; United Air; 
and Williams Cos.
    \417\ See, e.g., letters from AGC; Soc. Corp. Gov.; and United 
Air.
    \418\ See, e.g., letters from AALA; J. Herron; NMA; and Walmart.
    \419\ See letter from ABA.
---------------------------------------------------------------------------

    Some commenters generally supported the proposed impact disclosure 
provision but recommended that the Commission add a materiality 
qualifier to elicit disclosure of only the most likely and significant 
impacts, which they asserted would provide more useful information for 
investors and reduce a registrant's compliance burden.\420\ Similarly, 
some commenters generally supported some form of climate disclosure 
while recommending that the Commission make the final rules more 
principles-based so that registrants could better tailor their 
disclosures to reflect their own particular facts and 
circumstances.\421\
---------------------------------------------------------------------------

    \420\ See, e.g., letters from Amazon; Beller et al.; and ICI.
    \421\ See, e.g., letters from ABA; Beller et al.; and Walmart.
---------------------------------------------------------------------------

c. Final Rules
    The final rule provision (Item 1502(b)) will require a registrant 
to describe the actual and potential material impacts of any climate-
related risk identified in response to Item 1502(a) on the registrant's 
strategy, business model, and outlook.\422\ Information about the 
actual and potential material impacts of climate-related risks on a 
registrant's strategy, business model, and outlook is central to 
understanding the extent to which a registrant's business strategy or 
business model has changed, is changing, or is expected to change to 
address those impacts. This information is also central to evaluating 
management's response to the impacts and the resiliency of the 
registrant's strategy to climate-related factors as it pertains to the 
registrant's results of operations and financial condition. Numerous 
commenters on the proposal shared some or all of these views.\423\
---------------------------------------------------------------------------

    \422\ See 17 CFR 229.1502(b). As used in the final rules, the 
term ``outlook'' means ``the prospect for the future,'' consistent 
with its general definition. See Merriam-Webster Dictionary, 
available at https://www.merriam-webster.com/dictionary/outlook. For 
the avoidance of doubt, use of the term ``outlook'' is not intended 
to suggest that a registrant must disclose its earnings guidance or 
forecasts in response to Item 1502(b).
    \423\ See supra note 395 and accompanying text.
---------------------------------------------------------------------------

    The proposed rule did not specifically include a materiality 
qualifier when requiring a registrant to describe the actual and 
potential impacts of any identified climate-related risk in response to 
proposed Item 1502(a). In practice, however, proposed Item 1502(b) 
would have elicited disclosure focused on material impacts because 
proposed Item 1502(a) would have required a registrant to describe only 
those climate-related risks that the registrant had identified as 
having materially impacted or being reasonably likely to have a 
material impact on the registrant.\424\ Nevertheless, we recognize 
that, as proposed, Item 1502(b) may have caused some confusion 
regarding the scope of the proposed disclosure requirement.\425\ Some 
commenters misinterpreted the rule proposal as requiring the disclosure 
of actual or potential impacts of climate-related risks, regardless of 
their materiality.\426\ We have, therefore, added an explicit 
materiality qualifier to Item 1502(b) to clarify that a registrant is 
only required to disclose material impacts of climate-related risks 
that it has identified in response to Item 1502(a). This clarifying 
amendment will help address commenters' concerns that the proposed rule 
could result in the disclosure of large amounts of immaterial 
information and thus be unduly burdensome for registrants.
---------------------------------------------------------------------------

    \424\ See supra section II.C.1.a.
    \425\ See, e.g., letter from Fenwick West.
    \426\ See, e.g., letters from Fenwick West; and RILA.
---------------------------------------------------------------------------

    Some commenters asserted that the proposed rule provision was not 
necessary because the Commission's existing rules generally require a 
registrant to disclose the effects of material risks, including 
climate-related risks.\427\ However, as other commenters have stated, 
many companies do not discuss any climate-related risks in response to 
existing disclosure requirements.\428\ Accordingly, a rule provision 
that specifically requires the disclosure of material impacts of 
climate-related risks, and lists the types of potential material 
impacts that must be described, if applicable, will provide investors 
access to this information on a more consistent and comparable 
basis.\429\
---------------------------------------------------------------------------

    \427\ See supra note 414 and accompanying text.
    \428\ See supra note 397 and accompanying text.
    \429\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Eni SpA; and PRI.
---------------------------------------------------------------------------

    The final rule provision largely lists the same types of potential 
material impacts of climate-related risks as under the rule proposal. 
The list, which is intended to be non-exclusive, includes, as 
applicable, material impacts on the registrant's:
     Business operations, including the types and locations of 
its operations;
     Products or services;
     Suppliers, purchasers, or counterparties to material 
contracts, to the extent known or reasonably available;
     Activities to mitigate or adapt to climate-related risks, 
including adoption of new technologies or processes; and

[[Page 21699]]

     Expenditure for research and development.
    If none of the listed types of impacts or any other impacts are 
material, a registrant need not disclose them. Similarly, if a 
registrant has identified a climate-related risk that has materially 
impacted or is reasonably likely to impact its business strategy, 
results of operations, or financial condition, but the actual and 
potential material impact on its strategy, business model, and outlook 
is not specifically listed in the final rule, the impact will need to 
be disclosed. By providing a non-exclusive list of material impacts of 
climate risks in the rule text, but not mandating that all or only 
these impacts be disclosed, the final rule will help elicit more 
meaningful and relevant disclosure without overburdening registrants or 
investors with the presentation of irrelevant information.
    We have revised one of the types of potential material impacts 
listed in the proposal that referenced ``suppliers and other parties in 
[a registrant's] value chain,'' by replacing this phrase with 
``[s]uppliers, purchasers, or counterparties to material contracts, to 
the extent known or reasonably available.'' This revision is intended 
to address the concern of some commenters that requiring a registrant 
to include material impacts to a registrant's value chain would be 
overly burdensome to both the registrant and to entities in the 
registrant's value chain.\430\ Thus the final rule limits the scope of 
this specific topic to include only material impacts to the 
registrant's suppliers, purchasers, or counterparties to material 
contracts and further limits the information that should be disclosed 
about those impacts to information that is known or is reasonably 
available.\431\ The adopted provision is consistent with the 
Commission's general rules regarding the disclosure of information that 
is difficult to obtain, which will apply to the final rules if their 
conditions are met.\432\ Accordingly, as modified, this provision will 
help limit the compliance burden of the final rules by eliminating any 
potential need for registrants to undertake unreasonable searches or 
requests for information from their value chains.
---------------------------------------------------------------------------

    \430\ See supra note 416 and accompanying text.
    \431\ See 17 CFR 229.1502(b)(3). Registrants are required to 
include material contracts in Commission filings under existing 
rules. See, e.g., 17 CFR 229.601(b)(10).
    \432\ See 17 CFR 230.409 and 17 CFR 240.12b-21.
---------------------------------------------------------------------------

    Final Item 1502(c) will require a registrant to discuss whether and 
how the registrant considers any material impacts described in response 
to Item 1502(b) as part of its strategy, financial planning, and 
capital allocation.\433\ Similar to the rule proposal, but modified to 
make Item 1502(c) less prescriptive, the final rule provision will 
require a registrant to include in its disclosure responsive to this 
provision, as applicable:
---------------------------------------------------------------------------

    \433\ See 17 CFR 229.1502(c).
---------------------------------------------------------------------------

     Whether the impacts of the climate-related risks described 
in response to Item 1502(b) have been integrated into the registrant's 
business model or strategy, including whether and how resources are 
being used to mitigate climate-related risks; and
     How any of the targets referenced in Item 1504 \434\ or in 
a described transition plan \435\ relate to the registrant's business 
model or strategy.
---------------------------------------------------------------------------

    \434\ See infra section II.G.
    \435\ See infra section II.D.2.
---------------------------------------------------------------------------

    As noted by several commenters, this provision will help investors 
assess a registrant's resiliency to impacts of climate-related risks, 
by providing information about how management considers the realized or 
likely impacts of identified material climate-related risks on a 
company's business model or strategy.\436\
---------------------------------------------------------------------------

    \436\ See supra note 402 and accompanying text.
---------------------------------------------------------------------------

    In further response to commenters' concern that the proposed rules 
were overly prescriptive and could result in a volume of information 
that could be confusing for investors,\437\ we have streamlined the 
Item 1502(c) disclosure requirement. For example, we have omitted from 
the final Item 1502(c) provision the proposed requirement to 
``[p]rovide both current and forward-looking disclosures,'' \438\ which 
should provide registrants with more flexibility to determine the 
appropriate disclosures needed in response to the requirement. We also 
have eliminated the requirement to describe how any of the financial 
statement metrics or GHG emissions metrics relate to the registrant's 
business model or business strategy.\439\ Although a registrant may 
choose to include forward-looking information or discuss any climate-
related metrics or financial information in response to Item 1502(c), 
the final rule leaves it up to each registrant to determine, based on 
its particular facts and circumstances, what disclosure is necessary to 
help investors understand whether and how management has incorporated 
the material impacts of its climate-related risks into its business 
strategy, financial planning, and capital allocation.
---------------------------------------------------------------------------

    \437\ See supra note 415 and accompanying text; see also letters 
from API; Chamber; NAM; SIFMA; and Soc. Corp. Gov.
    \438\ See Proposing Release, section II.C.1.
    \439\ See id.
---------------------------------------------------------------------------

    In addition, to further streamline the disclosure and reduce some 
of the redundancy in the rule proposal,\440\ we have eliminated from 
Item 1502(c) the proposed disclosure requirement concerning the role 
that the use of carbon offsets or RECs has played in a registrant's 
climate-related strategy. Under the final rules, as part of its targets 
and goals disclosure,\441\ a registrant will be required to provide 
disclosure concerning its use of carbon offsets or RECs if they 
constitute a material component of a registrant's plan to achieve its 
climate-related targets or goals.\442\ Given this targets and goals 
disclosure requirement, explicitly requiring disclosure concerning the 
use of carbon offsets and RECs in the context of Item 1502(c) is not 
necessary.
---------------------------------------------------------------------------

    \440\ One commenter stated that the Commission should follow the 
TCFD's recommendation that ``[d]isclosures should be eliminated if 
they are immaterial or redundant to avoid obscuring relevant 
information.'' Letter from Chamber.
    \441\ See infra section II.G.
    \442\ See 17 CFR 229.1504(d).
---------------------------------------------------------------------------

    We acknowledge the commenter who recommended that we delete the 
term ``business model'' in the proposed disclosure item; \443\ however, 
we have retained the use of this term in the final rule because 
requiring a registrant to disclose a material impact on its business 
model caused by a climate-related risk will provide important 
information to investors about the effectiveness of the registrant's 
climate risk management that would otherwise be lost were we to omit 
this reference. In addition, registrants generally should be familiar 
with the term even if not previously used in Regulation S-K.\444\ 
Moreover, the TCFD uses that term in connection with disclosure about 
the resilience of a company's strategy to climate-related risks, and as 
such, using the concept in the final rules will provide consistency for 
those registrants that have been providing climate-related information 
based on that framework.\445\ If a registrant has not yet articulated a 
business model, or does not believe that its business model is or will 
be materially impacted by climate-related

[[Page 21700]]

risks, it need not provide the disclosure specified in this rule 
provision.
---------------------------------------------------------------------------

    \443\ See letter from ABA.
    \444\ See, e.g., business model, Oxford English Dictionary 
(2023), available at https://doi.org/10.1093/OED/2631068139; and 
business model, Cambridge Business English Dictionary (2023), 
available at https://dictionary.cambridge.org/dictionary/english/business-model.
    \445\ See TCFD, supra note 159, at Table A2.1; IFRS, IFRS S2 
Climate-related Disclosures (June 2023); See also IFRS, IFRS S2 
Accompanying Guidance on Climate-related Disclosures (June 2023).
---------------------------------------------------------------------------

    Proposed Item 1502(d) would have required a registrant to provide a 
narrative discussion of whether and how any climate-related risks 
described in response to proposed Item 1502(a) have affected or are 
reasonably likely to affect the registrant's consolidated financial 
statements.\446\ When proposing Item 1502(d), the Commission explained 
that this provision was intended to elicit a discussion of the 
financial effects of climate-related risks similar to MD&A.\447\ In a 
clarifying change from the proposal, and to address commenters' concern 
that the proposed rule could result in immaterial disclosure,\448\ we 
have added materiality qualifiers to ``have affected'' and ``are 
reasonably likely to affect'' to clarify that Item 1502(d) requires a 
discussion only of material climate-related risks (i.e., climate-
related risks that a registrant has identified as having had or being 
reasonably likely to have a material effect on the registrant).\449\ In 
a further change from the proposal, the final rules refer to the 
registrant's ``business, results of operations, and financial 
condition'' rather than ``consolidated financial statements.'' This is 
to reflect that the type of disclosure that is intended by this 
provision is more similar to that found in MD&A than that found in the 
notes to the financial statements.\450\
---------------------------------------------------------------------------

    \446\ See Proposing Release, section II.C.1.
    \447\ See id.
    \448\ See supra note 415 and accompanying text.
    \449\ See 17 CFR 229.1502(d)(1).
    \450\ As previously noted, several commenters recommended making 
or linking any climate-related financial disclosure requirements 
under or with MD&A disclosure requirements. See supra note 409 and 
accompanying text.
---------------------------------------------------------------------------

    Proposed Item 1502(d) also would have required a discussion that 
included the financial statement metrics to be disclosed pursuant to 
proposed Article 14 of Regulation S-X. In a change from the proposal, 
Item 1502(d)(2) will require a registrant to describe quantitatively 
and qualitatively the material expenditures incurred and material 
impacts on financial estimates and assumptions that, in management's 
assessment, directly result from activities to mitigate or adapt to 
climate-related risks disclosed pursuant to Item 1502(b)(4).\451\ 
Focusing the disclosure requirement on material expenditures that, 
based on management's assessment, were incurred as a direct result of 
the registrant's mitigation or adaptation activities will provide 
investors with a financial metric that is important to assessing the 
registrant's management of the disclosed risk, as well as assessing the 
financial impact of such activities. At the same time, linking the 
disclosure of the expenditures with management's assessment that they 
directly result from mitigation or adaptation activities will more 
closely align the disclosure requirement with how the registrant 
actually evaluates a material climate-related risk. This will not only 
provide investors with important information about a registrant's 
strategic decision-making concerning a material climate-related risk 
but should also help the registrant determine whether there are 
material expenditures that must be disclosed, thereby lowering the 
compliance burden, as some commenters noted.\452\
---------------------------------------------------------------------------

    \451\ See 17 CFR 229.1502(d)(2).
    \452\ See, e.g., letters from Amazon; and PwC.
---------------------------------------------------------------------------

    This disclosure requirement is intended to capture actual material 
expenditures, both capitalized and expensed, made during the fiscal 
year for the purpose of climate-related risk mitigation or adaptation. 
As one commenter noted, requiring the disclosure of material 
expenditures that are directly linked to a registrant's climate-related 
goals as part of a registrant's strategy or targets and goals 
disclosure under Regulation S-K,\453\ instead of requiring the 
disclosure of climate-related financial impacts on line items under 
Regulation S-X, as proposed, will help reduce the compliance burden of 
the final rules while providing material information for 
investors.\454\ Although this commenter recommended that such 
expenditures disclosure be presented in tabular format, the final rule 
provision does not specify a particular format. The final rule also 
does not require disclosure of ``discrete and separable'' expenditures, 
as the commenter suggested. A registrant may present the material 
expenditures disclosure in tabular or narrative form according to how 
it believes such information best fits within its overall climate risk 
disclosure.\455\ Likewise, the final rules provide registrants with 
more flexibility than that suggested by the commenter to determine 
which and to what extent expenditures must be disaggregated or 
otherwise broken out. This disclosure requirement covers material 
expenditures for the mitigation or adaptation of both physical risks 
and transition risks. The final Regulation S-X provisions that we are 
adopting, on the other hand, do not cover financial impacts caused by 
transition risks.\456\ This Regulation S-K provision, therefore, will 
elicit disclosures about material expenditures related to activities 
engaged in for the mitigation of and adaptation to climate-related 
risks in Commission filings while avoiding the difficulties of 
reporting such information in a note to the financial statements, as 
proposed.\457\
---------------------------------------------------------------------------

    \453\ See infra sections II.D.2.c and II.G.3.a for a similar 
material expenditures disclosure requirement, respectively, as part 
of a registrant's transition plan disclosure under Item 1502(e) and 
targets and goals disclosure under Item 1504 of Regulation S-K. To 
the extent that there is any overlapping disclosure of material 
expenditures in response to these Items, to avoid redundancy, a 
registrant should provide disclosure of material expenditures 
regarding the Item where, in its assessment, such disclosure is most 
appropriate, and then cross-reference to this disclosure when 
responding to the other Items.
    \454\ See letter from Amazon. As examples of transition 
activities expenditures, this commenter presented costs and expenses 
related to electrifying its delivery fleet, renewable energy 
purchases, and carbon offset purchases. See id., Appendix A.
    \455\ The structured data requirements set forth in Item 1508 
will facilitate investors' ability to find and analyze material 
expenditures disclosure regardless of whether provided in tabular or 
narrative form. See infra section II.M.3.
    \456\ See infra section II.K. In addition, in a change from the 
proposal, the amendments to Regulation S-X do not require the 
disclosure of expenditures to mitigate the risks of severe weather 
events and other natural conditions. Therefore, under Item 1502, 
investors will also receive information about expenditures related 
to the mitigation of physical risks that they will not otherwise 
receive in the disclosures required by the amendments to Regulation 
S-X.
    \457\ See supra notes 409 and 452 and accompanying text. The 
amendments to Regulation S-X will require the disclosure of 
expenditures related to carbon offsets and RECs, a type of 
transition activity, if carbon offsets and RECs have been used as a 
material component of a registrant's plans to achieve its disclosed 
climate-related targets or goals in a note to the financial 
statements. See infra section II.K.
---------------------------------------------------------------------------

    As discussed in more detail below,\458\ we recognize that some 
commenters on the proposed Regulation S-X amendments expressed concern 
regarding the attribution of expenses to climate risk mitigation 
activities. Specifically, these commenters stated that registrants make 
business decisions, such as incurring an expenditure to purchase a 
piece of machinery that is more energy efficient, for multiple reasons, 
and as a result, a registrant's transition activities may be 
inextricably intertwined with its ordinary business activities.\459\ 
Although similar concerns could arise with respect to Item 1502(d)'s 
expenditures disclosure requirement, subjecting the disclosure 
requirement to materiality rather than a bright-line threshold, as was 
proposed for the Regulation S-X amendments, and limiting the disclosure 
to material expenditures that, in ``management's assessment,'' are the 
direct result of

[[Page 21701]]

mitigation or adaptation activities, will help to mitigate the 
compliance burden and related concerns. In addition, in responding to 
the final rules, registrants will have the flexibility to explain 
qualitatively the nature of the expenditure and how management has 
determined that it is a direct result of the disclosed transition 
activities, which may help alleviate concerns about potential liability 
exposure for attribution decisions.\460\
---------------------------------------------------------------------------

    \458\ See infra sections II.K.2.b.iii, 3.b and c.
    \459\ See infra note 1892 and accompanying text.
    \460\ We note also that the ``significant contributing factor'' 
attribution principle applicable to certain disclosures required by 
the final rules in the financial statements, as well as any other 
guidance we provide below regarding the presentation of the 
disclosures in the financial statements, does not pertain to the 
expenditure disclosure in Regulation S-K. See infra section 
II.K.3.c.
---------------------------------------------------------------------------

    Requiring the disclosure of material impacts on financial estimates 
and assumptions that, from management's assessment, directly result 
from mitigation or adaptation activities will also provide investors 
with important information that will help them understand a 
registrant's climate risk management and assess any effects on its 
asset valuation and securities pricing.\461\ Registrants will similarly 
have the flexibility to explain qualitatively the nature of the impact 
on financial estimates and assumptions and how, in management's 
assessment, it is a direct result of the disclosed mitigation or 
adaptation activities.
---------------------------------------------------------------------------

    \461\ See, e.g., letter from IMA.
---------------------------------------------------------------------------

    We recognize that registrants may need to develop new systems and 
adjust their DCPs to ensure the accurate tracking and reporting of 
material expenditures and material impacts on financial estimates and 
assumptions that directly result from climate-related mitigation or 
adaptation activities.\462\ To accommodate such development and 
adjustment, we are providing an additional phase in for the requirement 
to disclose this information in the context of Item 1502. Accordingly, 
a registrant will not be required to comply with the Item 1502(d)(2) 
requirement until the fiscal year immediately following the fiscal year 
of its initial compliance date for subpart 1500 disclosures based on 
its filer status.\463\
---------------------------------------------------------------------------

    \462\ See, e.g., letters from ABA; Cohn Rez; HP; and IMA.
    \463\ We are providing the same one-year phase in for the 
material expenditures disclosure requirements being adopted in 
connection with a transition plan or a target and goal. See infra 
section II.O.3 below.
---------------------------------------------------------------------------

2. Transition Plan Disclosure (Items 1500 and 1502(e))
a. Proposed Rule
    The Commission proposed to require a registrant that has adopted a 
transition plan as part of its climate-related risk management strategy 
to describe the plan, including the relevant metrics and targets used 
to identify and manage any physical and transition risks.\464\ The 
proposed requirements were intended to help investors understand how a 
registrant intends to address identified climate-related risks and any 
transition to a lower carbon economy while managing and assessing its 
business operations and financial condition. The Commission proposed to 
define ``transition plan'' to mean a registrant's strategy and 
implementation plan to reduce climate-related risks, which may include 
a plan to reduce its GHG emissions in line with its own commitments or 
commitments of jurisdictions within which it has significant 
operations. To allow for an understanding of a registrant's progress to 
meet its plan's targets or goals over time, the proposed rules would 
have required the registrant to update its disclosure about its 
transition plan each fiscal year by describing the actions taken during 
the year to achieve the plan's targets or goals.\465\
---------------------------------------------------------------------------

    \464\ See Proposing Release, section II.E.2. The Commission 
proposed to require transition plan disclosure in connection with a 
registrant's risk management discussion. The final rules include 
transition plan disclosure as part of a registrant's disclosure 
about climate-related risks and their impact on the registrant's 
strategy to be consistent with TCFD's recommended transition plan 
disclosure. See, e.g., TCFD, Guidance on Metrics, Targets, and 
Transition Plans (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/07/2021-Metrics_Targets_Guidance-1.pdf.
    \465\ See Proposing Release, section II.E.2.
---------------------------------------------------------------------------

    The proposed rules would have further required a registrant that 
has adopted a transition plan to discuss, as applicable:
     How the registrant plans to mitigate or adapt to any 
identified physical risks, including but not limited to those 
concerning energy, land, or water use and management; and
     How the registrant plans to mitigate or adapt to any 
identified transition risks, including the following:
    [cir] Laws, regulations, or policies that:
    [ssquf] Restrict GHG emissions or products with high GHG 
footprints, including emissions caps; or
    [ssquf] Require the protection of high conservation value land or 
natural assets;
    [cir] Imposition of a carbon price; and
    [cir] Changing demands or preferences of consumers, investors, 
employees, and business counterparties.
    The proposed rules provided that a registrant that has adopted a 
transition plan may also describe how it plans to achieve any 
identified climate-related opportunities, such as:
     The production of products that may facilitate the 
transition to a lower carbon economy, such as low emission modes of 
transportation and supporting infrastructure;
     The generation or use of renewable power;
     The production or use of low waste, recycled, or other 
consumer products that require less carbon intensive production 
methods;
     The setting of conservation goals and targets that would 
help reduce GHG emissions; and
     The provision of services related to any transition to a 
lower carbon economy.
b. Comments
    Many commenters supported the proposed provision requiring a 
registrant that has adopted a transition plan to describe the plan, 
including the relevant metrics and targets used to identify and manage 
any physical and transition risks.\466\ Commenters stated that 
information about a registrant's transition plan would help investors 
evaluate the seriousness of stated corporate intentions to identify and 
manage climate-related risks, including the credibility of climate-
related targets and progress made toward those targets.\467\ Several 
commenters stated that information regarding a registrant's transition 
plan is important to help investors evaluate a registrant's management 
of its identified climate-related risks and help them assess the 
resiliency of a registrant's strategy in a potential transition to a 
lower carbon economy.\468\ Some commenters specifically supported 
requiring disclosure, as applicable, of a registrant's plan to mitigate 
or adapt to identified physical risks, as proposed, and further stated 
that there are no transition risks, as identified in the rule proposal, 
that should be excluded from the transition plan disclosure 
requirement.\469\ Other commenters stated that the proposed requirement 
would help provide more consistent and comparable disclosure about 
companies' transition plans, which, despite the

[[Page 21702]]

importance of such information, is currently lacking.\470\ As 
previously noted, one other commenter recommended requiring the 
disclosure of a registrant's climate-related expenditures, both 
expensed and capitalized, made during each fiscal year, which would be 
linked to and aligned with the risks, goals, and strategies that the 
registrant would disclose under proposed Item 1502 of Regulation S-
K.\471\
---------------------------------------------------------------------------

    \466\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Anthesis; BNP Paribas; CalPERS; CalSTRS; Ceres; Eni 
SpA; Etsy; International Corporate Governance Network (June 17, 
2022) (``ICGN''); Miller/Howard; Morningstar; Norges Bank Investment 
Management (June 17, 2022) (``Norges Bank''); NY SIF; NY St. 
Comptroller; Paradice Invest. Mgmt.; PRI; PwC; SKY Harbor; Soros 
Fund; TotalEnergies; and US SIF.
    \467\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and Calvert.
    \468\ See, e.g., letters from CalPERS; Calvert; ICGN; 
Morningstar; PRI; PwC; and Soros Fund.
    \469\ See, e.g., letters from Anthesis; Calvert; and 
TotalEnergies.
    \470\ See, e.g., letters from CalSTRS; and Ceres.
    \471\ See letter from Amazon.
---------------------------------------------------------------------------

    One commenter stated that the Commission should require a 
registrant that has a transition plan to disclose how it is aligned 
with the goals of the Paris Agreement.\472\ Another commenter similarly 
indicated that the proposed transition plan disclosure requirement 
would help investors evaluate the extent to which a registrant's plan 
is aligned with global climate-related goals.\473\ A few commenters 
stated that mandatory disclosure of a transition plan would not raise 
competitive harm concerns.\474\ One commenter recommended that we 
revise the transition plan disclosure requirement so that it aligns 
more with the TCFD's recommended disclosure of transition plans, which 
focuses solely on transition risk and does not include the mitigation 
or adaptation of physical risk.\475\ According to this commenter, a 
transition plan ``is not a tool for addressing physical risks, and 
disclosures on how an organization would address, manage and reduce the 
impact of physical risks should be disclosed under the risk management 
or targets sections.'' \476\
---------------------------------------------------------------------------

    \472\ See letter from BNP Paribas.
    \473\ See letter from Paradice Invest. Mgmt.
    \474\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al. (stating that mandatory transition plan disclosure 
should not raise competitive harm concerns because the Commission is 
not requiring the disclosure of any proprietary or commercially 
sensitive information); and Eni SpA (stating that a discussion of 
the short-, medium- and long-term objectives of a registrant's 
transition plan, the levers that will be used to achieve them, and 
the metrics used to track the registrant's progress towards 
alignment with the Paris Agreement goals, would not raise any 
competitive harm concerns); see also letter from Morningstar 
(stating that registrants ``may integrate transition plans into 
formats akin to medium-term plans or capital markets-day 
presentations, where they have historically been able to present 
forward-looking information without raising a competitive harm 
concern.'').
    \475\ See letter from PRI.
    \476\ Id.
---------------------------------------------------------------------------

    A number of commenters opposed the proposed requirement to describe 
a transition plan if one has been adopted.\477\ Some commenters stated 
that the proposed disclosure requirement was too prescriptive and would 
likely create a disincentive for the adoption of transition plans.\478\ 
Some commenters also stated that the proposed requirement would compel 
the disclosure of confidential business information and raise 
competitive harm concerns.\479\ One commenter asserted that the 
proposed requirement is not necessary because the Commission's existing 
rules, which require disclosure of any material change to a previously 
disclosed business strategy, would arguably elicit disclosure of a 
registrant's transition plan.\480\ Other commenters recommended that 
the Commission reduce the prescriptive nature of the proposed 
transition plan disclosure provision by requiring disclosure only of 
elements of a transition plan or transition activities that are 
material.\481\ One other commenter similarly recommended requiring the 
disclosure only of a material transition plan that has been approved by 
the board of directors.\482\ Still other commenters stated that 
transition plan disclosure should be voluntary.\483\
---------------------------------------------------------------------------

    \477\ See, e.g., letters from AALA; Amer. Chem.; Beller et al.; 
Business Roundtable; CEMEX; Chamber; Dimensional Fund Advisors (May 
13, 2022) (``Dimensional Fund''); D. Hileman Consulting; B. Herron; 
NAM; RILA; and Western Midstream.
    \478\ See, e.g., letters from Beller et al.; CEMEX; Dimensional 
Fund; GM; B. Herron; D. Hileman Consulting; NAM; and Western 
Midstream.
    \479\ See, e.g., letters from AALA; Business Roundtable; CEMEX; 
NAM; and RILA.
    \480\ See letter from Chamber; see also letter from Sullivan 
Cromwell.
    \481\ See, e.g., letters from ABA; Alphabet et al.; BlackRock; 
and Mortgage Bankers Association (June 17, 2022) (``Mtg. Bankers'').
    \482\ See letter from SIFMA.
    \483\ See, e.g., letters from CEMEX; and J. McClellan.
---------------------------------------------------------------------------

    Some commenters supported the proposed provision specifying that a 
registrant may disclose how it plans to achieve any climate-related 
opportunities.\484\ Commenters stated that information about whether 
and how a registrant intends to achieve climate-related opportunities, 
such as by creating products and services to facilitate a transition to 
a lower carbon economy, would be helpful for investors when comparing 
registrants' climate-related preparedness for the purpose of making 
investment decisions.\485\ One commenter recommended that the 
Commission require, rather than permit, the disclosure of how a 
registrant plans to achieve any climate-related opportunities mentioned 
in its transition plan in order to discourage deceptive 
statements.\486\
---------------------------------------------------------------------------

    \484\ See, e.g., letters from Anthesis; CalSTRS; Morningstar; 
and TotalEnergies.
    \485\ See, e.g., letters from CalSTRS; and Morningstar.
    \486\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    Some commenters supported the proposed provision requiring a 
registrant to update its disclosure about its transition plan each 
fiscal year by describing the actions taken during the year to achieve 
the plan's targets or goals.\487\ Several of these commenters stated 
that the updating provision was necessary to help investors track a 
registrant's progress toward meeting a transition plan's goals and to 
enable investors to make or alter their investment decisions based on 
current climate-related information.\488\ One of these commenters 
stated that ``[c]ompanies that try to distinguish themselves by 
releasing a public transition plan often are not required to provide 
updates as to how they are progressing against those targets, 
significantly limiting an investor's ability to assess management's 
success in reaching their goals.'' \489\ A few of these commenters 
further stated that the proposed updating requirement would not act as 
a disincentive to the adoption of a transition plan because companies 
that intend to follow through on their transition plan commitments will 
want to assess their progress in achieving them and report on such 
progress and any climate-related opportunities they may be 
pursuing.\490\
---------------------------------------------------------------------------

    \487\ See, e.g., letters from Anthesis; IAC Recommendation; 
IATP; Morningstar; and TotalEnergies.
    \488\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; IAC Recommendation; and Morningstar.
    \489\ IAC Recommendation.
    \490\ See, e.g., letters from Anthesis; and IATP.
---------------------------------------------------------------------------

    Other commenters, however, opposed the proposed updating 
requirement.\491\ One commenter stated that the proposed requirement 
would be burdensome for registrants and would act as a disincentive to 
the adoption of a transition plan.\492\ Another commenter stated that, 
due to the long timeline of transition plans, annual progress updates 
would in many cases not provide meaningful information for 
investors.\493\ This commenter recommended that there should instead be 
a requirement to annually report any actions taken to achieve 
transition plans that are material to the registrant, as well as any 
material positive or negative deviations from the plan or changes to it 
that are material to the registrant.\494\ Another commenter stated that 
a registrant should have to update its

[[Page 21703]]

transition plan disclosure only when the registrant believes it is 
appropriate to do so, and such updating should occur at most on an 
annual basis.\495\
---------------------------------------------------------------------------

    \491\ See, e.g., letters from CEMEX; and SIFMA.
    \492\ See letter from CEMEX.
    \493\ See letter from SIFMA.
    \494\ See id.
    \495\ See letter from Unilever.
---------------------------------------------------------------------------

c. Final Rule
    After considering comments received, we are adopting, with 
modifications from the proposal, a final rule provision (Item 1502(e)) 
that will require a registrant to describe a transition plan if it has 
adopted the plan to manage a material transition risk.\496\ Like the 
rule proposal, the final rules define (in Item 1500) a ``transition 
plan'' to mean a registrant's strategy and implementation plan to 
reduce climate-related risks, which may include a plan to reduce its 
GHG emissions in line with its own commitments or commitments of 
jurisdictions within which it has significant operations.\497\ The 
final rules do not mandate that registrants adopt a transition plan; if 
a registrant does not have a plan, no disclosure is required.
---------------------------------------------------------------------------

    \496\ See 17 CFR 229.1502(e).
    \497\ See 17 CFR 229.1500 (definition of ``transition plan'').
---------------------------------------------------------------------------

    As noted in the Proposing Release, registrants may adopt transition 
plans to mitigate or adapt to climate-related risks as an important 
part of their climate-related risk management strategy, particularly if 
the registrant has made commitments, or operates in a jurisdiction that 
has made commitments, to reduce its GHG emissions.\498\ We recognize 
that not every registrant has a transition plan and, as noted above, 
this rulemaking does not seek to prescribe any particular tools, 
strategies, or practices with respect to climate-related risks. If, 
however, a registrant has adopted such a plan, information regarding 
the plan is important to help investors evaluate a registrant's 
management of its identified climate-related risks and assess the 
potential impacts of a registrant's strategy to achieve its short- or 
long-term climate-related targets or goals on its business, results of 
operations, and/or its financial condition. Moreover, a registrant's 
transition plan may have a significant impact on its overall business 
strategy, for example, where companies operate in jurisdictions with 
laws or regulations in place designed to move them away from high 
emissions products and services.\499\ Because the steps a registrant 
plans to take pursuant to its transition plan may have a material 
impact on its business, results of operations, or financial condition, 
investors have sought more detailed disclosure about transition 
plans.\500\
---------------------------------------------------------------------------

    \498\ See Proposing Release, section II.E.2.
    \499\ See supra section II.A.
    \500\ See, e.g., letters from AGs of Cal. et al.; BNP Paribas; 
and Morningstar.
---------------------------------------------------------------------------

    We disagree with commenters that stated that transition plan 
disclosure should be voluntary \501\ and that a transition plan 
disclosure requirement was not necessary because the Commission's 
existing business description rules would arguably elicit sufficient 
disclosure of a registrant's transition plan.\502\ As other commenters 
noted, many registrants are not providing decision-useful information 
about their transition plans under the Commission's existing disclosure 
rules.\503\ While existing Item 101 of Regulation S-K may result in 
some disclosure regarding transition plans in response to the general 
requirements of that rule, mandatory disclosure about transition plans 
will help ensure that investors receive the information they need to 
evaluate a registrant's management of material climate-related risks 
and the impact of those plans on its results of operations and 
financial condition in a more consistent and predictable manner.
---------------------------------------------------------------------------

    \501\ See supra note 483 and accompanying text.
    \502\ See supra note 480 and accompanying text.
    \503\ See supra note 470 and accompanying text.
---------------------------------------------------------------------------

    We are cognizant, however, of commenters' concerns that the 
proposed transition plan disclosure provision was overly prescriptive 
and could result in immaterial disclosure or discourage registrants 
from adopting a transition plan to avoid having to describe the plan in 
detail.\504\ To address these concerns, we have significantly 
streamlined the transition plan disclosure provision and revised the 
provision so that the description of a transition plan is only required 
if a registrant has adopted the plan to manage a material transition 
risk. Unlike the proposed rule, the final rule does not list the types 
of transition risks and factors related to those risks that must be 
disclosed, if applicable.\505\ Instead, a registrant that is required 
to provide transition plan disclosure will have the flexibility to 
provide disclosure that addresses the particular facts and 
circumstances of its material transition risk.\506\ We also note that, 
as with scenario analysis and use of internal carbon price disclosure, 
a registrant's transition plan disclosure will be subject to a safe 
harbor.\507\
---------------------------------------------------------------------------

    \504\ See supra notes 478 and 481 and accompanying text.
    \505\ See Proposing Release, section II.E.2.
    \506\ As discussed above, transition risk is defined as the 
actual or potential negative impacts on a registrant's business, 
results of operations, or financial condition attributable to 
regulatory, technological, and market changes to address the 
mitigation of, or adaptation to, climate-related risks, such as 
increased costs attributable to changes in law or policy, reduced 
market demand for carbon-intensive products leading to decreased 
prices or profits for such products, the devaluation or abandonment 
of assets, risk of legal liability and litigation defense costs, 
competitive pressures associated with the adoption of new 
technologies, and reputational impacts (including those stemming 
from a registrant's customers or business counterparties) that might 
trigger changes to market behavior, consumer preferences or 
behavior, and registrant behavior. See 17 CFR 229.1500.
    \507\ See infra section II.J.3.
---------------------------------------------------------------------------

    Similar to the proposed rule, the final rule requires a registrant 
to update its annual report disclosure about the transition plan each 
fiscal year by describing any actions taken during the year under the 
plan, including how such actions have impacted the registrant's 
business, results of operations, or financial condition.\508\ This 
updating requirement will help investors understand the registrant's 
progress under the plan over time, track the impacts of a transition 
plan on a registrant's business and, as noted by commenters, help 
inform investment decisions.\509\ We disagree with the view of 
commenters who stated that this updating requirement would result in 
disclosure of information that is not meaningful for investors.\510\ 
Investors have indicated that they need periodic information regarding 
the steps a registrant has taken to achieve an announced climate-
related target or goal in order to evaluate a registrant's ongoing 
management of a material transition risk for the purpose of informing 
their investment or voting decisions.\511\ Once a registrant has 
provided disclosure about a transition plan it has adopted to manage a 
material climate risk, we do not expect that it would be particularly 
burdensome for the company to disclose updated information about 
actions taken under the plan on a going forward basis.\512\ Disclosure 
of the steps a registrant intends to make under a transition plan, and 
whether it has taken those steps, will help investors assess the 
financial impacts of the plan on the registrant's business, results of 
operations, or financial condition.\513\ Moreover,

[[Page 21704]]

requiring this information on an annual basis will allow investors to 
take into account current climate-related information in their 
investment and voting decisions more consistently than they would be 
able to if registrants were required to update their climate-related 
information less frequently or only when they deemed it 
appropriate.\514\
---------------------------------------------------------------------------

    \508\ See 17 CFR 229.1502(e)(1).
    \509\ See supra note 488 and accompanying text.
    \510\ See supra note 490 and accompanying text.
    \511\ See, e.g., letters from AGs of Cal. et al.; Amer. for Fin. 
Reform, Sunrise Project et al.; Anthesis; BNP Paribas; CalPERS; 
CalSTRS; Ceres; and Morningstar.
    \512\ We note that such an update would not be required where 
disclosure of the underlying transition plan would not be currently 
required (e.g., because the plan is no longer used to manage a 
material transition risk).
    \513\ See, e.g., letters from AGs of Cal. et al.; BNP Paribas; 
and Morningstar.
    \514\ See supra note 495 and accompanying text.
---------------------------------------------------------------------------

    We recognize that some commenters asserted that an updating 
requirement would act as a disincentive to the adoption of a transition 
plan. This effect may be attenuated, as some commenters indicated,\515\ 
if registrants that have disclosed a plan wish to inform investors 
about progress achieved pursuant to the plan. In any event, if a 
registrant is using a transition plan to manage a material transition 
risk, we think it is appropriate for registrants to provide ongoing 
disclosure about the plan so that investors can assess its impact on 
the registrant's business.\516\ As previously noted, however, we are 
agnostic about whether or how a registrant is managing its climate-
related risks, and the final rules are intended neither to incentivize 
nor disincentivize the use of a transition plan or any other climate 
risk management tool.
---------------------------------------------------------------------------

    \515\ See supra note 490 and accompanying text.
    \516\ To the extent that a registrant no longer uses a 
transition plan to manage a material climate risk, disclosure under 
this item, including the requirement for updates, would not be 
required.
---------------------------------------------------------------------------

    In a modification of the proposed rule, which would have generally 
required the disclosure of the relevant metrics and targets used to 
identify and manage transition risk under a transition plan, the final 
rule will require a registrant, as part of its updating disclosure, to 
include quantitative and qualitative disclosure of material 
expenditures incurred and material impacts on financial estimates and 
assumptions as a direct result of the disclosed actions taken under the 
plan.\517\ While this provision is similar to Item 1502(d), Item 
1502(e) differs in that it is intended to elicit disclosure about 
material expenditures and material impacts on financial estimates and 
assumptions that directly result from actions taken under a transition 
plan (e.g., material expenditures made for climate-related research and 
development). Item 1502(e) is not limited to disclosure concerning 
expenditures and impacts that directly result from mitigation or 
adaptation activities; \518\ however, to the extent that a registrant's 
disclosure made in response to Item 1502(d) or Item 1502(e) overlap 
with each other or with disclosure required under any other subpart 
1500 provision,\519\ the registrant need not repeat the disclosure.
---------------------------------------------------------------------------

    \517\ See 17 CFR 229.1502(e)(2).
    \518\ See supra section II.D.1.c for a discussion of Item 
1502(d)(2)'s requirement to disclose material expenditures and 
material impacts on financial estimates and assumptions directly 
resulting from mitigation or adaptation activities.
    \519\ For example, Item 1504(c)(2) requires similar disclosure 
regarding material impacts that directly result from actions taken 
by a registrant to achieve a disclosed target or goal. See infra 
section II.G.3. To the extent that there is any overlapping 
disclosure of material expenditures in response to Items 1502(d)(2), 
1502(e), and 1504(c)(2), to avoid redundancy, a registrant should 
provide disclosure of material expenditures regarding the Item 
where, in its assessment, such disclosure is most appropriate, and 
then cross-reference to this disclosure when responding to the other 
Items.
---------------------------------------------------------------------------

    Similar to Item 1502(d), the disclosure requirement under Item 
1502(e) is intended to capture material expenditures, both capitalized 
and expensed, made during the fiscal year under a transition plan, and 
to more closely align with how the registrant actually makes strategic 
decisions about taking actions under a transition plan. This provision 
will provide an important metric to help investors assess a 
registrant's climate risk management and the financial impact of a 
transition plan while also helping to limit the compliance burden, as 
some commenters noted.\520\ We have not qualified Item 1502(e) by 
referring to management's assessment as we have done in Item 1502(d) 
(i.e., material expenditures and material impacts that, in management's 
assessment, directly result from the disclosed actions). We believe 
that if a registrant has adopted a transition plan to manage a material 
transition risk, it is likely that management will oversee actions 
taken under the plan and, therefore, any material expenditures or 
material impacts on financial estimates and assumptions that are 
disclosed will have been assessed by management as being the direct 
result of such actions.
---------------------------------------------------------------------------

    \520\ See, e.g., letters from Amazon; and PWC.
---------------------------------------------------------------------------

    As under Item 1502(d), when responding to Item 1502(e), a 
registrant will have flexibility to explain qualitatively the nature of 
a material expenditure or material impact on its financial estimates or 
assumptions and how it directly resulted from the disclosed actions 
taken under the plan. Additionally, when considering which expenditures 
related to actions taken under a disclosed plan are material over the 
relevant period and therefore require disclosure, if individual 
expenditures do not appear to be material, registrants should consider 
whether overall expenditures related to actions taken under the plan 
are material in the aggregate and, if so, provide appropriate 
disclosure. For example, a series of individually immaterial 
expenditures could be the result of the same action or related actions 
under the plan, and those expenditures could be material in the 
aggregate. With respect to the disclosure of material impacts on 
financial estimates and assumptions as a direct result of the disclosed 
actions, to the extent that such information is disclosed in response 
to Rule 14-02(h) of Regulation S-X, a registrant would be able to 
cross-reference to such disclosure.\521\
---------------------------------------------------------------------------

    \521\ We remind registrants that while they are permitted to 
cross-reference to information in their financial statements to 
satisfy their Regulation S-K disclosure obligations, they are not 
permitted to cross-reference to Regulation S-K disclosures in their 
financial statements, unless otherwise specifically permitted or 
required by the Commission's rules or by U.S. Generally Accepted 
Accounting Principles (``U.S. GAAP'') or International Financial 
Reporting Standards (``IFRS'') as issued by the International 
Accounting Standards Board (``IASB''), whichever is applicable. See 
17 CFR 230.411 and 17 CFR 240.12b-23.
---------------------------------------------------------------------------

    Similar to Item 1502(d)(2), to allow for the development of 
systems, controls, and procedures to track and report material 
expenditures and material impacts on financial estimates and 
assumptions directly resulting from actions taken under a transition 
plan, we are phasing in compliance with Item 1502(e)(2). A registrant 
will not be required to comply with either provision until the fiscal 
year immediately following the fiscal year of its initial compliance 
date for the subpart 1500 rules based on its filer status.\522\
---------------------------------------------------------------------------

    \522\ See infra section II.O.3.
---------------------------------------------------------------------------

    As recommended by one commenter,\523\ we have removed the reference 
to physical risks that was in the proposed rule.\524\ This change will 
make the transition plan disclosure requirement more consistent with 
voluntary disclosures that are based on the TCFD's 
recommendations,\525\ which may mitigate the costs and complexity of 
complying with the final rule for registrants already familiar with the 
TCFD's framework.\526\ A registrant that faces a material physical 
risk, however, will still be required to disclose how it is managing 
that risk as part of its risk management disclosure.\527\ These 
revisions will elicit material information for investors about how a 
registrant

[[Page 21705]]

intends to reduce its exposure to a material transition risk while 
limiting the burdens on registrants and providing them more flexibility 
to determine what aspects of the transition plan should be disclosed in 
light of their facts and circumstances.
---------------------------------------------------------------------------

    \523\ See letter from PRI.
    \524\ See Proposing Release, section II.E.2.
    \525\ See TCFD, Guidance on Metrics, Targets, and Transition 
Plans section E (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/07/2021-Metrics_Targets_Guidance-1.pdf.
    \526\ See, e.g., infra note 2690 and accompanying text 
(describing a report finding that 50 percent of sustainability 
reports from Russell 1000 companies aligned with the TCFD 
recommendations).
    \527\ See 17 CFR 229.1503, discussed infra section II.F.
---------------------------------------------------------------------------

    We are cognizant that some commenters expressed concern that the 
proposed transition plan disclosure requirement would result in the 
disclosure of confidential or proprietary information that could cause 
competitive harm to the registrant.\528\ Modifying the transition plan 
disclosure provision to focus on material expenditures and material 
impacts on financial estimates and assumptions, rather than all 
relevant metrics and targets, will help to mitigate this concern by 
providing registrants with more flexibility to determine what is 
necessary to disclose in order to describe the plan. Similarly, 
modifying the transition plan disclosure provision to require 
disclosure only when a plan has been adopted to manage a material 
transition risk will further help to mitigate this concern. This added 
flexibility regarding transition plan disclosure will also help address 
concerns that the final rule could act as a disincentive to adoption of 
transition plans.\529\ While the final rules seek neither to 
incentivize nor disincentivize the adoption of transition plans, we 
recognize that the compliance burdens of disclosure may influence some 
registrants' decisions with respect to risk management practices and 
have therefore sought to mitigate such effects.
---------------------------------------------------------------------------

    \528\ See supra note 479 and accompanying text.
    \529\ See, e.g., letters from CEMEX; and SIFMA.
---------------------------------------------------------------------------

    We decline to follow the recommendation of one commenter to limit 
the transition plan disclosure requirement to only material transition 
plans that have been formally approved by a registrant's board of 
directors.\530\ We do not believe that board approval should be the 
determining factor in whether disclosure is provided. Such a provision 
would fail to elicit disclosure of a material transition plan adopted 
by senior management that, due to a registrant's particular corporate 
governance structure, is not required to be subject to a board vote but 
nevertheless has significant potential implications for the 
registrant's financial condition or results of operations. Like the 
proposal, the final rule does not require a registrant to disclose 
climate-related opportunities included in its transition plan. 
Nevertheless, as previously mentioned, a registrant may still elect to 
describe any opportunities that it intends to achieve as part of its 
transition plan discussion or when responding to any of the Item 1502 
provisions.\531\ We decline, however, to follow the recommendation of 
one commenter to require the disclosure of how a registrant intends to 
achieve any climate-related opportunities that are a part of its 
transition plan.\532\ Consistent with the rule proposal, we have 
determined to treat disclosure regarding climate-related opportunities 
as optional, among other reasons, to allay any anti-competitive 
concerns that might arise from a requirement to disclose a particular 
business opportunity.\533\ We believe those concerns could be 
exacerbated by requiring disclosure not only of the existence of 
opportunities in the transition plan but also how the registrant 
intends to achieve those opportunities.
---------------------------------------------------------------------------

    \530\ See supra note 482 and accompanying text.
    \531\ See supra section II.C.1.c.
    \532\ See supra note 486 and accompanying text.
    \533\ See Proposing Release, section II.A.1.
---------------------------------------------------------------------------

3. Disclosure of Scenario Analysis If Used (Items 1500 and 1502(f))
a. Proposed Rule
    The Commission proposed to require a registrant to describe the 
resilience of its business strategy in light of potential future 
changes in climate-related risks.\534\ In connection with this 
disclosure, the Commission proposed to require a registrant to describe 
any analytical tools, such as scenario analysis, that the registrant 
uses to assess the impact of climate-related risks on its business and 
consolidated financial statements, and to support the resilience of its 
strategy and business model in light of foreseeable climate-related 
risks.\535\ The Commission proposed to define scenario analysis to mean 
a process for identifying and assessing a potential range of outcomes 
of various possible future climate scenarios, and how climate-related 
risks may impact a registrant's operations, business strategy, and 
consolidated financial statements over time.\536\ The proposed 
definition included an example of how registrants might use scenario 
analysis.\537\
---------------------------------------------------------------------------

    \534\ See Proposing Release, section II.C.4.
    \535\ See id.
    \536\ See id. More generally, scenario analysis is a process for 
identifying and assessing a potential range of outcomes of future 
events under conditions of uncertainty. See, for example, the 
definition of ``scenario analysis'' in TCFD, Recommendations of the 
Task Force on Climate-related Financial Disclosures, Appendix 5.
    \537\ See Proposing Release, section II.C.4.
---------------------------------------------------------------------------

    The Commission proposed to require a registrant that uses scenario 
analysis to assess the resilience of its business strategy to climate-
related risks to disclose the scenarios considered (e.g., an increase 
of no greater than 3 deg;C, 2 deg;C, or 1.5 deg;C above pre-industrial 
levels), including the parameters, assumptions, and analytical choices, 
and the projected principal financial impacts on the registrant's 
business strategy under each scenario. The Commission further proposed 
that such disclosure should include both qualitative and quantitative 
information.\538\
---------------------------------------------------------------------------

    \538\ See id.
---------------------------------------------------------------------------

b. Comments
    Several commenters supported the proposed rule requiring a 
registrant to describe any analytical tools, such as scenario analysis, 
that the registrant uses to assess the impact of climate-related risks 
on its business and consolidated financial statements, and to support 
the resilience of its strategy and business model in light of 
foreseeable climate-related risks.\539\ One commenter stated that 
scenario analysis has emerged as a key analytical tool for assessing 
potential climate-related impacts on a company by allowing market 
participants to understand multiple possible outcomes while still 
reflecting a realistic level of uncertainty.\540\ This commenter 
further indicated that disclosure of scenario analysis if used would 
allow investors to review the general models and projections used by 
the company in its planning and capital allocation strategy, and would 
greatly assist investors in understanding a firm's resilience and 
assumptions about the effects of climate change.\541\ Another commenter 
supported the disclosure of scenario analysis if used because of the 
importance to investors of forward-looking assessments of climate-
related

[[Page 21706]]

risks in understanding the resilience of a company's climate-related 
strategy.\542\
---------------------------------------------------------------------------

    \539\ See, e.g., letters from American Institute of CPAs (June 
15, 2022) (``AICPA''); AllianceBernstein; Amer. for Fin. Reform, 
Sunrise Project et al.; Bloomberg; CalSTRS; Ceres; CFA; Council of 
Institutional Advisors (May 19, 2022) (``CII''); Eni SpA; IAC 
Recommendation; ICGN; ICI; J. McClellan; Morningstar; Norges Bank; 
NRDC; Paradice Invest. Mgmt.; Member of the U.S. House of 
Representatives Kathy Castor and 130 other House Members (Jun. 17, 
2022) (``U.S. Reps. Castor et al.''); San Francisco Employees' 
Retirement System (June 17, 2022) (``SFERS''); Unilever; Vodafone; 
and Wellington Mgmt.
    \540\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \541\ See id.; see also letters from ICI (stating that 
``[i]nformation about scenario analysis can help investors evaluate 
the resilience of the company's business strategy in the face of 
various climate scenarios that could impose potentially different 
climate-related risks''); and Wellington Mgmt. (stating that 
``disclosure of a scenario analysis enables investors to assess an 
issuer's risk management process and whether an issuer is 
considering different climate risk outcomes in its planning'').
    \542\ See letter from Bloomberg; see also letter from 
Morningstar (stating that scenario analysis is an important 
analytical tool in which companies may project their performance and 
results subject to various changes, including, but not limited to, 
policy interventions, technological advancement, or environmental 
and physical challenges, and that such analysis would help investors 
understand circumstances under which the value of a company could be 
at risk, and how a company's strategy may--or may not--move it 
forward toward long-term value creation and sustainability).
---------------------------------------------------------------------------

    Some commenters recommended that the Commission require all 
registrants to provide scenario analysis disclosure in their climate 
risk reporting, regardless of whether they otherwise use scenario 
analysis.\543\ One such commenter stated that requiring scenario 
analysis disclosure is essential if a registrant's disclosure of 
material climate-related risks is to be decision-useful for 
investors.\544\ According to that commenter, because scenario analysis 
requires a registrant to make assumptions regarding different global 
temperature increase pathways and various potential pathways of 
decarbonization involving regulatory, technological, and behavioral 
responses, investors need to know the assumptions and parameters 
considered by the registrant in order to understand the registrant's 
disclosure of likely climate-related impacts.\545\ One other commenter 
stated that, ``all else being equal,'' registrants that conduct strong 
scenario analyses should have more intrinsic value in the securities 
they offer than issuers that do not plan sufficiently for climate 
risk.\546\
---------------------------------------------------------------------------

    \543\ See, e.g., letters from Anthesis; NY St. Comptroller; PRI; 
and SFERS.
    \544\ See letter from SFERS.
    \545\ See id.
    \546\ See letter from Wellington Mgmt.
---------------------------------------------------------------------------

    One commenter stated that the proposed scenario analysis disclosure 
requirement struck an appropriate balance by requiring registrants to 
share any scenario analysis that they are otherwise conducting for 
their business operations while avoiding imposing a potentially 
difficult or burdensome requirement on those registrants that have not 
yet conducted such analysis.\547\ Some commenters similarly stated 
that, due to cost concerns, they could only support a requirement to 
disclose scenario analysis if it was limited to situations in which a 
registrant has actually used such analysis in its assessment of 
climate-related risks.\548\ Other commenters supported the proposed 
scenario analysis disclosure requirement but only if the use of 
scenario analysis reflected an expected material impact on the 
registrant's business strategy, financial planning, and capital 
raising.\549\ Still other commenters recommended that the Commission 
require a registrant that does not currently use scenario analysis to 
explain why it does not do so to prevent the disclosure requirement 
from acting as a disincentive to the adoption of scenario 
analysis.\550\
---------------------------------------------------------------------------

    \547\ See letter from CII.
    \548\ See, e.g., letters from AICPA; J. McClellan; and Unilever.
    \549\ See, e.g., letters from ABA; and AllianceBernstein.
    \550\ See, e.g., letters from BlackRock; ICI; NEI Investments 
(June 17, 2022) (``NEI''); and NY City Comptroller.
---------------------------------------------------------------------------

    Several commenters opposed or expressed concerns about the proposed 
requirement to disclose scenario analysis, if used.\551\ Some 
commenters stated that the proposed requirement could result in the 
disclosure of confidential business information.\552\ Other commenters 
stated that a scenario analysis disclosure requirement that is not 
qualified by materiality would act as a disincentive to the use of 
scenario analysis as a climate-related tool.\553\ Still other 
commenters opposed the proposed disclosure requirement because it was 
too prescriptive and would be costly and burdensome to fulfill.\554\ 
Because of the above concerns, some commenters stated that the 
disclosure of scenario analysis should be voluntary.\555\ Other 
commenters stated that the required scenario analysis disclosure should 
be limited to high level trends or material drivers and impacts, and 
should not cover more detailed parameters, assumptions, and analytical 
choices underlying the scenario analysis, as proposed.\556\ One 
commenter stated that scenario analysis disclosure should only be 
required when it is broadly used by senior management and the board as 
part of their strategic planning process and when integrated and 
material to a publicly announced climate-related strategy or 
initiative.\557\
---------------------------------------------------------------------------

    \551\ See, e.g., letters from Alphabet et al.; Amazon; Amer. 
Bankers; AFPM; CEMEX; Chamber; Chevron; Citigroup; Hydro One Limited 
(June 16, 2022) (``Hydro One''); Institute of International Finance 
(June 17, 2022) (``IIF''); NAM; Northern Trust; RILA; Shearman 
Sterling; Soc. Corp. Gov.; Sullivan Cromwell; the Travelers 
Companies (June 17, 2022) (``Travelers''); and Western Midstream.
    \552\ See, e.g., letters from AFPM; Amazon; Amer. Bankers; 
Chevron; Citigroup; GPA Midstream; IIF; NAM; RILA; Shearman 
Sterling; Soc. Corp. Gov.; Sullivan Cromwell; and Travelers.
    \553\ See, e.g., letters from Chamber; PGIM; Sullivan Cromwell; 
United Parcel Service, Inc. (Jun. 14, 2022) (``UPS''); and Western 
Midstream; see also letter from Beller et al. (opposing a mandatory 
scenario analysis disclosure requirement because it would stifle 
innovation).
    \554\ See, e.g., letters from Amer. Bankers; Dimensional Fund; 
NAM; and Soc. Corp. Gov.
    \555\ See, e.g., letters from Alphabet et al.; Beller et al.; 
Chamber; Hydro One; and Northern Trust.
    \556\ See, e.g., letters from ABA; and Chevron.
    \557\ See letter from Amazon.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission require the use of 
certain publicly available scenario models, such as those published by 
the Intergovernmental Panel on Climate Change (``IPCC''), the 
International Energy Agency (``IEA''), or the Network of Central Banks 
and Supervisors for Greening the Financial System (``NGFS''), to 
enhance the comparability of the scenario analysis disclosure.\558\ 
Other commenters stated that it should be up to each registrant to 
choose those scenarios that best fit its particular business or 
industry and tailor its disclosure accordingly.\559\
---------------------------------------------------------------------------

    \558\ See, e.g., letters from Anthesis; Bloomberg; CalSTRS; 
Chevron; and Shell plc (June 17, 2022) (``Shell'').
    \559\ See, e.g., letters from American Council of Life Insurers 
(June 17, 2022) (``ACLI''); J. Herron; and TotalEnergies.
---------------------------------------------------------------------------

c. Final Rule
    We are adopting a final rule (Item 1502(f)) requiring the 
disclosure of scenario analysis under certain circumstances. The 
disclosure of a registrant's use of scenario analysis can provide 
important forward-looking information to help investors evaluate the 
resilience of the registrant's strategy under various climate-related 
circumstances.\560\ Scenario analysis has increasingly been recognized 
as an important analytical tool in assessing a company's climate-
related risk exposure,\561\ and investors have increasingly sought 
information from registrants about their use of scenario analysis and 
expressed a need for improved disclosure about such use.\562\
---------------------------------------------------------------------------

    \560\ See supra notes 540-542 and accompanying text.
    \561\ See, e.g., letter from AllianceBernstein (stating that 
``[s]cenario analysis is particularly important for those 
registrants in emissions-intensive industries where such analysis 
can demonstrate the quality of impairment testing and increase 
confidence in asset values''). The Federal Reserve Board's climate 
scenario analysis pilot program, in which six of the nation's 
largest banks are voluntarily participating, further demonstrates 
the increased recognition of scenario analysis as an important tool 
to assess climate-related financial risks. See Board of Governors of 
the Federal Reserve System, Federal Reserve Board announces that six 
of the nation's largest banks will participate in a pilot climate 
scenario analysis exercise designed to enhance the ability of 
supervisors and firms to measure and manage climate-related 
financial risks (Sept. 29, 2022), available at https://www.federalreserve.gov/newsevents/pressreleases/other20220929a.htm.
    \562\ See, e.g., letters from AllianceBernstein (stating that 
``[w]hile many registrants claim to perform scenario analysis, 
however, there is little disclosure around assumptions used in these 
models and how registrants use results impact strategy, business and 
capital allocation decisions, making their results challenging to 
compare''); and Ceres (citing evidence from the Climate Action 100+ 
Benchmark that companies' ``scenario analyses leave much room for 
improvement'').

---------------------------------------------------------------------------

[[Page 21707]]

    Although some commenters recommended that we require all 
registrants to include scenario analysis disclosure in their climate 
risk reporting,\563\ we recognize that not every registrant conducts 
scenario analysis and, as noted above, this rulemaking does not seek to 
prescribe any particular tools, strategies, or practices with respect 
to climate-related risks but rather, when material, to provide 
investors with the information they need to evaluate the climate-
related risks faced by the registrant and their potential impacts on 
the registrant's business, results of operations, or financial 
condition. Therefore, similar to the proposed rule, the final rule's 
scenario analysis disclosure requirement will depend on whether and how 
a registrant uses such analysis. Importantly, the rule will not require 
any registrant to conduct scenario analysis.
---------------------------------------------------------------------------

    \563\ See supra note 543 and accompanying text.
---------------------------------------------------------------------------

    We are, however, adopting modifications in the final rules. For 
example, we have added a materiality qualifier regarding the disclosure 
of scenario analysis to address commenters' concern that the proposed 
requirement could result in disclosure of immaterial information that 
would be burdensome and costly to produce.\564\ We also note that, as 
with transition plan and use of internal carbon price disclosure, a 
registrant's scenario analysis disclosure will be subject to a safe 
harbor.\565\ The final rule provides that, if a registrant uses 
scenario analysis \566\ to assess the impact of climate-related risks 
on its business, results of operations, or financial condition, and if, 
based on the results of scenario analysis, a registrant determines that 
a climate-related risk is reasonably likely to have a material impact 
on its business, results of operations, or financial condition, then 
the registrant must describe each such scenario,\567\ including a brief 
description of the parameters, assumptions, and analytical choices 
used, as well as the expected material impacts, including financial 
impacts, on the registrant under each such scenario.\568\ We are 
adopting this disclosure requirement because, if a registrant has used 
scenario analysis to assess and manage a material climate-related risk, 
investors need to understand how it conducted that analysis in order to 
evaluate the registrant's conclusions regarding material impacts on its 
business, results of operations, or financial condition.
---------------------------------------------------------------------------

    \564\ See supra note 554 and accompanying text.
    \565\ See infra section II.J.3.
    \566\ We are largely adopting the definition of scenario 
analysis, as proposed. See 17 CFR 229.1500 (``Scenario analysis 
means a process for identifying and assessing a potential range of 
outcomes of various possible future climate scenarios, and how 
climate-related risks may impact a registrant's business strategy, 
results of operations, and financial condition over time.'') We have 
deleted from the definition the example that ``registrants might use 
scenario analysis to test the resilience of their strategies under 
certain future climate scenarios, such as those that assume global 
temperature increases of 3 [deg]C, 2 [deg]C, and 1.5 [deg]C above 
pre-industrial levels'' because we do not wish to convey the 
impression that these scenarios are required should a registrant 
elect to conduct scenario analysis.
    \567\ See 17 CFR 229.1502(f). Conversely, if a registrant 
conducts scenario analysis and determines from its results that it 
is not likely to be materially impacted by a climate-related risk, 
no disclosure about its use of scenario analysis is required under 
Item 1502(f).
    \568\ See id.
---------------------------------------------------------------------------

    We also have streamlined the proposed scenario analysis disclosure 
requirements to reduce redundancy in the final rules. For example, we 
have eliminated the introductory provision in the rule proposal 
requiring a registrant to describe the resilience of its business 
strategy in light of potential future changes in climate-related risks. 
Because companies use scenario analysis to test the resilience of their 
business strategies under varying future climate scenarios, and because 
such use is explained in the definition of scenario analysis (in Item 
1500) that we are adopting largely as proposed,\569\ if registrants are 
required to disclose their use of scenario analysis under the final 
rules, such disclosure likely would include a description of the 
resilience of their strategies under various climate scenarios.
---------------------------------------------------------------------------

    \569\ See 17 CFR 229.1500.
---------------------------------------------------------------------------

    The rule proposal would have required a registrant to disclose 
``any analytical tools, such as scenario analysis'' that it uses to 
assess the impact of climate-related risks on its business. In a 
modification of the proposed rule, we have eliminated the reference to 
``any analytical tools'' to clarify that the disclosure required by 
this provision should concern the registrant's use of scenario analysis 
rather than any other analytical tools. We note that the TCFD's 
guidance discusses scenario analysis as the primary tool to help 
companies assess the impacts of climate-related risks on their business 
strategies, and therefore this change should eliminate any confusion 
about what other analytical tools might fall under the scope of the 
requirements.\570\
---------------------------------------------------------------------------

    \570\ See TCFD, supra note 332.
---------------------------------------------------------------------------

    In another change from the rule proposal, we have added the term 
``brief'' to modify the ``description of the parameters, assumptions, 
and analytical choices used'' prong of the scenario analysis disclosure 
provision. The adopted provision will continue to elicit disclosure 
that will enhance investors' assessment of the resiliency of a 
registrant's strategy while also mitigating the compliance burden for 
registrants. Requiring a brief description of the parameters, 
assumptions, and analytical choices used, together with a description 
of the projected material financial impacts on the registrant's 
business strategy under each scenario, should help elicit disclosure 
that neither burdens investors with immaterial detail nor unduly adds 
to a registrant's compliance burden. As with disclosure related to 
transition plans, we reiterate that our focus in adopting these 
requirements is neither on incentivizing nor disincentivizing any 
particular risk management practice but rather on providing investors 
with the information they need with respect to the particular practices 
of a registrant in order to make informed investment and voting 
decisions.
    These revisions to the proposed rule also address commenters' 
concern that the required scenario analysis disclosure could result in 
the disclosure of confidential business information.\571\ If a 
registrant has used scenario analysis to determine that an identified 
climate-related risk is likely to have a material impact on its 
business, results of operations, or financial condition, it is 
important for investors to receive disclosure about that material 
impact. The registrant will not, however, be required to provide a 
lengthy description of the underlying parameters and assumptions that 
may be more likely to reveal confidential business information.
---------------------------------------------------------------------------

    \571\ See supra note 552 and accompanying text.
---------------------------------------------------------------------------

    Although some commenters recommended that we require the use of one 
or more climate scenario models,\572\ the final rules do not impose any 
specific risk management model. By requiring disclosure based on 
whether a registrant has determined to conduct scenario analysis as 
part of its consideration of material climate-related risks, a 
registrant will be able to select the climate scenario model or models 
that it believes best fits its particular industry or business, or its 
climate risk assessment approach. This approach will provide useful 
information to investors about the resilience of a registrant's 
climate-related business

[[Page 21708]]

strategy while also helping to limit the registrant's compliance burden 
relating to scenario analysis disclosure under the final rules.
---------------------------------------------------------------------------

    \572\ See supra note 558 and accompanying text.
---------------------------------------------------------------------------

    The proposed scenario analysis disclosure provision would have 
included as an example of potential scenarios to be considered ``an 
increase of no greater than 3 [deg]C, 2 [deg]C, or 1.5 [deg]C above 
pre-industrial levels.'' \573\ Because this was for illustrative 
purposes only, and because we have removed the same example from the 
definition of scenario analysis to avoid conveying the impression that 
these scenarios are required,\574\ we have also removed the example 
from Item 1502(f).
---------------------------------------------------------------------------

    \573\ See Proposing Release, section II.C.4.
    \574\ See supra note 566 and accompanying text.
---------------------------------------------------------------------------

    To further streamline the scenario analysis disclosure requirement, 
we have removed the proposed provision stating that the disclosure 
should include both qualitative and quantitative information.\575\ We 
recognize that, as noted by some commenters, scenario analysis 
practices are still evolving,\576\ and that, in the early stages of 
use, a registrant's disclosure regarding its use of scenario analysis 
may be qualitative. As a registrant's use of scenario analysis becomes 
more sophisticated, we would expect its disclosure of the results of 
scenario analysis to become more quantitative, particularly when 
discussing the expected material financial impacts on the registrant's 
business strategy, under each considered scenario, which, like the 
proposed rule, must be addressed should a registrant be required to 
disclose its use of scenario analysis. Streamlining the proposed 
scenario analysis disclosure requirement in this way will enable a 
registrant to determine the mix of qualitative and quantitative 
disclosure that best fits its particular circumstances when satisfying 
its obligations under the final rule.
---------------------------------------------------------------------------

    \575\ See id.
    \576\ See, e.g., letters from Bloomberg; and Chamber.
---------------------------------------------------------------------------

    We decline to follow the recommendation of one commenter who stated 
that disclosure of scenario analysis should only be required when 
integrated and material to a publicly announced climate-related 
strategy or initiative.\577\ Conditioning the disclosure requirement in 
this way could deprive investors of needed information solely because 
the registrant has not yet announced the corresponding strategy or 
initiative.
---------------------------------------------------------------------------

    \577\ See letter from Amazon.
---------------------------------------------------------------------------

4. Disclosure of a Maintained Internal Carbon Price (Item 1502(g))
a. Proposed Rule
    The Commission proposed to define an internal carbon price to mean 
an estimated cost of carbon emissions used internally within an 
organization.\578\ The Commission also proposed that, if a registrant 
maintains an internal carbon price, it would have to disclose:
---------------------------------------------------------------------------

    \578\ See Proposing Release, section II.C.3.
---------------------------------------------------------------------------

     The price in units of the registrant's reporting currency 
per metric ton of carbon dioxide equivalent (``CO2e'');
     The total price, including how the total price is 
estimated to change over time, if applicable;
     The boundaries for measurement of overall CO2e 
on which the total price is based, if different from the GHG emission 
organizational boundary required pursuant to the proposed GHG emissions 
disclosure provision; and
     The rationale for selecting the internal carbon price 
applied.\579\
---------------------------------------------------------------------------

    \579\ See id.
---------------------------------------------------------------------------

    The proposed rules would have further required a registrant to 
describe how it uses an internal carbon price to evaluate and manage 
climate-related risks. In addition, the proposed rules would have 
required a registrant that uses more than one internal carbon price to 
provide the proposed disclosures for each internal carbon price and to 
disclose its reasons for using different prices.\580\
---------------------------------------------------------------------------

    \580\ See id.
---------------------------------------------------------------------------

b. Comments
    Several commenters supported the rule proposal requiring a 
registrant to disclose information about a maintained internal carbon 
price because of the important role played by internal carbon pricing 
in the management of climate-related risks.\581\ One commenter stated 
that internal carbon pricing has become an important mechanism to help 
companies manage risks and capitalize on emerging opportunities in the 
transition to a low-carbon economy.\582\ According to this commenter, 
in the event that governments adopt a carbon tax, registrants that have 
not begun using internal carbon pricing could find themselves 
increasingly vulnerable due to their failure to internalize the cost 
into their business.\583\ A different commenter stated that an internal 
carbon price is a multifaceted tool that enables a registrant to embed 
a shadow cost for carbon in all carbon mitigation investment decisions, 
or impose an internal carbon fee by charging business units for their 
emissions and using the revenue generated to support investment into 
clean technologies.\584\ Other commenters similarly stated that an 
internal carbon price can assist companies in steering capital 
expenditures, research and design, and other financing decisions toward 
projects with reduced emissions.\585\ One commenter asserted that 
nearly half of the world's largest companies factor a cost of carbon 
into their business plans.\586\ Other commenters recommended that the 
Commission require a registrant that does not use internal carbon 
pricing to explain its reason for not doing so, as to prevent the 
proposed disclosure requirement from acting as a disincentive toward 
the use of this tool.\587\
---------------------------------------------------------------------------

    \581\ See, e.g., letters from AGs of Cal. et al.; 
AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; 
Anthesis; Ceres; CFA; Eni SpA; ERM CVS; IAC Recommendation; 
Microsoft; Morningstar; Norges Bank; NY City Comptroller; Paradice 
Invest. Mgmt.; PRI; SFERS; and TotalEnergies.
    \582\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \583\ See id.
    \584\ See letter from Eni SpA.
    \585\ See letters from AllianceBernstein (stating that 
``[i]nternal carbon pricing can guide capital expenditures, research 
and design and other fundamental decisions towards projects, 
products and services that are more resilient to climate change and 
away from assets that may become economically unviable in the global 
transition to a lower carbon economy''); and Ceres.
    \586\ See letter from NY City Comptroller.
    \587\ See, e.g., letters from BlackRock; and Teachers Insurance 
and Annuity Association of America (June 17, 2022) (``TIAA'').
---------------------------------------------------------------------------

    Most of the above commenters supported requiring a registrant that 
uses internal carbon pricing to disclose the proposed items, including:
     The price in units of the registrant's reporting currency 
per metric ton of CO2e;
     The total price;
     The rationale for selecting the internal carbon price 
applied; and
     How it uses internal carbon price to evaluate and manage 
climate-related risks.\588\
---------------------------------------------------------------------------

    \588\ See, e.g., letters from AllianceBernstein; Amer. for Fin. 
Reform, Sunrise Project et al.; Anthesis; Ceres; ERM CVS; Microsoft; 
NY City Comptroller; Paradice Invest. Mgmt.; PRI; SFERS; and 
TotalEnergies. Commenters also supported requiring a registrant that 
uses more than one internal carbon price to provide the proposed 
disclosures for each internal carbon price and to explain why it 
uses different internal carbon prices. See, e.g., letters from Amer. 
for Fin. Reform, Sunrise Project et al.; Anthesis; ERM CVS; and NY 
City Comptroller.
---------------------------------------------------------------------------

    Some commenters also supported requiring the disclosure of the 
methodology used to develop and apply an internal carbon price.\589\ In 
this regard, one commenter stated that while many companies claim to 
utilize

[[Page 21709]]

internal carbon pricing, it is challenging for investors to assess 
``the validity and strength'' of such pricing without transparency on 
methodology, price, and application.\590\ Other commenters stated that 
the proposed disclosure details are important for investors to assess 
the reasonableness, applicability, comparability, and accuracy of 
internal carbon pricing by registrants.\591\ These commenters supported 
requiring the disclosure of the boundaries for measurement of overall 
CO2e on which the total price is based,\592\ including when 
those boundaries are different than the organizational boundaries used 
to measure a registrant's GHG emissions, in order to increase the 
transparency underlying the use of internal carbon pricing.\593\
---------------------------------------------------------------------------

    \589\ See, e.g., letters from AllianceBernstein; Anthesis; ERM 
CVS; Microsoft; and PRI.
    \590\ See. e.g., letter from AllianceBernstein; see also letter 
from Paradice Invest. Mgmt. (stating that ``[w]here a company does 
use an internal carbon price, unless transparency is provided on 
what the price is and how it is set, investors cannot determine 
whether this is appropriate and what the financial implications may 
be'').
    \591\ See, e.g., letter from AllianceBernstein; ERM CVS; and 
PRI.
    \592\ See letter from PRI.
    \593\ See letter from ERM CVS.
---------------------------------------------------------------------------

    Several other commenters, however, opposed the proposed internal 
carbon disclosure requirement.\594\ Some commenters stated that the 
proposed requirement could result in competitive harm for 
registrants,\595\ such as through potential disclosure of confidential 
or proprietary business information.\596\ For example, commenters 
asserted that such disclosures ``would divulge sensitive information to 
. . . competitors'' \597\ and noted that registrants ``us[ing] internal 
prices of carbon in their operations may often be doing so for pricing 
or other competitive purposes'' \598\ and ``private companies and 
state-owned enterprises that compete in a registrant's sector would not 
need to provide the same type and level of information as public 
companies.'' \599\ Other commenters indicated that the proposed 
disclosure requirement was too prescriptive and, lacking a materiality 
qualifier, would result in the disclosure of information that is not 
decision-useful for investors and costly to produce.\600\ Because of 
these concerns, commenters stated that the proposed disclosure 
requirement would act as a disincentive to the use of internal carbon 
pricing.\601\ Accordingly, some commenters recommended that the 
Commission provide exceptions to any internal carbon price disclosure 
requirements (such as exclusions for information that is competitively 
sensitive),\602\ a separate safe harbor or exemption from liability for 
internal carbon price disclosure,\603\ or a phase in period for these 
requirements.\604\ One commenter stated that disclosure of internal 
carbon pricing should be required only when it is broadly used by 
senior management and the board as part of their strategic planning 
process and when integrated and material to a publicly announced 
climate-change strategy or initiative.\605\ Finally, one commenter, who 
was concerned that the proposed internal carbon pricing requirement 
would require the disclosure of proprietary information, recommended 
that the Commission adopt an alternative approach to obtain carbon 
price-related disclosures, such as an approach similar to the Financial 
Accounting Standards Board's (``FASB'') standardized measure of oil and 
gas, or SMOG.\606\
---------------------------------------------------------------------------

    \594\ See, e.g., letters from Amer. Bankers; Amer. Chem.; AFPM; 
BOA; CEMEX; Chevron; Cleary Gottlieb; Dimensional Fund; J. Herron; 
NAM; Northern Trust; PGIM; PwC; RILA; Sullivan Cromwell; Unilever; 
Jeremy Weinstein (June 17, 2022) (``J. Weinstein''); and Western 
Midstream.
    \595\ See, e.g., letters from ConocoPhillips, CEMEX, Chevron, 
Amazon, RILA, SIFMA, NAM, TRC, ESPA, and Center for Climate and 
Energy Solutions (``CCES'').
    \596\ See, e.g., letters from Amer. Bankers; Amer. Chem.; AFPM; 
BOA; CEMEX; Chevron; NAM; Sullivan Cromwell; and J. Weinstein.
    \597\ See letter from ConocoPhillips.
    \598\ See letter from Amer. Bankers.
    \599\ See letter from Enbridge.
    \600\ See, e.g., letters from Cleary Gottlieb; Dimensional Fund; 
J. Herron; PGIM; PwC; and RILA.
    \601\ See, e.g., letters from Cleary Gottlieb; Dimensional Fund; 
J. Herron; NAM; PGIM; RILA; Sullivan Cromwell; and Western 
Midstream.
    \602\ See, e.g., letters from ConocoPhillips; Amazon; and CCES.
    \603\ See, e.g., letters from Reinsurance Association of America 
(June 16, 2022) (``Reinsurance AA''); Third Coast; BOA; CEMEX; BHP; 
RILA; CEBA; WMBC; Zions Bancorporation (June 7, 2022) (``Zions''); 
Can. Coalition GG; Airlines for America; IATA; Southside Bancshares, 
Inc. (June 16, 2022) (``Southside Bancshares''); WY Bankers; and 
CCES.
    \604\ See, e.g., letters from Managed Funds Association (June 
17, 2022) (``MFA''); Moody's; TRC; and Inclusive Capital Partners, 
L.P. (June 24, 2022) (``Inclusive Cap.'').
    \605\ See letter from Amazon.
    \606\ See letter from Chevron (recommending ``a disclosure 
requirement similar to FASB Accounting Standards Codification (ASC) 
932, which requires a standardized measure of discounted future cash 
flows relating to proved oil and gas reserves quantities, often 
referred to as the standardized measure of oil and gas, or SMOG'').
---------------------------------------------------------------------------

c. Final Rule
    The final rule (Item 1502(g)) will require a registrant that uses 
internal carbon pricing to disclose certain information about the 
internal carbon price, if such use is material to how it evaluates and 
manages a climate-related risk that, in response to Item 1502(a), it 
has identified as having materially impacted or is reasonably likely to 
have a material impact on the registrant, including on its business 
strategy, results of operations, or financial condition.\607\ As 
commenters have noted, many registrants use internal carbon pricing as 
a planning tool, among other purposes: to help identify climate-related 
risks and opportunities; as an incentive to drive energy efficiencies 
to reduce costs; to quantify the potential costs the company would 
incur should a carbon tax be put into effect; and to guide capital 
investment decisions.\608\ Information about a registrant's use of 
internal carbon pricing will help investors evaluate how a registrant 
is managing climate-related risks, particularly transition risks, and 
the effectiveness of its business strategy to mitigate or adapt to such 
risks.
---------------------------------------------------------------------------

    \607\ See 17 CFR 229.1502(g).
    \608\ See supra notes 581-585 and accompanying text. We also 
note, based on current voluntary reporting, an increasing trend 
among public companies to use internal carbon pricing. See CDP, 
Putting a Price on Carbon (2021), available at https://cdn.cdp.net/cdp-production/cms/reports/documents/000/005/651/original/CDP_Global_Carbon_Price_report_2021.pdf.
---------------------------------------------------------------------------

    At the same time, we recognize commenters' concern that, without a 
materiality qualifier, the proposed rule could have resulted in the 
disclosure of internal carbon pricing data that would not be decision-
useful for investors and would be burdensome for registrants to 
produce.\609\ To address this concern, in a change from the proposed 
rule, which would have required internal carbon pricing disclosure 
whenever a registrant maintains an internal carbon price, the final 
rule will require this disclosure only when the registrant's use of 
internal carbon pricing is material to how it evaluates and manages a 
climate-related risk identified in response to Item 1502(a).
---------------------------------------------------------------------------

    \609\ See supra note 600 and accompanying text.
---------------------------------------------------------------------------

    If a registrant's use of internal carbon pricing is material, 
similar to the proposed rule, the final rule will require it to 
disclose in units of the registrant's reporting currency:
     The price per metric ton of CO2e; and
     The total price, including how the total price is 
estimated to change over the time periods referenced in Item 1502(a), 
as applicable.\610\
---------------------------------------------------------------------------

    \610\ See 17 CFR 229.1502(g)(1).
---------------------------------------------------------------------------

    Similar to the proposed rule, if a registrant uses more than one 
internal carbon price to evaluate and manage a material climate-related 
risk, it must provide the required disclosures for each internal carbon 
price, and disclose its reasons for using different prices.\611\ We 
also have included a provision, similar to the rule proposal and as

[[Page 21710]]

recommended by some commenters,\612\ stating that if the scope of 
entities and operations involved in the use of a described internal 
carbon price is materially different than the organizational boundaries 
used for the purpose of calculating a registrant's GHG emissions 
pursuant to the final rule, the registrant must briefly describe this 
difference.\613\
---------------------------------------------------------------------------

    \611\ See 17 CFR 229.1502(g)(2).
    \612\ See supra notes 592-593 and accompanying text.
    \613\ See 17 CFR 229.1502(g)(3).
---------------------------------------------------------------------------

    We are requiring disclosure of this information because, as 
commenters noted, it will help investors understand a registrant's 
internal carbon pricing practice and how such practice has contributed 
to the registrant's overall evaluation and planning regarding climate-
related risk.\614\ Increased transparency about internal carbon pricing 
by registrants that use an internal carbon price to evaluate and manage 
a material climate-related risk, in particular a material transition 
risk, will help investors understand the assumptions and analyses made 
by registrants when determining and managing the likely financial 
impacts of such risks on the company. Moreover, including a requirement 
to disclose any material difference in the boundaries used for internal 
carbon pricing and GHG emissions measurement will help minimize 
investor confusion about the scope of entities and operations included 
in a registrant's application of internal carbon pricing and improve 
transparency about the methodology underlying the use of internal 
carbon pricing so that investors may better compare such use across 
registrants.\615\
---------------------------------------------------------------------------

    \614\ See supra notes 590-591 and accompanying text.
    \615\ See, e.g., letters from ERM CVS; and PRI.
---------------------------------------------------------------------------

    To streamline the internal carbon price disclosure requirement and 
to reduce redundancy, we have eliminated the proposed requirement to 
describe how a registrant uses an internal carbon price to evaluate and 
manage climate-related risks.\616\ If a registrant is required to 
provide internal carbon pricing disclosure under the final rules, the 
registrant is likely to describe how it uses an internal carbon price 
to evaluate and manage a material climate-related risk when responding 
to other final rule provisions, such as when describing a related 
transition plan,\617\ even if the description of internal carbon 
pricing is less detailed because it is part of a broader narrative 
discussion. To further streamline the internal carbon price disclosure 
requirement, we have eliminated from the final rule the proposed 
requirements to disclose the rationale for selecting the internal 
carbon price applied.\618\
---------------------------------------------------------------------------

    \616\ See Proposing Release, section II.C.3.
    \617\ See 17 CFR 229.1502(e).
    \618\ See Proposing Release, section II.C.3.
---------------------------------------------------------------------------

    By streamlining the internal carbon price disclosure requirement in 
this way and adding materiality qualifiers, the final rules will help 
ensure that investors receive material information about the 
registrant's use of internal carbon pricing to inform their investment 
and voting decisions while limiting the compliance burden for 
registrants. Moreover, eliminating the proposed requirement to provide 
a separate narrative description of how a registrant uses an internal 
carbon price and the rationale for selecting the internal carbon price 
applied will help address commenters' concerns that the proposed 
disclosure requirement would result in the disclosure of confidential 
or proprietary information and act as a disincentive to using an 
internal carbon pricing mechanism.\619\ We also note that, as with 
transition plan and scenario analysis disclosure, disclosure of a 
registrant's use of an internal carbon price will be subject to a safe 
harbor.\620\ Because of these changes to the proposed rule, we believe 
that it is unnecessary to adopt an exemption or exception to the 
internal carbon price disclosure requirement, as some commenters 
recommended,\621\ or a separate phase in for the disclosure 
requirement, as recommended by other commenters.\622\
---------------------------------------------------------------------------

    \619\ See supra note 596 and accompanying text.
    \620\ See infra section II.J.3.
    \621\ See supra notes 602-603 and accompanying text.
    \622\ See supra note 604 and accompanying text.
---------------------------------------------------------------------------

E. Governance Disclosure

1. Disclosure of Board Oversight (Item 1501(a))
a. Proposed Rules
    The proposed rules would have required a registrant to disclose a 
number of items related to a board of directors' oversight of climate-
related risks, largely based on the TCFD framework. First, the 
Commission proposed to require the identification of any board members 
or board committees responsible for the oversight of climate-related 
risks,\623\ whether an existing committee, such as the audit committee 
or risk committee, or a separate committee established to focus on 
climate-related risks. Next, the proposed rules required detailed 
disclosure of whether any member of a registrant's board of directors 
possessed expertise in climate-related risk.\624\ Additionally, the 
proposal required a description of the processes and frequency by which 
the board or board committee discusses climate-related risks,\625\ 
including disclosure of how the board is informed about climate-related 
risks, and how frequently the board considers such risks. These 
proposed disclosure items were intended to afford investors with 
transparency into how a registrant's board considers climate-related 
risks and any relevant qualifications of board members.\626\
---------------------------------------------------------------------------

    \623\ See Proposing Release, section II.D.1.
    \624\ See id.
    \625\ See id.
    \626\ See id.
---------------------------------------------------------------------------

    The proposed rules would also have required disclosure about 
whether and how the board or board committee considered climate-related 
risks as part of its business strategy, risk management, and financial 
oversight.\627\ This disclosure was intended to give investors 
information regarding how the board or board committee considers 
climate-related risks when reviewing and guiding business strategy and 
major plans of action; when setting and monitoring implementation of 
risk management policies and performance objectives; when reviewing and 
approving annual budgets; and when overseeing major expenditures, 
acquisitions, and divestitures. The proposed disclosure requirement 
sought to provide investors with information to assess the degree to 
which a board's consideration of climate-related risks has been 
integrated into a registrant's strategic business and financial 
planning, and its overall level of preparation to maintain its 
shareholder value.
---------------------------------------------------------------------------

    \627\ See id.
---------------------------------------------------------------------------

    The proposed rules also would have required disclosure about 
whether and how the board sets climate-related targets or goals and how 
it evaluates progress, including the establishment of any interim 
targets or goals.\628\ This proposed requirement was intended to help 
investors evaluate whether and how a board is preparing to mitigate or 
adapt to material transition risks. Finally, the proposed rule provided 
that, if applicable, a registrant may describe the board of directors' 
oversight of climate-related opportunities.
---------------------------------------------------------------------------

    \628\ See id.
---------------------------------------------------------------------------

    While the goal of these governance-related proposals was to elicit 
decision-useful information about the board's oversight of climate-
related risks for investors, the proposal neither required nor 
encouraged any particular board composition or board practices. 
Similarly, the proposal was not intended to affect how a registrant

[[Page 21711]]

operates, at any level, either through management or the board of 
directors.
b. Comments
    A number of commenters supported the Commission's proposed board 
oversight disclosures.\629\ Some of these commenters stated that 
investors currently lack easily accessible and comparable information 
regarding how registrants' governance structures contribute to the 
evaluation and assessment of material climate-related risks,\630\ while 
others stated the proposed rules would allow investors to understand 
the governance context in which financial results are achieved.\631\ 
One commenter expressed particular support for those aspects of the 
proposal that aligned with the TCFD framework.\632\ Another commenter 
suggested that registrants should be required to describe board member 
training, expertise, or skill-building related to the understanding of 
climate-related financial risks and opportunities.\633\
---------------------------------------------------------------------------

    \629\ See, e.g., letters from CalPERS; British Columbia 
Investment Management Corporation (June 17, 2022) (``BC IM Corp.''); 
and Mirova US LLC.
    \630\ See, e.g., letter from NY City Comptroller.
    \631\ See, e.g., letter from Bloomberg.
    \632\ See, e.g., letter from Hydro One.
    \633\ See, e.g., letter from WSP.
---------------------------------------------------------------------------

    Other commenters opposed the proposed board oversight disclosures, 
stating that the proposals were overly prescriptive,\634\ 
duplicative,\635\ and should be integrated into existing disclosure 
requirements.\636\ Commenters that opposed the board oversight 
provisions expressed concern that the proposed rules narrowly focused 
on board members' climate expertise and could have a negative overall 
impact on governance by limiting the flexibility of companies to fill 
limited numbers of board seats with the individuals best suited to a 
given company's needs, including individuals' suitability to whole-of-
the-board undertakings.\637\ These commenters stated that registrants 
may be better served appointing directors with wide ranging expertise 
rather than technical skills in one particular area.\638\ Other 
commenters stated that the Commission was placing an undue emphasis on 
board oversight of climate risk, disproportionate to disclosure 
requirements in other areas.\639\ Some commenters asserted that 
Regulation S-K already requires the disclosure of information that 
allows for investors to adequately assess a registrant's board of 
directors \640\ while another commenter stated that the Commission 
should enhance existing disclosure requirements rather than adopt a new 
rule.\641\ Other commenters noted that the proposed rules went beyond 
the requirements of the TCFD, in particular as it pertains to board-
level expertise.\642\
---------------------------------------------------------------------------

    \634\ See, e.g., letters from Davis Polk; Amer. Bankers; 
Business Roundtable; and Sullivan Cromwell.
    \635\ See, e.g., letter from GPA Midstream.
    \636\ See, e.g., letters from PwC; and Davis Polk (``We believe 
proposed new Regulation S-K Item 1501(a), covering the board's role 
in the management of climate-related risk, is overly prescriptive 
and unnecessary, because any material information that could be 
captured by the proposed rule is already addressed by Item 407(h) of 
Regulation S-K, which obligates companies to disclose the extent of 
the board's role in the company's risk oversight and how the board 
administers this oversight function.'').
    \637\ See letters from BlackRock (``We believe that robust board 
oversight with respect to climate requires a whole-of-the-board 
approach, and the identification of `specialist' directors is not 
conducive to a holistic undertaking by the board.''); INGAA (``More 
fundamentally, the proposed requirement is problematic because the 
emphasis on climate expertise will have the practical result of 
elevating climate issues above other business considerations, thus 
removing the flexibility that companies need to select the right 
board members for their unique circumstances.''); Sullivan Cromwell 
(``We believe some of these requirements could harm the overall 
effectiveness of governance by reducing the flexibility of 
registrants' boards and management to exercise their judgment on the 
most appropriate governance framework for responding to climate-
related risks and opportunities, and to evolve their approach based 
on new risks developments.''); and Deloitte & Touche LLP (May 31, 
2022) (``Deloitte & Touche'') (``While specific expertise may be 
valuable in some cases, in general, especially given the limited 
size of boards, we do not think it is practical for all boards to 
recruit dedicated experts in each of its critical oversight 
areas.''). See also, e.g., letters from ACA Connects (June 17, 
2022); Airlines for America; Amer. Bankers; API; AGs of TX et al.; 
BPI; CalSTRS; Capital Research; Davis Polk; Energy Transfer LP; IAC 
Recommendation; NMA; NRF; National Waste & Recycling Association 
(June 17, 2022) (``NWRA''); Natural Resource Partners LP (June 16, 
2022) (``NRP''); and SIFMA.
    \638\ See, e.g., letters from BIO; and NRP.
    \639\ See, e.g., letters from Texas Pipeline Association (June 
17, 2022) (``TX Pipeline''); American Forest & Paper Association 
(June 17, 2022) (``AFPA''); API; INGAA; Amer. Chem.; Alliance 
Resource Partners, L.P (June 17, 2022) (``Alliance Resource'').
    \640\ See, e.g., CEMEX; and Soc. Corp. Gov.
    \641\ See letter from U.S. Chamber of Commerce (stating that 
some of the information referenced in proposed Regulation S-K Item 
1501 could be provided pursuant to Regulation S-K Item 407(h), which 
requires disclosure regarding the board's role in the risk oversight 
of the registrant, including how the board administers its oversight 
function).
    \642\ See, e.g., letters from Federated Hermes, Inc (June 17, 
2022) (``Fed. Hermes''); MBA; and MFA.
---------------------------------------------------------------------------

    With respect to the proposed requirement to identify any board 
members or board committees responsible for the oversight of climate-
related risks, some commenters were supportive of the proposal.\643\ 
However, many commenters were opposed or expressed concerns about the 
proposed requirement.\644\ Several commenters stated that the 
identification of key personnel could lead to poaching and would 
undermine registrant's efforts to retain individuals with climate 
expertise.\645\
---------------------------------------------------------------------------

    \643\ See, e.g., letters from CalPERS; RMI (June 17, 2022); PRI; 
60 Plus Association (June 17, 2022) (``60 Plus''); Reward Value 
Foundation (June 17, 2022) (``RVF''); TotalEnergies; NEI; and Norges 
Bank.
    \644\ See, e.g., letters from Risk Management Association's 
Climate Risk Consortia (June 16, 2022) (``Climate Risk Consortia''); 
Canadian Bankers Association (June 17, 2022) (``Can. Bankers''); Eni 
SpA; Sullivan Cromwell; Fenwick West; Dominion Energy; BOA; 
Citigroup; Unilever; CalSTRS; BlackRock; MFA; IIF; ACLI; Business 
Roundtable; NRF; RILA; NMA,TX Pipeline, American Property Casualty 
Insurance Association (June 17, 2022) (``APCIA''); National Grid; 
Diageo plc (June 17, 2022) (``Diageo''); Davis Polk; Airlines for 
America; IATA; Corteva, Inc. (June 17, 2022) (``Corteva''); PGIM; 
GPA Midstream; Energy Transfer; and Shearman Sterling.
    \645\ See, e.g., letter from RILA.
---------------------------------------------------------------------------

    Other commenters highlighted the difficulty that small or 
specialized companies could face if the proposed disclosure requirement 
creates pressure to appoint individuals with climate expertise, as it 
elevates climate expertise at the expense of other skills that are 
arguably more important to their business.\646\
---------------------------------------------------------------------------

    \646\ See, e.g., letter from NRP.
---------------------------------------------------------------------------

    Some commenters were supportive of the proposal for detailed 
disclosure of whether any member of a registrant's board of directors 
possessed expertise in climate-related risk, with some also 
recommending that the Commission require additional detailed 
disclosures.\647\ For example, one of these commenters suggested that 
the rules should require disclosure of whether and how the board brings 
in additional expertise and conducts training for board members.\648\ 
Other commenters, however, asserted that this proposed disclosure 
requirement would drive registrants to appoint board members with 
climate expertise, at the potential expense of more relevant areas, and 
stated that the Commission's rules should not influence registrants' 
decisions regarding the composition of their boards.\649\ Some 
suggested that this proposed disclosure requirement would result in the 
expansion of boards, driving up costs for registrants, even those that 
do not currently have a need for particularized climate-related 
expertise.\650\ Others asserted that, by designating specific board 
members as having climate-related expertise, the

[[Page 21712]]

provision would discourage the full engagement of the board on climate-
related matters.\651\
---------------------------------------------------------------------------

    \647\ See, e.g., letters from Anthesis; Bloomberg; ICCR; and the 
Greenlining Institute (June 17, 2022) (``Greenlining Institute'').
    \648\ See, e.g., letter from ICCR.
    \649\ See, e.g., letters from United Air Holdings, Fidelity, 
ICI; U.S. Chamber of Commerce; Targa Resources Corp; Vodafone; 
Business Roundtable; and SIFMA.
    \650\ See, e.g., letter from SIFMA.
    \651\ See, e.g., letter from Vodafone.
---------------------------------------------------------------------------

    Commenters expressed mixed views on the proposal to describe the 
processes and frequency by which the board or board committee discusses 
climate-related risks, including disclosure of how the board is 
informed about climate-related risks, and how frequently the board 
considers such risks. One commenter stated that this aspect of the 
Commission's proposal would help ensure that the board was receiving 
and processing consistent information on climate-related risk.\652\ 
Others went further, asserting that directors have a fiduciary 
responsibility to conduct increased oversight of climate-related risks, 
and that the proposal would require registrants to report whether and 
how its board was fulfilling these responsibilities.\653\ Some 
commenters stated that this proposed disclosure requirement was too 
detailed, would invite micromanagement of both the board and 
management, and be potentially misleading to investors.\654\ Commenters 
also stated that disclosure of when and how often boards meet on 
climate-related matters could lead to changes in how board time and 
resources are allocated, without necessarily improving the quality of 
climate-related risk disclosure.\655\ Some commenters pointed out that 
the Commission does not require registrants to report on how frequently 
other topics are considered by the board of directors and asserted that 
requiring the disclosure of this information with respect to climate-
related risks would be out of step with other governance disclosure 
rules.\656\ According to these commenters, the proposed disclosure 
requirements were so prescriptive that they singled out climate-related 
disclosures for presentation in a level of detail that was not 
consistent with the Commission's overall disclosure regime. Other 
commenters stated that the information was simply unnecessary and could 
lead to boilerplate disclosures.\657\ Some commenters cautioned that, 
by requiring this level of detail, the Commission was inadvertently 
discouraging companies from engaging in internal decision making that 
would then have to be disclosed under the proposal.\658\
---------------------------------------------------------------------------

    \652\ See, e.g., letter from NEI.
    \653\ See, e.g., letter from Center for International 
Environmental Law (June 17, 2022) (``CIEL'').
    \654\ See, e.g., letter from Business Roundtable.
    \655\ See, e.g., letters from Fidelity; and PGIM.
    \656\ See, e.g., letter from SIFMA.
    \657\ See, e.g., letter from Morningstar.
    \658\ See, e.g., letter from Energy Transfer.
---------------------------------------------------------------------------

    Regarding the proposal for disclosure on whether and how the board 
considers climate-related risks as part of its business strategy, risk 
management, and financial oversight, a number of commenters agreed that 
registrants should disclose this information as it is currently 
``unnecessarily difficult'' for investors to assess whether there is 
``effective oversight of risks to firm value, including material 
environmental risks.'' \659\ However, a number of commenters expressed 
concerns with the granularity of the proposal and urged the Commission 
to take a less-prescriptive approach more consistent with the 
Commission's overall disclosure regime.\660\ Some commenters urged the 
Commission to adopt a materiality qualifier to avoid eliciting 
immaterial or overly granular information and bring the requirements 
more in line with other required disclosures.\661\
---------------------------------------------------------------------------

    \659\ See letter from NY City Comptroller. See also, e.g., 
letters from AFL-CIO; IATP; PRI; 60 Plus; NEI; Vodafone; CalSTRS; 
CalPERS; BlackRock; Soros Fund; Morningstar; State Street 
Corporation (June 17, 2022) (``State St.''); and Canadian Investor 
Relations Institute (June 17, 2022).
    \660\ See, e.g., letters from Corteva; Energy Transfer; and Soc. 
Corp. Gov.
    \661\ See, e.g., letter from Bipartisan Policy Center (June 13, 
2022) (``Bipartisan Policy'').
---------------------------------------------------------------------------

    Commenters were divided on the proposal related to disclosure of 
board oversight of targets and goals, particularly how the board sets 
such targets and monitors progress. Commenters supportive of the 
proposal stated that investors need more granular governance 
disclosures to assess whether the board has sufficient experience in 
managing dynamic climate-related risk.\662\ In contrast, other 
commenters asserted that the proposal would require the expenditure of 
significant resources by registrants while offering little in the way 
of benefit to investors.\663\ Other commenters expressed the view that 
the proposal should focus on management's role in setting targets and 
goals, given that the board's role is more appropriately focused on 
monitoring the targets and goals that management sets.\664\
---------------------------------------------------------------------------

    \662\ See, e.g., letters from The Ocean Foundation (June 10, 
2022) (``Ocean Fnd.''); ICCR; For the Long Term (June 17, 2022); and 
PRI.
    \663\ See, e.g., letters from American Securities Association 
(June 13, 2022) (``ASA''); Morningstar; and PGIM (stating that only 
registrants with material climate-related exposure should be 
required to provide detailed disclosure of board management of 
climate-related risk).
    \664\ See, e.g., letter from National Association of Corporate 
Directors (June 13, 2022).
---------------------------------------------------------------------------

c. Final Rule
    We are adopting the proposed requirements to disclose board 
oversight of climate-related risks (Item 1501(a)), with some 
modifications to address the concerns of commenters. These disclosures 
will enhance investors' ability to evaluate a registrant's overall 
management of climate-related risks by improving their understanding of 
the board's role in overseeing those risks.\665\ The final rule will 
require a description of a board of directors' oversight of climate-
related risks, as proposed.\666\ The final rule will also require the 
identification, if applicable, of any board committee or subcommittee 
responsible for the oversight of climate-related risks and a 
description of the processes by which the board or such committee or 
subcommittee is informed about such risks. Further, if there is a 
target or goal disclosed pursuant to Sec.  229.1504 or transition plan 
disclosed pursuant to Sec.  229.1502(e)(1), the final rule will require 
disclosure of whether and how the board oversees progress against the 
target or goal or transition plan.\667\ These disclosures are not 
required for registrants that do not exercise board oversight of 
climate-related risks.
---------------------------------------------------------------------------

    \665\ See, e.g., letters from Ceres; PRI; and RMI.
    \666\ We are also adding Instruction 1 to Item 1501 to clarify 
that in the case of a foreign private issuer with a two-tier board 
of directors, the term ``board of directors'' means the supervisory 
or non-management board. In the case of a foreign private issuer 
meeting the requirements of 17 CFR 240.10A-3(c)(3), the term board 
of directors' means the issuer's board of auditors (or similar body) 
or statutory auditors, as applicable.
    \667\ The proposed governance provision stated that a registrant 
may also describe the board of directors' oversight of climate-
related opportunities. As previously mentioned, although the final 
rules do not contain a similar provision, a registrant may elect to 
provide such disclosure as part of its governance disclosure.
---------------------------------------------------------------------------

    Despite the concerns expressed by several commenters, the proposed 
rules were not intended to shift governance behaviors, including board 
composition or board practices. Similarly, the final rules neither seek 
to influence registrants' decisions about how to manage climate-related 
risks nor does their design incorporate, reflect, or favor any 
governance structure or process. Rather, consistent with our statutory 
authority, the final rules focus on disclosure of registrants' existing 
or developing climate-related risk governance practices. We recognize 
that registrants have varied reasons for pursuing different oversight 
arrangements, and some registrants may reasonably determine that 
climate-related risks are not among the most pressing issue facing the 
company. The final rules will provide investors with the information 
they need to understand and evaluate those oversight arrangements and 
make informed

[[Page 21713]]

investment decisions in light of their overall investment objectives 
and risk tolerance. Furthermore, as stated above, these disclosure 
requirements apply to those registrants the boards of which exercise 
oversight of climate-related risks; no disclosure is required for 
registrants that do not have information responsive to the disclosure 
requirements.
    We are not adopting some of the more prescriptive elements of the 
proposal in response to commenter concerns. Specifically, we are 
eliminating the proposed requirements to disclose:
     The identity of specific board members responsible for 
climate-risk oversight;
     Whether any board member has expertise in climate-related 
risks and the nature of the expertise;
     How frequently the board is informed of such risks; and
     Information regarding whether and how the board sets 
climate-related targets or goals, including interim targets or goals.
    While the proposal would have required this disclosure only to the 
extent applicable, we appreciate the concerns of some commenters who 
stated that these elements of the proposal could have unintended 
effects on the registrant's governance structure and processes by 
focusing on one area of risk at the expense of others. In addition, 
some commenters raised concerns that the level of detail required by 
the proposal would cause registrants to divulge sensitive internal 
board processes. It may be that a registrant, in describing ``the board 
of directors' oversight of climate-related risks,'' will find it 
necessary to disclose, or otherwise choose to disclose, some or all of 
the information called for by the proposal. But, by adopting a more 
streamlined rule, we intend to eliminate any misperception that this 
information is required for all registrants, particularly those without 
existing processes or information to disclose.
    We are, however, adopting the proposed requirement to identify any 
board committee or subcommittee responsible for the oversight of 
climate-related risks, if a registrant has such a committee or 
subcommittee. This information is important to an understanding of how 
the board is managing such risk and will not be burdensome to disclose. 
Moreover, the provision simply requires the registrant to identify any 
committee or subcommittee that has been tasked with managing climate-
related risks and is not designed to influence decisions about whether 
and how the board allocates responsibility for oversight of such risk. 
We are also adopting a requirement, albeit modified from the proposal, 
to describe whether and how the board of directors oversees progress 
against disclosed climate-related targets, goals, or transition plans. 
By tying this disclosure requirement to circumstances in which the 
registrant has a disclosed climate-related target, goal, or transition 
plan, the final rule will avoid generating detailed disclosure about 
matters that are not important to investors. In addition, in light of 
commenter concerns regarding the proposed disclosure of whether and how 
the board of directors establishes any final or interim targets or 
goals,\668\ we are omitting this requirement from the final rule. 
Overall, the less prescriptive approach to disclosure in the final rule 
will facilitate investors' understanding of how a registrant intends to 
manage a target or goal that is material to its business while 
discouraging boilerplate disclosures and avoiding any unintended 
adverse effects on the board's governance structures.
---------------------------------------------------------------------------

    \668\ See supra note 663 and accompanying text.
---------------------------------------------------------------------------

    We are also adopting the proposed requirement to describe the 
processes by which the board or any board committee or subcommittee is 
informed about climate-related risks, while eliminating the requirement 
to describe the frequency of these discussions. While some commenters 
stated that it would be helpful to investors for registrants to 
disclose both the processes and frequency of these discussions,\669\ 
other commenters expressed concern that this disclosure will shift 
governance behavior.\670\ The final rules balance investors' need to 
understand the board's governance of climate-related risks in 
sufficient detail to inform an investment or voting decision with 
concerns that the proposal could inadvertently pressure registrants to 
adopt specific or inflexible climate-risk governance practices or 
organizational structures or otherwise influence the conduct of the 
board. By retaining the requirement to disclose the process by which 
the board is informed, investors will have meaningful information that 
they can use to assess the conduct of boards in dealing with climate-
related risks while avoiding overly detailed or granular disclosures 
that could unduly influence such processes.
---------------------------------------------------------------------------

    \669\ See, e.g., letters from FTLT; Morningstar; and PRI.
    \670\ See supra note 655.
---------------------------------------------------------------------------

    Although some commenters asserted that registrants may feel 
pressure to appoint certain individuals with climate expertise,\671\ we 
reemphasize that the Commission remains agnostic about whether and/or 
how registrants govern climate-related risks. Registrants remain free 
to elect whether and how to establish or retain the procedures and 
practices that they determine best fit their business. The focus of the 
final rules remains on investor protection and improving investors' 
access to comparable and consistent climate-related disclosures. The 
final rules are focused on disclosure and do not require, and are not 
formulated to prompt, registrants to change their governance or other 
business practices.
---------------------------------------------------------------------------

    \671\ See supra note 646.
---------------------------------------------------------------------------

    We are not, as suggested by some commenters, adopting a materiality 
qualifier for this portion of the final rule. As discussed above, we 
have revised the final rule from the proposal to make the disclosure 
requirement less prescriptive. As such, registrants will have 
additional flexibility to determine how much detail to provide about 
the board's oversight of climate-related risk. These revisions help 
mitigate some commenters' concerns that the rule will require 
disclosure of immaterial information. The specific information called 
for by the final rule will provide important context for an investor to 
evaluate the extent to which the board is evaluating climate-related 
risks. If a board of directors determines to oversee a particular risk, 
the fact of such oversight being exercised by the board is likely 
material to investors given other demands on the board's time and 
attention.\672\ Moreover, unlike management, which likely oversees many 
more routine matters, some of which may not be material to investors, 
we expect that any risks elevated to the board level will be material 
to the company and limited in number. Accordingly, we do not believe 
that a materiality qualifier is necessary for this provision.
---------------------------------------------------------------------------

    \672\ See discussion infra section II.E.2.c (regarding our 
reasons for adding a materiality qualifier to Item 1501(b)).
---------------------------------------------------------------------------

2. Disclosure of Management Oversight (Item 1501(b))
a. Proposed Rules
    Similar to the proposed disclosures on board oversight, the 
proposed rules would have required a registrant to disclose a number of 
items, as applicable, about management's role in the assessment and 
management of climate-related risks. First, the Commission proposed to 
require registrants to disclose whether certain management positions or 
committees are responsible for assessing and managing climate-related 
risks and, if so, to identify such positions or

[[Page 21714]]

committees and disclose the relevant expertise of the position holders 
or members in such detail as necessary to fully describe the nature of 
the expertise.\673\ This proposed requirement was intended to better 
inform investment or voting decisions by providing information on the 
extent to which management addresses climate-related risks. 
Additionally, the proposed rules would have required disclosure about 
the processes by which the responsible managers or management 
committees are informed about and monitor climate-related risks.\674\ 
Finally, the proposed rule would have also required disclosure about 
whether the responsible positions or committees report to the board or 
board committee on climate-related risks and how frequently this 
occurs.\675\ These proposed disclosure items were intended to help 
investors understand management's processes to identify, assess, and 
manage climate-related risks. Under the proposal, if applicable, a 
registrant also could elect to describe management's role in assessing 
and managing climate-related opportunities.
---------------------------------------------------------------------------

    \673\ See Proposing Release, section II.D.2.
    \674\ See id.
    \675\ See id.
---------------------------------------------------------------------------

b. Comments
    Many commenters generally supported the proposed requirement to 
disclose management oversight of climate-related risks,\676\ and 
expressed support for the proposed requirement to describe management's 
role in assessing and managing climate-related risks.\677\ These 
commenters stated that investors are interested in procuring 
comprehensive and standardized information that allows for an 
examination of how management monitors and assesses climate-related 
risk. Some supportive commenters stated that there is currently a lack 
of detailed and available information on how registrants manage 
climate-related risks.\678\ Commenters were generally supportive of the 
proposals that aligned with the TCFD, including the proposal to require 
a description of management's role in assessing and managing climate-
related risks.\679\ A few commenters also recommended that the final 
rule require more detailed disclosure, including organizational 
diagrams so that reporting lines to the executive management and board 
of directors are disclosed \680\ and information about executive 
management remuneration linked to climate-based incentives.\681\
---------------------------------------------------------------------------

    \676\ See, e.g., letters from RMI; PRI; IAA; CFA; Beller et al.; 
HP; Uber; BHP; Etsy; UAW Retiree Medical Benefits Trust (June 17, 
2022) (``UAW Retiree''); ICGN; AIMco, BCI, CDPQ, HOOP, IMCO, OMERS, 
OTPP, PSP, UPP (June 17, 2022) (``BCI, et al.''); US SIF; Seventh 
Generation Interfaith, Inc. (June 16, 2022) (``Seventh Gen.''); 
AllianceBernstein.; SKY Harbor; Paradice Invest. Mgmt.; Wellington 
Mgmt.; Bailard, Inc. (June 14, 2022) (``Bailard''); Harvard Mgmt.; 
IIF; BNP Paribas; Rick Love (March 30, 2022); NY City Comptroller; 
GHGSAT; J. Herron; California Farm Bureau (June 17, 2022) (``CFB''); 
Richard Bentley (May 21, 2022) (``R. Bentley''); D. Higgins; Richard 
Burke (May 20, 2022) (``R. Burke''); ICI; Anthesis; Canadian Post 
Corporation Pension Plan (June 17, 2022) (``Can. PCPP''); WSP USA 
(June 17, 2022) (``WSP''); Arjunal; Ecofin; Fiduciary Trust 
International (June 17, 2022); and Can. IRI.
    \677\ See, e.g., letters from Ocean Fnd.; PRI; Harvard Mgmt.; 
and WSP.
    \678\ See, e.g., letters from Climate First Bank; and Bailard.
    \679\ See, e.g., letters from ICI; and Harvard Mgmt.
    \680\ See letter from Morningstar.
    \681\ See, e.g., letters from RVF; Can. PCPP; IEEFA (May 10, 
2022) (stating that ``[t]he linkage of executive compensation to 
climate-related goals is a significant indicator to investors that 
the company is serious about climate change,'' and noting that IFRS 
sustainability disclosure protocols require disclosure of such 
linkage); AllianceBernstein; BCI, et al.; CalSTRS; CalPERS; I. 
Millenaar; and T. Sanzillo.
---------------------------------------------------------------------------

    By contrast, some commenters expressed concerns that the proposals 
were overly prescriptive, and would require disclosure of potentially 
proprietary and sensitive information about management structure and 
individual employees.\682\ These commenters further expressed concerns 
that disclosure of such information would cause competitive harm.\683\ 
Another commenter stated that the Commission could elicit more helpful 
information by adopting a principles-based approach that would allow 
registrants to tailor disclosures to their specific business, thereby 
avoiding unnecessary reporting burdens and the production of 
boilerplate language that provides little value to investors.\684\
---------------------------------------------------------------------------

    \682\ See, e.g., letters from Airlines for America; BPI; and 
MFA.
    \683\ See, e.g., letter from Amer. Chem.
    \684\ See letter from Sullivan Cromwell (``Requiring registrants 
to disclose governance and risk management information with more 
granularity inappropriately places greater emphasis on climate risk 
oversight compared to the oversight of other business risks that are 
equally (and in some cases, more) deserving of the attention of a 
registrant's board and management.'').
---------------------------------------------------------------------------

    With respect to the proposed requirement to describe management's 
role in assessing and managing climate-related risks, some commenters 
emphasized how critical this information is to investors, explaining 
that the current lack of transparent and standardized information 
prevents investors from assessing the operating environments of the 
companies in which they invest.\685\ Another commenter stated that the 
requirement would be unduly burdensome for many companies, particularly 
smaller companies that either do not maintain a large management team 
or have not established formalized internal controls to produce the 
proposed disclosures on climate-related risks.\686\
---------------------------------------------------------------------------

    \685\ See, e.g., letter from CFA.
    \686\ See, e.g., letter from NRP.
---------------------------------------------------------------------------

    Commenters expressed mixed views about the proposal to require 
disclosure of the management positions or committees responsible for 
assessing and managing climate-related risks and the identity of such 
positions or committees. Some commenters were concerned that the 
disclosure of management positions or committees could reveal 
proprietary information about the internal structure of 
registrants.\687\ On the other hand, some commenters emphasized the 
relevance of these proposed disclosures,\688\ with many of these 
commenters explicitly tying this information to the need for 
transparency about compensation practices.\689\ Supportive commenters 
also emphasized that the proposed disclosure requirements would allow 
investors to evaluate the capabilities and preparedness of a company's 
executive management, who are often tasked with incorporating climate-
related risk management into business practices and decisions.\690\ One 
commenter indicated that this proposal would provide different 
information to investors than the proposed information about boards, as 
it would allow investors to understand the operational expertise and 
accountability that exists in relation to how a registrant is 
overseeing such risk.\691\ Commenters stated that investors are seeking 
particularized information about management's role in dealing with 
climate-related risks given that effective oversight requires business-
level understanding of these risks.'' \692\
---------------------------------------------------------------------------

    \687\ See, e.g., letters from AFPA; BlackRock.
    \688\ See, e.g., letter from PRI.
    \689\ See, e.g., letters from CFA; and Nia Impact Capital (June 
15, 2022) (``Nia Impact'').
    \690\ See, e.g., letter from D. Higgins.
    \691\ See, e.g., letter from RMI.
    \692\ See, e.g., letters from RMI; and Ocean Fnd.
---------------------------------------------------------------------------

    Some commenters supported the proposed requirement to disclose the 
relevant expertise or identity of management position holders or 
members responsible for managing climate related risk, stating that 
such disclosures would provide investors with a general understanding 
of how management's climate expertise is deployed, as well as whether 
and how climate-related risk is integrated in the organization.\693\ In 
contrast, many commenters stated that this disclosure would require 
registrants to publish

[[Page 21715]]

detailed descriptions of in-house staff and management's reliance on 
such staff.\694\ Other commenters asserted that the universe of 
climate-related experts is limited, and that the proposed requirements 
would increase the competition for executives with climate-related 
expertise.\695\ Some commenters further asserted that the proposed 
rules would encourage the recruitment of climate experts, who are 
already scarce, and constrain registrants' ability to produce climate 
disclosures and institute climate-related strategies.\696\ Other 
commenters were skeptical of the value added by disclosing the relevant 
expertise or identity of management, stating that these positions turn 
over frequently and more generalized disclosures of the management 
process would afford investors with better quality information.\697\
---------------------------------------------------------------------------

    \693\ See, e.g., letters from PRI; and NEI.
    \694\ See, e.g., Can. Bankers.
    \695\ See, e.g., letters from ABA; Fed. Hermes; ICI; RILA; 
Sullivan Cromwell; and Wellington Management Company.
    \696\ See, e.g., letter from Can. Bankers (arguing 
``Highlighting reliance on these experts will . . . lead to 
potential poaching issues that could further inhibit registrants' 
ability to comply with climate disclosures and to implement climate 
strategies.'').
    \697\ See, e.g., letters from RILA; and ICI.
---------------------------------------------------------------------------

    Many commenters were supportive of the proposal to require 
registrants to describe the processes by which the management positions 
or committees responsible for climate-related risks are informed about 
and monitor climate-related risks.\698\ These commenters stated that 
this information was highly relevant to and sought after by investors, 
and would provide the kind of detailed and standardized information 
that is currently unavailable in current disclosures.\699\ Other 
commenters expressed concerns regarding the utility of this 
information.\700\ Some commenters stated that, by requiring this kind 
of disclosure, the Commission was placing an undue priority on climate-
related risks above other more pressing business risks.\701\ Other 
commenters stated that a high-level summary of the management of 
material climate-related risks was sufficient and would avoid the 
expense of producing excessive and unnecessary information.\702\ In 
addition, commenters representing smaller registrants or registrants in 
particular industries stated that their management of climate-related 
risks are appropriately tailored to their size and scale and asserted 
that the proposed rule unduly pressures such registrants into a one-
sized-fits-all approach.\703\
---------------------------------------------------------------------------

    \698\ See, e.g., letters from GHGSAT; NY City Comptroller; 
Anthesis; and J. Brendan Herron.
    \699\ See, e.g., letters from TotalEnergies; and Greenlining 
Institute.
    \700\ See, e.g., letters from Corteva; IC; and AFPA.
    \701\ See, e.g., letters from Charles Franklin (Nov. 1, 2022); 
Southside Bancshares; and BIO.
    \702\ See, e.g., letters from GPA Midstream (``While we agree 
with the Commission that general information on governance, such as 
identification of the committee or committees responsible for 
addressing climate-related risks, may be relevant information for 
investors, we disagree with the level of detail called for by the 
Proposed Rules.''); and PwC (``Focusing on information that the 
registrant's management uses to make strategic decisions--instead of 
a broad requirement to disclose `any' climate-related risks--would 
improve the usefulness of the disclosures and provide additional 
insight to investors, while simultaneously reducing the burden on 
registrants.'').
    \703\ See, e.g., letters from Southside Bancshares; BIO; and 
NRP.
---------------------------------------------------------------------------

    Commenters were divided on the proposal to require disclosure of 
whether and how frequently such positions or committees report to the 
board or a committee of the board on climate-related risks. Commenters 
supportive of the proposal stated that the disclosure would allow 
investors to analyze how boards integrate climate-related information 
into the overall risk management structure and how this information 
affects decision-making.\704\ Other commenters suggested that this 
disclosure would drive unwelcome changes in current business practice 
and structure, potentially diverting attention and resources away from 
other material risks or other matters.\705\
---------------------------------------------------------------------------

    \704\ See, e.g., letters from PRI; NY City Comptroller; CIEL; 
Greenlining Institute; TotalEnergies; NEI; J. Brendan Herron; ICI; 
Canadian Coalition for Good Governance (June 16, 2022) (``Can. 
Coalition GG''); Anthesis; WSP; Fed. Hermes; and Ocean Fnd.
    \705\ See, e.g., letters from Alliance Resource; NRP; The 
Sustainability Board Report; Corteva, Inc.; Energy Transfer LP; 
Center for Climate and Energy Solutions; IIF; AFPA; PGIM; Southside 
Bancshares; IC; GPA Midstream; AALA; D. Burton, Heritage Fdn.; and 
Akin Gump Strauss Hauer & Feld LLP.
---------------------------------------------------------------------------

    Commenters also provided views on the proposal to allow, but not 
require, registrants to disclose the board's oversight of, and 
management's role in, assessing and managing climate-related 
opportunities. While some commenters supported allowing such disclosure 
to be optional and not mandatory,\706\ others indicated that how 
companies are responding to highly dynamic opportunities is material 
information and therefore should be required to be disclosed.\707\ One 
commenter stated that climate-related opportunity reporting is likely 
to be adopted in both the EU and UK, and therefore, to streamline 
mandatory disclosures for dually-listed companies, the commenter 
recommended that the Commission require this disclosure, except for 
opportunities unrelated to a registrant's principal line of 
business.\708\
---------------------------------------------------------------------------

    \706\ See, e.g., letter from CEMEX.
    \707\ See, e.g., letter from CHRE and Institute for Governance & 
Sustainable Development.
    \708\ See, e.g., letter from We Mean Business Coalition (June 
13, 2022) (``We Mean Business'').
---------------------------------------------------------------------------

c. Final Rule
    We are adopting the proposed requirement to disclose management 
oversight of climate related risks (Item 1501(b)) with some 
modifications to address the concerns of commenters. The final rules 
will, like the proposed rules, require that registrants describe 
management's role in assessing and managing climate-related risks. As 
commenters stated, investors need information about how management-
level staff assess and manage material climate-related risks to make 
informed investment and voting decisions. However, we are limiting the 
disclosure required by this final rule provision to material climate-
related risks, as suggested by commenters,\709\ given the multitude of 
climate-related matters that may be overseen by management. The final 
rules also specify that a registrant should address, as applicable, the 
following non-exclusive list of disclosure items when describing 
management's role in assessing and managing the registrant's material 
climate-related risks:
---------------------------------------------------------------------------

    \709\ See, e.g., letters from MFA; and RILA.
---------------------------------------------------------------------------

     Whether and which management positions or committees are 
responsible for assessing and managing climate-related risks, and the 
relevant expertise of such position holders or committee members in 
such detail as necessary to fully describe the nature of the expertise;
     The processes by which such positions or committees assess 
and manage climate-related risks; and
     Whether such positions or committees report information 
about such risks to the board of directors or a committee or 
subcommittee of the board of directors.
    The non-exclusive list of disclosures in Item 1501(b) should help 
elicit specific information about management's oversight of climate-
related risks and thereby mitigate any tendency towards boilerplate 
disclosures. At the same time, by focusing the disclosure on 
management's role in assessing and managing material climate-related 
risks, the final rules will provide registrants with the flexibility to 
tailor the disclosures based on their particular governance structure. 
Given these changes, we believe the final rule appropriately balances 
investors' needs for information to understand management's involvement 
in assessing

[[Page 21716]]

and managing material climate risks with concerns that a more 
prescriptive rule could have adverse consequences on registrants' 
governance practices or organizational structures.
    We reiterate, as we did above with respect to our rules requiring 
disclosure of board oversight of climate-related risks, that the final 
rule does not seek to influence decisions about how to manage climate-
related risks or otherwise change registrant behavior. Rather, the 
final rule seeks to elicit disclosure about existing oversight 
practices that will allow investors to make better informed judgments 
about registrants' oversight processes and mechanisms in light of their 
overall investment objectives and risk tolerance. Furthermore, the 
final rule does not require registrants that do not engage in the 
oversight of material climate-related risk to disclose any information.
    We are mindful of the suggestions of some commenters that we adopt 
additional requirements to disclose information related to management 
oversight of climate-related risks, including descriptions of internal 
positions and reporting structures and detailed information about 
climate-based remuneration. However, consistent with our overall goal 
to streamline the proposed requirements and to focus on management's 
oversight of material climate-related risk, we are not including such 
additional disclosure elements in the final rule.\710\
---------------------------------------------------------------------------

    \710\ Although we are not adopting specific requirements related 
to executive management remuneration linked to climate-based 
incentives, to the extent a climate-related target or goal or other 
measure is a material element of a registrant's compensation of 
named executive officers, such information is required to be 
disclosed under Item 402(b) of Regulation S-K.
---------------------------------------------------------------------------

    We are adopting the proposal requiring a description of the 
relevant expertise of position holders or members responsible for 
assessing and managing climate-related risk.\711\ While we considered 
the view of commenters that this could cause registrants to feel 
compelled to find and hire management with such expertise, regardless 
of whether that is the most sensible use of managerial resources given 
the registrant's particular facts and circumstances, the added 
qualification that disclosure is only required where the risk is 
material mitigates this concern. We agree with commenters that asserted 
that this information will be helpful to understanding a registrant's 
ability to manage climate-related risks given the direct role that 
management will play in overseeing any such risks yet emphasize that 
registrants are required to make this disclosure only if they have 
identified a material climate risk.
---------------------------------------------------------------------------

    \711\ Further, we are adding Instruction 2 to Item 1501 to 
clarify that relevant expertise of management in Item 1501(b)(1) may 
include, for example: prior work experience in climate-related 
matters; any relevant degrees or certifications; any knowledge, 
skills, or other background in climate-related matters.
---------------------------------------------------------------------------

    As noted above, the final rule has been modified to eliminate many 
of the prescriptive disclosure elements from the proposal, and it 
instead provides a non-exclusive list of the types of disclosures that 
a registrant should include, as applicable, when describing 
management's role in assessing and managing the registrant's material 
climate-related risk. For example, if applicable, registrants should 
describe the processes by which certain positions or committees are 
informed about and monitor climate-related risks. A process-based 
description of management's governance of material climate-risks can 
offer investors a meaningful look at how registrants manage material 
climate-related risks. Registrants should also disclose, if applicable, 
whether management reports to the board or a subcommittee of the board 
on climate-related risks. Elimination of the proposed requirement to 
disclose how frequently the board meets to discuss climate-related 
matters, as discussed above, addresses commenters' concerns that this 
disclosure, if provided, could divert limited resources from the 
consideration of other material risks and encourage changes to business 
practices. Nonetheless, information on whether management reports to 
the board can provide needed clarity on the connection between board 
and management level governance of climate-related risks, and 
accordingly, we have retained it as an example of the type of 
disclosure that might be responsive to the rule. We have also added a 
reference to a subcommittee of the board because some registrants may 
establish a subcommittee to focus on climate-related issues.
    Finally, as noted above,\712\ we are not adopting the proposed rule 
that would have allowed, but did not require, registrants to describe 
management's role in assessing and managing climate-related 
opportunities. As with other voluntary disclosure, registrants may 
elect to include such disclosure. While we recognize that some 
commenters recommended that such disclosure be mandatory, we have 
determined to treat the disclosure regarding climate-related 
opportunities as optional, among other reasons, to allay any anti-
competitive concerns that might arise from a requirement to disclose a 
particular business opportunity.\713\
---------------------------------------------------------------------------

    \712\ See section II.C.1.c.
    \713\ See Proposing Release, section II.A.1.
---------------------------------------------------------------------------

    These changes will also help address the concerns expressed by some 
commenters, including from smaller reporting companies and registrants 
in certain industries,\714\ that the proposed rules would unduly 
pressure such registrants into a one-sized-fits-all governance approach 
given the line of business, size, and structure of their 
companies.\715\ While we disagree with one commenter's suggestion that 
the proposal would ``mandate that every company in the United States be 
required to expand management structures in order to accommodate 
concerns that are not material to a company,'' \716\ shifting to a non-
exclusive list of topics that a registrant should address, as 
applicable, will mitigate the concerns raised by some commenters that 
the prescriptiveness of the proposed disclosures could lead to such a 
result. In addition, the flexibility afforded to registrants under the 
final rule to determine which details about management's oversight of 
climate-related risks to include in their disclosure will help 
alleviate concerns that the proposal would elevate climate-related 
disclosures above other, equally important, disclosures. Furthermore, 
as stated above, the final rule does not impose any disclosure 
requirements on registrants that do not exercise management oversight 
of climate-related risks.
---------------------------------------------------------------------------

    \714\ See, e.g., letter from BIO.
    \715\ See, e.g., letter from Chamber (``We believe the Proposed 
Rule, if adopted, would create a board oversight and risk management 
structure that not only makes little sense for certain companies but 
could harm investors in companies that have no need for such 
extensive oversight of climate risk. The Proposed Rule, if adopted, 
would present a costly distraction for companies with limited 
resources (particularly small-cap and many mid-cap companies) to 
attempt to align their behavior and disclosures with those of other 
companies that similarly felt pressured by the rule to adapt their 
behavior to what appears to be the SEC's preferred response to 
climate-related risks.'').
    \716\ See letter from BIO.
---------------------------------------------------------------------------

F. Risk Management Disclosure (Item 1503)

1. Proposed Rule
    The Commission proposed to require a registrant to describe any 
processes the registrant has for identifying, assessing, and managing 
climate-related risks.\717\ The Commission stated that

[[Page 21717]]

more granular information regarding climate-related risk management 
could allow investors to better understand how a registrant identifies, 
evaluates, and addresses climate-related risks that may materially 
impact its business.\718\ Such information could also permit investors 
to ascertain whether a registrant has integrated the assessment of 
climate-related risks into its regular risk management processes.\719\
---------------------------------------------------------------------------

    \717\ See Proposing Release, section II.E.1. As previously 
noted, see supra note 464, the Commission proposed to require 
transition plan disclosure in connection with a registrant's risk 
management discussion. See Proposing Release, section II.E.2. The 
final rule includes transition plan disclosure as part of a 
registrant's disclosure about climate-related risks and their impact 
on the registrant's strategy. We discuss transition plan disclosure 
requirements above in section II.D.2.
    \718\ See Proposing Release, section II.E.1.
    \719\ See id.
---------------------------------------------------------------------------

    The rule proposal would have required a registrant, when describing 
the processes for identifying and assessing climate-related risks, to 
disclose, as applicable, how the registrant:
     Determines the relative significance of climate-related 
risks compared to other risks;
     Considers existing or likely regulatory requirements of 
policies, such as GHG emissions limits, when identifying climate-
related risks;
     Considers shifts in customer or counterparty preferences, 
technological changes, or changes in market prices in assessing 
potential transition risks; and
     Determines the materiality of climate-related risks, 
including how it assesses the potential size and scope of any 
identified climate-related risk, such as the risks identified in 
response to proposed Item 1502.\720\
---------------------------------------------------------------------------

    \720\ See id.
---------------------------------------------------------------------------

    The rule proposal also required a registrant, when describing any 
processes for managing climate-related risks, to disclose, as 
applicable, how the registrant:
    (a) Decides whether to mitigate, accept, or adapt to a particular 
risk;
    (b) Prioritizes addressing climate-related risks; and
    (c) Determines how to mitigate a high priority risk.\721\
---------------------------------------------------------------------------

    \721\ See id.
---------------------------------------------------------------------------

    The rule proposal further required a registrant to disclose whether 
and how climate-related risks are integrated into the registrant's 
overall risk management system or processes.\722\ If a separate board 
or management committee is responsible for assessing and managing 
climate-related risks, the rule proposal required a registrant to 
disclose how that committee interacts with the registrant's board or 
management committee governing risks.\723\ The Commission explained 
that these proposed disclosures would help investors assess whether the 
registrant has centralized the processes for managing climate-related 
risks, which may indicate to investors how the board and management may 
respond to such risks as they unfold.\724\
---------------------------------------------------------------------------

    \722\ See id.
    \723\ See id.
    \724\ See id.
---------------------------------------------------------------------------

2. Comments
    Many commenters supported the proposed rule requiring registrants 
to describe any processes in place for identifying, assessing, and 
managing climate-related risks.\725\ Commenters stated that investors 
would use the risk management disclosures to evaluate an issuer's 
readiness for confronting climate-related risks.\726\ Commenters also 
stated that the proposed risk management disclosure requirement would 
improve the quality of the disclosures that registrants currently 
provide on a voluntary basis.\727\ Commenters further stated that the 
proposed risk management disclosure requirement is aligned with the 
TCFD's recommended disclosures regarding risk management, with which 
many registrants are already familiar.\728\
---------------------------------------------------------------------------

    \725\ See, e.g., letters from AGs of Cal. et al.; Amer. for Fin. 
Reform, Sunrise Project et al.; Anthesis; Bloomberg; BNP Paribas; 
BOA; CalPERS; Center Amer. Progress; Ceres; CFA; C2ES; Eni SpA; 
Friends Fiduciary Corporation (June 17, 2022) (``FFC''); Grant 
Thornton; Morningstar; IAC Recommendation; NY St. Comptroller; PRI; 
PwC; SKY Harbor; TotalEnergies; and US SIF.
    \726\ See, e.g., letters from AGs of Cal. et al.; CFA; and 
Morningstar.
    \727\ See, e.g., letters from Bloomberg; and PRI.
    \728\ See, e.g., letters from Center Amer. Progress; C2ES; and 
US SIF. We note that other commenters that approved of the proposed 
risk management disclosure requirements also supported aligning the 
Commission's climate disclosure requirements generally with the TCFD 
recommendations because it would help elicit consistent, comparable, 
and reliable disclosure for investors. See, e.g., letters from 
Bloomberg; CalPERS; and PRI.
---------------------------------------------------------------------------

    Other commenters generally opposed the proposed risk management 
disclosure requirement.\729\ Commenters objected to the 
prescriptiveness of the proposal, which they stated would result in 
overly granular disclosure that may not be relevant to a registrant's 
particular business or industry and, therefore, may not be material for 
investors.\730\ Commenters also stated that the prescriptive nature of 
the rule proposal may result in the disclosure of commercially 
sensitive and strategic information.\731\ These commenters urged the 
Commission to adopt a more principles-based approach that would allow 
registrants to avoid the disclosure of commercially sensitive or 
proprietary information.\732\
---------------------------------------------------------------------------

    \729\ See, e.g., letters from Airlines for America; BIO; 
Business Roundtable; CEMEX; Chamber; Davis Polk; Dominion Energy; 
Fenwick & West; GPA Midstream; J. Herron; RILA; and Soc. Corp. Gov.
    \730\ See, e.g., letters from BIO; Chamber; Dominion Energy; GPA 
Midstream; J. Herron; RILA; and Soc. Corp. Gov.
    \731\ See, e.g., letters from Airlines for America; Business 
Roundtable; CEMEX; and Dominion Energy.
    \732\ See, e.g., letters from Airlines for America; BOA; 
Business Roundtable; and Soc. Corp. Gov.
---------------------------------------------------------------------------

    Some commenters opposed the proposed risk management disclosure 
requirement because they believed that the Commission's existing rules 
already require the disclosure of material risks and how the registrant 
is managing them.\733\ Other commenters stated that the Commission's 
proposed climate-related risk management disclosure provision deviated 
from the Commission's disclosure requirements for other risk categories 
and placed undue emphasis on climate-related matters.\734\ 
Additionally, some commenters expressed general opposition to the 
proposed disclosure requirements, including risk management 
disclosures, because of concerns about the resulting compliance burden 
and costs.\735\
---------------------------------------------------------------------------

    \733\ See, e.g., letters from BIO; CEMEX; and Dominion Energy.
    \734\ See, e.g., letters from Airlines for America; Davis Polk; 
Dominion Energy; RILA; and Soc. Corp. Gov.
    \735\ See, e.g., letters from CEMEX; Davis Polk; GPA Midstream; 
Fred Reitman (June 16, 2022) (``F. Reitman''); and J. Weinstein.
---------------------------------------------------------------------------

    Several of the commenters that supported the risk management 
disclosure proposal also expressed support for the proposal's discrete 
disclosure items.\736\ For example, one commenter supported requiring 
the disclosure of how a registrant determines the relative significance 
of climate-related risks compared to other risks, how it determines the 
materiality of climate-related risks, and how it considers various 
factors, such as existing or prospective regulatory requirements or 
policies, shifts in customer or counterparty preferences, technological 
changes, and changes in market prices, in assessing potential 
transition risks, and specifically mentioned that such disclosures are 
recommended by the TCFD.\737\ Another commenter stated that requiring 
disclosure of how a company determines the importance of climate-
related risks would be useful to investors, as this determination 
provides the foundation for all other climate-related 
considerations.\738\

[[Page 21718]]

Relatedly, one commenter stated that it needs transparent disclosure 
regarding how companies are determining the materiality of climate-
related risks in order to evaluate issuer risks properly.\739\ Another 
commenter stated that how a registrant determines the materiality of 
climate-related risks is important for investors to understand because 
it helps set the necessary context for all of the other climate-related 
disclosures.\740\
---------------------------------------------------------------------------

    \736\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; C2ES; ICI; Morningstar; PRI; TotalEnergies; and WSP.
    \737\ See letter from Anthesis. See also supra note 728.
    \738\ See letter from PRI (stating that the determination of how 
a company determines the importance of climate-related risks ``will 
then go on to dictate how management and the board consider climate-
related risks as part of governance, [and] whether management sets 
climate related targets or uses other tools such as scenario 
analysis'').
    \739\ See letter from Calvert.
    \740\ See letter from WSP.
---------------------------------------------------------------------------

    Commenters also supported the proposed requirement to describe how 
the registrant considers existing or likely regulatory requirements or 
policies, such as GHG emissions limits, when identifying climate-
related risks.\741\ One commenter stated that this would provide 
information about an important transition-related risk.\742\ Another 
commenter stated that this type of information, among others, would 
help investors evaluate whether a company has implemented adequate 
processes for identifying, assessing, and managing climate-related 
risks.\743\
---------------------------------------------------------------------------

    \741\ See, e.g., letters from ICI; PRI; and TotalEnergies.
    \742\ See, e.g., letter from WSP.
    \743\ See, e.g., letter from ICI.
---------------------------------------------------------------------------

    For similar reasons, some commenters supported the proposal 
requiring a registrant to disclose how it considers shifts in customer 
or counterparty preferences, technological changes, or changes in 
market prices in assessing potential transition risks.\744\ Certain 
commenters, while supportive of the proposal, stated that the 
Commission should go further and also afford registrants the ability to 
provide additional disclosures, such as regarding how climate-related 
technological and customer shifts are being managed, minimized, tracked 
over time, and reported on regularly.\745\
---------------------------------------------------------------------------

    \744\ See, e.g., letters from C2ES; ICI; PRI; TotalEnergies; and 
WSP.
    \745\ See, e.g., letter from C2ES.
---------------------------------------------------------------------------

    Many commenters supported the proposal to require a registrant to 
disclose how it decides whether to mitigate, accept, or adapt to a 
particular climate-related risk.\746\ One of these commenters stated 
that this information would help investors evaluate whether a company 
has implemented adequate processes for identifying, assessing, and 
managing climate-related risks.\747\ Many commenters similarly 
supported the Commission's proposal to require disclosure of how 
registrants prioritize climate-related risks and how they determine to 
mitigate a high priority risk.\748\ Commenters indicated that 
information concerning how the registrant prioritizes climate-related 
risks vis-[agrave]-vis other risks that the registrant is managing 
would be particularly useful.\749\ One commenter stated that disclosure 
of a registrant's rationale for pursuing capital expenditures for 
managing certain climate-related risks would be beneficial for 
investors to better assess the company's capital allocation.\750\ Other 
commenters emphasized that since investors must depend on issuers' 
assessment of their own significant or material climate-related risks, 
the proposed disclosure requirements would allow investors to 
understand how issuers reach these conclusions.\751\
---------------------------------------------------------------------------

    \746\ See, e.g., letters from CalPERS; C2ES; ICI; PRI; 
Morningstar; TotalEnergies; and WSP.
    \747\ See letter from ICI.
    \748\ See, e.g., letters from ICI; Morningstar; TotalEnergies; 
and WSP.
    \749\ See, e.g., letters from C2ES; and WSP.
    \750\ See letter from CalPERS.
    \751\ See, e.g., letters from Earthjustice (June 17, 2022); and 
RMI.
---------------------------------------------------------------------------

    Many commenters also supported the proposed disclosure requirement 
concerning whether and how climate-related risk management processes 
are integrated into a registrant's overall risk management system.\752\ 
One commenter stated that information about how a registrant integrates 
its climate risk management processes into its overall risk management 
system is essential to understanding the effectiveness of those climate 
risk management processes.\753\ Another commenter stated that 
disclosure regarding how a registrant's identified material climate-
related risks are ``integrated into its company-wide enterprise risk 
management framework [would] allow for comparability of climate risks 
with other financial and non-financial risks.'' \754\ Yet another 
commenter stated that information about whether a registrant has 
centralized its climate-related risk management into its regular risk 
management processes is decision-useful for investors because the 
disintegration of climate-related risks from other risks signals 
insufficient competence in managing the financial implications of 
climate-related matters.\755\ One commenter expressed support for the 
proposed risk management disclosure provision but cautioned that 
registrants should not be required to speculate about future 
restructurings, write-downs, or impairments related to climate risks or 
disclose any trade secrets or confidential business information in 
their climate-related risk management disclosures.\756\
---------------------------------------------------------------------------

    \752\ See, e.g., letters from Anthesis; Eni SpA; ICI; 
Morningstar; NY St. Comptroller; PRI; Verena Rossolatos (June 8, 
2022) (``V. Rossolatos''); SKY Harbor; TotalEnergies; and WSP.
    \753\ See letter from Morningstar; see also letter from PRI 
(stating that understanding the extent to which risk management 
disclosure on climate-related issues is integrated into a company's 
overall risk management process is essential for investors).
    \754\ See letter from Anthesis.
    \755\ See letter from V. Rossolatos.
    \756\ See letter from BOA.
---------------------------------------------------------------------------

    Several commenters opposed the proposed risk management disclosure 
requirement because of the detailed items that a registrant would be 
required to address when describing the processes used to identify, 
assess, and manage climate-related risks and how those processes are 
integrated into the registrant's overall risk management system.\757\ 
One commenter stated that the proposed disclosure requirement could 
cause investors to overestimate climate-related risks and improperly 
contextualize the materiality of those risks.\758\ Another commenter 
stated that the proposed disclosure requirement was redundant because 
such information already must be included in annual reports.\759\ Other 
commenters expressed concern that the proposed disclosure requirement 
called for unnecessarily detailed, confidential, and proprietary 
information.\760\ Some commenters also asserted that the proposed 
itemized risk management disclosure requirements go well beyond the 
TCFD framework, which one commenter stated would ``not provide a 
material benefit to investors and in fact may harm the public markets 
by creating undue costs on issuers to produce such information.'' \761\ 
Other commenters criticized the proposed risk management disclosure 
provision for not including materiality qualifiers and not being more 
principles-based, and cautioned that the prescriptiveness of the rule 
proposal would lead to boilerplate language that would not provide 
decision-useful information to investors.\762\
---------------------------------------------------------------------------

    \757\ See, e.g., letters from Chamber; International Energy 
Credit Association (June 17, 2022) (``IECA''); MFA; Soc. Corp. Gov; 
and J. Weinstein.
    \758\ See, e.g., letter from Alliance Resource.
    \759\ See, e.g., letter from CEMEX.
    \760\ See, e.g., letter from Business Roundtable.
    \761\ See, e.g., letters from MFA; and Soc. Corp. Gov.
    \762\ See, e.g., letters from Chamber; IECA; and J. Weinstein.
---------------------------------------------------------------------------

3. Final Rule
    After considering the comments received, we are adopting a 
requirement (Item 1503), modified from the proposal

[[Page 21719]]

as discussed below, to describe any processes the registrant has for 
identifying, assessing, and managing material climate-related 
risks.\763\ We agree with those commenters that stated investors need 
more comprehensive disclosure of registrants' climate-related risk 
management practices to inform their investment and voting 
decisions.\764\ Because climate-related risks can have material impacts 
on a registrant's business, it is important for investors to have 
information available to them so that they can understand how a 
registrant identifies, assesses, and manages any such risks. At the 
same time, we are mindful of commenters' suggestions, both for this 
risk management disclosure in particular and climate-related 
disclosures more generally, that the Commission promulgate rules that 
allow registrants to tailor the disclosure of material climate-related 
risks and related management practices to their own particular facts 
and circumstances.\765\ Accordingly, we are adopting a less 
prescriptive approach that focuses on a description of processes for 
identifying, assessing, and managing material climate-related risks. In 
doing so, we have sought to avoid imposing a ``one-size-fits-all'' 
disclosure model \766\ that fails to account for differences in 
industries and businesses and that could result in disclosure of 
immaterial information while still eliciting decision-useful 
information for investors about registrants' risk management practices.
---------------------------------------------------------------------------

    \763\ See 17 CFR 229.1503(a). As noted in section II.D.2.c 
above, we have moved the disclosure requirement concerning a 
registrant's transition plan to the 17 CFR 229.1502.
    \764\ See, e.g., letters from Ceres; C2ES; PWHC; SKY Harbor; and 
WSP.
    \765\ See supra note 730 and accompanying text.
    \766\ See, e.g., letters from API; Chamber; and SIFMA.
---------------------------------------------------------------------------

    As a number of commenters indicated, consistent information about a 
registrant's management of climate-related risks is vital to informed 
investment and voting decisions.\767\ Despite the importance of 
climate-related risk management information to investors, only a 
minority of registrants currently include such information in their 
voluntary climate reports or in their Exchange Act filings.\768\ We 
considered comments that the proposed disclosure requirements are 
redundant because existing rules already require disclosure about 
material risks in annual reports, but we continue to believe that a 
specific disclosure item focused on managing material climate-related 
risks is warranted. While registrants may be required to disclose 
certain climate-related information in filings made with the Commission 
pursuant to existing disclosure requirements, as noted above \769\ 
there is a need to improve the consistency, comparability, and 
reliability of disclosures about climate-related risk management for 
investors given that, as noted above, most registrants are not 
currently including the type of information called for by the final 
rules in voluntary climate reports or Exchange Act filings.\770\ We 
also considered comments that the proposal placed undue emphasis on 
climate-related risks and, as discussed below, have made a number of 
changes in response to streamline the requirements and focus on 
material climate-related risks.
---------------------------------------------------------------------------

    \767\ See supra note 727 and accompanying text. See also 
Anthesis (stating that the SEC should require the registrant to 
disclose its process for identifying climate risks with the highest 
materiality and explain its adaptation/mitigation plan to build 
resiliency).
    \768\ See TCFD, 2022 Status Report (Oct. 2022), available at 
https://assets.bbhub.io/company/sites/60/2022/10/2022-TCFD-Status-Report.pdf (indicating that only approximately one-third of over 
1,400 public companies surveyed provided disclosure concerning 
climate risk management processes in their 2021 reports).
    \769\ See supra note 727 and accompanying text.
    \770\ See section IV.A.5.
---------------------------------------------------------------------------

    First, in a change from the proposal, we have added a materiality 
qualifier to the disclosure item.\771\ The final rule will require 
registrants to disclose any existing processes for the identification, 
assessment, and management of material climate-related risks. Including 
a materiality qualifier addresses the specific concerns expressed by 
commenters that the proposal would require registrants to disclose this 
information in a level of detail that would impose undue costs. If a 
registrant has not identified a material climate-related risk, no 
disclosure is required. Given the concerns expressed by commenters that 
there is a wide range of risks that registrants manage as part of their 
operations, we are persuaded that it is appropriate to include a 
materiality qualifier for this aspect of the proposal to help ensure 
that the final rule elicits decision-useful information for investors 
without imposing an undue burden on registrants and placing undue 
emphasis on climate-related risks that are not material.
---------------------------------------------------------------------------

    \771\ See supra note 730 and accompanying text.
---------------------------------------------------------------------------

    Similarly, to address the concerns of commenters that the proposed 
risk management disclosure provision would require registrants to 
address items that might not be relevant to their particular business 
or industry,\772\ we have removed several prescriptive elements from 
the final rule. Those proposed provisions that we are not adopting 
would have required a registrant, when describing any processes for 
identifying and assessing climate-related risks, to disclose, as 
applicable, how the registrant:
---------------------------------------------------------------------------

    \772\ See supra note 730 and accompanying text.
---------------------------------------------------------------------------

     Determines the relative significance of climate-related 
risks compared to other risks;
     Considers existing or likely regulatory requirements or 
policies, such as GHG emissions limits, when identifying climate-
related risks;
     Considers shifts in customer or counterparty preferences, 
technological changes, or changes in market prices in assessing 
potential transition risks; and
     Determines the materiality of climate-related risks.
    Instead, the final rule will allow a registrant, when describing 
its processes for identifying, assessing, and managing material 
climate-related risks, to determine which factors are most significant, 
and therefore should be addressed, based on its particular facts and 
circumstances, which may include information on the items listed above.
    Commenters that supported the proposal stated that a meaningful 
description of the processes underlying climate risk management is 
necessary to enable investors to evaluate registrants' climate risk 
management practices as part of their investment decisions. The final 
rule will elicit disclosures that offer a more complete picture of the 
management of material climate-related risks while also mitigating 
concerns that the proposed rule could unnecessarily elevate climate-
related risk above other important matters and give rise to competitive 
harm and increased litigation risk for registrants. The final rule will 
also promote more consistent and comparable disclosure of registrants' 
climate-related risk management practices than is currently available 
from voluntary reporting and, as these provisions of the final rules 
more closely align with the TCFD, they may limit costs for those 
registrants who are familiar with reporting under this framework.
    The final rule provides that a registrant should address, as 
applicable, how it identifies whether it has incurred or is reasonably 
likely to incur a material physical or transition risk.\773\ This 
provision is similar to the proposed rule that would have required a 
registrant to describe its processes for

[[Page 21720]]

identifying a climate-related risk.\774\ The final rule substitutes the 
more specific terms ``physical risk or transition risk'' for ``climate-
related risk'' to clarify and simplify the requirement since Item 1500 
defines climate-related risk to encompass physical and transition 
risks. In addition, because the processes and factors that a registrant 
may use to identify the two types of risks may differ in certain 
respects, or in some cases a registrant may face one and not the other 
kind of risk, this change should elicit more relevant information for 
investors.\775\
---------------------------------------------------------------------------

    \773\ See 17 CFR 229.1503(a)(1).
    \774\ See Proposing Release, section II.E.1.
    \775\ See TCFD, supra note 332, at 13-14 (providing different 
tables (Tables D2 and D3) outlining the identification and 
assessment approaches for transition risks and physical risks).
---------------------------------------------------------------------------

    Similar to the rule proposal, the final rule also provides that a 
registrant should address, as applicable, how it:
     Decides whether to mitigate, accept, or adapt to the 
particular risk; \776\ and
---------------------------------------------------------------------------

    \776\ See 17 CFR 229.1503(a)(2).
---------------------------------------------------------------------------

     Prioritizes whether to address the climate-related 
risk.\777\
---------------------------------------------------------------------------

    \777\ See 17 CFR 229.1503(a)(3).
---------------------------------------------------------------------------

    The final rules will help investors to understand the processes 
that a registrant has for identifying, assessing, and managing climate-
related risks, consistent with the feedback of many commenters.\778\ In 
this regard, commenters further indicated that information concerning 
how a registrant prioritizes climate-related risks vis-[agrave]-vis 
other risks that the registrant is managing would be particularly 
useful.\779\ We are not, however, retaining the proposed requirement to 
disclose how a registrant determines how to mitigate any high priority 
risks. In response to the concerns expressed by several 
commenters,\780\ we have removed this proposed disclosure item to 
reduce the prescriptiveness of the risk management disclosure 
requirement and streamline this requirement, as we have done with other 
areas of the final rules. Furthermore, in response to one commenter who 
supported the proposal but cautioned against an overly broad 
application,\781\ we confirm that the final rules do not require 
registrants to speculate in their disclosures about future 
restructurings, write-downs, or impairments related to climate risk 
management. The flexibility afforded by the final rules also helps 
address the point made by the same commenter that the proposed 
disclosure item should not compel registrants to disclose trade secrets 
or confidential business information.
---------------------------------------------------------------------------

    \778\ See supra note 747 and accompanying text.
    \779\ See supra note 749 and accompanying text.
    \780\ See supra note 733 and 734 and accompanying text.
    \781\ See e.g., letter from BOA.
---------------------------------------------------------------------------

    Also similar to the rule proposal, the final rule provides that, if 
a registrant is managing a material climate-related risk, it must 
disclose whether and how any of the processes it has described for 
identifying, assessing, and managing the material climate-related risk 
have been integrated into the registrant's overall risk management 
system or processes.\782\ As some commenters noted, information about 
how a registrant integrates its climate risk management processes into 
its overall risk management system is important to help investors 
understand and assess the effectiveness of those climate risk 
management processes.\783\ Mandating this disclosure, therefore, will 
allow investors to make better informed decisions about the overall 
risk profile of their investment in the registrant and provide a 
measure from which they can evaluate similarly situated companies.\784\
---------------------------------------------------------------------------

    \782\ See 17 CFR 229.1503(b).
    \783\ See supra note 753 and accompanying text.
    \784\ See, e.g., letter from SKY Harbor.
---------------------------------------------------------------------------

    We are not adopting the proposed requirement for a registrant to 
disclose, if it has a separate board or management committee 
responsible for assessing and managing climate-related risks, how that 
committee interacts with the registrant's board or management committee 
governing risks. Several commenters stated that they do not have 
dedicated board or management committees for managing climate-related 
risks,\785\ or asserted that including such prescriptive elements in 
the final rule could lead to boilerplate disclosure.\786\ Having 
considered these comments, and in light of our overall aim to reduce 
the prescriptiveness of the proposed requirements, we are not including 
this disclosure item in the final rule. We believe the other disclosure 
items we are adopting will still provide investors with decision-useful 
information about how registrants manage their material climate-related 
risks.
---------------------------------------------------------------------------

    \785\ See, e.g., letter from BIO.
    \786\ See, e.g., letter from Chamber.
---------------------------------------------------------------------------

    Finally, as noted above,\787\ we are not adopting the proposed rule 
that allowed but did not require registrants to describe any processes 
for identifying, assessing, and managing climate-related opportunities 
when responding to any of the provisions in the risk management 
section.\788\ As with other voluntary disclosure, registrants may elect 
to include such disclosure. While we recognize the recommendation of 
some commenters that such disclosure be mandatory, consistent with the 
rule proposal, we have determined to treat disclosure regarding 
climate-related opportunities as optional, among other reasons, to 
allay any anti-competitive concerns that might arise from a requirement 
to disclose a particular business opportunity.\789\
---------------------------------------------------------------------------

    \787\ See supra section II.C.1.c.
    \788\ See 17 CFR 229.1503(c).
    \789\ See Proposing Release, section II.A.1.
---------------------------------------------------------------------------

G. Targets and Goals Disclosure (Item 1504)

1. Proposed Rule
    The Commission proposed to require a registrant that has set any 
climate-related targets or goals to disclose certain information about 
those targets or goals.\790\ The proposed rule provided examples of 
climate-related targets or goals, such as those related to the 
reduction of GHG emissions or regarding energy usage, water usage, 
conservation or ecosystem restoration, or revenues from low-carbon 
products in line with anticipated regulatory requirements, market 
constraints, or other goals established by a climate-related treaty, 
law, regulation, policy, or organization.\791\
---------------------------------------------------------------------------

    \790\ See Proposing Release, section II.I.
    \791\ See id.
---------------------------------------------------------------------------

    The proposed rule would have required a registrant that has set 
climate-related targets or goals to disclose the targets or goals and 
include, as applicable, a description of:
     The scope of activities and emissions included in the 
target;
     The unit of measurement, including whether the target is 
absolute or intensity based;
     The defined time horizon by which the target is intended 
to be achieved, and whether the time horizon is consistent with one or 
more goals established by a climate-related treaty, law, regulation, 
policy, or organization;
     The defined baseline time period and baseline emissions 
against which progress will be tracked with a consistent base year set 
for multiple targets;
     Any interim targets set by the registrant; and
     How the registrant intends to meet its climate-related 
targets or goals.\792\
---------------------------------------------------------------------------

    \792\ See id. The proposed rule further provided, as an example, 
that for a target or goal regarding net GHG emissions reduction, the 
discussion could include a strategy to increase energy efficiency, 
transition to lower carbon products, purchase carbon offsets or 
RECs, or engage in carbon removal and carbon storage.
---------------------------------------------------------------------------

    The proposed rule also would have required a registrant to disclose 
relevant data to indicate whether it is making progress toward 
achieving the target or goal and how such progress has been

[[Page 21721]]

achieved. The proposed rule would have required the registrant to 
update this disclosure each fiscal year by describing the actions taken 
during the year to achieve its targets or goals.\793\
---------------------------------------------------------------------------

    \793\ See id.
---------------------------------------------------------------------------

    Finally, the Commission proposed to require a registrant that, as 
part of any net emissions reduction strategy, uses carbon offsets \794\ 
or RECs \795\ to disclose the role that carbon offsets or RECs play in 
the registrant's climate-related business strategy.\796\ If the 
registrant used carbon offsets or RECs in its plan to achieve climate-
related targets or goals,\797\ the proposed rule would have required it 
to disclose the amount of carbon reduction represented by the offsets 
or the amount of generated renewable energy represented by the RECs, 
the source of the offsets or RECs, a description and location of the 
underlying projects, any registries or other authentication of the 
offsets or RECs, and the cost of the offsets or RECs.\798\
---------------------------------------------------------------------------

    \794\ The proposed rules defined carbon offsets as representing 
an emissions reduction or removal of greenhouse gases in a manner 
calculated and traced for the purpose of offsetting an entity's GHG 
emissions. See Proposing Release, section II.C.2.
    \795\ The proposed rules defined an REC, consistent with the 
EPA's commonly used definition, to mean a credit or certificate 
representing each purchased megawatt-hour (1 MWh or 1000 kilowatt-
hours) of renewable electricity generated and delivered to a 
registrant's power grid. See id.
    \796\ See id. The Commission proposed the requirement to 
disclose information about the carbon offsets or RECs used by a 
registrant both in the proposed disclosure requirements for targets 
and goals and as part of the proposed disclosure requirements 
regarding the impacts of climate-related risks on a registrant's 
strategy. See Proposing Release, sections II.C.2 and II.I. To 
streamline and reduce redundancies in the subpart 1500 disclosure 
requirements, the final rules require disclosure of used carbon 
offsets or RECs only as part of the targets and goals disclosure 
requirements. Nevertheless, as discussed below, a registrant may 
elect to provide its disclosure about targets and goals as part of 
its strategy discussion, including its transition plan disclosure, 
as applicable. The final rules also require certain disclosures of 
offsets and RECs under the Regulation S-X amendments. See 17 CFR 
210.14-02(e)(1) and infra section II.K.3.c.vi.
    \797\ While both carbon offsets and RECs represent commonly used 
GHG emissions mitigation options for companies, they are used for 
somewhat different purposes. A company may purchase carbon offsets 
to address its GHG emissions (Scopes 1, 2, and 3 emissions) by 
verifying global emissions reductions at additional, external 
projects. The reduction in GHG emissions from one place (``offset 
project'') can be used to ``offset'' the emissions taking place 
somewhere else (at the company's operations). See, e.g., EPA, 
Offsets and RECs: What's the Difference? (Feb. 2018), available at 
https://www.epa.gov/sites/default/files/2018-03/documents/gpp_guide_recs_offsets.pdf. In contrast, a company may purchase an 
REC in renewable electricity markets solely to address its indirect 
GHG emissions associated with purchased electricity (i.e., Scope 2 
emissions) by verifying the use of zero- or low-emissions renewable 
sources of electricity.
    \798\ See Proposing Release, section II.I.
---------------------------------------------------------------------------

    The proposed rule further stated that a registrant could provide 
the disclosures regarding its targets and goals when discussing 
climate-related impacts on its strategy, business model, and outlook or 
when discussing its transition plan.\799\
---------------------------------------------------------------------------

    \799\ See id.
---------------------------------------------------------------------------

2. Comments
a. The Overall Proposed Disclosure Requirements
    Many commenters supported the rule proposal requiring a registrant 
that has set climate-related targets or goals, including the reduction 
of GHG emissions, to disclose certain information about those targets 
or goals.\800\ Commenters stated that information about a registrant's 
set targets and goals, how a registrant plans to achieve them, and 
progress made towards them is critical to understanding a registrant's 
transition risk management and its exposure to the likely financial 
impacts of identified transition risks.\801\ Commenters also stated 
that the proposed targets and goals disclosure requirement would help 
investors assess a registrant's transition plan and whether it is 
aligned with global climate-related goals so that they may better 
understand the registrant's transition risk exposure.\802\ Commenters 
also indicated that the proposed targets and goals disclosure 
requirement would provide needed data to help investors determine if a 
registrant's climate-related public commitments are real and would help 
discourage greenwashing.\803\ Commenters further indicated that, 
despite the importance of information about a registrant's targets or 
goals to investors, such information currently is lacking.\804\
---------------------------------------------------------------------------

    \800\ See, e.g., letters from AllianceBernstein; Amazon; Amer. 
for Fin. Reform, Sunrise Project et al.; As You Sow; BHP; Bloomberg; 
BNP Paribas; Boston Common Asset Mgmt; CalPERS; CalSTRS; Calvert; 
CEMEX; Center Amer. Progress; Ceres; CFA; Dell; D. Hileman 
Consulting; Engine No. 1 (June 17, 2022); HP; Impax Asset Mgmt.; 
IAA; IAC Recommendation; IIF; Maple-Brown; Morningstar; Norges Bank; 
NRDC; NY City Comptroller; NY St. Comptroller; Paradice Invest. 
Mgmt.; PGIM; PwC; Salesforce (June 15, 2022); U.S. Sen. Brian Schatz 
and seven other U.S. Senators (June 17, 2022) (``Sens. B. Schatz et 
al.''); SKY Harbor; TotalEnergies; Unilever; Vodafone; and World 
Resources Institute (June 17, 2022) (``WRI'').
    \801\ See, e.g., letters from CalPERS; CalSTRS; Ceres; Engine 
No. 1; Norges Bank; and NY St. Comptroller.
    \802\ See, e.g., letters from Morningstar; and Paradice Invest. 
Mgmt.
    \803\ See, e.g., letters from Center Amer. Progress; D. Hileman 
Consulting; and Sens. Schatz et al.
    \804\ See, e.g., letters from Calvert; Engine No. 1; IIF; Maple-
Brown; NY St. Comptroller; and Paradice Invest. Mgmt.
---------------------------------------------------------------------------

    Several of the commenters that supported requiring disclosure of a 
GHG emissions reduction target or goal also supported the disclosure of 
other climate-related targets or goals, such as those pertaining to 
energy usage, water usage, conservation or ecosystem restoration, and 
revenues from low-carbon products.\805\ Some commenters also 
recommended requiring the disclosure of any targets or goals that a 
registrant has set to mitigate climate-related impacts on local or 
indigenous communities or that involve human capital management goals 
related to employee retraining and retention in clean energy jobs.\806\ 
One commenter, however, stated that the targets and goals disclosure 
requirement should only pertain to GHG emissions reduction.\807\ 
According to this commenter, because standards for other climate-
related targets and goals have not been broadly defined or accepted, 
voluntary reporting regarding such targets or goals is more 
appropriate.\808\
---------------------------------------------------------------------------

    \805\ See, e.g., letters from Amer. for Fin. Reform, Evergreen 
Action et al.; Ceres; Moody's; TotalEnergies; U.S. Green Building 
Council (June 17, 2022) (``USGBC''); and WRI.
    \806\ See, e.g., letters from CIEL; ICCR; and Seventh Gen.
    \807\ See letter from Dell.
    \808\ See id.
---------------------------------------------------------------------------

    Several commenters that supported the proposed targets and goals 
disclosure requirement also supported requiring a registrant that has 
set a climate-related target or goal to describe, as proposed:
     The scope of activities and emissions included in the 
target;
     The unit of measurement, including whether the target is 
absolute or intensity based;
     The defined time horizon by which the target is intended 
to be achieved, and whether the time horizon is consistent with one or 
more goals established by a climate-related treaty, law, regulation, 
policy, or organization;
     The defined baseline time period and baseline emissions 
against which progress will be tracked with a consistent base year set 
for multiple targets;
     Any interim targets set by the registrant; and
     How the registrant intends to meet its climate-related 
targets or goals.\809\
---------------------------------------------------------------------------

    \809\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Bloomberg; Maple-Brown; Moody's; and WRI; see also 
letters from IATP (supporting disclosure of the scope of activities 
and emissions, how targets have been set, and progress realized); 
and Unilever (supporting disclosure of the scope, details of the 
method of calculation and any baseline being used, together with any 
plans to meet the targets, but stating that it is not necessary to 
require disclosure of any other climate targets because, if 
material, they will be included in the registrant's plans to meet 
the GHG reduction target).

---------------------------------------------------------------------------

[[Page 21722]]

    Commenters stated that the proposed detailed disclosure 
requirements would help investors understand the level of a 
registrant's commitment to achieving its climate-related targets and 
goals.\810\ Some commenters recommended requiring additional disclosure 
requirements, such as whether the registrant has set science-based 
greenhouse gas emission reduction targets under the Science Based 
Targets Initiative,\811\ or the extent to which it can achieve its 
targets or goals using existing technology.\812\
---------------------------------------------------------------------------

    \810\ See, e.g., letters from Maple-Brown; and USGBC.
    \811\ See, e.g., letter from WRI.
    \812\ See, e.g., letter from Amer. for Fin. Reform, Sunrise 
Project et al. (``The Commission should require a registrant, when 
disclosing its targets or goals, to disclose any data that indicate 
whether the registrant is making progress toward meeting the target 
and how such progress has been achieved, as proposed. This should 
include how a registrant's progress toward targets or goals links to 
the financial statements, because capital expenditures made by 
registrants in implementing transition plans are a key metric for 
investors.'').
---------------------------------------------------------------------------

    Several commenters supported the proposed rule provision requiring 
a registrant to disclose relevant data indicating whether it is making 
progress toward achieving a set target or goal and how such progress 
has been achieved.\813\ One commenter stated that the proposed 
requirement would enhance management's accountability for its climate-
related commitments.\814\ This commenter further supported requiring a 
registrant to provide periodic updates to help investors evaluate its 
progress in achieving its targets or goals.\815\ Another commenter 
stated that disclosure regarding a registrant's progress toward 
achieving its targets or goals should include information about the 
related capital expenditures it has made or intends to make.\816\ One 
other commenter, in response to the proposed Regulation S-X amendments, 
recommended requiring the disclosure of a registrant's discrete and 
separable expenditures, both expensed and capitalized, related to 
transition activities for the registrant's publicly disclosed, climate-
related targets and goals.\817\
---------------------------------------------------------------------------

    \813\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CalPERS; CEMEX; D. Hileman Consulting; Morningstar; 
Paradice Invest. Mgmt.; PwC; Sens. B. Schatz et al.; TotalEnergies; 
USGBC; and WRI.
    \814\ See letter from PwC.
    \815\ See id.
    \816\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \817\ See letter from Amazon.
---------------------------------------------------------------------------

    Some commenters supported a targets and goals disclosure 
requirement but recommended conditions to such requirement. For 
example, some commenters stated that, in order to prevent the proposed 
disclosure requirement from acting as a disincentive to the adoption of 
climate-related targets or goals, the final rule should provide an 
opportunity for a registrant that has not set a target or goal to 
explain why it has not done so.\818\ Some commenters indicated that a 
registrant should only be required to provide data about a publicly 
announced target or goal.\819\ One commenter stated that the disclosure 
requirement should only be triggered by the board's or CEO's formal 
adoption of the target or goal to encourage the informal development of 
the target or goal.\820\ One other commenter similarly stated that the 
Commission should require disclosure of targets or goals only when the 
board and senior management use the target or goal in their decision-
making.\821\
---------------------------------------------------------------------------

    \818\ See, e.g., letters from Impax Asset Mgmt.; Maple-Brown; 
and TIAA.
    \819\ See letter from PwC (recommending that the Commission 
clarify that the disclosure of voluntary targets or goals applies 
only to targets and goals that have been publicly announced by the 
registrant, its subsidiaries that are separate registrants, or its 
significant subsidiaries); see also letter from Amazon (indicating 
that some internal targets or goals may never be as fully developed 
with the level of detail that the proposed rule would require).
    \820\ See letter from SKY Harbor.
    \821\ See letter from Amazon.
---------------------------------------------------------------------------

    Several commenters opposed the proposed targets and goals 
disclosure requirement.\822\ Commenters expressed concern that the 
proposed disclosure requirement was overly prescriptive and would 
require detailed disclosure about a target or goal even if the target 
or goal was not material.\823\ Commenters asserted that the disclosure 
requirements for targets and goals were overly prescriptive and would 
impose a costly compliance burden on registrants that, together with 
liability concerns, would discourage registrants from setting climate-
related targets or goals.\824\ One commenter stated that the proposed 
targets and goals disclosure requirement would have a chilling effect 
on registrants setting even aspirational targets or goals.\825\ Another 
commenter stated that the proposed disclosure requirement would chill 
even preliminary discussions of climate-related initiatives at the 
board or management level.\826\ A different commenter stated that the 
proposed targets and goals disclosure requirement would effectively 
punish early adopters of targets or goals by exclusively requiring them 
to disclose their targets and goals in extensive detail.\827\
---------------------------------------------------------------------------

    \822\ See, e.g., letters from Abrasca Ibri (Oct. 13, 2022) 
(``Abrasca''); ACLI; AFPM; Amer. Chem.; AIC; Business Roundtable; CA 
Farm; Chamber; Footwear Distributors and Retailers of America (June 
15, 2022) (``FDRA''); IN Farm; LTSE; NAA; Nebraska Farm Bureau 
Federation (June 17, 2022) (``NB Farm''); Oklahoma Farm Bureau (June 
17, 2022) (``OK Farm''); Petrol. OK; RILA; Soc. Corp. Gov.; and 
USCIB.
    \823\ See, e.g., letters from Abrasca; ACLI; AIC; Business 
Roundtable; Chamber; FDRA; RILA; and Soc. Corp. Gov.
    \824\ See, e.g., letters from Abrasca; AIC; AFPM; Business 
Roundtable; CA Farm; Chamber; FDRA; IN Farm; LTSE; NAA; NB Farm; OK 
Farm; Petrol. OK; RILA; Soc. Corp. Gov.; and USCIB.
    \825\ See letter from Abrasca.
    \826\ See letter from Chamber.
    \827\ See letter from Business Roundtable.
---------------------------------------------------------------------------

    Commenters also expressed concern that the proposed disclosure 
requirement would compel disclosure of internal, non-public targets 
that would reveal confidential proprietary information.\828\ Because of 
these concerns, some of these commenters recommended that the 
Commission only require the disclosure of material targets and goals 
that have been publicly announced.\829\
---------------------------------------------------------------------------

    \828\ See, e.g., letters from Abrasca; AIC; Amer. Chem.; 
Chamber; and Soc. Corp. Gov.
    \829\ See, e.g., letters from Abrasca; AIC; Chamber; and Soc. 
Corp. Gov.
---------------------------------------------------------------------------

b. The Proposed Disclosure Requirement Concerning the Use of Carbon 
Offsets or RECs
    Many commenters supported the proposed rule provision requiring a 
registrant that uses carbon offsets or RECs in its plan to achieve 
climate-related targets or goals to disclose information about: the 
amount of carbon reduction represented by the offsets or the amount of 
generated renewable energy represented by the RECs; the source of the 
offsets or RECs; a description and location of the underlying projects; 
any registries or other authentication of the offsets or RECs; and the 
cost of the offsets or RECs.\830\ Commenters stated that, because many 
registrants rely on the use of carbon offsets or RECs to achieve their 
GHG emissions reduction targets or goals, and because there are 
different types of carbon offsets and RECs with different attendant 
risks and benefits, investors need detailed information

[[Page 21723]]

about the carbon offsets or RECs used in order to evaluate the 
effectiveness of a registrant's transition risk strategy and management 
of climate-related impacts on its business.\831\ Commenters further 
stated that, despite this need, such information is currently lacking, 
and that without detailed information about the type, underlying 
project, authentication, and cost of the offsets, investors cannot 
adequately assess a registrant's climate-related strategy and its 
exposure to climate-related risks, particularly transition risks.\832\
---------------------------------------------------------------------------

    \830\ See, e.g., letters from AllianceBernstein; Amazon; Amer. 
for Fin. Reform, Sunrise Project et al.; As You Sow; CalPERS; 
Calvert; Carbon Direct (June 16, 2022); CarbonPlan (June 16, 2022); 
Ceres; Constellation Energy Corporation (June 7, 2022) 
(``Constellation Energy''); D. Hileman Consulting; Domini Impact; 
Enerplus (June 16, 2022); Engine No. 1; Eni SpA; Ethic Inc. (June 
17, 2022) (``Ethic''); Harvard Mgmt.; J. Herron;IATP; ICCR; J. 
McClellan; Morningstar; NRDC; Paradice Invest. Mgmt.; PGIM; SKY 
Harbor; TotalEnergies; and WRI. See also IAC Recommendation (``We 
support requiring companies to disclose the role that carbon offsets 
or renewable energy credits play in their climate-related business 
strategy or if the company used them to meet targets or goals'').
    \831\ See, e.g., letters from AllianceBernstein; Carbon Direct; 
CarbonPlan; and Ceres.
    \832\ See, e.g., letter from AllianceBernstein (stating that 
``[t]he markets for carbon credits and offsets are nascent, 
fragmented and opaque, with significant variability in governance, 
quality, pricing and sourcing'' and that ``[i]ncreasing transparency 
on offsets is critical to an investor's assessment of how well a 
registrant is managing the risk of climate change to its business, 
particularly transition risk.''); see also letters from Calvert; 
CarbonDirect; CarbonPlan; Ceres; Engine No. 1; and Ethic.
---------------------------------------------------------------------------

    For example, some commenters expressed concern that registrants' 
carbon offset purchases vary considerably in terms of quality and 
effectiveness in meeting their own net-zero carbon targets or those 
required by jurisdictions in which they operate.\833\ In this regard 
one commenter stated that investors need to know the type of carbon 
offset purchased in order to assess a registrant's climate risk 
management because, if the registrant has a net-zero target or goal, it 
must use a carbon removal offset rather than a carbon avoidance offset 
to achieve the net-zero target or goal.\834\ Commenters relatedly 
recommended defining carbon offsets to include those that seek to avoid 
emissions (in addition to those that seek to reduce or remove them) and 
to require registrants that have used offsets to disclose the type of 
offset used (e.g., avoidance, reduction, or removal).\835\ Other 
commenters expressed support for increased disclosure about carbon 
offsets because of concerns about perceived problems in carbon offset 
markets regarding the quality and permanence of offsets.\836\ 
Commenters further stated that a registrant's strategy that is heavily 
dependent on the use of carbon offsets or RECs runs the risk of market 
volatility, including spikes in the price of such instruments due to 
low supply and increased demand, and litigation and reputational risks 
from conducting an ineffective transition risk strategy or from claims 
of greenwashing.\837\
---------------------------------------------------------------------------

    \833\ See, e.g., letters from CarbonPlan; Ceres; and 
Morningstar.
    \834\ See letter from CarbonPlan.
    \835\ See, e.g., letters from Amer. Fin. Reform, Sunrise Project 
et al.; Business Council for Sustainable Energy (June 17, 2022) 
(``BCSE''); Ceres; and WBCSD.
    \836\ See, e.g., letter from ICCR.
    \837\ See, e.g., letters from Amer. Fin. Reform, Sunrise Project 
et al.; CarbonDirect; and CarbonPlan.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission require the 
disclosure of certain information about RECs in addition to the 
proposed disclosure items.\838\ For example, commenters \839\ 
recommended requiring the disclosure of whether a registrant's RECs are 
bundled or unbundled.\840\ Commenters \841\ also sought disclosure 
regarding whether a registrant purchased or obtained its RECs from a 
compliance market or voluntary market.\842\
---------------------------------------------------------------------------

    \838\ See, e.g., letters from American Clean Power Association 
(June 17, 2022) (``Amer. Clean Power''); BCSE; CalPERS; and 
International Emissions Trading Association (June 17, 2022) 
(``IETA'').
    \839\ See letters from Amer. Clean Power; and IETA; see also 
letter from CalPERS (stating its belief that unbundled RECs should 
not be allowed to be counted, but if the final rule allows for 
unbundled RECs to be counted, then a registrant should be required 
to disclose both a total amount with, and a total amount without, 
the use of unbundled RECs for each scope of emissions).
    \840\ A bundled REC is one that is sold together with the 
generated electricity directly to the consumer or reseller whereas 
an unbundled REC is one that has been separated from and sold 
without delivery of the generated electricity. See, e.g., U.S. EPA, 
Retail RECs, available at https://www.epa.gov/green-power-markets/retail-recs (last updated Nov. 1, 2023); see also Sustainable 
Development Strategy Group (``SDSG''), Renewable Energy Credits 
(Jan. 2020), available at https://static1.squarespace.com/static/5bb24d3c9b8fe8421e87bbb6/t/5e212aa512182f60deb4849c/1579231912520/RECs+Policy+Primer.pdf.
    \841\ See, e.g., letters from Amer. Clean Power; and BCSE.
    \842\ Utilities may purchase RECs in a compliance market to 
comply with a state's renewable portfolio standard whereas a non-
utility company may purchase RECs in a voluntary market to support 
the general deployment of renewable energy. RECs purchased in a 
compliance market must meet certain standards and must be certified 
by an approved certifying group. RECs purchased in a voluntary 
market may or may not be subject to certain standards and 
technically are not required to be certified. See SDSG, supra note 
840.
---------------------------------------------------------------------------

    Other commenters, however, opposed the proposed requirement to 
disclose detailed information regarding a registrant's use of carbon 
offsets or RECs.\843\ One commenter stated that the proposed disclosure 
requirement was overly prescriptive and that, without a materiality 
qualifier, it was likely to result in disclosure that was not decision-
useful for investors.\844\ Another commenter similarly stated that the 
proposed requirement would result in the disclosure of immaterial 
information and also indicated that the proposed requirement, which the 
commenter characterized as seeking to regulate offsets and RECs, was 
outside the area of the Commission's expertise and beyond the 
Commission's statutory authority.\845\ One other commenter stated that 
it did not believe it was necessary for companies to disclose the 
amount of energy represented by RECs, their nature, or the location of 
the underlying projects.\846\
---------------------------------------------------------------------------

    \843\ See, e.g., letters from Beller et al.; CEMEX; and J. 
Weinstein.
    \844\ See letter from Beller et al.
    \845\ See letter from J. Weinstein.
    \846\ See letter from CEMEX.
---------------------------------------------------------------------------

3. Final Rule
a. The Overall Disclosure Requirement (Item 1504(a), (b), and (c))
    The final rule (Item 1504(a)) will require a registrant to disclose 
any climate-related target or goal if such target or goal has 
materially affected or is reasonably likely to materially affect the 
registrant's business, results of operations, or financial 
condition.\847\ Investors need detailed information about a 
registrant's climate-related targets or goals in order to understand 
and assess the registrant's transition risk strategy and how the 
registrant is managing the material impacts of its identified climate-
related risks. We recognize, however, as some commenters indicated, 
that an overly broad requirement to disclose any climate-related target 
or goal, even one that is meant for preliminary, internal planning 
purposes and that is not yet material, could impose a compliance burden 
on registrants that may outweigh its benefit to investors.\848\ 
Conditioning the targets and goals disclosure requirement on the 
targets or goals being material will help to address this concern by 
focusing the requirement on the information that is most likely to be 
decision-useful for investors.
---------------------------------------------------------------------------

    \847\ See 17 CFR 229.1504(a).
    \848\ See supra notes 823 and 828 and accompanying text.
---------------------------------------------------------------------------

    If a registrant sets an internal target or goal that materially 
affects or is reasonably likely to materially affect the registrant's 
business, results of operations, or financial condition (e.g., due to 
material expenditures or operational changes that are required to 
achieve the target or goal), then investors should have access to 
information about that target or goal to help them understand the 
financial impacts and assess the registrant's transition risk 
management. While some commenters recommended that the Commission 
require the disclosure only of targets or goals that are both material 
and publicly announced,\849\ we decline to follow this suggestion. Such 
a condition would enable a registrant to keep non-public an internal 
target or goal that is material, which would fail

[[Page 21724]]

to protect investors by potentially precluding their access to 
information that is important to make informed investment and voting 
decisions. We reemphasize, however, that a registrant is not required 
to disclose an internal target or goal that is not material.
---------------------------------------------------------------------------

    \849\ See supra note 829 and accompanying text.
---------------------------------------------------------------------------

    In addition, we decline to follow the recommendation of some 
commenters that the targets and goals disclosure requirement should 
only be triggered by the board's or CEO's formal adoption of the target 
or goal.\850\ Such a provision would deprive investors of material 
information for procedural reasons unrelated to the importance of the 
information to investors. Furthermore, as previously mentioned, the 
final rules are intended to elicit material climate-related disclosures 
for investors and not to influence governance practices regarding 
climate-related matters. Because registrants may have different 
processes for setting targets or goals, we believe that materiality is 
a better threshold for disclosure of targets or goals than basing the 
disclosure requirement on an internal process that may differ from 
company to company.
---------------------------------------------------------------------------

    \850\ See supra note 820 and accompanying text.
---------------------------------------------------------------------------

    Similarly, although one commenter recommended that the Commission 
require the disclosure only of targets or goals related to a 
registrant's GHG emissions,\851\ we decline to follow this 
recommendation. Investors need information about all of a registrant's 
material climate-related targets and goals in order to assess the 
impact of such targets and goals on a registrant's overall business, 
results of operations, financial condition, and prospects. Although the 
particular non-GHG emissions target or goal to be disclosed will depend 
on a registrant's particular facts and circumstances, to the extent 
such targets or goals are material, a registrant must disclose them. To 
simplify the targets and goals disclosure requirement and avoid 
implying any topical focus regarding the particular targets or goals 
that should be discussed, we have eliminated from the final rule the 
parenthetical ``e.g., the reduction of GHG emissions or regarding 
energy usage, water usage, or revenues from low-carbon products.''
---------------------------------------------------------------------------

    \851\ See supra note 807 and accompanying text.
---------------------------------------------------------------------------

    We also decline to follow the recommendations of some commenters to 
include provisions that specifically require the disclosure of targets 
or goals related to mitigation of impacts on local communities or that 
concern human capital management goals.\852\ The final rule is intended 
to elicit disclosure of any climate-related target or goal that has 
materially affected or is reasonably likely to materially affect a 
registrant's business, results of operations, or financial condition. 
Accordingly, any target or goal meeting the conditions of the final 
rule (including that it is material) will need to be disclosed 
regardless of the particular issues it addresses, if that target or 
goal is considered climate-related in the registrant's particular 
circumstances and if achieving such target or goal would materially 
impact its business, results of operations, or financial condition. We 
note that a registrant may voluntarily disclose additional information 
that is not required to be disclosed under the final rule (and not part 
of a target or goal) but that is related to the mitigation of climate-
related risks.
---------------------------------------------------------------------------

    \852\ See supra note 806 and accompanying text.
---------------------------------------------------------------------------

    Similar to the proposed rule, with some modifications as discussed 
below, the final rule (Item 1504(b)) will require a registrant that is 
disclosing its targets and goals pursuant to Item 1504 to provide any 
additional information or explanation necessary to an understanding of 
the material impact or reasonably likely material impact of the target 
or goal, including, as applicable, a description of:
     The scope of activities included in the target;
     The unit of measurement;
     The defined time horizon by which the target is intended 
to be achieved, and whether the time horizon is based on one or more 
goals established by a climate-related treaty, law, regulation, policy, 
or organization;
     If the registrant has established a baseline for the 
target or goal, the defined baseline time period and the means by which 
progress will be tracked; and
     A qualitative description of how the registrant intends to 
meet its climate-related targets or goals.\853\
---------------------------------------------------------------------------

    \853\ See 17 CFR 229.1504(b).
---------------------------------------------------------------------------

    These disclosures will allow investors to better understand a 
registrant's targets or goals and how it intends to achieve them, which 
will help investors better assess a registrant's transition risks and 
make more informed investment and voting decisions. In order to address 
the concern of some commenters that the proposed targets and goals 
disclosure provision was too prescriptive and would impose a costly 
compliance burden without necessarily resulting in material 
information,\854\ the final rule has been revised so that the listed 
items are non-exclusive examples of additional information or 
explanation that a registrant must disclose only if necessary to an 
understanding of the material impact or reasonably likely material 
impact of the target or goal.\855\
---------------------------------------------------------------------------

    \854\ See supra note 823 and accompanying text.
    \855\ See 17 CFR 229.1504(b).
---------------------------------------------------------------------------

    To further streamline the targets and goals disclosure requirement, 
the final rules do not include ``emissions'' in the list of information 
that must be disclosed if necessary to an understanding of the material 
impact or reasonably likely material impact of a target or goal. If a 
registrant has set a material target or goal to reduce emissions, it 
will be required to disclose this when explaining the scope of 
activities included in the target. We also have eliminated the proposed 
disclosure item regarding whether a target is absolute or intensity-
based because this information will likely be elicited by other 
required disclosure, such as the unit of measurement pertaining to the 
target or goal.\856\
---------------------------------------------------------------------------

    \856\ In addition, as discussed below in section II.H, 
elimination of this proposed disclosure requirement is consistent 
with our removal of the proposed requirement to disclose a 
registrant's GHG emissions metrics in intensity terms in addition to 
absolute terms.
---------------------------------------------------------------------------

    Similar to the proposed rule, the final rule requires disclosure, 
as applicable, of how the registrant intends to meet its climate-
related targets or goals.\857\ However, in order to help address the 
concern of some commenters that the proposed rule could result in the 
disclosure of an excessive amount of detail, the final rule specifies 
that this discussion of prospective activities need only be 
qualitative. In addition, we are eliminating the proposed example that, 
for a target or goal regarding net GHG emissions reduction, the 
discussion could include a strategy to increase energy efficiency, 
transition to lower carbon products, purchase carbon offsets or RECs, 
or engage in carbon removal and carbon storage.\858\ This will avoid 
any misperception that these are required items of disclosure. The 
final rule leaves it up to the registrant to determine what specific 
factors to highlight as part of the qualitative description of how it 
plans to meet its targets or goals.
---------------------------------------------------------------------------

    \857\ See 17 CFR 229.1504(b)(5).
    \858\ See Proposing Release, section II.I.
---------------------------------------------------------------------------

    We are also not adopting the proposed requirement to disclose any 
interim targets set by the registrant. We agree

[[Page 21725]]

with commenters that stated that this disclosure item is not necessary 
because, if a registrant has set an interim target that is material, it 
will likely be included in the registrant's discussion of its plan to 
achieve its targets or goals.\859\
---------------------------------------------------------------------------

    \859\ See letter from Unilever.
---------------------------------------------------------------------------

    Similar to the proposed rule, the final rule (Item 1504(c)) will 
require a registrant to disclose any progress toward meeting the target 
or goal and how such progress has been achieved.\860\ Also similar to 
the proposed rule, the final rule will require the registrant to update 
this disclosure each fiscal year by describing the actions taken during 
the year to achieve its targets or goals.\861\ We are adopting this 
updating requirement for substantially the same reasons we are adopting 
the updating requirement with respect to the transition plan disclosure 
required under Item 1502(e),\862\ including because it will better 
enable investors to monitor impacts on the registrant as it attempts to 
meet its targets or goals.
---------------------------------------------------------------------------

    \860\ See 17 CFR 229.1504(c).
    \861\ See id.
    \862\ See supra notes 508-514 and accompanying text. In 
addition, as with the required transition plan disclosure, no update 
about targets and goals would be required to be disclosed if the 
underlying targets or goals are not required to be disclosed (e.g., 
because the target or goal is no longer material).
---------------------------------------------------------------------------

    Relatedly, the final rule will require a registrant to include in 
its targets and goals disclosure a discussion of any material impacts 
to the registrant's business, results of operations, or financial 
condition as a direct result of the target or goal or the actions taken 
to make progress toward meeting the target or goal.\863\ This 
discussion must include quantitative and qualitative disclosure of any 
material expenditures and material impacts on financial estimates and 
assumptions as a direct result of the target or goal or the actions 
taken to make progress toward meeting the target or goal,\864\ 
consistent with the suggestion of some commenters.\865\ We have added 
these latter provisions because, as commenters noted, a company's 
climate commitments, and progress in relation to its commitments, may 
materially impact its business, outlook, operating expenditures, 
capital expenditures, liquidity, and other capital resources, which is 
why investors seek and need information about such material 
expenditures and other material financial impacts related to its 
targets and goals.\866\ As discussed in more detail below,\867\ a 
number of commenters who supported the proposed expenditures 
disclosures in Regulation S-X indicated that such disclosure would help 
investors understand a registrant's ability to meet its climate-related 
targets and goals.\868\
---------------------------------------------------------------------------

    \863\ See 17 CFR 229.1504(c)(1).
    \864\ See 17 CFR 229.1504(c)(2).
    \865\ See supra notes 816 and 817 and accompanying text.
    \866\ See, e.g., letters from Amazon; Amer. for Fin. Reform, 
Sunrise Project et al.; and PwC.
    \867\ See infra sections II.K.3.b and c.
    \868\ See infra notes 1967 and accompanying text.
---------------------------------------------------------------------------

    We recognize commenters' concerns about registrants' abilities to 
identify, attribute, and quantify the impact of transition activities 
in the financial statements.\869\ We believe that providing for this 
disclosure in the context of Item 1504 information on progress towards 
targets or goals appropriately balances investors' need for this 
information with commenters' concerns about implementation challenges. 
As discussed above,\870\ with respect to concerns raised in the context 
of the proposed Regulation S-X amendments about registrants' abilities 
to disaggregate the portion of an expenditure that is directly related 
to transition activities, under the final rules, registrants will have 
flexibility to explain qualitatively the nature of any disclosed 
expenditure and how it is a direct result of progress under a disclosed 
target or goal. In addition, subjecting the disclosure requirement to 
materiality rather than a bright-line threshold, as was proposed for 
the Regulation S-X amendments, will help reduce the compliance burden 
of the final rules while providing material information for investors. 
Additionally, when considering which expenditures related to progress 
under a disclosed target or goal are material over the relevant period 
and therefore require disclosure, registrants should consider whether 
overall expenditures related to progress under a disclosed target or 
goal are material in the aggregate and, if so, provide appropriate 
disclosure. Finally, to the extent that disclosure of material impacts 
on financial estimates and assumptions as a direct result of the target 
or goal is disclosed in response to Rule 14-02(h) of Regulation S-X, a 
registrant would be able to cross-reference to such disclosure.\871\
---------------------------------------------------------------------------

    \869\ See infra notes 1902 and 1907 and accompanying text.
    \870\ See supra sections II.D.1.c. and II.D.2.c for discussion 
of similar material expenditures disclosure requirement, 
respectively, as part of a registrant's transition plan disclosure 
under Item 1502(e) and from activities to mitigate or adapt to 
climate-related risks disclosed pursuant to Item 1502(b)(4) under 
Item 1502(d) of Regulation S-K. To the extent that there is any 
overlapping disclosure of material expenditures in response to these 
Items, to avoid redundancy, a registrant should provide disclosure 
of material expenditures regarding the Item where, in its 
assessment, such disclosure is most appropriate, and then cross-
reference to this disclosure when responding to the other Items.
    \871\ See supra note 521.
---------------------------------------------------------------------------

    Similar to the rule proposal, the final rule will permit a 
registrant to provide the required targets and goals disclosure as part 
of its discussion pursuant to Item 1502 regarding its transition plan 
or when otherwise discussing material impacts of climate-related risks 
on its business strategy or business model.\872\ A registrant will also 
be permitted to provide the required targets and goals disclosure in 
its risk management discussion pursuant to Item 1503.\873\ This 
provision will help to eliminate redundancies in the subpart 1500 
disclosure.
---------------------------------------------------------------------------

    \872\ See 17 CFR 229.1504(a).
    \873\ See id.
---------------------------------------------------------------------------

    Similar to Items 1502(d)(2) and 1502(e)(2), and for similar 
reasons, we are providing a phase in for compliance with the Item 
1504(c)(2) disclosure requirement. A registrant will not be required to 
comply with the requirements of Item 1504(c)(2) until the fiscal year 
immediately following the fiscal year of its initial compliance date 
for the subpart 1500 rules based on its filer status.\874\
---------------------------------------------------------------------------

    \874\ See section II.O.3.
---------------------------------------------------------------------------

    We decline to follow the recommendation of some commenters to 
require the disclosure of whether the registrant has set science-based 
GHG emission reduction targets under the Science Based Targets 
Initiative, or the extent to which it can achieve its targets or goals 
using existing technology.\875\ As we similarly noted when declining to 
follow a recommendation to broaden transition risk disclosure, the 
targets and goals disclosure requirement we are adopting is consistent 
with the TCFD framework, which provides flexibility in terms of which 
tools or methods a registrant chooses to use, and therefore will limit 
the targets and goals compliance burden for those registrants that are 
already familiar with the TCFD framework.\876\ A registrant may elect 
to provide disclosure regarding these additional items, but they are 
not required items of disclosure.
---------------------------------------------------------------------------

    \875\ See supra notes 811-812 and accompanying text.
    \876\ See supra section II.C.1.c.
---------------------------------------------------------------------------

b. The Carbon Offsets and RECs Disclosure Requirement (Item 1504(d))
    Similar to the proposed rule, the final rule includes a disclosure 
requirement about a registrant's use of carbon offsets or RECs (Item 
1504(d)). Unlike the proposed rule, however, a registrant will be 
required to disclose certain

[[Page 21726]]

information about the carbon offsets or RECs only if they have been 
used as a material component of a registrant's plan to achieve climate-
related targets or goals.\877\ We have added a materiality qualifier to 
the final rule to address the concern of commenters that the proposed 
disclosure requirement could result in detailed offsets or RECs 
information that is of little use to investors.\878\ Under the final 
rule, registrants will need to make a determination, based upon their 
specific facts and circumstances, about the importance of such carbon 
offsets and credits to their overall transition plan and provide 
disclosure accordingly.
---------------------------------------------------------------------------

    \877\ See 17 CFR 229.1504(d).
    \878\ See, e.g., letters from Beller et al.; and J. Weinstein.
---------------------------------------------------------------------------

    If carbon offsets or RECs have been used as a material component of 
a registrant's plan to achieve climate-related targets or goals, then, 
similar to the proposed rule, the registrant will be required to 
disclose: the amount of carbon avoidance, reduction or removal 
represented by the offsets or the amount of generated renewable energy 
represented by the RECs; the nature and source of the offsets or RECs; 
\879\ a description and location of the underlying projects; any 
registries or other authentication of the offsets or RECs; and the cost 
of the offsets or RECs.\880\
---------------------------------------------------------------------------

    \879\ The nature of an offset refers to whether it represents 
carbon avoidance, reduction, or removal. The nature of an REC refers 
primarily to whether it is bundled or unbundled. The source of an 
offset or REC refers to the party that has issued the offset or REC. 
Commenters stated that investors need such detailed information 
about offsets or RECs in order to evaluate the effectiveness of a 
registrant's transition risk strategy and management of climate-
related impacts on its business. See supra notes 831-834 and 
accompanying text.
    \880\ See 17 CFR 229.1504(d). At the recommendation of 
commenters, see supra note 835, to clarify that an offset can 
represent carbon avoidance, in addition to carbon reduction or 
removal, we have added ``avoidance'' to the definition of carbon 
offset. See 17 CFR 229.1500.
---------------------------------------------------------------------------

    Information about the source, value, underlying projects, and 
authentication of the carbon offsets or RECs will help investors 
evaluate the role of these instruments in a registrant's climate-
related strategy and the impacts on its business. For example, 
understanding the role that carbon offsets or RECs play in a 
registrant's climate-related business strategy can help investors 
assess the potential risks and financial impacts of pursuing that 
strategy. Relatedly, a registrant that relies on carbon offsets or RECs 
as a material component of its plan to achieve its targets or goals 
might need to consider whether fluctuating supply or demand, and 
corresponding variability of price, related to carbon offsets or RECs, 
presents an additional material risk that is required to be disclosed 
when discussing its plan to achieve such target or goal pursuant the 
requirements of subpart 1500.
    At the recommendation of commenters, in addition to carbon 
reduction, we have added the amount of carbon avoidance and carbon 
removal \881\ represented by carbon offsets as disclosure items to 
clarify that disclosure is required about offsets representing carbon 
removal and those representing carbon avoidance or reduction if the 
registrant has used these types of offsets as a material part of its 
climate-related strategy.\882\ This addition will help investors assess 
the risks associated with the different types of offsets used and how 
they may affect a registrant's transition risk management and the 
related impacts on the registrant's business and financial condition.
---------------------------------------------------------------------------

    \881\ A carbon avoidance occurs, e.g., when a company protects a 
forest from deforestation. A carbon reduction occurs when emissions 
are reduced, e.g., when a company switches from the use of fossil-
fuel based energy to the use of wind or solar power. A carbon 
removal occurs when CO2 is drawn out of the atmosphere 
and sequestered, e.g., by carbon capture and storage technology. 
See, e.g., letter from Ceres; and Ceres, Evaluating the Use of 
Carbon Credits (Mar. 1, 2022), available at https://www.ceres.org/resources/reports/evaluating-use-carbon-credits.
    \882\ See, e.g., letters from Amer. Fin. Reform, Sunrise Project 
et al.; BCSE; and Ceres.
---------------------------------------------------------------------------

    Also, at the recommendation of commenters, we have added the nature 
of the carbon offsets or RECs as a disclosure item in addition to the 
source of the offsets or RECs.\883\ This addition will help investors 
understand whether a purchased offset represents carbon avoidance, 
reduction, or removal, and whether an REC is bundled or unbundled. 
Requiring the disclosure of the source of the offset or REC will help 
investors determine whether the offset has met certain criteria of an 
established standard-setting body,\884\ and whether the REC originated 
from and met the standards of a compliance market or is instead derived 
from a more loosely regulated voluntary market.\885\ These factors can 
affect the value and cost of the offsets and RECs and their attendant 
risks. For example, as one commenter noted, a market that develops 
increased demand for carbon removal offsets, either because of new 
regulation or stricter voluntary standards for net-zero targets, could 
result in a significant increase in offset prices, potential supply 
bottlenecks, and increased transition risk for registrants that assumed 
the continued availability and abundance of cheaper offsets.\886\
---------------------------------------------------------------------------

    \883\ See, e.g., letters from Amer. Clean Power; and IETA.
    \884\ See, e.g., letter of IETA (referencing the Carbon Offset 
Reduction Scheme for International Aviation (``CORSIA'') market 
established by the UN International Civil Aviation Organization 
(``ICAO'') and adopted by the U.S. Federal Aviation Authority).
    \885\ See, e.g., letter from Amer. Clean Power.
    \886\ See letter from CarbonPlan.
---------------------------------------------------------------------------

    One commenter who objected to the proposed offsets and RECs 
disclosure requirement asserted that the Commission lacks statutory 
authority to regulate offsets and RECs.\887\ We disagree with that 
commenter's characterization of the rule. In requiring the disclosure 
of certain information about a registrant's use of offsets or RECs when 
such use is a material component of the registrant's plan to achieve a 
target or goal that is required to be disclosed, we are not advocating 
for or against the use of offsets or RECs generally, or for or against 
the use of certain types of offsets or RECs. Nor are we substantively 
regulating their use. As previously mentioned, the final rules, 
including those pertaining to the use of offsets or RECs, are neutral 
regarding any strategy that a registrant may choose to manage a 
material climate-related risk. Instead, like the other climate-related 
disclosure rules we are adopting, the final rule regarding the 
disclosure of offsets or RECs is intended to provide investors with the 
decision-useful information they need to understand a registrant's 
strategy to mitigate or adapt to the realized or reasonably likely 
financial impacts of a material climate-related risk.
---------------------------------------------------------------------------

    \887\ See letter from J. Weinstein.
---------------------------------------------------------------------------

H. GHG Emissions Disclosure (Item 1505)

1. Proposed Rule
    The proposed rules would have required a registrant to disclose its 
GHG emissions \888\ for its most recently completed fiscal year and for 
the historical fiscal years included in its consolidated financial 
statements, to the extent such historical GHG emissions data is 
reasonably available.\889\ The Commission based the proposed GHG 
emissions disclosure requirement on the

[[Page 21727]]

concept of scopes, which are themselves based on the concepts of direct 
and indirect emissions, developed by the GHG Protocol.\890\ The 
Commission proposed to require a registrant to disclose its Scope 1 
emissions, which, similar to the GHG Protocol, were defined to mean the 
direct GHG emissions from operations that are owned or controlled by a 
registrant.\891\ The Commission also proposed to require a registrant 
to disclose its Scope 2 emissions, which, similar to the GHG Protocol, 
were defined to mean the indirect GHG emissions from the generation of 
purchased or acquired electricity, steam, heat, or cooling that is 
consumed by operations owned or controlled by a registrant.\892\ By 
sharing certain basic concepts and a common vocabulary with the GHG 
Protocol, the Commission intended to both elicit consistent, 
comparable, and reliable climate-related information for investors, and 
mitigate the compliance burden of the proposed rules for those 
registrants that are already disclosing or estimating their GHG 
emissions pursuant to the GHG Protocol.\893\
---------------------------------------------------------------------------

    \888\ We proposed to define ``greenhouse gases'' as carbon 
dioxide (``CO2''); methane (``CH4''); nitrous 
oxide (``N2O''); nitrogen trifluoride 
(``NF3''); hydrofluorocarbons (``HFCs''); 
perfluorocarbons (``PFCs''); and sulfur hexafluoride 
(``SF6''). The greenhouse gases included in the proposed 
definition reflect the gases that are currently commonly referenced 
by international, scientific, and regulatory authorities as having 
significant climate impacts. This list of constituent greenhouse 
gases is consistent with the gases identified by widely used 
frameworks, such as the Kyoto Protocol, the UN Framework Convention 
on Climate Change, the U.S. Energy Information Administration, the 
EPA, and the GHG Protocol. See Proposing Release, section II.G.1.a.
    \889\ See id.
    \890\ Direct emissions are GHG emissions from sources that are 
owned or controlled by a registrant, whereas indirect emissions are 
GHG emissions that result from the activities of the registrant but 
occur at sources not owned or controlled by the registrant. See 
World Business Council for Sustainable Development and World 
Resources Institute, GHG Protocol, Corporate Accounting and 
Reporting Standard (2004), available at https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf.
    \891\ See Proposing Release, section II.G.1.a.
    \892\ See id.
    \893\ See Proposing Release, section I.D.2.
---------------------------------------------------------------------------

    The Commission further proposed to require a registrant, other than 
an SRC, to disclose its Scope 3 emissions, which, similar to the GHG 
Protocol, were defined to mean all indirect GHG emissions not otherwise 
included in a registrant's Scope 2 emissions that occur in the upstream 
and downstream activities of a registrant's value chain.\894\ Unlike 
the proposed disclosure requirement for Scopes 1 and 2 emissions, 
however, the Commission proposed to require the disclosure of a 
registrant's Scope 3 emissions only if those emissions are material, or 
if the registrant has set a GHG emissions reduction target or goal that 
includes its Scope 3 emissions.\895\ The Commission proposed these 
limitations regarding Scope 3 disclosure in recognition of the fact 
that, unlike Scopes 1 and 2 emissions, Scope 3 emissions typically 
result from the activities of third parties in a registrant's value 
chain and, thus, collecting the appropriate data and calculating these 
emissions would potentially be more difficult than for Scopes 1 and 2 
emissions. Although the Commission recognized that the disclosure of 
Scope 3 emissions may be important to provide investors with a complete 
picture of the climate-related risks that a registrant faces--
particularly transition risks--it also believed it was necessary to 
balance the importance of Scope 3 emissions with the potential relative 
difficulty in data collection and measurement.\896\
---------------------------------------------------------------------------

    \894\ See Proposing Release, section II.G.1.a. Upstream 
emissions include emissions attributable to goods and services that 
the registrant acquires, the transportation of goods (for example, 
to the registrant), and employee business travel and commuting. 
Downstream emissions include the use of the registrant's products, 
transportation of products (for example, to the registrant's 
customers), end of life treatment of sold products, and investments 
made by the registrant.
    \895\ See Proposing Release, section II.G.1.b.
    \896\ See id.
---------------------------------------------------------------------------

    For each of its Scopes 1, 2, and 3 emissions, the proposed rules 
would have required a registrant to disclose the emissions both 
disaggregated by each constituent greenhouse gas and in the aggregate, 
expressed in terms of CO2e. The Commission proposed this 
requirement so that investors could gain decision-useful information 
regarding the relative risks to the registrant posed by each 
constituent GHG in addition to the risks posed by its total GHG 
emissions by scope.\897\ The proposed rules would also have required a 
registrant to disclose the GHG emissions data in gross terms, excluding 
any use of purchased or generated offsets,\898\ and in terms of GHG 
intensity.\899\
---------------------------------------------------------------------------

    \897\ See Proposing Release, section II.G.1.a.
    \898\ See id.
    \899\ See Proposing Release, section II.G.1.c. The proposed 
rules would have required the disclosure of GHG intensity to be in 
terms of metric tons of CO2e per unit of total revenue 
and per unit of production for the fiscal year.
---------------------------------------------------------------------------

    The proposed rules would have required a registrant to describe the 
methodology, significant inputs, and significant assumptions used to 
calculate its GHG emissions metrics.\900\ While the proposed GHG 
emissions disclosure rules shared many features with the GHG Protocol, 
they differed regarding the approach required to set a registrant's 
organizational boundaries. Those boundaries determine the business 
operations owned or controlled by a registrant to be included in the 
calculation of its GHG emissions. The proposed approach would have 
required a registrant to set the organizational boundaries for its GHG 
emissions disclosure using the same scope of entities, operations, 
assets, and other holdings within its business organization as those 
included in, and based upon the same set of accounting principles 
applicable to, its consolidated financial statements.\901\ The 
Commission proposed this approach in order to provide investors a 
consistent view of the registrant's business across its financial and 
GHG emissions disclosures. The same organizational boundaries 
requirement would have applied to each disclosure of a registrant's 
Scope 1, Scope 2, and Scope 3 emissions.\902\
---------------------------------------------------------------------------

    \900\ See Proposing Release, section II.G.2.
    \901\ See Proposing Release, section II.G.2.a.
    \902\ See id.
---------------------------------------------------------------------------

    The rule proposal provided that a registrant may use reasonable 
estimates when disclosing its GHG emissions as long as it also 
describes the assumptions underlying, and its reasons for using, the 
estimates. In proposing this provision, the Commission stated that 
while it encouraged registrants to provide as accurate a measurement of 
its GHG emissions as is reasonably possible, it recognized that, in 
many instances, direct measurement of GHG emissions at the source, 
which would provide the most accurate measurement, may not be 
possible.\903\
---------------------------------------------------------------------------

    \903\ See Proposing Release, section II.G.2.d.
---------------------------------------------------------------------------

    The Commission proposed to require the disclosure of a registrant's 
GHG emissions as of the end of its most recently completed fiscal year 
in its Exchange Act annual report for that year and in a Securities Act 
or Exchange Act registration statement filed subsequent to the 
compliance date for the climate-related disclosure rules.\904\ The 
Commission also proposed to permit a registrant to use a reasonable 
estimate of its GHG emissions for its fourth fiscal quarter if no 
actual reported data is reasonably available, together with actual, 
determined GHG emissions data for its first three fiscal quarters when 
disclosing its GHG emissions for its most recently completed fiscal 
year, as long as the registrant promptly discloses in a subsequent 
filing any material difference between the estimate used and the 
actual, determined GHG emissions data for the fourth fiscal 
quarter.\905\ The Commission proposed this accommodation to address the 
concern of some commenters that a registrant may find it difficult to 
complete its GHG emissions calculations for its most recently completed 
fiscal year in time to meet its disclosure obligations for that year's 
Exchange Act annual report.\906\
---------------------------------------------------------------------------

    \904\ See Proposing Release, section II.G.1.a.
    \905\ See Proposing Release, section II.G.1.
    \906\ See id.

---------------------------------------------------------------------------

[[Page 21728]]

2. Comments
a. Overall GHG Emissions Disclosure Requirement
    Several commenters supported the proposed requirement to disclose 
Scopes 1 and 2 emissions, as well as Scope 3 emissions if material or 
if included in a registrant's GHG emissions reduction target or 
goal.\907\ The most common reason asserted for supporting the mandatory 
disclosure of GHG emissions is that such disclosure would provide 
investors with specific metrics to assess a registrant's exposure to 
transition risks.\908\ Commenters also relatedly stated that mandatory 
disclosure of GHG emissions would enable investors to evaluate a 
registrant's progress towards achieving any publicly announced 
transition targets and goals,\909\ and allow investors to compare 
registrants across sectors and industries to determine whether their 
transition strategies are aligned with investors' investment 
objectives.\910\
---------------------------------------------------------------------------

    \907\ See, e.g., letters from AGs from Cal. et al.; 
AllianceBernstein; Alphabet et al.; Amazon; Amer. for Fin. Reform, 
Sunrise Project et al.; BHP; BP; CalPERS; CalSTRS; Chevron; Etsy; 
IAC Recommendation; Member of the U.S. House of Representatives 
Kathy Castor and 130 other House Members; Member of the U.S. House 
of Representatives Adam B. Schiff and 25 Other House Members from 
California (Oct. 12, 2023) (``Rep. Adam Schiff et al.''); Microsoft; 
Miller/Howard; NRDC; Sens. B Schatz et al.; Trillium; UPS; 
Wellington Mgmt.; and WRI.
    \908\ See, e.g., letters from AllianceBernstein; AGs from Cal. 
et al.; CalPERS; Ceres; Rep. Maxine Waters; Sen. Elizabeth Warren, 
et al.; and Wellington Mgmt.
    \909\ See, e.g., letter from Amer. for Fin. Reform, Sunrise 
Project et al.
    \910\ See id; see also letters from AllianceBernstein; and 
Wellington Mgmt.
---------------------------------------------------------------------------

    Some of these commenters also indicated that Scope 3 emissions 
disclosure was necessary to provide a complete picture of a 
registrant's transition risk exposure and therefore recommended that 
the Commission require the disclosure of Scope 3 emissions for all 
registrants.\911\ Some commenters indicated that they are already using 
Scope 3 emissions data to make investment decisions.\912\ Other 
commenters stated that, as registrants, they have disclosed Scope 3 
emissions from certain activities and indicated their support for a 
Scope 3 emissions disclosure requirement with certain 
accommodations.\913\ One commenter stated that capital markets are now 
assigning financial value to Scope 3 emissions metrics and, in 
supporting a Scope 3 emissions disclosure requirement, recommended that 
the Commission establish a quantitative threshold for determining the 
materiality and corresponding disclosure of Scope 3 emissions.\914\ In 
addition, some commenters indicated that the disclosure of Scope 3 
emissions may deter registrants from outsourcing to third-parties 
facilities that would otherwise count as sources of Scopes 1 and 2 
emissions, thereby seeming to lower their transition risk exposure and 
facilitating greenwashing.\915\ Some commenters indicated that while 
many registrants already measure and voluntarily disclose their Scopes 
1 and 2 emissions, that is not the case for Scope 3 emissions.\916\ 
Another commenter stated that publishing Scope 3 emissions information 
has not been cost prohibitive.\917\
---------------------------------------------------------------------------

    \911\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CalPERS; CalSTRS; and Wellington Mgmt.; see also 
letter from Rep. Adam Schiff et al.(stating that enactment of 
California's Climate Corporate Data Accountability Act (SB 253), 
which will require companies with more than $1 billion in annual 
revenues to file annual reports publicly disclosing their Scope 1, 
2, and 3 GHG emission, ``virtually eliminates the cost of compliance 
with a federal Scope 3 disclosure requirement for all businesses 
operating in California with over $1 billion in revenue'').
    \912\ See, e.g., letters from CalSTRS; Soros Fund; and 
Wellington Mgmt.
    \913\ See, e.g., letters from Amazon; and Microsoft.
    \914\ See letter from Sens. B. Schatz et al.
    \915\ See, e.g., letter from AGs from Cal. et al. (stating that 
``Scope 3 GHG emissions disclosures will help avoid gamesmanship and 
greenwashing by registrants that artificially limit their Scope 1 
and 2 GHG emissions by transferring higher-emission activities and 
their climate-related risks to third parties''); and Wellington 
Mgmt.
    \916\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; C2ES; Ceres (Feb. 1, 2023); and Fidelity.
    \917\ See letter from Amalgamated Financial Corp. (June 17, 
2022) (``AFC'') (``We have published three years of our scope 3 
financed emissions, starting in 2019. For 2021, this included our 
listed equities and fixed income assets under management. As a firm 
we track absolute emissions and emissions intensity across our 
lending and investment portfolios and understand where risks and 
opportunities present. We have done this work with modest cost to 
us, requiring some redirection of resources and modest consultant 
and data support. This work has not been cost prohibitive and builds 
on existing systems within the bank for reporting and disclosure.'')
---------------------------------------------------------------------------

    While many commenters, including both issuers and investors, stated 
that they supported requiring Scope 1 and 2 disclosures, a significant 
number of commenters raised serious concerns about requiring Scope 3 
emissions disclosures. Some asserted that the Commission lacks the 
authority to require disclosures of information that may come largely 
from non-public companies in registrants' value chain; \918\ others 
questioned the value of Scope 3 emissions disclosures for investors, 
citing their concerns about the reliability of the metric; \919\ others 
focused on their view of the costs and burdens of gathering, 
validating, and reporting the information.\920\ A number of commenters 
representing entities not subject to the Commission's disclosure 
authority raised serious concerns about the costs and burdens they 
could face as a result of the requirement on registrants.\921\ Among 
those costs, they highlighted not only the cost of collecting and 
reporting information but also the potential competitive disadvantage 
for smaller suppliers, if registrants select larger suppliers that may 
be in a better position to supply information to use in their Scope 3 
emissions disclosures.\922\ We discuss certain of these comments in 
more detail.
---------------------------------------------------------------------------

    \918\ See, e.g., letters from D. Burton, Heritage Fdn.; and 
Chamber.
    \919\ See infra note 925 and accompanying text.
    \920\ See infra notes 924 and accompanying text.
    \921\ See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN 
Farm; NAA; and PA Farm; see also letter from National Association of 
Convenience Stores (June 8, 2022).
    \922\ See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN 
Farm; NAA; and PA Farm.
---------------------------------------------------------------------------

    Some commenters supported the mandatory disclosure of Scopes 1 and 
2 emissions but opposed the proposed disclosure of Scope 3 
emissions.\923\ Commenters stated that, because much of the data 
underlying Scope 3 emissions is in the control of third parties, 
registrants could face difficulty collecting such data, resulting in 
likely data gaps.\924\ Commenters also asserted that the methodologies 
underlying the measurement and reporting of Scope 3 emissions are still 
too uncertain and expressed concerns about the reliability of Scope 3 
emissions disclosure.\925\ In light of these concerns, commenters 
stated that the compliance burden associated with Scope 3 emissions 
disclosure would be costly to registrants and that such costs were 
likely to exceed the benefit to investors.\926\ Relatedly, one 
commenter raised concerns that Scope 3 emissions disclosure would not 
meet the materiality threshold for any registrant because of the 
challenges in calculating Scope 3 emissions in a reliable and 
consistent manner.\927\
---------------------------------------------------------------------------

    \923\ See, e.g., letters from Beller et al.; Exxon Mobil 
Corporation (June 17, 2022) (``Exxon''); Fed. Hermes; Fidelity; 
Harvard Mgmt.; IAA; ICI; Nareit; Reed Smith LLP (June 17, 2022) 
(``Reed Smith''); Stanford Management Company (June 17, 2022) 
(``Stanford Mgmt.''); and State St.
    \924\ See, e.g., letter from Beller et al.; Blackrock; Fed. 
Hermes; ICI; Reed Smith; Stanford Mgmt.; and State St.
    \925\ See, e.g., letters from Exxon; Fed. Hermes; Fidelity; 
Harvard Mgmt.; IAA; Reed Smith; Stanford Mgmt.; and State St.
    \926\ See, e.g., letter from Harvard Mgmt.
    \927\ See letter from Fidelity. While not directly opposing the 
proposed Scope 3 emissions disclosure requirement, another commenter 
recommended that, due to perceived complexities in the calculation 
of Scope 3 emissions, the Commission reconsider this proposed 
requirement and, if it retains the requirement, then it should 
provide guidance around determining the materiality of Scope 3 
emissions as well as more explicit standards to calculate Scope 3 
emissions for key industries. See letter from SFERS.

---------------------------------------------------------------------------

[[Page 21729]]

    One commenter supported the disclosure of Scope 3 emissions but 
only for activities, such as business travel, over which a registrant 
has influence or indirect control.\928\ This commenter also recommended 
adopting a safe harbor for Scope 3 emissions modeled on the PSLRA safe 
harbors and treating Scope 3 emissions disclosure as furnished rather 
than filed because of the ``inherent uncertainty'' in the estimates and 
assumptions underlying Scope 3 emissions disclosure.\929\
---------------------------------------------------------------------------

    \928\ See letter from Amazon.
    \929\ See id.
---------------------------------------------------------------------------

    Many commenters, however, generally opposed the proposed mandatory 
GHG emissions disclosure requirement, including the disclosure of 
Scopes 1 and 2 emissions.\930\ Commenters stated that because the 
proposed disclosure of Scopes 1 and 2 emissions would require such 
disclosure even when a registrant has not determined climate-related 
risks to be material, the proposed GHG emissions disclosure requirement 
may not result in decision-useful information for investors.\931\ 
Commenters also stated that because the registrants producing 85 to 90 
percent of the emissions in the United States already report their 
emissions pursuant to the EPA's Greenhouse Gas Reporting Program, the 
Commission's proposed emissions disclosure requirements are unnecessary 
and the resulting emissions data potentially confusing for 
investors.\932\
---------------------------------------------------------------------------

    \930\ See, e.g., letters from API; Atlas Sand Company, LLC (June 
17, 2022) (``Atlas Sand''); Bipartisan Policy; Brigham Exploration 
(June 17, 2022); Chamber; ConocoPhillips; Dimensional Fund; 
Independent Petroleum Association of New Mexico (June 17, 2022); 
Iowa Commissioner of Insurance (June 13, 2022); and Soc. Corp. Gov.
    \931\ See, e.g., letters from API; Dimensional Fund Advisors; 
and Soc. Corp. Gov.
    \932\ See, e.g., letters from API; Chamber; and ConocoPhillips. 
According to commenters, confusion could result from the fact that 
the EPA's Greenhouse Gas Reporting Program (``GHGRP'') requires the 
disclosure of emissions by individual source whereas the 
Commission's proposed rules would require the disclosure by company; 
see also discussion infra notes 2593-2595 and accompanying text. As 
noted in section IV.A.3, we estimate that approximately 365 
registrants had an ownership stake in facilities that reported to 
the GHGRP in 2022; see infra note 2596 and accompanying text.
---------------------------------------------------------------------------

    Further, commenters opposed the GHG emissions disclosure 
requirement because of the expected high compliance costs, which they 
believed the Commission had underestimated.\933\ One commenter further 
indicated that, although the Commission had stated that many companies 
were already disclosing their GHG emissions, according to a number of 
studies, most registrants have not yet measured and reported their 
Scopes 1 and 2 emissions, let alone their Scope 3 emissions.\934\
---------------------------------------------------------------------------

    \933\ See infra sections IV.C.3.b.ii and iii for more 
information on specific cost estimates provided by commenters.
    \934\ See infra section IV.A.5c (citing statistics in the 2021 
TCFD Status Report and a Moody's Analytics analysis of TCFD 
reporting of 2020/21 public disclosures showing that only 21% of 
North American companies and 19% of U.S. companies reported their 
Scopes 1 and 2 emissions and, if appropriate, their Scope 3 
emissions).
---------------------------------------------------------------------------

    Commenters also expressed concerns, in connection with registrants' 
disclosure of Scope 3 emissions, regarding compliance costs involving 
private companies, which comprise a large percentage of many 
registrants' value chains or joint ventures, and which, through the 
influence of those registrants, would be compelled to measure and 
report their GHG emissions for the first time.\935\ Some of these 
commenters asserted that registrants would likely incur costs to 
renegotiate contracts with these third parties to obtain the GHG 
emissions data required to comply with the proposed rules.\936\ Another 
commenter stated that third parties that are unwilling or unable to 
provide their GHG emissions to registrants could eventually be excluded 
from consideration for contracts to provide goods or services to 
registrants, which could diminish opportunities for these third-
parties, which may often be smaller businesses.\937\
---------------------------------------------------------------------------

    \935\ See, e.g., letters from API; Atlas Sand; Bipartisan 
Policy; Brigham Exploration; Chamber; ConocoPhillips; Independent 
Petroleum Association of New Mexico; and Iowa Commissioner of 
Insurance.
    \936\ See, e.g., letter from ConocoPhillips.
    \937\ See letter from Soc. Corp. Gov.
---------------------------------------------------------------------------

    In addition, commenters stated that, even if registrants are 
already voluntarily disclosing their Scopes 1 and 2 emissions pursuant 
to the GHG Protocol, those registrants will incur an increased 
compliance burden if the Commission was to adopt the proposed GHG 
emissions disclosure requirement, because of differences between the 
Commission's proposed requirement and the GHG Protocol and the 
TCFD.\938\ These commenters also shared many of the concerns about the 
proposed Scope 3 emissions disclosure provision discussed above, 
including the difficulties of collecting emissions data from third 
parties in its value chain, the unreliability of reported data stemming 
from third parties' lack of sophisticated data collection technologies 
and the use of proxy data to fill data gaps, and the absence of a fully 
developed and uniformly accepted methodology to report Scope 3 
emissions. According to commenters, these concerns would increase 
compliance costs and raise a registrant's liability exposure so that 
the total cost of the Scope 3 emissions disclosure would likely exceed 
its benefit.\939\ Because of the difficulties and uncertainties 
involved in Scope 3 emissions disclosure, some commenters recommended 
that the reporting of Scope 3 emissions should remain voluntary.\940\
---------------------------------------------------------------------------

    \938\ See id. Specifically, the commenter noted that the 
proposed rules would require a registrant's organizational 
boundaries to be consistent with the scope of entities included in 
its consolidated financial statements, whereas the GHG Protocol 
permits a company to choose between an equity share, operational 
control, or financial control method. The commenter also noted that 
the Commission's proposed rules would require a company to disclose 
its GHG emissions both on a disaggregated and aggregated basis 
whereas the TCFD requires a company to disclose its Scopes 1 and 2 
emissions, without specifying whether the disclosure must be on a 
disaggregated basis. According to the commenter, these differences 
could result in an increased compliance burden for a registrant. We 
discuss additional commenter input on these differences below.
    \939\ See id; see also Bipartisan Policy; Brigham Exploration; 
Chamber; D. Burton, Heritage Fdn.; and the National Association of 
Convenience Stores (June 8, 2022).
    \940\ See, e.g., letter from Airlines for America.
---------------------------------------------------------------------------

    One commenter presented an alternative to the proposed GHG 
emissions requirement.\941\ This commenter stated that, rather than 
adopting the proposed GHG emissions disclosure requirement, the 
Commission should ``mandate reporting, on a standardized form, of 
emissions data that registrants are required to disclose publicly 
pursuant to other federal, state, or foreign regulations.'' This 
commenter also stated that the alternative set of rules ``would, in 
effect, integrate the existing EPA reporting regime with the SEC's 
disclosure system in a manner that would be easier for investors and 
registrants to access and analyze.'' \942\ This commenter further 
stated that approximately 40 foreign countries already require various 
forms of emissions disclosures, and that California and other states 
are considering the adoption of their own mandatory emissions reporting 
regimes.\943\ According to this commenter, the alternative set of rules 
``would efficiently integrate, aggregate, and collate those disclosures 
on a single form available to all investors through

[[Page 21730]]

documents provided to the Commission.'' \944\
---------------------------------------------------------------------------

    \941\ See letter from Joseph A. Grundfest, William A. Franke 
Professor of Law and Business, Stanford Law School (June 15, 2022) 
(``Grundfest''); see also letters from Joseph A. Grundfest, 
Professor of Law and Business (emeritus), Stanford Law School (Oct. 
9, 2023); and Devon S. Wilson (Sept. 7, 2023).
    \942\ Letter from Grundfest.
    \943\ See id. As previously noted, California has since enacted 
a mandatory emissions reporting regime. See supra section II.A.
    \944\ See letter from Grundfest.
---------------------------------------------------------------------------

    Some commenters supported the proposed exemption from Scope 3 
emissions reporting for SRCs.\945\ Some commenters also supported 
exempting SRCs from the requirement to disclose Scopes 1 and 2 
emissions because, in their experience, SRCs have not historically 
tracked their GHG emissions and exempting SRCs from a GHG emissions 
reporting requirement would be consistent with a scaled disclosure 
regime for such issuers.\946\
---------------------------------------------------------------------------

    \945\ See, e.g., letters from D. Burton, Heritage Fdn.; J. 
Herron; ICI; Morningstar; and TotalEnergies.
    \946\ See, e.g., letters from BDO USA, LLP (June 17, 2022) 
(``BDO USA''); D. Burton, Heritage Fdn.; and Volta Inc. (June 15, 
2022) (``Volta'').
---------------------------------------------------------------------------

    Other commenters, however, opposed exempting all SRCs from the 
proposed Scope 3 emissions disclosure requirement.\947\ Commenters 
stated that investors need climate-related disclosures from SRCs 
because SRCs are as exposed to climate-related risks as larger issuers, 
including risks stemming from their value chains.\948\ Commenters also 
stated that because many large companies obtain climate-related data 
(e.g., Scopes 1 and 2 emissions data) from small companies in their 
value chains, exempting SRCs from climate-related disclosures could 
hamper larger registrants from accurately assessing their Scope 3 
emissions.\949\ Instead of, or in addition to, an exemption from Scope 
3 reporting, some commenters recommended providing a longer transition 
period for SRCs.\950\
---------------------------------------------------------------------------

    \947\ See, e.g., letters from AGs of Cal. et al. (recommending 
requiring SRCs that have adopted transition plans with Scope 3 
emissions reductions to report on those emissions); Amer. for Fin. 
Reform, Sunrise Project et al.; CalSTRS; CEMEX; Center Amer. 
Progress (stating that at a minimum, the final rule should establish 
a date in the future, such as fiscal year 2026 (filed in 2027), when 
small companies would be required to begin reporting Scope 3 
emissions); Center for Sustainable Business at the University of 
Pittsburgh (June 17, 2022) (``CSB'') (recommending requiring 
universal disclosure of Scope 3 emissions in 3-5 years of 
effectiveness of the final rule); and PwC (recommending requiring 
SRCs that have included Scope 3 emissions in their targets and goals 
to disclose those emissions).
    \948\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and Center Amer. Progress.
    \949\ See letters from CalSTRS; Center Amer. Progress; and J. 
McClellan.
    \950\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; ICI; and Soros Fund.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission exempt EGCs from 
the proposed rules, including GHG emissions reporting requirements, or 
at least provide them with the same accommodations as SRCs.\951\ 
Commenters stated that the large compliance costs of the proposed rules 
would likely deter many potential EGCs from going public.\952\ Other 
commenters opposed exempting EGCs from the proposed rules because such 
companies, like SRCs, may be exposed to climate-related risks.\953\
---------------------------------------------------------------------------

    \951\ See, e.g., letters from BIO; Davis Polk; Grant Thornton; 
D. Burton, Heritage Fdn.; J. Herron; Nasdaq, Inc. (June 14, 2022) 
(``Nasdaq''); Shearman Sterling; and SBCFAC Recommendation.
    \952\ See, e.g., letters from Davis Polk; and Grant Thornton.
    \953\ See, e.g., letters from ICI; PwC; and Soros.
---------------------------------------------------------------------------

b. Presentation of the GHG Emissions Metrics and Underlying 
Methodologies and Assumptions
    Commenters expressed mixed views on the proposed requirement to 
disclose GHG emissions on both an aggregated and disaggregated basis. 
Some commenters supported the proposed requirement because each 
constituent gas may be subject to differing regulations and presents 
its own set of risks, which aggregated disclosure, by itself, would 
conceal.\954\ Other commenters supported the proposed requirement 
because it would standardize the GHG emissions disclosure and help 
investors compare the GHG emissions data when making their risk 
assessments regarding a registrant.\955\ Still other commenters 
supported the proposed requirement because it is consistent with the 
GHG Protocol and would generally enhance the transparency of GHG 
emissions disclosure, which they viewed as fundamental for investors 
because it helps investors understand the financial impacts that 
transition risk may have on a registrant's business and financial 
condition, including on its liquidity and capital resources.\956\
---------------------------------------------------------------------------

    \954\ See, e.g., letters from PwC; and WRI.
    \955\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; As You Sow; and Wellington Mgmt.
    \956\ See, e.g., letters from Calvert; Fidelity; C. Howard; 
Impax Asset Mgmt.; and Morningstar.
---------------------------------------------------------------------------

    Other commenters, however, opposed the proposed requirement to 
disclose GHG emissions on a disaggregated basis because they believe it 
would impose additional costs without necessarily resulting in material 
disclosure.\957\ Several of these commenters stated that a registrant 
should only be required to disclose disaggregated data for constituent 
gases that are material.\958\ Other commenters opposed the proposed 
requirement because it would be difficult to obtain the necessary data 
for each constituent gas, particularly for Scopes 2 and 3 
emissions.\959\ One commenter stated that the proposed disaggregated 
disclosure requirement would not be compatible with certain industry 
standard life cycle assessment models.\960\ Another commenter opposed a 
disaggregated disclosure requirement for GHG emissions unless a 
registrant's particular industry required such disclosure.\961\
---------------------------------------------------------------------------

    \957\ See, e.g., letters from ABA; ERM CVS; Sullivan Cromwell; 
and T Rowe Price.
    \958\ See, e.g., letters from ABA; Sullivan Cromwell; and T Rowe 
Price.
    \959\ See, e.g., letters from Cleary Gottlieb; Deloitte & 
Touche; and Walmart.
    \960\ See letter from Amazon.
    \961\ See letter from CEMEX.
---------------------------------------------------------------------------

    Many commenters supported the proposed requirement to describe the 
methodology, significant inputs, and significant assumptions used to 
calculate a registrant's GHG emissions metrics.\962\ Commenters stated 
that such disclosure is necessary to place the GHG emissions data in 
context and to help investors properly understand and interpret the 
reported emissions information and associated risks.\963\ One 
commenter, however, opposed the proposed requirement, asserting that it 
would require extensive disclosure of information that is unlikely to 
be material to investors and will require significant additional effort 
by registrants.\964\ Other commenters opposed a requirement to disclose 
the emission factors used when calculating GHG emissions because, in 
their view, such disclosure would be burdensome to produce and of 
limited use by investors.\965\
---------------------------------------------------------------------------

    \962\ See, e.g., letters from CalPERS; Calvert; Impax Asset 
Mgmt.; and WRI.
    \963\ See, e.g., letters from CalPERS; and WRI.
    \964\ See letter from ABA.
    \965\ See, e.g., letters from ABA; D. Hileman Consulting; ERM 
CVS; and Futurepast (June 16, 2022).
---------------------------------------------------------------------------

    Many commenters stated that a registrant should be required to 
calculate its GHG emissions pursuant to the GHG Protocol because the 
GHG Protocol's methodologies have been widely accepted and requiring 
their adherence would promote comparability.\966\ Several of these 
commenters further recommended that the Commission allow registrants to 
follow the GHG Protocol's methodology regarding setting organizational 
boundaries \967\ instead of the proposed requirement to base a 
registrant's organizational boundaries on the

[[Page 21731]]

entities included in its consolidated financial statements. One of 
these commenters stated that because many registrants use the 
``operational control'' approach permitted under the GHG Protocol, 
allowing such registrants to continue to follow the GHG Protocol in 
this regard would mitigate the compliance burden of GHG emissions 
disclosure because those registrants would not be required to implement 
a different approach, in particular, regarding equity method 
investees.\968\ Some commenters, however, stated that a registrant 
should be permitted to follow other climate-related standards, such as 
certain International Organization for Standardization (ISO) standards, 
used by some companies when calculating their GHG emissions.\969\
---------------------------------------------------------------------------

    \966\ See, e.g., letters from Alphabet et al.; As You Sow; 
Beller et al.; CalSTRS; CFA; Dell; Deloitte & Touche; Engine No. 1; 
ERM CVS; KPMG; Morningstar; Soc. Corp. Gov.; and WRI.
    \967\ See, e.g., letters from Alphabet et al.; Beller et al.; 
Deloitte & Touche; and KPMG; see also Soc. Corp. Gov (stating that 
because many registrants use the operational control method, the 
proposed GHG emissions requirement would not only require 
unnecessary additional time, effort, and resources and present 
significant challenges, but it would also generate discrepancies 
between earlier-reported data and data disclosed pursuant to the 
proposed rule). See also discussion supra note 938.
    \968\ See letter from Alphabet et al.
    \969\ See letters from Futurepast (referencing ISO 14064-1, 
Specification with guidance at the organization level for 
quantification and reporting of greenhouse gas statements and ISO 
14067, Carbon footprint of products--Requirements and guidelines for 
quantification); and International Organization for Standardization 
(ISO) Committee on GHG and Climate Change Management (June 13, 2022) 
(``ISO Comm. GHG'').
---------------------------------------------------------------------------

    Several commenters supported the proposed requirement to disclose 
gross emissions by excluding any purchased or generated carbon 
offsets.\970\ Commenters stated that requiring the disclosure of gross 
emissions would enable investors to gain a full picture of a 
registrant's emissions profile and better assess its transition risk 
exposure.\971\ Some commenters also pointed to perceived problems in 
carbon offset markets regarding the quality and permanence of offsets 
when supporting a gross emissions disclosure requirement.\972\ Other 
commenters stated that a registrant should be required to disclose both 
a total amount with, and a total amount without, the use of offsets for 
each scope of emissions because such disclosure would increase 
transparency on offset use, which is critical to understanding how a 
registrant is managing transition risk to its business.\973\
---------------------------------------------------------------------------

    \970\ See, e.g., letters from AllianceBernstein; Amer. for Fin. 
Reform, Sunrise Project et al.; As You Sow; CalPERS; Etsy; C. 
Howard; ICCR; KPMG; and Wellington Mgmt.
    \971\ See, e.g., letters from Anthesis Group; As You Sow; CEMEX; 
Domini Impact; ICI; IATP; KPMG; PRI; and Wellington Mgmt.
    \972\ See, e.g., letters from Amer. For Fin. Reform, Sunrise 
Project et al.; Ceres; and ICCR.
    \973\ See, e.g., letters from AllianceBernstein; CalPERS; and 
ERM CVS.
---------------------------------------------------------------------------

    Some commenters, however, opposed the proposed requirement to 
exclude carbon offsets when disclosing GHG emissions.\974\ These 
commenters stated that the purchase of carbon offsets is a legitimate 
means for a registrant to reduce its carbon emissions and expressed the 
view that high-quality carbon offsets should play a significant role in 
a transition to a lower carbon economy.\975\
---------------------------------------------------------------------------

    \974\ See, e.g., letters from Airlines for America; 
International Air Transport Association (June 17, 2022) (``IATA''); 
and SIFMA (each opposed to a requirement to solely disclose GHG 
emissions in gross terms and supporting GHG emissions disclosure 
both in gross and net terms); see also letter from J. Weinstein 
(opposed to any requirement to exclude carbon offsets when 
disclosing GHG emissions).
    \975\ See letters from Airlines for America; and SIFMA.
---------------------------------------------------------------------------

    A number of commenters supported the proposed requirement to 
disclose GHG emissions in terms of GHG intensity.\976\ These commenters 
stated that investors would find the disclosure of GHG intensity useful 
because it would help them assess a registrant's progress in achieving 
its emissions management and reduction goals, put in context its 
emissions in relation to its scale, and facilitate comparing the 
registrant's emissions efficiency with other registrants in the same 
industry.\977\ Some commenters also noted that the TCFD recommends the 
disclosure of GHG emissions both in absolute terms and terms of 
intensity because each metric serves a different purpose.\978\ For 
example, one commenter stated that the disclosure of emissions in 
absolute terms provides necessary baseline emissions data whereas 
normalizing the data using an intensity metric allows for a focus on 
emissions efficiency per unit of production relevant to the 
registrant's industry.\979\ While some commenters supported the 
proposed requirement to disclose GHG intensity in terms of both metric 
tons of CO2e per unit of total revenue and per unit of 
production relevant to the registrant's industry,\980\ other commenters 
recommended making the final rules more flexible by expressly 
permitting registrants to use other GHG intensity metrics.\981\
---------------------------------------------------------------------------

    \976\ See, e.g., letters from Amazon; BOA; CalPERS; D. Hileman 
Consulting; C. Howard; Morningstar; PIMCO; and PRI.
    \977\ See, e.g., letters from Amazon; BOA; and PIMCO.
    \978\ See, e.g., letters from BOA; and PRI.
    \979\ See letter from BOA.
    \980\ See, e.g., letters from Amazon (stating that an intensity 
metric based on ``gross merchandise sales'' should be an appropriate 
unit of production); ERM CVS (stating that an intensity metric based 
on unit of production should be required where possible); and C. 
Howard.
    \981\ See, e.g., letters from BOA (stating that registrants 
should be permitted to use GHG intensity metrics specified under the 
TCFD framework or incorporated into the Partnership for Carbon 
Accounting Financials' Global GHG Accounting & Reporting Standard 
used by banks and other financial institutions); and NAM (supporting 
increased flexibility that would allow companies to choose and 
disclose a single GHG intensity metric, or to forgo intensity 
reporting, depending on the metrics' relevance to their operations 
and emissions).
---------------------------------------------------------------------------

    Some commenters, however, opposed the proposed GHG intensity 
disclosure requirement.\982\ These commenters stated that the proposed 
requirement to disclose a registrant's GHG emissions per unit of total 
revenue was unnecessary because investors can easily calculate this 
metric from a registrant's gross GHG emissions divided by its total 
revenues.\983\ Some commenters further stated that the proposed 
requirement to disclose a registrant's GHG emissions per unit of 
production would be unworkable for many registrants with different 
product lines, even within the same industry, and would not result in 
comparable disclosure for investors.\984\ Consequently, according to 
these commenters, GHG intensity disclosure should only be 
voluntary.\985\
---------------------------------------------------------------------------

    \982\ See, e.g., letters from ABA; PwC; SIFMA; and Sullivan 
Cromwell.
    \983\ See letters from ABA; and Sullivan Cromwell.
    \984\ See letters from ABA; PwC; SIFMA; and Sullivan Cromwell.
    \985\ See, e.g., letters from CEMEX; PwC; and SIFMA.
---------------------------------------------------------------------------

    Several commenters supported the proposed provision that would 
allow a registrant to use reasonable estimates when disclosing its GHG 
emissions as long as it also describes the assumptions underlying, and 
its reasons for using, the estimates.\986\ One commenter stated that 
the proposed provision would encourage the disclosure of GHG 
emissions.\987\ Other commenters supported the proposed provision 
because the reporting of GHG emissions often relies on the use of 
estimates, such as emission factors and location-based data.\988\ 
Another commenter stated that, while the use of estimates would 
primarily be needed for the disclosure of Scope 3 emissions, in certain 
instances registrants may need to estimate their Scope 1 and 2 
emissions if they are not able to access the necessary 
information.\989\ One other commenter stated that the use of

[[Page 21732]]

estimates should not be permitted when actual data is available.\990\
---------------------------------------------------------------------------

    \986\ See, e.g., letters from C2ES; CEMEX; D. Hileman 
Consulting; ERM CVS; KPMG; PWC; and WSP.
    \987\ See letter from Cemex.
    \988\ See letters from PWC; and KPMG (supporting the use of 
estimates generally because the measurement of emissions usually 
includes many estimates, assumptions, and extrapolations of data); 
see also letter from BIO (supporting maximum flexibility in the 
reporting of GHG emissions because ``the current ecosystem of GHG 
emission reporting is `evolving and unique' and in some cases may 
warrant the use of varying methodologies, differing assumptions, and 
a substantial amount of estimation'').
    \989\ See letter from C2ES.
    \990\ See letter from ERM CVS.
---------------------------------------------------------------------------

c. Timeline for Reporting GHG Emissions Metrics
    Some commenters supported the proposed requirement to provide GHG 
emissions disclosure for the registrant's most recently completed 
fiscal year and for the appropriate, corresponding historical fiscal 
years included in the registrant's consolidated financial statements in 
the filing, to the extent such historical GHG emissions data is 
reasonably available.\991\ Other commenters, however, stated that the 
GHG emissions disclosure requirement should be applied initially only 
to the most recently completed fiscal year following the date of 
compliance, with GHG emissions disclosure for historical periods 
required prospectively only.\992\
---------------------------------------------------------------------------

    \991\ See, e.g., letters from Morningstar; Salesforce; Unilever; 
and WRI.
    \992\ See, e.g., letters from Alphabet et al.; ABA; BHP; 
BlackRock; BOA; BP; Chamber; Citigroup; Cleary Gottlieb; Dell; D. 
Hileman Consulting; NAM; PwC; SIFMA; and T Rowe Price.
---------------------------------------------------------------------------

    Several commenters supported the proposed requirement to disclose a 
registrant's GHG emissions as of fiscal year-end in its corresponding 
Exchange Act annual report.\993\ Commenters stated that the proposed 
timeline for reporting a registrant's GHG emissions should be 
consistent with the timeline for its financial reporting to maximize 
the use of the GHG emissions data and to enhance the data's 
comparability.\994\ One commenter further stated that the timing of a 
registrant's emissions data disclosure should be coincident with its 
financial statement data reporting because the objective of reporting 
climate-related data for investors is to understand the correlation 
with financial performance.\995\
---------------------------------------------------------------------------

    \993\ See, e.g., letters from Alternative Investment Management 
Association (June 17, 2022) (``AIMA''); CalPERS; CEMEX; Eni SpA; 
Morningstar; TotalEnergies; and XBRL US (June 17, 2022).
    \994\ See, e.g., letters from AIMA; CEMEX; and XBRL US.
    \995\ See letter from XBRL US.
---------------------------------------------------------------------------

    Many other commenters \996\ opposed the proposed requirement to 
disclose GHG emissions metrics in a registrant's Exchange Act annual 
report.\997\ Commenters stated that, because of the difficulty required 
to calculate, verify, and disclose a registrant's GHG emissions, and 
because much of the necessary data for such disclosure does not become 
available along the same timeline as its other Exchange Act annual 
reporting requirements, the Commission should permit a registrant to 
provide its GHG emissions disclosure sometime after the Exchange Act 
annual report deadline.\998\ Commenters recommended that the Commission 
permit registrants to include the GHG emissions disclosure either in a 
separate report that would be due later than the deadline for filing 
their annual report on Form 10-K or Form 20-F,\999\ in a Form 10-Q or 
Form 6-K filed subsequent to the due date for the Exchange Act annual 
report,\1000\ or in an amendment to the Exchange Act annual 
report.\1001\ Commenters recommended varying deadlines for reporting 
GHG emissions, such as 120 days \1002\ or 180 days following the end of 
its most recently completed fiscal year,\1003\ or the due date for the 
Form 10-Q for the registrant's first \1004\ or second fiscal 
quarter.\1005\ Commenters further stated that providing a later 
deadline for GHG emissions disclosure would better align with the GHG 
emissions reporting required by other administrative agencies.\1006\ In 
addition, commenters stated that providing a later deadline for GHG 
emissions disclosure would be preferable to the proposed use of a 
fourth quarter estimate, which would likely require an additional 
submission that would be burdensome for registrants and potentially 
confusing for investors.\1007\
---------------------------------------------------------------------------

    \996\ See, e.g., letters from ABA; ACLI; Amer. Bankers; 
Blackrock; Can. Bankers; Chamber; ConocoPhillips; GM; HP; Hydro One; 
Microsoft; NAM; Nareit; Nasdaq; NMA; NRF; Prologis (June 17, 2022); 
Real Estate Board of New York (June 15, 2022) (``Real Estate NY''); 
SIFMA; Soc. Corp. Gov.; Walmart; and Williams Cos.
    \997\ Commenters also expressed timing concerns regarding the 
proposed requirement to include the GHG emissions disclosure in a 
Securities Act or Exchange Act registration statement. In 
particular, commenters raised concerns with applying the proposed 
climate disclosure rules to registrants in initial public offerings 
or to companies that are the target of a Form S-4 or F-4 
transaction. We discuss these comments in section II.L below.
    \998\ See, e.g., letters from ABA; BlackRock; Chamber; GM; 
SIFMA; and Soc. Corp. Gov.
    \999\ See, e.g., letters from Alphabet et al. (recommending 
inclusion in a separate form filed no earlier than 180 days after 
fiscal year-end); BlackRock (recommending inclusion in a new form 
due 120 days after fiscal year-end); Chamber (recommending inclusion 
in a form due no earlier than 180 days after fiscal year-end); D. 
Hileman Consulting (recommending inclusion in a form due by May 31st 
in the subsequent fiscal year); NAM (recommending inclusion in a 
form due no earlier than the end of the second quarter in the 
subsequent fiscal year); and T Rowe Price (recommending inclusion in 
a form due 120 days after fiscal year-end).
    \1000\ See, e.g., letters from ABA (recommending inclusion in 
the Form 10-Q for the first quarter in the subsequent fiscal year or 
in a Form 6-K furnished at a comparable time); BOA (recommending 
inclusion no later than the due date for the Form 10-Q for the 
second quarter in the subsequent fiscal year); and SIFMA 
(recommending inclusion in the Form 10-Q for the second quarter in 
the subsequent fiscal year or in a Form 6-K furnished at a 
comparable time).
    \1001\ See letter from Cleary Gottlieb.
    \1002\ See, e.g., letters from Blackrock; and GM (suggesting 
alignment with GHG emissions reporting deadline of other agencies 
(90-120 days after fiscal year-end)).
    \1003\ See, e.g., letters from ACLI; Can. Bankers; Chamber; HP; 
Nareit; NMA; Soc. Corp. Gov.; Sullivan Cromwell (recommending 180 
days after fiscal year-end deadline for all climate disclosures).
    \1004\ See, e.g., letter from ABA.
    \1005\ See, e.g., letters from NAM (recommending that GHG 
emissions be disclosed in separate report that is aligned with due 
date for 2nd fiscal quarter Form 10-Q); and SIFMA.
    \1006\ See, e.g., letters from ABA; Chamber; GM; HP; NAM; NMA; 
and Soc. Corp. Gov.
    \1007\ See, e.g., letters from ABA; Can. Bankers; Chamber; GM; 
HP; Microsoft; NAM; Nareit; and Soc. Corp. Gov.
---------------------------------------------------------------------------

3. Final Rule
a. Overview of the GHG Emissions Disclosure Requirement
    As many commenters have indicated, investors view information about 
a registrant's GHG emissions, including its Scopes 1 and 2 emissions, 
as a central measure and indicator of the registrant's exposure to 
transition risk as well as a useful tool for assessing its management 
of transition risk and understanding its progress towards a 
registrant's own climate-related targets or goals.\1008\ Because such 
information can be necessary to inform an investor's understanding of 
the overall impact of transition risk and related targets and goals on 
a registrant's business, results of operations, financial condition, 
and prospects, the final rules include a Scopes 1 and 2 emissions 
disclosure requirement (Item 1505), although modified from the rule 
proposal. We recognize commenters' concerns about the potentially high 
cost of compliance associated with the proposed GHG emissions 
disclosure requirement, including Scopes 1 and 2 emissions,\1009\ as 
well as concerns about the current availability and reliability of the 
underlying data for Scope 3 emissions.\1010\ To help address these 
concerns, instead of requiring, as proposed, the disclosure of Scopes 1 
and 2 emissions by all registrants regardless of their materiality, the 
final rules will require the disclosure of Scope 1 emissions and/or 
Scope 2 emissions metrics \1011\ by LAFs and AFs

[[Page 21733]]

that are not SRCs or EGCs, on a phased in basis,\1012\ if such 
emissions are material.\1013\
---------------------------------------------------------------------------

    \1008\ See, e.g., letters from AGs of Cal. et al.; 
AllianceBernstein; CalPERS; CalSTRS; IAA; Miller/Howard; 
Morningstar; Trillium; and Wellington Mgmt.
    \1009\ See supra notes 933 to 935 and accompanying text.
    \1010\ See supra notes 924-925 and accompanying text.
    \1011\ The concept of scopes was developed as part of the GHG 
Protocol. See World Business Council for Sustainable Development and 
World Resources Institute, GHG Protocol, Corporate Accounting and 
Reporting Standard (2004), available at https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf. We 
understand that some registrants may measure their GHG emissions 
pursuant to other well-established standards, such as ISO 14064 and 
related ISO standards, which do not refer to scopes. For the 
purposes of the final rules, we have defined ``Scope 1 emissions'' 
and ``Scope 2 emissions,'' respectively, as a registrant's direct 
emissions and indirect emissions largely from the generation of 
purchased or acquired electricity consumed by the registrant's 
operations. We intend these definitions to include substantially 
similar emissions as those measured pursuant to the ISO standards. 
Accordingly, registrants have flexibility to leverage standards of 
their choice in calculating and disclosing GHG emissions metrics 
required by the final rules, including the GHG Protocol or relevant 
ISO standards, or other standards that may be established over time.
    \1012\ As discussed in section II.O below, LAFs will have a one-
year transition period before they are required to comply with the 
final rule's GHG emissions disclosure requirements. AFs that are not 
SRCs or EGCs will be required to comply with the final rule's GHG 
emissions disclosure requirements two years following the GHG 
emissions compliance date for LAFs.
    \1013\ See 17 CFR 229.1505(a)(1). To the extent Scope 1 and/or 2 
emissions disclosure are required under the final rules, 17 CFR 
230.409 or 17 CFR 240.12b-21, which provide accommodations for 
information that is unknown and not reasonably available, would be 
available if its conditions are met.
---------------------------------------------------------------------------

    As commenters have noted, some registrants already measure their 
GHG emissions, typically Scopes 1 and 2 emissions,\1014\ and some use 
the data to manage their transition risk exposure or monitor their 
progress towards achieving climate-related targets and goals.\1015\ 
Many other registrants, however, have determined that climate is not a 
material risk to their business, or are not currently measuring their 
GHG emissions.\1016\
---------------------------------------------------------------------------

    \1014\ See supra note 916 and accompanying text.
    \1015\ See id.
    \1016\ Although the TCFD has reported a significant increase in 
the number of companies that have publicly disclosed their GHG 
emissions across the globe in recent years, a minority of North 
American and U.S. companies have done so. The TCFD recently reported 
that only 30% of North American companies surveyed reported their 
Scopes 1, 2, and 3 emissions in 2021. See TCFD, supra note 768.
---------------------------------------------------------------------------

    In balancing these considerations, we are not mandating Scopes 1 
and/or 2 emissions disclosures from all registrants. Rather, under the 
final rule, if either or both of those categories of GHG emissions are 
material, and the registrant is an LAF or an AF other than an SRC or 
EGC, it must disclose its Scopes 1 and/or 2 emissions metrics.\1017\ As 
we stated when discussing a registrant's determination of material 
impacts of climate-related risks, we intend that a registrant apply 
traditional notions of materiality under the Federal securities laws 
when evaluating whether its Scopes 1 and/or 2 emissions are 
material.\1018\ Thus, materiality is not determined merely by the 
amount of these emissions. Rather, as with other materiality 
determinations under the Federal securities laws and Regulation S-K, 
the guiding principle for this determination is whether a reasonable 
investor would consider the disclosure of an item of information, in 
this case the registrant's Scope 1 emissions and/or its Scope 2 
emissions, important when making an investment or voting decision or 
such a reasonable investor would view omission of the disclosure as 
having significantly altered the total mix of information made 
available.
---------------------------------------------------------------------------

    \1017\ If a registrant is an LAF or an AF other than an SRC or 
EGC and its Scope 1 emissions are material but its Scope 2 emissions 
are not material, then, under the final rules, the registrant must 
disclose its Scope 1 emissions and is not required to disclose its 
Scope 2 emissions (and vice versa if its Scope 2 emissions are 
material but its Scope 1 emissions are not). If a registrant's Scope 
1 and Scope 2 emissions both are material, then it must disclose 
both categories of emissions.
    \1018\ See, e.g., supra note 381 and accompanying text.
---------------------------------------------------------------------------

    A registrant's Scopes 1 and/or 2 emissions may be material because 
their calculation and disclosure are necessary to allow investors to 
understand whether those emissions are significant enough to subject 
the registrant to a transition risk that will or is reasonably likely 
to materially impact its business, results of operations, or financial 
condition in the short- or long-term. For example, where a registrant 
faces a material transition risk that has manifested as a result of a 
requirement to report its GHG emissions metrics under foreign or state 
law \1019\ because such emissions are currently or are reasonably 
likely to be subject to additional regulatory burdens through increased 
taxes or financial penalties, the registrant should consider whether 
such emissions metrics are material under the final rules. A 
registrant's GHG emissions may also be material if their calculation 
and disclosure are necessary to enable investors to understand whether 
the registrant has made progress toward achieving a target or goal or a 
transition plan that the registrant is required to disclose under the 
final rules.
---------------------------------------------------------------------------

    \1019\ See supra section II.A.3 (discussing adoption of the ISSB 
climate disclosure standard and the foreign jurisdictions that 
intend to implement the standard and California's recently adopted 
laws requiring certain large corporations to disclose their GHG 
emissions metrics and their climate-related financial risks).
---------------------------------------------------------------------------

    Conversely, the fact that a registrant is exposed to a material 
transition risk does not necessarily result in its Scope 1 and Scope 2 
emissions being de facto material to the registrant. For example, a 
registrant could reasonably determine that it is exposed to a material 
transition risk for reasons other than its GHG emissions, such as a new 
law or regulation that restricts the sale of its products based on the 
technology it uses, not directly based on its emissions.\1020\ Such a 
risk may trigger disclosure under other provisions of subpart 1500 but 
may not necessarily trigger disclosure of Scope 1 and Scope 2 emissions 
information under Item 1505.\1021\
---------------------------------------------------------------------------

    \1020\ See, e.g., Simone Foxman, The Electric Revolution Is 
Coming for Your Lawn Mower, Bloomberg (Nov. 20, 2023), available at 
https://www.bloomberg.com/news/articles/2023-11-20/gas-lawn-care-ban-in-california-tests-electric-leaf-blower-appeal.
    \1021\ See id.
---------------------------------------------------------------------------

    This revised approach to GHG emissions disclosure will provide 
investors with information they need to make informed investment and 
voting decisions while addressing concerns regarding the disclosure of 
GHG emissions data that may be immaterial. This approach will also 
limit the compliance costs of the final rules, as it will not require 
disclosure of GHG emissions data where such data is immaterial. Basing 
the GHG emissions disclosure requirement on traditional notions of 
materiality, which are fundamental to U.S. securities laws and the 
Commission's securities regulation, is more appropriate than a 
requirement that relies on GHG emissions disclosure laws or regulations 
required by other Federal agencies and foreign or state jurisdictions, 
as one commenter recommended.\1022\ Those other laws or regulations may 
be adopted to serve other purposes and may be presented without the 
additional disclosures that supplement the ``total mix'' of information 
investors need for context and to understand why the GHG emissions 
information is material.
---------------------------------------------------------------------------

    \1022\ See letter from Grundfest.
---------------------------------------------------------------------------

    We acknowledge, however, that registrants could incur costs to 
assess and monitor the materiality of their emissions, even in 
situations in which they ultimately determine that they do not need to 
provide disclosure, and that for some registrants these costs could be 
significant, especially if firms are not already tracking this 
information for internal purposes.\1023\ Mindful of these costs, we are 
further limiting the GHG emissions disclosure requirement to LAFs and 
AFs that are not SRCs or EGCs and on a phased in basis. These further 
limitations will help ensure that any registrants potentially subject 
to the final rule have sufficient resources and time to prepare for 
what we

[[Page 21734]]

acknowledge could be a significant additional compliance 
obligation.\1024\
---------------------------------------------------------------------------

    \1023\ See infra section IV.C.2.e.
    \1024\ As discussed below, neither EGCs nor SRCs will be 
required to disclose their Scopes 1 and 2 emissions under the final 
rules. See 17 CFR 229.1505(a)(3)(i).
---------------------------------------------------------------------------

    We recognize that many commenters supported the proposed 
requirement for disclosure of Scopes 1 and 2 emissions for all 
registrants. Nevertheless, mindful of the attendant costs, we believe 
that the final rules present an appropriate means to achieve the 
primary benefits of GHG emissions disclosure, namely: providing 
investors with material metrics that will aid in the assessment of 
transition risk for those registrants that have identified a material 
climate risk; and facilitating investors' evaluation of a registrant's 
progress towards achieving a material target or goal and the attendant 
effects on the registrant's business, results of operations, or 
financial condition. While the final GHG emissions disclosure provision 
will not apply to as many registrants or achieve the same level of 
comparability as may have been achieved under the proposed rules, on 
balance, we believe that, coupled with the other disclosures required 
under subpart 1500 and the structured data requirements of the final 
rules, investors will have sufficient information to assess the 
operational and financial impact of transition risks and strategies on 
registrants and compare such impacts across registrants.
b. Presentation of the GHG Emissions Metrics and Disclosure of the 
Underlying Methodologies and Assumptions
    In a change from the rule proposal, which would have required the 
disclosure of a registrant's GHG emissions both disaggregated by each 
constituent GHG and in the aggregate, the final rule will require the 
disclosure of any described scope of emissions to be expressed in the 
aggregate in terms of CO2e.\1025\ This change is intended to 
address the concern of some commenters that the proposed approach would 
impose additional burdens and costs on registrants without necessarily 
resulting in material information for investors.\1026\ In addition, if 
a registrant is required to disclose its Scope 1 and/or Scope 2 
emissions, and any constituent gas of the disclosed emissions is 
individually material, it must also disclose such constituent gas 
disaggregated from the other gases.\1027\ For example, if a registrant 
has included a particular constituent gas, such as methane, in a GHG 
emissions reduction target that is disclosed pursuant to Item 1504(a) 
because it is reasonably likely to materially affect the registrant's 
business, such constituent gas may be material and, therefore, required 
to be disclosed in disaggregated fashion. The required disaggregated 
disclosure of an individually material gas will help inform investors 
about the degree to which a registrant is exposed to transition risk as 
governments and markets may treat the individual GHG components 
differently.\1028\ As explained in the Proposing Release, requiring a 
standard unit of measurement for GHG emissions with which many 
registrants are familiar should simplify the disclosure for investors 
and enhance its comparability across registrants with different types 
of GHG emissions.\1029\
---------------------------------------------------------------------------

    \1025\ See 17 CFR 229.1505(a)(2)(i).
    \1026\ See supra note 957 and accompanying text.
    \1027\ See 17 CFR 229.1505(a)(2)(i).
    \1028\ For example, the EPA recently adopted a new regulation to 
curb methane emissions, which could be a source of transition risk 
for some registrants. See EPA, EPA's Final Rule for Oil and Natural 
Gas Operations Will Sharply Reduce Methane and Other Harmful 
Pollution (Dec. 2, 2023), available at https://www.epa.gov/controlling-air-pollution-oil-and-natural-gas-operations/epas-final-rule-oil-and-natural-gas.
    \1029\ See Proposing Release, section II.G.1.
---------------------------------------------------------------------------

    Consistent with the rule proposal, under the final rule, a 
registrant that is required to disclose its Scope 1 and/or Scope 2 
emissions must disclose those emissions in gross terms by excluding the 
impact of any purchased or generated offsets.\1030\ As noted by some 
commenters, this requirement will enable investors to gain a more 
complete understanding of the full magnitude of a registrant's exposure 
to transition risk and to assess the extent to which a registrant 
relies upon purchased or generated offsets, if the registrant provides 
disclosure about the offsets pursuant to Item 1504, and better compare 
such exposure across registrants.\1031\ Information about the degree to 
which a registrant's strategy relies on offsets is increasingly 
important for investors not only because their use exposes the 
registrant to offset market fluctuations but also because such use may 
indicate heightened transition risk exposure to the extent governments 
seek to regulate their use.\1032\
---------------------------------------------------------------------------

    \1030\ See 17 CFR 229.1505(a)(2)(ii). While the rule specifies 
that gross emissions should be calculated without taking into 
account any purchased or generated offsets, the extent to which a 
registrant will exclude RECs from its gross emissions will depend on 
the methodology the registrant chooses to use. As described in the 
Proposing Release, section II.G.2., there are two common methods for 
calculating Scope 2 emissions: the market-based method and the 
location-based method. The market-based method may involve the use 
of RECs. See World Resources Institute, GHG Protocol Scope 2 
Guidance (2015), Chapter 4, available at https://ghgprotocol.org/sites/default/files/standards/Scope%202%20Guidance_Final_Sept26.pdf. 
A registrant is required to describe its methodology, and in the 
case of Scope 2 emissions, it should include a description of 
whether and how RECs factor into its gross emissions calculation.
    \1031\ See, e.g., letters from ICI; and Wellington Mgmt.
    \1032\ See California Legislative Information, Assembly Bill No. 
1305, Voluntary carbon market disclosures (Oct. 7, 2023), available 
at https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB1305.
---------------------------------------------------------------------------

    Also, similar to the rule proposal,\1033\ the final rule will 
require a registrant to describe the methodology, significant inputs, 
and significant assumptions used to calculate the registrant's 
disclosed GHG emissions.\1034\ We continue to believe that this 
information is important to investors because it will help them 
understand GHG emissions disclosures by providing important contextual 
information, such as the scope of the entities included in the GHG 
emissions results that may be subject to transition risk, and inform 
comparability across registrants while also providing registrants with 
flexibility to determine the appropriate methodologies and assumptions 
to use based on their own facts and circumstances. However, we have 
modified the proposed requirement to provide registrants with greater 
flexibility to present this information in a manner that best fits with 
their particular facts and circumstances, as several commenters 
recommended.\1035\ For example, like the rule proposal, the final rule 
will require a registrant to disclose the organizational boundaries 
used when calculating its Scope 1 emissions and/or its Scope 2 
emissions.\1036\ Unlike the rule proposal, however, which would have 
required a registrant to use the same scope of entities and other 
assets included in its consolidated financial statements when 
determining the organizational boundaries for its GHG emissions 
calculation,\1037\ the final rule provides that the registrant must 
disclose the method used to determine the organizational boundaries, 
and if the organizational boundaries materially differ from the scope 
of entities and operations included in the registrant's consolidated 
financial statements, the registrant must provide a brief

[[Page 21735]]

explanation of this difference in sufficient detail for a reasonable 
investor to understand. In addition, when describing its organizational 
boundaries, a registrant must describe the method used to determine 
those boundaries.\1038\ Under this approach, a registrant will have 
flexibility to use, for example, one of the methods for determining 
control under the GHG Protocol, including the operational control 
approach, as recommended by some commenters,\1039\ as long as it 
discloses the method used, and provides investors with information 
material to understanding the scope of entities and operations included 
in the GHG emissions calculation as compared to those included in its 
financial statements. We have made this change to address widely shared 
concerns about the compliance burden and associated costs of the more 
prescriptive aspects of the rule proposal.\1040\ At the same time, 
requiring the registrant to provide a brief explanation of any material 
difference from the scope of entities and operations included in the 
consolidated financial statements will help avoid any potential 
confusion on the part of investors about the scope of entities included 
in the GHG emissions calculation and help them assess the extent of the 
registrant's transition risk-related financial impacts.
---------------------------------------------------------------------------

    \1033\ See Proposing Release, section II.G.2.
    \1034\ See 17 CFR 229.1505(b)(1).
    \1035\ See, e.g., letters from ABA; Chamber; SIFMA; and Soc. 
Corp. Gov.
    \1036\ Like the rule proposal, the final rule defines 
``organizational boundaries'' to mean the boundaries that determine 
the operations owned or controlled by a registrant for the purpose 
of calculating its GHG emissions. See 17 CFR 229.1500.
    \1037\ See Proposing Release, section II.G.2.a.
    \1038\ See 17 CFR 229.1505(b)(1)(i).
    \1039\ See supra note 967 and accompanying text.
    \1040\ See supra notes 956 and 968 and accompanying text.
---------------------------------------------------------------------------

    Similarly, we have also streamlined the methodology disclosure 
provision by, for example, specifying that a brief discussion, in 
sufficient detail for a reasonable investor to understand, is required 
of the operational boundaries used,\1041\ including the approach to 
categorization of emissions and emissions sources.\1042\ This provision 
is intended to provide investors with a general understanding of how 
the registrant determined which sources of emissions to include when 
calculating its direct emissions (Scope 1) and indirect emissions 
(Scope 2) to facilitate investors' understanding of the GHG emissions 
results and enhance their comparability across registrants while 
avoiding extensive disclosure that may be more burdensome for 
registrants to produce or investors to process.
---------------------------------------------------------------------------

    \1041\ Like the rule proposal, the final rule defines 
``operational boundaries'' to mean the boundaries that determine the 
direct and indirect emissions associated with the business 
operations owned or controlled by a registrant. See 17 CFR 229.1500.
    \1042\ See 17 CFR 229.1505(b)(1)(ii).
---------------------------------------------------------------------------

    Whereas the rule proposal would have required the disclosure of the 
calculation approach, including any emission factors used and the 
source of the emission factors,\1043\ and any calculation tools used to 
calculate the GHG emissions, the final rule requires a brief 
description of, in sufficient detail for a reasonable investor to 
understand, the protocol or standard used to report the GHG emissions, 
including the calculation approach, the type and source of any emission 
factors used, and any calculation tools used to calculate the GHG 
emissions.\1044\ Rather than potentially requiring a lengthy 
explanation of the calculation approach used, this provision will 
require a registrant to disclose whether it calculated its GHG 
emissions metrics using an approach pursuant to the GHG Protocol's 
Corporate Accounting and Reporting Standard, an EPA regulation, an 
applicable ISO standard,\1045\ or another standard. Pursuant to this 
provision, we would expect a registrant to also disclose whether it 
calculated its Scope 2 emissions using a particular method (which may 
differ from the method used to calculate Scope 1 emissions, to the 
extent both Scope 1 and 2 emissions are required to be disclosed under 
the final rules), such as the location-based method, market-based 
method, or both.\1046\ Similarly, a registrant should disclose the 
identity of any calculation tools used, such as those provided by the 
GHG Protocol or pursuant to GHG emissions calculation under the ISO 
standards. In addition, by modifying the proposed requirement to 
disclose any emission factors used, we are clarifying that the final 
rule will not require the disclosure of any quantitative emission 
factors used. Instead, the final rule will require a registrant to 
disclose the type and source of any emission factors used, such as the 
EPA's emission factors for stationary combustion and/or mobile 
combustion of various fuel types.\1047\
---------------------------------------------------------------------------

    \1043\ Emission factors are ratios that typically relate GHG 
emissions to a proxy measure of activity at an emissions source. 
Examples of activity data reflected in emission factors include 
kilowatt-hours of electricity used, quantity of fuel used, output of 
a process, hours of operation of equipment, distance travelled, and 
floor area of a building. The EPA has published a series of commonly 
used emission factors. See EPA, Emission Factors for Greenhouse Gas 
Inventories (Apr. 2021), available at https://www.epa.gov/sites/default/files/2021-04/documents/emission-factors_apr2021.pdf. See 
also 17 CFR 229.1500 (definition of ``emission factors'').
    \1044\ See 17 CFR 229.1505(b)(1)(iii).
    \1045\ See supra note 969.
    \1046\ The market-based method and the location-based method are 
two common methods for calculating Scope 2 emissions for purchased 
electricity. For a description of these methods, see World Resources 
Institute, GHG Protocol Scope 2 Guidance, Chapter 7, available at 
https://files.wri.org/d8/s3fs-public/ghg-protocol-scope-2-guidance.pdf; and EPA Center for Corporate Climate Leadership, Scope 
1 and Scope 2 Inventory Guidance, available at https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance.
    \1047\ The EPA has published a set of emission factors based on 
the particular type of source (e.g., stationary combustion, mobile 
combustion, refrigerants, and electrical grid, among others) and 
type of fuel consumed (e.g., natural gas, coal or coke, crude oil, 
and kerosene, among many others. See EPA, Emission Factors for 
Greenhouse Gas Inventories (Apr. 2021), available at https://www.epa.gov/sites/default/files/2021-04/documents/emission-factors_apr2021.pdf.
---------------------------------------------------------------------------

    Requiring a brief description of the protocol or standard used to 
calculate a registrant's GHG emissions, together with the type and 
source of any emission factors used, will provide investors with 
information that is important to understanding the reported emissions 
data and associated risks \1048\ without burdening registrants by 
requiring disclosure of detailed information that may not be 
material.\1049\ Such disclosure should assist investors in 
understanding the emission disclosures and promote consistency and 
comparability over time. For example, with the required disclosures, an 
investor will be able to evaluate the registrant's selected emission 
factor(s) in the context of its operations and assess whether changes 
in reported emissions over time reflect changes in actual emissions in 
accordance with its strategy or simply a change in calculation 
methodology.
---------------------------------------------------------------------------

    \1048\ See supra note 963 and accompanying text.
    \1049\ See supra note 964 and accompanying text.
---------------------------------------------------------------------------

    Unlike the rule proposal, which would have required a registrant to 
disclose its GHG emissions in both absolute terms and terms of 
intensity,\1050\ under the final rule, registrants will not be required 
to disclose its GHG emissions in terms of intensity. As some commenters 
noted, the proposed intensity disclosure requirement is not necessary 
because investors should be able to calculate a registrant's GHG 
emissions per unit of total revenue by dividing a registrant's gross 
GHG emissions by its total revenues.\1051\ Eliminating the GHG 
intensity disclosure requirement will also help lower the final rules' 
compliance burden. Although a registrant may choose to disclose its GHG 
emissions in terms of intensity, it is not required under the final 
rule.
---------------------------------------------------------------------------

    \1050\ See Proposing Release, section II.G.1.
    \1051\ See supra note 983 and accompanying text.
---------------------------------------------------------------------------

    Like the rule proposal, the final rule provides that a registrant 
may use reasonable estimates when disclosing its GHG emissions as long 
as it also describes the assumptions underlying, and its reasons for 
using, the estimates.\1052\ This explanation will

[[Page 21736]]

help investors understand and assess the GHG emissions disclosures and 
facilitate comparability across registrants. We recognize that, in many 
instances, direct measurement of GHG emissions at the source, which 
would provide the most accurate measurement, may not be possible. We 
also recognize that it is common practice under various GHG emissions 
reporting methodologies to use estimates, such as emission factors, 
when calculating a company's Scopes 1 and 2 emissions.\1053\ A 
registrant may use reasonable estimates under the final rule as long as 
it describes the underlying assumptions and explains its reasons for 
using the estimates. Allowing for the use of reasonable estimates with 
an explanation will help lower the compliance burden for a registrant 
that must disclose its GHG emissions without, in our view, unduly 
undermining comparability and reliability of the GHG emissions metrics 
disclosure.
---------------------------------------------------------------------------

    \1052\ See 17 CFR 229.1505(b)(2).
    \1053\ See, e.g., letter from PWC.
---------------------------------------------------------------------------

c. Exclusions From the GHG Emissions Disclosure Requirement
    We are not adopting a provision that would require a registrant to 
disclose its Scope 3 emissions at this time. We are mindful of the 
potential burdens such a requirement could impose on registrants and 
other parties as well as questions about the current reliability and 
robustness of the data associated with Scope 3 emissions, as noted by 
commenters.\1054\ However, we also recognize that, as some commenters 
indicated, disclosure of a registrant's Scope 3 emissions, including 
emissions from its suppliers (i.e., upstream emissions) and its 
customers or consumers (i.e., downstream emissions), or at least from 
those parties in its value chain that have significant emissions, may 
allow investors to develop a fuller picture of the registrant's 
transition risk exposure and evaluate and compare investment risks 
across registrants more thoroughly.\1055\ Moreover, because many 
registrants will be required to disclose their Scope 3 emissions under 
foreign or state law or regulation,\1056\ Scope 3 calculation 
methodologies may continue to evolve, mitigating many of the concerns 
noted by commenters about the disclosure of Scope 3 emissions. While 
such developments may encourage more registrants to disclose their 
Scope 3 emissions in Commission filings, at the present time, because 
of the potential costs and difficulties related to Scope 3 emissions 
reporting, the disclosure of Scope 3 emissions in Commission filings 
will remain voluntary.
---------------------------------------------------------------------------

    \1054\ See supra notes 924-925 and accompanying text.
    \1055\ See, e.g., letters from AllianceBernstein; CalPERS; 
Miller/Howard; Trillium; and Wellington Mgmt.
    \1056\ See supra section II.A.3.
---------------------------------------------------------------------------

    Unlike the proposed rule, which would have exempted SRCs from the 
requirement to disclose Scope 3 emissions,\1057\ the final rule will 
exempt SRCs and EGCs from any requirement to disclose its GHG 
emissions, including its Scopes 1 and 2 emissions.\1058\ Such treatment 
is consistent with the scaled disclosure approach that is sometimes 
adopted for SRCs and EGCs.\1059\ We understand from commenters that 
SRCs and EGCs will face the greatest burden and costs in attempting to 
comply with the GHG emissions disclosure requirement as compared to the 
other climate-related disclosure requirements.\1060\ Accordingly, 
exempting SRCs and EGCs from this requirement but requiring them to 
comply with the final rules' other climate-related disclosure 
requirements should allow investors in SRCs and EGCs to gain a better 
understanding of the material climate risks such companies may be 
facing while limiting the overall costs to these registrants by 
alleviating the significant burdens associated with GHG emissions 
disclosure.
---------------------------------------------------------------------------

    \1057\ See Proposing Release, section II.G.3.
    \1058\ See 17 CFR 229.1505(a)(3)(i). A registrant will be exempt 
from any requirement to disclose its GHG emissions for any fiscal 
year in which it qualified as an SRC. A registrant that previously 
qualified as an SRC also will be exempt from the GHG emissions 
disclosure requirements in the first fiscal year in which it no 
longer so qualifies because a registrant must reflect the 
determination of whether it came within the definition of smaller 
reporting company in its quarterly report on Form 10-Q for the first 
fiscal quarter of the next year, see 17 CFR 240.12b-2, which will be 
after the date of the annual report on Form 10-K in which the GHG 
emissions disclosure is required. This remains the case 
notwithstanding the permissibility under the final rules (as 
discussed infra Section II.H.3.d) of a registrant incorporating by 
reference its GHG emissions disclosures required in its Form 10-K 
from its Form 10-Q for the second quarter of that next fiscal year.
    \1059\ See supra notes 946 and accompanying text.
    \1060\ See, e.g., letter from BIO (When recommending adoption of 
additional exemptions for small companies from the proposed rules, 
this commenter stated that ``67% of BIO members surveyed said that 
they currently do not report on carbon emissions, and a similar 
majority have significant concerns with the ability to collect and 
accurately report without significant liability.'').
---------------------------------------------------------------------------

    The final rules provide that a registrant is not required to 
include GHG emissions from a manure management system when disclosing 
its overall Scopes 1 and 2 emissions pursuant to 17 CFR 
229.1505(a)(1).\1061\ This exclusion from the GHG emissions disclosure 
requirement has been included in light of the 2023 Consolidated 
Appropriations Act, which provides that none of the funds made 
available under that Act or any other Act (including to the Commission) 
may be used to implement ``any provision in a rule, if that provision 
requires mandatory reporting of greenhouse gas emissions from manure 
management systems.'' \1062\ Accordingly, an agricultural producer or 
other registrant that operates a manure management system will not be 
required to include GHG emissions from that system when disclosing its 
overall Scopes 1 and 2 emissions for so long as implementation of such 
a provision is subject to restrictions on appropriated funds or 
otherwise prohibited by Federal law.
---------------------------------------------------------------------------

    \1061\ See 17 CFR 229.1505(a)(3)(ii).
    \1062\ Public Law 117-328, div. G, tit. IV, Sec.  437, 136 Stat. 
4459, 4831 (2022).
---------------------------------------------------------------------------

d. Timeline for Reporting GHG Emissions Metrics
    Under the final rules, if a registrant is required to disclose its 
Scope 1 and/or Scope 2 emissions, it must disclose those emissions for 
its most recently completed fiscal year and, to the extent previously 
disclosed in a Commission filing, for the historical fiscal year(s) 
included in the consolidated financial statements included in the 
filing.\1063\ By contrast, a registrant that has not previously 
disclosed its Scopes 1 and 2 emissions in a Commission filing for a 
particular historical fiscal year will not be required to estimate and 
report those emissions for such period.\1064\ Limiting the historical 
period disclosure requirement for GHG emissions in this fashion is 
largely consistent with the recommendation of commenters that any GHG 
emissions disclosure not be required for historical periods prior to 
the initial compliance date \1065\ and should help mitigate the 
compliance costs for registrants that have not yet disclosed their 
Scopes 1 and 2 emissions in a Commission filing. This approach is also 
consistent with the approach taken for the disclosure of financial 
effects for historical periods under new Article 14 of Regulation S-
X,\1066\ as well as with approaches taken

[[Page 21737]]

for other recently adopted changes to Regulation S-K.\1067\
---------------------------------------------------------------------------

    \1063\ See 17 CFR 229.1505(a)(1).
    \1064\ For example, if a registrant becomes an LAF during the 
fiscal year, it is required to present these disclosures for the 
most recently completed fiscal year in which it became an LAF; 
however, it is not required to provide those disclosures for the 
prior fiscal years included in its filing when it was not an LAF, to 
the extent that information was not previously required to be 
disclosed.
    \1065\ See supra note 992 and accompanying text.
    \1066\ See infra section II.K.
    \1067\ See, e.g., Management's Discussion and Analysis, Selected 
Financial Data, and Supplementary Financial Information, Release No. 
33-10890 (Nov. 19, 2020) [86 FR 2080 (Jan. 11, 2021)]; and Pay 
Versus Performance, Release No. 34-95607 (Aug. 25, 2022) [87 FR 
55134 (Sept. 8, 2022)], which provided similar transition periods.
---------------------------------------------------------------------------

    We recognize that, as many commenters have stated, a registrant may 
have difficulty measuring and reporting its GHG emissions as of fiscal 
year-end by the same deadline for its Exchange Act annual report.\1068\ 
To address this concern, the final rules provide that any GHG emissions 
metrics required to be disclosed pursuant to Item 1505 in an annual 
report filed with the Commission on Form 10-K may be incorporated by 
reference from the registrant's Form 10-Q for the second fiscal quarter 
in the fiscal year immediately following the year to which the GHG 
emissions metrics disclosure relates.\1069\ Many commenters requesting 
additional time to disclose GHG emissions metrics indicated that most 
registrants currently report such metrics outside of Commission filings 
after completion of the second fiscal quarter. Accordingly, this change 
will help alleviate the challenges with disclosing such data in the 
annual report and be consistent with current market practices while 
still providing investors with timely GHG emissions information.
---------------------------------------------------------------------------

    \1068\ See supra note 998 and accompanying text.
    \1069\ See 17 CFR 229.1505(c)(1). A registrant may also include 
this in an amended Form 10-K filed no later than the due date for 
the registrant's second quarter Form 10-Q. This deadline would also 
apply to transition year registrants, i.e., to registrants that have 
changed their fiscal year and the difference in reporting periods is 
so small that they are not required to file a Form 10-KT and can 
report the difference in a Form 10-Q.
---------------------------------------------------------------------------

    To provide comparable treatment for foreign private issuers, the 
final rules provide that the GHG emissions metrics required to be 
disclosed pursuant to Item 1505 may be disclosed in an amendment to 
their annual report on Form 20-F, which shall be due no later than 225 
days after the end of the fiscal year to which the GHG emissions 
metrics disclosure relates. This corresponds approximately to the 
second quarter Form 10-Q filing deadline and should provide foreign 
private issuers with an appropriate and similar amount of time as 
domestic registrants to provide the required GHG emissions metrics 
disclosure.\1070\ In order to treat the GHG emissions disclosure as 
filed and maintain the same level of liability as for corresponding 
disclosure by domestic registrants, a foreign private issuer must 
provide its GHG emissions disclosure in an amendment to its annual 
report on Form 20-F instead of on a Form 6-K.
---------------------------------------------------------------------------

    \1070\ See Form 10-Q, General Instruction A.1, which states that 
the Form 10-Q must be filed within 40 days after the end of the 
fiscal quarter if the registrant is an LAF or AF (and, if that 40 
day period falls on a Saturday, the filing is not due until the 
following Monday, which is the 42nd day after the end of the 
quarter). The end of the second fiscal quarter corresponds to 181 
days following the most recently completed fiscal year (and 182 days 
in a leap year). The 225-day deadline is intended to account for the 
upper limit combined periods (42 days + 182 days = 224 days).
---------------------------------------------------------------------------

    Whether a registrant is a domestic registrant or foreign private 
issuer, the final rules provide that the registrant must include an 
express statement in its annual report indicating its intention to 
incorporate by reference or amend its filing for this 
information.\1071\ This requirement will provide notice to investors 
regarding where to find the required GHG emissions metrics disclosure 
and is consistent with the general notice requirements for information 
that is being incorporated by reference under existing Securities Act 
and Exchange Act rules.\1072\
---------------------------------------------------------------------------

    \1071\ See 17 CFR 229.1505(c)(1).
    \1072\ See 17 CFR 230.411(e) and 17 CFR 240.12b-23(e).
---------------------------------------------------------------------------

    To provide similar treatment to GHG emissions metrics required to 
be disclosed under Item 1505 in a Securities Act or Exchange Act 
registration statement, the final rules state that the GHG emissions 
metrics must be provided as of the most recently completed fiscal year 
that is at least 225 days prior to the date of effectiveness of the 
registration statement.\1073\ For example, if a calendar year-end LAF 
files a Form S-1 registration statement in 2028, which goes effective 
on or after Monday, August 7, 2028, its GHG emissions metrics 
disclosure must be as of 2027 since the Form S-1's date of 
effectiveness is at least 225 days after the 2027 fiscal year-end. If, 
however, the Form S-1 registration statement goes effective on Friday, 
August 4, 2028, which is less than 225 days after its 2027 fiscal year-
end, the registrant may provide its GHG emissions metrics disclosure as 
of its 2026 fiscal year-end.\1074\
---------------------------------------------------------------------------

    \1073\ See 17 CFR 229.1505(c)(2).
    \1074\ Similarly, for a registration statement on Form S-3, 
because information is incorporated by reference from a registrant's 
Exchange Act filings, to address the scenario where a Form S-3 
registration statement goes effective after a registrant files its 
Form 10-K annual report for its most recently completed fiscal year 
but before it has filed its second quarter Form 10-Q containing its 
GHG emissions metrics disclosure for its most recently completed 
fiscal year, we have added a provision to Form S-3 stating that the 
GHG emissions metrics disclosure must be as of its most recently 
completed fiscal year that is at least 225 days prior to the date of 
effectiveness of the Form S-3 registration statement. Accordingly, 
where a registrant has filed its annual report on Form 10-K for the 
most recently completed fiscal year but has not yet filed its Form 
10-Q for the second fiscal quarter containing the disclosure 
required by 17 CFR 229.1505(a), it must incorporate its GHG 
emissions metrics disclosure for the fiscal year that is immediately 
prior to its most recently completed fiscal year. See Item 12(e) to 
Part I of Form S-3. For example, if a calendar year-end LAF has a 
Form S-3 registration statement go effective after it files its Form 
10-K for 2028 but before it files its second quarter Form 10-Q (due 
no later than Aug. 9, 2029), it must incorporate its GHG emissions 
disclosure for the 2027 fiscal year previously filed on a Form 10-Q 
or a Form 10-K/A. We have added a similar provision to Form F-3. See 
Item 6(g) to Part I of Form F-3. For any registration statement, if 
the date of effectiveness is less than 225 days after its most 
recently completed fiscal year-end, a registrant will only be 
required to disclose its GHG emissions for the fiscal year that is 
immediately prior to its most recently completed fiscal year if the 
registrant was required to disclose its Scope 1 and/or Scope 2 
emissions pursuant to Item 1505 for that year.
---------------------------------------------------------------------------

I. Attestation Over GHG Emissions Disclosure (Item 1506)

1. Overview
a. Proposed Rules
    The Commission proposed to require a registrant, including a 
foreign private issuer, that is an AF or an LAF to include in the 
relevant filing an attestation report covering the disclosure of its 
Scope 1 and Scope 2 emissions and to provide certain related 
disclosures about the service provider providing the attestation 
report.\1075\ The proposed rules also included requirements related to 
the service provider and requirements for the engagement and the 
attestation report.\1076\ The proposed rules would have required the 
attestation engagement to be performed by the service provider at a 
``limited assurance'' level \1077\ for fiscal years 2 and 3 after the 
Scopes 1 and 2 emissions disclosure compliance date and at a reasonable 
assurance level \1078\ for fiscal year 4 and beyond.\1079\ The 
Commission explained that during the transition period when limited 
assurance would be required, an AF or an LAF would be permitted to 
obtain ``reasonable assurance'' of its Scope 1 and 2 emissions 
disclosure at its option.\1080\
---------------------------------------------------------------------------

    \1075\ See Proposing Release, section II.H.1.
    \1076\ See Proposing Release, section II.H.2 and 3.
    \1077\ Limited assurance is equivalent to the level of assurance 
(commonly referred to as a ``review'') provided over a registrant's 
interim financial statements included in a Form 10-Q.
    \1078\ Reasonable assurance is equivalent to the level of 
assurance provided in an audit of a registrant's consolidated 
financial statements included in a Form 10-K.
    \1079\ See Proposing Release, section II.H.1.
    \1080\ See id.
---------------------------------------------------------------------------

    Also at its option, an AF or an LAF would have been permitted under 
the proposed rules to obtain any level of assurance over climate-
related disclosures that are not subject to the

[[Page 21738]]

proposed assurance requirements.\1081\ To avoid potential confusion, 
however, the proposed rules would have required the voluntary assurance 
obtained by such registrant to follow the requirements of proposed 
Items 1505(b) through (d), including using the same attestation 
standard as the required assurance over Scope 1 and Scope 2 emissions. 
For filings made by AFs and LAFs after the compliance date for the GHG 
emissions disclosure requirements but before proposed Item 1505(a) 
would require limited assurance, the proposed rules only would have 
required the filer to provide the disclosure called for by proposed 
Item 1505(e) if it chose to voluntarily obtain attestation.\1082\ The 
Commission stated that a registrant that is not an AF or LAF that 
obtains voluntary assurance would be required to comply only with 
proposed Item 1505(e).\1083\
---------------------------------------------------------------------------

    \1081\ See id. For example, the Commission stated that an AF or 
LAF could voluntarily include an attestation report at the limited 
assurance level for its GHG intensity metrics or its Scope 3 
emissions disclosure.
    \1082\ See id.
    \1083\ See id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that requiring GHG 
emissions disclosure in Commission filings should enhance the 
consistency, comparability, and reliability of such disclosures due to 
the application of a registrant's DCP and the proposed inclusion of 
certain prescriptive elements that may help improve standardization of 
GHG emission calculations.\1084\ The Commission also observed that the 
evolving and unique nature of GHG emissions involves and, in some 
cases, warrants varying methodologies, differing assumptions, and a 
substantial amount of estimation.\1085\ Certain aspects of GHG 
emissions disclosure also involve reliance on third-party data. As 
such, the Commission concluded that requiring a third-party's 
attestation over these disclosures would provide investors with an 
additional degree of reliability regarding not only the figures that 
are disclosed, but also the key assumptions, methodologies, and data 
sources the registrant used to arrive at those figures.\1086\
---------------------------------------------------------------------------

    \1084\ See id.
    \1085\ See id.
    \1086\ See id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that, although 
many registrants have voluntarily obtained some level of assurance for 
their climate-related disclosures,\1087\ current voluntary climate-
related assurance practices have been varied with respect to the levels 
of assurance provided (e.g., limited versus reasonable), the assurance 
standards used, the types of service providers, and the scope of 
disclosures covered by the assurance.\1088\ The Commission stated that 
this fragmentation has diminished the comparability of the assurance 
provided and may require investors to become familiar with many 
different assurance standards and the varying benefits of different 
levels of assurance.\1089\ Accordingly, to improve accuracy, 
comparability, and consistency with respect to the proposed GHG 
emissions disclosure, the Commission proposed to require a minimum 
level of assurance services for AFs and LAFs including: (1) limited 
assurance \1090\ for Scopes 1 and 2 emissions disclosure that scales up 
to reasonable assurance \1091\ after a specified transition period; (2) 
minimum qualifications and independence requirements for the 
attestation service provider; and (3) minimum requirements for the 
accompanying attestation report.\1092\
---------------------------------------------------------------------------

    \1087\ For example, the Commission stated that according to one 
study, 53% of the S&P 500 companies had some form of assurance or 
verification over climate-related metrics, along with other metrics. 
See CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021), available at 
https://www.thecaq.org/sp-500-and-esg-reporting-2019-2020. Another 
survey of sustainability reporting trends from 5,200 companies 
across 52 countries (including the United States) stated that, of 
the top 100 companies (by revenue), 80% have reporting on ESG 
(including climate), with up to 61% of those companies obtaining 
assurance. See KPMG, The KPMG Survey of Sustainability Reporting 
2020, available at https://home.kpmg/xx/en/home/insights/2020/11/the-time-has-come-survey-of-sustainability-reporting.html. Proposing 
Release, section II.H.1.
    \1088\ See Proposing Release, section II.H.1.
    \1089\ See id. The Commission noted in the Proposing Release 
that the consequences of such fragmentation have also been 
highlighted by certain international organizations, including IOSCO, 
which stated that it ``identified a perceived lack of clarity and 
consistency around the purpose and scope of [voluntary] assurance . 
. . [which] can potentially lead to market confusion, including 
misleading investors and exacerbating the expectations gap.'' IOSCO, 
Report on Sustainability-related Issuer Disclosures (June 2021), 
available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD678.pdf. See also, e.g., International Federation of 
Accountants, The State of Play in Sustainability Assurance (June 23, 
2021), available at https://www.ifac.org/knowledge-gateway/contributing-global-economy/publications/state-play-sustainability-assurance. See Proposing Release, section II.H.1.
    \1090\ The Commission explained in the Proposing Release that 
the objective of a limited assurance engagement is for the service 
provider to express a conclusion about whether it is aware of any 
material modifications that should be made to the subject matter 
(e.g., the Scopes 1 and 2 emissions disclosure) in order for it to 
be fairly stated or in accordance with the relevant criteria (e.g., 
the methodology and other disclosure requirements specified in 
proposed Item 1504). See Proposing Release, section II.H.1 (citing, 
for example, AICPA's Statement on Standards for Attestation 
Engagements (SSAE) No. 22, AT-C section 210). In such engagements 
the conclusion is expressed in the form of negative assurance 
regarding whether any material misstatements have been identified. 
See id.
    \1091\ The Commission explained in the Proposing Release that 
the objective of a reasonable assurance engagement, which is the 
same level of assurance provided in an audit of a registrant's 
consolidated financial statements, is to express an opinion on 
whether the subject matter is in accordance with the relevant 
criteria, in all material respects. A reasonable assurance opinion 
provides positive assurance that the subject matter is free from 
material misstatement. See Proposing Release, section II.H.1 
(citing, for example, AICPA SSAE No. 21, AT-C sections 205 and 206).
    \1092\ See Proposing Release, section II.H.1.
---------------------------------------------------------------------------

    The Commission stated that by specifying minimum standards for the 
attestation provided with respect to GHG emissions disclosure by AFs 
and LAFs, the proposed rules should improve accuracy and consistency in 
the reporting of this information, while also providing investors with 
an enhanced level of reliability against which to evaluate the 
disclosure.\1093\ In addition to the proposed minimum standards for 
attestation services, the Commission explained that the proposed 
additional disclosure requirements for registrants should further 
assist investors in understanding the qualifications and suitability of 
the GHG emissions attestation provider selected by the registrant, 
particularly in light of the broad spectrum of attestation providers 
that currently provide and that would be permitted under the proposed 
rules to provide attestation services.\1094\
---------------------------------------------------------------------------

    \1093\ See id.
    \1094\ See id.
---------------------------------------------------------------------------

    The Commission explained that the proposed rules did not aim to 
create or adopt a specific attestation standard for assuring GHG 
emissions because both the reporting and attestation landscapes are 
currently evolving and it would be premature to adopt one approach and 
potentially curtail future innovations in these two areas.\1095\ The 
Commission acknowledged in the Proposing Release that the proposed 
minimum standards for attestation services and the proposed additional 
disclosure requirements would not eliminate fragmentation with respect 
to assurance or obviate the need for investors to assess and compare 
multiple attestation standards.\1096\ Nevertheless, the Commission 
stated it believed some flexibility in its approach was warranted at 
this time given the unique and evolving nature of third-party assurance 
for climate-related disclosures.\1097\
---------------------------------------------------------------------------

    \1095\ See id.
    \1096\ See id.
    \1097\ See id.
---------------------------------------------------------------------------

    In proposing mandatory assurance of GHG emissions disclosure, the

[[Page 21739]]

Commission weighed the challenges such requirements could present with 
the benefits that assurance would provide to investors and proposed 
only requiring AFs and LAFs to obtain an attestation report, subject to 
a phased in compliance period, to help mitigate concerns about cost and 
burden.\1098\ In addition, the Commission stated that the proposed 
phase in periods would provide AFs and LAFs with significant time to 
develop processes to support their GHG emissions disclosure 
requirements and the relevant DCP, as well as to adjust to the 
incremental costs and efforts associated with escalating levels of 
assurance.\1099\ During the proposed transition period, GHG emissions 
attestation providers would also have had time to prepare themselves 
for providing such services in connection with Commission 
filings.\1100\
---------------------------------------------------------------------------

    \1098\ See id. The Commission further stated that, for the many 
LAFs that are already voluntarily obtaining some form of assurance 
over GHG emissions, any cost increases associated with complying 
with the proposed rules would be mitigated and larger issuers 
generally bear proportionately lower compliance costs than smaller 
issuers due to the fixed cost components of such compliance. See id.
    \1099\ See id.
    \1100\ See id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that the voluntary 
attestation obtained by some registrants has been at the reasonable 
assurance level; however, it acknowledged that a limited assurance 
engagement is less extensive and currently the level of assurance most 
commonly provided in the voluntary assurance market for climate-related 
disclosure.\1101\ The Commission explained that, for this reason, prior 
to the transition to reasonable assurance, the additional compliance 
efforts required to comply with the proposed assurance requirement 
should be limited for the many registrants that are already obtaining 
limited assurance for their climate related disclosures.\1102\ Although 
reasonable assurance provides a significantly higher level of assurance 
than limited assurance, the Commission expressed its belief that 
limited assurance would benefit investors during the initial transition 
period by enhancing the reliability of a registrant's Scopes 1 and 2 
emissions disclosure, in light of the benefits that assurance provides.
---------------------------------------------------------------------------

    \1101\ See id. (citing CAQ, S&P 500 and ESG Reporting (Aug. 9, 
2021) (providing statistics on limited assurance versus reasonable 
assurance obtained voluntarily in the current market (e.g., at least 
26 of 31 companies that obtained assurance from public company 
auditors obtained limited assurance; at least 174 of 235 companies 
that obtained assurance or verification from other service providers 
(non-public company auditors) obtained limited assurance)) and CAQ, 
S&P 100 and ESG Reporting (Apr. 29, 2021), available at https://www.thecaq.org/sp-100-and-esg-reporting/). The Commission stated 
that based on an analysis by Commission staff on Mar. 3, 2022, a 
substantial number of the S&P 500 companies (460+) are LAFs. See 
Proposing Release, section II.H.1.
    \1102\ See Proposing Release, section II.H.1.
---------------------------------------------------------------------------

    Finally, the Commission stated in the Proposing Release that it did 
not propose to require assurance of Scope 3 emissions disclosure 
because the preparation of such disclosure presents unique 
challenges.\1103\ The Commission explained that depending on the size 
and complexity of a company and its value chain, the task of 
calculating Scope 3 emissions could be relatively more burdensome and 
expensive than calculating Scope 1 and Scope 2 emissions, and in 
particular, it may be difficult to obtain activity data from suppliers, 
customers, and other third parties in a registrant's value chain, or to 
verify the accuracy of that information compared to disclosures of 
Scope 1 and Scope 2 emissions data, which are more readily available to 
a registrant.\1104\
---------------------------------------------------------------------------

    \1103\ See id.
    \1104\ See id.
---------------------------------------------------------------------------

b. Comments
    Commenters expressed a variety of views on the proposal to require 
AFs and LAFs to provide an attestation report from a service provider 
over Scope 1 and Scope 2 emissions. A number of commenters supported 
the proposal to require some form of attestation.\1105\ These 
commenters generally stated that subjecting Scope 1 and Scope 2 
emissions to attestation would help increase the reliability and 
accuracy of the disclosures.\1106\ Several commenters stated that the 
proposed mandatory assurance requirement would provide confidence to 
investors.\1107\ For example, one commenter explained that 
``[g]reenhouse gas emissions are the basic unit of input for all our 
individual company, industry, and market climate risk assessments'' and 
that ``[a]ssurance provides investors with greater confidence that this 
essential data is prepared faithfully and in line with globally 
accepted standards.'' \1108\ Another commenter stated that 
``[i]ndependent assurance on the accuracy, completeness and consistency 
of GHG emissions data would be beneficial to both internal decision-
making and for investors and other external stakeholders.'' \1109\ One 
commenter stated it supported the proposed mandatory assurance 
requirement because ``[r]eliable, standardized and assured data will 
strengthen our underwriting as it is critical to our understanding of 
the quality of a company's earnings in the face of climate change and 
the energy transition.'' \1110\ Other commenters stated that the 
proposed attestation requirements would increase investor protection 
\1111\ or help prevent greenwashing.\1112\ One commenter that is a 
public company registrant explained that ``[w]hile obtaining assurances 
certainly requires additional resources, we do not feel it is overly 
burdensome and believe it has significantly improved our risk

[[Page 21740]]

management and quality of our reporting.'' \1113\ In addition, a number 
of commenters agreed with the Commission's statement in the Proposing 
Release that many registrants already obtain some form of assurance 
over GHG emissions data.\1114\
---------------------------------------------------------------------------

    \1105\ See, e.g., letters from 3Degrees Group Inc. (June 17, 
2022) (``3Degree''); AGs of Cal. et al.; ANSI National 
Accreditations Board (June 17, 2022) (``ANSI NAB''); Anthesis Grp.; 
A. Payton; BC IM Corp.; Better Markets (June 17, 2022) (stating that 
the Commission should apply the attestation requirement to all 
registrants); Bloomberg; BNP Paribas (supporting the proposal to 
require attestation over Scope 1 and 2 emissions but recommending 
only requiring limited assurance initially and on a time-limited 
basis); BOA (supporting the proposal to require attestation over 
Scope 1 and Scope 2 emissions with a two-year extension to the 
proposed phase in periods); Boston Common Asset Mgmt; Breckinridge 
Capital; Bureau Veritas; CalPERS; CalSTRS; Can. Coalition GG; Center 
for Amer. Progress; Center for Audit Quality (June 17, 2022) 
(``CAQ''); CEMEX; Ceres; CFA; CFA Institute; Chevron (supporting the 
proposal to require attestation over Scope 1 and Scope 2 emissions 
with an extended phase in period); CFB; Climate Advisers; Corteva; 
DSC Meridian; East Bay Mun.; Educ. Fdn. Amer.; Engine No. 1; E. 
Kenny; ERM CVS; Ernst & Young LLP (June 17, 2022); Etsy; Futurepast; 
Florian Berg (Feb. 23, 2024) (``F. Berg''); Galvanize Climate; Grant 
Thornton; H. Marsh; Humane Society; IAA; IAC Recommendation; ICAEW 
(June 17, 2022) (``ICAEW''); ICCR; IFAC; Impax Asset Mgmt.; ISS ESG; 
IWAP; JLL; KPMG; K. Talbot; Mackenzie Invest.; Maple-Brown; Mazars 
USA LLP (June 17, 2022) (``Mazars''); MFA; Mickey Hadick (``M. 
Hadick'') (supporting attestation on an accelerated timeline); 
Mariam Khaldoon (``M. Khaldoon''); Morningstar; Northern Trust; NY 
City Comptroller; NY SIF; NY St. Comptroller; PAM; Paradice Invest. 
Mgmt.; PGIM; Prentiss Smith and Company, Inc. (June 6, 2022) 
(``Prentiss''); PRI; PwC (noting that it would support requiring 
reasonable assurance beginning in the first year of disclosure 
required for impacted registrants assuming a delayed effective 
date); Redington; Rockefeller Asset Mgmt.; SFERS; S. Spears; 
Sumitomo Mitsui; TotalEnergies; UAW Retiree; USIIA; XBRL US; and 
Xpansiv.
    \1106\ See, e.g., letters from Better Markets; Boston Common 
Asset Mgmt; Ceres; CFA; ICI (stating that limited assurance would 
enhance the reliability of Scopes 1 and 2 disclosures); Inherent 
Grp.; KPMG; Mackenzie Invest.; Mazars; MFA; M. Khaldoon; PAM; and 
Prentiss. See also IAC Recommendation (stating that the proposed 
assurance requirement would improve the quality of data being 
provided to investors).
    \1107\ See, e.g., letters from BC IM Corp. (stating that 
assurance ``will provide investors with enhanced confidence in 
companies' reported emissions''); CalSTRS; NEI Investments; and 
Oxfam America.
    \1108\ See letter from CalSTRS.
    \1109\ See letter from Can. Coalition GG.
    \1110\ See letter from DSC Meridian.
    \1111\ See, e.g., letters from Better Markets; CAQ; IFAC; and 
SFERS.
    \1112\ See, e.g., letters from Climate Advisers; BNP Paribas; 
and UAW Retiree.
    \1113\ See letter from Etsy (stating it has received limited 
assurance for its reported Scope 1, 2, and 3 emissions since 2016).
    \1114\ See, e.g., letters from CalPERS (``Many issuers already 
obtain assurance for such information when the disclosure appears in 
non-regulatory reports. It is appropriate to maintain verification 
of the data when such disclosures move to regulatory reports.''); 
Climate Advisers; KPMG; SIFMA AMG (stating that many large 
registrants obtain limited assurance in connection with existing 
voluntary GHG emissions disclosures); and USIIA. Relatedly, some 
registrants stated that they are currently obtaining assurance over 
their GHG emissions disclosures. See, e.g., Dow (stating it obtained 
limited assurance on its GHG emissions metrics beginning in 2021); 
and Microsoft (stating that it has obtained limited assurance over 
Scopes 1, 2, and 3 emissions for the past two years).
---------------------------------------------------------------------------

    Conversely, a number of commenters did not support the proposed 
requirement for AFs and LAFs to provide an attestation report over 
Scope 1 and Scope 2 emissions.\1115\ Many of these commenters stated 
that the proposed attestation requirements would be costly for 
registrants,\1116\ with some commenters stating that the costs would 
outweigh any potential benefit to investors.\1117\ For example, one 
commenter stated that obtaining attestation over GHG emissions 
disclosures would be ``far more costly than with financial data because 
the [attestation] market for emissions is not at all well developed.'' 
\1118\ Other commenters stated that attestation is unnecessary because 
of the incentives for accuracy that already exist for information 
registrants provide to the Commission.\1119\ Some commenters stated 
that there is currently a shortage in the supply of assurance providers 
to support the proposed rule's attestation requirements,\1120\ while 
other commenters recommended eliminating the proposed requirement for 
attestation because assurance standards and methodologies are still 
evolving.\1121\ Several commenters raised concerns about registrants' 
ability to obtain assurance over GHG emissions disclosures in light of 
the level of judgment, estimation, or uncertainty that would be 
involved in calculating GHG emissions data.\1122\
---------------------------------------------------------------------------

    \1115\ See, e.g., letters from AAFA; AALA et al.; ABA; ACA 
Connects; AEPC; AFPM; American Hotel and Lodging Association (June 
17, 2022) (``AHLA''); Amer. Chem.; APCIA; BCSE; BIO; Bipartisan 
Policy; BPI; Business Roundtable; Can. Bankers; Capital Group; 
Capital Research; C. Franklin; Chamber; Champion X; D. Burton, 
Heritage Fdn.; Enerplus; Eversource Energy (June 16, 2022) 
(``Eversource''); ID Ass. Comm.; J. Herron; K. Connor; McCormick; 
Mid-Size Bank Coalition of America (June 14, 2022) (``Mid-Size 
Bank''); NAA; Nasdaq; National Ocean Industries Association (June 
17, 2022) (``NOIA''); NMA; Petrol. OK; PLASTICS; PPL Corporation 
(June 17, 2022) (``PPL''); Ranger Oil; RILA; Schneider; SBCFAC 
Recommendation; Small Business Forum Recommendation (2023); SIA; 
SIFMA (``[T]he Commission should reevaluate in the future whether 
the standards and market practice necessary for external assurance 
has sufficiently developed such that a mandatory assurance 
requirement is viable and consider adopting an attestation standard 
at that time.''); SIFMA AMG; SKY Harbor; Soc. Corp. Gov.; Southside 
Bancshares; SouthState Corporation (June 17, 2022) (``SouthState''); 
Sullivan Cromwell; Travelers; UPS; and Zions.
    \1116\ See, e.g., letters from AAFA; AFPM; AHLA; Amer. Chem.; 
BIO; Bipartisan Policy; Eversource; Business Roundtable; Capital 
Group; Chamber; Champion X; ConocoPhillips (stating that ``the 
availability of assurance providers is currently insufficient to 
meet demand and will likely trigger a surge in costs''); Corteva; 
McCormick; NOIA; Petrol. OK; PLASTICS; PPL; Ranger Oil (stating that 
the attestation requirement will substantially increase auditing 
fees); SBCFAC Recommendation; SIFMA; SIFMA AMG; Soc. Corp. Gov.; 
Sullivan Cromwell; Travelers; UPS; and Zions.
    \1117\ See, e.g., letters from ACA Connects (stating that third-
party attestation ``would result in substantial costs without a 
corresponding benefit''); AFPM; Business Roundtable; Capital 
Research; Chamber; Eversource (``It is our view that the attestation 
requirement would significantly increase cost without providing 
corresponding value to investors and stakeholders.''); PPL; SIA; 
SIFMA; and Travelers.
    \1118\ See letter from Bipartisan Policy.
    \1119\ See, e.g., letters from Bipartisan Policy; Eversource; 
PPL; Ranger Oil; Soc. Corp. Gov.; and SKY Harbor. See also APCIA 
(``Additional checks and balances include the SEC's comment letter 
process, enforcement actions, and an active plaintiffs' bar that 
avails itself of the private right of action under Exchange Act Rule 
10b-5.'').
    \1120\ See, e.g., letters from AAFA; ABA; Amer. Chem.; BPI; 
Champion X; Eversource; PLASTICS; PPL; Soc. Corp. Gov.; Soros Fund 
(``Financial audits are different than climate disclosure audits and 
auditors do not have specific expertise to ensure the best 
outcomes.''); SouthState; Sullivan Cromwell (``The number of 
qualified providers would likely be insufficient to meet the demand 
for their services prompted by the Proposed Rules, at least in the 
near term.''); and Zions.
    \1121\ See, e.g., letters from ABA (``As the reporting and 
attestation standards develop further, a single standards-setting 
body emerges as the clear leader, and third parties begin to become 
qualified under these standards, the Commission can then assess 
whether an attestation standard is appropriate.''); Mid-Size Bank; 
Nasdaq (``To encourage disclosures while the attestation industry 
continues to mature, the Commission should eliminate the attestation 
requirement for Scope 1 and 2 emissions, and permit all issuers to 
disclose a voluntary attestation in accordance with proposed Item 
1505(e)(1-3) of Regulation S-K.''); RILA; SIFMA; SIFMA AMG; Tata 
Consultancy Services (June 17, 2022); and Zions.
    \1122\ See, e.g., letters from AFPM (stating that GHG emissions 
``are subject to greater measurement challenges than most financial 
metrics and are subject to greater uncertainty''); Financial 
Services Forum (stating that ``Scope 1 and Scope 2 emissions may 
incorporate third-party data and rely in part on estimates and 
averages, which may be difficult or impossible for a registrant to 
verify with current capabilities''); Schneider; UPS; and USCIB.
---------------------------------------------------------------------------

    In addition, some commenters pointed out that neither the TCFD nor 
the GHG Protocol require attestation.\1123\ Similarly, a number of 
commenters stated that the Environmental Protection Agency (EPA)'s GHG 
Reporting Program has its own verification process for greenhouse gas 
reports submitted to the EPA.\1124\ One commenter stated the 
Commission's proposal to require mandatory attestation ``is 
inconsistent with the requirements of existing EPA regulation.'' \1125\ 
Other commenters stated that the Commission should adopt the same 
verification process as the EPA, which does not require third-party 
assurance.\1126\ Another commenter stated that adopting the same 
verification process as the EPA ``would reduce the costs and concerns 
with needing to verify emissions data under two separate and very 
different federal reporting regimes.'' \1127\ Some commenters stated 
that, in their view, there is no reason why climate-related disclosures 
should be subject to attestation and treated any differently than other 
required disclosures outside of the financial statements in a Form 10-
K.\1128\ Relatedly, one commenter agreed with the Commission's 
statement in the Proposing Release that GHG emissions disclosure is 
different from existing quantitative disclosure required to be provided 
outside of the financial statements because such existing disclosure 
typically is derived, at least in part, from the same books and records 
that are used to generate a registrant's audited financial statements 
and that are subject to ICFR.\1129\

[[Page 21741]]

However, other commenters disagreed with that statement.\1130\
---------------------------------------------------------------------------

    \1123\ See, e.g., letters from AEPC; Corteva (noting that the 
TCFD does not require attestation over Scope 1 and Scope 2 
emissions); Chamber; and Enerplus (noting that the TCFD does not 
require attestation over Scope 1 and Scope 2 emissions).
    \1124\ See, e.g., letters from AFPM; API; NAA; SIA; Western 
Energy Alliance and the U.S. Oil & Gas Association (``WEA/USOGA''); 
and Williams Cos.
    \1125\ See letter from SIA (recommending that the Commission 
modify the proposed rules to permit registrants to ``self-certify 
emissions, consistent with existing EPA regulations'').
    \1126\ See, e.g., letters from NAA; SIA; WEA/USOGA; and Williams 
Cos. See also EPA, Fact Sheet--Greenhouse Gases reporting Program 
Implementation (Nov. 2013) (``EPA Fact Sheet''), available at 
https://www.epa.gov/sites/default/files/2014-09/documents/ghgfactsheet.pdf (stating that the EPA verifies the data submitted 
and does not require third party verification, although prior to EPA 
verification, reporters are required to self-certify the data they 
submit to the EPA).
    \1127\ See letter from NAA.
    \1128\ See, e.g., letters from APCIA; Capital Group; Capital 
Research (``In addition, no other numerical data in a company's 
regulatory filing, other than its financial statements, is required 
to be audited today. We are not persuaded that Scope 1 and Scope 2 
GHG emissions data should be treated any differently. . . .''); and 
Soc. Corp. Gov. See also BCSE (``There is nothing particularly 
unique about the proposed disclosures as compared to numerous 
existing disclosures on other topics that would justify imposing an 
attestation requirement.'').
    \1129\ See letter from PwC.
    \1130\ See letters from CFA Institute; and Soc. Corp. Gov.
---------------------------------------------------------------------------

    Alternatively, some commenters stated that the Commission should 
wait before determining whether to adopt a mandatory assurance 
requirement for GHG emissions.\1131\ A few commenters stated that 
instead of requiring mandatory assurance over GHG emissions 
disclosures, assurance should be voluntary.\1132\ One of these 
commenters stated that permitting registrants to disclose whether they 
obtained voluntary attestation in accordance with proposed Items 
1505(e)(1) through (3) would help investors understand whether the 
attestation or verification has enhanced the reliability of the GHG 
emissions disclosures.\1133\
---------------------------------------------------------------------------

    \1131\ See, e.g., letters from Allstate (``[W]e believe the 
Commission should set dates for limited assurance engagements only 
after attestation standards and interpretive guidance have been 
published.''); Anonymous; Davis Polk; Sullivan Cromwell (stating 
that before mandating assurance the Commission should ``work with 
industry participants and standard setters to develop generally 
accepted climate disclosure attestation principles''); and TIAA 
(``Waiting to impose audit and attestation requirements will give 
registrants and other industry participants more time to become 
informed about the specifics of the new climate disclosure landscape 
and weigh in knowledgeably on the implications of auditing climate 
data.''). See also letter from Bipartisan Policy (recommending that 
the Commission monitor company disclosures and public statements for 
consistent disclosure and ultimately defer to Congress to address 
whether attestation of GHG emissions disclosures is needed).
    \1132\ See, e.g., letters from AEPC (stating that the Commission 
``should allow a commensurate market-based approach to third-party 
assurance for climate-related reporting for registrants that desire 
to enhance the reliability of information''); AFPA (same); Chamber 
(``Alternatively, to the extent companies are obtaining assurances, 
the SEC's alternative that registrants disclose what type of 
assurance, if any, they are obtaining may be appropriate.''); 
Nasdaq; and RILA.
    \1133\ See letter from Nasdaq.
---------------------------------------------------------------------------

    A number of commenters offered their views on the types of 
registrants that should be subject to any attestation requirement. A 
few commenters stated that the attestation requirements should apply to 
AFs and LAFs as proposed.\1134\ Several commenters stated that the 
proposed attestation requirements should apply to all registrants, not 
just AFs and LAFs.\1135\ One of these commenters explained that it 
supported requiring all registrants to comply with the proposed 
attestation requirements because ``GHG emissions are a key metric for 
determining climate-related transition risks, and those risks are 
likely to impact small companies as well as large companies.'' \1136\ 
Similarly, another commenter stated that extending the attestation 
requirement to additional registrants ``would be insightful for 
investors and allow comparability amongst disclosures of these 
attestation reports between several types of filers.'' \1137\ Commenter 
feedback was mixed regarding whether SRCs should be subject to the 
proposed mandatory assurance requirements. Several commenters stated 
that SRCs should be excluded from the attestation requirement.\1138\ On 
the other hand, one commenter stated that the Commission did not 
adequately justify an exclusion for SRCs and that excluding SRCs ``will 
undoubtedly undermine one of the key goals of the rule, here the 
reliability of climate disclosures.'' \1139\ Alternatively, one 
commenter stated that the attestation requirement should be limited to 
``seasoned issuers'' and ``those companies with more than [$1 billion] 
in revenue and more than [$2 billion] in public float.'' \1140\
---------------------------------------------------------------------------

    \1134\ See letter from BC IM Corp.; and Morningstar 
(recommending that filers other than AFs and LAFs obtain attestation 
on a voluntary basis).
    \1135\ See, e.g., letters from AGs of Cal. et al.; Better 
Markets; CalSTRS (noting that a phase in schedule could provide more 
time for non-accelerated filers and smaller companies); CEMEX 
(supporting a specified transition period for filers other than 
accelerated filers and large accelerated filers); ERM CVS 
(recommending that the proposed attestation requirements apply to 
all registrants with material GHG emissions and suggesting an 
additional one-year delay for smaller reporting companies); NY St. 
Comptroller; and OMERS.
    \1136\ See letter from AGs of Cal. et al. (``To address burdens 
on SRCs, we recommend a longer phase in period for SRCs than for 
large accelerated filers, with the expectation that as independent 
attestation services become more mainstream, competition will 
increase and costs will come down.'').
    \1137\ See letter from CEMEX.
    \1138\ See, e.g., letters from ABA; MFA (``[T]he exclusion of 
non-accelerated filers and smaller reporting companies from the 
attestation requirement will aid in relieving the burden on those 
issuers that may face the greatest challenges.''); and Sullivan 
Cromwell (``[T]he burden and cost required to comply with the 
Proposed Rules will be significant and will disproportionately 
impact smaller registrants.''). See also letter from ICBA (The final 
rule is improperly scaled because it imposes the same requirements 
on smaller banks (that aren't SRCs) as on larger banks. This 
includes the costs of assurance.).
    \1139\ See letter from Better Markets.
    \1140\ See letter from BIO.
---------------------------------------------------------------------------

    Some commenters stated that they supported phasing in the assurance 
requirement from limited assurance to reasonable assurance over time as 
proposed.\1141\ One of these commenters stated that the phased in 
approach would ``enable registrants to install the necessary DCP'' and 
``enable assurance providers to upskill and establish the necessary 
capacity to provide limited and then reasonable assurance.'' \1142\ 
Another commenter stated that phase in periods would balance investors' 
``needs for data with the ability of issuers to provide that data.'' 
\1143\ Some commenters stated that it was important for GHG emissions 
disclosures to ultimately be subject to reasonable assurance because 
reasonable assurance is necessary to ensure reliability.\1144\ In fact, 
a number of commenters stated that the Commission should require 
reasonable assurance from the start without a phase in from limited 
assurance.\1145\ One of these commenters stated that ``[i]nvestors may 
place disproportionate reliance on disclosures subject only to the 
review procedures of a limited assurance engagement, creating an 
expectations gap.'' \1146\
---------------------------------------------------------------------------

    \1141\ See, e.g., letters from Addenda; Boston Common Asset 
Mgmt; BC IM Corp.; B. Lab Global et al.; CalPERS; Can. Coalition GG; 
CAQ; CEMEX; Ceres; DSC Meridian; ERM CVS; Ernst & Young LLP; Etsy; 
H. Marsh; Holcim; Impax Asset Mgmt.; Inherent Grp.; ICGN; ICSWG; J. 
McClellan; Mackenzie Invest.; Morningstar; NEI Investments; Net Zero 
Owners Alliance; NY City Comptroller (recommending that the 
Commission consider proposing incentives to encourage companies to 
obtain reasonable assurance early); OMERS; PGIM (supporting the 
requirement to scale up to reasonable assurance over time, but 
recommending registrants be given an additional year to comply); 
Prentiss; PRI; Redington; SFERS; TotalEnergies; US SIF; and Veris 
Wealth.
    \1142\ See letter from J. McClellan.
    \1143\ See letter from PRI.
    \1144\ See, e.g., letters from CAQ; and NY City Comptroller. See 
also letter from CIEL (stating that ``limited assurance has a higher 
probability of overlooking material misstatements and will do little 
to ensure the accuracy of disclosures'').
    \1145\ See, e.g., letters from CFA; FFC; GRI; Maryknoll Sisters; 
PwC; and PWYP.
    \1146\ See letter from PwC.
---------------------------------------------------------------------------

    A few commenters stated that the level of assurance for Scope 1 and 
Scope 2 emissions should only be raised from limited to reasonable 
assurance after the Commission assesses the implementation of the 
assurance requirement.\1147\ One of these commenters stated that, as a 
first step, ``limited assurance is all that is required to accomplish 
the SEC's objective to provide an external independent verification of 
climate disclosures--and reasonable assurance would be unduly 
burdensome and unnecessary at this stage, given data gaps.'' \1148\ 
According to this commenter, ``[a]s data gaps are progressively 
addressed, reasonable assurance could be applied as in an audit of 
financial statements if it is determined that it is practical and the

[[Page 21742]]

robustness of data warrants the enactment of a reasonable assurance 
standard.'' \1149\ Another commenter recommended that the Commission 
take into consideration the EU's CSRD and ``contemplate raising the 
level of assurance within the same timeline subject to an assessment.'' 
\1150\
---------------------------------------------------------------------------

    \1147\ See, e.g., letters from AFEP (``The level of assurance 
for scope 1 and 2 emissions should only be raised, from a limited to 
a reasonable level of assurance, 3 years after the first application 
of the proposed rule and provided that an assessment of the 
implementation of this requirement has been made.''); BNP Paribas 
(``[T]he SEC should only require a reasonable assurance if it 
determines after no less than five years that the limited assurance 
is inadequate and that the reasonable assurance is practical and 
feasible.''); C2ES; and JPN Bankers.
    \1148\ See letter from BNP Paribas.
    \1149\ See id.
    \1150\ See letter from AFEP. See also letter from AFG (``We 
invite the SEC to consider the implications of a potential 
difference in scope, timing, and level of assurance between the 
SEC's proposed rule and the EU Regulation, also in light of 
preparers and auditors' level of readiness to comply with such 
requirements.'').
---------------------------------------------------------------------------

    On the other hand, a number of commenters recommended that the 
Commission only require AFs and LAFs to obtain limited assurance over 
their Scope 1 and Scope 2 disclosures without a requirement to phase in 
reasonable assurance.\1151\ This includes commenters that stated they 
did not support requiring mandatory attestation but, if the Commission 
adopts an assurance requirement, then the Commission should only 
require limited assurance.\1152\ Some of these commenters stated that 
limited assurance should be sufficient to provide investors with 
comfort that GHG emissions disclosures are accurate.\1153\ Other 
commenters stated that existing voluntary assurance over GHG emissions 
is most frequently performed at a limited assurance level.\1154\ A few 
commenters stated that registrants had not received requests or 
feedback from investors asking for reasonable assurance.\1155\ One 
commenter that has obtained limited assurance over its GHG emissions 
data stated that, based on its experience with limited assurance and 
discussions with its auditors, it anticipated a ``significant 
incremental investment in our processes, systems and personnel would be 
required to achieve reasonable assurance.'' \1156\
---------------------------------------------------------------------------

    \1151\ See, e.g., letters from ACLI; Alphabet et al.; Cleary 
Gottlieb; Climate Risk Consortia; EMC; Energy Transfer; Hydro One; 
ICI; IIB; IIF; ITIC (stating that it is premature to require 
reasonable assurance and the ``SEC should assess registrants' 
implementation of the extensive new disclosure requirements, monitor 
evolving industry and auditor practices, and consider whether it 
would be appropriate to shift to reasonable assurance at a later 
date''); Mouvement Entreprises FR; Nareit; NAM (``NAM believes that 
a limited assurance requirement for Scope 1 and Scope 2 emissions 
could be workable.''); PIMCO; Reinsurance AA; R. Love; Salesforce; 
T. Rowe Price; and WSP.
    \1152\ See, e.g., letters from AHLA; Allstate; BPI; Chamber; 
Financial Services Forum; INGAA; NMA; and SouthState.
    \1153\ See, e.g., letters from PIMCO; SIFMA; and T. Rowe Price.
    \1154\ See, e.g., letters from Financial Services Forum; and 
SIFMA.
    \1155\ See, e.g., letters from Alphabet et al.; IIB; Nareit 
(``Our members note that they are unaware of investors who have 
expressed concerns about their current attestation approach, which 
often provides limited assurance for the GHG reporting.''); and 
SIFMA (``As a general matter, we do not believe investors currently 
are pressing for assurance of GHG emissions data at any level of 
assurance, and certainly not at a reasonable assurance level.'').
    \1156\ See letter from Salesforce (stating that its costs would 
include, but would not be limited to, incremental headcount or 
consulting fees to enhance documentation over processes and 
controls, incremental investments in systems to track and monitor 
GHG emission data points, including headcount to implement and 
maintain such systems, and incremental costs to the third-party 
reviewer to complete a reasonable assurance review).
---------------------------------------------------------------------------

    More generally, a number of commenters raised concerns about a 
requirement to obtain reasonable assurance.\1157\ Several commenters 
expressed the view that reasonable assurance would be costly.\1158\ For 
example, one commenter stated that ``moving from limited assurance to 
reasonable assurance could add far greater costs than anticipated, 
potentially without a commensurate increase in reliability of the 
information.'' \1159\ One commenter stated that requiring reasonable 
assurance ``significantly increases regulatory risk'' and could result 
in penalties for companies.\1160\ Another commenter stated that 
reasonable assurance would be impracticable for companies because 
``unlike financial data, Scope 1 and 2 emissions calculations are never 
completely precise or completely `knowable.' '' \1161\ One commenter 
stated that reasonable assurance is ``difficult at this stage in the 
absence of sustainability assurance standards.'' \1162\
---------------------------------------------------------------------------

    \1157\ See, e.g., letters from AFPM; Can. Bankers (stating that 
the proposed requirements would require registrants to gather 
substantial data from third parties and it is not clear that third 
parties will have in places processes and procedures to generate 
data that would meet a reasonable assurance standard); Climate Risk 
Consortia; EMC; Financial Services Forum; ICI; INGAA; Nareit; NAM; 
PIMCO; Reinsurance AA; and SIFMA.
    \1158\ See, e.g., letters from Climate Risk Consortia 
(``Requiring reasonable assurance would impose immediate costs on 
registrants by requiring additional build-out of controls but 
provide little to no benefit for investors.''); Financial Services 
Forum; ICI; INGAA; NAM; Nareit; PIMCO; Reinsurance AA (stating that 
there would be significant initial and ongoing costs because 
reasonable assurance ``is a very high level of assurance'' that 
``involves significantly more examination, including the evaluation 
and testing of ICFR''); and SIFMA.
    \1159\ See letter from Business Roundtable. See also letter from 
AFPM (stating that the Commission ``provided no evidence 
demonstrating that reasonable assurance would increase the 
reliability of disclosures above limited assurance, let alone that 
such benefits would outweigh additional costs, burdens, and 
risks.'').
    \1160\ See letter from AEM.
    \1161\ See letter from INGAA (stating that one member, for 
example, reports than more than 80% of its Scope 1 and 2 data are 
based on emissions factors or other forms of extrapolation, not 
actual measurements).
    \1162\ See letter from WFE. See also letter from Cleary Gottlieb 
(stating that because reporting and attestation practices are in the 
preliminary stages of development, it is premature to mandate that 
registrants obtain reasonable assurance).
---------------------------------------------------------------------------

    As an alternative, one commenter recommended that the Commission 
require registrants to initially obtain reasonable assurance, followed 
by two years of limited assurance, provided that the first year's 
attestation report included no modifications or qualifications.\1163\ 
This commenter explained that this order would enable the attestation 
provider to understand and examine the design and implementation of 
controls to detect misstatements far more thoroughly than is possible 
during a limited assurance engagement.\1164\
---------------------------------------------------------------------------

    \1163\ See letter from Futurepast.
    \1164\ See letter from Futurepast.
---------------------------------------------------------------------------

    Several commenters agreed with the proposed timing for phasing in 
the attestation requirement from limited to reasonable assurance.\1165\ 
On the other hand, a number of commenters, including those that did not 
support requiring mandatory assurance, stated that the Commission 
should allow for a longer phase in period for the attestation 
requirements.\1166\ One commenter stated

[[Page 21743]]

that delaying the phase in periods would provide time for assurance 
standard setters to ``develop specialized assurance standards necessary 
for GHG emissions'' and would provide them time to obtain necessary 
staff and resources, which could help to reduce costs for 
registrants.\1167\ A few commenters stated that the phase in period 
should be accelerated.\1168\ For example, one of these commenters 
stated that an accelerated phrase in period was warranted given that 
various attestation providers are already offering limited, and in some 
cases, reasonable assurance of GHG emissions reporting.\1169\
---------------------------------------------------------------------------

    \1165\ See, e.g., letters from B. Gillespie; BC IM Corp. 
(stating that the transition periods proposed are reasonable but 
``[a]s investors, we will continue to engage with large emitters on 
obtaining reasonable assurance for their scope 1 and 2 emissions 
over an accelerated timeline to what is contemplated in the proposed 
rule''); Crowe; and Praxis.
    \1166\ See, e.g., letters from AEM (recommending that 
registrants not be required to begin obtaining assurance for five 
years); AFPM; APCIA; API; Beller et al. (recommending phasing in 
attestation for public companies with a market capitalization of 
over $25 billion first with other smaller companies to follow); BHP 
(``[T]he Commission could consider extending the period in which the 
attestation requirement applied for limited assurance beyond two 
years, before requiring the more demanding requirement to provide 
reasonable assurance.''); BIO (``Attestation should be phased-in in-
line with the spirit of the JOBS Act emerging growth company 
exemptions.''); BOA (recommending a two-year extension to the 
proposed phase in periods from limited assurance to reasonable 
assurance); CFA Institute (suggesting that the Commission consider a 
longer phase in period for reasonable assurance); Chevron; 
ConocoPhillips (stating that the Commission should extend the 
assurance implementation timeline to require assurance no earlier 
than three years following the initial implementation of the 
disclosure rules to permit capacity building and align internal 
record-keeping); Inclusive Cap.; INGAA; ITIC (recommending that the 
Commission extend the phase in period for assurance by at least a 
year to allow adequate time to establish the appropriate systems and 
controls and to ensure attestation providers are properly staffed 
and prepared); J. Josephs (recommending that the Commission provide 
a phase in period of five years before limited assurance is 
required); LTSE; Microsoft (recommending the deferral of the 
attestation requirements for at least one additional year); Mid-Size 
Bank; NMA; NRA/RLC (stating that the phase in of limited assurance 
should be extended by three years and the transition to reasonable 
assurance should be extended by six years); NRF; Nikola 
(recommending an additional two years of limited assurance for 
Scopes 1 and 2 emissions); Petrol. OK; and PGIM (supporting the 
proposal, but recommending registrants be given an additional year 
to comply).
    \1167\ See letter from BOA.
    \1168\ See, e.g., letters from Better Markets (``Again, while 
transition periods for new rules may be appropriate, particularly in 
the cases of new or novel requirements, such transition periods 
should not be solely justified by reducing costs or burdens for 
registrants.''); Center Amer. Progress (stating that five years to 
phase in reasonable assurance is ``far too long'' since many filers 
already disclose or at least track Scopes 1 and 2 emissions); and M. 
Hadick (stating that the timeline should be accelerated to require 
limited assurance in the first reporting year and reasonable 
assurance in the second reporting year).
    \1169\ See letter from Amer. for Fin. Reform, Evergreen Action 
et al.
---------------------------------------------------------------------------

    Also related to timing, a number of commenters stated that the 
proposed timeline for attestation, which would require disclosure in 
annual reports, was impractical because it would not provide adequate 
time for registrants to prepare disclosures and for third-party 
providers to complete attestation procedures before the annual report 
is due.\1170\ For example, one commenter stated that ``[c]ompiling, 
reviewing, and publishing'' GHG emissions data ``as well as obtaining 
assurance'' is a ``significant undertaking that can extend a number of 
months beyond a registrant's fiscal year end.'' \1171\ Another 
commenter stated that ``[w]hile third party attestation is common'' it 
was ``concerned about the feasibility of obtaining assurance on the 
proposed timelines required to file on the Form 10-K.'' \1172\
---------------------------------------------------------------------------

    \1170\ See, e.g., letters from AEPC; AHLA; Alphabet et al.; 
APCIA; Barrick Gold; BPI; Business Roundtable; Chamber; Climate Risk 
Consortia; Dow Inc.; ITIC; NMA; NOIA; SEC Professionals 
(recommending that the Commission modify or re-purpose the current 
Commission Form SD which is currently filed no later than May 31st 
after the end of the issuer's most recent calendar year, which would 
allow additional time to collect, quantify, validate and obtain 
assurance over GHG emissions); SIA; Trane; Travelers (stating that 
``Scope 1 and Scope 2 GHG emissions data is currently not available 
until about six months after the calendar year end'' and noting that 
``is one of the reasons we provided our sustainability reports mid-
year''); T. Rowe Price (recommending that Scope 1 and Scope 2 GHG 
emissions be disclosed in a furnished form due within 120-days of 
the fiscal year end, aligning with the timing of proxy statements); 
and Williams Cos.
    \1171\ See letter from ITIC.
    \1172\ See letter from Business Roundtable.
---------------------------------------------------------------------------

    One commenter supported requiring any voluntary assurance obtained 
by AFs and LAFs after limited assurance is required to follow the same 
attestation requirements of Items 1505(b) through (d) as 
proposed.\1173\ Several commenters stated that the Commission should 
adopt an attestation requirement for Scope 3 GHG emissions disclosures 
\1174\ with some commenters suggesting limited assurance would be 
sufficient \1175\ while others recommended phasing in reasonable 
assurance.\1176\ On the other hand, a number of commenters stated that 
they did not support requiring attestation over Scope 3 emissions 
disclosures, with several pointing to the potential cost.\1177\
---------------------------------------------------------------------------

    \1173\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \1174\ See, e.g., letters from B. Gillespie; CalSTRS; Center 
Amer. Progress; CFA; CIEL; E. Kenny; ERM CVS; Evergreen (June 17, 
2022); IATP; ICCR; NY City Comptroller; NY SIF; NY St. Comptroller; 
Oxfam America; PWYP; and Rick Love (Mar. 30, 2022) (``R. Love'').
    \1175\ See, e.g., letters from ANSI NAB (recommending the 
Commission allow a limited level of assurance engagement to be 
provided as per ISO 14064-3); Anthesis Grp. (recommending that 
limited assurance for material sources of Scope 3 emissions be 
phased in over the next five to ten years); B. Lab Global et al. 
(recommending the Commission phase in limited assurance for Scope 3 
emissions); Morningstar (supporting requiring limited assurance for 
registrants with material Scope 3 emissions or with Scope 3 
targets); and Salesforce.
    \1176\ See, e.g., A. Payton; Impossible Foods; M. Hadick 
(supporting reasonable assurance over Scope 3 emissions for large 
registrants); Praxis; Sens. E. Markey, et al. (recommending that the 
Commission require accelerated and large accelerated filers obtain 
limited and reasonable assurance over Scope 3 emissions on a phased 
in timeline); and US SIF.
    \1177\ See, e.g., letters from BC IM Corp.; Can. Bankers; CEMEX; 
CFA Institute; Climate Advisers; Ernst & Young (``We support the 
proposed approach of excluding Scope 3 GHG emissions from assurance 
requirements for all filers because the cost of compliance for 
registrants would likely outweigh the benefits to investors.''); 
Futurepast; JLL; JPN Bankers; J. McClellan; NAM; Nutrien; RSM US 
LLP; SIFMA; and WEA/USOGA.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that it did not 
propose definitions for the terms ``limited assurance'' and 
``reasonable assurance'' because under prevailing attestation standards 
these are defined terms that the Commission believed were generally 
understood in the marketplace, both by those seeking and those engaged 
to provide such assurance.\1178\ The Commission included a request for 
comment asking if, instead, the Commission should define ``limited 
assurance'' and ``reasonable assurance,'' and if so, how it should 
define them.\1179\ Several commenters recommended that the Commission 
include a definition of ``limited assurance'' and ``reasonable 
assurance'' in the final rules.\1180\ One of these commenters explained 
that providing definitions would ``reduce any confusion in the market'' 
and ``ensure those familiar with greenhouse gas accounting principles 
and third-party validation/verification for greenhouse gas inventories 
can more easily translate to either limited or reasonable assurance.'' 
\1181\ Other commenters recommended that the Commission provide 
guidance explaining the differences between limited assurance and 
reasonable assurance.\1182\
---------------------------------------------------------------------------

    \1178\ See Proposing Release, section II.H.1.
    \1179\ See id.
    \1180\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al. (stating that the Commission should provide a 
definition for limited assurance to ``establish a process more 
rigorous than currently used for assurance of quarterly SEC 
filings''); C2ES; ENGIE; ERM CVS; IECA (stating that the Commission 
should define these terms because it is ``not clear what those terms 
mean in this context, nor how they relate to the standard GHG terms 
of `measured,' `monitored,' and `verified.'''); J. Weinstein; NASBA 
(stating that limited assurance and reasonable assurance should be 
defined in the proposal and noting that if ``non-CPAs are permitted 
to perform these attestation services, then regulations must be 
developed to build the intellectual infrastructure . . . outside of 
the professional standards governing the public accounting 
profession''); and SCS Global.
    \1181\ See letter from C2ES.
    \1182\ See, e.g., letters from Ceres; ICCR (stating it would be 
helpful for the Commission to describe some minimum procedures that 
the auditor would be expected to utilize in performing a limited 
assurance engagement); and Morningstar.
---------------------------------------------------------------------------

    Some commenters stated that no definition is needed for these 
terms.\1183\ For example, one commenter stated that it agreed that 
limited assurance and reasonable assurance are defined terms that are 
generally understood in the marketplace and therefore no definitions 
are needed.\1184\ A few commenters stated that if the attestation 
standards are limited to those issued by the AICPA, IAASB, and the 
Public Company Accounting Oversight Board

[[Page 21744]]

(``PCAOB''), no definitions are needed; however, if the standards are 
not so limited, then the SEC should define the terms in the final 
rule.\1185\ One commenter stated that it believed assurance terms 
should be defined by assurance standard setters and not by the 
Commission.\1186\
---------------------------------------------------------------------------

    \1183\ See, e.g., letters from ABA (stating that definitions are 
not needed but recommending additional guidance for limited and 
reasonable assurance engagements); CFA Institute; Eni SpA; and 
Futurepast (stating that these terms are generally understood).
    \1184\ See letter from CFA Institute (stating that it did not 
support providing additional or alternative definitions for these 
terms because it was concerned this would cause confusion regarding 
other attestation engagements not covered by the proposed rules).
    \1185\ See, e.g., letters from CAQ (stating that the Commission 
should define ``limited assurance'' and ``reasonable assurance'' by 
reference to the standards of the AICPA and IAASB rather than 
developing alternative definitions); and KPMG.
    \1186\ See letter from Mazars (stating that definitions of 
``limited assurance'' and ``reasonable assurance'' currently exist 
within AICPA and IAASB standards).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission asked if it should require 
AFs and LAFs to provide a separate management assessment and disclosure 
of the effectiveness of controls over GHG emissions disclosure 
(separate from the existing requirements with respect to the assessment 
and effectiveness of DCP).\1187\ Some commenters stated that the 
Commission should require a registrant to provide a separate assessment 
and disclosure of the effectiveness of controls over GHG emissions 
disclosure by management.\1188\ One commenter stated that such a 
requirement would ``further strengthen the validity of the data 
available.'' \1189\ Conversely, some commenters stated that the 
Commission should not require registrants to provide a separate 
assessment and disclosure of the effectiveness of controls over GHG 
emissions disclosures.\1190\ One commenter explained that current DCP 
requirements have proven to be effective and should suffice.\1191\ 
Another commenter stated that the ``cost of such an undertaking may not 
support the incremental benefit to investors.'' \1192\ Similarly, in 
the Proposing Release, the Commission asked whether, instead of, or in 
addition to, such management assessment, it should require the 
registrant to obtain an attestation report from a GHG emissions 
attestation provider that covers the effectiveness of such GHG 
emissions controls.\1193\ Some commenters stated that the Commission 
should not require an attestation report from a GHG emissions provider 
that covers the effectiveness of such GHG emissions controls.\1194\ One 
commenter questioned the value of a separate attestation report on 
controls at the moment because it does not believe there is a 
``specific standard for . . . controls around non-financial data'' that 
``takes into account the specific subject matter expertise needed in 
the internal control process.'' \1195\
---------------------------------------------------------------------------

    \1187\ See Proposing Release, section II.H.1.
    \1188\ See, e.g., letters from B. Smith.; ERM CVS; and RSM US 
LLP.
    \1189\ See letter from B. Smith.
    \1190\ See, e.g., letters from CEMEX; CFA Institute (stating 
that the issue could be revisited by the Commission in the future); 
Grant Thornton; J. Herron; and PwC.
    \1191\ See letter from CEMEX. See also letter from PwC (``We 
believe that the overall certifications regarding DC&P are 
sufficient and do not recommend modifying such language to 
specifically refer to GHG or other climate disclosures more 
broadly.'').
    \1192\ See letter from Grant Thornton.
    \1193\ See Proposing Release, section II.H.1.
    \1194\ See, e.g., letters from CEMEX; CFA Institute (stating 
that the issue could be revisited by the Commission in the future); 
and Grant Thornton.
    \1195\ See letter from ERM CVS.
---------------------------------------------------------------------------

c. Final Rules (Item 1506)
    After considering comments, we are adopting final rules (Item 
1506(a)(1)) that require a registrant, including a foreign private 
issuer, that is required to provide Scope 1 and/or Scope 2 emissions 
disclosure pursuant to Item 1505 to include an attestation report 
covering the disclosure of its Scope 1 and/or Scope 2 emissions in the 
relevant filing.\1196\ However, as discussed in greater detail below, 
we made a number of modifications to the proposal to address certain 
concerns raised by commenters.
---------------------------------------------------------------------------

    \1196\ See 17 CFR 229.1506. Consistent with the Commission's 
statement in the Proposing Release, in order to attest to Scopes 1 
and/or 2 emissions disclosure, a GHG emissions attestation provider 
will need to include in its evaluation relevant contextual 
information. See Proposing Release, section II.H.1. In particular, 
under the final rules, the attestation provider will be required to 
evaluate the registrant's compliance with (i) Item 1505(a), which 
includes presentation requirements (e.g., disaggregation of any 
constituent gas if individually material), and (ii) the disclosure 
requirements in Item 1505(b) regarding methodology, organization 
boundary, and operational boundary. See infra section II.I.3.c for 
further discussion of the criteria against which the Scopes 1 and 2 
emissions disclosure are measured or evaluated.
---------------------------------------------------------------------------

    Under the final rules, the attestation engagement must, at a 
minimum, be at the following assurance level for the indicated fiscal 
year for the required GHG emissions disclosure: \1197\
---------------------------------------------------------------------------

    \1197\ See infra section II.O.3 for a detailed discussion of 
compliance dates for the final rules.

----------------------------------------------------------------------------------------------------------------
                                            Scopes 1 and 2
              Filer type                 emissions disclosure      Limited assurance       Reasonable assurance
                                           compliance date          compliance date          compliance date
----------------------------------------------------------------------------------------------------------------
LAFs.................................  Fiscal year 2026.......  Fiscal year 2029.......  Fiscal year 2033.
AFs (other than SRCs and EGCs).......  Fiscal year 2028.......  Fiscal year 2031.......  N/A.
----------------------------------------------------------------------------------------------------------------

    AFs (excluding SRCs and EGCs) and LAFs are required to obtain an 
attestation report under the final rules,\1198\ consistent with the 
scope of registrants that are required to comply with the GHG emissions 
disclosure requirements in Item 1505.\1199\ As illustrated in the table 
above, the final rules (Item 1506(a)(1)(i), (ii)) require both AFs and 
LAFs to obtain limited assurance beginning the third fiscal year after 
the compliance date for Item 1505; however, under the final rules (Item 
1506(a)(1)(iii)), only LAFs are required to obtain an attestation 
report at a reasonable assurance level beginning the seventh fiscal 
year after the compliance date for Item 1505.\1200\ The final rules do 
not require an AF to obtain an attestation report at a reasonable 
assurance level. Consistent with the proposed rules, and with the lack 
of a requirement to disclose Scope 3 emissions under the final rules, 
no registrants will be required to obtain assurance over Scope 3 
emissions under the final rules. Furthermore, as explained in greater 
detail below in section II.L.3, the final rules, including Item 1506, 
will not apply to a private company that is a party to a business 
combination transaction, as defined by Securities Act Rule 165(f), 
involving a securities offering registered on Form S-4 or F-4.
---------------------------------------------------------------------------

    \1198\ See 17 CFR 229.1506(a).
    \1199\ See 17 CFR 229.1505. See also supra section II.H.3.
    \1200\ See 17 CFR 229.1506(a)(1).
---------------------------------------------------------------------------

    As discussed above, a significant number of commenters supported 
the Commission's proposal to require certain registrants to obtain 
mandatory assurance over GHG emissions disclosure.\1201\ Many of these 
commenters agreed with the Commission that mandatory assurance would 
improve the accuracy, comparability, and consistency of registrants' 
GHG emissions disclosure.\1202\ As the Commission explained in the 
Proposing Release,

[[Page 21745]]

obtaining assurance over GHG emissions disclosure provides investors 
with an additional degree of reliability regarding not only the figures 
that are disclosed, but also the key assumptions, methodologies, and 
data sources the registrant used to arrive at those figures.\1203\ The 
Commission has long recognized the important role played by an 
independent auditor in contributing to the reliability of financial 
reporting.\1204\ Studies suggest that investors have greater confidence 
in information that has been assured, particularly when it is assured 
at the reasonable assurance level,\1205\ and that high quality audits 
reduce the cost of capital,\1206\ which may benefit both registrants 
and investors. Similarly, studies of ESG-related assurance, which is 
typically provided at a limited assurance level, have found benefits 
such as credibility enhancement, lower cost of equity capital, and 
lower analyst forecast errors and dispersion.\1207\ The benefits that 
assurance will provide in terms of investor protection and increased 
confidence in GHG emissions disclosure warrants requiring 
attestation.\1208\ That said, we recognize commenters' concerns about 
the potential cost of obtaining assurance, the potential shortage in 
the current supply of assurance providers, and the continually evolving 
state of assurance standards and methodologies.\1209\ As discussed 
below, we have made modifications in the final rules to mitigate these 
concerns.
---------------------------------------------------------------------------

    \1201\ See supra note 1105 and accompanying text.
    \1202\ See supra note 1106 and accompanying text.
    \1203\ See Proposing Release, section II.H.1.
    \1204\ See Qualifications of Accountants, Release No. 33-10876 
(Oct. 16, 2020) [85 FR 80508, 80508 (Dec. 22, 2020)]. See also 
Statement, Paul Munter, Acting Chief Accountant, The Importance of 
High Quality Independent Audits and Effective Audit Committee 
Oversight to High Quality Financial Reporting to Investors (Oct. 26, 
2021), available at https://www.sec.gov/news/statement/munter-audit-2021-10-26.
    \1205\ See, e.g., Carol Callaway Dee, et al., Client Stock 
Market Reaction to PCAOB Sanctions Against a Big Four Auditor, 28 
Contemp. Acct. Res. 263 (Spring 2011) (``Audits are valued by 
investors because they assure the reliability of and reduce the 
uncertainty associated with financial statements.'').
    \1206\ See Warren Robert Knechel, Audit Quality: Insights from 
Academic Literature, Auditing: A Journal of Practice & Theory (Jan. 
2013).
    \1207\ See, e.g., Ryan J. Casey, et al., Understanding and 
Contributing to the Enigma of Corporate Social Responsibility (CSR) 
Assurance in the United States, 34 Auditing: A Journal of Practice & 
Theory 97, 122 (Feb. 2015) (finding that corporate social 
responsibility (``CSR'') assurance results in lower cost-of-capital 
along with lower analyst forecast errors and dispersion, and that 
financial analysts find related CSR reports to be more credible when 
independently assured). See also letter from F. Berg.
    \1208\ See also IOSCO, Report on International Work to Develop a 
Global Assurance Framework for Sustainability-related Corporate 
Reporting (Mar. 2023), available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD729.pdf (observing ``growing demand among 
investors for high-quality assurance over some sustainability-
related information to enhance the reliability of corporate 
reporting'').
    \1209\ See supra notes 1116 and 1121 and accompanying text.
---------------------------------------------------------------------------

    We considered the view expressed by some commenters that there is 
no reason to treat GHG emissions disclosures differently than other 
disclosures located outside of the financial statements, which do not 
require assurance.\1210\ Although we recognize that registrants may 
provide quantitative disclosure outside of the financial statements 
that is not subject to any assurance requirement, as explained in the 
Proposing Release,\1211\ and consistent with the feedback provided by 
commenters,\1212\ GHG emissions disclosures are unique in that many 
companies currently voluntarily seek third-party assurance over their 
climate-related disclosures, and commenters, including investors, have 
expressed a particular need for assurance over GHG emissions 
disclosures. Current voluntary assurance practices have been varied and 
this fragmentation has diminished the comparability of assurance 
provided. Prescribing a minimum level of assurance required for AFs and 
LAFs over their Scope 1 and/or Scope 2 emissions in the final rules, 
along with minimum requirements for the GHG emissions attestation 
provider and the engagement, will enhance comparability and consistency 
with respect to assurance over GHG emissions disclosures.
---------------------------------------------------------------------------

    \1210\ See supra note 1128 and accompanying text.
    \1211\ See Proposing Release, section II.H.1.
    \1212\ See supra notes 1114 and 1106 and accompanying text.
---------------------------------------------------------------------------

    A few commenters stated that it is unnecessary to mandate assurance 
because there are existing incentives for accuracy in connection with 
corporate disclosures, such as the Commission staff's filing review 
process or the possibility of Commission enforcement actions or private 
litigation.\1213\ While it is true that there are existing incentives 
for companies to provide accurate information to investors, these 
incentives do not provide the same benefits that assurance will provide 
under the final rules. Although the desire to avoid an enforcement 
action or private litigation has a deterrent effect on registrants, 
such proceedings generally serve to adjudicate claims after investors 
have allegedly received inaccurate or misleading disclosures. In 
contrast, the assurance requirement in the final rules will require an 
independent third-party to provide a check on the accuracy and 
completeness of a registrant's GHG emissions disclosure before the 
information is provided to investors, which as explained above, will 
likely result in additional benefits such as lower cost of equity 
capital and lower analyst forecast errors.\1214\ Furthermore, although 
the Commission staff's filing review process serves a valuable 
compliance function that contributes to investor protection, it is not 
designed to provide assurance, and certainly not for every filing. We 
note that, despite the existence and benefits of the filing review 
process, the Commission requires annual financial statements to be 
audited and has adopted other rules requiring an expert to review and 
provide conclusions on other specialized quantitative data that is 
provided outside of the financial statements to enhance its 
reliability.\1215\
---------------------------------------------------------------------------

    \1213\ See supra note 1119.
    \1214\ See supra note 1207.
    \1215\ See Modernization of Property Disclosures for Mining 
Registrants, Release No. 33-10570 (Oct. 31, 2018) [83 FR 66344 (Dec. 
26, 2018)]. See supra section II.I.2.c for further discussion of the 
expert requirements in the context of the mining disclosure rules.
---------------------------------------------------------------------------

    Several commenters raised concerns about registrants' ability to 
obtain assurance over GHG emissions disclosure in light of the level of 
judgment, estimation, or uncertainty that would be involved in 
calculating GHG emissions data.\1216\ While we acknowledge these 
concerns, we note that a number of registrants have voluntarily 
obtained either limited or reasonable assurance over their GHG 
emissions data, which shows that the practice is feasible.\1217\ And 
although there are differences between a financial statement audit and 
an assurance engagement over GHG emissions, registered public 
accounting firms regularly must provide assurance over financial 
statement amounts that are

[[Page 21746]]

subject to significant judgment, estimates, or assumptions or that rely 
upon information received from a third party. We acknowledge that 
auditing standards for financial statement audits are more established 
after decades of development and required use than attestation 
standards and practices for GHG emissions. Nevertheless, as noted 
above, the practice of providing assurance over GHG emissions is far 
from nascent and is now expected by many market participants.\1218\
---------------------------------------------------------------------------

    \1216\ See supra note 1122 and accompanying text.
    \1217\ See, e.g., Salesforce, Inc., FY23 Stakeholder Impact 
Summary, at 31, available at https://stakeholderimpactreport.salesforce.com/pdf/FY23-SIR-Summary-ESG-Metrics.pdf (obtaining limited assurance over its Consolidated 
Statements of Environmental Metrics, including Scopes 1, 2, and 3 
emissions); The PNC Financial Services Group, Inc., Corporate 
Responsibility Report 2022, at 48, available at https://www.pnc.com/content/dam/pnc-com/pdf/aboutpnc/CorporateResponsibilityReports/PNC_Corporate_Responsibility_Report_2022.pdf (obtaining limited 
assurance over Scopes 1 and 2 and certain categories of Scope 3 
emissions); Guess?, Inc. FY 2022-2023, at 82, available at https://static1.squarespace.com/static/609c10ed49db5202181d673f/t/64b8f15ff1649742c0a1c552/1689842028424/FY2022-2023+ESG+Report.pdf 
(obtaining reasonable assurance over climate-related disclosures, 
including Scopes 1, 2, and 3 GHG emissions); and United Parcel 
Service, Inc., 2022 GRI, at 61, available at https://about.ups.com/content/dam/upsstories/images/social-impact/reporting/2022-reporting/2022%20UPS%20GRI%20Report.pdf (obtaining reasonable 
assurance over its 2022 Statement of GHG emissions, including Scopes 
1, 2, and 3 emissions).
    \1218\ As discussed above, a number of jurisdictions have 
undertaken efforts to obtain more consistent, comparable, and 
reliable climate-related information for investors, see supra 
section II.A.3, with certain jurisdictions requiring the disclosure 
of GHG emissions data along with assurance. See Directive (EU) 2022/
2464 of the European Parliament and of the Council of 14 December 
2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, 
Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate 
sustainability reporting (Text with EEA relevance), available at 
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG (requiring companies 
within its jurisdiction to obtain limited assurance over 
sustainability reporting and stating that the European Commission 
will perform an assessment to determine if moving from limited to 
reasonable assurance is feasible for both auditors and companies); 
SB-253, Climate Corporate Data Accountability Act (Oct. 7, 2023), 
available at https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253 (requiring the California 
state board to develop and adopt regulations requiring the 
disclosure of GHG emissions and accompanying assurance engagements 
beginning with limited assurance and transitioning to reasonable 
assurance). In addition, the IAASB issued an exposure draft on 
Proposed International Standard on Sustainability Assurance 5000. 
See Proposed International Standard on Sustainability Assurance 
(ISSA) 5000, General Requirements for Sustainability Assurance 
Engagements (Exposure Draft) (Aug. 2, 2023), available at https://www.iaasb.org/publications/proposed-international-standard-sustainability-assurance-5000-general-requirements-sustainability(proposing assurance standards for both reasonable and 
limited assurance engagements).
---------------------------------------------------------------------------

    Several commenters urged the Commission to adopt the verification 
process for GHG reporting used by the EPA in lieu of the proposed 
assurance requirements.\1219\ Although we considered the EPA's multi-
step verification process, given the differences in the Commission's 
and EPA's reporting requirements, the different purposes of the 
Commission's and EPA's respective regulatory regimes, and the benefits 
of third-party assurance, we determined that independent, third-party 
assurance is a more appropriate model for the final rules.\1220\
---------------------------------------------------------------------------

    \1219\ See supra note 1126 and accompanying text.
    \1220\ For a summary of the EPA's multi-step verification 
process, which includes verification performed by the EPA itself, 
see EPA Fact Sheet supra note 1126. See also EPA, Greenhouse Gas 
Reporting Program Report Verification, available at https://www.epa.gov/sites/default/files/2017-12/documents/ghgrp_verification_factsheet.pdf.The comment letter submitted by the 
EPA notes distinctions in reporting requirements between the 
Commission's proposed rules and the EPA's GHGRP, including that the 
Commission's proposal covers publicly traded companies (domestic and 
international) regardless of their emissions level, while the EPA's 
GHGRP covers facilities and GHG and fuel suppliers (located in the 
U.S. and its territories) that fall into one or more of forty-one 
industrial categories and that, in general, emit or supply 25,000 
metric tons CO2 equivalent or more. See letter from EPA.
---------------------------------------------------------------------------

    Some commenters urged the Commission to wait before determining 
whether to adopt a mandatory attestation requirement for GHG emissions 
or to adopt final rules that permit registrants to disclose whether 
they voluntarily obtained attestation and related details instead of 
mandating assurance.\1221\ We agree with commenters that requiring 
registrants to disclose whether they obtained voluntary assurance and 
related details would help those investors that invest in companies 
that decide to voluntarily obtain assurance understand whether the 
attestation obtained has enhanced the reliability of the GHG emissions 
disclosure, which is why we have included a requirement in the final 
rules for registrants that are not subject to Item 1505 to provide 
certain disclosure if they voluntarily obtain assurance over any 
voluntary GHG emissions disclosure included in Commission 
filings.\1222\ However, requiring AFs and LAFs to obtain assurance over 
their Scope 1 and/or Scope 2 emissions disclosure in accordance with 
the final rules will result in more investors receiving the important 
benefits of assurance, including increased confidence in the 
reliability of, and an improved ability to make informed investment 
decisions based on, assured GHG emissions disclosures, which, as 
discussed above, provide investors with information for assessing a 
registrant's business, results of operations, and financial 
condition.\1223\ As discussed in greater detail below, the assurance 
requirements in the final rules are narrowly tailored and limited to a 
subset of registrants, many of which already obtain assurance services 
with respect to their GHG emissions disclosures. In addition, we 
disagree with those commenters that suggested we wait before 
determining whether to adopt a mandatory attestation requirement for 
GHG emissions.\1224\ The phase in periods included in the final rules 
should mitigate the concerns of commenters that stated the Commission 
should wait in order to give registrants and GHG emissions attestation 
providers more time to prepare for assurance, or to allow more time for 
attestation standards or guidance to develop.
---------------------------------------------------------------------------

    \1221\ See supra notes 1131 and 1132 and accompanying text.
    \1222\ See infra section II.I.5.
    \1223\ See supra section II.H.3.a.
    \1224\ See supra note 1131 and accompanying text.
---------------------------------------------------------------------------

    Consistent with the proposal, the final rules will apply the 
attestation requirements to AFs and LAFs.\1225\ However, in a shift 
from the proposal, the final rules will exempt SRCs and EGCs from the 
requirement to obtain an attestation report.\1226\ Although some 
commenters urged the Commission to apply the final rules to all 
registrants,\1227\ not just AFs and LAFs, our decision to exempt SRCs 
and EGCs from the assurance requirement is driven by our decision to 
exempt these companies from the requirement to disclose GHG emissions, 
which is discussed in greater detail above.\1228\ Since SRCs and EGCs 
will not be required to disclose GHG emissions, they also will not be 
required to obtain assurance.
---------------------------------------------------------------------------

    \1225\ See 17 CFR 229.1506(a).
    \1226\ SRCs and EGCs that qualified as AFs would have been 
included within the scope of AFs subject to the requirement to 
obtain an attestation report under the proposed rules.
    \1227\ See supra note 1135 and accompanying text.
    \1228\ See supra section II.H.3.
---------------------------------------------------------------------------

    Under the final rules, AFs and LAFs will be required to obtain 
limited assurance over their GHG emissions disclosure beginning the 
third fiscal year after the compliance date for Item 1505 (the GHG 
emissions disclosure provision).\1229\ LAFs will be required to obtain 
reasonable assurance over their GHG emissions disclosure beginning the 
seventh fiscal year after the compliance date for Item 1505.\1230\ In a 
change from the proposal, AFs will not be required to scale up to 
reasonable assurance under the final rules. Although we agree with 
those commenters that stated that reasonable assurance would provide 
investors with increased confidence that a registrant's GHG emissions 
disclosure is reliable as compared to limited assurance,\1231\ we have 
determined that it is appropriate to apply the reasonable assurance 
requirement to a more limited pool of registrants--LAFs--at this time 
because some LAFs are already collecting and disclosing climate-related 
information, including GHG emissions data,\1232\ and larger issuers 
generally

[[Page 21747]]

bear proportionately lower compliance costs than smaller issuers due to 
the fixed cost components of such compliance. This scaled approach will 
avoid increasing compliance burdens for AFs that may be smaller or less 
sophisticated issuers.
---------------------------------------------------------------------------

    \1229\ See 17 CFR 229.1506(a)(1)(i), (ii).
    \1230\ See 17 CFR 229.1506(a)(1)(iii).
    \1231\ See, e.g., letter from GRI.
    \1232\ According to one study, 99% of S&P 500 companies reported 
ESG information in 2021 and 65% of such companies reported obtaining 
assurance over some ESG information. See CAQ, S&P 500 and ESG 
Reporting (updated June 2023), available at https://www.thecaq.org/sp-500-and-esg-reporting. In addition, according to the study, over 
63% of S&P 500 companies reported obtaining assurance specifically 
over some portion of their GHG emissions disclosures. See id. Based 
on an analysis by Commission staff on Feb. 29, 2024, a substantial 
number of the S&P 500 companies (494) are LAFs.
---------------------------------------------------------------------------

    We considered whether to require LAFs to obtain an attestation 
report at a reasonable assurance level from the start as suggested by 
some commenters.\1233\ However, most registrants that are voluntarily 
obtaining assurance today obtain limited assurance rather than 
reasonable assurance,\1234\ and therefore a transition period is 
appropriate to give LAFs and GHG emissions attestation providers time 
to prepare for the higher level of assurance. In contrast to some 
commenters' suggestion that obtaining reasonable assurance would be 
impractical,\1235\ we note that some registrants have voluntarily 
obtained reasonable assurance over their GHG emissions 
disclosure.\1236\ In addition, one commenter stated that it agreed with 
the Commission's statement in the Proposing Release that limited 
assurance is not possible unless the assurance provider also believes 
reasonable assurance is possible on the subject matter.\1237\
---------------------------------------------------------------------------

    \1233\ See supra note 1145 and accompanying text.
    \1234\ See CAQ, S&P 500 and ESG Reporting (Updated June 2023), 
available at https://www.thecaq.org/sp-500-and-esg-reporting 
(stating that in 2021 most companies that obtained assurance from 
public company auditors and other providers opted for limited 
assurance).
    \1235\ See, e.g., letter from INGAA.
    \1236\ See supra note 1217.
    \1237\ See letter from ERM CVS. As the Commission explained in 
the Proposing Release, under commonly used attestation standards, 
both a reasonable assurance engagement and a limited assurance 
engagement have the same requirement that the subject matter (e.g., 
Scope 1 and Scope 2 emissions) of the engagement be appropriate as a 
precondition for providing assurance. Thus, if the subject matter is 
appropriate for a limited assurance engagement, it is also 
appropriate for a reasonable assurance engagement. See Proposing 
Release, section II.H.1 See also, e.g., AICPA SSAE No. 18, 
Attestation Standards, available at https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/ssae-no-18.pdf; and IAASB ISAE 3000 (Revised), Assurance Engagements 
Other than Audits or Reviews of Historical Financial Information, 
available at https://www.ifac.org/_flysystem/azure-private/publications/files/ISAE%203000%20Revised%20-%20for%20IAASB.pdf.
---------------------------------------------------------------------------

    We recognize that obtaining reasonable assurance over GHG emissions 
disclosure will be more costly than obtaining limited assurance because 
the scope of work in a limited assurance engagement is substantially 
less than the scope of work in a reasonable assurance engagement. The 
primary difference between the two levels of assurance relates to the 
nature, timing, and extent of procedures required to obtain sufficient, 
appropriate evidence to support the limited assurance conclusion or 
reasonable assurance opinion. For example, in a limited assurance 
engagement, the procedures performed by attestation providers are 
generally limited to analytical procedures and inquiries,\1238\ but in 
a reasonable assurance engagement, they are also required to perform 
risk assessment and detail testing procedures to respond to the 
assessed risk.\1239\ However, the outcome of a reasonable assurance 
engagement results in positive assurance (e.g., the provider forms an 
opinion about whether the registrant's GHG emissions disclosures are in 
accordance with Item 1505 in all material respects) while the outcome 
of a limited assurance engagement results in negative assurance (e.g., 
the provider forms a conclusion about whether it is aware of any 
material modifications that should be made to the disclosures for it to 
be in accordance with Item 1505). Therefore, we agree with those 
commenters that stated reasonable assurance will provide greater value 
to investors because at the reasonable assurance level, investors 
receive more reliable information about GHG emissions.\1240\ 
Registrants may also benefit from providing disclosures subject to a 
reasonable assurance level because such assurance enhances investor 
confidence in the disclosures, and as a result, may lower the cost of 
capital for registrants.\1241\
---------------------------------------------------------------------------

    \1238\ See, e.g., AICPA SSAE No. 18, AT-C Sec.  105.A14.
    \1239\ See, e.g., AICPA SSAE No. 18, AT-C Sec.  205.18.
    \1240\ See supra note 1145 and accompanying text.
    \1241\ See letter from Anthesis Grp. See also supra note 1207.
---------------------------------------------------------------------------

    As explained above, LAFs are best positioned to bear the increased 
costs of obtaining reasonable assurance. Such costs are justified for 
these registrants by the benefits that investors and registrants will 
receive in the form of positive assurance, which makes it more likely 
that material errors or omissions are detected and is consistent with 
the Commission's investor protection mission. In light of the 
significant phased in compliance period that LAFs will have before 
reasonable assurance is required, we expect that registrants will incur 
these costs over several years, which should make the burden easier to 
bear in any particular year. We also expect that during the significant 
phased in compliance period new assurance providers will enter the 
market and any resulting increase in competition will lead to relative 
reductions in the costs of providing those services over time.\1242\
---------------------------------------------------------------------------

    \1242\ See letter from Futurepast (expressing the view that the 
existence of a larger pool of potential GHG emissions attestation 
providers will enhance competition and likely result in lower costs 
to registrants). In addition, as discussed in greater detail below 
in Sections II.I.2.c and 3.c., we expect that registrants' ability 
to hire a non-accounting firm as a GHG emissions attestation 
provider and our decision to make certain modifications to the 
proposed requirements applicable to the GHG emissions attestation 
engagement should help address concerns about the supply of GHG 
emissions attestation providers.
---------------------------------------------------------------------------

    We considered whether it would be appropriate to wait to make a 
determination about whether LAFs should be required to scale up to 
reasonable assurance, but decided against such an approach because the 
benefits of obtaining reasonable assurance are apparent now \1243\ and 
we do not expect those to change in the future, while our decision to 
limit the reasonable assurance requirement to a narrower scope of 
registrants and to provide a significant transition period will help 
address the concerns raised by commenters. We also considered the 
suggestion by one commenter that the Commission initially require 
registrants to obtain reasonable assurance, followed by limited 
assurance engagements to the extent the first year's attestation report 
included no qualifications; however, for the reasons stated above, the 
scaled approach, starting with limited assurance and subsequently 
moving to reasonable assurance, will allow LAFs time for their 
processes and controls to mature before being subject to the higher 
level of assurance. It will also provide attestation service providers 
that do not currently provide assurance over GHG emissions disclosure 
with additional time to familiarize themselves with providing assurance 
over such disclosure, which, as noted above, should facilitate 
additional competition between assurance

[[Page 21748]]

providers and further help decrease costs of compliance.
---------------------------------------------------------------------------

    \1243\ See supra note 1193; Brandon Gipper, et al., Carbon 
Accounting Quality: Measurement and the Role of Assurance (Nov. 
2023), available at https://ssrn.com/abstract=4627783 (concluding 
that reasonable assurance improves carbon accounting quality more 
than limited assurance). See also letters from GRI (``Reasonable 
assurance should be adopted as this would be commensurate with the 
level of assurance provided through statutory audits of financial 
statements and will give information users increased confidence that 
the reported information is prepared in accordance with stated 
criteria.''); and PWYP (``Given the importance of GHG emissions data 
to enable investors to fully understand the climate-related risks of 
issuers, reasonable assurance is necessary to ensure that 
information is subjected to sufficient examination and verification 
such that it can be relied on by investors.'').
---------------------------------------------------------------------------

    A number of commenters recommended that the Commission extend the 
phase in periods in the final rules because the proposed compliance 
schedule would have been too challenging for registrants to meet.\1244\ 
We agree with commenters that extending the phase in periods would 
provide registrants and GHG emissions attestation providers with 
additional time to prepare for implementation of the rules and would 
allow assurance standards and practices applicable to GHG emissions to 
further evolve while balancing investors' need for the information. 
Therefore, as compared to the proposal, the final rules provide AFs and 
LAFs with additional time before they are required to comply with the 
GHG emissions assurance requirements in addition to the phased in GHG 
emissions compliance dates.\1245\ Providing two phased in compliance 
dates--one before registrants are required to comply with the GHG 
emissions disclosure requirements and another before registrants are 
required to comply with the assurance requirements--will allow 
registrants and assurance providers to gain experience with the new 
rules before assurance is required.
---------------------------------------------------------------------------

    \1244\ See supra note 1166 and accompanying text.
    \1245\ See 17 CFR 229.1506(a). See also infra section II.O.3 for 
further discussion of the compliance dates for the final rules.
---------------------------------------------------------------------------

    Commenters expressed a variety of views about whether the 
Commission should define the terms ``limited assurance'' and 
``reasonable assurance'' in the final rules. Some commenters stated 
that definitions or guidance could be helpful or reduce any potential 
confusion,\1246\ while other commenters stated that no definition is 
needed.\1247\ We have determined not to include definitions of 
``limited assurance'' and ``reasonable assurance'' in the final rules 
because we agree with the commenters that stated that this terminology 
is generally well understood \1248\ and should be defined by assurance 
standard setters and not by the Commission.\1249\ As we explained in 
the Proposing Release, ``limited assurance'' and ``reasonable 
assurance'' are currently defined by the prevailing attestation 
standards.\1250\ Furthermore, we expect the description of the work 
performed as a basis for the assurance provider's conclusion on the GHG 
emissions attestation engagement to be included in any assurance report 
issued pursuant to the final rules, which should facilitate investors' 
understanding of the nature of the limited or reasonable assurance 
engagement.\1251\
---------------------------------------------------------------------------

    \1246\ See supra note 1180 and accompanying text.
    \1247\ See supra note 1183 and accompanying text.
    \1248\ See letter from CFA Institute.
    \1249\ See letter from Mazars.
    \1250\ See Proposing Release, section II.H.1. See also, e.g., 
AICPA SSAE No. 18, AT-C Sec.  105.10 and IAASB ISAE 3000 (Revised) 
Sec.  12(a)(i).
    \1251\ See, e.g., IAASB ISAE 3000 (Revised) Sec.  69(k).
---------------------------------------------------------------------------

    One commenter asked the Commission to clarify how the terms 
``limited assurance'' and ``reasonable assurance'' relate to the 
``standard GHG terms of `measured,' `monitored,' and `verified.' '' 
\1252\ It is our general understanding that ``measured,'' 
``monitored,'' and ``verified'' are terms commonly used in the 
marketplace to describe the process for calculating and reporting GHG 
emissions data.\1253\ Although such a process could share some 
similarities with the steps GHG emission attestation providers 
undertake during the course of an assurance engagement, such a process 
is distinct from the assurance required by the final rules, which must 
be performed in accordance with a standard that meets the requirements 
detailed below. Another commenter urged the Commission to provide a 
definition of limited assurance that establishes ``a process more 
rigorous than currently used for assurance of quarterly SEC filings.'' 
\1254\ However, doing so would potentially result in the Commission's 
definition of limited assurance being different from, or conflicting 
with, the definitions included in the prevailing attestation standards 
that we expect many GHG emissions attestation providers will use, which 
could cause confusion.
---------------------------------------------------------------------------

    \1252\ See letter from IECA.
    \1253\ For example, the draft interagency report entitled, 
``Federal Strategy to Advance Greenhouse Gas Measurement and 
Monitoring for the Agriculture and Forest Sectors (Strategy),'' 
states that ``Measurement, Monitoring, Reporting, and Verification 
(MMRV) refers to activities undertaken to quantify GHG emissions and 
sinks (through direct measurement and/or modeling), monitor emission 
over time, verify estimates, and synthesize and report on 
findings.'' See Federal Strategy to Advance Measurement and 
Monitoring Greenhouse Gas Measurement and Monitoring for the 
Agriculture and Forest Sectors, 88 FR 44251 (July 12, 2023).
    \1254\ See supra note 1180.
---------------------------------------------------------------------------

    As discussed above, the final rules provide that any GHG emissions 
metrics required to be disclosed pursuant to Item 1505 in an annual 
report filed with the Commission on Form 10-K may be incorporated by 
reference from the registrant's Form 10-Q for the second fiscal quarter 
in the fiscal year immediately following the year to which the GHG 
emissions disclosure relates, or may be included in an amended annual 
report on Form 10-K no later than the due date for such Form 10-
Q.\1255\ The extension of the deadline for the filing of GHG emissions 
metrics also applies to the deadline for the filing of an attestation 
report, which should accompany the GHG emissions disclosure to which 
the report applies.\1256\ This additional time--an additional two 
fiscal quarters--should provide registrants subject to Item 1505 and 
their GHG emissions attestation providers with sufficient time to 
measure GHG emissions, provide assurance, and prepare the required 
attestation report. Consistent with the notice requirements included in 
Item 1505(c), the final rules (Item 1506(f)) provide that a registrant 
that elects to incorporate by reference its attestation report from its 
Form 10-Q for the second fiscal quarter or to provide its attestation 
report in an amended annual report must include an express statement in 
its annual report indicating its intention to either incorporate by 
reference the attestation report from a quarterly report on Form 10-Q 
or amend its annual report to provide the attestation report by the due 
date specified in Item 1505.\1257\
---------------------------------------------------------------------------

    \1255\ See 17 CFR 220.1505(c)(1). If the registrant is a foreign 
private issuer, the final rules provide that its GHG emissions 
disclosure may be included in an amendment to its annual report on 
Form 20-F, which shall be due no later than 225 days after the end 
of the fiscal year to which the GHG emissions disclosure relates. 
See id. See also supra section II.H.3.
    \1256\ See 17 CFR 229.1506(f).
    \1257\ See id.

---------------------------------------------------------------------------

[[Page 21749]]

    The proposed rules would have required the attestation report to be 
included in the separately captioned ``Climate-Related Disclosure'' 
section in the relevant filing.\1258\ However, as discussed above, the 
final rules leave the placement of climate-related disclosures, other 
than the financial statement disclosures, largely up to each 
registrant.\1259\ As such, a registrant will not be required to include 
the attestation report in a separately captioned ``Climate-Related 
Disclosure'' section, although it may elect to do so.\1260\
---------------------------------------------------------------------------

    \1258\ See Proposing Release, section II.H.3.
    \1259\ See supra section II.A.3.
    \1260\ See id. for further discussion of presentation 
requirements for GHG emissions disclosure under the final rules.
---------------------------------------------------------------------------

    Consistent with the proposed rules, during the phased in compliance 
period when limited assurance is required for LAFs, the final rules 
(Item 1506(a)(1)(ii)) permit an LAF, at its option, to obtain 
reasonable assurance of its Scope 1 and/or 2 emissions 
disclosure.\1261\ Similarly, the final rules (Item 1506(a)(1)(i)) 
permit an AF, at its option, to obtain reasonable assurance of its 
Scope 1 and/or 2 emissions disclosure. In addition, at its option, a 
registrant that is subject to the assurance requirements would be able 
to obtain any level of assurance over its GHG emissions disclosures 
that are not required to be assured pursuant to Item 1506(a).\1262\ For 
filings made after the compliance date for the GHG emissions disclosure 
requirements but before Item 1506(a) requires limited assurance, a 
registrant would only be required to provide the disclosure called for 
by Item 1506(e).\1263\ For filings made after the compliance date for 
assurance required by Item 1506(a), to avoid potential confusion, the 
additional, voluntary assurance obtained by such filer would be 
required to follow the requirements of Items 1506(b) through (d), 
including using the same attestation standard as the required assurance 
over Scope 1 and/or Scope 2 emissions, which was supported by one 
commenter.\1264\ Although in the Proposing Release, the requirements 
outlined in this paragraph would have applied to any climate-related 
disclosures not subject to assurance under Item 1506(a),\1265\ we have 
narrowed the scope of the final rule to apply only to GHG emissions 
disclosures that are not required to be assured under Item 1506(a) 
because, given the modifications in the final rule, we think it is 
unlikely that registrants will voluntarily obtain assurance over non-
GHG emissions disclosure for which the disclosure required by 1506(e) 
would be useful to investors.\1266\ Therefore, to reduce the complexity 
of the final rules, we are streamlining it in this way. In addition, as 
discussed below in section II.I.5, a registrant that is not subject to 
Item 1505 but that voluntarily discloses GHG emissions information and 
voluntarily obtains assurance will be required to comply only with Item 
1506(e), if applicable.
---------------------------------------------------------------------------

    \1261\ See Proposing Release, section II.H.1.
    \1262\ Scope 1 and/or Scope 2 emissions disclosures are required 
to be assured pursuant to Item 1506(a). As noted above, no 
registrants are required to provide Scope 3 GHG emissions 
disclosures; however, a registrant may choose to provide such 
disclosure voluntarily.
    \1263\ See 17 CFR 229.1506(a)(3).
    \1264\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.; 17 CFR 229.1506(a)(3). For example, if an LAF was required to 
obtain reasonable assurance over its Scope 1 and/or Scope 2 
emissions disclosure and the attestation provider chose to follow, 
for example, the AICPA attestation standards, the LAF could 
voluntarily obtain limited assurance over any voluntary Scope 3 GHG 
emissions disclosure, and the attestation provider would be required 
to follow the AICPA's attestation standard for providing limited 
assurance.
    \1265\ See Proposing Release, section II.H.1.
    \1266\ See 17 CFR 229.1506(a)(3).
---------------------------------------------------------------------------

    For ease of reference, we have included a table reflecting the 
application of these requirements:

------------------------------------------------------------------------
                                       After the
                                    compliance date
                                   for GHG emissions       After the
                                    disclosure but      compliance date
                                      before the         for assurance
                                    compliance date
                                     for assurance
------------------------------------------------------------------------
LAFs and AFs subject to Items     Any voluntary       Any voluntary
 1505 and 1506(a) through (d)      assurance over      assurance
 (e.g., registrants that are       any GHG emissions   obtained over GHG
 required to disclose GHG          disclosure must     emissions
 emissions and obtain assurance).  comply with the     disclosures that
                                   disclosure          are not required
                                   requirements in     to be assured
                                   Item 1506(e).       pursuant to Item
                                                       1506(a) (e.g.,
                                                       voluntary Scope 3
                                                       disclosures) must
                                                       follow the
                                                       requirements of
                                                       Item 1506(b)
                                                       through (d),
                                                       including using
                                                       the same
                                                       attestation
                                                       standard as the
                                                       registrant's
                                                       required
                                                       assurance over
                                                       Scope 1 and/or
                                                       Scope 2
                                                       disclosure.
Registrants not subject to Items  Any voluntary       Any voluntary
 1505 or 1506(a) through (d)       assurance over      assurance over
 (e.g., registrants that are not   any GHG emissions   any GHG emissions
 required to disclose GHG          disclosure must     disclosure must
 emissions).                       comply with the     comply with the
                                   disclosure          disclosure
                                   requirements in     requirements in
                                   Item 1506(e).       Item 1506(e).
------------------------------------------------------------------------

2. GHG Emissions Attestation Provider Requirements
a. Proposed Rules
    The proposed rules would have required the GHG emissions 
attestation report required by proposed Item 1505(a) for AFs and LAFs 
to be prepared and signed by a GHG emissions attestation 
provider.\1267\ The proposed rules would have defined a GHG emissions 
attestation provider to mean a person or firm that has all the 
following characteristics:
---------------------------------------------------------------------------

    \1267\ See Proposing Release, section II.H.2.
---------------------------------------------------------------------------

     Is an expert in GHG emissions by virtue of having 
significant experience in measuring, analyzing, reporting, or attesting 
to GHG emissions. Significant experience means having sufficient 
competence and capabilities necessary to:
    [cir] Perform engagements in accordance with professional standards 
and applicable legal and regulatory requirements; and
    [cir] Enable the service provider to issue reports that are 
appropriate under the circumstances.
     Is independent with respect to the registrant, and any of 
its affiliates,\1268\ for whom it is providing the attestation report, 
during the attestation and professional engagement period.\1269\
---------------------------------------------------------------------------

    \1268\ See id. Proposed Item 1505(b)(2)(iii) stated that the 
term ``affiliates'' has the meaning provided in 17 CFR 210.2-01, 
except that references to ``audit'' are deemed to be references to 
the attestation services provided pursuant to this section.
    \1269\ See Proposing Release, section II.H.2. Proposed Item 
1505(b)(2)(iv) stated that the term ``attestation and professional 
engagement period'' means the period covered by the attestation 
report and the period of the engagement to attest to the 
registrant's GHG emissions or to prepare a report filed with the 
Commission. The professional engagement period begins when the GHG 
attestation service provider either signs an initial engagement 
letter (or other agreement to attest a registrant's GHG emissions) 
or begins attest procedures, whichever is earlier.
---------------------------------------------------------------------------

    The Commission explained that the proposed expertise requirement 
was

[[Page 21750]]

intended to help ensure that the service provider preparing the 
attestation report has sufficient competence and capabilities necessary 
to execute the attestation requirement.\1270\ If the service provider 
is a firm, the Commission stated it would expect that the firm has 
policies and procedures designed to provide it with reasonable 
assurance that the personnel selected to conduct the GHG emissions 
attestation engagement have sufficient experience with respect to both 
attestation engagements and GHG disclosure. This would mean that the 
service provider has the qualifications necessary for fulfillment of 
the responsibilities that it would be called on to assume, including 
the appropriate engagement of specialists, if needed.\1271\ The 
Commission explained that the proposed expertise requirement would have 
applied to the person or the firm signing the GHG emissions attestation 
report.\1272\
---------------------------------------------------------------------------

    \1270\ See Proposing Release, Section II.H.2.
    \1271\ See id.
    \1272\ See id. The Commission noted that it has adopted similar 
expertise requirements in the past to determine eligibility to 
prepare a mining technical report, although the mining technical 
report requirements differ in that such an engagement is not an 
assurance engagement. See id. (citing Modernization of Property 
Disclosures for Mining Registrants, Release No. 33-10570 (Oct. 31, 
2018) [83 FR 66344 (Dec. 26, 2018)]).
---------------------------------------------------------------------------

    The proposed requirement related to independence was modeled on the 
Commission's qualifications for accountants under 17 CFR 210.2-01 
(``Rule 2-01 of Regulation S-X''), which are designed to ensure that 
auditors are independent of their audit clients.\1273\ The Commission 
explained that similar to how assurance provided by independent public 
accountants improves the reliability of the financial statements and 
disclosures and is a critical component of our capital markets, 
assurance of GHG emissions disclosure by independent service providers 
should also improve the reliability of such disclosure.\1274\ The 
Commission stated that academic studies demonstrate that assurance 
provided by an independent auditor reduces the risk that an entity 
provides materially inaccurate information to external parties, 
including investors, by facilitating the dissemination of transparent 
and reliable financial information.\1275\ The Commission explained that 
it expected that GHG emissions disclosure would similarly benefit if 
assured by an independent service provider.\1276\
---------------------------------------------------------------------------

    \1273\ See Proposing Release, section II.H.2.
    \1274\ See id.
    \1275\ See id.
    \1276\ See id.
---------------------------------------------------------------------------

    Similar to Rule 2-01 of Regulation S-X,\1277\ the proposed rules 
provided that a GHG emissions attestation provider is not independent 
if, during the attestation and professional engagement period, such 
attestation provider is not, or a reasonable investor with knowledge of 
all relevant facts and circumstances would conclude that such 
attestation provider is not, capable of exercising objective and 
impartial judgment on all issues encompassed within the attestation 
provider's engagement.\1278\ The proposed rules further stated that, in 
determining whether a GHG emissions attestation provider is independent 
the Commission would consider:
---------------------------------------------------------------------------

    \1277\ See 17 CFR 210.2-01(b).
    \1278\ See Proposing Release, section II.H.2.
---------------------------------------------------------------------------

     Whether a relationship or the provision of a service 
creates a mutual or conflicting interest between the attestation 
provider and the registrant (or any of its affiliates), places the 
attestation provider in the position of attesting to such attestation 
provider's own work, results in the attestation provider acting as 
management or an employee of the registrant (or any of its affiliates), 
or places the attestation provider in a position of being an advocate 
for the registrant (or any of its affiliates); and
     All relevant circumstances, including all financial or 
other relationships between the attestation provider and the registrant 
(or any of its affiliates), and not just those relating to reports 
filed with the Commission.\1279\
---------------------------------------------------------------------------

    \1279\ See id.
---------------------------------------------------------------------------

    These proposed provisions were modeled on the factors used by the 
Commission in determining whether an accountant is independent.\1280\ 
The Commission explained that similar to Rule 2-01 of Regulation S-X, 
the proposed provisions should help protect investors by requiring the 
GHG emissions attestation provider to be independent both in fact and 
appearance from the registrant, including its affiliates.\1281\
---------------------------------------------------------------------------

    \1280\ See 17 CFR 210.2-01. For the avoidance of doubt, the 
Commission noted that if the independent accountant who audits the 
registrant's consolidated financial statements is also engaged to 
perform the GHG emissions attestation for the same filing, the fees 
associated with the GHG emissions attestation engagement would be 
considered ``Audit-Related Fees'' for purposes of Item 9(e) of 17 
CFR 240.14a-101, Item 14 of Form 10-K, Item 16C of Form 20-F, or any 
similar requirements. See Proposing Release, section II.H.2.
    \1281\ See id.
---------------------------------------------------------------------------

    The Commission also explained that because the GHG emissions 
attestation provider would be a person whose profession gives authority 
to the statements made in the attestation report and who is named as 
having provided an attestation report that is part of the registration 
statement, the registrant would be required to obtain and include the 
written consent of the GHG emissions attestation provider pursuant to 
Securities Act section 7,\1282\ the corresponding rule requiring the 
written consents of such experts,\1283\ and the Regulation S-K 
provision requiring the attachment of the written consent of an expert 
to a Securities Act registration statement or Exchange Act report that 
incorporates by reference a written expert report attached to a 
previously filed Securities Act registration statement.\1284\ The GHG 
emissions attestation provider would also be subject to liability under 
the Federal securities laws for the attestation conclusion or, when 
applicable, opinion provided.\1285\ The Commission explained that such 
liability should encourage the attestation service provider to exercise 
due diligence with respect to its obligations under a limited or 
reasonable assurance engagement.\1286\
---------------------------------------------------------------------------

    \1282\ 15 U.S.C. 77g.
    \1283\ See 17 CFR 230.436.
    \1284\ See Proposing Release, section II.H.2. See also 17 CFR 
229.601(b)(23).
    \1285\ As explained above, a limited assurance engagement 
results in a conclusion that no material modification is needed and 
a reasonable assurance engagement results in an opinion. See supra 
notes 1090 and 1091.
    \1286\ See Proposing Release, section II.H.2.
---------------------------------------------------------------------------

b. Comments
    A number of commenters supported the proposed rules' requirement 
for a registrant to obtain a GHG emissions attestation report that is 
provided by a GHG emissions attestation provider that meets specified 
requirements.\1287\ A number of commenters stated that they agreed with 
the approach taken in the proposed rules not to limit eligible GHG 
emissions attestation providers to only accounting firms.\1288\ Several 
commenters stated that non-accounting firms may have expertise that 
would be relevant to providing assurance over

[[Page 21751]]

GHG emissions disclosure.\1289\ For example, one commenter stated that 
``certain situations may require specialist expertise and that limiting 
attestation providers only to accounting firms would prevent 
registrants in such situations from availing themselves of the 
requisite special knowledge.'' \1290\ Another commenter stated that 
``[e]xpanding assurance beyond accounting firms has the added benefit 
of providing a much larger pool of assurance providers, which could 
potentially lower compliance costs.'' \1291\ A few commenters stated 
that if non-accounting firms are eligible to provide assurance 
services, then the Commission would need to ensure that there are 
appropriate protections in place for investors.\1292\ A few commenters 
stated that the proposed rules' references to accounting or audit-style 
requirements could favor accounting firms or make it difficult for non-
accounting firms to meet the qualifications.\1293\
---------------------------------------------------------------------------

    \1287\ See, e.g., letters from BOA; Bureau Veritas; CII; Crowe; 
ERM CVS; Ernst & Young LLP; Futurepast; ICAEW (``Third party 
assurance providers should comply with a professional framework 
encompassing competence, independence and a system of quality 
management.''); ICI; LRQA; MFA; Morningstar; and TotalEnergies.
    \1288\ See letter from ABA; Beller et al.; Bureau Veritas; 
Ceres; CFA Institute; Chevron; Climate Risk Consortia; ERM; 
Futurepast; J. Herron; J. McClellan (``Practically, many accounting 
firms will seek to hire subject matter experts to build their own 
internal expertise so it makes sense to expand the universe of 
assurance providers to include these specialist organizations.''); 
LRQA; MFA; NAM; SKY Harbor; and TCS.
    \1289\ See, e.g., letters from ABA (limiting qualified 
attestation providers to only accounting firms ``would unnecessarily 
constrict the supply providers and ignore the fact that other types 
of enterprises, such as engineering and consulting firms, have 
expertise in the measurement of GHG emissions and could conduct 
attestation engagements''); Bureau Veritas (``This creates an open, 
competitive market, and enables engineers, environmental scientists 
who have subject matter expertise in climate change and understand 
the specifics of GHG management to an expert level.''); ERM CVS; and 
J. McClellan.
    \1290\ See letter from J. Herron.
    \1291\ See letter from ANSI NAB. See also letter from Ceres 
(stating that non-accounting firms ``are likely to charge less for 
their services than major accounting firms, and we support having 
competition'').
    \1292\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al. (``Eligible attestation providers should not be limited to only 
PCAOB-registered audit firms, but the SEC will need to conduct 
enhanced monitoring and enforcement of the assurance, as the 
attesting entities will be neither inspected by the PCAOB nor 
subject to PCAOB standards and enforcement.''); Center Amer. 
Progress (stating that non-accounting firms ``should be subject to 
the internal controls or other guardrails that exist for financial 
auditors); and NASBA (recommending that the Commission develop 
regulations ``to build the intellectual infrastructure, including 
independence requirements, quality management systems, and peer 
review inspections outside of the professional standards governing 
the public accounting profession''). See also letter from TCS (``The 
SEC should also permit attestation providers who are not registered 
public accounting firms to provide assurance of GHG emission 
disclosure, particularly for non-accelerated and smaller filers, so 
long as they can meet quality standards through certification or 
other means.'').
    \1293\ See, e.g., letters from AFPM (stating that although the 
proposed rule ``ostensibly allow expert providers that are not 
auditors to provide assurance, imposing audit style assurance 
requirements will render the approach taken by many non-auditor 
consultants inadequate, leaving few firms that are qualified to 
provide this assurance''); and Airlines for America (``While the SEC 
appears to have intended to allow the use of, for example, qualified 
environmental engineering firms that have traditionally provided GHG 
emissions verification, the repeated references to accounting 
standards throughout the proposed rules seem to strongly favor 
accounting firms.'').
---------------------------------------------------------------------------

    On the other hand, a few commenters stated that the Commission 
should require that the GHG emissions attestation provider be a public 
accounting firm registered with the PCAOB.\1294\ One of these 
commenters stated that requiring a GHG emissions attestation provider 
to be a PCAOB-registered public accounting firm ``will enhance the 
reliability of the [GHG emissions] disclosures themselves, thus 
promoting confidence in the disclosures among investors.'' \1295\ 
Another commenter explained that PCAOB-registered public accounting 
firms ``already have a framework to adhere to professional obligations 
related to objectivity and due process, and to the independence 
rules,'' which would negate ``the burden for registrants to research 
and provide various information related to attestation service 
providers'' required by the proposed rules.\1296\
---------------------------------------------------------------------------

    \1294\ See, e.g., letters from Better Markets (noting that the 
goals of the proposal would be served by requiring that providers be 
PCAOB-regulated entities because those firms are subject to 
oversight and inspection whereas other types of third-party 
verifiers are not); Mazars; and PRI. See also letter from NASBA 
(``We believe that permitting non-CPAs who are not subject to the 
standards that result from such due process procedures to provide 
attestation services is not the public interest.''); and RSM US LLP 
(``We believe assurance over climate-related reporting when 
performed by a public company auditor would offer increased investor 
protection compared with other forms of third-party assurance or 
verification.'').
    \1295\ See letter from Better Markets.
    \1296\ See letter from Mazars.
---------------------------------------------------------------------------

    Some commenters agreed with the proposal that significant 
experience means having sufficient competence and capabilities 
necessary to (a) perform engagements in accordance with professional 
standards and applicable legal and regulatory requirements and (b) 
enable the service provider to issue reports that are appropriate under 
the circumstances.\1297\ One commenter recommended that the Commission 
require a minimum of three years of experience in GHG emissions 
attestation or assurance for the person or organization signing the 
assurance statement.\1298\ Conversely, some commenters stated that the 
Commission should not prescribe a number of years of experience that 
would be required to qualify as a GHG emissions attestation 
provider.\1299\
---------------------------------------------------------------------------

    \1297\ See, e.g., letters from CFA Institute; Crowe; and GGMI 
(recommending that the Commission further clarify that by 
``experience'' it means that ``experts have proper technical 
knowledge and competencies in STEM fields related to the sources and 
sinks of GHG emission and removals being quantified.'').
    \1298\ See letter from ERM CVS.
    \1299\ See, e.g., letters from C2ES (``Prescribing a number of 
years of experience may limit new businesses who have employees with 
long term experience, therefore we do not recommend instead 
requiring a specified number of years of experience.''); CFA 
Institute; and Futurepast.
---------------------------------------------------------------------------

    Some commenters stated that the proposed rules were not clear about 
the qualifications required for a GHG emissions attestation provider 
\1300\ or that the Commission should provide additional guidance.\1301\ 
One commenter stated that registrants ``would face significant 
challenges and risks in connection with making determinations as to the 
qualification of attestation providers.'' \1302\ Several commenters 
raised concerns about the supply and availability of experienced and 
qualified GHG emissions attestation providers to meet the deadlines 
included in the proposed rules.\1303\
---------------------------------------------------------------------------

    \1300\ See, e.g., letters from AEPC; APCIA; CEMEX (``We believe 
that in order to accurately comply with the proposed expertise 
requirements, additional guidance is needed. As done before with the 
recently implemented S-K 1300 where it specified the prescriptive 
requirements to be a `qualified person' and provide insight to the 
registrant, something similar would suffice to ensure the experts 
that provide services to the registrant meet the necessary criteria 
and thus ensure a comparable and accurate GHG attestation amongst 
registrants.''); and INGAA.
    \1301\ See, e.g., letters from Praxis, et al. (``In addition, 
the SEC should provide guidance on standards for third-party 
verifiers who are not accredited with the Public Company Accounting 
Oversight Board); S. Sills (same); and Veris Wealth (same).
    \1302\ See letter from Sullivan Cromwell.
    \1303\ See, e.g., letters from Financial Services Forum; Jones 
Day (``It is also not clear that there will be a sufficient number 
of qualified firms to provide these services for companies to comply 
with the attestation requirements.''); SouthState (``Further, the 
number of experienced personnel to oversee, execute, or otherwise be 
considered an `expert' in climate-related financial risk management 
is currently (and likely for the foreseeable future) very low.''); 
and Sullivan Cromwell (``Although an industry of qualified third-
party providers likely would develop, the current lack of qualified 
attestation providers would prove challenging and costly for 
companies, especially smaller registrants, to adhere to the proposed 
attestation requirements, particularly given the short proposed 
implementation period.'').
---------------------------------------------------------------------------

    In the Proposing Release, the Commission asked if it should specify 
that a GHG emissions attestation provider meets the expertise 
requirements if it is a member in good standing of a specified 
accreditation body that provides oversight to service providers that 
apply attestation standards, and if so, which accreditation body or 
bodies it should consider.\1304\ A few commenters stated that the 
Commission should require the use of GHG emissions attestation 
providers

[[Page 21752]]

that are accredited to ISO 14065 \1305\ or require that the GHG 
emissions attestation provider be able to demonstrate expertise in ISO 
14064-3.\1306\ One commenter stated the Commission should include all 
firms that are accredited for independent certification and assurance 
work by one of the members of the International Accreditation Forum 
(IAF), as well as accounting firms that are members of the AICPA or 
other professional accounting organizations, and that either have 
significant experience in GHG emissions and their attestation or are 
able to supervise an appropriately qualified Auditor-Engaged 
Specialist.\1307\ Another commenter stated that registrants should be 
required to ``engage a verifier accredited by a reputable organization, 
such as ANAB.'' \1308\ One commenter recommended that the Commission 
establish a process for ``staff oversight'' of non-PCAOB-registered 
accounting firms,\1309\ while another commenter suggested that the 
PCAOB be directed to develop ``a separate registration process for 
service providers specific to climate disclosures.'' \1310\ Finally, 
one commenter stated that ``since there is no internationally 
recognized accreditation body to certify the qualifications of third-
party attestation providers, issuers may not have sufficient clarity as 
to which third-party attestation providers have adequate qualifications 
under the proposed rule.'' \1311\
---------------------------------------------------------------------------

    \1304\ See Proposing Release, section II.H.2.
    \1305\ See, e.g., letters from ANSI NAB; and LRQA.
    \1306\ See, e.g., letters from Anthesis Grp. (stating that the 
evaluation of attestation providers could ``conform to ANSI ISO 
14064-3'' or an ``accepted equivalent,'' which ``will ensure 
appropriate rigor and consistency''); and ERM CVS.
    \1307\ See letter from ERM CVS. See also letter from ANSI NAB 
(recommending that the Commission require a GHG emissions 
attestation provider to be ``accredited to ISO 14065'' or a 
signatory to the International Accreditation Forum's Multilateral 
Recognition Arrangement (IAF MLA)).
    \1308\ See letter from First Environment. ANAB is the ANSI 
National Accreditation Board, which provides accreditation and 
training services to the certification body, validation and 
verification body, inspection and laboratory related communities. 
See ANSI National Accreditation Board, About ANAB, available at 
https://anab.ansi.org/about-anab/.
    \1309\ See letter from Ceres. See also letter from Center. Amer. 
Progress (``We strongly recommend that the SEC work toward 
establishing oversight of these attestation providers in the near 
future.'').
    \1310\ See letter from J. McClellan.
    \1311\ See letter from RILA.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission specify additional 
qualifications for GHG emissions attestation providers.\1312\ For 
example, a few commenters recommended that the Commission include a 
requirement for a GHG emission attestation provider to have prior 
experience in providing assurance.\1313\ Another commenter stated that 
the Commission should require a GHG emissions attestation provider to 
``have familiarity with the specific industry of the registrant for 
which the attestation report is being provided,'' which the commenter 
stated ``should enhance the attestation quality and provide greater 
transparency to investors and investment advisers without unduly 
burdening assurance providers.'' \1314\ One commenter stated that GHG 
emissions attestation providers should be required to demonstrate that 
they have policies and procedures in place to carry out the objectives 
of the proposed rules in an impartial, fair, and expert manner.\1315\ 
Finally, one commenter recommended that the Commission consider whether 
state licensure laws would preclude parties other than CPAs from 
performing attest services.\1316\
---------------------------------------------------------------------------

    \1312\ See, e.g., letters from CAQ; CFA Institute (stating that 
the Commission should require a GHG emissions attestation provider 
to have the financial wherewithal to withstand any litigation that 
might ensue from their attestation services); Crowe (stating that 
the Commission should consider whether the audit committee should be 
tasked with selecting the independent GHG emissions attestation 
provider); ERM CVS (recommending that a GHG emissions attestation 
provider be able to demonstrate expertise in IAASB standards and 
that the final rules include requirements related to the appointment 
of an ``Auditor-Engaged Specialist''); Ernst & Young LLP; IAA; PwC; 
and RSM.
    \1313\ See, e.g., letters from CAQ; and Ernst & Young LLP. See 
also letters from PwC (recommending that the Commission more closely 
align the expertise requirement with that used by ISAE 3000, which, 
among other provisions, requires the engagement partner to have 
``competence in assurance skills and techniques developed through 
extensive training and practical application'' and ``sufficient 
competence in the underlying subject matter and its measurement or 
evaluation to accept responsibility for the assurance conclusion''); 
and RSM US LLP (``Understanding the requisite skills to perform 
attestation services would be important for instilling public trust 
in sustainability reporting.'').
    \1314\ See letter from IAA.
    \1315\ See letter from Futurepast. See also letter from CFA 
Institute (recommending that an GHG emissions attestation provider 
``have established policies and procedures designed to provide it 
with confidence that the personnel selected to provide the GHG 
attestation service have the qualifications necessary for 
fulfillment of the responsibilities that the GHG emissions 
attestation provider will be called on to assume, including the 
appropriate engagement of specialists'').
    \1316\ See letter from PwC. See also letter from NASBA 
(``Virtually all of the State Boards do not allow non-CPAs to 
perform attestation services or issue reports under the professional 
standards governing the public accounting profession.'').
---------------------------------------------------------------------------

    A number of commenters agreed with the proposed requirement for a 
GHG emissions attestation provider to be independent with respect to 
the registrant and any of its affiliates.\1317\ One commenter stated 
that the proposed independence requirement ``should help ensure that 
the attestation provider can exercise informed, objective, and 
impartial judgment.'' \1318\ Several commenters stated that the 
proposed independence requirement would enhance the reliability of the 
attestation report.\1319\ Another commenter stated that ``[t]here is 
already a proliferation of potentially and actually conflicted 
operators in this space'' and that an independence requirement would 
``protect against further conflicts of interest'' and provide investors 
with ``better assurances of accuracy.'' \1320\
---------------------------------------------------------------------------

    \1317\ See, e.g., letters from AGs of Cal. et al.; ANSI NAB; 
Anthesis Grp.; CFA; CFA Institute; CII; Crowe; ERM CVS; Futurepast; 
ICAEW; ICCR; ICI (``We view the proposed independence requirements 
as particularly important so as to ensure that the provider cannot 
concurrently consult or advise on emissions reduction strategies and 
provide assurance on the company's emissions.''); LRQA; Morningstar; 
RSM US LLP; and TotalEnergies.
    \1318\ See letter from CFA.
    \1319\ See, e.g., letters from CAQ; and RSM US LLP.
    \1320\ See letter from AGs of Cal. et al.
---------------------------------------------------------------------------

    A few commenters stated that Rule 2-01 of Regulation S-X is an 
appropriate model for determining the independence of GHG emissions 
attestation providers,\1321\ while another commenter stated that it 
supported all the proposed criteria for determining the independence of 
the GHG emissions attestation provider.\1322\ Alternatively, one 
commenter stated that the proposed rules do not explicitly require the 
GHG emissions attestation provider to ``meet the stringent independence 
standards applicable to the financial statement auditor'' and 
encouraged the Commission to require GHG emissions attestation 
providers to ``meet the full complement of SEC independence 
requirements.'' \1323\ Other commenters stated that they supported the 
proposed definitions of ``affiliates'' and ``attestation and 
professional engagement period.'' \1324\ One commenter stated that the 
definition of ``attestation and professional engagement period'' should 
be based on the definition of ``audit and professional engagement 
period'' in Rule 2-01.\1325\ One commenter recommended that the 
Commission consider the relationship between the GHG emission 
attestation engagement and the financial audit if

[[Page 21753]]

the same firm undertakes both engagements.\1326\
---------------------------------------------------------------------------

    \1321\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.; and RSM US LLP (``We believe SEC Regulation S-X Rule 2-01 is an 
appropriate model for determining the independence of the GHG 
emissions attestation provider as it addresses financial 
relationships, employment relationships, business relationships, 
services in which the provider acts as registrant management, and 
contingent fees, among other matters.'').
    \1322\ See letter from ERM CVS.
    \1323\ See letter from PwC.
    \1324\ See, e.g., letters from ERM CVS; and Morningstar.
    \1325\ See letter from RSM.
    \1326\ See letter from ERM CVS (``The fees for the [GHG 
emissions attestation engagement] may be small compared to the 
financial audit fees and therefore we believe, based on 25 years' 
experience, that there is sometimes the risk of influence from the 
financial audit team, especially if material errors have been found 
in the climate disclosure or GHG emission data, despite the 
professional codes of conduct and independence requirements.'').
---------------------------------------------------------------------------

    Conversely, a few commenters stated that they did not support the 
proposed independence requirement.\1327\ A number of commenters raised 
concerns that the proposed independence requirement would limit the 
available pool of providers.\1328\ For example, some commenters stated 
that GHG emissions consultants that are already familiar with the 
processes of a particular registrant may not meet the independence 
requirement.\1329\ Another commenter stated that companies that have 
been obtaining third-party verification of GHG emissions data have not 
necessarily been obtaining verification from a provider that would meet 
the proposed independence requirement.\1330\ One commenter stated that 
the ``shortage of qualified, independent third parties'' would 
``further drive up the cost and impair the efficiency and quality of 
assurance services.'' \1331\ Some commenters noted that other 
Commission rules pertaining to qualified persons did not contain an 
independence requirement.\1332\ One commenter stated that the proposed 
independence requirement will place additional burdens on registrants 
given that they will need to perform procedures to assess the 
independence of attestation providers.\1333\
---------------------------------------------------------------------------

    \1327\ See, e.g., letters from Barrick Gold; and CEMEX.
    \1328\ See, e.g., letters from AEPC; Barrick Gold; Chamber; 
Climate Risk Consortia (``The scarcity of qualified attestation 
providers, coupled with the fact that any expert providing the 
attestation needs to be fully independent of the preparation of the 
disclosures (i.e., a consulting expert cannot also be an attestation 
provider), may create significant challenges in even finding even a 
qualified attestation provider, at least in the near term.)'' INGAA; 
Jones Day; PLASTICS; and Soc. Corp. Gov.
    \1329\ See, e.g., letters from AEPC (``At this point in time, 
there are a limited number of providers who would be available, and 
many of these same firms have been employed by registrants in their 
efforts to generate recommendations and techniques . . .''); Chamber 
(``Consultants who are already familiar with the processes of a 
given company may not meet the independence requirements.''); and 
SKY Harbor. But see letters from C2ES (stating that ``under no 
circumstance'' should the GHG emissions attestation provider ``be 
involved in developing the emission inventory''); and WSP (same).
    \1330\ See letter from APCIA.
    \1331\ See letter from Soc. Corp. Gov.
    \1332\ See, e.g., letters from Barrick Gold (``We note that 
Qualified Persons under the new mining rules under Regulation S-K 
1300 are not required to be independent, and we do not believe that 
an independence requirement is necessary for this purpose.''); and 
Soc. Corp. Gov. (noting that ``disclosures regarding mineral 
resources and oil and gas reserves do not contain similar 
independence requirements'').
    \1333\ See letter from Soc. Corp. Gov. (``Registrants and public 
audit firms determine auditor independence based on well-established 
rules, regulations, and procedures, including those promulgated by 
the Public Company Accounting Oversight Board. In light of the fact 
that there is no entity providing oversight of attestation providers 
for GHG emissions, this burden will fall squarely on issuers.'').
---------------------------------------------------------------------------

    Some commenters recommended that the Commission consider 
alternatives to the proposed independence requirement. Instead of the 
proposed independence requirement, one commenter suggested that the 
Commission allow a non-independent attestation provider to disclose 
that the provider is not independent to address any concerns investors 
or others may have about the relationship.\1334\ Another commenter 
stated that instead of requiring a GHG emissions attestation provider 
to be independent, the Commission should provide that ``if the firm 
retained by the company is providing other services to the company (in 
addition to attestation services) in excess of $1 million (for example) 
during the last completed fiscal year, then the company must provide 
disclosure of the aggregate fees for the attestation services and for 
such additional other services provided to the company for such year.'' 
\1335\ One commenter stated that the proposed independence requirement 
was ``overbroad'' and recommended that the Commission permit qualified 
firms to provide services--at least to affiliates of the registrant--in 
addition to their attestation services.\1336\ Another commenter stated 
that it would support a ``slimmed down'' version of Rule 2-01 for non-
accountants and recommended particular criteria.\1337\
---------------------------------------------------------------------------

    \1334\ See letter from CEMEX.
    \1335\ See letter from Jones Day (recommending the Commission 
adopt a requirement similar to Item 407(e)(3)(iii)(A) of Regulation 
S-K).
    \1336\ See letter from IAA (noting its concern that the 
independence requirement would prohibit registrants from using firms 
``that may be the most qualified to provide such attestations'' 
because those firms also provide other services to the registrant or 
their affiliates, such as audit or consulting services).
    \1337\ See letter from ERM CVS (stating that because the 
requirements in Rule 2-01 of Regulation S-X are specifically 
designed for financial auditing, they may be excessive for non-
accountants).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that accountants 
are already required to comply with relevant quality control and 
management standards when providing audit and attest services under the 
PCAOB, AICPA, or IAASB standards, and those quality control and 
management standards would similarly apply to accountants providing GHG 
emissions attestation services pursuant to these standards.\1338\ The 
Commission included a request for comment asking if it should require a 
GHG emissions attestation provider that does not (or cannot) use the 
PCAOB, AICPA, or IAASB attestation standards to comply with additional 
minimum quality control requirements.\1339\ Some commenters recommended 
that the Commission require the GHG emissions attestation provider to 
be subject to additional minimum quality control requirements.\1340\ 
One commenter stated that such requirements ``would foster more 
consistent quality in attestation reports under the proposed rules when 
the registrant selects a service provider that does not use PCAOB, 
AICPA, or IAASB attestation standards.'' \1341\ One commenter stated 
that it believed the ISO standards create a sufficient basis for 
ensuring quality attestation engagements and therefore any attestation 
provider should be required to perform attestation engagements in 
accordance with these standards.\1342\
---------------------------------------------------------------------------

    \1338\ See Proposing Release, section II.H.2.
    \1339\ See id.
    \1340\ See, e.g., letters from CFA Institute; Crowe; ERM CVS 
(stating that all firms that are accredited by one of the members of 
the International Accreditation Forum (IAF) must have a fully 
functional quality control and management system and that many GHG 
emissions attestation engagements are already carried out in 
accordance with IAASB Standards (ISAE 3000/3410), which require an 
equivalent system of quality control and management); PwC 
(recommending that the GHG emissions attestation provider be 
required to comply with additional minimum quality control 
requirements if the provider is not registered with the PCAOB or 
otherwise subject to independent oversight); and RSM.
    \1341\ See letter from Crowe.
    \1342\ See letter from LRQA.
---------------------------------------------------------------------------

    In the Proposing Release the Commission included a request for 
comment asking if it should amend 17 CFR 230.436 (``Rule 436'') to 
provide that a report on GHG emissions at the limited assurance level 
by a GHG emissions attestation provider that has reviewed such 
information is not considered a part of a registration statement 
prepared or certified by such person within the meaning of sections 7 
and 11 of the Securities Act.\1343\ Several commenters generally 
expressed support for such an amendment so that GHG emissions 
attestation providers would not be subject to liability under section 
11.\1344\ A few of these commenters stated that the potential for 
liability under section 11 would or could deter or reduce the number of

[[Page 21754]]

assurance providers available.\1345\ On the other hand, a few 
commenters stated that the Commission should confirm that attestation 
reports are considered to be expertized material because firms acting 
as underwriters will be exposed to significant legal liability if Scope 
1 and Scope 2 GHG emissions attestations are not considered to be 
expertized material for purposes of liability under section 11 of the 
Securities Act.\1346\ One of these commenters further stated that 
``[f]or any period for which assurance is not required for GHG 
emissions attestation reports, the SEC should clarify that the reports 
will still be considered to be expertized material, to avoid 
inadvertently subjecting underwriters to heightened due diligence 
requirements during an interim period of disclosure implementation.'' 
\1347\
---------------------------------------------------------------------------

    \1343\ See Proposing Release, section II.H.2.
    \1344\ See, e.g., letters from Bureau Veritas (June 17, 2022); 
D. Hileman Consulting; ERM CVS; Ernst & Young; Futurepast; and WSP.
    \1345\ See, e.g., letters from Apex; D. Hileman Consulting; ERM 
CVS; and WSP. But see, e.g., letter from Futurepast (``Futurepast 
does not believe that the possibility of section 11 liability will 
deter qualified firms and persons from providing attestation 
services to registrants.'').
    \1346\ See, e.g., letters from BPI; and Financial Services 
Forum.
    \1347\ See letter from BPI.
---------------------------------------------------------------------------

c. Final Rules (Item 1506(b))
    We are adopting the GHG emissions attestation provider requirements 
substantially as proposed.\1348\ We continue to believe that the 
expertise requirements (Item 1506(b)(1)) are necessary to help ensure 
that the service provider preparing the attestation report has 
sufficient competence and capabilities necessary to execute the 
attestation engagement.\1349\ Several commenters agreed with the 
proposal's expertise requirements and definition of significant 
experience.\1350\ While some commenters urged the Commission to require 
a GHG emissions attestation provider to have a certain number of years 
of experience,\1351\ other commenters stated that the Commission should 
not prescribe a minimum number of years.\1352\ We do not think it is 
necessary to require a provider to have a certain number of years of 
experience because imposing such a requirement could result in a 
``check the box'' mentality, and we believe that investors would be 
better served by registrants undertaking a more holistic consideration 
of a provider's qualifications in selecting a provider. Some commenters 
requested that the Commission provide additional guidance regarding the 
qualifications for a GHG emissions attestation provider; \1353\ 
however, these commenters generally did not identify any particular 
aspects of the expertise requirement that required clarification. 
Adopting a principles-based approach inherently involves some 
uncertainty, but we believe registrants would be better served by such 
flexibility than an approach that, for example, identifies a static 
list of qualified providers. Such an approach will provide a registrant 
with more leeway to select a GHG emissions attestation provider that 
has the experience that best fits the registrant's facts and 
circumstances, which could improve the quality of assurance provided 
thereby enhancing the reliability of GHG emissions disclosures.
---------------------------------------------------------------------------

    \1348\ See 17 CFR 229.1506(b). To enhance clarity, we are making 
one minor change to the rule text. In the definition of 
``significant experience'' in the final rules, we are substituting 
the proposed rule's reference to ``professional standards'' with a 
reference to ``attestation standards'' to make it clear that the 
standards being referenced in Item 1506(b)(1)(i) are the attestation 
standards that meet the requirements of Item 1506(a). See 17 CFR 
229.1506(b)(1)(i).
    \1349\ See Proposing Release, section II.H.2.
    \1350\ See supra notes 1287 and 1297 and accompanying text.
    \1351\ See supra note 1298 and accompanying text.
    \1352\ See supra note 1299 and accompanying text.
    \1353\ See supra notes 1300 and 1301 and accompanying text.
---------------------------------------------------------------------------

    In response to a question included in the Proposing Release, some 
commenters stated that the Commission should specify that a GHG 
emissions attestation provider meets the expertise requirements if it 
is a member in good standing of a specified accreditation body and 
identified particular bodies or approaches the Commission should 
consider.\1354\ We have decided not to impose such a requirement at 
this time given the evolving nature of GHG emissions assurance and the 
possibility that new or different accreditation bodies may exist at the 
time when registrants subject to Item 1505 and Item 1506 are required 
to begin obtaining attestation reports. Several commenters recommended 
that the Commission specify additional qualifications for GHG emissions 
attestation providers,\1355\ and while we considered each of these 
suggestions, we believe that the requirements we have included in the 
final rules will help ensure that GHG emissions attestation providers 
have sufficient competence and capabilities necessary to execute the 
attestation engagement.
---------------------------------------------------------------------------

    \1354\ See supra notes 1305, 1307, and 1308 and accompanying 
text.
    \1355\ See supra note 1312 and accompanying text.
---------------------------------------------------------------------------

    While a number of commenters urged the Commission to require that a 
GHG emissions attestation provider be a public accounting firm 
registered with the PCAOB,\1356\ we determined to retain the 
principles-based approach in the final rules because it will provide 
registrants with the flexibility to hire a non-accounting firm that may 
have relevant or specialized experience with respect to assuring GHG 
emissions disclosure while at the same time ensuring that a GHG 
emissions attestation provider has the requisite expertise to perform 
the engagement in accordance with professional standards. Although we 
agree there would be investor protection benefits to be gained by 
requiring a registrant to use a PCAOB-regulated entity that is subject 
to oversight and inspections (even though the PCAOB's inspection 
jurisdiction would not include engagements for the assurance of GHG 
emissions disclosure within its scope),\1357\ we have balanced this 
against other considerations, such as the availability of GHG emissions 
providers and compliance costs, which could potentially be lower if a 
larger pool of assurance providers is available. Nevertheless, we agree 
with those commenters who stated that if the final rules permit non-
PCAOB-registered accounting firms to provide attestation services, the 
Commission would need to ensure that there are appropriate protections 
in place for investors.\1358\ The expertise, independence, and other 
requirements applicable to the GHG emissions attestation engagement 
under the final rules, such as the requirement for a provider to use 
attestation standards that are established by a body or group that has 
followed due process procedures, are intended to serve precisely that 
function.
---------------------------------------------------------------------------

    \1356\ See supra note 1294 and accompanying text.
    \1357\ The PCAOB's inspection jurisdiction is limited to audits 
of issuers, brokers, and dealers and would not include engagements 
for the assurance of GHG emissions disclosure within its scope. See 
15 U.S.C. 7214 (setting forth the PCAOB's inspection jurisdiction). 
However, as discussed in greater detail below, oversight inspection 
programs can provide benefits, such as providing a check on a GHG 
emissions attestation provider's overall activities and driving 
improvements in the quality of services overall, even when an 
oversight inspection program does not include a GHG emissions 
attestation engagement within its scope.
    \1358\ See supra note 1292 and accompanying text.
---------------------------------------------------------------------------

    As with the proposed rules, the final rules apply the expertise 
requirement to the person or firm signing the GHG emissions attestation 
report.\1359\ If the service provider is a firm, we would expect it to 
have policies and procedures designed to provide it with reasonable 
assurance that the personnel selected to conduct the GHG emissions 
attestation engagement have significant experience with respect to both 
attestation engagements and GHG emissions. As we explained in the

[[Page 21755]]

Proposing Release, this would mean that the service provider has the 
qualifications necessary for fulfillment of the responsibilities that 
it would be called on to assume, including the appropriate engagement 
of specialists, if needed.\1360\ A few commenters supported a 
requirement for GHG emissions attestation providers to establish 
policies and procedures along these lines.\1361\ Although, as stated 
above, we expect firms to adopt policies and procedures related to the 
expertise of its personnel, we have determined not to include such a 
requirement in the final rules because we do not want to foreclose 
other possible means by which a firm may ensure that it and its 
relevant personnel meet the expertise requirements set forth in Item 
1506(b).
---------------------------------------------------------------------------

    \1359\ See 17 CFR 229.1506(b).
    \1360\ See Proposing Release, section II.H.2.
    \1361\ See supra note 1315 and accompanying text.
---------------------------------------------------------------------------

    As noted above, one commenter recommended that the Commission 
consider whether state licensure laws would preclude parties other than 
CPAs from performing attestation services.\1362\ It is our 
understanding that states typically require someone who holds itself 
out as a public accountant or as performing public accounting services 
to be licensed as a CPA. In addition, non-CPAs are not able to use the 
AICPA or PCAOB attestation standards.\1363\ However, these principles 
would not prevent a non-CPA from performing attestation services as 
long as it was neither holding itself out as a CPA nor using an 
attestation standard that, by its terms, is only available to CPAs. In 
this regard, we note that the IAASB and ISO standards, two of the four 
standards we are explicitly permitting assurance providers to use under 
the final rules (as discussed in more detail below), are not restricted 
to CPAs, and we are not aware that any state laws are currently 
impacting the ability of non-CPA service providers to provide assurance 
over GHG emissions.
---------------------------------------------------------------------------

    \1362\ See letter from PwC. See also letter from NASBA 
(``Virtually all of the State Boards do not allow non-CPAs to 
perform attestation services or issue reports under the professional 
standards governing the public accounting profession.'').
    \1363\ By their terms, AICPA and PCAOB attestation standards are 
only applicable in the context of engagements performed by certified 
public accountants. See, e.g., PCAOB AT section 101, Attest 
Engagements, available at https://pcaobus.org/oversight/standards/attestation-standards/details/AT101 (stating that ``[t]his section 
applies to engagements . . . in which a certified public accountant 
in the practice of public accounting . . . is engaged to issue or 
does issue an examination, a review, or an agreed-upon procedures 
report on subject matter . . .'') (emphasis added); AICPA SSAE No. 
18, AT-C Sec.  105.01 (``This section applies to engagements in 
which a CPA in the practice of public accounting is engaged to 
issue, or does issue, a practitioner's examination, review, or 
agreed-upon procedures report on subject matter or an assertion 
about subject matter (hereinafter referred to as an assertion) that 
is the responsibility of another party.'') (emphasis added).
---------------------------------------------------------------------------

    With respect to independence, we are adopting each of the 
independence requirements (Item 1506(b)(2)) as proposed.\1364\ These 
independence requirements are important because they help ensure that 
the attestation provider will perform the engagement in an objective 
and impartial manner. A number of commenters agreed with the proposed 
requirement for a GHG emissions attestation provider to be independent 
with respect to the registrant and any of its affiliates and agreed 
that the independence requirement would enhance the reliability of the 
attestation report.\1365\ We continue to believe that, similar to how 
assurance provided by independent public accountants improves the 
reliability of financial statements and disclosures and is a critical 
component of our capital markets, assurance of GHG emissions disclosure 
by independent service providers should also improve the reliability of 
such disclosure.\1366\ Several commenters agreed with the Commission's 
proposed approach of modeling the independence requirement and relevant 
definitions on the Commission's qualifications for accountants under 
Rule 2-01 of Regulation S-X,\1367\ and we continue to believe the 
approach is appropriate given our experience in administering Rule 2-01 
in the context of financial statement audits. One commenter appeared to 
suggest that, under the proposed rules, GHG emissions attestation 
providers would not be subject to the same level of independence as 
financial statement auditors.\1368\ Although the final rules do not set 
forth a non-exclusive specification of circumstances inconsistent with 
independence like Rule 2-01(c) does for financial statement auditors, 
the foundational principles underlying the independence requirements in 
Rule 2-01 and the final rules are the same,\1369\ and we view the 
independence requirements in the two contexts as providing similar, if 
not equivalent, protections to investors. However, for the avoidance of 
any doubt, we are clarifying that registrants and GHG emissions 
attestation providers are only required to comply with the independence 
requirements included in Item 1506 and are not required to separately 
comply with the independence requirements included in Rule 2-01 with 
respect to the GHG emissions attestation engagement.\1370\ Along those 
lines, existing Commission guidance and staff interpretations regarding 
Rule 2-01 do not apply to the independence requirements in Item 1506; 
however, to the extent any such guidance or interpretation may apply to 
an issue that is similarly presented under Item 1506 (which is a 
possibility since Item 1506 is modeled on Rule 2-01), the guidance or 
interpretation would be a useful starting point for consideration, 
although not determinative.\1371\
---------------------------------------------------------------------------

    \1364\ See 17 CFR 229.1506(b)(2).
    \1365\ See supra note 1317 and accompanying text.
    \1366\ See Proposing Release, section II.H.2.
    \1367\ See supra notes 1321 and 1324 and accompanying text.
    \1368\ See letter from PwC.
    \1369\ Namely, the final rules provide that a GHG emissions 
attestation provider is not independent if such attestation provider 
is not, or a reasonable investor with knowledge of all relevant 
facts and circumstances would conclude that such attestation 
provider is not, capable of exercising objective and impartial 
judgment on all issues encompassed within the attestation provider's 
engagement, which is modeled on Rule 2-01(b). Compare 17 CFR 
229.1506(b)(2)(i) and 17 CFR 210.2-01(b). Also, the final rules 
model the factors the Commission will consider in determining 
whether a GHG emissions attestation provider is independent on the 
introductory text to Rule 2-01. Compare 17 CFR 229.1506(b)(2)(ii) 
and Introductory Text to Rule 2-01.
    \1370\ The final rules do not alter or amend Rule 2-01 or its 
current applicability in any way, which means, for example, there is 
no change to the requirement that registrants and their financial 
statement auditor comply with Rule 2-01 with respect to the 
financial statement audit.
    \1371\ The staff of the Commission's Office of the Chief 
Accountant is available to consult with registrants or GHG emissions 
attestation providers regarding the independence requirements in the 
final rules.
---------------------------------------------------------------------------

    We considered the concern raised by commenters that requiring a GHG 
emissions attestation provider to be independent would limit the 
available pool of providers and potentially increase costs.\1372\ 
However, we think these concerns are mitigated by the modifications in 
the final rules that provide registrants subject to the requirements 
with a multi-year transition period before they are required to obtain 
an attestation report. The phased in compliance period will give 
registrants adequate time to find a provider that meets the 
independence requirements. It will also give non-accountant attestation 
providers time to familiarize themselves with the independence 
requirements and adapt their business practices accordingly, which may 
help mitigate any adverse effects that the independence requirements 
could have on the available pool of providers. For this reason, we do 
not think it is necessary, as suggested by some commenters, to

[[Page 21756]]

adopt an alternative to the independence requirement to simply disclose 
the fees received.\1373\ Although requiring the disclosure of any fees, 
including non-attestation fees, received by the GHG emissions 
attestation provider from the registrant would provide investors with 
important information for evaluating the objectivity of the attestation 
provider, such an alternative would not prohibit the GHG emissions 
attestation provider from performing the GHG emissions assurance 
services in circumstances where the provider was not independent from 
the registrant (as the final rules will do). A few commenters stated 
that the proposed rules' references to accounting or audit-style 
requirements could favor accounting firms,\1374\ and we acknowledge 
that some of the requirements in the final rules, such as the 
independence requirements, may be more familiar to accounting firms 
versus non-accounting firms. However, we believe the principles-based 
approach in the final rules generally should be accessible for both 
accounting and non-accounting firms. Moreover, the phased in compliance 
period should give non-accountant attestation providers time to 
familiarize themselves with the independence requirements and provide 
existing service providers with time to unwind any existing conflicts 
to their independence.
---------------------------------------------------------------------------

    \1372\ See supra notes 1327, 1328, and 1331 and accompanying 
text.
    \1373\ See supra note 1335 and accompanying text.
    \1374\ See supra note 1293 and accompanying text.
---------------------------------------------------------------------------

    Some commenters suggested that the proposed independence 
requirement was problematic because it would seem to prohibit an expert 
or other third-party that has assisted a registrant in calculating or 
preparing its GHG emissions data from serving as the registrant's GHG 
emissions attestation provider.\1375\ We agree that it would be 
difficult for an expert that has assisted a registrant in calculating 
or preparing its GHG emissions data to meet the independence 
requirements because such an engagement would presumably place the 
attestation provider in the position of attesting to its own work and 
may create a mutual interest between the attestation provider and the 
registrant, two of the factors the final rules state the Commission 
will consider in determining whether the GHG emissions provider is 
independent.\1376\ We think the conflict of interest presented by this 
circumstance is exactly the type of situation that the independence 
requirement is intended to prevent, and therefore we are not modifying 
the independence requirement in response to these commenters' concerns. 
As a result, this could mean that a registrant that determines it is 
necessary to hire a third-party service provider to help it calculate 
or prepare its GHG emissions disclosure may have to pay a fee to both 
the third-party service provider and to its GHG emissions attestation 
provider. However, the likelihood of this scenario is reduced by the 
multiyear phase in compliance period we are adopting, which provides 
registrants with sufficient time to develop the necessary processes and 
procedures to calculate their GHG emissions data before they are 
required to comply with the assurance requirements. In addition, the 
exemption from the GHG emissions reporting and assurance requirements 
for SRCs and EGCs provides most newly public companies with time to 
develop any in-house expertise that may be necessary in case they no 
longer qualify for SRC or EGC status in the future and become subject 
to the final rules.
---------------------------------------------------------------------------

    \1375\ See supra note 1329 and accompanying text.
    \1376\ See 17 CFR 229.1506(b)(2)(ii)(A). Conversely, we 
generally expect that a registrant would be able to use its 
financial statement auditor as its GHG emissions attestation 
provider consistent with the independence requirement in the final 
rules.
---------------------------------------------------------------------------

    In response to the commenters that pointed out that the Commission 
did not adopt a requirement to retain an independent third party to 
prepare, or conduct a reserves audit of, a registrant's reserves 
estimates in the context of its mining and oil and gas disclosure 
rules,\1377\ we note that the Commission's determination in each of its 
rulemakings about whether to require a registrant to retain an 
independent third-party is context specific. For example, with respect 
to its mining disclosure rules, the Commission stated that it was not 
adopting a requirement for a qualified person to be independent from 
the registrant because, among other things, the final rules require a 
registrant to disclose the qualified person's affiliated status with 
the registrant or another entity having an ownership or similar 
interest in the subject property, which is consistent with the 
Committee for Mineral Reserves International Reporting Standards' 
mining guidelines, to which the Commission was amending its mining 
rules to more closely align.\1378\ With respect to its oil and gas 
disclosure rules, the Commission pointed out that most commenters did 
not support a requirement to obtain an independent third-party 
assessment of reserves estimates because a company's internal staff is 
generally in a better position to prepare those estimates and there is 
a potential lack of qualified third party engineers and professionals 
available.\1379\ However, the Commission did adopt a requirement for a 
registrant to provide a general discussion of the internal controls it 
uses to assure objectivity in the reserves estimation process and the 
disclosure of the qualifications of the technical person primarily 
responsible for preparing the reserves estimates.\1380\ In keeping with 
this context specific approach, with respect to assurance over GHG 
emissions disclosure, we believe that the benefits to investors from 
requiring a GHG emissions attestation provider to be independent in 
accordance with Item 1506 justify the potential costs for the reasons 
stated above. Moreover, there is currently a growing practice among 
some registrants of obtaining third-party assurance over their GHG 
emissions data.\1381\ Although generally the independence requirements 
in the assurance standards currently being used with respect to GHG 
emissions data are not as robust as the requirements in the final 
rules, many of these standards include requirements related to the 
objectivity and impartiality of the third-party assurance 
provider.\1382\ Therefore, the final rules' independence requirement is 
not inconsistent with the general practice in this space of retaining 
an objective and impartial third-party to provide assurance.\1383\
---------------------------------------------------------------------------

    \1377\ See supra note 1332 and accompanying text.
    \1378\ See Modernization of Property Disclosures for Mining 
Registrants, Release No. 33-10098 (June 16, 2016) [81 FR 41651, 
41661 (June 27, 2016)]; Modernization of Property Disclosures for 
Mining Registrants, Release No. 33-10570 (Oct. 31, 2018) [83 FR 
66344, 66363 (Dec. 26, 2018)].
    \1379\ See Modernization of Oil and Gas Reporting, Release No. 
8995 (Dec. 31, 2008) [74 FR 2157, 2175 (Jan. 14, 2009)].
    \1380\ See id.
    \1381\ See supra note 1232.
    \1382\ See, e.g., AICPA SSAE No. 18, AT-C Sec.  105.26; IAASB 
ISAE 3000 (Revised) Sec.  20; and ISO 14064-3: 2019 Sec.  4.2. The 
independence requirements in the final rules are more rigorous and 
may differ in scope from the requirements included in these 
standards. It is possible that the application of the independence 
requirements in the final rules may result in a GHG emissions 
attestation provider no longer being able to provide certain non-
assurance services to its assurance client that may be permissible 
to provide outside the context of the final rules.
    \1383\ The International Ethics Standards Board for Accountants 
(IESBA), which is an independent global ethics standard-setting 
board, has recently proposed ethics standards for sustainability 
assurance providers (i.e., professional accountants and other 
professionals performing sustainability assurance engagements), 
including robust independence standards. IESBA stated that it 
``holds to the premise that sustainability assurance engagements . . 
. must be underpinned by the same high standards of ethical behavior 
and independence that apply to audits of financial information.'' 
See IESBA, Explanatory Memorandum for Proposed International Ethics 
Standards for Sustainability Assurance (including International 
Independence Standards) (IESSA) and Other Revisions to the Code 
Relating to Sustainability Assurance and Reporting, available at 
https://ifacweb.blob.core.windows.net/publicfiles/2024-01/Proposed%20IESSA%20and%20Other%20Revisions%20to%20the%20Code%20Relating%20to%20Sustainability%20Assurance%20and%20Reporting%20-%20Explanatory%20Memorandum.pdf.

---------------------------------------------------------------------------

[[Page 21757]]

    In addition, we are adopting the definition of ``affiliate'' as 
proposed and consistent with the feedback provided by commenters that 
addressed this issue.\1384\ Similarly, we are adopting the broad 
definition of ``attestation and professional engagement period'' as 
proposed, which is modeled on the definition of ``audit and 
professional engagement period'' in Rule 2-01.\1385\
---------------------------------------------------------------------------

    \1384\ See supra note 1324.
    \1385\ See letter from RSM.
---------------------------------------------------------------------------

    As discussed in greater detail above, in response to a request for 
comment, some commenters recommended that the Commission require the 
GHG emissions attestation provider to be subject to additional minimum 
quality control requirements.\1386\ We have determined not to impose 
such requirements at this time; however, we reiterate the statement the 
Commission made in the Proposing Release that accountants are already 
required to comply with relevant quality control and management 
standards when providing audit and attest services under PCAOB, AICPA, 
or IAASB standards, and those quality control and management standards 
would similarly apply to accountants providing GHG emissions 
attestation services pursuant to these standards.\1387\ The IAASB 
standards impose similar quality control requirements on non-
accountants.\1388\ In addition, one commenter stated that, for example, 
all firms that are accredited by one of the members of the IAF must 
have a quality control and management system.\1389\ As such, we believe 
that many of the more experienced non-accountant GHG emissions 
attestation providers are required to comply with quality control 
requirements. More generally, we expect that any attestation standards 
that meet the requirements of the final rules would likely provide 
guidance on quality control for assurance providers.\1390\
---------------------------------------------------------------------------

    \1386\ See supra note 1340 and accompanying text.
    \1387\ See Proposing Release, section II.H.2.
    \1388\ See IAASB ISAE 3000.3(b) (Revised) (``The practitioner 
who is performing the engagement is a member of a firm that is 
subject to [International Standard on Quality Control (ISQC) 1], or 
other professional requirements, or requirements in law or 
regulation, regarding the firm's responsibility for its system of 
quality control, that are at least as demanding as ISQC 1.'').
    \1389\ See letter from ERM CVS. The International Accreditation 
Forum is a worldwide association of accreditation bodies and other 
bodies interested in conformity assessment in the fields of 
management systems, products, processes, services, personnel, 
validation and verification and other similar programs of conformity 
assessment. See International Accreditation Forum, About IAF, 
available at https://iaf.nu/en/about/. Its members include ANAB, the 
ANSI National Accreditation Board, which provides accreditation to 
greenhouse gas verification and validation providers that 
demonstrate competence to validate or verify statements in 
accordance with its accreditation requirements, including ISO 14065.
    \1390\ The ISO standards, which are used by many non-accountant 
GHG emissions attestation providers as described in greater detail 
below, include two standards that can be used as a basis for 
requirements for attestation providers related to impartiality, 
competency, and communication, which are areas typically covered by 
quality control requirements. See ISO 14065, General principles and 
requirements for bodies validating and verifying environmental 
information (2020); and ISO 14066, Environmental information--
Competence requirements for teams validating and verifying 
environmental information (2023).
---------------------------------------------------------------------------

    Although the final rules do not include a requirement that a 
registrant's audit committee pre-approve the GHG emissions attestation 
services, nor was such a requirement proposed, it would be permissible 
under the final rules for a registrant to use the auditor of its 
financial statements to perform the GHG emissions attestation 
engagement, assuming the final rules' requirements for assurance 
providers are met. To the extent that the registrant's auditor is 
engaged to provide an attestation report in connection with the 
registrant's GHG emissions, or with respect to any other climate-
related disclosures, the auditor would be required to comply with 
applicable, existing pre-approval requirements.\1391\ Even in 
circumstances where the GHG emissions attestation services are not 
subject to a pre-approval requirement, however, audit committees should 
consider what level of involvement would be appropriate for them to 
take with respect to the selection and retention of attestation 
providers for climate-related disclosures.
---------------------------------------------------------------------------

    \1391\ See 15 U.S.C. 78j-1(i). See also supra note 1280 
(explaining that if the independent accountant who audits the 
registrant's consolidated financial statements is also engaged to 
perform the GHG emissions attestation for the same filing, the fees 
associated with the GHG emissions attestation engagement would be 
considered ``Audit-Related Fees'' for purposes of Item 9(e) of 17 
CFR 240.14a-101, Item 14 of Form 10-K, Item 16C of Form 20-F, or any 
similar requirements).
---------------------------------------------------------------------------

    In addition, in response to commenters' feedback,\1392\ we are 
amending Rule 436 to provide that a report by an attestation provider 
covering Scope 1 and/or Scope 2 emissions at a limited assurance level 
shall not be considered a part of the registration statement that is 
prepared or certified by an expert or person whose profession gives 
authority to the statements made within the meaning of sections 7 and 
11 of the Securities Act.\1393\ We determined to include this 
amendment, in part, because we agree with commenters that the potential 
for section 11 liability could deter or reduce the number of 
attestation providers willing to accept these engagements.\1394\ 
However, we are limiting the exception to those GHG emissions 
attestation engagements performed at a limited assurance level to 
encourage GHG emissions attestation providers to perform such 
engagements. We think there could be reluctance on the part of a GHG 
emissions attestation provider to perform attestation engagements at 
the limited assurance level because of their potential liability under 
section 11, and that, alternatively, if GHG emissions attestation 
providers perform significantly expanded procedures, much closer to 
reasonable assurance, in order to meet potential liability concerns 
under section 11, substantial increased costs to issuers could 
result.\1395\ The same considerations do not apply to reasonable 
assurance engagements, and we are therefore not providing a similar 
exception for those engagements.
---------------------------------------------------------------------------

    \1392\ See supra note 1344 and accompanying text.
    \1393\ See 17 CFR 230.436(i)(1).
    \1394\ See supra note 1345 and accompanying text.
    \1395\ The Commission relied upon a similar rationale when it 
amended Rule 436 to provide that a report prepared or certified by 
an accountant within the meaning of sections 7 and 11 of the 
Securities Act shall not include a report by an independent 
accountant on a review of unaudited interim financial statements. 
See Accountant Liability for Reports on Unaudited Interim Financial 
Information Under Securities Act of 1933, Release No. 33-6173 (Jan. 
8, 1980) [45 FR 1601, 1604 (Jan. 8, 1980)].
---------------------------------------------------------------------------

    The amendment to Rule 436 also states that a report covering Scope 
3 emissions at a limited assurance level shall not be considered a part 
of the registration statement that is prepared or certified by an 
expert or person whose profession gives authority to the statements 
made within the meaning of sections 7 and 11 of the Securities 
Act.\1396\ Although no registrants are required to disclose Scope 3 
emissions or obtain an attestation report for Scope 3 emissions under 
the final rules, we have included Scope 3 emissions within the 
exception contained in Rule 436 in the event that a registrant 
voluntarily discloses its Scope 3 emissions. We believe it is 
appropriate to provide these accommodations to encourage registrants to 
obtain limited assurance over Scope 3 disclosure.
---------------------------------------------------------------------------

    \1396\ See 17 CFR 230.436(i)(1).
---------------------------------------------------------------------------

    Although not subjecting providers of these reports to liability 
could affect their incentives, on balance we think that encouraging 
more providers to enter this market would result in more

[[Page 21758]]

competition, which would benefit investors.\1397\ We acknowledge the 
potential downsides of not subjecting the providers of these reports to 
liability; however, as noted above,\1398\ these accommodations are 
consistent with the treatment of an accountant's report on unaudited 
interim financial statements included in a registration statement, 
which is also provided at the limited assurance level. Therefore, in 
these particular circumstances, we believe it is appropriate to provide 
these accommodations.
---------------------------------------------------------------------------

    \1397\ In situations where GHG emissions attestation providers 
are experts, the amendments to Rule 436 will eliminate the potential 
for section 11 liability for those providers with respect to 
attestation reports at the limited assurance level. This could 
reduce the incentives for GHG emissions attestation providers to 
perform a thorough analysis and ensure that their attestation 
report, which is required to be included in a registration statement 
with GHG emissions disclosures to which the assurance services 
relate, is true and that there was no omission to state a material 
fact required to be stated therein or necessary to make the 
statements therein not misleading. We remind registrants and 
providers, however, that there are other remedies available to 
shareholders and/or the Commission, such as section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder and section 17(a) of the 
Securities Act, which are not affected by the amendments to Rule 
436.
    \1398\ See supra note 1395.
---------------------------------------------------------------------------

    One result of the amendments to Rule 436 is that a GHG emissions 
attestation provider that has performed an attestation engagement over 
GHG emissions at a limited assurance level is not required to submit a 
consent in connection with the registration statement under section 7 
of the Securities Act.\1399\ However, we think it is nonetheless 
important that a GHG emissions attestation provider have some awareness 
about whether its attestation report is included in a registration 
statement under the Securities Act.\1400\ Therefore, we are also 
amending Item 601 of Regulation S-K, which details the exhibits 
required to be included in Securities Act and Exchange Act filings, to 
require registrants to file as an exhibit to certain registration 
statements under the Securities Act or reports on Form 10-K or 10-Q 
that are incorporated into these registration statements a letter from 
the attestation provider that acknowledges its awareness of the use in 
certain registration statements of any of its reports which are not 
subject to the consent requirement of section 7.\1401\ We are amending 
the Instructions as to Exhibits section of Form 20-F to include the 
same requirement for Form 20-F filers to the extent the Form 20-F is 
incorporated into a registration statement under the Securities 
Act.\1402\
---------------------------------------------------------------------------

    \1399\ See 15 U.S.C. 77g. The amendments to Rule 436 provide 
that a report by a GHG emissions attestation provider covering Scope 
1, Scope 2, and/or Scope 3 emissions at a limited assurance level 
shall not be considered part of the registration statement prepared 
or certified by an expert or person whose profession gives authority 
to the statements made, and therefore the requirement in section 7 
of the Securities Act that written consent is required from ``any 
person whose profession gives authority to a statement made by him'' 
that is ``named as having prepared or certified a report . . . for 
use in connection with the registration statement'' does not apply.
    \1400\ The Commission relied on this same rationale when it 
adopted an amendment requiring issuers to file as an exhibit to a 
registration statement a letter from the independent accountants 
that acknowledges its awareness of the use in a registration 
statement of any of its reports which are not subject to the consent 
requirement of section 7. See Accountant Liability for Reports on 
Unaudited Interim Financial Information Under Securities Act of 
1933, Release No. 33-6173 (Jan. 8, 1980) [45 FR 1601, 1604 (Jan. 8, 
1980)]; Amendments Regarding Exhibit Requirements, Release No. 6230 
(Sept. 5, 1980) [45 FR 58822, 58824 (Sept. 5, 1980)].
    \1401\ See 17 CFR 229.601(b)(27). This requirement is modeled on 
the requirement for an issuer to file as an exhibit to a 
registration statement a letter from the independent public 
accountant, which acknowledges their awareness that their report on 
unaudited interim financial information is being included in a 
registration statement. See 17 CFR 229.601(b)(15); Accountant 
Liability for Reports on Unaudited Interim Financial Information 
Under Securities Act of 1933, Release No. 33-6173 (Jan. 8, 1980) [45 
FR 1601, 1604 (Jan. 8, 1980)]; Amendments Regarding Exhibit 
Requirements, Release No. 6230 (Sept. 5, 1980) [45 FR 58822, 58824 
(Sept. 5, 1980)]. Although the Commission did not solicit comment 
specifically on the requirement to provide an acknowledgement 
letter, the requirement follows from similar contexts noted above. 
In addition, the associated burdens on issuers are less than the 
proposed consent requirement while retaining the benefit of 
providing notice to the assurance provider. Further, to help 
facilitate registrants' compliance with the requirement to file the 
letter from the GHG emissions attestation provider as an exhibit, we 
have included an instruction to Item 1506 that directs registrants 
obtaining assurance at a limited assurance level to Item 601(b)(27) 
(as well as to paragraph 18 of Form 20-F's Instructions as to 
Exhibits, as discussed infra note 1402 and accompanying text).
    \1402\ See Instructions as to Exhibits 18 of Form 20-F. Where 
Form 20-F is used a registration statement under the Exchange Act, 
this exhibit would not be required.
---------------------------------------------------------------------------

    We note that certain commenters urged the Commission to confirm 
that any attestation reports are expertized material, stating that 
otherwise underwriters may face heightened due diligence requirements 
in light of potential section 11 liability over GHG emission 
disclosures included in a registration statement.\1403\ We also note, 
as discussed above, that certain commenters stated that deeming the 
information expertized may have the effect of deterring or reducing 
available assurance providers.\1404\ We believe the approach we have 
taken appropriately addresses these concerns by exempting the GHG 
emissions attestation providers that perform limited assurance 
engagements from section 11 liability and the consent requirements 
associated with expertized reports, and requiring consent with 
corresponding section 11 liability only when the heightened level of 
review associated with reasonable assurance makes it appropriate for 
the report to be expertized. This bifurcated approach to reasonable 
versus limited assurance engagements is consistent with the current 
treatment of audited financial statements and unaudited (reviewed) 
interim financial statements.\1405\ While we recognize underwriters and 
other non-issuer defendants subject to potential liability under 
section 11 may face additional due diligence costs during the 
transition period or where limited assurance is required,\1406\ we do 
not believe this is unduly burdensome compared to other climate-related 
information that will be required in a registration statement pursuant 
to the final rules that is not otherwise expertized. Moreover, absent a 
mandatory limited assurance requirement in the final rules, a 
registrant would nonetheless be required to disclose its GHG emissions 
and underwriters and other defendants subject to potential liability 
under section 11 would be faced with the same potential liability and 
due diligence costs with respect to those disclosures.\1407\ Finally, 
the other defenses to liability included in Securities Act section 
11(b) remain available in accordance with the terms of that 
provision.\1408\
---------------------------------------------------------------------------

    \1403\ See supra note 1346 and accompanying text.
    \1404\ See supra note 1345 and accompanying text.
    \1405\ See infra section II.I.5.c discussing an additional 
amendment to Rule 436 in the context of a registrant's statements 
pertaining to voluntary assurance received over GHG emissions 
disclosure.
    \1406\ Compare 15 U.S.C. 77k(b)(3)(C) (providing underwriters 
and others with a defense for expertized material) with 15 U.S.C. 
77k(b)(3)(A) (providing underwriters and others with a defense for 
non-expertized materials).
    \1407\ See 17 CFR 229.1505.
    \1408\ See 15 U.S.C. 77k(b)(3)(A) (providing that ``no person, 
other than the issuer, shall be liable as provided therein who shall 
sustain the burden of proof . . . as regards any part of the 
registrant statement not purporting to be made on the authority of 
an expert . . . he had, after reasonable investigation, reasonable 
ground to believe and did believe, at the time such part of the 
registration statement became effective, that the statements therein 
were true and that there was no omission to state a material fact 
required to be stated therein or necessary to make the statements 
therein not misleading . . .'').
---------------------------------------------------------------------------

3. GHG Emissions Attestation Engagement and Report Requirements (Item 
1506(a)(2) and (c))
a. Proposed Rules
    The proposed rules would have required the attestation report 
required by proposed Item 1505(a) for AFs and LAFs to be included in 
the separately-captioned ``Climate-Related Disclosure''

[[Page 21759]]

section in the relevant filing and provided pursuant to standards that 
are publicly available at no cost and are established by a body or 
group that has followed due process procedures, including the broad 
distribution of the framework for public comment.\1409\ The Commission 
explained that the proposed requirement that the standards be 
established by a body or group that has followed due process procedures 
would be similar to the requirements for determining a suitable, 
recognized control framework for use in management's evaluation of an 
issuer's ICFR because in both cases a specific framework is not 
prescribed but minimum requirements for what constitutes a suitable 
framework are provided.\1410\ The Commission stated that this approach 
would help to ensure that the standards upon which the attestation 
engagement and report are based are the result of a transparent, public 
and reasoned process.\1411\
---------------------------------------------------------------------------

    \1409\ See Proposing Release, section II.H.3.
    \1410\ See id. (citing 17 CFR240.13a-15(c) and 240.15d-15(c) 
(stating that the ``framework on which management's evaluation of 
the issuer's internal control over financial reporting is based must 
be a suitable, recognized control framework that is established by a 
body or group that has followed due-process procedures, including 
the broad distribution of the framework for public comment'')).
    \1411\ See Proposing Release, section II.H.3.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that, for example, 
in its view, the attestation standards of the PCAOB,\1412\ AICPA,\1413\ 
and IAASB \1414\ would meet the proposed due-process requirement, and 
all of these standards are publicly available at no cost to investors 
who desire to review them.\1415\ The Commission explained that by 
highlighting these standards, it did not mean to imply that other 
standards currently used in voluntary reporting would not be suitable 
for use under the proposed rules.\1416\ The Commission further stated 
it intended the proposal to set minimum standards while acknowledging 
the current voluntary practices of registrants.\1417\
---------------------------------------------------------------------------

    \1412\ See PCAOB AT section 101.
    \1413\ See AICPA SSAE No. 18; SSAE No. 22, Review Engagements 
(limited assurance standard, effective for reports dated on or after 
June 15, 2022), available at https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/ssae-22.pdf; 
and SSAE No. 21, Direct Examination Engagements (reasonable 
assurance standard, effective for reports dated on or after June 15, 
2022 and will amend SSAE No. 18), available at https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/ssae-21.pdf.
    \1414\ See IAASB ISAE 3000 (Revised). See also IAASB ISAE 3410, 
Assurance Engagements on Greenhouse Gas Statements, available at 
https://ifacweb.blob.core.windows.net/publicfiles/2023-10/IAASB-2022-Handbook-Volume-2.pdf.
    \1415\ See Proposing Release, section II.H.3.
    \1416\ See id.
    \1417\ See id.
---------------------------------------------------------------------------

    The proposed rules would have required a GHG emissions attestation 
provider to follow the specific requirements regarding form and content 
of the reports set forth by the attestation standard (or standards) 
used by such attestation provider.\1418\ In addition, the proposed 
rules would have imposed minimum requirements for the GHG emissions 
attestation report to provide some standardization and comparability of 
GHG emissions attestation reports.\1419\ The Commission explained that 
the proposed minimum report requirements would provide investors with 
consistent and comparable information about the GHG emissions 
attestation engagement and report obtained by the registrant when the 
engagement is conducted by a GHG emissions attestation provider using 
an attestation standard that may be less widely used or that has less 
robust report requirements than more prevalent standards.\1420\
---------------------------------------------------------------------------

    \1418\ See id.
    \1419\ See id.
    \1420\ See id.
---------------------------------------------------------------------------

    The proposed minimum attestation engagement and report requirements 
were primarily derived from the AICPA's attestation standards (e.g., 
SSAE No. 18), which are commonly used by accountants who currently 
provided GHG attestation engagement services as well as other non-GHG-
related attestation engagement services and are largely similar to the 
report requirements under PCAOB AT-101 and IAASB ISAE 3410.\1421\ The 
Commission explained that many of the proposed minimum attestation 
report requirements are also elements of an accountant's report when 
attesting to internal control over financial reporting, an accountant's 
report on audited financial statements (which is conducted at a 
reasonable assurance level), and a review report on interim financial 
statements (which is conducted at a limited assurance level).\1422\
---------------------------------------------------------------------------

    \1421\ See id.
    \1422\ See id.
---------------------------------------------------------------------------

b. Comments
    Several commenters agreed with the proposal to require that the 
attestation engagement and related attestation report be provided 
pursuant to standards that are publicly available at no cost to 
investors and are established by a body or group that has followed due 
process procedures.\1423\ One commenter stated that these proposed 
requirements would ``help to protect investors who may rely on the 
attestation report by limiting the standards to those that have been 
sufficiently developed.'' \1424\ Another commenter stated that these 
proposed requirements would ``provide necessary transparency and 
opportunity for input from all stakeholders.'' \1425\ One commenter 
stated that public availability of the standards ``would be especially 
important for smaller investors and registrants.'' \1426\
---------------------------------------------------------------------------

    \1423\ See, e.g., letters from CAQ; CFA Institute; CII; Crowe; 
D. Hileman Consulting; ERM CVS; IECA; KPMG; Mazars (supporting the 
proposed requirements related to due process procedures); PwC ; RSM 
US LLP; and TCS.
    \1424\ See letter from CAQ.
    \1425\ See letter from KPMG.
    \1426\ See letter from RSM US LLP.
---------------------------------------------------------------------------

    Conversely, a few commenters disagreed with the proposal to require 
that the attestation engagement and related attestation report be 
provided pursuant to standards that are publicly available at no cost 
to investors and are established by a body or group that has followed 
due process procedures.\1427\ One of these commenters stated it 
``strongly disagrees'' with the proposal to require the use of 
standards that are publicly available at no cost because, in its view, 
such requirements would preclude the use of ISO 14064-3, a standard 
widely used for GHG verification, and therefore, would not serve the 
interests of investors.\1428\
---------------------------------------------------------------------------

    \1427\ See letter from Futurepast; and USTAG TC207. See also 
letter from CalPERS (stating that it is not clear why the proposed 
rules focus on providing the information at no cost and noting that 
``[l]ike in other areas, chances are that a free public option would 
be made available and then a useable version would be made available 
at higher cost'').
    \1428\ See letter from Futurepast (stating that the National 
Technology Transfer Act of 1995 does not require the use of 
standards that are publicly available at no cost and explaining that 
the fees ISO charges for standards are designed to support the 
standards writing activity of the International Organization for 
Standardization).
---------------------------------------------------------------------------

    Several commenters stated that they appreciated that the proposed 
rules were flexible or not overly prescriptive about the required 
attestation standards.\1429\ However, some commenters stated it would 
be helpful to provide further guidance about which standards would meet 
the proposed requirements,\1430\ or suggested that, absent a list of 
acceptable attestation standards, the proposed rules could

[[Page 21760]]

hinder consistency and comparability.\1431\
---------------------------------------------------------------------------

    \1429\ See, e.g., letters from BPI; Chevron (``We support 
flexibility on acceptable attestation standards . . .''); IIB; and 
NAM (``We also appreciate that the proposed rule does not prescribe 
a particular attestation standard, choosing instead to `recognize[] 
that more than one suitable attestation standard exists and that 
others may develop in the future.''').
    \1430\ See, e.g., letter from BPI (recommending that the 
Commission provide a non-exclusive list of acceptable verification 
standards).
    \1431\ See, e.g., letters from APCIA; and PLASTICS (stating that 
allowing the provider to ``pick the attestation standard'' could 
``add variability to costs and reporting methodology, thereby 
undermining the Proposed Rule's claimed goal of promoting 
consistency'').
---------------------------------------------------------------------------

    A few commenters agreed with the Commission's statement in the 
Proposing Release that the attestation standards of the PCAOB, AICPA, 
and IAASB would meet the proposed due process requirements.\1432\ In 
fact, some commenters recommended that the Commission consider 
requiring a GHG emissions attestation provider to use the standards 
established by the AICPA, IAASB, or PCAOB.\1433\ One of these 
commenters stated that limiting the permissible standards in this way 
would ``promote the quality and comparability'' of the attestation 
provided.\1434\ Alternatively, one commenter recommended that the 
Commission require the use of attestation standards promulgated by the 
PCAOB because in general ``investors would be best served if all 
verification was performed pursuant to the same standards.'' \1435\ 
Another commenter stated that the PCAOB should ``begin preparing a 
separate standard based on the proposed rule.'' \1436\ One commenter 
stated that the Commission should consider requiring non-accountant 
service providers to use the IAASB attestation standards, which in its 
view would ``potentially result in consistency across service 
providers, since accountants and non-accountants can both use those 
standards.'' \1437\ Another commenter stated that if the Commission 
permits the use of attestation standards other than those of the PCAOB, 
AICPA, or IAASB, the Commission could establish ``a process to consider 
whether these standards are sufficient'' and ``provide transparency on 
the differences compared to the widely understood standards,'' which 
would protect the public interest.\1438\
---------------------------------------------------------------------------

    \1432\ See, e.g., letters from ERM CVS (agreeing with the 
Commission's statement but stating that the attestation standards of 
the PCAOB, AICPA, and IAASB are ``generic auditing/assurance/
attestation standards and may not always address the complexities of 
non-financial or GHG emissions assurance/attestation''); and PwC. 
But see letter from RILA (stating that it appreciated the proposed 
rules' flexibility, but applying PCAOB, AICPA, and IAASB attestation 
standards ``prematurely will cause confusion and inconsistency, 
especially since it is still not clear what `reasonable assurance' 
means under these standards with respect to GHG emissions 
disclosures'').
    \1433\ See letter from CAQ (stating that the PCAOB's attestation 
standards would need to be updated if required for use by the 
Commission); and Mazars. See also, e.g., letters from Deloitte & 
Touche (stating that the AICPA, IAASB, and PCAOB standards are well-
established and would provide needed transparency to investors, but 
that it sees a risk of investor confusion beyond those standards); 
and KPMG (stating that if the Commission were to limit the 
requirements to the PCAOB; AICPA; and IAASB standards the other 
elements of the proposed rules, such as the minimum criteria for a 
report, could be removed).
    \1434\ See letter from CAQ.
    \1435\ See letter from CFA Institute. Other commenters suggested 
that the PCAOB may need to update its attestation standards. See, 
e.g., letters from Crowe (stating that the standard setters for the 
AICPA and IAASB attestation standards have issued standards or 
guidance on sustainability information, including GHG emissions 
information, while the PCAOB standards do not explicitly address 
these topics); and RSM US LLP (stating that if ``the Commission 
determines that attestation engagements related to GHG emissions 
should be conducted in accordance with PCAOB standards, we believe 
the PCAOB may deem it appropriate to update its attestation 
standards.'').
    \1436\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \1437\ See letter from Crowe.
    \1438\ See letter from KPMG.
---------------------------------------------------------------------------

    Several commenters stated that the Commission should require \1439\ 
or permit \1440\ attestation over GHG emissions disclosure be performed 
in accordance with standards promulgated by the ISO.\1441\ Several 
commenters stated that ISO 14064-3 is widely or commonly used by 
attestation providers.\1442\ For example, one commenter stated that the 
``International Civil Aviation Organization, a United Nations body, 
requires verification bodies to meet the requirements of ISO 14065 and 
perform verifications in accordance with ISO 14064-3'' and also 
recognizes ``ISO 14066 as the appropriate standard for assessing the 
competence of greenhouse gas validation teams and verification teams.'' 
\1443\ Another commenter stated that ISO 14064-3 is either a 
``required'' or ``acceptable'' method for ``verification by all of the 
major voluntary and regulatory reporting schemes (CDP, The Climate 
Registry and regional regulatory programs in California, Washington 
State, Oregon, and Canadian Provinces).'' \1444\
---------------------------------------------------------------------------

    \1439\ See letters from ANSI NAB (``ANAB believes that ISO 
standards, including ISO 14064-3, ISO 14065, and ISO 14066 form the 
basis for quality auditing of GHG emissions and environmental 
information, and that attestation bodies should be required to 
perform attestation engagements in accordance with these 
requirements.''); Futurepast (stating that attestation bodies that 
are not public accounting firms should be required to perform 
attestation engagements in accordance with ISO standards); and LRQA.
    \1440\ See, e.g., letters from AIA; Anthesis Grp.; CCR (stating 
that ``precluding the use of ISO 14064-3 under the proposed rules 
would require a significant population of registrants to reevaluate 
and potentially change service providers, reducing efficiencies 
gained through prior attestation engagements and narrowing the field 
of service providers qualified to issue an acceptable attestation 
report under the proposed rules''); Chevron; Eni SpA; ERM CVS; First 
Environment; ISO; ISO Comm. GHG; NAM; SCS Global Services; S. 
Robinson (5-3-22) (stating that ``nearly two thirds of GHG reporting 
firms and approximately one third of all S&P 500 firms already 
report and receive external attestation using ISO'');.and USTAG 
TC207. See also letter from Bureau Veritas (recommending that 
``validation and verification bodies'' be accredited to ``ISO 
17029'').
    \1441\ The ISO is an independent, non-governmental international 
organization with a membership of 169 national standards bodies. See 
ISO, About us, available at https://www.iso.org/about-us.html.
    \1442\ See, e.g., letters from Chevron (stating its view that 
ISO 14064-3 is the ``most predominantly used in the United 
States''); NAM; and US TAG TC207.
    \1443\ See letter from Futurepast (noting that Futurepast's 
president ``helped write'' the ISO standards ``as a U.S. Expert to 
ISO Technical Committee 207'').
    \1444\ See letter from SCS Global Services.
---------------------------------------------------------------------------

    In addition, another commenter stated that ISO standards ``have 
been subjected to a rigorous development and approval process and have 
been accepted internationally as the basis for . . . [the] conduct of 
attestation engagements for nearly two decades.'' \1445\ Relatedly, one 
commenter stated that it believed ISO 14064-3 would meet the proposed 
due process and public availability requirements.\1446\ Further, 
another commenter stated that it believes ISO standards 14064-3, 14065, 
and 14066 ``address required expertise, independence, and quality 
control at least as well if not better than'' the IAASB's ISAE 3000, 
ISAE 3410, and ISRS 4400.\1447\
---------------------------------------------------------------------------

    \1445\ See letter from US TAG TC207 (stating that the ISO 
Technical Committee 207, which is responsible for the development, 
review, and revision of ISO environmental and climate change 
standards, includes 120 member countries, each represented by its 
national standards body, and includes liaisons with 32 organizations 
that monitor the committee's standards development activities and 
can provide input during standards development, including, among 
others, the European Commission, International Chamber of Commerce, 
and World Trade Organization).
    \1446\ See letter from NAM. See also letter from D. Hileman 
(stating that the Commission should require that attestation or 
verification reports be provided pursuant to standards publicly 
available and established by groups that have followed ``due process 
for broad stakeholder process'' and that ``[d]evelopment of ISO 
standards follows a similar trajectory'').
    \1447\ See letter from Futurepast. See also letter from ANSI NAB 
(stating that it supports the proposed requirement for attestation 
providers to be independent, which is supported by accreditation 
requirements such as those set forth in ISO 14065).
---------------------------------------------------------------------------

    Another commenter that supported the proposed requirement related 
to the public availability of standards noted that ISO standards ``are 
not free'' and suggested that ``some agreement needs to be reached 
regarding access by investors to ISO 14064-3, if this standard is used 
by the attestation provider.'' \1448\ On the other hand, one of the 
commenters that did not support

[[Page 21761]]

the proposed requirement for the attestation standards to be publicly 
available at no cost to investors explained that the fees ISO charges 
for standards are designed to support its standards writing activity 
and that it ``does not have any other agenda than the publication of 
high quality, consensus-based standards.'' \1449\ Another commenter 
stated that ``[a]lthough ISO standards must be purchased for a fee, we 
believe that the nominal fee required to obtain ISO 14064-3 would not 
be a serious obstacle to investors who desire to review the standard.'' 
\1450\
---------------------------------------------------------------------------

    \1448\ See letter from ERM CVS.
    \1449\ See letter from Futurepast.
    \1450\ See letter from CCR.
---------------------------------------------------------------------------

    A few commenters mentioned other potential attestation standards 
for the Commission's consideration. One commenter recommended that the 
Commission consider the CDP's criteria for third party verification 
standards \1451\ and another commenter stated that the final rules 
should permit the use of ``the standards accepted by the CDP so as to 
avoid inadvertently excluding qualified providers.\1452\ In response to 
a request for comment included in the Proposing Release, one commenter 
stated that it did not believe that AccountAbility's AA1000 Series of 
Standards would meet the proposed requirements because, among other 
reasons, it does not believe AccountAbility's process for developing 
and publishing standards would meet the proposed due process 
requirements.\1453\ However, another commenter stated that the final 
rules should be inclusive of AccountAbility's AA1000 Series of 
Standards.\1454\
---------------------------------------------------------------------------

    \1451\ See letter from 3Degree.
    \1452\ See letter from Climate Risk Consortia.
    \1453\ See letter from ERM CVS (additionally stating that, under 
AA1000, the disclosure of data for individual metrics such as GHG 
emissions cannot be assured separately from assurance on the 
implementation and application of AA1000APS, which pertains to 
sustainability management, and that it does not believe that many 
Commission registrants would be willing to disclose compliance with 
AA1000APS and obtain assurance over all of these disclosures).
    \1454\ See letter from Climate Risk Consortia.
---------------------------------------------------------------------------

    Several commenters agreed that the Commission should require the 
GHG emission attestation report to meet certain minimum requirements in 
addition to any form and content requirements set forth by the 
attestation standard or standards used, as proposed.\1455\ One 
commenter stated that the proposed minimum attestation report 
requirements are ``similar to the requirements of an independent 
auditor's report, which is well-understood by the investment 
community.'' \1456\ Another commenter stated that the proposed minimum 
requirements for the attestation report are particularly important if 
standards beyond those of the AICPA, IAASB, and PCAOB are 
permitted.\1457\ One commenter stated that the Commission should also 
require a description of the role of internal audit in the underlying 
GHG emissions data and whether or how the GHG emissions attestation 
provider relied on internal audit's work in the minimum report 
requirements.\1458\
---------------------------------------------------------------------------

    \1455\ See, e.g., letters from CAQ (stating that the proposed 
minimum requirements for the attestation report ``will provide 
investors with increased trust and confidence in the GHG emissions 
data''); CFA Institute; Crowe; and RSM US LLP.
    \1456\ See letter from CFA Institute.
    \1457\ See letter from CAQ.
    \1458\ See letter from D. Hileman Consulting.
---------------------------------------------------------------------------

    On the other hand, a few commenters recommended against requiring 
additional minimum requirements for attestation reports.\1459\ One of 
these commenters stated that the report requirements from the 
attestation standard used should be sufficient.\1460\ Another commenter 
recommended that the Commission clarify whether a report that states 
the GHG emissions attestation provider is disclaiming an opinion on the 
GHG emissions would satisfy the requirements of Regulation S-K.\1461\
---------------------------------------------------------------------------

    \1459\ See, e.g., letters from C2ES; and ERM CVS (stating that 
it believes it would be difficult to prescribe minimum contents that 
would be applicable under all standards used but welcoming the 
Commission to provide additional guidance on the contents of the 
attestation report, such as the importance of a description of the 
work undertaken).
    \1460\ See letter from C2ES (stating that in ``common practice, 
the attestation reports deliver a statement explaining the items 
reviewed, findings, a list of the metrics as verified and statement 
of independence,'' which ``is sufficient'').
    \1461\ See letter from Grant Thornton (drawing a comparison to 
Article 2 of Regulation S-X, which requires ``the clear expression 
of an opinion on the financial statements'' and stating that a 
``report that states that the auditor is disclaiming an opinion on 
the financial statements for any reason does not satisfy the 
requirements of Regulation S-X.'').
---------------------------------------------------------------------------

    Regarding the proposed provision requiring the identification of 
the criteria against which the subject matter was measured or 
evaluated, a few commenters agreed that reference to proposed Item 1504 
would meet the ``suitable criteria'' requirement under the prevailing 
attestation standard.\1462\ One commenter stated that, in addition to 
referencing proposed Item 1504, the attestation report should refer to 
``the (publicly available) standard used by the registrant to determine 
the emissions.'' \1463\
---------------------------------------------------------------------------

    \1462\ See, e.g., letters from ERM CVS; Futurepast; and Mazars.
    \1463\ See letter from ERM CVS.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission included a request for 
comment asking if it requires or permits a registrant to use the GHG 
Protocol as the methodology for determining GHG emissions, would the 
provisions of the GHG Protocol qualify as ``suitable criteria'' against 
which the Scope 1 and Scope 2 emissions disclosure should be 
evaluated.\1464\ A number of commenters agreed that if the Commission 
required or permitted a registrant to use the GHG Protocol as the 
methodology for determining GHG emissions, the provisions of the GHG 
protocol would qualify as ``suitable criteria.'' \1465\ On the other 
hand, one commenter stated that ``the reporting standards are not fully 
developed enough to establish criteria for reliability measuring GHG 
emissions.'' \1466\
---------------------------------------------------------------------------

    \1464\ See Proposing Release, section II.H.3.
    \1465\ See letter from Anthesis Grp.; CRS (stating that, in 
general, ``the market-based methodology for Scope 2 accounting as 
found in 2015 GHG Protocol Scope 2 Guidance would qualify as 
suitable criteria against which Scope 2 emissions disclosure should 
be evaluated''); D. Hileman Consulting; ERM CVS; Futurepast; KPMG; 
Mazars; PwC; WBCSD; and WRI.
    \1466\ See letter from Travelers.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting the GHG emissions attestation engagement and report 
requirements with some modifications from the proposal.\1467\ 
Consistent with the proposed rules, the final rules (Item 1506(a)(2)) 
provide that the attestation report must be provided pursuant to 
standards that are established by a body or group that has followed due 
process procedures, including the broad distribution of the framework 
for public comment.\1468\ Most commenters who discussed this aspect of 
the proposal supported the proposed requirement related to due process 
procedures,\1469\ and we continue to believe that requiring the 
attestation report to be provided pursuant to standards that are 
established by a body or group that has followed due process procedures 
would help to ensure that the standards upon which the attestation 
engagement and report are based are the result of a transparent, 
public, and reasoned process.\1470\ As the Commission stated in the 
Proposing Release, this requirement should also help to protect 
investors who may rely on the attestation report by limiting the 
standards to those that have been sufficiently developed.\1471\
---------------------------------------------------------------------------

    \1467\ See 17 CFR 229.1506(a)(2), (c).
    \1468\ See 17 CFR 229.1506(a)(2).
    \1469\ See supra note 1423 and accompanying text.
    \1470\ See Proposing Release, section II.H.3.
    \1471\ See id.
---------------------------------------------------------------------------

    The proposed rules also would have required the attestation 
standards to be publicly available at no cost. We

[[Page 21762]]

received feedback from some commenters indicating that including such a 
requirement in the final rules would preclude the use of certain 
standards that are currently widely used by GHG emissions attestation 
providers with respect to voluntary assurance over GHG emissions 
disclosures but that are not publicly available for free.\1472\ After 
consideration of this feedback, the final rules will require that the 
attestation report be provided pursuant to standards that, in addition 
to being developed using due process, are either (i) publicly available 
at no cost, or (ii) widely used for GHG emissions assurance.\1473\ In 
the Proposing Release, the Commission explained that open access is an 
important consideration when determining the suitability of attestation 
standards because it enables investors to evaluate the report against 
the requirements of the attestation standard.\1474\ We continue to 
believe that open access is an important consideration for the reasons 
the Commission previously stated; however, we also recognize that the 
benefits provided by open access may also exist when a standard is 
widely used in the marketplace such that registrants, GHG emissions 
attestation providers, and investors have significant experience using, 
or evaluating disclosure assured pursuant to, that standard. In 
addition, it is important to recognize the value that investors have 
found in the voluntary assurance services currently being provided with 
respect to climate and GHG emissions disclosures. By making this 
modification to the final rules, we expect that many registrants and 
GHG emissions attestation providers will be able to continue to use 
assurance standards they are already using for their voluntary 
disclosures, assuming that those standards meet the due process 
requirement.\1475\ This approach will not only reduce the costs of 
complying with the final rules \1476\ but will likely benefit investors 
by leveraging the experience that GHG emissions attestation providers 
already have with particular standards, which could lead to assurance 
engagements being performed with a greater level of skill initially 
than if GHG emissions attestation providers were required to gain 
expertise with an unfamiliar standard.
---------------------------------------------------------------------------

    \1472\ See supra note 1428 and accompanying text.
    \1473\ See 17 CFR 229.1506(a)(2).
    \1474\ See Proposing Release, section II.H.3.
    \1475\ Registrants and GHG emissions attestation providers would 
also need to meet the other requirements included in the final rules 
relating to the level and scope of the engagement and the expertise 
and independence of the provider, among other requirements.
    \1476\ See letter from Futurepast (stating that one benefit of 
having non-accounting firm attestation providers provide assurance 
pursuant to ISO or IAASB ISAE standards is that it would make 
``available to registrants a much larger pool of potential service 
providers,'' which ``will enhance competition and likely result in 
lower costs to registrants'').
---------------------------------------------------------------------------

    Several commenters agreed with the Commission's statement in the 
Proposing Release that the attestation standards of the PCAOB, AICPA, 
and IAASB would meet the proposed attestation standard 
requirements.\1477\ We continue to be of the view that the PCAOB, 
AICPA, and IAASB standards meet the due process requirements and are 
publicly available at no cost to investors. In addition, in light of 
our modifications to the final rules, we also believe that the ISO 
standards related to the attestation of GHG emissions disclosures would 
meet these requirements. We agree with those commenters that stated the 
process the ISO undertakes for the development of its standards is 
consistent with due process requirement included in the final 
rules.\1478\
---------------------------------------------------------------------------

    \1477\ See supra note 1432 and accompanying text. The PCAOB has 
announced an ongoing project to evaluate its attestation standards 
for purposes of developing any potential recommendation to amend, 
consolidate or eliminate certain standards as appropriate. See 
PCAOB, Attestation Standards Update (Updated Sept. 26, 2022), 
available at https://pcaobus.org/oversight/standards/standard-setting-research-projects/attestation-standards-update. The AICPA 
included its attestation standards as an active project under 
consideration on its 2022-23 strategy work plan. See AICPA, 2022-23 
ASB strategy work plan, available at https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/asb/downloadabledocuments/2022-2023-asb-strategy-work-plan.pdf.
    \1478\ See supra notes 1445 and 1446 and accompanying text.
---------------------------------------------------------------------------

    The ISO TC 207/SC7 is the technical committee responsible for the 
development of ISO 14064-3--Greenhouse gases--Part 3: Specification 
with guidance for the verification and validation of greenhouse gas 
statements.\1479\ The committee includes members from 120 countries, 
each represented by the country's national standards body, and the 
committee also liaises with 32 organizations who monitor standards 
development activities and can provide input during standards 
development.\1480\ Members organize consultations among stakeholders in 
their country to develop a national position on ISO standards.\1481\ 
The ISO member from the United States is ANSI and it publishes on its 
website a listing of draft ISO standards that are open to public 
comment.\1482\ Moreover, ISO follows a consensus process for approval 
of its standards.\1483\ This multi-stakeholder process, which includes 
an opportunity for public comment on proposed standards, is consistent 
with the reasoned and transparent process the Commission described in 
the Proposing Release as being the foundation for standards that are 
sufficiently developed. This leads us to the conclusion that ISO 
standards align with the due process requirement in the final rules.
---------------------------------------------------------------------------

    \1479\ See ISO/TC 207/SC7, About us, available at https://committee.iso.org/home/tc207sc7. More generally, the ISO is a non-
governmental organization established in 1947 and based in Geneva, 
Switzerland. Its mission is to promote the development of 
standardization and related activities in the world with a view to 
facilitating the international exchange of goods and services, and 
to developing cooperation in the spheres of intellectual, 
scientific, technological and economic activity. See ANSI, U.S. 
Representation in ISO, available at https://www.ansi.org/iso/us-representation-in-iso/introduction. ISO is composed of 
representatives from 170 national standards bodies. See ISO, About 
us, available at https://www.iso.org/about-us.html.
    \1480\ See letter from USTAG TC207. The 32 organizations include 
the European Commission, International Accreditation Forum, 
International Chamber of Commerce, United Nations Conference on 
Trade and Development, World Health Organization, and World Trade 
Organization, among others. See id.
    \1481\ See id.
    \1482\ See ANSI Standards Action, available at https://www.ansi.org/resource-center/standards-action.
    \1483\ See ISO, Developing standards, available at https://www.iso.org/developing-standards.html.
---------------------------------------------------------------------------

    As commenters have noted, ISO standards are not available for free. 
The ISO standards are, however, widely used for GHG emissions 
assurance. For example, a recent report determined that for S&P 500 
companies that voluntarily obtained assurance over their climate-
related disclosures, including in many cases GHG emissions disclosures, 
the most common standard referenced by non-accounting firm GHG emission 
attestation providers was ISO 14064-3.\1484\ Specifically, the report 
found that ISO standards were used in connection with 196 out of a 
total 346 engagements.\1485\ This frequency of use aligns with the 
``widely used'' criteria in the final rules.
---------------------------------------------------------------------------

    \1484\ See CAQ, S&P 500 and ESG Reporting (Updated June 2023) 
(providing statistics for 2021).
    \1485\ See id.
---------------------------------------------------------------------------

    It is important to note that by highlighting these standards, we do 
not mean to imply that other standards, either those currently in 
existence, or those that may develop in the future, would not be 
suitable for use under the final rules. Commenters recommended a number 
of alternative approaches, such as providing a list of acceptable 
standards,\1486\ or requiring the use of a

[[Page 21763]]

particular standard.\1487\ Although we considered these alternatives, 
we ultimately agreed with those commenters who stated that the 
Commission should take a flexible approach to the acceptable standards 
in recognition that more than one suitable standard exists, and others 
could develop in the future.\1488\
---------------------------------------------------------------------------

    \1486\ See supra note 1430 and accompanying text. See also 
letter from Climate Risk Consortia (recommending that the Commission 
permit the use of ``the standards accepted by the CDP'').
    \1487\ See supra notes 1433, 1435, 1437, and 1439 and 
accompanying text.
    \1488\ See supra note 1428 and accompanying text. For example, 
in the Proposing Release, the Commission included a request for 
comment asking if AccountAbility's AA1000 Series of Standards would 
meet the proposed requirements for attestation standards. We 
received one comment that stated the final rule should be written in 
a way that is inclusive of all standards, including AA1000, among 
others, but the commenter did not provide any substantiative reasons 
why AA1000 would meet the proposed criteria. See letter from Climate 
Risk Consortia. Another commenter stated that the process for 
developing the AA1000 standard would not meet the proposed due 
process requirements. See letter from ERM CVS. Although the feedback 
we received from commenters was mixed, to the extent that the AA1000 
standard meets the criteria in the final rule, registrants and GHG 
emissions attestation providers would not be precluded from using it 
in connection with complying with the final rules. The staff of the 
Commission's Office of the Chief Accountant is available to consult 
with registrants about whether a particular standard meets the 
requirements in the final rules.
---------------------------------------------------------------------------

    The final rules (Item 1506(c)) require the form and content of the 
GHG emissions attestation report to follow the requirements set forth 
by the attestation standard or standards used, as proposed; however, in 
a shift from the proposal, the final rules do not prescribe minimum 
report requirements.\1489\ The Commission explained in the Proposing 
Release that the proposed minimum components were all common elements 
of current assurance reports,\1490\ a point that was affirmed in the 
feedback we received from commenters.\1491\ We continue to expect that 
the attestation standards that meet the requirements of the final rules 
will generally include all of the elements that were proposed.\1492\ 
Therefore, the benefit of including the proposed minimum requirements 
would be marginal, at best, and could be viewed as redundant and adding 
unnecessary complexity and associated burdens to the final rules. 
Instead, simply requiring the attestation report to follow the form and 
content requirements of the attestation standard or standards should 
provide investors with important information about the attestation 
engagement in a consistent and comparable manner. Nevertheless, in 
light of this shift to a more principles-based approach, to the extent 
that a particular attestation standard does not include elements 
sufficiently similar to those commonly included in an assurance report, 
the GHG emissions attestation provider should consider including such 
information in its attestation report to facilitate investors' 
understanding of the nature and scope of the engagement. Although some 
commenters suggested additional minimum requirements that could be 
included in the final rules,\1493\ we decided against including any 
additional requirements for the same reason.
---------------------------------------------------------------------------

    \1489\ See 17 CFR 229.1506(c).
    \1490\ The Commission explained in the Proposing Release that it 
primarily derived the proposed requirements from the AICPA's 
attestation standard (e.g., SSAE No. 18), which are largely similar 
to the report requirements under PCAOB AT-101 and IAASB ISAE 3410. 
See Proposing Release, section II.H.3.
    \1491\ See supra note 279 and accompanying text.
    \1492\ See supra note 1490. See also ISO 14064-3, Sec. Sec.  
6.3.2 and 9.3.
    \1493\ See supra note 1458 and accompanying text.
---------------------------------------------------------------------------

    A few commenters asked the Commission to clarify the level of 
assurance that is required for historical periods in a registrant's 
filing.\1494\ We are therefore clarifying that the final rules apply on 
a prospective basis only with disclosure for historical periods phasing 
in over time. Specifically, in the first year that an AF or LAF is 
required to provide an attestation report, such report is only required 
to cover the Scope 1 and/or Scope 2 emissions for its most recently 
completed fiscal year. To the extent the AF or LAF disclosed Scope 1 
and/or Scope 2 emissions for a historical period, it would not be 
required to obtain an assurance report covering such historical period 
in the first year of the attestation rule's applicability. However, for 
each subsequent fiscal year's annual report, the registrant will be 
required to provide an attestation report for an additional fiscal year 
until an attestation report is provided for the entire period covered 
by the registrant's GHG emissions disclosures. In circumstances where 
more than one GHG emissions provider may have provided an attestation 
report for the different fiscal years included in the filing, a GHG 
emissions attestation provider should be clear about its involvement 
with any historical information, including disclaiming any such 
involvement where applicable.\1495\
---------------------------------------------------------------------------

    \1494\ See, e.g., letters from Deloitte & Touche (requesting 
that the Commission clarify the level of assurance that is required 
for historical periods); and Grant Thornton (same).
    \1495\ This guidance parallels similar practices in the context 
of the financial statement audit. See, e.g., PCAOB AS 3101, The 
Auditor's Report on an Audit of Financial Statements When the 
Auditor Expresses an Unqualified Opinion, paragraph 18h, available 
at https://pcaobus.org/oversight/standards/auditing-standards/details/AS3101.
---------------------------------------------------------------------------

    In response to a request for comment, a few commenters agreed that 
a reference to proposed Item 1504 would meet the ``suitable criteria'' 
requirement under the prevailing attestation standard and that the 
provisions of the GHG Protocol would qualify as ``suitable criteria'' 
against which Scope 1 and Scope 2 emissions disclosure should be 
evaluated.\1496\ Consistent with the Proposing Release, we reiterate 
that prevailing attestation standards require the criteria against 
which the subject matter is measured or evaluated to be ``suitable.'' 
\1497\ Suitable criteria, when followed, will result in reasonably 
consistent measurement or evaluation of the registrant's disclosure 
that is within the scope of the engagement.\1498\ Consistent with 
commenter feedback, Item 1505 of Regulation S-K will satisfy the 
suitable criteria requirements of the prevailing attestation standards 
because the proposed requirements set forth relevant, objective 
standards that call for measurable and complete disclosure of GHG 
emissions that would allow for a consistent evaluation of the 
registrant's disclosure.\1499\ In addition, in response to a question 
from a commenter,\1500\ we are clarifying that a report that states the 
GHG emissions attestation provider is disclaiming an opinion on the GHG 
emissions would not constitute compliance by the AF or LAF with the 
requirement to obtain an attestation report over its Scope 1 and/or 
Scope 2 emissions under the final rules.
---------------------------------------------------------------------------

    \1496\ See supra note 1462 and accompanying text.
    \1497\ See Proposing Release, section II.H.3.
    \1498\ Characteristics of suitable criteria include relevance, 
objectivity, measurability, and completeness. See, e.g., AICPA SSAE 
No. 18, AT-C Sec.  105.A16 and A42; AICPA SSAE No. 21, AT-C Sec.  
105.A16 and .A44. In addition to relevance and completeness, the 
characteristics of suitable criteria under IAASB ISAE 3000.A23 
include reliability, neutrality and understandability. Therefore, 
despite the differences in the characteristics listed, the 
underlying concepts and objectives are consistent.
    \1499\ In addition, to the extent an AF or LAF chooses to 
disclose its Scope 1 and/or Scope 2 emissions pursuant to Item 1505 
and leverages the GHG Protocol's methodologies, we agree with the 
commenters that stated the provisions of the GHG Protocol would 
qualify as ``suitable criteria'' against which the Scope 1 and/or 
Scope 2 emissions disclosure should be evaluated. See supra note 
1366 and accompanying text.
    \1500\ See letter from Grant Thornton.
---------------------------------------------------------------------------

    Consistent with the proposed rules, the final rules do not require 
a registrant to obtain an attestation report specifically covering the 
effectiveness of internal control over GHG emissions disclosure.\1501\ 
Such a report would not be required even when the GHG emissions 
attestation engagement is performed at a reasonable assurance level. As 
explained in the Proposing Release, given the current evolving state of 
GHG emissions reporting and assurance, existing DCP obligations and

[[Page 21764]]

the requirement that AFs and LAFs (initially) obtain at least limited 
assurance of such disclosure are appropriate first steps toward 
enhancing the reliability of GHG emissions disclosure.\1502\
---------------------------------------------------------------------------

    \1501\ See Proposing Release, section II.H.3.
    \1502\ See id. Under prevailing attestation standards for 
limited assurance engagements, the testing of and attestation over 
internal controls are not required. See, e.g., AICPA SSAE No. 22, 
AT-C Sec.  210.A16. With respect to reasonable assurance, while 
there are requirements under prevailing attestation standards to 
consider and obtain an understanding of internal controls, there is 
no required attestation of the effectiveness of internal controls 
such as that included in section 404(b) of the Sarbanes-Oxley Act of 
2002 (Sarbanes-Oxley Act). See 15 U.S.C. 7262(b) (requiring a 
registered public accounting firm that prepares or issues an audit 
report for certain issuers to attest to, and report on, the 
assessment made by the management of the issuer with respect to 
internal controls).
---------------------------------------------------------------------------

    As explained above in section II.H.3, in a modification from the 
proposal, the final rules will not require that GHG emissions 
disclosure be provided in a separately captioned ``Climate-Related 
Disclosure'' section in the relevant filing. Therefore, the final rules 
do not require a registrant to include an attestation report in such a 
section, although a registrant may choose to do so.
    One commenter asked the Commission to clarify whether, to the 
extent the Commission permits the use of standards other than those 
developed by the PCAOB, AICPA, and IAASB, the Commission should clarify 
``whether all practitioners should be required to consider `other 
information' in the same way as CPAs.'' \1503\ The GHG emissions 
attestation provider must perform the engagement in accordance with the 
requirements included in the attestation standard being used. We are 
clarifying that, to the extent an attestation standard requires an 
attestation provider to consider `other information,' then the provider 
would be required to comply with such a requirement to perform the 
engagement in accordance with the standard.
---------------------------------------------------------------------------

    \1503\ See letter from KPMG.
---------------------------------------------------------------------------

    One commenter stated that, due to the proposed phase in for the 
assurance requirements, an LAF or AF may be required to obtain 
assurance over its GHG emissions disclosures, while its consolidated 
public subsidiaries are not (or not yet) subject to the same level of 
assurance.\1504\ This commenter asked the Commission to consider 
clarifying whether the consolidated subsidiary is expected to obtain 
assurance based on the requirements of its parent entity or entities, 
and if not, how the assurance provider for the parent entity or 
entities would report the level of assurance provided over the 
individual components of the reporting entity.\1505\ In response to the 
specific factual scenario raised by this commenter, we are clarifying 
that the consolidated information included in the parent company's 
Commission filing would need to comply with the final rules' 
requirements applicable to the parent company. This means that a 
subsidiary's information that is part of the consolidated reporting of 
its parent company will need to be assured as part of the assurance 
over the parent company's consolidated reporting even if the 
consolidated subsidiary itself is not subject to assurance. This is 
consistent with how the auditing standards over consolidated financial 
statements generally apply.
---------------------------------------------------------------------------

    \1504\ See letter from Grant Thornton.
    \1505\ See id.
---------------------------------------------------------------------------

    Along similar lines, another commenter stated that there might be 
instances where a subsidiary of a registrant has a separate attestation 
engagement performed over its GHG emissions data to meet local 
statutory or jurisdictional requirements and the subsidiary might 
choose an attestation provider at the local level that differs from the 
attestation provider retained to perform the assurance required under 
the Commission's rules.\1506\ This commenter stated, for example, if a 
subsidiary's attestation engagement was performed by an accounting firm 
provider that used AICPA standards, then AICPA attestation standards 
would allow the provider performing the assurance required under the 
Commission's rules to use the work of another practitioner; however, 
AICPA standards do not address the ability of an accounting firm 
provider to use the work of a non-accountant practitioner, particularly 
when the non-accountant uses different attestation standards.\1507\ 
Consistent with our response above, we are clarifying that the 
consolidated information included in the parent company's Commission 
filing would need to comply with the final rules' requirements 
applicable to the parent company. As is the case with other new 
disclosure requirements, the Commission staff is available to answer 
practice questions as registrants begin applying the final rules.
---------------------------------------------------------------------------

    \1506\ See letter from Crowe.
    \1507\ See id.
---------------------------------------------------------------------------

4. Additional Disclosure by the Registrant (Item 1506(d))
a. Proposed Rules
    In addition to the proposed minimum attestation report requirements 
described above, the proposed rules would have required disclosure of 
certain additional matters related to the attestation of a registrant's 
GHG emissions.\1508\ With respect to the Scope 1 and Scope 2 emissions 
attestation required pursuant to proposed Item 1505(a) for AFs and 
LAFs, the proposed rules would have required the registrant to disclose 
in the filing, based on relevant information obtained from any GHG 
emissions attestation provider:
---------------------------------------------------------------------------

    \1508\ See Proposing Release, section II.H.4.
---------------------------------------------------------------------------

     Whether the attestation provider has a license from any 
licensing or accreditation body to provide assurance, and if so, the 
identity of the licensing or accreditation body, and whether the 
attestation provider is a member in good standing of that licensing or 
accreditation body;
     Whether the GHG emission attestation engagement is subject 
to any oversight inspection program, and if so, which program (or 
programs); \1509\ and
---------------------------------------------------------------------------

    \1509\ In the Proposing Release, the Commission stated that one 
example of an oversight program would be the AICPA peer review 
program, among others. See id.
---------------------------------------------------------------------------

     Whether the attestation provider is subject to record-
keeping requirements with respect to the work performed for the GHG 
emissions attestation engagement and, if so, identify the record-
keeping requirements and the duration of those requirements.\1510\
---------------------------------------------------------------------------

    \1510\ See id.
---------------------------------------------------------------------------

    The Commission stated that these disclosures are not typically 
included in an attestation report and would not be included in the GHG 
emissions attestation report under the proposed rules.\1511\ Instead, 
the registrant would be required to provide these disclosures in the 
separately captioned ``Climate-Related Disclosure'' section, where the 
GHG emissions disclosure would be provided pursuant to the proposed 
rules.\1512\
---------------------------------------------------------------------------

    \1511\ See id.
    \1512\ See id.
---------------------------------------------------------------------------

b. Comments
    A few commenters generally agreed that the Commission should 
require the proposed items of disclosure to be provided by the 
registrant in the filing that includes the attestation report (where 
the GHG emissions and other climate-related disclosures are presented), 
based on relevant information obtained from the GHG emissions 
attestation provider as proposed.\1513\ Alternatively, several 
commenters stated that they supported such disclosure requirements when 
the GHG emissions attestation provider is not registered with the 
PCAOB.\1514\ One

[[Page 21765]]

of these commenters explained that when a registrant uses a PCAOB-
registered accounting firm as its GHG emissions attestation provider it 
should not be required to make the proposed additional disclosures 
``[g]iven that a PCAOB-registered accounting firm is already complying 
with stringent requirements for things such as licensure, oversight, 
and record-keeping,'' which is ``well understood by investors.'' \1515\ 
On the other hand, one commenter stated that registrants should not be 
required to provide these additional items of disclosure because, in 
its view, these are not ``appropriate determinations to be made by 
registrants and instead believe that this disclosure, if retained, 
should be included in the attestation provider's report itself.'' 
\1516\
---------------------------------------------------------------------------

    \1513\ See letters from Amer. for Fin. Reform, Sunrise Project 
et al.; and ICAEW.
    \1514\ See, e.g., letters from CAQ; CFA Institute; Crowe (``If a 
registrant uses its financial statement auditor, who currently must 
meet the requirements in Article 2 of Reg. S-X, to also perform any 
required GHG emissions attestation, we recommend the SEC consider 
exempting those registrants from additional disclosures.''); and PwC 
(stating that given the importance of licensing, oversight, and 
record-keeping requirements they should be added to the 
qualifications necessary to be a GHG emissions attestation 
provider).
    \1515\ See letter from CAQ.
    \1516\ See letter from ABA. See also letter from D. Hileman 
(stating that ``none of the proposed requirements in this section 
should be borne by the registrant'').
---------------------------------------------------------------------------

    Some commenters stated they agreed with the proposed requirement 
for a registrant to disclose whether the GHG emissions attestation 
provider has a license from an accreditation body.\1517\ One of these 
commenters explained that this information ``would be helpful to 
investors as they could then rely on the licensing and accreditation 
bodies to vet the provider's expertise rather than needing to evaluate 
other related information.'' \1518\ A few commenters stated that they 
disagreed with the proposed requirement for registrants to disclose 
whether the attestation provider has a license from any licensing or 
accreditation provider. One commenter explained that ``[i]n the absence 
of a universal certification or credential, registrants will seemingly 
bear the risk and burden of making a determination regarding the 
qualifications of an appropriate provider and disclosing these 
qualifications, and many registrants may lack the expertise to make 
such a determination or disclosure.'' \1519\ Similarly, another 
commenter stated that the ``entity granting and monitoring professional 
practice for these credentials should bear the responsibility for 
making public disclosures'' on these topics with the GHG emissions 
attestation provider providing ``a citation to the granting entity's 
website.'' \1520\ One commenter urged the Commission to ``defer 
action'' on this matter until after the rules have been implemented for 
a period of time.\1521\
---------------------------------------------------------------------------

    \1517\ See, e.g., letters from ICAEW; ICI; Morningstar; and RSM.
    \1518\ See letter from RSM.
    \1519\ See letter from ABA.
    \1520\ See letter from D. Hileman.
    \1521\ See letter from Futurepast.
---------------------------------------------------------------------------

    The Proposing Release included a request for comment asking if, in 
lieu of only requiring disclosure about whether the GHG emissions 
attestation provider has a license from an accreditation body, the 
Commission instead should require a GHG emissions attestation provider 
to be licensed to provide assurance by specified licensing or 
accreditation bodies, and if so, which bodies the Commission should 
specify.\1522\ One commenter stated that ``review by a licensed or 
accredited firm with minimum standards is essential for reliable GHG 
emissions reporting.'' \1523\ Conversely, one commenter stated that the 
Commission should not require accreditation or require a GHG emissions 
attestation provider ``to be a member in good standing of a particular 
body'' because it could unintentionally disqualify an appropriate 
provider.\1524\ Although the proposed rules would not have required a 
GHG emissions attestation provider to be licensed, one commenter asked 
the Commission to clarify ``which existing licensing or accrediting 
bodies meet SEC standards'' under the proposed rules.\1525\
---------------------------------------------------------------------------

    \1522\ See Proposing Release, section II.H.4.
    \1523\ See letter from Salesforce. See also letter from CFA 
Institute (stating that it supported requiring GHG emissions 
attestation providers to be members in good standing of a specified 
accreditation body that provides oversight to service providers that 
apply attestation standards).
    \1524\ See letter from Climate Risk Consortia.
    \1525\ See letter from IECA.
---------------------------------------------------------------------------

    Some commenters agreed that the Commission should require a 
registrant to disclose whether the GHG emissions attestation engagement 
is subject to any oversight inspection program, and if so, which 
program(s), as proposed.\1526\ One commenter stated that this proposed 
requirement ``would provide decision-useful information to investors.'' 
\1527\ On the other hand, one commenter disagreed with the proposed 
requirement and suggested instead the Commission require the 
attestation provider to publicly disclose on its website certain 
information such as the ``qualifications and experience of its 
principals'' and ``errors and omissions insurance information,'' among 
other things.\1528\ Another commenter stated that such requirement is 
``only relevant if the Commission also specifies the particular 
standards under which the attestation engagement should be performed.'' 
\1529\ One commenter stated that such information ``should be 
communicated by the attestation provider as part of their reporting, 
rather than being reported by the issuer, who may or may not be able to 
confirm the information (notwithstanding its responsibility to do so in 
all SEC filings).'' \1530\ In addition, one commenter stated that the 
Commission should work toward establishing oversight over GHG emissions 
attestation providers in the near future,\1531\ and other commenters 
asked the Commission to ``clarify what regulatory environment applies 
to GHG attestation providers'' \1532\ or stated that it was not clear 
what any oversight inspection program would include.\1533\
---------------------------------------------------------------------------

    \1526\ See letters from ICAEW; ICI; Morningstar; and PwC.
    \1527\ See letter from Morningstar. See also letter from PwC 
(stating that this information ``would be beneficial to an investor 
in assessing the quality of the provider'' but requesting that the 
Commission make the existence of an oversight inspection program a 
required qualification for a provider as opposed to an item subject 
only to disclosure).
    \1528\ See letter from Futurepast.
    \1529\ See letter from RSM.
    \1530\ See letter from NASBA.
    \1531\ See letter from Center Amer. Progress.
    \1532\ See letter from Grant Thornton.
    \1533\ See letter from IECA.
---------------------------------------------------------------------------

    A few commenters stated that they supported the proposed 
requirement for registrants to disclose whether the GHG emissions 
attestation provider is subject to record-keeping requirements for the 
engagement.\1534\ The Proposing Release included a request for comment 
asking if, in lieu of requiring disclosure about such matters, the 
Commission instead should specify that the record-keeping requirements 
of a GHG emissions attestation provider must be of a certain minimum 
duration.\1535\ One commenter stated it believed ``the record-keeping 
requirement for the GHG attestation provider should extend to the 
duration of the securities law protections for investors.'' \1536\
---------------------------------------------------------------------------

    \1534\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; ICAEW; ICI; Grant Thornton; and RSM.
    \1535\ See Proposing Release, section II.H.4.
    \1536\ See letter from Grant Thornton. See also letter from 
Third Coast (stating that the ``proposed rule should explicitly 
support retention strategies that focus on validating the digital 
originality of these highly sensitive data sets when directly 
controlled by the registrant organization'').
---------------------------------------------------------------------------

    One commenter recommended that the Commission include an additional 
element of disclosure and require registrants to disclose the terms 
that they negotiate with third-party verification firms to enable 
investors to evaluate the adequacy of third-party oversight.\1537\
---------------------------------------------------------------------------

    \1537\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al. (recommending this additional requirement since the Commission 
did not propose to establish minimum standards for limited assurance 
engagements).

---------------------------------------------------------------------------

[[Page 21766]]

    In the Proposing Release, the Commission included a request for 
comment asking if it should include disclosure requirements when there 
is a change in, or disagreement with, the registrant's GHG emissions 
attestation provider that are similar to the disclosure requirements in 
Item 4.01 of Form 8-K and 17 CFR 229.304 (``Item 304 of Regulation S-
K'').\1538\ A few commenters stated that they would support such a 
requirement.\1539\ One commenter stated that the ``level of detail'' in 
Item 304 of Regulation S-K ``is excessive for non-accountants,'' but 
indicated it would support a ``slimmed down'' version of this 
requirement.\1540\
---------------------------------------------------------------------------

    \1538\ See Proposing Release, section II.H.2.
    \1539\ See, e.g., letters from CII; PwC (recommending that the 
disclosures be modeled after the requirements of Item 304 of 
Regulation S-K); and RSM US LLP. See also letter from CFA Institute 
(stating that it would not object to a requirement to disclose a 
change in attestation provider).
    \1540\ See letter from ERM CVS (stating that it would 
particularly support a requirement to disclose the ``most likely 
circumstances'' for dismissal or disagreement between the registrant 
and the GHG emissions attestation provider and identifying 
examples).
---------------------------------------------------------------------------

c. Final Rules
    The Commission is adopting the requirement for registrants to 
disclose certain additional information related to the attestation of a 
registrant's GHG emissions with significant modifications from the 
proposal.\1541\ To reduce the burdens on issuers that would have arisen 
under the proposed rules, and in response to certain commenter feedback 
described above, we are not adopting a requirement for registrants to 
disclose (1) whether the attestation provider has a license from any 
licensing or accreditation body to provide assurance; and (2) whether 
the attestation provider is subject to record-keeping requirements with 
respect to the work performed for the GHG emissions attestation 
engagement. However, consistent with the proposal, the final rules 
(Item 1506(d)) require registrants to disclose whether the GHG emission 
attestation engagement is subject to any oversight inspection program, 
subject to certain modifications.\1542\ In addition, in a modification 
from the proposal, the final rules require registrants to disclose 
certain information when there is a change in, and disagreement with, 
the registrant's GHG emissions attestation provider as discussed in 
greater detail below.\1543\
---------------------------------------------------------------------------

    \1541\ See 17 CFR 229.1506(d).
    \1542\ See 17 CFR 229.1506(d)(1).
    \1543\ See 17 CFR 229.1506(d)(2).
---------------------------------------------------------------------------

    The decision not to adopt a requirement for a registrant to 
disclose whether its GHG emissions attestation provider has a license 
from any licensing or accreditation body will eliminate the potential 
for confusion about when disclosure is required, thus reducing the 
burden associated with the final rules. Although the existence of a 
license for a GHG emissions attestation provider that is a certified 
public accountant is straightforward to determine because certified 
public accountants and their firms must be registered with state boards 
of accountancy,\1544\ it may be more difficult for a registrant to 
determine if a non-accountant GHG emissions attestation provider holds 
a license. Furthermore, although accreditation and certification 
organizations exist for GHG emissions attestation providers that are 
not accountants,\1545\ it may be difficult for registrants and even GHG 
emissions attestation providers themselves to determine whether the 
credential conferred by such organization constitutes a ``license,'' or 
if it is some other type of accreditation or certification. Therefore, 
we agree with the commenter that pointed out the ``absence of a 
universal certification or credential'' likely would make it difficult 
for registrants to determine whether disclosure is required.\1546\
---------------------------------------------------------------------------

    \1544\ See, e.g., National Association of State Boards of 
Accountancy, Getting a License, available at https://nasba.org/licensure/gettingacpalicense/ (explaining the licensure process for 
certified public accountants and accounting firms by state boards of 
accountancy).
    \1545\ See, e.g., letter from ANSI NAB (describing itself as the 
``only peer recognized accreditation body operating an accreditation 
program for oversight of greenhouse gas (GHG) validation and 
verification bodies (attestation providers) in the United 
States.'').
    \1546\ See letter from ABA.
---------------------------------------------------------------------------

    We decided not to require a registrant to disclose whether the 
attestation provider is subject to record-keeping requirements with 
respect to the work performed for the GHG emissions attestation 
engagement to reduce burdens on registrants. Upon further 
consideration, this proposed requirement would seem to have marginal 
benefit to investors making investment or voting decisions while adding 
complexity to issuer disclosures. Instead, the final rules focus the 
disclosure requirements on the more significant disclosure of the 
existence of an oversight inspection program.\1547\
---------------------------------------------------------------------------

    \1547\ See 17 CFR 229.1506(d).
---------------------------------------------------------------------------

    The proposed rules would have required a registrant to disclose 
whether the GHG emissions attestation engagement is subject to any 
oversight inspection program, and if so, which program (or 
programs).\1548\ We are adopting this requirement as proposed.\1549\ In 
response to commenters,\1550\ we are clarifying, for purposes of the 
final rules, that we would consider a GHG emissions attestation 
engagement to be subject to an oversight inspection program if it is 
possible that the assurance services could be inspected pursuant to the 
oversight program, even if it is not certain that the services will be 
inspected in a particular inspection cycle. An example of such an 
oversight inspection program is the AICPA's peer review program, which 
includes within its scope attestation engagements performed by a 
certified public accountant in accordance with AICPA standards.\1551\ 
Commenters did not offer any examples of oversight inspection programs 
that would include within their scope GHG emissions attestation 
engagements performed by non-accountants. Even if no such programs 
currently exist, it is possible that they could develop in the future 
given the evolving nature of GHG emissions assurance practices. 
Accordingly, we continue to believe that the existence of an oversight 
inspection program will help investors better understand the 
qualifications of the GHG emissions attestation provider, which in turn 
will help them determine whether the assurance services have enhanced 
the reliability of the GHG emissions disclosure.
---------------------------------------------------------------------------

    \1548\ See Proposing Release, section II.H.4.
    \1549\ See 17 CFR 229.1506(d).
    \1550\ See supra notes 1532 and 1533 and accompanying text.
    \1551\ Under the AICPA Peer Review Program, firms that are 
members of the AICPA are required to have a peer review of their 
accounting and auditing practice once every three years in 
accordance with the AICPA Standards for Performing and Reporting on 
Peer Reviews. The peer review is conducted by an independent 
evaluator, known as a peer reviewer, who reviews a sample of the 
firm's work against the requirements of applicable professional 
standards in all material respects. See Summary of AICPA Peer Review 
Program, available at https://us.aicpa.org/research/standards/peerreview/peer-review-summary.html.
---------------------------------------------------------------------------

    In addition to requiring a registrant to disclose whether the GHG 
emissions attestation engagement is subject to any oversight inspection 
program as proposed, the final rules also require a registrant to 
disclose whether the GHG emissions attestation provider is subject to 
any oversight inspection program, and if so, which program (or 
programs).\1552\ To be clear, this requirement is not limited to 
oversight inspection programs that include within their scope, or 
require the inspection of, the GHG emissions attestation engagement. 
Rather, the final rules

[[Page 21767]]

require the disclosure of ``any'' oversight inspection program that 
applies to the GHG emissions attestation provider.\1553\ Therefore, a 
registrant must disclose any oversight inspection program the GHG 
emissions attestation provider is subject to for any type of engagement 
(e.g., a financial statement audit or other review).\1554\ This 
additional requirement will provide investors with a better 
understanding of the qualifications of the GHG emissions attestation 
provider because such oversight can provide a check on a provider's 
overall activities and drive improvements in the quality of their 
services.\1555\
---------------------------------------------------------------------------

    \1552\ See 17 CFR 229.1506(d).
    \1553\ See id.
    \1554\ Examples of such oversight inspection programs include 
the AICPA's peer review program or the PCAOB's inspection program. 
The AICPA's peer review program and PCAOB's inspection program are 
two examples of types of oversight inspection programs that a GHG 
emissions attestation provider may be subject to generally; however, 
only the AICPA's peer review program would include within its scope 
the GHG emissions attestation engagement. The PCAOB's inspection 
jurisdiction is limited to audits of issuers and registered brokers 
and dealers and does not include attestation engagements for GHG 
emissions disclosure within its scope. See 15 U.S.C. 7214 (setting 
forth the PCAOB's inspection jurisdiction). Consistent with our 
explanation above, commenters did not offer any examples of 
oversight inspection programs that apply to non-accountant GHG 
emissions attestation providers.
    \1555\ For example, in the context of inspections of PCAOB-
registered public accounting firms, academic literature suggests 
that engagement-specific PCAOB inspections may have spillover 
effects on non-inspected engagements. See, e.g., Daniel Aobdia, The 
Impact of the PCAOB Individual Engagement Inspection Process--
Preliminary Evidence, 93Acct. Rev. 53, 53-80 (2018) (concluding that 
``engagement-specific PCAOB inspections influence non-inspected 
engagements, with spillover effects detected at both partner and 
office levels'' and that ``the information communicated by the PCAOB 
to audit firms is applicable to non-inspected engagements''); Daniel 
Aobdia, The Economic Consequences of Audit Firms' Quality Control 
System Deficiencies, 66 Mgmt. Sci. (2020) (concluding that ``common 
issues identified in PCAOB inspections of individual engagements can 
be generalized to the entire firm, despite the PCAOB claiming its 
engagement selection process targets higher risk clients'' and that 
``[PCAOB quality control] remediation also appears to positively 
influence audit quality'').
---------------------------------------------------------------------------

    We considered whether to only require disclosure about the 
existence of oversight inspections programs from registrants who engage 
GHG emission attestation providers that are not registered with the 
PCAOB, as suggested by some commenters.\1556\ However, we are concerned 
that requiring this disclosure only with respect to certain GHG 
emission attestation providers could result in confusion and believe 
that requiring registrants to provide such disclosure with respect to 
all GHG emissions attestation providers will enhance the consistency 
and comparability of disclosures. Moreover, to the extent that a 
particular GHG emissions attestation provider is registered with the 
PCAOB, we would not expect it to be time consuming or difficult for a 
registrant to make this disclosure, which would presumably remain the 
same from year-to-year absent any changes to PCAOB rules.
---------------------------------------------------------------------------

    \1556\ See supra note 400 and accompanying text.
---------------------------------------------------------------------------

    We also considered whether to require such disclosure to be 
included in the attestation report as recommended by one 
commenter,\1557\ instead of requiring the registrant to disclose this 
information in the filing that includes the attestation report as 
proposed. We understand that whether the attestation provider is 
subject to any oversight inspection program is in the first instance 
known by the attestation provider rather than the registrant, and 
therefore it may seem reasonable to require the attestation provider to 
make the disclosure rather than the registrant. However, we do not 
expect it would be difficult or burdensome for a registrant to obtain 
this information from the GHG emissions attestation provider, and in 
fact, we expect that most registrants would want to know about the 
existence of an oversight inspection program before retaining an 
attestation provider in most instances and therefore likely will 
already have such information in their possession. Moreover, we 
continue to believe that requiring such disclosure to be included in 
the attestation report may create confusion because this disclosure may 
not be required by existing attestation standards.
---------------------------------------------------------------------------

    \1557\ See supra note 402 and accompanying text.
---------------------------------------------------------------------------

    As stated above, the Commission included a request for comment in 
the Proposing Release asking if it should require disclosure when there 
is a change in, or disagreement with, the registrant's GHG emissions 
attestation provider that is similar to the disclosure requirements in 
Item 4.01 of Form 8-K and Item 304 of Regulation S-K.\1558\ The 
commenters that responded to the request for comment generally agreed 
with including such a requirement in the final rules.\1559\ Because we 
believe that requiring the disclosure of information regarding changes 
in, and disagreements with, a GHG emissions attestation provider would 
provide investors with important information about the provider and the 
conduct of the attestation engagement, which investors need to help 
them assess the reliability of the registrant's GHG emissions 
disclosures, we have included a provision in the final rules that will 
require AFs and LAFs subject to Item 1506(a) to disclose certain 
information when the registrant's GHG emissions attestation provider 
resigns (or indicates that it declines to stand for re-appointment 
after completion of the attestation engagement) or is dismissed.\1560\
---------------------------------------------------------------------------

    \1558\ See Proposing Release, Section II.H.2.
    \1559\ See supra note 1539 and accompanying text.
    \1560\ See 17 CFR 229.1502(d)(2).
---------------------------------------------------------------------------

    We have generally modeled this aspect of the final rules on the 
disclosure requirements in Item 4.01 of Form 8-K and Item 304 of 
Regulation S-K, tailored to fit the context of a GHG emissions 
attestation engagement and to limit additional burdens.\1561\ In 
particular, our decision to require the disclosure in the filing that 
contains the GHG emissions disclosures and attestation report (e.g., a 
registration statement or an annual report that requires disclosure 
pursuant to Item 1506), instead of an alternative such as requiring a 
registrant to provide the disclosure in a Form 8-K, should serve to 
limit additional burdens associated with this provision. We believe 
that requiring similar disclosure for GHG emissions attestation 
providers to be included in the annual report or registration statement 
that contains the attestation report is appropriate because it will 
provide investors with the essential information they need to evaluate 
the assurance services provided while minimizing the need for 
additional filings by a registrant.
---------------------------------------------------------------------------

    \1561\ Although we have generally modeled these aspects of the 
final rules on existing requirements, in addition to the substantive 
differences discussed herein, we have also made several non-
substantive changes and updates for readability. For the avoidance 
of doubt, neither the final rules nor this discussion should be 
construed as a modification or interpretation of the existing 
requirements on which they were modeled.
---------------------------------------------------------------------------

    Specifically, the final rules (Item 1506(d)(2)) will require an AF 
or LAF subject to Item 1506(a) to disclose whether its former GHG 
emissions attestation provider resigned or was dismissed and the date 
thereof.\1562\ If so, the registrant must state whether during the 
performance of the attestation engagement for the fiscal year covered 
by the attestation report there were any disagreements with the former 
GHG emissions attestation provider over any measurement or disclosure 
of GHG emission or attestation scope of procedures.\1563\ The final 
rules will

[[Page 21768]]

require the registrant to describe each such disagreement and state 
whether the registrant has authorized the former GHG emissions 
attestation provider to respond fully to the inquiries of the successor 
GHG emissions attestation provider concerning the subject matter of 
each such disagreement.\1564\ Like the other elements of the disclosure 
requirement, this is modeled on the requirement to disclose 
disagreements between a registrant and its independent auditor in 
connection with the auditor's dismissal or resignation in Item 304 of 
Regulation S-K, and just as in that context, it is important that 
significant disagreements are brought to the attention of 
investors.\1565\ The disclosure of the existence of a disagreement in 
the event of the resignation or dismissal of the GHG emissions 
attestation provider will enable investors to assess the possible 
effects of such disagreement and whether it could have impacted the 
reliability of the GHG emissions disclosure, which, as discussed above, 
provides investors with information about a registrant's business, 
results of operations, and financial condition. The final rules also 
include two instructions defining the term ``disagreements'' for 
purposes of the disclosure and explaining the circumstances in which it 
is sufficient to conclude that a disagreement has been communicated to 
the registrant.\1566\ This definition and explanation is consistent 
with Item 304 of Regulation S-K and its Instructions, with minor 
modifications to take into account the circumstances of a GHG emissions 
attestation engagement.\1567\
---------------------------------------------------------------------------

    \1562\ See 17 CFR 229.1506(d)(2)(i). Therefore, the registrant 
will be required to provide disclosure in circumstances where: (1) a 
GHG emissions attestation provider resigns or is dismissed during 
the fiscal year covered by the attestation report but it does not 
issue the attestation report; and (2) a GHG emissions attestation 
provider issues an opinion or conclusion on GHG emissions disclosure 
for the relevant fiscal year but is dismissed or resigns before the 
attestation report is filed.
    \1563\ See 17 CFR 229.1506(d)(2)(i)(B).
    \1564\ See 17 CFR 229.1506(d)(2)(i)(B)(1)-(2).
    \1565\ See Registrants and Independent Accountants Amended Rules 
for Increased Disclosure of Relationships, Release No. 33-5550 (Dec. 
20, 1974) [40 FR 1010, 1011 (Jan. 6, 1975)].
    \1566\ See 17 CFR 229.1506(d)(2)(ii)-(iii).
    \1567\ See 17 CFR 229.304(a)(1)(iv); and Instructions 4 and 5 to 
Item 304.
---------------------------------------------------------------------------

    We have determined to take an incremental approach to requiring 
disclosure about the resignation or dismissal of a GHG emissions 
attestation provider and therefore have not included a requirement for 
the registrant to request the former GHG emissions attestation provider 
to furnish the registrant with a letter addressed to the Commission 
stating whether it agrees with the statements made by the registrant 
with respect to the resignation or dismissal and disagreement (if 
applicable). The final rules, however, do not preclude a registrant 
from disclosing its explanation of the dismissal or resignation to its 
former GHG emissions attestation provider, and although not required, 
we encourage any GHG emissions attestation provider to convey concerns 
it has with the registrant's description of those events to the 
Commission's Office of the Chief Accountant.
    The requirement to disclose certain information when a GHG 
emissions attestation provider resigns or is dismissed only applies to 
AFs and LAFs that are required to obtain an attestation report pursuant 
to Item 1506(a). It does not apply if an AF or LAF is not required to 
disclose its GHG emissions (and therefore is not required to obtain an 
attestation report) because the AF or LAF determines that its GHG 
emissions are not material for a particular fiscal year. In addition, 
for the avoidance of doubt, Item 1506(d)(2) does not apply to 
registrants that voluntarily obtain assurance over their GHG emissions 
disclosure and provide certain information about the engagement 
pursuant to Item 1506(e). We expect that the documentation regarding 
resignations and dismissals and any disagreements between the 
registrant and the GHG emissions attestation provider will be readily 
available to the registrant such that it would not be difficult or 
costly to comply with this requirement.
5. Disclosure of Voluntary Assurance (Item 1506(e))
a. Proposed Rules
    The Commission proposed to require a registrant that was not 
required to include a GHG emissions attestation report under the 
proposed rules to disclose certain information if the registrant's GHG 
emissions disclosures were voluntarily subjected to third-party 
attestation or verification.\1568\ Specifically, the Commission 
proposed new Item 1505(e) of Regulation S-K to require a registrant to 
disclose within the separately captioned ``Climate-Related Disclosure'' 
section in the filing the following information if the registrant's GHG 
emissions disclosures were subject to third-party attestation or 
verification:
---------------------------------------------------------------------------

    \1568\ See Proposing Release, section II.H.5.
---------------------------------------------------------------------------

    (i) Identify the provider of such assurance or verification;
    (ii) Describe the assurance or verification standard used;
    (iii) Describe the level and scope of assurance or verification 
provided;
    (iv) Briefly describe the results of the assurance or verification;
    (v) Disclose whether the third-party service provider has any other 
business relationships with or has provided any other professional 
services to the registrant that may lead to an impairment of the 
service provider's independence with respect to the registrant; and
    (vi) Disclose any oversight inspection program to which the service 
provider is subject (e.g., the AICPA's peer review program).\1569\
---------------------------------------------------------------------------

    \1569\ See id.
---------------------------------------------------------------------------

    The Commission explained that, taken together, these proposed 
disclosure items should help investors understand the nature and 
reliability of the attestation or verification provided and help them 
assess whether the voluntary assurance or verification has enhanced the 
reliability of the GHG emissions disclosure.\1570\
---------------------------------------------------------------------------

    \1570\ See id.
---------------------------------------------------------------------------

b. Comments
    Many of the commenters that specifically addressed the proposed 
requirement to provide disclosures regarding voluntary attestation or 
verification supported the proposal.\1571\ One commenter stated, ``[i]f 
a registrant receives assurance for their GHG emissions, regardless of 
whether they are required to do so under the final [Commission] rule, 
they should be required to disclose this information . . . as 
proposed.'' \1572\ Alternatively, one commenter stated that registrants 
that obtained voluntary assurance should follow the same proposed 
attestation requirements that would apply to mandatory assurance over 
Scope 1 and Scope 2 disclosures (e.g., proposed Items 1505(a) through 
(d)) to protect investors from attestation reports provided under 
standards that did not meet a minimum set of criteria established by 
the Commission.\1573\
---------------------------------------------------------------------------

    \1571\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CEMEX; C. Howard; and CII.
    \1572\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \1573\ See letter from KPMG.
---------------------------------------------------------------------------

    Several commenters supported the proposed requirements to: identify 
the provider of such assurance or verification; disclose the assurance 
or verification standard used; describe the level and scope of 
assurance or verification provided; and briefly describe the results of 
the assurance or verification.\1574\ A few commenters supported the 
proposed requirement to disclose whether the third-party service 
provider had any other business relationships with or has provided any 
other professional services to the registrant that may lead to an 
impairment of the service provider's independence with respect to the

[[Page 21769]]

registrant.\1575\ However, one commenter stated that it did not support 
such a disclosure requirement because it did ``not believe the third-
party provider should be independent.'' \1576\ A few commenters 
supported the requirement to disclose any oversight program to which 
the service provider is subject,\1577\ while one commenter suggested 
aligning with the Science Based Targets Initiative.\1578\ One commenter 
stated that it did not support requiring attestation providers to 
disclose any oversight inspection programs to which they are subject 
because investors could, in its view, wrongly assume that attestation 
providers that are subject to oversight are necessarily more qualified 
than those that are not.\1579\ One commenter stated it is not clear 
what any oversight inspection program would include.\1580\
---------------------------------------------------------------------------

    \1574\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CEMEX; and C. Howard.
    \1575\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; C. Howard; and CII.
    \1576\ See letter from CEMEX.
    \1577\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; C. Howard; and Morningstar.
    \1578\ See, e.g., letter from CEMEX. Science Based Targets 
Initiative (``SBTi'') is a partnership between CDP, the United 
Nations Global Compact, World Resources Institute, and the World 
Wide Fund for Nature, which seeks to define and promote best 
practices in emissions reductions and net zero targets in line with 
climate science, among other objectives. See SBTi, Who We Are/What 
We Do, available at https://sciencebasedtargets.org/about-us.
    \1579\ See letter from Futurepast.
    \1580\ See letters from IECA. But see letter from CEMEX (stating 
that ``the oversight inspection program is clear'').
---------------------------------------------------------------------------

    The Proposing Release included a request for comment asking whether 
registrants should be required to furnish a copy of, or provide a link 
to, the assurance or verification report.\1581\ One commenter stated 
that registrants should be asked to provide a copy of the attestation 
or verification report when available.\1582\ Another commenter stated 
that if summarizing the report in accordance with proposed Item 1505(e) 
effectively means that the report is filed, then furnishing the report 
would, in the commenter's view, be a more appropriate 
alternative.\1583\ The Proposing Release also asked whether, instead of 
requiring a registrant to disclose whether the third-party service 
provider has any other business relationships with or has provided any 
other professional services to the registrant that may lead to an 
impairment of the service provider's independence with respect to the 
registrant as proposed, the Commission should require the third-party 
service provider to be independent, according to the standard proposed 
under Item 1505(b) with respect to mandatory attestation over Scope 1 
and Scope 2 emissions.\1584\ In response, one commenter stated that it 
supported such a requirement,\1585\ and one commenter stated that it 
did not support such a requirement, explaining that it would severely 
narrow the options registrants have to hire such providers.\1586\ 
Finally, some commenters requested clarification on the use of the 
terminology ``assurance'' and ``verification,'' and the difference 
between the two.\1587\
---------------------------------------------------------------------------

    \1581\ See Proposing Release, section II.H.5.
    \1582\ See letter from CEMEX.
    \1583\ See letter from KPMG.
    \1584\ See Proposing Release, section II.H.5.
    \1585\ See letter from Futurepast.
    \1586\ See letter from CEMEX.
    \1587\ See, e.g., letters from CEMEX; C. Howard; and IECA.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting final rules (Item 1506(e)) that require any 
registrant that is not required to include a GHG emissions attestation 
report pursuant to Item 1506(a) to disclose certain information about 
the assurance engagement if the registrant's GHG emissions disclosure 
was voluntarily subject to assurance.\1588\ Under the final rules, a 
registrant will be required to disclose the following information if 
the registrant's GHG emissions disclosure was subject to third-party 
assurance:
---------------------------------------------------------------------------

    \1588\ See 17 CFR 229.1506(e). Under the proposed rules, all 
registrants would have been subject to the requirement to disclose 
Scopes 1 and 2 emissions, but only AFs and LAFs would have been 
subject to the proposed requirement to obtain attestation. 
Therefore, under the proposed rules, there would have been a 
category of registrants that were required to disclose GHG emissions 
in their filings but were not required to obtain an attestation 
report. The situation is different under the final rules because 
only AFs and LAFs are required to disclose Scopes 1 and/or 2 
emissions in certain circumstances, and these categories of 
registrants are also required to obtain an attestation report. Thus, 
under the final rules, there is no category of registrants that is 
required to disclose GHG emissions but not obtain an attestation 
report. As a result, Item 1506(e), which requires disclosure of 
voluntary assurance, only applies to (i) non-AF and non-LAF 
registrants that voluntarily disclose their GHG emissions in a 
Commission filing and voluntarily obtain assurance over such 
disclosure; and (ii) as explained above in section II.I.1, filings 
made by AFs and LAFs after the compliance date for the GHG emissions 
disclosure requirements but before Item 1506(a) requires limited 
assurance.
---------------------------------------------------------------------------

    (i) Identification of the service provider of such assurance;
    (ii) Description of the assurance standard used;
    (iii) Description of the level and scope of assurance services 
provided;
    (iv) Brief description of the results of the assurance services;
    (v) Whether the service provider has any material business 
relationships with or has provided any material professional services 
to the registrant; and
    (vi) Whether the service provider is subject to any oversight 
inspection program, and if so, which program (or programs) and whether 
the assurance services over GHG emissions are included within the scope 
of authority of such oversight inspection program.\1589\
---------------------------------------------------------------------------

    \1589\ See 17 CFR 229.1506(e).
---------------------------------------------------------------------------

    The final rules require disclosure of this information whenever 
assurance services are voluntarily obtained by the registrant. Although 
we considered requiring a registrant to provide disclosure only when 
the registrant chooses to disclose the results of the assurance 
services, we decided not to adopt this alternative because it could 
incentivize a registrant not to disclose unfavorable results from 
voluntary assurance services when that information would be meaningful 
to an investor evaluating the reliability of a registrant's GHG 
emissions disclosure. If a registrant chooses to voluntarily obtain 
assurance over its GHG emissions disclosure, it is important that 
investors be made aware of the fact that assurance was obtained, the 
nature of the services provided, and the results of those assurance 
services so that they can evaluate how much reliance to place upon the 
disclosed GHG emissions data when making investment decisions.
    Although the proposed rules would have required a registrant to 
disclose certain information if its GHG emissions disclosure was 
voluntarily subject to third-party ``attestation'' or ``verification,'' 
the final rules are narrower in scope in that they only require a 
registrant to disclose certain information about ``assurance'' services 
a registrant voluntarily obtains over its GHG emissions 
disclosure.\1590\ For purposes of the final rules, assurance services 
are services performed in accordance with professional standards that 
are designed to provide assurance, which would include, for example, an 
examination providing reasonable assurance or a review providing 
limited assurance.\1591\ Certain ``attestation'' engagements may be 
designed to provide limited or reasonable assurance over identified 
information and therefore such services would fall within the scope of 
the final rules, but in many cases ``verification'' services are not 
designed to provide assurance.

[[Page 21770]]

In contrast to assurance services, non-assurance services are services 
that are not designed to provide assurance, which would include, for 
example, agreed upon procedures engagements and, as indicated above, in 
many cases, verification engagements.\1592\
---------------------------------------------------------------------------

    \1590\ See id.
    \1591\ For examples of attestation engagements designed to 
provide assurance, see, e.g., PCAOB AT section 101; AICPA SSAE No. 
21 AT-C sections 205and 206 and AICPA SSAE No. 22 AT-C section 210; 
and IAASB ISAE 3000 (Revised) and ISAE 3410. See also Proposed ISSA 
5000. The Proposing Release discussed the differences between 
limited and reasonable assurance. See Proposing Release, section 
II.H.1.
    \1592\ For examples of engagements that are not designed to 
provide assurance, see, e.g., PCAOB AT section 201, Agreed-Upon 
Procedures Engagements, available at https://pcaobus.org/oversight/standards/attestation-standards/details/AT201; AICPA SSAE No. 19 AT-
C section 215, Agreed-Upon Procedures Engagements, available at 
https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/at-c-00215.pdf; and IAASB 
International Standard on Related Services 4400 (Revised) Agreed-
Upon Procedures Engagements, available at https://www.iaasb.org/_flysystem/azure-private/publications/files/ISRS-4400-Revised-Agreed-Upon-Procedures-final.pdf. It is possible that a service 
identified or described as a ``verification'' could be designed to 
provide assurance (either limited or reasonable). See, e.g., ISO 
14064-3 (defining ``reasonable assurance'' as the ``level of 
assurance where the nature and extent of the verification activities 
have been designed to provide a high but not absolute level of 
assurance on historical data and information'' and ``limited 
assurance'' as the ``level of assurance where the nature and extent 
of the verification activities have been designed to provide a 
reduced level of assurance on historical data and information) 
(emphasis added). The key factor for purposes of determining whether 
disclosure is necessary under Item 1506(e) is whether the third-
party services are designed to provide assurance.
---------------------------------------------------------------------------

    We have decided to focus the final rules on requiring disclosure of 
assurance services because investors are likely to place greater 
reliance on GHG emissions disclosure that has been subject to assurance 
than disclosure that has not been subject to assurance.\1593\ Current 
voluntary ESG assurance practices have been varied with respect to the 
levels of assurance provided (e.g., limited versus reasonable), the 
assurance standards used, the types of service providers, and the scope 
of disclosure covered by the assurance.\1594\ Therefore, we believe it 
is appropriate to require registrants to provide investors with some 
basic information about the assurance services voluntarily obtained to 
help them understand the nature of the services provided and to help 
investors determine whether the assurance services have enhanced the 
reliability of the GHG emission disclosure. Similarly, requiring a 
brief description of the results of the voluntary assurance services 
will provide transparency about the reliability of any disclosed GHG 
emissions data, which in turn will help investors weigh how much 
importance to give that data when making investment decisions. Since 
non-assurance services are not designed to provide assurance, they do 
not connote the same degree of reliability as assurance services. Based 
on our experience, investors likely do not rely upon non-assurance 
services to the same degree as assurance services. Therefore, the final 
rules will not require a registrant to provide Item 1506(e) information 
about any voluntary non-assurance services (e.g., agreed upon 
procedures) obtained over its GHG emissions disclosure to avoid the 
potential for confusion.\1595\ Finally, we think these changes to the 
final rules respond to several commenters who requested that the 
Commission clarify the terminology ``assurance'' and ``verification'' 
and the differences between the two.\1596\
---------------------------------------------------------------------------

    \1593\ A number of commenters on the proposed mandatory 
attestation requirements stated that they supported the proposal 
because it would help increase the reliability of the disclosure. 
See supra note 1106 and accompanying text. Relatedly, academic 
research suggests that investors prefer audited to non-audited 
information. See J. Cohen, et al., Retail investors' perceptions of 
the decision-usefulness of economic performance, governance, and 
corporate social responsibility disclosures, 23(1) Behavioral 
Research in Accounting 127 (2011) (``Auditing appears to be of use 
in lending credibility to the disclosure of nonfinancial 
information, in the view of most respondents.''); F.D. Hodge, 
Investors' perceptions of earnings quality, auditor independence, 
and the usefulness of audited financial statements, 17 Accounting 
Horizons-Supplement 42 (2003) (``Retail investors recognize the 
agency problems related to their investment and prefer audited 
financial information because of that.''). A financial statement 
audit is a type of ``reasonable assurance'' engagement. See, e.g., 
PCAOB AS 1015, Due Professional Care in the Performance of Work, 
paragraph 10, available at https://pcaobus.org/oversight/standards/auditing-standards/details/AS1015.
    \1594\ See Proposing Release, section II.H.1. The Commission 
explained in the Proposing Release that this fragmentation has 
diminished the comparability of assurance provided and may require 
investors to become familiar with many different assurance standards 
and the varying benefits of different levels of assurance. See id. 
For example, investors may see that a service provider has produced 
an assurance report for a registrant's GHG emissions disclosure and 
have an expectation that such assurance will enhance the reliability 
of the disclosure, without always understanding, for example, what 
level of assurance (e.g., limited versus reasonable) is being 
provided or what scope of assurance (e.g., the disclosure covered by 
the assurance) is being provided with respect to the registrant's 
GHG emissions disclosure. See id. As noted above, the consequences 
of such fragmentation have also been highlighted by certain 
international organizations, including IOSCO. See supra note 1089 
and accompanying text.
    \1595\ One commenter, which supported requiring mandatory 
attestation over Scope 1 and Scope 2 emissions for AFs and LAFs as 
proposed, expressed concerns that, among other things, 
``inconsistencies in the nature and extent of procedures performed 
in voluntary attestation may detract from the benefits of the 
required attestations'' and also stated that ``[d]isclosing that the 
data was `verified' would compound the confusion.'' See letter from 
PwC. This commenter's proposed solution was to subject any 
attestation--voluntary or required--to the proposed requirements 
that applied to the proposed mandatory attestation requirements. 
Although we are not adopting this commenter's recommendation, we 
think the approach we are taking in the final rules to require 
disclosure of certain information about assurance services 
voluntarily obtained by a registrant will reduce the potential for 
confusion while providing investors with information to help them 
evaluate whether the assurance services have enhanced the 
reliability of the GHG emissions disclosure.
    \1596\ See supra note 1587 and accompanying text.
---------------------------------------------------------------------------

    To the extent that registrants voluntarily provide more disclosure 
to investors than what is required under Item 1506(e), registrants 
should remain cognizant of their obligation to provide investors with 
truthful and accurate information and to avoid making any materially 
misleading statements or omissions.\1597\ Importantly, this includes 
ensuring that any description or characterization of any assurance or 
any other type of services obtained with respect to GHG emissions 
disclosure is accurate.
---------------------------------------------------------------------------

    \1597\ See, e.g., Securities Act section 17(a) [15 U.S.C. 
77q(a)], Exchange Act section 10(b) [15 U.S.C. 78j(b)], and Exchange 
Act Rule 10b-5 [17 CFR 240.10b-5].
---------------------------------------------------------------------------

    Consistent with the general support expressed by commenters, 
registrants are required to disclose each of the proposed categories of 
information in the final rules with respect to voluntary assurance 
services with some minor modifications.\1598\ The final rules require 
registrants to identify the provider of such assurance services.\1599\ 
The identity of the assurance provider is a basic, but important, piece 
of information for investors, particularly considering the broad 
spectrum of providers that may provide assurance services (e.g., public 
accounting firms registered with the PCAOB, unregistered public 
accounting firms, and potentially other types of service providers).
---------------------------------------------------------------------------

    \1598\ See 17 CFR 229.1506(e). In the Proposing Release, the 
Commission included a request for comment asking if registrants 
should be required to disclose the voluntary assurance or 
verification fees associated with the GHG emissions disclosure. One 
commenter responded to the request for comment and stated that it 
believed requiring the disclosure of such fees is unnecessary 
because the disclosure would not be useful for investors and would 
burden registrants. See letter from CEMEX. We have decided not to 
require the disclosure of voluntary assurance fees and instead focus 
on requiring the disclosure of the general categories of information 
specified in the final rules, which will be most useful to 
investors.
    \1599\ See 17 CFR 229.1506(e)(1).
---------------------------------------------------------------------------

    If voluntary assurance services are obtained, the final rules also 
require registrants to disclose the assurance standard used.\1600\ As 
noted above, the assurance landscape is currently evolving and there is 
diversity in practice.\1601\ Identification of the

[[Page 21771]]

assurance standard would enable investors to better understand the 
service that has been provided and to assess whether the standard is 
sufficiently developed, which may be particularly important given that 
some service providers may use standards that are developed by 
accreditation bodies with notice and public comment and other robust 
due processes for standard setting in the public interest, while other 
service providers may use standards that do not have these 
characteristics.
---------------------------------------------------------------------------

    \1600\ See 17 CFR 229.1506(e)(2). See also supra note 1591 and 
accompanying text (citing examples of attestation engagements 
providing assurance and applicable standards).
    \1601\ See, e.g., CAQ, S&P 500 and ESG Reporting (Updated June 
2023) (pointing to the use of assurance methodologies such as AICPA 
AT-C 205, Assertion-Based Examination Engagements, AICPA AT-C 210, 
Review Engagements; and IAASB ISAE 3000 (Revised), and ISAE 3410, 
Assurance Engagements on Greenhouse Gas Statements).
---------------------------------------------------------------------------

    In addition, if voluntary assurance services are obtained, the 
final rules require registrants to describe the level and scope of 
assurance provided and to briefly describe the results of the assurance 
services.\1602\ Registrants must clearly identify the level of 
assurance provided. Identifying the scope of the assurance provided 
will help investors understand whether the scope of the engagement 
aligns with the scope of the registrant's GHG emissions disclosure 
(e.g., Scope 1 or 2). Providing investors with clear and transparent 
disclosure about the level and scope of assurance obtained is necessary 
to help investors weigh the level of reliance they should place on 
assurance services and determine whether the assurance services have 
enhanced the reliability of the GHG emissions disclosure. In addition, 
as noted above, requiring disclosure of the results of the assurance 
will provide transparency about the reliability of any disclosed GHG 
emissions data so that investors can weigh how much importance to give 
that data when making investment decisions.
---------------------------------------------------------------------------

    \1602\ See 17 CFR 229.1506(e)(3), (4).
---------------------------------------------------------------------------

    As explained above, with respect to voluntary assurance, the 
proposed rules would have required a registrant to disclose whether the 
third-party service provider has any other business relationships with 
or has provided any other professional services to the registrant that 
may lead to an impairment of the service provider's independence with 
respect to the registrant.\1603\ In a modification to the proposed 
rules, Item 1506(e)(5) requires a registrant to disclose whether the 
service provider has any material business relationships with or has 
provided any material professional services to the registrant.\1604\ We 
have decided not to adopt the requirement for a registrant to determine 
whether any business relationships or other professional services ``may 
lead to an impairment of the service provider's independence'' 
(emphasis added) because of the variety of independence standards that 
could apply to the services. The assurance standard dictates the 
requirements for independence for engagements conducted in accordance 
with the standard. The final rules do not prescribe a particular 
assurance standard that third-party service providers must use with 
respect to the disclosure required under Item 1506(e).\1605\ This could 
result in registrants and third-party providers applying different 
standards, which may not be apparent to investors and could reduce 
comparability. The modifications we have made in the final rules, 
however, will help avoid potential confusion and will enhance 
transparency related to the independence and objectivity of the third-
party service provider by requiring registrants to disclose material 
business relationships and material professional services while also 
disclosing the assurance standard used by the service provider.\1606\ 
Accordingly, the final rules serve much the same purpose as the 
proposed rules; namely, providing investors with information to 
evaluate the impartiality and objectivity of the service provider, 
which will in turn enable investors to determine whether the voluntary 
assurance services have enhanced the reliability of the GHG emissions 
disclosure. We continue to believe that assurance of GHG emissions 
disclosure by independent assurance providers improves the reliability 
of, and investor confidence in, such disclosure.\1607\
---------------------------------------------------------------------------

    \1603\ See Proposing Release, section II.H.5.
    \1604\ See 17 CFR 229.1506(e)(5). A GHG emissions assurance 
engagement, by itself, does not trigger the requirement to provide 
disclosure under Item 1506(e)(5).
    \1605\ For examples of independence standards, see, e.g., PCAOB 
Ethics and Independence Rules and Standards; AICPA Code of 
Professional Conduct; and International Ethics Standards Board for 
Accountants (IESBA) International Code of Ethics for Professional 
Accountants (including International Independence Standards).
    \1606\ See 17 CFR 229.1506(e)(2), (5).
    \1607\ See Proposing Release, sections II.H.2 and II.H.5.
---------------------------------------------------------------------------

    One commenter recommended that the Commission require a provider to 
be independent instead of simply requiring disclosure of the relevant 
facts; \1608\ however, in keeping with the approach we are taking in 
the final rules with respect to voluntary assurance, which is focused 
on requiring the disclosure of information regarding the voluntary 
assurance services provided rather than imposing requirements 
addressing what the services must entail, the final rules require 
registrants to provide disclosure of material business relationships or 
other material professional services and the assurance standard used to 
enable investors to determine how much reliance to place on the 
assurance services.\1609\
---------------------------------------------------------------------------

    \1608\ See letter from Futurepast.
    \1609\ See 17 CFR 229.1506(e)(2), (5).
---------------------------------------------------------------------------

    Consistent with the proposed rules, the final rules require 
registrants to disclose any oversight inspection program to which the 
service provider is subject.\1610\ This is the same requirement that 
applies to AFs and LAFs in Item 1506(d). As we explained in the 
discussion of Item 1506(d) in section II.I.4 above, the requirement to 
disclose any oversight inspection program to which the service provider 
is subject is not limited to oversight inspection programs that include 
within their scope, or require the inspection of, the assurance 
services provided for the GHG emissions disclosure. Rather, the final 
rules require the disclosure of ``any'' oversight inspection program, 
which includes any oversight program the service provider is subject to 
for any type of engagement (e.g., a financial statement audit or other 
review).\1611\ Examples of such oversight inspection programs include 
the AICPA's peer review program and the PCAOB's inspection 
program.\1612\ As explained in section II.I.4 above, this information 
will help investors better understand the qualifications of an 
assurance provider, which in turn will help them determine whether the 
assurance services have enhanced the reliability of the GHG emissions 
disclosure.\1613\
---------------------------------------------------------------------------

    \1610\ See 17 CFR 229.1506(e)(6).
    \1611\ See id.
    \1612\ See id. The PCAOB's oversight inspection program is 
another non-exhaustive example of an oversight inspection program 
that would fall within the scope of the required disclosure, which, 
along with the additional explanation we are providing, will help 
clarify this requirement for commenters. See supra note 1580 and 
accompanying text.
    \1613\ As stated above in section II.I.4, this is true even in 
circumstances where the oversight inspection program does not 
include within its scope the assurance services for the GHG 
emissions disclosure because such oversight can provide a check on a 
provider's overall activities and drive improvements in the quality 
of their services overall. See supra note 1555 and accompanying 
text.
---------------------------------------------------------------------------

    However, to provide investors with a more complete understanding of 
such oversight inspection program, in a modification to the proposed 
rules, the final rules also require a registrant to disclose whether 
such oversight inspection program includes within its scope the 
assurance services over GHG emissions disclosure obtained by the 
registrant.\1614\ Again, this is the same requirement that applies to 
AFs and LAFs in Item 1506(d). As explained above, we would consider 
assurance

[[Page 21772]]

services over GHG emissions disclosure to be within the scope of an 
oversight inspection program if it is possible for the assurance 
services to be inspected pursuant to the oversight program, even if it 
is not certain that the services will be inspected in a particular 
inspection cycle. Requiring registrants to disclose the existence of an 
oversight inspection program provides investors with valuable 
information about the qualifications of a GHG emissions attestation 
provider regardless of whether the oversight inspection program 
includes the inspection of assurance over GHG emissions disclosure 
within its scope. Similarly, requiring disclosure of whether the GHG 
emission assurance services would fall within the scope of such program 
would further facilitate investors' evaluation of the reliability of 
the assurance results and GHG emissions disclosure.\1615\ One commenter 
stated that the Commission should not require the disclosure of 
oversight inspection programs because it could wrongly suggest that 
attestation providers that are subject to oversight are necessarily 
more qualified than those that are not.\1616\ We agree with the 
commenter that it is not necessarily true that an assurance provider 
that is subject to oversight is more qualified than a provider that is 
not.\1617\ But whether a provider is subject to oversight is one 
relevant factor for investors to consider when assessing the 
reliability of assurance results and GHG emissions disclosure and such 
oversight can provide a check on a provider's activities and drive 
improvements in quality as explained above.
---------------------------------------------------------------------------

    \1614\ See 17 CFR 229.1506(e)(6).
    \1615\ The PCAOB's inspection jurisdiction is limited to audits 
of issuers and broker-dealers registered with the Commission and 
would not include engagements for the assurance of GHG emissions 
disclosures within its scope. See supra note 1357. However, as 
stated in the Proposing Release, an example of an oversight 
inspection program that includes within its scope assurance 
engagements is the AICPA peer review program. See Proposing Release, 
section II.H.4.
    \1616\ See letter from Futurepast.
    \1617\ See supra note 1579.
---------------------------------------------------------------------------

    The proposed rules would have required a registrant to include the 
proposed disclosure regarding voluntary attestation within the 
separately captioned ``Climate-Related Disclosure'' section in the 
Commission filing where the GHG emissions data is disclosed.\1618\ 
Since the final rules leave the placement of climate-related 
disclosures, other than the financial statement disclosures, largely up 
to the registrant, a registrant will not be required to include the 
disclosure regarding voluntary assurance within a separately captioned 
``Climate-Related Disclosure'' section in the Commission filing.\1619\ 
Rather, registrants should provide the disclosure required by this 
section in the same Commission filing and alongside the GHG emissions 
disclosure to which the voluntary assurance services relate.
---------------------------------------------------------------------------

    \1618\ See Proposing Release, section II.H.5.
    \1619\ See supra section II.A.3.
---------------------------------------------------------------------------

    Under the final rules, a registrant is responsible for disclosing 
the required information about the voluntary assurance services in its 
Commission filings. In these circumstances, we do not view the 
assurance provider as having prepared or certified the filing or any 
information contained therein. In addition, Item 1506(e) will not 
require registrants to file or furnish any voluntary assurance reports 
to the Commission.
    Although the final rules do not require a registrant that has 
obtained voluntary assurance over its GHG emissions disclosure to file 
or furnish an assurance report to the Commission, for the avoidance of 
doubt, and in response to commenters,\1620\ we are amending Rule 436 to 
provide that any description of assurance services regarding a 
registrant's GHG emissions disclosure provided in accordance with Item 
1506(e) of Regulation S-K will not be considered a part of the 
registration statement prepared or certified by an expert or person 
whose profession gives authority to the statements made within the 
meaning of sections 7 and 11 of the Securities Act.\1621\ Therefore, a 
registrant is not required to obtain and include the written consent of 
the GHG emissions attestation provider pursuant to Securities Act 
section 7 or Rule 436.\1622\ Even though we believe that accountability 
for experts under section 11 is a central tenet of the Securities 
Act,\1623\ this limited exception should encourage registrants to 
voluntarily obtain assurance over their GHG emission disclosure, which 
will benefit investors because assurance helps to enhance the 
reliability of a registrant's GHG emissions disclosure.
---------------------------------------------------------------------------

    \1620\ See supra note 1345 and accompanying text.
    \1621\ See 17 CFR 230.436(i)(2).
    \1622\ See 15 U.S.C. 77g; 17 CFR 230.436. For the avoidance of 
doubt, a registrant would not have to obtain and include the written 
consent of the GHG emissions attestation provider pursuant to 17 CFR 
229.601(b)(23), which is the Regulation S-K provision requiring a 
registrant to file the written consent of an expert as an exhibit to 
a Securities Act registration statement or Exchange Act report that 
incorporates by reference a written expert report attached to a 
previously filed Securities Act registration statement.
    \1623\ See 15 U.S.C. 77k(a)(4). See also 77 Cong. Rec. 2910, 
2934 (1933) (Statement of Rep. Chapman) (``Under its provisions the 
issuer, the underwriter, and the technical expert (including the 
engineer, the lawyer, the appraiser, the accountant, in connection 
with the issuance of securities) are held responsible for making a 
full disclosure of every material fact in connection with an issue 
of corporate securities. The burden of proof is placed on them to 
show that after the exercise of the degree of diligence expected of 
reasonably prudent men they `had reasonable ground to believe and 
did believe . . . that such statement was true or that there was no 
such omission.' '').
---------------------------------------------------------------------------

    As discussed above in section II.I.2.c, we are also amending Rule 
436 to provide that a report by a GHG emissions attestation provider 
covering Scope 1, Scope 2, and/or Scope 3 emissions at a limited 
assurance level shall not be considered a part of the registrant 
statement that is prepared or certified by an expert or person whose 
profession gives authority to the statements made within the meaning of 
sections 7 and 11 of the Securities Act.\1624\ To the extent that a 
registrant that voluntarily obtains assurance over its GHG emissions 
disclosures decides to voluntarily file or furnish an assurance report 
to the Commission at the limited assurance level, the GHG emissions 
attestation provider would be entitled to rely on this amendment to 
Rule 436 if its terms are met. In these circumstances, a registrant 
would be required to submit a letter from the GHG emissions attestation 
provider that acknowledges their awareness of the use in certain 
registration statements of any of their reports which are not subject 
to the consent requirement of section 7 pursuant to the amendments to 
Item 601 of Regulation S-K.\1625\ However, if a registrant voluntarily 
chooses to file or furnish an assurance report to the Commission that 
does not meet the requirements of Rule 436(i)(1) (e.g., the assurance 
report is provided at a reasonable assurance level), or if the 
registrant chooses to voluntarily disclose more information than is 
required under Item 1506(e) of Regulation S-K, then, by its terms, the 
exception in Rule 436 would not apply, and the assurance provider may 
be required to provide a consent in accordance with applicable 
statutory provisions and rules and would be subject to Section 11 
liability.\1626\
---------------------------------------------------------------------------

    \1624\ See 17 CFR 230.436(i)(1).
    \1625\ See 17 CFR 229.601(b)(27). See also supra section 
II.I.2.c. for further discussion of the amendments to Item 601 of 
Regulation S-K.
    \1626\ Although the amendments to Rule 436 will clarify that 
assurance providers will not be liable to shareholders in actions 
under section 11 of the Securities Act (to the extent the provider 
qualifies for the exception), we remind registrants and providers 
that there are other remedies available to shareholders and the 
Commission, such as section 10(b) of the Exchange Act and Rule 10b-5 
thereunder, which are not affected by the amendments to Rule 436.

---------------------------------------------------------------------------

[[Page 21773]]

J. Safe Harbor for Certain Climate-Related Disclosures (Item 1507)

1. Proposed Rules
    The Commission proposed a safe harbor for Scope 3 emissions data to 
mitigate potential liability concerns that registrants may have about 
providing emissions information derived largely from third parties in a 
registrant's value chain. The proposed safe harbor provided that 
disclosure of Scope 3 emissions by or on behalf of the registrant would 
be deemed not to be a fraudulent statement unless it is shown that such 
statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.\1627\ As proposed, the safe harbor 
would extend to any statement regarding Scope 3 emissions that is 
disclosed pursuant to proposed Items 1500 through 1506 of Regulation S-
K and made in a document filed with the Commission. For purposes of the 
proposed safe harbor, the term ``fraudulent statement'' was defined to 
mean a statement that is an untrue statement of material fact, a 
statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or that constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud as those terms 
are used in the Securities Act or the Exchange Act or the rules or 
regulations promulgated thereunder.\1628\
---------------------------------------------------------------------------

    \1627\ See Proposing Release, section II.G.3.
    \1628\ See id.
---------------------------------------------------------------------------

    Although the proposed safe harbor only applied to Scope 3 emissions 
disclosures, the Commission solicited comment on whether the safe 
harbor should apply to other climate-related disclosures, such as 
Scopes 1 and 2 emissions disclosures, any targets and goals 
disclosures, or the proposed financial statement metrics 
disclosures.\1629\ The Commission also solicited comment on whether to 
provide a safe harbor for disclosures related to a registrant's use of 
internal carbon pricing, scenario analysis,\1630\ and a transition 
plan.\1631\ The Commission further requested comment on whether it 
should adopt a provision similar to 17 CFR 229.305(d) that would apply 
the PSLRA safe harbors to forward-looking statements made in response 
to specified climate-related disclosure items, such as proposed Item 
1502 pertaining to impacts of climate-related risks on strategy.\1632\ 
Finally, the Commission solicited comment on whether the safe harbor 
should apply indefinitely or, instead, should sunset after the passage 
of a certain number of years or after certain conditions are 
satisfied.\1633\
---------------------------------------------------------------------------

    \1629\ See id.
    \1630\ See Proposing Release, section II.C.
    \1631\ See Proposing Release, section II.E.2.
    \1632\ See Proposing Release, section II.C.
    \1633\ See Proposing Release, section II.G.3.
---------------------------------------------------------------------------

2. Comments
    Several commenters supported the adoption of a Scope 3 emissions 
safe harbor in the form proposed.\1634\ These commenters stated that 
the proposed safe harbor for Scope 3 emissions disclosure was 
appropriate because of the uncertainties involved in the calculation of 
those emissions due to the need to rely on estimates \1635\ and data 
from third parties.\1636\ Some of these commenters also stated that the 
proposed safe harbor would encourage more robust disclosure of a 
registrant's Scope 3 emissions.\1637\ A few commenters specifically 
supported basing the Scope 3 emissions safe harbor on the proposed 
standard that a registrant's Scope 3 emissions disclosure would not be 
deemed to be a fraudulent statement unless it is shown that such 
statement was made or reaffirmed without a reasonable basis or was 
disclosed other than in good faith.\1638\
---------------------------------------------------------------------------

    \1634\ See, e.g., letters from CalPERS; Calvert; CEMEX; IAC 
Recommendation; Impax Asset Mgmt.; and TotalEnergies.
    \1635\ See, e.g., letters from CalPERS; Calvert; CEMEX; and 
TotalEnergies.
    \1636\ See, e.g., letters from CEMEX; Impax Asset Mgmt.; and 
TotalEnergies.
    \1637\ See, e.g., letters from PRI; and SKY Harbor.
    \1638\ See, e.g., letters from CEMEX; and TotalEnergies.
---------------------------------------------------------------------------

    Many other commenters recommended strengthening and/or broadening 
the scope of the proposed safe harbor to include other types of 
climate-related disclosures.\1639\ In this regard several commenters 
stated that a more robust safe harbor for climate-related disclosures 
than what was proposed would encourage registrants to provide more 
robust and ``higher quality'' disclosures for investors while the 
proposed safe harbor would potentially chill climate reporting.\1640\
---------------------------------------------------------------------------

    \1639\ See, e.g., letters from AALA; Airlines for America; Amer. 
Bankers; American Exploration and Production Council (June 17, 2022) 
(``AXPC''); API; AZ Farm; BCSE; Beller et al.; BHP; BlackRock; BNP 
Paribas; BOA; BPI; Business Roundtable; California Bankers 
Association (June 17, 2022) (``CA Bankers''); CA Farm; Can. Bankers; 
CEMEX; Chamber; Chevron; Citigroup; Davis Polk; Delahaye Advisors 
LLC (June 17, 2022) (``Delahaye''); Energy Transfer; Enerplus; 
Exxon; HP; J. Herron; Impax Asset Mgmt.; Institute of International 
Bankers (June 17, 2022) (``IIB''); IIF; Japanese Bankers Association 
(June 17, 2022) (``JPN Bankers); Loan Syndications and Trading 
Association (June 17, 2022) (``LSTA''); NAA; NAM; Nareit; Nasdaq; 
NMA; RILA; Salesforce; SBCFAC Recommendation; Soc. Corp. Gov.; 
Sullivan Cromwell; Unilever; and United Air.
    \1640\ See, e.g., letters from BOA; Business Roundtable; 
Chamber; Nasdaq; and Soc. Corp. Gov.
---------------------------------------------------------------------------

    For example, some commenters stated that the proposed Scope 3 
emissions safe harbor appeared to be based on a negligence liability 
standard, which would provide protection that was too weak to be of 
much use for many registrants.\1641\ Some commenters recommended that 
the Commission remove the proposed ``reasonable basis'' requirement, 
condition the safe harbor only on a registrant acting in good faith 
when calculating and reporting its Scope 3 emissions, and, for loss of 
the safe harbor, require knowing or intentional fraud in the sense that 
the registrant must have actual knowledge that the third-party 
information it is utilizing is unreliable.\1642\
---------------------------------------------------------------------------

    \1641\ See, e.g., letters from Beller et al.; BOA; and Chamber.
    \1642\ See, e.g., letters from Beller et al.; BHP; BOA; and NAM.
---------------------------------------------------------------------------

    Some commenters, as well as the Commission's Small Business Capital 
Formation Advisory Committee,\1643\ recommended adoption of a safe 
harbor that would cover any climate risk-related statement, historical 
or forward-looking, required by the final rules.\1644\ Some commenters 
stated that the safe harbor should cover all forward-looking climate-
related disclosures, including disclosure of forward-looking 
impacts.\1645\ Other commenters stated that a safe harbor for Scope 3 
emissions and other climate-related disclosures should provide 
protection at least as strong as that provided by the PSLRA safe 
harbors.\1646\ In this regard some commenters stated that the safe 
harbor should be modeled on the market risk disclosure safe harbor 
under 17 CFR 229.305(d).\1647\ Some commenters stated

[[Page 21774]]

that the Commission should adopt a forward-looking statement safe 
harbor for climate-related disclosures made in connection with initial 
public offerings (``IPOs'') \1648\ or by partnerships, limited 
liability companies, and direct participation investment programs, 
which are excluded from the PSLRA safe harbors.\1649\ Commenters stated 
that excluding climate-related disclosures made in connection with IPOs 
or by entities such as partnerships from safe harbor protections could 
potentially impede capital formation and discourage private companies 
from going public.\1650\
---------------------------------------------------------------------------

    \1643\ See SBCFAC Recommendation.
    \1644\ See, e.g., letters from Amer. Bankers; BIO; BOA; Chamber; 
Delahaye; Nasdaq; RILA; Soc. Corp. Gov.; Sullivan Cromwell; and T 
Rowe Price.
    \1645\ See, e.g., letters from Airlines for America; Chevron; 
Cleary Gottlieb; IIF; Nareit; and NMA.
    \1646\ See, e.g., letters from Alphabet et al.; BHP; BPI; 
Business Roundtable; Chevron; LSTA; and Nasdaq.
    \1647\ See, e.g., letters from BHP (stating that clear safe 
harbors for mandated climate-related disclosures, such as those 
related to internal carbon prices, scenario analysis, transition 
plans and targets and goals, would be more appropriate than implicit 
or uncertain reliance on the PSLRA safe harbors, and recommending 
that, ``similar to 17 CFR 229.305(d), the information required or 
permitted by Item 1502 (Strategy, business model, and outlook), Item 
1503 (Risk Management) and Item 1506 (Targets and goals) of 
Regulation S-K, except for historical facts, should be explicitly 
considered a `forward-looking statement' for purposes of the PSLRA 
safe harbors''); and Chevron (stating that, in comparable 
circumstances, when the Commission adopted novel and complex 
disclosure requirements regarding market risk, ``the Commission 
recognized the challenges companies would face in preparing this 
novel information and specifically provided PSLRA safe-harbor 
protection for it,'' and recommending that the Commission adopt a 
similar safe harbor for GHG emissions disclosure).
    \1648\ See, e.g., letters from Chamber; and Nasdaq.
    \1649\ See, e.g., letter from Nareit; see also letter from AFPM 
(stating that any forward-looking statement safe harbor should apply 
to all business organizations providing the climate-related 
disclosures).
    \1650\ See, e.g., letters from Chamber; Nareit; and Nasdaq.
---------------------------------------------------------------------------

    Several commenters recommended including specific disclosure items, 
in addition to Scope 3 emissions disclosures, within the scope of the 
safe harbor, such as Scopes 1 and 2 emissions disclosures,\1651\ 
financial impact disclosures,\1652\ and disclosures related to a 
registrant's use of internal carbon pricing,\1653\ scenario 
analysis,\1654\ and a transition plan,\1655\ or the setting of targets 
and goals.\1656\ Other commenters stated that the safe harbor should 
cover any climate-related disclosures based on third-party data or 
estimates.\1657\ Commenters stated that because many of the required 
climate-related disclosures will involve complex assessments that are 
substantially based on estimates, assumptions, still-evolving science 
and analytical methods, and the use of third-party data, the safe 
harbor should cover all such climate-related disclosures.\1658\ Still 
other commenters stated that the safe harbor should protect against not 
only private rights of action but Commission enforcement proceedings as 
well.\1659\
---------------------------------------------------------------------------

    \1651\ See, e.g., letters from AZ Farm; BHP; BlackRock; BOA; 
Can. Bankers; Citigroup; Energy Transfer; J. Herron; IIB; 
International Association of Drilling Contractors (June 16, 2022) 
(``IADC''); NAA; NAM; NMA; Salesforce; Unilever; and United Air.
    \1652\ See, e.g., letters from Can. Bankers; CEMEX; Citigroup; 
Energy Transfer; IIB; and NAM.
    \1653\ See, e.g., letters from Beller et al.; BHP; BlackRock; 
BOA; CEMEX; and Chevron.
    \1654\ See, e.g., letters from BCSE; Beller et al.; BHP; 
BlackRock; BOA; Can. Bankers; CEMEX; Chevron; HP; IADC; and IIF.
    \1655\ See, e.g., letters from BHP; BlackRock; BOA; Can. 
Bankers; CEMEX; Chevron; HP; IIB; and IIF.
    \1656\ See, e.g., letters from Beller et al.; BHP; BlackRock; 
BOA; Can. Bankers; CEMEX; Citigroup; Enerplus; HP; Impax Asset 
Mgmt.; IIB; and NAM.
    \1657\ See, e.g., letters from API; BNP Paribas; BPI; Cleary 
Gottlieb; Exxon; IIF; NMA; and T Rowe Price.
    \1658\ See, e.g., letters from Amer. Bankers; BOA; Chamber; and 
Sullivan Cromwell.
    \1659\ See, e.g., letters from BOA; and JPN Bankers.
---------------------------------------------------------------------------

    Some commenters opposed adoption of a safe harbor for Scope 3 
emissions disclosure.\1660\ A few commenters indicated that it would be 
inappropriate to adopt a safe harbor for Scope 3 emissions disclosure 
or any other climate-related disclosure that provided historical or 
current information.\1661\ These commenters further stated that a 
separate forward-looking statement safe harbor for climate-related 
disclosures was not necessary because the PSLRA safe harbor is 
available to protect forward-looking climate-related disclosures.\1662\ 
One other commenter stated that providing a safe harbor for Scope 3 
emissions disclosure would disincentivize registrants from providing 
accurate disclosures.\1663\
---------------------------------------------------------------------------

    \1660\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CIEL; ClientEarth US (June 17, 2022) 
(``ClientEarth''); and Consumer Reports (June 17, 2022).
    \1661\ See letters from Amer. for Fin. Reform, Sunrise Project 
et al.; and ClientEarth.
    \1662\ See id.
    \1663\ See letter from CIEL.
---------------------------------------------------------------------------

    Several commenters supported adoption of a Scope 3 emissions safe 
harbor but only if it was subject to a sunset provision.\1664\ These 
commenters stated that the Scope 3 emissions safe harbor should 
eventually be phased out because of an expectation that Scope 3 
reporting methodologies will be refined, Scope 3 tools and resources 
will improve, and the cost of Scope 3 emissions reporting will decline, 
which should reduce the uncertainties and difficulties in connection 
with Scope 3 emissions reporting.\1665\ Commenters recommended various 
time horizons before sunsetting, such as one year,\1666\ three 
years,\1667\ five years,\1668\ and five to seven years.\1669\ By 
contrast, several other commenters stated that the Scope 3 emissions 
safe harbor should not be subject to a sunset.\1670\ One commenter 
stated that the Scope 3 emissions safe harbor should be indefinite 
because the underlying data will always be under the control of third 
parties.\1671\ Another commenter stated that there should be a 
meaningful safe harbor for the entirety of any final rule considering 
the ``unique'' challenges that registrants must overcome to meet the 
proposed climate-related disclosure obligations.\1672\
---------------------------------------------------------------------------

    \1664\ See, e.g., letters from As You Sow; Bailard; CalPERS; 
Calvert; Ceres; CFA; ERM CVS; Friends of the Earth US (June 17, 
2022) (``Friends of Earth''); IATP; ICCR; Nasdaq; PRI; SKY Harbor; 
and Soros Fund.
    \1665\ See, e.g., letters from As You Sow; Friends of Earth; 
IATP; PRI; and Soros Fund.
    \1666\ See letter from ERM CVS.
    \1667\ See, e.g., letters from IATP; and ICCR.
    \1668\ See letter from SKY Harbor.
    \1669\ See letter from Calvert; see also letter from C2ES 
(recommending that the safe harbor be re-evaluated every 5-7 years).
    \1670\ See, e.g., letters from AALA; Alphabet et al.; AXPC; 
CEMEX; Delahaye; J. McClellan; Mtg. Bankers; and Nikola Corporation 
(June 17, 2022) (``Nikola'').
    \1671\ See letter from CEMEX.
    \1672\ See letter from AXPC.
---------------------------------------------------------------------------

3. Final Rules
    Because the final rules will not require the disclosure of Scope 3 
emissions from any registrant,\1673\ we are not adopting a safe harbor 
for such disclosures in the final rules. Instead, for the reasons 
discussed below and consistent with the feedback from commenters that 
asked the Commission to promulgate a safe harbor for certain climate-
related disclosures (in addition to the Scope 3 emissions disclosure 
safe harbor that was proposed),\1674\ we are adopting a provision (Item 
1507) stating that disclosures (other than historic facts) provided 
pursuant to the following subpart 1500 provisions constitute ``forward-
looking statements'' for purposes of the PSLRA safe harbors:
---------------------------------------------------------------------------

    \1673\ See supra section II.H.3.
    \1674\ See supra note 1639 and accompanying text.
---------------------------------------------------------------------------

     17 CFR 229.1502(e) (transition plans);
     17 CFR 229.1502(f) (scenario analysis);
     17 CFR 229.1502(g) (internal carbon pricing); and
     17 CFR 229.1504 (targets and goals).\1675\
---------------------------------------------------------------------------

    \1675\ See 17 CFR 229.1507(a)(1).
---------------------------------------------------------------------------

    In addition, as discussed in more detail below, the final rules 
provide that the PSLRA safe harbors will apply to these forward-looking 
statements in connection with certain transactions and disclosures by 
certain issuers notwithstanding that these transactions and issuers are 
excluded from the PSLRA safe harbors in subparagraphs (a) and (b) of 
section 27A of the Securities Act and section 21E of the Exchange Act.
    When proposing the climate disclosure rules, the Commission 
indicated that, because transition planning, scenario analysis, and 
internal carbon pricing involve assumptions, judgments, and predictions 
about future events, the PSLRA safe harbors would be applicable to 
forward-looking statements concerning transition plans, scenario 
analysis, and internal carbon

[[Page 21775]]

pricing.\1676\ Moreover, because the proposed targets and goals 
disclosure provision would require a registrant to disclose how it 
intends to achieve its climate-related targets or goals, the Commission 
similarly stated that the PSLRA safe harbors would apply to forward-
looking statements made in the context of such targets and goals 
disclosure.\1677\ Because estimates and assumptions based on future 
events are intrinsically involved in disclosures concerning a 
registrant's transition plan, use of scenario analysis or internal 
carbon pricing, and targets and goals, we continue to believe that such 
disclosures constitute ``forward-looking statements'' for purposes of 
the PSLRA safe harbors.
---------------------------------------------------------------------------

    \1676\ See Proposing Release, sections II.C and E.
    \1677\ See Proposing Release, section II.I.
---------------------------------------------------------------------------

    The PSLRA statutory provisions define ``forward-looking statement'' 
to include a number of different types of statements.\1678\ Several of 
these definitional provisions are potentially applicable to statements 
made in the context of disclosures regarding transition plans, scenario 
analysis, and internal carbon pricing made pursuant to Item 1502 and 
regarding targets and goals made pursuant to Item 1504. To the extent 
that disclosures made in response to these Items or to any other 
subpart 1500 provision contain one or more of the following statements, 
they will fall within the PSLRA statutory definition of ``forward-
looking statement'':
---------------------------------------------------------------------------

    \1678\ See 15 U.S.C. 77z-2(i)(1) and 15 U.S.C. 78u-5(i)(1).
---------------------------------------------------------------------------

     A statement containing a projection of revenues, income 
(including income loss), earnings (including earnings loss) per share, 
capital expenditures, capital structure, or other financial items; 
\1679\
---------------------------------------------------------------------------

    \1679\ See 15 U.S.C. 77z-2(i)(1)(A) and 15 U.S.C. 78u-
5(i)(1)(A). For example, a statement of potential capital 
expenditures made in response to Item 1502(e) (transition plans) and 
Item 1502(d) (narrative discussion of material impacts of climate-
related risks) would likely constitute a forward-looking statement.
---------------------------------------------------------------------------

     A statement of the plans and objectives of management for 
future operations, including plans or objectives relating to the 
products or services of the issuer; \1680\
---------------------------------------------------------------------------

    \1680\ See 15 U.S.C. 77z-2(i)(1)(B) and 15 U.S.C. 78u-
5(i)(1)(B). For example, a statement of plans to transition to more 
efficient operations or a different mix of products or services made 
in response to Item 1502(d), Item 1502(e), or Item 1504 (targets and 
goals) would likely constitute a forward-looking statement.
---------------------------------------------------------------------------

     A statement of future economic performance, including any 
such statement contained in a discussion and analysis of financial 
condition by the management, made pursuant to Commission rules; \1681\
---------------------------------------------------------------------------

    \1681\ See 15 U.S.C. 77z-2(i)(1)(C) and 15 U.S.C. 78u-
5(i)(1)(C). For example, a statement of future economic performance 
made pursuant to Items 1502(d), Item 1504, or Item 303 of Regulation 
S-K would likely constitute a forward-looking statement.
---------------------------------------------------------------------------

     Any statement of the assumptions underlying or relating to 
the above statements; \1682\ and
---------------------------------------------------------------------------

    \1682\ See 15 U.S.C. 77z-2(i)(1)(D) and 15 U.S.C. 78u-
5(i)(1)(D).
---------------------------------------------------------------------------

     A statement containing a projection or estimate of items 
specified by Commission rule or regulation.\1683\
---------------------------------------------------------------------------

    \1683\ See 15 U.S.C. 77z-2(i)(1)(F) and 15 U.S.C. 78u-
5(i)(1)(F). For example, a projection or estimate of a registrant's 
future GHG emissions made pursuant to Item 1504 would likely 
constitute a forward-looking statement.
---------------------------------------------------------------------------

    If a forward-looking statement falls squarely within any of the 
above-described forward-looking statements, certain parties may rely on 
the existing PSLRA safe harbors for disclosures made pursuant to any of 
the subpart 1500 provisions, assuming the other requirements of the 
PSLRA provisions are met.\1684\ We recognize, however, the concern of 
some commenters that the PSLRA safe harbors may not be applicable to 
disclosures related to transition plans, scenario analysis, internal 
carbon price, and targets and goals to the extent the disclosures 
consist of a complex mix of factual and forward-looking statements and 
because the PSLRA safe harbors do not apply to certain parties and 
certain transactions.\1685\
---------------------------------------------------------------------------

    \1684\ Other safe harbors, such as Securities Act Rule 175 and 
Exchange Act Rule 3b-6 and the bespeaks caution doctrine may also 
continue to apply to disclosures made pursuant to any of the subpart 
1500 provisions, depending on specific facts and circumstances.
    \1685\ See, e.g., letters from BOA; and Chamber. For example, 
the PSLRA safe harbors do not apply to statements made in connection 
with an IPO, see 15 U.S.C. 77z-2(b)(2)(D) and 15 U.S.C. 78u-
5(b)(2)(D), or made in connection with an offering by, or related to 
the operations of, a partnership, limited liability company, or a 
direct participation investment program, see 15 U.S.C. 77z-
2(b)(2)(E) and 15 U.S.C. 78u-5(b)(2)(E).
---------------------------------------------------------------------------

    In addition to the forward-looking statement exemptions expressly 
provided under the PSLRA, the Commission has authority under the PSLRA 
to provide exemptions from liability for other statements based on 
projections or other forward-looking information if the Commission 
determines that such exemption is consistent with the public interest 
and the protection of investors.\1686\ The Commission previously 
exercised this authority when it adopted a rule providing a forward-
looking statement safe harbor for certain statements made concerning 
market risk.\1687\
---------------------------------------------------------------------------

    \1686\ 15 U.S.C. 77z-2(g) and 15 U.S.C. 78u-5(g). The PSLRA also 
provides that it does not limit, ``either expressly or by 
implication, the authority of the Commission to exercise similar 
authority or to adopt similar rules and regulations with respect to 
forward-looking statements under any other statute under which the 
Commission exercises rulemaking authority.'' 15 U.S.C. 77z-2(h) and 
15 U.S.C. 78u-5(h).
    \1687\ 17 CFR 229.305; see Disclosure of Market Risk Sensitive 
Instruments Release.
---------------------------------------------------------------------------

    After considering feedback from commenters, we have concluded that 
using the authority provided by the PSLRA to extend its protections to 
disclosures (other than historical facts) concerning transition plans, 
scenario analysis, internal carbon pricing, and targets and goals is 
consistent with the public interest and the protection of investors. We 
expect that the disclosures required by these items will include a 
complex mixture of both forward-looking and factual information related 
to climate-related risks and assumptions concerning those risks. Thus, 
we are providing a safe harbor for these disclosures to avoid having to 
disentangle the information to claim protection for forward-looking 
statements under the PSLRA safe harbors, which would increase the 
compliance burden under the final rules and potentially reduce the 
usefulness of those disclosures for investors. We also believe that a 
safe harbor for these disclosures will help incentivize more 
comprehensive disclosures on these matters to the benefit of 
investors.\1688\
---------------------------------------------------------------------------

    \1688\ See supra note 1640 and accompanying text.
---------------------------------------------------------------------------

    Statements made by issuers and/or in connection with transactions 
\1689\ currently excluded from the PSLRA statutory safe harbor for 
forward-looking statements that will be eligible for the final rules' 
safe harbor include forward-looking statements: made in connection with 
an offering of securities by a blank check company; \1690\ made with 
respect to the business or operations of an issuer of penny stock; made 
in connection with a rollup transaction; or

[[Page 21776]]

made in connection with an IPO,\1691\ or in connection with an offering 
by, or relating to the operations of, a partnership, limited liability 
company, or a direct participation investment program.\1692\
---------------------------------------------------------------------------

    \1689\ In addition to issuers, consistent with the PSLRA safe 
harbors, the safe harbor will apply to: a person acting on behalf of 
the issuer; an outside reviewer retained by the issuer making a 
statement on behalf of the issuer; or an underwriter, with respect 
to information provided by the issuer or information derived from 
information provided by the issuer. See 15 U.S.C. 77z-2(a)(2)-(4) 
and 15 U.S.C. 78u-5(a)(2)-(4); see also infra note 1691.
    \1690\ The Commission recently amended Securities Act Rule 405 
and Exchange Act Rule 12b-2 to define ``blank check company'' for 
purposes of Securities Act Section 27A and Exchange Act Section 21E 
to mean a company that has no specific business plan or purpose or 
has indicated that its business plan is to engage in a merger or 
acquisition with an unidentified company or companies, or other 
entity or person. See Special Purpose Acquisition Companies, Shell 
Companies, and Projections, Release No. 33-11265 (Jan. 24, 2024), 
[89 FR 14158 (Feb. 26, 2024)].
    \1691\ The limitation in 15 U.S.C. 77z-2(a)(1) and 15 U.S.C. 
78u-5(a)(1) is not applicable. See Item 1507(a)(3). Thus, 
notwithstanding 15.U.S.C. 77z(2)(a)(1) and 15 U.S.C. 78(u)(a)(1), 
the safe harbor will apply where an issuer that, at the time the 
statement is made, is not subject to the reporting requirements of 
section 13(a) or section 15(d) of the Exchange Act.
    \1692\ See 17 CFR 229.1507(a)(2).
---------------------------------------------------------------------------

    We have determined that it is consistent with the public interest 
and the protection of investors to extend the safe harbor to these 
entities, such as partnerships and limited liability companies, and to 
transactions, such as IPOs, all of which are currently excluded from 
the PSLRA statutory safe harbor for forward-looking statements, because 
such entities may be subject to material climate-related risks that 
will require them to provide the disclosures pursuant to Items 1502(e), 
(f), or (g), or Item 1504. Extending the PSLRA safe harbor to these 
specified disclosures will encourage more comprehensive disclosures 
under these Items and help limit any negative effects to capital 
formation that may result from the perceived compliance costs 
associated with these provisions of the final rules.\1693\
---------------------------------------------------------------------------

    \1693\ See 15 U.S.C. 77z-2(b)(1)(B)-(D) and 77z-2(b)(2)(C)-(E); 
and 15 U.S.C. 78u-5(b)(1)(B)-(D) and 78u-5(b)(2)(C){time} (E). We 
are not using our exemptive authority to extend the PSLRA safe 
harbors to: (i) issuers specified in Securities Act section 
27A(b)(1)(A) and Exchange Act section 21E(b)(1)(A) (specified ``bad 
actors''); (ii) forward looking-statements contained ina 
registration statement of, or otherwise issued by, an investment 
company as specified in Securities Act section 27A(b)(2)(B) and 
Exchange Act section 21E(b)(2)(B); and (iii) forward-looking 
statements made by an issuer in a going-private transaction, see 
section 27A(b)(2)(E) and Exchange Act section 21E(b)(1)(E), in 
connection with a tender offer, see Securities Act section 
27A(b)(2)(C) and Exchange Act section 21E(b)(2)(C), or in a 
beneificial ownership report required to be filed pursuant to 
section 13(d) of the Exchange Act, see Securities Act section 
27A(b)(2)(F) and Exchange Act section 21E(b)(2)(F). See also the 
discussion below of forward-looking statements made in consolidated 
financial statements, which are excluded from both the PSLRA and 
Item 1507 safe harbors.
---------------------------------------------------------------------------

    Because the disclosure items pertaining to transition plans, 
scenario analysis, internal carbon pricing, and targets and goals are 
likely to involve a complex mixture of estimates and assumptions, some 
of which may be based on a combination of facts and projections, the 
safe harbor we are adopting provides that all information required by 
the subpart 1500 provisions concerning transition plans, scenario 
analysis, internal carbon pricing, and targets and goals is considered 
forward-looking statements for purposes of the statutory PSLRA safe 
harbors, except for historical facts.\1694\ This provision should 
encourage more comprehensive disclosures regarding these subpart 1500 
items, to the benefit of investors, despite their novelty and 
complexity.
---------------------------------------------------------------------------

    \1694\ See 17 CFR 229.1507(b). The Commission adopted a similar 
provision in the market risk disclosure context. See 17 CFR 
229.305(d)(2)(i).
---------------------------------------------------------------------------

    Consistent with the operation of the PSLRA safe harbor, the final 
rules' forward-looking safe harbor will not be available for statements 
consisting solely of historical fact because such information does not 
involve the assumptions, judgments, and predictions about future events 
that necessitates additional protections.\1695\ The safe harbor 
provision provides as non-exclusive examples of historical facts that 
are excluded from the safe harbor information related to carbon offsets 
or RECs described pursuant to a target or goal and a registrant's 
statements in response to Item 1502(e) (transition plan disclosure) or 
Item 1504 (targets and goals disclosure) about material expenditures 
actually incurred.\1696\ Like the terms of a material contract, parties 
covered by the safe harbor should know with reasonable certainty 
information about a purchased carbon offset or REC, such as the amount 
of carbon avoidance, reduction, or removal represented by the offset or 
the amount of generated renewable energy represented by the REC, as 
well as the nature and source of the offset or REC, and should not need 
the protection of a forward-looking safe harbor if those items are 
required to be disclosed pursuant to Item 1504.\1697\ Similarly, 
statements in response to Item 1502(e) (transition plan disclosure) and 
Item 1504 (targets and goals disclosure) about material expenditures 
actually incurred will not be eligible for the Item 1507 safe harbor 
because those statements consist of historical facts.
---------------------------------------------------------------------------

    \1695\ See 15 U.S.C. 77z-2(a) and 15 U.S.C. 78u-5(a).
    \1696\ See 17 CFR 229.1507(b).
    \1697\ See 17 CFR 229.1504(d).
---------------------------------------------------------------------------

    The PSLRA safe harbor does not apply to forward-looking statements 
included in financial statements prepared in accordance with generally 
accepted accounting principles (``GAAP'').\1698\ Consistent with this, 
the final rules' safe harbor will not be available for forward-looking 
statements included in a registrant's consolidated financial 
statements. In addition, any such forward-looking statements that are 
incorporated by reference from the financial statements into a 
registrant's subpart 1500 disclosures will not be eligible for the Item 
1507 safe harbor.
---------------------------------------------------------------------------

    \1698\ See 15 U.S.C. 77z-2(b)(2)(B) and 15 U.S.C. 78u-
5(b)(2)(B).
---------------------------------------------------------------------------

    Notwithstanding deeming certain disclosures to be ``forward-looking 
statements'' and expanding the PSLRA protections to include certain 
issuers and transactions under Item 1507, the rest of the PSLRA 
requirements apply to the Item 1507 safe harbor. For example, in order 
for the safe harbor protections to apply, a forward-looking statement 
must be accompanied by a meaningful cautionary statement that 
identifies important factors that could cause actual results to differ 
materially from those in the forward-looking statement.\1699\
---------------------------------------------------------------------------

    \1699\ See 15 U.S.C. 77z-2(c)(1)(A) and 15 U.S.C. 78u-
5(c)(1)(A).
---------------------------------------------------------------------------

    Although some commenters asked the Commission to include Scopes 1 
and 2 emissions disclosures within the scope of any safe harbor, we 
decline to follow this recommendation.\1700\ Because the methodologies 
underlying the calculation of those scopes are fairly well-
established,\1701\ we do not believe that it is necessary to provide a 
safe harbor from private litigation for such disclosures. We also 
decline to extend the safe harbor to Commission enforcement actions 
because existing Securities Act Rule 175 and Exchange Act Rule 3b-6 
already provide a suitable safe harbor from liability for forward-
looking statements in certain Commission enforcement actions.\1702\
---------------------------------------------------------------------------

    \1700\ See supra note 1651 and accompanying text.
    \1701\ See, e.g., supra note 916 and accompanying text.
    \1702\ Securities Act Rule 175 and Exchange Act Rule 3b-6 also 
apply to private litigation.
---------------------------------------------------------------------------

    Although some commenters recommended that we sunset any safe 
harbor,\1703\ we decline to follow this recommendation at this time. 
The Commission may determine at a future date, after assessing how 
disclosure practices have evolved, whether it makes sense to amend or 
remove the safe harbor.
---------------------------------------------------------------------------

    \1703\ See supra note 1664 and accompanying text.
---------------------------------------------------------------------------

K. Financial Statement Effects (Article 14)

1. Introduction
    The Commission proposed amendments to Regulation S-X that would 
require certain disclosures in registrants' financial statements. 
Specifically, the Commission proposed that if a registrant is required 
to file the disclosure required by proposed subpart 1500 in a filing 
that also requires audited financial statements, then the registrant 
would be required to disclose in a note to its financial statements 
certain disaggregated financial

[[Page 21777]]

statement metrics.\1704\ The proposed rules would have required 
disclosure falling under three categories of information:
---------------------------------------------------------------------------

    \1704\ See Proposing Release, section II.F.1.
---------------------------------------------------------------------------

     Financial Impact Metrics; \1705\
---------------------------------------------------------------------------

    \1705\ The Proposing Release and the proposed rules used the 
term ``metrics'' to describe the proposed Regulation S-X amendments, 
including the proposed Financial Impact Metrics and the proposed 
Expenditure Metrics. See Proposing Release, section II.F. The final 
rules do not use the term ``metrics'' to describe the Regulation S-X 
amendments because we think it is more accurate to characterize them 
as disclosures of financial statement effects. See 17 CFR 210.14-01, 
14-02.
---------------------------------------------------------------------------

     Expenditure Metrics; and
     Financial Estimates and Assumptions.\1706\
---------------------------------------------------------------------------

    \1706\ See Proposing Release, section II.F.1.
---------------------------------------------------------------------------

    The proposed Financial Impact Metrics would have required 
disclosure of the impacts of severe weather events and other natural 
conditions and any efforts to reduce GHG emissions or otherwise 
mitigate exposure to transition risks on the line items in a 
registrant's financial statements.\1707\ Disclosure of the Financial 
Impact Metrics would have been required if the sum of the absolute 
value of all impacts on the line item was one percent or more of the 
total line item for the relevant fiscal year.\1708\ The proposed 
Expenditure Metrics would have required registrants to disclose 
expenditures expensed and costs incurred to mitigate risks related to 
the same severe weather events and other natural conditions and 
transition activities.\1709\ Under the Expenditure Metrics, disclosure 
would have been required if the aggregate amount of expenditures 
expensed or the aggregate amount of capitalized costs was one percent 
or more of the total expenditure expensed or total capitalized costs 
incurred, respectively, for the relevant fiscal year.\1710\ In 
addition, the proposed rules would have required disclosure of 
Financial Estimates and Assumptions impacted by severe weather events 
and other natural conditions and transition activities and would have 
permitted a registrant to include the impact of any opportunities 
arising from these events and activities on any of the financial 
metrics disclosed.\1711\
---------------------------------------------------------------------------

    \1707\ See Proposing Release, section II.F.2.
    \1708\ See id.
    \1709\ See Proposing Release, section II.F.3.
    \1710\ See id.
    \1711\ See Proposing Release, sections II.2, 3, and 4.
---------------------------------------------------------------------------

    Although commenters' views were mixed, a number of commenters 
supported adoption of the proposed financial statement disclosure 
requirements.\1712\ Commenters stated that the proposed requirements 
would promote consistency across reporting and would satisfy investor 
demand for reliable information about the financial impacts of climate-
related risks.\1713\ One commenter stated that ``integrating climate 
risk information into financial statements goes to the very purpose of 
disclosures--helping investors understand how climate-related risks 
impact the profitability and resilience of a company and its financial 
position.'' \1714\ Some commenters asserted that it was important to 
include the disclosures in the notes to the financial statements so 
that the information is subject to independent audit and registrants' 
internal control over financial reporting (``ICFR'').\1715\ Another 
commenter stated that although existing regulations are clear that 
registrants must incorporate material climate considerations into the 
financial statements, this is not being done consistently, and 
therefore the proposed rules are important to help prevent companies 
from misrepresenting their financial positions.\1716\ Some commenters 
supported including some climate-related disclosures in the audited 
financial statements subject to certain revisions as described 
below.\1717\ One of these commenters stated that the linkage of the 
climate-related risks disclosed elsewhere in the filing to the 
financial statements is essential.\1718\ This commenter explained that 
``[a]nchoring the disclosures outside the financial statements to those 
within the financial statements will have a focusing effect and 
increase the reliability and consistency of both.'' \1719\
---------------------------------------------------------------------------

    \1712\ See, e.g., letters from Aron Cramer, BSR (May 31, 2022) 
(``A. Cramer''); AGs of Cal. et al.; Amer. For Fin. Reform, 
Evergreen Action et al.; Amer. For Fin. Reform, Sunrise Project et 
al.; Bailard; Bloomberg; BMO Global Asset Mgmt.; Boston Trust Walden 
(June 16, 2022) (``Boston Trust''); CalPERS; CalSTRS; Carbon Tracker 
Initiative (June 17, 2022) (``Carbon Tracker''); Center Amer. 
Progress; CFB; Climate Advisers (June 17, 2022); D. Higgins; ERM 
CVS; Dana Investment Advisors (June 16, 2022) (``Dana Invest.''); 
Earthjustice; Investor Advocates for Social Justice (June 17, 2022) 
(``IASJ''); ICGN; Impax Asset Mgmt.; Maple-Brown; Minnesota State 
Board of Investment (June 16, 2022) (``MN SBI''); Morningstar; NY 
City Comptroller; NY St. Comptroller; PRI; R. Bentley; R. Burke; R. 
Palacios; RMI; U.S. Reps. Castor et al.; Seattle City Employees' 
Retirement System (June 17, 2022) (``Seattle City ERS''); Sens. J. 
Reed et al.; SFERS; SKY Harbor; UAW Retiree; UCS; USIIA; US SIF; and 
WSP. Several commenters stated that they supported the inclusion of 
some climate-related information in the financial statements because 
climate-related impacts or risks can materially affect a company's 
financial position and operations. See letters from Can. PCPP; 
Boston Common Asset Mgmt; East Bay Mun.; Mackenzie Investments (June 
14, 2022) (``Mackenzie Invest.''); and Paradice Invest. Mgmt.
    \1713\ See, e.g., letters from Boston Trust; CalPERS; Can. PCPP; 
Carbon Tracker; CFA; East Bay Mun.; Dana Invest.; ERM CVS; ICGN; 
Inherent Group, LP (June 17, 2022) (``Inherent Grp.''); Prentiss; 
PwC; R. Bentley; and Seventh Gen.
    \1714\ See letter from Center Amer. Progress.
    \1715\ See, e.g., letters from As You Sow; CFA Institute; 
Climate Accounting Audit Project (June 17, 2022) (``Climate 
Accounting Audit Project''); CSB; ERM CVS; NY City Comptroller; 
PGIM; Sarasin and Partners LLP (June 10, 2022) (``Sarasin''); 
Seattle City ERS; Sens. J. Reed et al.; and UAW Retiree.
    \1716\ See letter from Sarasin. See also letter from Carbon 
Tracker; Carbon Tracker, Flying Blind: The Glaring Absence of 
Climate Risks in Financial Reporting (Sept. 2021), available at 
https://carbontracker.org/reports/flying-blind-the-glaring-absence-of-climate-risks-in-financial-reporting/; Carbon Tracker, Still 
Flying Blind: The Absence of Climate Risk in Financial Reporting 
(Oct. 2022), available at https://carbontracker.org/reports/still-flying-blind-the-absence-of-climate-risk-in-financial-reporting/.
    \1717\ See, e.g., letters from Amazon; Amer. Academy Actuaries; 
Calvert; CEMEX; Ceres and the Center for Audit Quality (``Ceres, et 
al.'') (Mar. 28, 2023); CFA Institute; Colorado Public Employees' 
Retirement Association (June 17, 2022) (``CO PERA''); IAA; Inclusive 
Cap.; ISS ESG (June 22, 2022); MFA; Northern Trust; PIMCO; PwC; 
TIAA; TotalEnergies, and Unilever.
    \1718\ See letter from CFA Institute.
    \1719\ See id.
---------------------------------------------------------------------------

    Conversely, many commenters expressed the view that the proposed 
rules would be difficult to implement and would require registrants to 
make costly and burdensome adjustments to their controls, procedures, 
and accounting records to provide the disclosures.\1720\ Many 
commenters asserted that the proposed requirements would result in the 
disclosure of a potentially overwhelming volume of information that 
would be immaterial to investors.\1721\ Some commenters stated

[[Page 21778]]

that the Commission's existing rules elicit sufficient disclosure for 
investors \1722\ or would elicit sufficient disclosure when combined 
with the Commission's proposed amendments to Regulation S-K.\1723\
---------------------------------------------------------------------------

    \1720\ See, e.g., letters from ABA; ACLI; AFPM; BlackRock; 
Business Roundtable; Can. Bankers; Chevron; CohnReznick LLP (June 
22, 2022) (``Cohn Rez.''); ConocoPhillips (``Compliance with the 
proposed rules . . . will require registrants to implement an 
entirely separate and additional set of books or ledgers of 
activity-based costing, which will be costly and time-consuming.''); 
Corteva; HP; INGAA; Kevin Connor, Es. (June 17, 2022) (``K. 
Connor''); Marathon Oil; NACCO (identifying costs related to the 
``development of expansive new systems . . . , hiring of new staff . 
. . , and utilization of outside consultants.''); National Alliance 
of Forest Owners (June 17, 2022) (``NAFO''); NAM (``The extreme 
burden of building new processes and systems to track quantitative 
climate impacts, with no materiality threshold or even a de minimis 
exception for minor events or immaterial impacts, would impose 
colossal costs and strain resources at all public companies.''); NG; 
NYSE Sustainability Advisory Council (June 20, 2022) (``NYSE SAC''); 
OPC; PPL; Semiconductor Industry Association (June 17, 2022) 
(``SIA''); Soc. Corp. Gov. (identifying costs related to the 
``[d]evelopment of new systems, processes, and controls'' and ``the 
hiring of additional internal staff and outside consultants''); 
Sullivan Cromwell; Vodafone; and Williams Cos. (``Williams would 
also expect a significant increase in core financial statement audit 
fees due to the additional granular disclosure requirements, the 
significant expansion of related internal controls related to the 
new disclosures, and the high degree of judgment and estimation 
required in developing the disclosed information.'').
    \1721\ See, e.g., letters from BlackRock; Cleco Corporate 
Holdings (June 17, 2022) (``Cleco''); Daniel Churay (June 16, 2022); 
Energy Transfer; Edison Electric Institute and the American Gas 
Association (June 17, 2022) (``EEI & AGA''); Exxon; Magellan 
Midstream Partners, L.P. (June 17, 2022) (``Magellan''); State 
Treasurer of Missouri (June 17, 2022) (``MO Treas.''); MRC Global 
Inc (June 17, 2022) (``MRC Global''); Richard C. Breeden, Harvey L. 
Pitt, Phillip R. Lochner Jr., Richard Y. Roberts, Paul S. Atkins 
(June 17, 2022) (``R. Breeden et al.''); and Transocean (June 16, 
2022).
    \1722\ See, e.g., letters from Business Roundtable; Dow, Inc.; 
LTSE; NG; and NIRI Capital Area Chapter (July 6, 2022) (``NIRI'').
    \1723\ See letter from Deutsche Bank Securities Inc. (June 17, 
2022) (``Deutsche Bank'').
---------------------------------------------------------------------------

    A number of commenters recommended alternatives to the proposed 
financial statement disclosures. For example, some commenters stated 
that in lieu of the proposed rules, the Commission should instead 
require registrants to discuss the impact of climate-related matters on 
the registrant's financial position in Item 303 of Regulation S-K 
(i.e., MD&A).\1724\ Other commenters stated that registrants are 
already required to disclose material climate-related impacts in 
MD&A.\1725\ A number of commenters recommended that the Commission work 
with the FASB to determine whether accounting standards should be 
developed to address climate-related financial statement disclosures or 
that the Commission should simply refer the development of standards to 
the FASB.\1726\ Other commenters stated that the Commission should 
instead update or issue new guidance addressing climate-related risk 
disclosure \1727\ or consider requiring disclosure of the financial 
impacts in a separate report published outside of the financial 
statements.\1728\ Finally, some commenters stated that the proposed 
financial statement metrics should only apply to registrants in certain 
sectors or industries, such as the energy sector.\1729\
---------------------------------------------------------------------------

    \1724\ See, e.g., letters from ABA; Airlines for America; 
Alphabet et al.; Amer. Bankers; BDO USA LLP; BPI; California 
Resources Corporation (June 17, 2022) (``Cal. Resources''); Can. 
Bankers; CAQ; FEI's Committee on Corporate Reporting (June 17, 2022) 
(``CCR''); Climate Risk Consortia; Connor Grp.; Diageo; Dominion 
Energy; Eni SpA; Grant Thornton; LLP; IIB; IIF; Financial Reporting 
Committee of the Institute of Management Accountants (June 21, 2022) 
(``IMA''); IPA; JLL (June 17, 2022) (``JLL''); Linklaters LLP (June 
17, 2022) (``Linklaters''); Mtg. Bankers; NG; Royal Gold (June 17, 
2022); Shearman Sterling; SIFMA AMG; Soc. Corp. Gov. (Sept 9, 2022); 
T. Rowe Price; Unilever; Walmart; and Wells Fargo.
    \1725\ See, e.g., letters from BlackRock; ConocoPhillips; Hannon 
Armstrong; and Sullivan Cromwell.
    \1726\ See, e.g., letters from ABA; AEPC; API; Autodesk; BDO USA 
LLP; Bipartisan Policy; BlackRock; BPI; Cal. Resources; Connor Grp.; 
Joint Trade Associations: CRE Finance Council, Housing Policy 
Council, Institute for Portfolio Alternatives, Mortgage Bankers 
Association, NAIOP, the Commercial Real Estate Development 
Association, Nareit, National Apartment Association, National 
Association of Home Builders of the United States, National 
Association of REALTORS, NMHC, The Real Estate Roundtable, CRE 
Financial Council (June 13, 2022) (``CRE Fin. et al.''); Davis Polk; 
Deutsche Bank; Etsy; IPA; MRC Global; Nareit; OPC; RILA; Shearman 
Sterling; SIFMA AMG; S.P. Kothari and Craig Lewis (June 17, 2022) 
(``S.P. Kothari et al.''); and Sullivan Cromwell. See also letter 
from AICPA (stating that prescribing accounting principles requires 
a robust and transparent standard-setting process and advising the 
Commission to ``consider whether it is ideally positioned to 
establish new accounting rules on this topic.'').
    \1727\ See, e.g., letters from BIO; and EMC.
    \1728\ See, e.g., letters from AFEP (June 17, 2022); AHLA; 
McCormick; and BIO.
    \1729\ See, e.g., letters from ACLI; and Soros Fund (``While we 
believe it is valuable for all companies to evaluate how climate 
impacts and expenditures are tied to line items in their financial 
statements, we believe only companies in high emitting industries 
and large accelerated filers should be required to disclose the 
proposed financial statement metrics, and we do not believe it 
should be pursuant to Regulation S-X.'').
---------------------------------------------------------------------------

    After consideration of the feedback received from commenters, we 
are adopting rules that require certain financial statement effects to 
be disclosed in a note to the financial statements, but with 
modifications. We appreciate the significant concerns raised by 
commenters with respect to the potential burdens resulting from the 
proposed financial statement disclosures, including the adjustments 
that registrants stated they would need to make to their controls, 
processes, and accounting records in order to comply with the proposed 
requirements.\1730\ Therefore, we are adopting rules that require 
registrants to provide decision-useful information to investors but 
that are significantly narrower in scope than the proposed rules, which 
should help to mitigate concerns about the potential burdens of the 
disclosure.
---------------------------------------------------------------------------

    \1730\ See supra note 1720 and accompanying text.
---------------------------------------------------------------------------

    The Commission is not adopting the proposed Financial Impact 
Metrics and is modifying the scope of the proposed Expenditure Metrics 
and proposed Financial Estimates and Assumptions in the final rules, 
including by narrowing several aspects of the final rules as compared 
to the proposal. Declining to adopt the Financial Impact Metrics will 
reduce costs and ease many of the burdens that commenters stated would 
arise as a result of a requirement to disclose financial impacts on a 
line item basis.\1731\ As discussed in greater detail below, the final 
rules are focused on requiring the disclosure of capitalized costs, 
expenditures expensed, charges, and losses \1732\ incurred as a result 
of severe weather events and other natural conditions, and capitalized 
costs, expenditures expensed, and losses related to carbon offsets and 
RECs, subject to disclosure thresholds.\1733\ These capitalized costs, 
expenditures expensed, charges, and losses represent quantitative 
information that is derived from transactions and amounts recorded in a 
registrant's books and records underlying the financial statements. The 
final rules require registrants to disclose where on the balance sheet 
and income statement these capitalized costs, expenditures expensed, 
charges, and losses are presented.\1734\ However, the balance sheet and 
income statement line items where these capitalized costs, expenditures 
expensed, charges, and losses are presented will be far fewer in number 
as compared to the number of line items that would have been impacted 
by the proposed Financial Impact Metrics, which, for example, would 
have required registrants to disclose changes in revenues due to 
disruptions of business operations.\1735\ To narrow the scope further, 
the final rules do not require the disclosure of any impacts on the 
statement of cash flows, as would have been required under the proposed 
rules.\1736\
---------------------------------------------------------------------------

    \1731\ See supra note 1730 and accompanying text.
    \1732\ While the final rules use the terms ``charges'' and 
``losses'' in the disclosure requirements related to expenditures, 
these terms represent impacts that would have been disclosed under 
the proposed Financial Impact Metrics and, accordingly, we do not 
consider these to be an expansion of the proposed disclosure 
requirements. See infra note 1735 for an explanation of the overlap 
between the proposed Financial Impact Metrics and the proposed 
Expenditure Metrics.
    \1733\ See 17 CFR 210.14-02(c), (d), and (e).
    \1734\ See id. See infra section K.3.c.i for further discussion 
of the requirement to disclose where on the balance sheet and income 
statement the required capitalized costs, expenditures expensed, 
charges, and losses are presented.
    \1735\ See Proposing Release, section II.F.2. In response to a 
request for comment included in the Proposing Release, commenters 
stated that the Financial Impact Metrics and Expenditure Metrics, as 
proposed, potentially would result in some overlapping disclosures 
with respect to costs and expenditures (i.e., certain costs included 
in the aggregate disclosures required by the proposed Expenditure 
Metrics would also have been captured by the proposed Financial 
Impact Metrics line item disclosures).
    \1736\ See Proposing Release, section II.F.2 (``A registrant 
would be required to determine the impacts of severe weather events, 
other natural conditions, transition activities, and identified 
climate-related risks described above on each consolidated financial 
statement line item.'').
---------------------------------------------------------------------------

    In addition, although we are retaining a one percent disclosure 
threshold in the final rules, registrants will not be required to apply 
it on a line item basis to determine whether disclosure is required 
since we are not adopting the proposed Financial Impact Metrics. 
Instead, as discussed in greater detail below, the final rules require 
the application of the one percent

[[Page 21779]]

disclosure threshold to only two categories of aggregate amounts: (1) 
expenditures expensed as incurred and losses; and (2) capitalized costs 
and charges, in both cases incurred as a result of severe weather 
events and other natural conditions. The final rules use different 
denominators for the disclosure thresholds as compared to the proposal 
and include de minimis thresholds to help respond to commenters' 
concerns about burdens.\1737\ The requirement to disclose capitalized 
costs, expenditures expensed, and losses related to carbon offsets and 
RECs is not subject to a one percent disclosure threshold. Rather, 
disclosure is only required if carbon offsets and RECs have been used 
as material component of a registrant's plans to achieve its disclosed 
climate-related targets or goals.\1738\ As discussed in greater detail 
above, instead of requiring the disclosure of expenditures related to 
transition activities in the financial statements as proposed, the 
final rules will require registrants to disclose material expenditures 
related to (1) activities to mitigate or adapt to climate-related risk 
(in management's assessment), (2) disclosed transition plans, and (3) 
disclosed targets and goals, outside of the financial statements as 
part of the amendments to Regulation S-K.\1739\ The final rules we are 
adopting seek to realize many of the benefits of the proposed rules in 
terms of enhanced financial statement disclosure while minimizing the 
likelihood that issuers will need to undertake costly updates to their 
internal systems and processes. Physical risks, such as severe weather 
events and other natural conditions, can significantly affect public 
companies' financial performance or position.\1740\ Investors need 
disaggregated disclosure of capitalized costs, expenditures expensed, 
charges, and losses incurred as a result of severe weather events and 
other natural conditions to better understand the effect such events 
have on the financial statements.\1741\ By expanding on the information 
provided in the financial statements, the final rules will help 
investors ``assess a registrant's exposure to physical risks,'' \1742\ 
and ``better understand the overall vulnerability of assets . . . [and] 
loss experience.'' \1743\ In addition, the requirement to provide 
disaggregated disclosure of capitalized costs, expenditures expensed, 
and losses incurred in connection with the purchase and use of carbon 
offsets and RECs will provide investors with needed transparency about 
the financial statement effects of a registrant's purchase and use of 
carbon offsets and RECs as part of its climate-related business 
strategy. As such, the disclosure required by the final rules will help 
investors make better informed investment or voting decisions by 
eliciting more complete disclosure of financial statement effects and 
improving the consistency, comparability, and reliability of such 
disclosures. In this way, the final rules appropriately balance the 
need for enhanced financial statement disclosures with the potential 
costs entailed to produce such disclosures given the current state of 
financial reporting practices.
---------------------------------------------------------------------------

    \1737\ See infra section II.K.3.c.ii for further discussion of 
the disclosure threshold requirement. In addition, in response to 
commenters' concerns, we are adopting a principle for attributing an 
expenditure to a severe weather event or other natural condition and 
for determining the amount to be disclosed. See infra section 
II.K.3.c.iii.
    \1738\ See infra section II.K.3.c.vi for further discussion of 
this requirement.
    \1739\ See supra sections II.D.1.c, II.D.2.c, and II.G.3.a.
    \1740\ See, e.g., Richard Vanderford, A Punishing Year of 
Thunderstorms has Led to Record-Breaking Losses, The Wall Street 
Journal (Nov. 24, 2023) (stating that thunderstorms (formally known 
as severe convective storms) ``have so far led to at least $55.67 
billion in insured damages in the U.S. this year through Nov. 13 . . 
. Insured damages from the storms had never before topped $50 
billion.''). See also NOAA National Centers for Environmental 
Information, U.S. Billion-Dollar Weather and Climate Disasters 
(2024), available at https://www.ncei.noaa.gov/access/billions/ 
(stating that, in 2023, 28 confirmed weather/climate disaster events 
with losses exceeding $1 billion each affected the United States, 
including 1 drought event, 4 flooding events, 19 severe storm 
events, 2 tropical cyclone events, 1 wildfire event, and 1 winter 
storm event, with damages totaling at least $92.9 billion); Form 
Letter F (stating that increasingly severe weather events ``affect 
numerous corporate assets and operations, putting pressure on 
essential supply chains, posing harm to facilities, and undermining 
the ability of businesses to meet targets'' and therefore investors 
need to be aware of how companies are impacted by these financial 
risks).
    \1741\ See, e.g., letters from As You Sow (stating its support 
for requiring the disclosure of ``costs of physical risks,'' among 
other things, in the financial statements); Boston Trust (supporting 
the disclosure of expenditures related to severe weather events); 
CalPERS (stating that it is important to require the disclosure of 
the impact of ``extreme temperatures, flooding, drought, [and] 
wildfires'' in the financial statements); ICGN (supporting the 
disclosure of how physical impacts are accounted for in the 
financial statements); Maple Brown (stating that requiring 
disclosures in the financial statements would make it ``better 
equipped to price in potential risks'' such as ``the physical risks 
associated with more frequent and extreme weather events''); MNSBI 
(stating a need for disaggregated physical and transition risk-
related impacts on the financial statements); and UCS (``Requiring 
issuers to disclose disaggregated financial metrics that will be 
subject to audit must remain in the rule.'').
    \1742\ See letter from Boston Trust.
    \1743\ See letter from IAA.
---------------------------------------------------------------------------

    Consistent with the proposed rules, the final rules require a 
registrant to include the financial statement disclosures in any filing 
that is required to include disclosure pursuant to subpart 1500 and 
that also requires the registrant to include its audited financial 
statements.\1744\ For the avoidance of doubt, this means that a 
registrant is required to comply with the requirements in Article 14 
even if it does not have information to disclose pursuant to subpart 
1500, as long as the applicable Commission filing requires the 
registrant to comply with subpart 1500. Including disclosure of the 
financial statement effects in a note to the financial statements, as 
proposed, as opposed to including them outside of the financial 
statements, such as exclusively in the MD&A section of registrants' 
filings as recommended by some commenters,\1745\ will subject these 
disclosures to the same financial statement audit and ICFR as similar 
financial disclosures, which will improve their consistency, quality, 
and reliability and thereby provide an important benefit to investors.
---------------------------------------------------------------------------

    \1744\ See 17 CFR 210.14-01(a). For example, the note to the 
financial statements will not be required in a Form 10-Q filing. 
Similarly, the note to the financial statements will not be required 
for unaudited interim financial statements included in a 
registration statement. See, e.g., 17 CFR 210.3-01, 3-02, 8-03, 10-
01. See also infra note 2380 and section II.L.3, which discuss the 
applicability of the rules to foreign private issuers.
    \1745\ See supra note 1724 and accompanying text. Registrants 
are reminded that they may nonetheless have an obligation to discuss 
climate-related information in MD&A if the information meets the 
requirements for disclosure under Item 303 of Regulation S-K. See 17 
CFR 229.303; 2010 Guidance.
---------------------------------------------------------------------------

    In addition, the disclosure requirements we are adopting will apply 
to public companies generally as opposed to only requiring companies in 
certain industries or sectors to comply with the final rules. The final 
rules are focused on requiring the disclosure of capitalized costs, 
expenditures expensed, charges, and losses incurred as a result of 
severe weather events and other natural conditions, which are 
occurrences that can happen to public companies in any sector or 
industry, and therefore it would not be appropriate to only require 
public companies in certain sectors or industries to comply with the 
rules. The decision not to limit the scope of Article 14 to only public 
companies in certain sectors or industries is consistent with the 
approach we are taking with respect to the amendments to Regulation S-
K, which similarly are not limited to public companies in certain 
sectors or industries.
    Furthermore, the financial statement disclosure requirements 
included in the final rules will apply to SRCs and EGCs. A few 
commenters raised concerns about the application of the proposed

[[Page 21780]]

financial statement disclosure requirements to smaller companies, 
including SRCs.\1746\ We considered whether it would be appropriate to 
exempt SRCs and EGCs from the financial statement disclosure 
requirements. We recognize that SRCs generally may avail themselves of 
the scaled disclosure requirements in Article 8 of Regulation S-X. 
However, as the Commission expressed in the Proposing Release, we 
determined that it is appropriate to apply the financial statement 
disclosure requirements to SRCs and EGCs because severe weather events 
and other natural conditions can pose significant risks to the 
operations and financial conditions of all registrants. We expect that 
the narrower scope of the final rules we are adopting will 
significantly mitigate the costs and burdens for registrants of all 
sizes as compared to the proposed rules, including certain aspects of 
the final rules that may particularly benefit SRCs and EGCs, such as a 
de minimis disclosure threshold, which is discussed in further detail 
below. The final rules also provide SRCs and EGCs with a longer phased 
in compliance period than other registrants, which will give them more 
time to prepare to comply with the final rules.\1747\ In addition, as 
explained in greater detail below in section II.L.3, the final rules, 
including the amendments to Regulation S-X, will not apply to a private 
company that is a party to a business combination transaction, as 
defined by Securities Act Rule 165(f), involving a securities offering 
registered on Form S-4 or F-4.
---------------------------------------------------------------------------

    \1746\ See, e.g., letters from Abrasca; Cohn Rez.; Henry H. 
Huang (Apr. 16, 2022) (``H. Huang''); NAM; US SBA; and Volta.
    \1747\ See infra section II.O.3 for a discussion of the 
compliance dates for the final rules.
---------------------------------------------------------------------------

    We do not agree with those commenters who stated that the 
Commission should not adopt the amendments and instead refer the matter 
to the FASB.\1748\ Although the Commission has recognized the FASB's 
financial accounting and reporting standards as ``generally accepted'' 
for purposes of the Federal securities laws, as explained above in 
section II.B, the Securities Act and the Exchange Act (as confirmed by 
the Sarbanes-Oxley Act of 2002) make it clear that the Commission has 
the ultimate responsibility and broad authority to set accounting 
standards, principles, and financial statement disclosure requirements 
for registrants.\1749\ The Commission is exercising its authority to 
prescribe the financial statement disclosure requirements included in 
the final rules in response to the need expressed by investors for 
information related to the financial statement impacts of severe 
weather events as discussed elsewhere in this release.\1750\ 
Significantly, the rules we are adopting amend both Regulation S-K, 
which prescribes the narrative disclosure requirements for registrants' 
periodic filings with the Commission, and Regulation S-X, which 
prescribes the requirements for the financial statements included in 
those filings. Therefore, adopting financial statement requirements as 
part of this rulemaking will provide for consistent disclosure of 
information across registrants' public filings and avoid potential 
inconsistencies that could arise through an approach that requires both 
Commission and independent FASB action.\1751\ In addition, the final 
rules will apply regardless of whether the registrant applies U.S. 
GAAP, IFRS, or local GAAP, and therefore rulemaking by the Commission 
ensures that registrants are subject to the same requirements since the 
adoption of standards by the FASB would be limited to registrants that 
apply U.S. GAAP to their financial statements. Under each of these 
circumstances, it is appropriate for the Commission to adopt rules to 
ensure that investors are receiving the consistent, comparable, and 
reliable information they need to make timely investing and voting 
decisions.\1752\
---------------------------------------------------------------------------

    \1748\ See supra note 1726 and accompanying text. Some 
commenters, however, stated that the Commission should not defer to 
the FASB. See, e.g., letters from Ceres; and CFA Institute.
    \1749\ See, e.g., 15 U.S.C. 77s(a) (Among other things, the 
Commission shall have authority, for the purposes of this 
subchapter, to prescribe the form or forms in which required 
information shall be set forth, the items or details to be shown in 
the balance sheet and earning statement, and the methods to be 
followed in the preparation of accounts, in the appraisal or 
valuation of assets and liabilities, in the determination of 
depreciation and depletion, in the differentiation of recurring and 
nonrecurring income, in the differentiation of investment and 
operating income, and in the preparation, where the Commission deems 
it necessary or desirable, of consolidated balance sheets or income 
accounts of any person directly or indirectly controlling or 
controlled by the issuer, or any person under direct or indirect 
common control with the issuer. The rules and regulations of the 
Commission shall be effective upon publication in the manner which 
the Commission shall prescribe); 15 U.S.C. 7218(c) (Nothing in this 
Act, including this section and the amendment made by this section, 
shall be construed to impair or limit the authority of the 
Commission to establish accounting principles or standards for 
purposes of enforcement of the securities laws.); and Policy 
Statement: Reaffirming the Status of the FASB as a Designated 
Private-Sector Standard Setter, Release No. 33-8221 (Apr. 25, 2003) 
[68 FR 23333, 23334 (May 1, 2003)] (While the Commission 
consistently has looked to the private sector in the past to set 
accounting standards, the securities laws, including the Sarbanes-
Oxley Act, clearly provide the Commission with authority to set 
accounting standards for public companies and other entities that 
file financial statements with the Commission.). See also FASB 
Accounting Standards Codification (``FASB ASC'') Topic 105-10-10-1 
(``Rules and interpretive releases of the Securities and Exchange 
Commission . . . are also sources of authoritative GAAP for SEC 
registrants.'').
    \1750\ See supra note 1741 and accompanying text.
    \1751\ The final rules establish presentation and disclosure 
requirements; they do not alter or establish recognition and 
measurement requirements. As discussed in greater detail above in 
section II.B, the Commission has previously adopted presentation and 
disclosure requirements regarding the form and content of the 
financial statements. For example, Rule 5-02 of Regulation S-X 
prescribes the various line items and certain additional disclosures 
that should appear on the face of the balance sheet or related 
notes. See 17 CFR 210.5-02.
    \1752\ See General Revision of Regulation S-X, Release No. 6233 
(Sept. 25, 1980) [45 FR 63660, 63661 (Sept. 25, 1980)] (explaining, 
in connection with amendments to Regulation S-X, that the Commission 
does not believe ``any decision to require particular disclosures . 
. . through rulemaking in [Regulation] S-X, conflicts with the basic 
policy of relying on the FASB for leadership in establishing 
financial accounting and reporting standards'').
---------------------------------------------------------------------------

2. Financial Impact Metrics
a. Proposed Rules
    The Commission proposed to amend Regulation S-X to require a 
registrant to disclose Financial Impact Metrics. More specifically, the 
Financial Impact Metrics would have required a registrant to disclose 
the financial impacts from severe weather events and other natural 
conditions and transition activities on any relevant line item in the 
registrant's consolidated financial statements during the fiscal years 
presented.\1753\ The Commission explained in the Proposing Release that 
this proposed requirement was intended to complement the proposed 
requirement in Item 1502(d) of Regulation S-K that called for a 
registrant to provide a narrative discussion of whether and how any of 
its identified climate-related risks have affected or are reasonably 
likely to affect the registrant's consolidated financial 
statements.\1754\ The Commission also explained in the Proposing 
Release that requiring disclosure of the impacts from severe weather 
events and other natural conditions and transition activities would 
capture a broad spectrum of physical and transition risks.\1755\ To aid 
in the comparability of disclosures and to assist issuers, the proposed 
rules identified flooding, drought, wildfires, extreme temperatures, 
and sea level rise as non-exclusive examples of severe weather events 
and other natural conditions that may require

[[Page 21781]]

disclosure.\1756\ The Commission further noted that there has been an 
increased recognition of the current and potential effects, both 
positive and negative, of these events and associated physical risks on 
a registrant's business as well as its financial performance and 
position.\1757\ With respect to transition risks, the Commission 
proposed to require a registrant to disclose the financial impact of 
any identified transition risks and any efforts to reduce GHG emissions 
or otherwise mitigate exposure to transition risks (collectively, 
``transition activities'') on any relevant line items in the 
registrant's consolidated financial statements during the fiscal years 
presented.\1758\
---------------------------------------------------------------------------

    \1753\ See Proposing Release, section II.F.2.
    \1754\ See id.
    \1755\ See id.
    \1756\ See id. With the exception of wildfires, all of these 
examples were identified by the Commission more than a decade ago in 
its 2010 Guidance as events that could potentially affect a 
registrant's operations and results.
    \1757\ See id. (citing, among other sources, the FSOC's Report 
on Climate Related Financial Risk 2021, which discussed significant 
costs from the types of events identified in the proposed rule).
    \1758\ See id.
---------------------------------------------------------------------------

    The proposed rules prescribed a specific quantitative disclosure 
threshold for the Financial Impact Metrics. Specifically, a registrant 
would have been required to disclose the impacts of severe weather 
events, other natural conditions, and transition activities on the 
consolidated financial statements included in the relevant filing 
unless the aggregated impact of the severe weather events, other 
natural conditions, and transition activities was less than one percent 
of the total line item for the relevant fiscal year.\1759\ The 
Commission stated that this quantitative threshold would provide a 
bright-line standard for registrants and should reduce the risk of 
underreporting such information.\1760\ The Commission further stated 
that the proposed quantitative threshold could promote comparability 
and consistency among a registrant's filings over time and among 
different registrants compared to a more principles-based 
approach.\1761\ The Commission also pointed out that it has used 
similar one-percent thresholds in other contexts (within the financial 
statements and without),\1762\ and that, more generally, other rules 
such as 17 CFR 229.103 and 17 CFR 229.404 use quantitative disclosure 
thresholds to facilitate comparability, consistency, and clarity in 
determining when information must be disclosed.\1763\
---------------------------------------------------------------------------

    \1759\ See id.
    \1760\ See id.
    \1761\ See id.
    \1762\ See, e.g., 17 CFR 210.5-03.1(a) (stating that if the 
total of sales and revenues reported under this caption includes 
excise taxes in an amount equal to 1% or more of such total, the 
amount of such excise taxes shall be shown on the face of the 
statement parenthetically or otherwise) and 17 CFR 210.12-13 
(requiring disclosure of open option contracts by management 
investment companies using a 1% of net asset value threshold, based 
on the notional amounts of the contracts).
    \1763\ See Proposing Release, section II.F.2 (citing 17 CFR 
229.103(b)(2) (requiring disclosure of a legal proceeding primarily 
involving a claim for damages if the amount involved, exclusive of 
interest and costs, exceeds 10 percent of the current assets of the 
registrant and its subsidiaries on a consolidated basis), 
(c)(3)(iii) (requiring disclosure of a judicial proceeding that has 
been enacted or adopted regulating the discharge of materials into 
the environment or primarily for the purpose of protecting the 
environment, if a governmental authority is a party to such 
proceeding and such proceeding involves potential monetary 
sanctions, unless the registrant reasonably believes that such 
proceeding will result in no monetary sanctions or monetary 
sanctions, exclusive of interest and costs, of less than $300,000) 
and 17 CFR 229.404(a) (requiring disclosure of any transaction, 
since the beginning of the registrant's last fiscal year, or any 
currently proposed transaction, in which the registrant was or is to 
be a participant and the amount involved exceeds $120,000, and in 
which any related person had or will have a direct or indirect 
material interest).
---------------------------------------------------------------------------

    Under the proposed rules, impacts would have, at a minimum, been 
required to be disclosed on an aggregated, line-by-line basis for all 
negative impacts and, separately, on an aggregated, line-by-line basis 
for all positive impacts.\1764\ For purposes of determining whether the 
disclosure threshold has been met, a registrant would be required to 
aggregate the absolute value of the positive and negative impacts on a 
line-by-line basis, which the Commission explained would better reflect 
the significance of the impact of severe weather events, other natural 
conditions, and transition activities on a registrant's financial 
performance and position.\1765\
---------------------------------------------------------------------------

    \1764\ See id.
    \1765\ See id.
---------------------------------------------------------------------------

    To provide additional clarity, the proposed rules included the 
following examples of disclosures that may be required to reflect the 
impact of the severe weather events and other natural conditions on 
each line item of the registrant's consolidated financial statements 
(e.g., line items of the consolidated income statement, balance sheet, 
or cash flow statement):
     Changes to revenues or costs from disruptions to business 
operations or supply chains;
     Impairment charges and changes to the carrying amount of 
assets (such as inventory, intangibles, and property, plant, and 
equipment) due to the assets being exposed to severe weather, flooding, 
drought, wildfires, extreme temperatures, and sea level rise;
     Changes to loss contingencies or reserves (such as 
environmental reserves or loan loss allowances) due to impact from 
severe weather events; and
     Changes to total expected insured losses due to flooding 
or wildfire patterns.\1766\
---------------------------------------------------------------------------

    \1766\ See id.
---------------------------------------------------------------------------

    With respect to the financial impacts of transition activities, the 
proposed rules included the following examples of potential impacts:
     Changes to revenue or cost due to new emissions pricing or 
regulations resulting in the loss of a sales contract;
     Changes to operating, investing, or financing cash flow 
from changes in upstream costs, such as transportation of raw 
materials;
     Changes to the carrying amount of assets (such as 
intangibles and property, plant, and equipment), for example, due to a 
reduction of the asset's useful life or a change in the asset's salvage 
value by being exposed to transition activities; and
     Changes to interest expense driven by financial 
instruments such as climate-linked bonds issued where the interest rate 
increases if certain climate-related targets are not met.\1767\
---------------------------------------------------------------------------

    \1767\ See id.
---------------------------------------------------------------------------

    The Commission noted in the Proposing Release that an analogous 
approach to disaggregated, or separately stated, disclosure has been 
taken in other contexts within the financial statements and elsewhere, 
including in segment reporting,\1768\ and that the importance of 
disaggregated disclosure in a registrant's financial statements is also 
supported by concepts set forth in FASB ASC Topic 606 Revenue from 
Contracts with Customers and IFRS 15 Revenue from Contracts with 
Customers.\1769\ The Commission further noted that disaggregation of 
certain financial statement line items is also

[[Page 21782]]

required by Article 5 of Regulation S-X, which calls for separate 
disclosure of specific balance sheet and income statement line items 
when practicable or when certain percentage thresholds are met, 
depending on the nature of the information.\1770\
---------------------------------------------------------------------------

    \1768\ For example, in segment reporting, a registrant must 
present within its consolidated financial statements a separate 
presentation of certain financial statement line items for each 
segment. See FASB ASC Topic 280 Segment Reporting and IFRS 8 
Operating Segments (requiring segment reporting disclosures to be 
included in the audited financial statements). The Commission has 
noted the importance of disaggregated disclosure in the segment 
reporting context, stating that it ``has long been aware of the 
importance of meaningful segment information to reasoned investment 
decision-making.'' See Industry and Homogenous Geographic Segment 
Reporting, Release No. 33-6514 (Feb. 15, 1984) [49 FR 6737, 6738 
(Feb. 23, 1984)]. For simplicity, we do not refer to the 
corresponding IFRS in each instance where we reference the FASB ASC. 
Accordingly, references in this release to the FASB ASC should be 
read to refer also to the corresponding IFRS for foreign private 
issuers applying those standards.
    \1769\ See Proposing Release, section II.F.2. FASB ASC Topic 606 
and IFRS 15 require, among other things, disclosure of disaggregated 
revenue recognized from contracts with customers into categories 
that depict how the nature, amount, timing, and uncertainty of 
revenue and cash flows are affected by economic factors.
    \1770\ See Proposing Release, section II.F.2. The analogies 
presented in this paragraph are not intended to imply that FASB ASC 
Topic 280, IFRS 8 or other concepts would have to be applied when 
accounting for and disclosing the financial statement effects 
required by the final rules. The analogies are also not intended to 
imply that the determination of when disclosure may be required and 
how that determination is made is the same across all these 
concepts.
---------------------------------------------------------------------------

    Finally, the Commission proposed to require registrants to disclose 
the impacts of any climate-related risks identified pursuant to 
proposed Item 1502(a) of Regulation S-K--both physical risks and 
transition risks--on any of the financial statement metrics.\1771\
---------------------------------------------------------------------------

    \1771\ See Proposing Release, section II.F.2.
---------------------------------------------------------------------------

b. Comments
i. General Comments
    Some commenters supported the proposal to require disclosure of 
Financial Impact Metrics.\1772\ These commenters generally indicated 
that the proposed disclosures would be used by investors to make 
investment and voting decisions.\1773\ Specifically, one commenter 
stated that the Financial Impact Metrics would be used by investors in 
voting, engaging, buying, and selling decisions and would help 
investors determine whether the company is ``properly oriented to 
manage for the long-term.'' \1774\ Some commenters asserted that the 
proposed Financial Impact Metrics would provide investors with the 
information they need in a standardized or comparable way \1775\ and 
that the level of detail required would be helpful for investors.\1776\
---------------------------------------------------------------------------

    \1772\ See, e.g., letters from A. Cramer; A. Payton (June 17, 
2022); AGs of Cal. et al.; American Academy of Actuaries (June 17, 
2022) (``Amer. Academy Actuaries''); Anthesis; Arjuna Capital (June 
17, 2022) (``Arjuna''); As You Sow; Better Markets; Bloomberg; BMO 
Global Asset Mgmt.; Boston Trust; CalPERS; CalSTRS; Carbon Tracker; 
Center Amer. Progress; CFB; Church Investment Group (June 15, 2022) 
(``Church Grp.''); Climate Accounting Audit Project; Climate 
Advisers; CSB; Dana Invest.; D. Higgins; Domini Impact; Ecofin; ERM 
CVS; H. Huang; IASJ; ICGN; Impax Asset Mgmt.; Inherent Grp.; Mercy 
Investment Services (June 16, 2022) (``Mercy Invest.''); M. Hadick; 
Miller/Howard; Morningstar; The Committee on Mission Responsibility 
Through Investment of the Presbyterian Church (June 14, 2022) 
(``MRTI''); Northern Trust; NY City Comptroller; NY St. Comptroller; 
Parnassus; PGIM; PRI; R. Bentley; R. Burke; U.S. Reps. Castor et 
al.; RMI; Rockefeller Asset Mgmt.; R. Palacios; Sarasin; Seattle 
City ERS; Sens. J. Reed et al.; Seventh Gen.; SFERS; SKY Harbor; 
Terra Alpha; UAW Retiree; UCS; UNCA Divest (June 15, 2022) 
(``UNCA''); United Church Funds (June 15, 2022); USIIA; US SIF; WSP; 
and Xpansiv Ltd. (June 17, 2022) (``Xpansiv''). Certain of these 
commenters stated they also would support requiring registrants to 
disclose changes to the cost of capital resulting from climate-
related events. See, e.g., letters from Carbon Tracker; Eni SpA; and 
ICGN. But see letter from TotalEnergies (stating that the Commission 
should not require disclosure of changes to cost of capital).
    \1773\ See, e.g., letters from Anthesis; Better Markets; BMO 
Global Asset Mgmt.; Church Grp.; ICGN; Morningstar; Parnassus; PGIM; 
PRI; SKY Harbor; and Terra Alpha.
    \1774\ See letter from CalPERS.
    \1775\ See, e.g., letters from Carbon Tracker; RMI; and UCS.
    \1776\ See letter from PGIM; and SKY Harbor (stating that it 
would avail itself of ``the additional detail and metrics'' to 
further assess impacts on a registrant's financial condition).
---------------------------------------------------------------------------

    Commenters also asserted that the proposed Financial Impact Metrics 
are necessary to fill a void in the information currently provided to 
investors. For example, one commenter stated that requiring disclosure 
on a line item basis would ``overcome the longstanding problem of 
registrant climate risk disclosure that is too generic and boilerplate, 
or non-existent, despite repeated efforts by the [Commission] to 
encourage more detailed information in this broad area of risk.'' 
\1777\ Some of these commenters suggested that the Commission provide 
additional guidance to facilitate the disclosure of the Financial 
Impact Metrics.\1778\
---------------------------------------------------------------------------

    \1777\ See letter from Center Amer. Progress. See also letter 
from Amer. Academy Actuaries.
    \1778\ See, e.g., letters from Miller/Howard; and RMI. See also, 
e.g., letters from Eni SpA; and TotalEnergies
---------------------------------------------------------------------------

    Some commenters generally supported requiring the disclosure of 
climate-related impacts in the financial statements, but they 
identified certain challenges and recommended certain revisions to the 
proposed Financial Impact Metrics.\1779\ For example, as discussed in 
greater detail below, a number of these commenters recommended that the 
Commission replace the one percent disclosure threshold with a 
requirement to disclose the financial impacts if material.\1780\ 
Several commenters recommended revising the line-by-line disclosures to 
take a less granular or less disaggregated approach.\1781\
---------------------------------------------------------------------------

    \1779\ See, e.g., letters from AFG (June 17, 2022); BC IM Corp.; 
BHP; Calvert; CEMEX; Ceres; CFA Institute; CO PERA; Dell; Eni SpA; 
Eversource; IAA; Inclusive Cap.; PwC; TIAA; and TotalEnergies.
    \1780\ See, e.g., letters from AFG; BC IM Corp.; BHP; CEMEX; CO 
PERA; Dell; Eni Spa; Eversource; IAA; and TotalEnergies.
    \1781\ See, e.g., letters from BHP; Eni SpA; ICAEW; PIMCO; and 
TotalEnergies.
---------------------------------------------------------------------------

    Some commenters stated that the Commission should require 
disclosure of climate-related events and transition activities on a 
separate basis as proposed.\1782\ One commenter stated that it 
supported the proposed requirement to separately report climate-related 
events and transition activities because it would be consistent with 
the TCFD framework and facilitate investors' understanding of the 
disclosures.\1783\ One commenter stated that the Commission should 
instead require climate impacts to be considered in the aggregate, 
rather than distinguishing between those attributable to severe weather 
events versus transition activities since the distinction between the 
two may not always be clear.\1784\ Other commenters recommended 
limiting the proposed disclosure to the impacts of severe weather 
events and other natural conditions and eliminating the proposed 
requirements related to identified climate-related risks and transition 
activities.\1785\ One of these commenters explained that this would be 
consistent with an approach that only requires disclosure of impacts 
that would be recognized under GAAP.\1786\ Another commenter stated 
that it would not support a rule that only required disclosures for 
severe weather events because this would result in other climate risks 
remaining ``hidden to investors.'' \1787\
---------------------------------------------------------------------------

    \1782\ See, e.g., letters from Anthesis; Eni SpA; H. Huang; 
Morningstar; and TotalEnergies. One commenter recommended that the 
Commission highlight elements of the proposed financial statement 
metrics where one specific type of transition activity--carbon 
offsets--may be relevant. See letter from D. Hileman Consulting 
(similarly suggesting the Commission highlight insurance).
    \1783\ See letter from ISS ESG.
    \1784\ See letter from Deloitte & Touche. See also letter from 
KPMG (noting that the separation between physical and transition 
risks may not always be feasible and recommending ``the final rule 
allow for a hybrid categorization, with the distinction being 
explained in the contextual information'').
    \1785\ See, e.g., letters from BPI (stating that the proposed 
amendments to Regulation S-X ``should be removed, or, at a minimum, 
significantly narrowed''); Climate Risk Consortia (generally 
opposing the proposed amendments to Regulation S-X but recommending 
revisions if retained in the final rules); Dell (recommending 
revisions to the proposed rules to enhance the operation of the 
requirements while ensuring that investors receive material 
disclosure); Eversource; and SIFMA (generally opposing the proposed 
amendments to Regulation S-X but recommending revisions if retained 
in the final rules).
    \1786\ See letter from SIFMA.
    \1787\ See letter from Sarasin.
---------------------------------------------------------------------------

    Conversely, many of the commenters who provided feedback on the 
proposed Financial Impact Metrics did not support the proposed 
requirements.\1788\

[[Page 21783]]

Commenters generally asserted that it would not be feasible to provide 
the disclosures as proposed.\1789\ Several commenters explained that 
companies currently do not track climate-related impacts by financial 
statement line item and companies do not have processes in place to do 
so under current accounting systems.\1790\ A number of commenters 
stated that registrants would be required to create new accounting 
systems, processes, controls, and infrastructure to track, quantify, 
and disclose the proposed Financial Impact Metrics.\1791\ Many 
commenters stated that the proposed Financial Impact Metrics would be 
burdensome and costly.\1792\
---------------------------------------------------------------------------

    \1788\ See, e.g., letters from Association of American Railroads 
(June 17, 2022) (``AAR''); ABA; ACA Connects; ACCO; ACLI; AEPC; 
AFEP; AFPA; AFPM; AHLA; Airlines for America; Alliance Resource; 
Allstate; Alphabet et al.; Amazon; Amer. Bankers; APCIA; API; 
Barrick Gold; BDO USA LLP; BlackRock; BNP Paribas; BOA; BPI; 
Business Roundtable; CA Bankers; Cal. Resources; Can. Bankers; CCR; 
Chamber; ChampionX Corporation (June 17, 2022) (``ChampionX''); 
Chevron; Citigroup; Cleary; Cleco; Cleveland Cliffs; Climate Risk 
Consortia; Cohn Rez; Connor Grp.; ConocoPhillips; Corteva; CREFC; 
CRE Fin. et al.; D. Burton, Heritage Fdn; Dominion Energy; Dow; EEI 
& AGA; Energy Transfer; EMC; Energy Infrastructure; Electric Power 
Supply Association (June 17, 2022) (``EPSA''); Ernst & Young LLP; 
Exxon; FDRA; FedEx; Fed. Hermes; Fidelity; G. Farris; GM; GPA 
Midstream; HP; IADC; IC; ICI; ID Ass. Comm.; IIB; IIF; IMA; INGAA; 
IPA; Information Technology Industry Council (June 17, 2022) 
(``ITIC''); K. Connor; LSTA; LTSE; Magellan; Marathon; Microsoft; 
Mid-Size Bank; Moody's; MO Treas.; MRC Global; Mtg. Bankers; NACCO; 
NAM; Nareit; National Electrical Manufacturers Associations (June 
17, 2022) (``NEMA''); NIRI; NMA; National Multifamily Housing 
Council and National Apartment Association (June 17, 2022) (``NMHC 
et al.''); NRP; NYSE SAC; OPC; Petrol. OK; PPL; R. Breeden, et al.; 
Real Estate NY; Reinsurance AA; RILA; Royal Gold; Shearman Sterling; 
Shell; SIA; SIFMA; SMME; Soc. Corp. Gov.; Soros Fund; SouthState; 
Southwest Airlines Co. (June 17, 2022) (``Southwest Air''); S.P. 
Kothari et al.; State St.; Sullivan Cromwell; Tapestry Networks' 
Audit Committee Leadership Network (June 16, 2022) (``Tapestry 
Network''); Transocean; Travelers; TRC; T. Rowe Price; Tucson 
Electric Power (June 16, 2022) (``Tucson Electric''); Vodafone; 
Walmart; Western Energy Alliance and the U.S. Oil & Gas Association 
(June 15, 2022) (``WEA/USOGA''); Wells Fargo; Western Midstream; and 
Williams Cos.
    \1789\ See, e.g., letters from ABA; ACLI; AEPC; Airlines for 
America; BNP Paribas; BOA; BPI; CCR; Corteva; GM; ITIC; LSTA; 
Marathon; Mtg. Bankers; NACCO; and Soc. Corp. Gov.
    \1790\ See, e.g., letters from ABA; ACLI; AEPC; APCIA; Chamber; 
Cohn Rez.; GM; IMA; INGAA; LSTA; Marathon; Mid-Size Bank; NACCO; 
NAM; Nareit; RILA; SMME; and Williams Cos.
    \1791\ See, e.g., letters from ABA; Abrasca; ACA Connects; 
Airlines for America; Alliance Resource; Amer. Bankers; API; 
BlackRock; Chamber; Citigroup; Cleco; Climate Risk Consortia; Cohn 
Rez.; ConocoPhillips; Corteva; Deloitte & Touche; Deutsche Bank; 
Ernst & Young LLP; FedEx; Grant Thornton; HP; IC; ICI; IIB; INGAA; 
Linklaters; Microsoft; NG; NRF; NYSE SAC; OPC; Performance Food 
Group Company (June 17, 2022) (``PFG''); PPL; Salesforce; Shell; 
SIA; Soc. Corp. Gov.; Southwest Air; Transocean; TRC; Uber; United 
Air; Vodafone; and Williams Cos.
    \1792\ See, e.g., letters from ACA Connects; AFPA; AFPM; 
Airlines for America; Alliance Resource; APCIA; BlackRock; Cleco; 
Corteva; EEI & AGA; Exxon; GM; Grant Thornton; IADC; NAFO; NEMA; NOV 
Inc. (June 16, 2022) (``NOV''); NYSE SAC; OPC; PFG; PPL; 
Professional Services Council (June 17, 2022) (``PSC''); Salesforce; 
Shell; Soc. Corp. Gov.; Southwest Air; State St.; Sullivan Cromwell; 
TRC; United Air; WEA/USOGA; and Western Midstream.
---------------------------------------------------------------------------

    Some commenters questioned whether the proposed Financial Impact 
Metrics would benefit investors. For example, a number of commenters 
stated that the proposed Financial Impact Metrics would likely result 
in non-comparable or inconsistent data across registrants and therefore 
would not be useful or relevant to investors.\1793\ In addition, one 
registrant stated that investors have not asked them to provide the 
level of detail that the Financial Impact Metrics would require.\1794\ 
Some commenters pointed out that requiring registrants to disclose the 
Financial Impact Metrics on every line item could disincentivize 
companies from voluntarily disaggregating information in their 
financial statements, which would result in a loss of information for 
investors.\1795\ One commenter asserted that the proposed Financial 
Impact Metrics are not included in the TCFD framework and it is unclear 
that these requirements would be adopted globally, which, in this 
commenter's view, would limit their usefulness for global investors and 
potentially undermine investment in U.S. registrants.\1796\
---------------------------------------------------------------------------

    \1793\ See, e.g., letters from AFEP; AFPM; Alphabet et al.; 
Amazon; Barrick Gold; BP; Business Roundtable; Cal. Resources; 
Chevron; Cleveland Cliffs; CRE Fin. et al.; Dominion Energy; Energy 
Infrastructure; EPSA; Exxon; ICI; ITIC; IPA; JPN Bankers; Moody's; 
NAFO; Nareit; NG; NMA; NYSE SAC; Transocean; Travelers; T. Rowe 
Price; Vodafone; Walmart; and Western Midstream.
    \1794\ See letter from Corteva.
    \1795\ See, e.g., letters from ABA; BDO USA LLP; and Energy 
Infrastructure.
    \1796\ See letter from Dow. Several commenters more generally 
asserted that registrants should not be required to disclose 
information that exceeds the scope of the TCFD framework, such as 
the proposed Financial Impact Metrics. See, e.g., letters from 
Blackrock; and MFA.
---------------------------------------------------------------------------

    Other commenters expressed accounting-related concerns with respect 
to the Financial Impact Metrics. For example, some commenters asserted 
that certain of the disclosures that would be required by the proposal, 
such as disclosures regarding changes to revenue, would not be 
consistent with GAAP.\1797\ Similarly, some commenters asserted that no 
accounting principles or guidance exist for certain of the proposed 
Financial Impact Metrics, which would make it difficult for auditors to 
opine on this information.\1798\ In addition, a few commenters stated 
that the proposed Financial Impact Metrics would require public 
companies to seek information from the private companies they do 
business with and that private companies may not have the capabilities 
to respond to those inquiries.\1799\
---------------------------------------------------------------------------

    \1797\ See, e.g., letters from AAR; ABA; AFEP; Alphabet et al.; 
Amazon; APCIA; Autodesk; BOA; Business Roundtable; CCR; Chamber; 
Grant Thornton; IADC; INGAA; JLL; KPMG; Nutrien; Sullivan Cromwell; 
Tapestry Network; Transocean; Travelers; Tucson Electric; and 
Unilever. See also letter from Deloitte & Touche (stating that the 
Commission should consider providing further guidance on how to 
calculate the estimated loss of revenue from disruptions to business 
operations).
    \1798\ See, e.g., letters from Climate Risk Consortia; G. 
Farris; Nareit; Nutrien; and Walmart.
    \1799\ See, e.g., letters from Atlas Sand; Brigham; and 
ConocoPhillips.
---------------------------------------------------------------------------

    Further, a number of commenters stated that it would be very 
difficult or impossible to accurately estimate the potential future or 
unrealized impacts of severe weather events and transition activities 
by financial statement line item.\1800\ Some commenters also raised 
concerns about a registrant's ability to include indirect effects of 
climate-related events when disclosing financial impacts.\1801\
---------------------------------------------------------------------------

    \1800\ See, e.g., letters from AIC; Business Roundtable; and D. 
Burton, Heritage Fdn.
    \1801\ See, e.g., letters from BHP; Chamber; GPA Midstream; 
Grant Thornton; KPMG; Nareit; PGIM; Williams Cos.; and Volta.
---------------------------------------------------------------------------

ii. Disclosure Threshold
    Several commenters specifically expressed their support for the one 
percent disclosure threshold.\1802\ Some of these commenters stated 
that a one percent disclosure threshold would reduce the risk of 
underreporting.\1803\ For example, one commenter explained that setting 
the disclosure threshold too high could result in companies failing to 
undertake the necessary inquiry because they may conclude there is no 
way the threshold would be triggered.\1804\ A few commenters explained 
that a percentage threshold is beneficial because it provides 
registrants and auditors with bright-line guidance.\1805\ Other 
commenters asserted the Commission acted within its authority in 
prescribing a particular percentage disclosure threshold.\1806\
---------------------------------------------------------------------------

    \1802\ See, e.g., letters from AGs of Cal. et al.; CalPERS; 
Carbon Tracker; Center Amer. Progress; CFA; Climate Advisers; Dana 
Invest.; ICGN; Impax Asset Mgmt.; MN SBI (encouraging the Commission 
to implement reporting thresholds for physical events separately 
from reporting thresholds for transition activities and not permit 
netting); Sarasin; Sens. J. Reed et al.; and US SIF.
    \1803\ See, e.g., letters from CalPERS; and US SIF.
    \1804\ See letter from CalPERS.
    \1805\ See, e.g., letters from Carbon Tracker; and Sens. J. Reed 
et al.
    \1806\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and Carbon Tracker.
---------------------------------------------------------------------------

    Conversely, many commenters stated that they did not support the 
proposed

[[Page 21784]]

disclosure threshold of one percent.\1807\ A number of these commenters 
asserted that the threshold was too low \1808\ and it would result in 
an excessive amount of detail, which would be immaterial and not useful 
to investors.\1809\ Several commenters stated that it could confuse 
investors because investors could equate the level of detail that would 
be disclosed with a level of precision that is not consistent with the 
nature of the disclosures.\1810\ Some commenters asserted that 
requiring disclosure at a one percent threshold would give 
disproportionate prominence to the proposed financial statement metrics 
relative to other risks addressed in the financial statements.\1811\
---------------------------------------------------------------------------

    \1807\ See, e.g., letters from American Apparel & Footwear 
Association (June 17, 2022) (``AAFA''); ABA; AFPA; AFPM; Airlines 
for America; Amer. Bankers; Amer. Chem.; API; Beller et al.; B. 
Herron; BIO; Bipartisan Policy; BlackRock; BOA; BP; Business 
Roundtable; Chamber; Chevron; Citigroup; ConocoPhillips; Cummins 
Inc. (June 17, 2022) (``Cummins''); Dell; Deloitte & Touche; 
Deutsche Bank; Devon Energy; Dow; Enel Group (June 17, 2022) 
(``Enel''); Ernst & Young LLP; Electronic Transactions Association 
(June 16, 2022) (``ETA''); Exxon; FHL Bank Des Moines; Fidelity; 
Fortive Corporation (June 8, 2022) (``Fortive''); G. Farris; GPA 
Midstream; Grupo Bancolombia (June 17, 2022); Healthcare 
Distribution Alliance (June 16, 2022) (``HDA''); HP; IAA; IADC; IC; 
ICAEW; ICI; INGAA; ITIC; K. Connor; KPMG; Linklaters; LSTA; 
Marathon; McCormick; MFA; Mid-Size Bank; NMHC et al.; NOIA; The 
National Restaurant Association and the Restaurant Law Center (June 
16, 2022) (``NRA/RLC''); NRF; NYSE SAC; Occidental Petroleum; 
Petrol. OK; RE ER; Reinsurance AA; RILA; Salesforce; SEC 
Professionals Group (June 16, 2022) (``SEC Professionals''); 
Redington (June 17, 2022) (``Redington''); Shearman Sterling; Shell; 
SIA; SIFMA; Soc. Corp. Gov.; Southwest Air; State St.; Trane 
Technologies plc (June 16, 2022) (``Trane''); Transocean; Travelers; 
TRC; T. Rowe Price; Western Midstream; and Zions.
    \1808\ See, e.g., letters from ABA; Abrasca; AFEP; AFPA; 
Alliance Resource; Allstate; APCIA; BIO; BlackRock; Business 
Roundtable; CA Bankers; Cal. Resources; CAQ; Cleary Gottlieb; 
Climate Risk Consortia; ConocoPhillips; CO PERA; Deloitte & Touche; 
Energy Transfer; IADC; IIB; LTSE; Marathon; MFA; NASBA; NG; NRA/RLC; 
NRP; NYSE SAC; PPL; PwC; Reinsurance AA; Salesforce; SIA; 
SouthState; State St.; Transocean; Tyson; and Warner Music.
    \1809\ See, e.g., letters from AEPC; AFEP; AFG; AFPM; 
AllianceBernstein; Allstate; Alphabet et al.; APCIA; ARC-A&A 
Barrick Gold; BHP; Business Roundtable; BPI; CCR; ChampionX; Cleary 
Gottlieb; Cleco; Climate Risk Consortia; ConocoPhillips; Dell; 
Deloitte & Touche; Deutsche Bank; Dominion Energy; Energy Transfer; 
EPSA; FHL Bank Des Moines; G. Farris; HP; IADC; IC; IIB; IIF; ITIC; 
JLL; LTSE; Magellan; Marathon; McCormick; MFA; Mid-Size Bank; NACCO; 
NG; NRP; PGIM; PwC; Shearman Sterling; SouthState; Southwest Air; 
Transocean; TRC; T. Rowe Price; Tucson Electric; and Warner Music.
    \1810\ See, e.g., letters from CA Bankers; Can. Bankers; 
Deloitte & Touche; ICAEW; Redington; and RILA.
    \1811\ See, e.g., letters from AAR; AEPC; Airlines for America; 
Alliance Resource; Baker Tilly; BCSE; Cal. Resources; CAQ; Chevron; 
Diageo; Energy Infrastructure; Energy Transfer; GPA Midstream; IADC; 
INGAA; ITIC; Linklaters; NMHC et al.; Transocean; and United Air.
---------------------------------------------------------------------------

    Other commenters were concerned that a one percent disclosure 
threshold would not result in consistent and comparable disclosure 
because the reported line items in the financial statements can vary 
significantly across registrants.\1812\ A few commenters stated that 
applying the one percent disclosure threshold on a line item basis 
could result in only partial disclosure of expenditures related to a 
climate-related event since the total impact could be recorded in 
multiple financial statement line items, which would diminish the 
usefulness of the information to investors.\1813\ In addition, some 
commenters asserted that registrants would not be able to calculate the 
monetary value for the one percent disclosure threshold until the end 
of the relevant period, which would require registrants to evaluate 
each transaction to determine if it counts towards the threshold.\1814\
---------------------------------------------------------------------------

    \1812\ See, e.g., letters from Alphabet et al.; Autodesk; BIO; 
BOA; BDO USA LLP; CCR; Crowe; Fortive; ID Ass. Comm.; Moody's; and 
NAM.
    \1813\ See, e.g., letters from AFPM; CAQ; Moody's; Occidental 
Petroleum; and PwC.
    \1814\ See, e.g., letters from Chamber; CRE Fin. et al.; IPA; 
Soc. Corp. Gov.; and Williams Cos.
---------------------------------------------------------------------------

    Other commenters stated that one percent is significantly below the 
five percent ``rule of thumb'' for materiality used by many registrants 
and auditors,\1815\ and that, in their view, a one percent disclosure 
threshold is not consistent with existing guidance from the Commission 
staff.\1816\ Several commenters stated that the examples provided in 
the Proposing Release of other one percent disclosure thresholds were 
not comparable.\1817\ For example, with respect to the one percent 
disclosure threshold applicable to excise taxes, one commenter asserted 
that, unlike excise taxes, registrants would not be able to precisely 
measure the impacts of severe weather events and transition activities, 
and therefore the two situations are distinguishable.\1818\ A few 
commenters questioned the Commission's authority to establish a one 
percent disclosure threshold.\1819\ Several commenters also stated that 
the proposed line item disclosure threshold is not aligned with the 
TCFD framework,\1820\ and another commenter stated that the TCFD 
framework provides registrants with more flexibility to describe 
financial impacts.\1821\
---------------------------------------------------------------------------

    \1815\ See, e.g., letters from Connor Grp.; Energy Transfer; 
Eversource; GPA Midstream; INGAA; MFA; TRC; United Air; and Western 
Midstream.
    \1816\ See, e.g., letters from ACLI; AEPC; AIMA; B. Herron; 
BlackRock; Cal. Resources; Cleveland Cliffs; Connor Grp.; Corteva; 
Diageo; EEI & AGA; Energy Transfer; GPA Midstream; Hannon Armstrong; 
HP; IMA; Inclusive Cap.; INGAA; JLL; Linklaters; NMA; RILA; Royal 
Gold; SEC Professionals; Soc. Corp. Gov.; Travelers; TRC; Tucson 
Electric; United Air; Vodafone; and Western Midstream. These 
commenters generally stated that, in their view, the 1% disclosure 
threshold was not consistent with Staff Accounting Bulletin No. 99.
    \1817\ See, e.g., letters from AEPC; Airlines for America; 
Alphabet et al.; Amer. Chem.; BHP; Bipartisan Policy; BPI; Chamber; 
Crowe; Deloitte & Touche; Dow; Energy Transfer; Ernst & Young LLP; 
IADC; INGAA; ITIC; Transocean; and TRC.
    \1818\ See letter from Deloitte & Touche.
    \1819\ See, e.g., letters from Amer. Bankers (``Putting aside 
for the moment the very real question of whether the Commission has 
the authority to require such extensive information reporting, such 
a regime is neither cost effective nor necessary to inform investor 
decisions.''); and NAM (``The NAM does not believe it is lawful or 
appropriate for the SEC to set a bright-line test that would mandate 
reporting on risks and events that may or may not be material for a 
given business.'').
    \1820\ See, e.g., letters from Chamber; Diageo; EEI & AGA; Mid-
Size Bank; and State St.
    \1821\ See letter from Chamber.
---------------------------------------------------------------------------

    Other commenters asserted that a one percent threshold would place 
an unreasonable burden on smaller companies.\1822\ For example, one 
commenter asserted that it is more likely that smaller companies' 
impacts would exceed the one percent disclosure threshold.\1823\ In 
addition, some commenters stated that the Commission did not adequately 
justify or explain its rationale for using a one percent disclosure 
threshold.\1824\
---------------------------------------------------------------------------

    \1822\ See, e.g., letters from Abrasca; and US SBA.
    \1823\ See letter from US SBA.
    \1824\ See, e.g., letters from ABA; Bipartisan Policy; Business 
Roundtable; and Petrol. OK.
---------------------------------------------------------------------------

    Other commenters raised concerns about the ability to audit the 
disclosures triggered by the one percent threshold or that the 
threshold could increase inefficiencies and costs associated with the 
audit.\1825\ Specifically some of these commenters stated that the 
proposed one percent threshold may lead registrants to conclude that 
the one percent threshold is a de facto materiality threshold and 
should be applied to other financial statement disclosures that are 
triggered by materiality.\1826\
---------------------------------------------------------------------------

    \1825\ See, e.g., letters from CAQ; Chamber; INGAA; Linklaters; 
NAM; RSM US LLP; and Vodafone.
    \1826\ See, e.g., letters from Barrick Gold; and Crowe.
---------------------------------------------------------------------------

    Due to these and other concerns, many commenters stated that if the 
proposed Financial Statement Metrics are retained in the final rules, 
then the Commission should require disclosure only if the impacts are 
material.\1827\ One

[[Page 21785]]

commenter stated that a materiality standard would better align with 
how registrants track and view impacts internally,\1828\ while another 
commenter stated that applying a materiality standard could mitigate 
operational challenges presented by the proposed rules.\1829\ Another 
commenter stated that a materiality standard would strike a better 
balance between anticipated benefits to investors and the cost of and 
burden of the reporting on registrants.\1830\ A few commenters noted 
that aligning with existing materiality concepts may elicit disclosure 
above or below the one percent disclosure threshold.\1831\
---------------------------------------------------------------------------

    \1827\ See, e.g., letters from AAFA; ABA; Abrasca; ACCO; ACLI; 
AEPC; AFEP; AFG; AHLA; AIC; AIMA; Airlines for America; 
AllianceBerstein; Alphabet et al.; Amer. Bankers; API; ARC-A&A 
Autodesk; Baker Tilly; Barrick Gold; BC IM Corp.; BCSE; BHP; 
Bipartisan Policy; BlackRock; BNP Paribas; BOA; BP; BPI; Can. 
Bankers; CCR; Ceres, et al.; Chamber; Citigroup; Cleco; Cohn Rez.; 
Connor Grp.; ConocoPhillips; CO PERA; Corteva; D. Burton, Heritage 
Fdn.; Deloitte & Touche; Devon Energy; D. Wen; EMC; Enbridge; Enel; 
Energy Infrastructure; EPSA; ETA; Ernst & Young LLP; Exxon; FDRA; 
FedEx; Fenwick West; FHL Bank Des Moines; Fidelity; Fortive; G. 
Farris; GPA Midstream; HDA; HP; Hydro One; IAA; IC; ICAEW; ID Ass. 
Comm.; ICI; IIF; IMA; IN Chamber; INGAA; IPA; IPI; ISS ESG; ITIC; 
JLL; J. Shoen; J. Weinstein; KPMG; LSTA; Magellan; Marathon; 
McCormick; MFA; Microsoft; Mouvement Enterprises; MRC Global; Mtg. 
Bankers; NAM; Nareit; NASBA; NG; NIRI; NMHC et al.; NOIA; Northern 
Trust; NRF; NRP; NYSE SAC; Occidental Petroleum; PFG; Pacific Gas 
and Electric Company (June 17, 2022) (``PGEC''); PPL; Prologis; PSC; 
PwC; R. Breeden et al.; Reinsurance AA; Royal Gold; Salesforce; SEC 
Professionals; Shell; SIFMA; Soc. Corp. Gov.; Tapestry Network; 
TotalEnergies; Trane; Travelers; T. Rowe Price; Tucson Electric; 
Unilever; Walmart; Western Midstream; and Zions.
    \1828\ See letter from ABA.
    \1829\ See letter from Ernst & Young LLP.
    \1830\ See letter from IAA.
    \1831\ See, e.g., letters from Ceres, et al.; and PwC.
---------------------------------------------------------------------------

    On the other hand, some of the commenters who supported the 
requirement to apply a one percent disclosure threshold also 
specifically disagreed with moving to a materiality standard.\1832\ A 
few of these commenters stated that applying a materiality standard 
would result in underreporting \1833\ or would not provide investors 
with as much decision-useful information.\1834\ One commenter pointed 
out that Regulation S-X is composed of requirements to disclose 
specific financial information in a specific format and stated that the 
Commission did not need to establish the materiality of every one of 
those items for all registrants.\1835\ Similarly, another commenter 
explained that registrants have experience disclosing information in 
their financial statements without applying materiality, such as 
information regarding executive compensation, related-party 
transactions, and share repurchases.\1836\
---------------------------------------------------------------------------

    \1832\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CalPERS; Center Amer. Progress; and Sens. J. Reed et 
al.
    \1833\ See letter from CalPERS; and US SIF. See also letter from 
ICGN (stating that ``there is inadequate consistency in how 
registrants are integrating material climate factors into their 
financial statements, and therefore a rule by the SEC on this matter 
is important to ensure implementation''); and Impax Asset Mgmt. 
(stating that the Commission was wise to propose the 1% disclosure 
threshold because ``[t]oo often, we have seen that companies take an 
atomistic approach to materiality'').
    \1834\ See letter from Center Amer. Progress.
    \1835\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \1836\ See letter from Sens. J. Reed et al.
---------------------------------------------------------------------------

    Several commenters suggested that the Commission should apply a 
different percentage threshold, such as five percent \1837\ or ten 
percent.\1838\ A few commenters asserted that the appropriateness of a 
particular percentage disclosure threshold may depend on the line item 
that is used as the denominator.\1839\ For example, one of the 
commenters that recommended using a five percent threshold acknowledged 
that a percentage lower than five percent may be appropriate if the 
threshold is anchored to one of the larger line items in the financial 
statements, such as total operating expenses.\1840\ Another commenter 
suggested using a percentage disclosure threshold based on total assets 
or income instead of individual line items.\1841\ A couple of 
commenters stated that increasing the threshold to a higher percentage 
would not be an improvement because registrants still would not know 
the results of each line item until the end of the reporting period and 
therefore registrants would still have to track essentially all 
transactions.\1842\ Another commenter emphasized the need for 
consistency over the desire for any particular percentage.\1843\
---------------------------------------------------------------------------

    \1837\ See, e.g., letters from Abrasca; Amer. Chem.; Calvert; 
CEMEX (recommending a range of between 5% and 10%); Dow; Eni SpA; 
Eversource; Inclusive Cap; and PGIM.
    \1838\ See, e.g., letters from APCIA (recommending applying a 
10% threshold and incorporating qualitative considerations); JBG 
Smith; NAM; Nareit; NRA/RLC; and TotalEnergies.
    \1839\ See, e.g., letters from CalPERS; Energy Transfer; and 
Eversource.
    \1840\ See letter from Eversource.
    \1841\ See letter from Energy Transfer.
    \1842\ See, e.g., letters from AFPA; and Chamber.
    \1843\ See letter from Morningstar.
---------------------------------------------------------------------------

    Some commenters offered their views on the appropriateness of using 
a dollar-based disclosure threshold. A few commenters stated that, to 
the extent the Commission does not adopt a principles-based approach, 
the Commission should consider adopting a combination of a higher 
percentage threshold along with a dollar threshold.\1844\ Another 
commenter stated that if the Commission incorporates a dollar amount 
into the threshold it should be significantly higher than $1 
million.\1845\ One commenter suggested a materiality standard combined 
with a dollar-based disclosure threshold.\1846\ A couple of commenters 
stated that they did not support applying a dollar threshold.\1847\
---------------------------------------------------------------------------

    \1844\ See, e.g., letters from B. Herron; and FHL Bank Des 
Moines.
    \1845\ See letter from AIC (stating that a disclosure threshold 
of $1 million applies to the disclosure of certain environmental 
proceedings in Item 103 of Regulation S-K).
    \1846\ See letter from D. Hileman Consulting.
    \1847\ See, e.g., letters from BHP; and Eni SpA.
---------------------------------------------------------------------------

    One commenter stated that the Commission should not apply a 
disclosure threshold and instead should require disclosure of any 
impacts.\1848\ A couple of commenters asserted that the Commission 
should also require registrants to determine whether an impact that 
falls below the prescribed one percent threshold would nevertheless be 
material given its nature and, if so, to require disclosure of that 
impact.\1849\ One commenter suggested setting a basic principle based 
on materiality and backstopping the materiality standard with a 
numerical disclosure threshold set at five percent in the short- and 
medium-term or ten percent in the long term.\1850\ Alternatively, one 
commenter stated that relying on a one percent disclosure threshold 
alone could create a ``loophole'' for larger companies and therefore 
the Commission should clarify that disclosure would still be required 
for impacts that fall below one percent if they are material.\1851\
---------------------------------------------------------------------------

    \1848\ See letter from PRI.
    \1849\ See, e.g., letters from ICGN (``While we agree with the 
proposed threshold of 1% of the total line item (including for 
expenditure items), where the aggregate impact is less than this, 
but investors have expressed a clear interest in understanding this 
impact (thus making it material), registrants should be required to 
offer commentary on how the impact was assessed.''); and Sarasin 
(``While we agree with the proposed threshold of 1% of the total 
line item (including for expenditure items), additional disclosure 
would be appropriate where the aggregate impact is less than this, 
but investors have expressed a clear interest in understanding this 
impact (thus making it material).'').
    \1850\ See letter from Beller, et al.
    \1851\ See letter from ClientEarth.
---------------------------------------------------------------------------

    Commenters also provided feedback on the proposed requirement for 
registrants to aggregate the absolute value of the positive and 
negative impacts on a line-by-line basis before determining whether the 
disclosure threshold has been met. A number of commenters disagreed 
with the proposal to aggregate the absolute value of impacts.\1852\ 
Some of these commenters

[[Page 21786]]

stated that it would be a significant departure from typical accounting 
practices,\1853\ and others asserted it would be unworkable and would 
result in the disclosure of individually immaterial information.\1854\ 
One commenter suggested that any aggregation requirements should allow 
a registrant to set a minimum materiality threshold for individual 
items.\1855\ On the other hand, some commenters supported aggregating 
the absolute value of impacts, with one commenter stating it better 
reflects the significance of the impact on a registrant's financial 
performance and position.\1856\
---------------------------------------------------------------------------

    \1852\ See, e.g., letters from AAR; ABA; AFPA; Alliance 
Resource; API; CCR; CEMEX; Chamber; Cleco; Cleveland Cliffs; Dell; 
D. Hileman Consulting; EEI & AGA; Etsy; Exxon; G. Farris; GPA 
Midstream; IADC; NAM; PPL; Reinsurance AA; RILA; Soc. Corp. Gov.; 
Transocean; T. Rowe Price; United Air; and Williams Cos.
    \1853\ See, e.g., letters from AAR; IADC; NAM; PPL; and 
Transocean.
    \1854\ See, e.g., letters from Alliance Resource; BHP; Cleco; 
NAM; and Shearman Sterling.
    \1855\ See letter from J. Herron.
    \1856\ See letter from Dana Invest.
---------------------------------------------------------------------------

    A few commenters stated that the Commission should instead use a 
net value.\1857\ For example, some commenters stated that the proposed 
rules fail to take into account mitigation efforts such as insurance, 
which would net against the gross value of any loss.\1858\ 
Specifically, one commenter asserted that disclosure of losses, net of 
insurance proceeds, is appropriate if it is probable that the insurance 
recovery would be realized and if the provision for the loss and the 
insurance receivable are recognized in the same period in accordance 
with FASB ASC 450-20.\1859\ In addition, one commenter asserted that 
using absolute values would not accurately reflect the economics of the 
(re)insurance industry, which manages its weather risks through 
reinsurance.\1860\ On the other hand, some commenters opposed the 
netting of positive and negative impacts.\1861\ One commenter asserted 
that netting would involve many assumptions and there is more value for 
investors in absolute numbers.\1862\ Other commenters stated that 
netting could incentivize greenwashing.\1863\ Finally, some commenters 
asserted that registrants should be required to determine if the 
disclosure threshold has been met or exceeded separately for physical 
events and transition activities.\1864\
---------------------------------------------------------------------------

    \1857\ See, e.g., letters from AAR; CEMEX; Dell; GPA Midstream; 
Inclusive Cap.; PSC; Soc. Corp. Gov.; and United Air.
    \1858\ See, e.g., letters from GPA Midstream; United Air; and 
Williams Cos.
    \1859\ See letter from Prologis.
    \1860\ See letter from Reinsurance AA.
    \1861\ See, e.g., letters from BC IM Corp. (stating ``there is 
more value for investors in absolute numbers in this context.''); 
Center Amer. Progress; ClientEarth; ICGN (``We are not in favor of 
netting positive and negative impacts due to the dangers that this 
hides large and material absolute impacts.''); MN SBI; Morningstar 
(``Fundamentally, disclosure of absolute values should allow 
investors to distinguish between negative impacts (such as severe 
weather, regulatory changes) and positive impacts (such as 
mitigation, resilience, and opportunities).''); PwC (``In 
determining whether the disclosure threshold is met, we believe that 
positive and negative impacts should be considered separately, not 
netted (e.g., if a winery receives insurance proceeds for grapes 
damaged by a wildfire, they should consider the gross loss in 
assessing whether disclosure is triggered.''); Sarasin; and Third 
Coast.
    \1862\ See letter from BC IM Corp.
    \1863\ See, e.g., letters from ClientEarth; and Third Coast.
    \1864\ See, e.g., letter from MN SBI.
---------------------------------------------------------------------------

iii. Terminology and Attribution
    A number of commenters pointed out that ``severe weather events and 
other natural conditions'' is not defined in the proposal and they 
asserted that additional clarification or guidance is needed.\1865\ 
Some commenters stated that the proposed amendments to Regulation S-X 
refer to ``severe weather events,'' while the proposed amendments to 
Regulation S-K refer to ``extreme weather events,'' and that the 
amendments provided overlapping, but different, examples.\1866\ A few 
commenters suggested that the Commission should limit any required 
disclosures to a specified list of severe weather events and other 
natural conditions.\1867\ For example, one commenter suggested that the 
Commission could establish a list of weather events and update it on a 
monthly or quarterly basis,\1868\ but another commenter stated that 
maintaining a list of events would be impractical.\1869\ A few 
commenters suggested that the Commission could borrow or refer to a 
list of severe weather events and other natural conditions prepared by 
a third party.\1870\ Other commenters suggested specific additions to 
the list of non-exclusive examples included in the proposed 
rules.\1871\ Many of these commenters stated that registrants will 
likely have different views on what constitutes a severe weather event, 
which will reduce comparability.\1872\
---------------------------------------------------------------------------

    \1865\ See, e.g., letters from Abrasca; AEPC; Alliance Resource; 
Amazon; Anthesis; APCIA; BDO USA LLP; BHP; BPI; Ceres, et al.; 
Chamber; Cleary Gottlieb; Corteva; Davis Polk; Deutsche Bank; EEI & 
AGA; EMC; Eni SpA; EPSA; FedEx; GPA Midstream; IADC; IIF; INGAA; 
Marathon; Morningstar; Mtg. Bankers; Nareit; NRA/RLC; NRP; 
Occidental Petroleum; PwC; RSM US LLP; Shearman Sterling; Shell; 
Soc. Corp. Gov.; Transocean; Travelers; Tucson Electric; Unilever; 
and Volta.
    \1866\ See, e.g., letters from Amazon; KPMG (recommending that 
the Commission align the terminology between the proposed rules 
under Regulation S-K and Regulation S-X); and PwC (same).
    \1867\ See, e.g., letters from Abrasca; Cohn Rez.; and Nutrien. 
See also Reinsurance AA (``The RAA recommends the Commission exclude 
specific weather events from the definition of physical C-R risks 
for (re)insurers.'').
    \1868\ See letter from Cohn Rez.
    \1869\ See letter from Nutrien.
    \1870\ See, e.g., letters from Amer. Academy Actuaries 
(Actuaries Climate Index or Actuaries Climate Risk Index to aid the 
identification of physical risks); Anthesis (TCFD's list of acute 
and chronic physical risks); and Morningstar (technical screen 
criteria of the EU Taxonomy Regulation (Reg (EU) 2020/852) 
pertaining to climate-related hazards).
    \1871\ See, e.g., letters from Anthesis (cyclones, water stress, 
severe precipitation, and severe wind); Climate Advisers 
(deforestation); and WSP (water stress).
    \1872\ See, e.g., letters from Abrasca; AHLA; Alliance Resource; 
Autodesk; BHP; BOA; Business Roundtable; Chevron; ConocoPhillips; 
Energy Infrastructure; EPSA; IADC; IIF; Marathon; NRF; NRP; NYSE 
SAC; Occidental Petroleum; Shell; Soc. Corp. Gov.; Transocean; and 
Unilever.
---------------------------------------------------------------------------

    In addition, a number of commenters stated that it was unclear 
whether registrants would need to determine that a severe weather event 
or other natural condition was, in fact, caused by climate change 
before disclosure would be required, while other commenters assumed 
that such a determination was required.\1873\ Some commenters stated 
that registrants would not have the ability to determine whether a 
weather event or natural condition was caused by climate change,\1874\ 
and other commenters stated that the Commission failed to provide 
guidance on this issue.\1875\
---------------------------------------------------------------------------

    \1873\ See, e.g., letters from AHLA; Airlines for America; 
Alliance Resource; APCIA; Atlas Sand; B. Herron; BPI; Brigham; 
Business Roundtable; Chamber; Davis Polk; Deutsche Bank; EEI & AGA; 
Energy Infrastructure; Eversource; GM; GPA Midstream; ID Ass. Comm.; 
IC; Magellan; NAM; Nareit; NMA; NRF; PGIM; Prologis; Reinsurance AA; 
Shell; SIA; Soc. Corp. Gov.; Travelers; and United Air.
    \1874\ See, e.g., letters from AAR; APCIA; Atlas Sand; Brigham; 
Chamber; ConocoPhillips; GPA Midstream; HP; IADC; ID Ass. Comm.; 
NRF; PGEC; Reinsurance AA; Texas Public Policy Foundation (June 16, 
2022); Transocean; and Travelers.
    \1875\ See, e.g., letters from APCIA; CAQ; Corteva; IADC; 
Prologis; and Williams Cos.
---------------------------------------------------------------------------

    Several commenters stated that it was unclear whether the proposed 
financial statement metrics are intended to capture all severe weather 
events or only those above a historical baseline.\1876\ Specifically, 
one commenter asked the Commission to provide guidance on how 
registrants should distinguish ``events and conditions that are severe 
and relate to climate risks from those that are consistent with 
historical patterns.'' \1877\ Other commenters stated that it is not 
clear how the severity of a weather event should be assessed.\1878\ For

[[Page 21787]]

example, one commenter questioned whether the severity of a hurricane 
should be assessed by looking to factors such as the wind speed 
categorization or the financial impact on the registrant itself.\1879\ 
Another commenter suggested that the Commission should clarify that 
what is considered to be a severe weather event in one region may not 
be considered severe in a different region.\1880\ One commenter asked 
for guidance on how to identify the beginning and ending dates of 
severe weather events because the impact from a weather event can 
continue even after the meteorological event has itself passed.\1881\ 
Similarly, another commenter asked the Commission to provide additional 
examples of how to disclose a weather event like a hurricane or 
wildfire, both in the year that the event happened and for future years 
where the impacts may continue to manifest on the financial 
statements.\1882\
---------------------------------------------------------------------------

    \1876\ See, e.g., letters from Airlines for America; EEI & AGA; 
EPSA; Grant Thornton; KPMG; PwC; SIA; Volta; and Western Midstream.
    \1877\ See letter from Grant Thornton.
    \1878\ See, e.g., letters from Alliance Resource; Chamber; EEI & 
AGA; Grant Thornton; and KPMG.
    \1879\ See letter from Grant Thornton.
    \1880\ See letter from RSM US LLP.
    \1881\ See letter from Marathon.
    \1882\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    In addition, commenters asked the Commission to clarify what 
constitutes ``other natural conditions,'' \1883\ and in particular, 
some commenters asserted that it would be difficult to identify chronic 
risks.\1884\ For example, one commenter stated that the impact of sea 
level rise may be difficult to discern in a particular reporting period 
and might only be apparent over substantially longer periods.\1885\ In 
addition, a few commenters raised concerns about the inclusion of 
``wildfires'' in the list of severe weather events and natural 
conditions, pointing out, among other things, that wildfires have many 
different causes, including humans, or the cause of a wildfire may not 
be known for some time.\1886\ One commenter asked the Commission to 
provide additional examples of ``other natural conditions.'' \1887\
---------------------------------------------------------------------------

    \1883\ See, e.g., letters from EEI & AGA; EMC; Grant Thornton; 
NRP; and RSM US LLP. See also letter from Chamber (questioning 
whether earthquakes should be included under ``other natural 
conditions'').
    \1884\ See, e.g., letters from C2ES (Feb.13, 2023); Grant 
Thornton; Prologis; and WSP.
    \1885\ See letter from Grant Thornton.
    \1886\ See, e.g., letters from BDO USA LLP; Chamber; and 
Deloitte & Touche.
    \1887\ See letter from RSM US LLP.
---------------------------------------------------------------------------

    On the other hand, some commenters stated that registrants should 
have flexibility to determine what constitutes a severe weather event 
or other natural condition.\1888\ Several commenters asserted that the 
Commission should not limit climate risk disclosures to a specified set 
of severe weather events because companies will face different climate 
risks.\1889\ Other commenters suggested that the Commission should 
require disclosure of ``unusual climate events'' instead of ``severe 
weather events'' and allow registrants to define what they consider to 
be unusual for the area in which they operate.\1890\
---------------------------------------------------------------------------

    \1888\ See, e.g., letters from Carbon Tracker; Cleco; Eni SpA; 
Eversource; Sarasin; and TotalEnergies.
    \1889\ See, e.g., letters from Autodesk; CEMEX; and Center. 
Amer. Progress.
    \1890\ See, e.g., letters from Cleco; and EEI & AGA.
---------------------------------------------------------------------------

    A number of commenters also raised concerns about the definition 
and scope of transition activities.\1891\ Commenters expressed concerns 
that the scope of transition activities could broadly encompass 
ordinary business activities that are motivated by the intent to be 
more efficient.\1892\ Other commenters were concerned that registrants 
would be required to disclose competitively sensitive 
information.\1893\ In addition, a number of commenters stated that 
registrants are unlikely to interpret transition activities in a 
consistent manner and therefore the proposed disclosures would not 
result in decision-useful information for investors.\1894\
---------------------------------------------------------------------------

    \1891\ See, e.g., letters from AEPC; AHLA; Airlines for America; 
Alliance Resource; Chamber; Cleco; Climate Risk Consortia; Dell; EEI 
& AGA; Enbridge; EPSA; FedEx; GM; GPA Midstream; IADC; IIF; INGAA; 
Microsoft; Mtg. Bankers; NAM; Occidental Petroleum; PGIM; PwC; 
Shell; Tucson Electric; Unilever; United Air; and Western Midstream.
    \1892\ See, e.g., letters from Alliance Resource; Alphabet et 
al.; Amazon; BP; BPI; Business Roundtable; CCR; Chamber; Cleco; 
Climate Risk Consortia; Connor Grp.; Dell; Diageo; EEI & AGA; EPSA; 
Ernst & Young LLP; Eversource; FedEx; GM; IMA; JLL; KPMG; Microsoft; 
NAM; Occidental Petroleum; PGIM; RILA; Shell; Soc. Corp. Gov.; 
Sullivan Cromwell; Unilever; United Air; and Walmart.
    \1893\ See, e.g., letters from GM; IADC; and Petrol. OK.
    \1894\ See, e.g., letters from Airlines for America; CCR; 
Cleveland Cliffs; Climate Risk Consortia; Ernst & Young LLP; 
Microsoft; PGIM; and Sullivan Cromwell.
---------------------------------------------------------------------------

    Some commenters requested that the Commission provide additional 
guidance related to transition activities.\1895\ For example, one 
commenter urged the Commission to clarify when a transition activity 
ends, asserting that it was not clear if a registrant's disclosure 
obligation would cease once the registrant achieves its stated 
transition goal.\1896\ Another commenter asked the Commission to 
clarify the scope of transition activities included in proposed Rule 
14-02(d) because, in the commenter's view, the proposed provision could 
be read to mean that a registrant is only required to disclose the 
financial impact of activities or efforts of the registrant, and not 
the ``broad range of climate-related changes in technology, market 
forces and other occurrences instituted by entities not related to the 
registrant that may nonetheless impact the registrant's financials.'' 
\1897\ This commenter pointed out that proposed Rule 14-02(f), which 
would require the disclosure of expenditures related to transition 
activities, already covers disclosure of the financial impact of 
activities or efforts of the registrant.\1898\
---------------------------------------------------------------------------

    \1895\ See, e.g., letters from AHLA; Alphabet et al.; Amazon; 
Deloitte & Touche; Occidental Petroleum; and PwC.
    \1896\ See letter from Amazon. See also letter from C2ES (Feb. 
13, 2023).
    \1897\ See letter from Center Amer. Progress.
    \1898\ See id.
---------------------------------------------------------------------------

    Other commenters suggested potential alternatives to the proposed 
requirements related to transition activities. A couple of commenters 
stated that the Commission should only require registrants to disclose 
the impact of certain specified transition activities, such as efforts 
taken exclusively to reduce GHG emissions.\1899\ Another commenter 
suggested ``that the Commission instead require companies to track and 
report on transition activities that management has identified and 
reported on under the proposed [amendments to] Regulation S-K.'' \1900\ 
One commenter suggested that the Commission could issue sector-specific 
guidance for industries where most registrants' balance sheets reflect 
expenditures related to clean energy, decarbonization, or resilience, 
to help companies determine what constitutes transition-related 
expenses.\1901\
---------------------------------------------------------------------------

    \1899\ See, e.g., letters from EEI & AGA; and Soc. Corp. Gov.
    \1900\ See letter from Amazon.
    \1901\ See letter from C2ES (Feb. 13, 2023).
---------------------------------------------------------------------------

    Many commenters raised concerns about registrants' abilities to 
isolate or attribute the effects of severe weather events and other 
natural conditions and transition activities on the financial 
statements.\1902\ Commenters pointed out that some events may have 
multiple contributing causes or that the cause

[[Page 21788]]

may not be clear.\1903\ For example, several commenters stated that 
companies incur many expenses for core business purposes that may also 
be characterized as helping to mitigate climate-related risks.\1904\ 
Another commenter pointed out that if a registrant's insurance costs 
increase, it will be difficult for a registrant to attribute this 
increase, or a portion of this increase, to climate-related 
risks.\1905\ In addition, one commenter noted that there may be 
circumstances where financial impacts are attributable to both physical 
risks and transition risks, such as when a facility is destroyed in a 
storm and the registrant decides to rebuild it with storm-protection 
features and LEED-certification, and the commenter questioned how the 
impacts should be attributed in those circumstances.\1906\ Many 
commenters also stated that it would be difficult to quantify climate-
related events, conditions, and activities.\1907\ For example, where an 
expenditure is made in part for a climate-related purpose, commenters 
questioned whether registrants should attribute the entire cost or only 
an incremental portion of the cost to climate-related events.\1908\ A 
number of other commenters questioned how registrants would be expected 
to quantify indirect financial impacts such as those affecting a 
registrant's supply or value chain.\1909\ Some commenters stated that 
there are currently no accounting principles or guidance to help 
registrants make these determinations \1910\ and another commenter 
pointed out that it may require the expertise of a climate 
specialist.\1911\ Commenters generally requested additional guidance to 
address these issues.\1912\
---------------------------------------------------------------------------

    \1902\ See, e.g., letters from AAR; ABA; Abrasca; AEPC; AFPA; 
AFPM; AHLA; Airlines for America; Alliance Resource; Alphabet et 
al.; APCIA; Autodesk; Barrick Gold; BDO USA LLP; BHP; BOA; BP; BPI; 
Business Roundtable; Cal. Resources; Can. Bankers; CAQ; CCR; 
Chamber; Citigroup; Cleary Gottlieb; Cleco; Climate Risk Consortia; 
Connor Grp.; ConocoPhillips; Crowe; Cummins; Davis Polk; Dell; 
Deloitte & Touche; Diageo; Dominion Energy; EEI & AGA; Energy 
Transfer; Ernst & Young LLP; Eversource; Exxon; FedEx; Fortive; G. 
Farris; GM; HDA; IADC; INGAA; JLL; JPN Bankers; KPMG; Linklaters; 
Marathon; McCormick; Mid-Size Bank; Mtg. Bankers; NACCO; NAM; 
Nareit; NOIA; NRA/RLC; PFG; PGEC; RILA; RMI; Shearman Sterling; 
Southwest Air; Travelers; TRC; Tucson Electric; Unilever; United 
Air; Vodafone; Walmart; Western Midstream; and Williams Cos.
    \1903\ See, e.g., letters from Abrasca; AFPA; AHLA; Barrick 
Gold; BHP; Cal. Resources; CCR; Climate Risk Consortia; Connor Grp.; 
Deloitte & Touche; Dominion Energy; EEI & AGA; Energy 
Infrastructure; HDA; IADC; INGAA; JPN Bankers; KPMG; Linklaters; 
Mid-Size Bank; Nareit; PFG; PGEC; Southwest Air; TRC; and Vodafone.
    \1904\ See, e.g., letters from AAR; ACLI; Diageo; Energy 
Infrastructure; PFG; Salesforce; and Walmart.
    \1905\ See letter from TRC.
    \1906\ See letter from KPMG.
    \1907\ See, e.g., letters from ABA; Airlines for America; 
Alliance Resource; Alphabet et al.; BDO USA LLP; BOA; CAQ; CCR; 
Chamber; Climate Risk Consortia; Connor Grp.; ConocoPhillips; 
Deutsche Bank; EEI & AGA; Ernst & Young LLP; Eversource; Exxon; GM; 
Grant Thornton; KPMG; Marathon; McCormick; Mtg. Bankers; NACCO; 
NAFO; NAM; PGEC; Prologis; Southwest Air; Travelers; TRC; Western 
Midstream; and Williams Cos.
    \1908\ See, e.g., letters from AAR; EEI & AGA; and GM.
    \1909\ See, e.g., letters from BHP; Chamber; GPA Midstream; 
Grant Thornton; Nareit; PGIM; United Air; Volta; Western Midstream; 
and Williams Cos.
    \1910\ See, e.g., letters from AEPC; Barrick Gold; G. Farris; 
IIF; Nareit; NRF; TRC; and Walmart.
    \1911\ See letter from SEC Professionals.
    \1912\ See, e.g., letters from AAFA; BDO USA LLP; Chamber; 
Climate Accounting Audit Project; Crowe; Deloitte & Touche; Deutsche 
Bank; Eversource; INGAA; JPN Bankers; PGIM; and RMI.
---------------------------------------------------------------------------

    Commenters suggested various possibilities for addressing concerns 
about attribution and quantification. A few commenters stated that 
registrants should be permitted to make a reasonable estimate and 
disclose the assumptions that resulted in the estimate.\1913\ 
Commenters suggested that disclosing the relevant assumptions would 
help investors interpret any estimations that may be required.\1914\ 
One commenter recommended that any final rules should allow registrants 
to disclose either a single amount or a range, along with appropriate 
contextual information. This commenter noted that if the Commission 
proceeds with a single amount, registrants would require guidance on 
how the amount should be determined.\1915\ Another commenter suggested 
that a registrant should be allowed to explain that it was unable to 
disclose the required information on a disaggregated basis due to 
impacts that were caused by a mixture of factors.\1916\ Other 
commenters suggested that when disaggregation is not possible due to 
multiple contributing factors, registrants should provide qualitative 
information to explain the factors.\1917\
---------------------------------------------------------------------------

    \1913\ See, e.g., letters from AFPA; Anthesis; C2ES; ERM CVS; MN 
SBI; and Morningstar.
    \1914\ See, e.g., letters from Eni SpA; and ERM CVS.
    \1915\ See letter from KPMG.
    \1916\ See letter from Abrasca.
    \1917\ See, e.g., letters from BHP; CEMEX; Sarasin; and SKY 
Harbor.
---------------------------------------------------------------------------

    One commenter asserted that applying an entity-specific allocation 
methodology would not result in decision-useful information, and 
instead recommended attributing a financial statement impact or 
expenditure to climate risk only when the climate risk is a 
``significant contributing factor,'' and otherwise requiring 
registrants to provide contextual information to explain the impact, 
which would help avoid accusations of greenwashing that might occur if 
registrants were required to attribute substantially all events, 
conditions, and activities to climate risk.\1918\ Another commenter 
urged the Commission to clarify that disclosure is only required where 
the relevant impacts can be reasonably determined to be primarily or 
entirely driven by physical or transition risk activities, are material 
to the business, and are reasonably estimable.\1919\
---------------------------------------------------------------------------

    \1918\ See letter from KPMG.
    \1919\ See letter from Airlines for America.
---------------------------------------------------------------------------

    On the other hand, a few commenters stated that the Commission does 
not need to prescribe a particular approach to attribution or 
allocation.\1920\ One of these commenters pointed out that registrants 
already are required to allocate costs across multiple risks when 
preparing their financial statements.\1921\
---------------------------------------------------------------------------

    \1920\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and TotalEnergies.
    \1921\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

iv. Alternatives
    Commenters suggested a number of potential alternatives to the 
proposed financial statement metrics.\1922\ Several commenters 
recommended that the Commission limit any requirement to disclose 
climate-related impacts to ``first order effects'' or direct impacts 
only.\1923\ Specifically with respect to severe weather events, some 
commenters stated that it would be operationally possible to track 
specific, direct costs incurred due to severe weather events and 
natural conditions.\1924\ For example, one commenter noted that certain 
property damage and related repair costs sustained as a result of 
severe weather could ``easily be segregated, analyzed, and quantified 
within our current processes.'' \1925\ Another commenter stated that 
calculating direct costs incurred due to severe weather events might be 
straightforward because the costs are recorded in the registrant's 
financial records.\1926\ One commenter recommended that the 
``Commission consider limiting Article 14 of Regulation S-X 
requirements to

[[Page 21789]]

physical impacts and related expenditures only.'' \1927\ More 
generally, another commenter recommended streamlining the proposed 
rules to focus on ``what issuers can easily produce.'' \1928\
---------------------------------------------------------------------------

    \1922\ In many cases, the commenters discussed in this section 
expressed a stronger preference for other approaches discussed 
above, such as not adopting or reducing the proposed disclosure 
requirements but offered these alternatives to the proposed rules as 
well.
    \1923\ See, e.g., letters from BOA; C2ES; Citigroup; and SIA.
    \1924\ See, e.g., letters from Autodesk (noting that if a fire 
or storm destroys a registrant's facilities, the associated costs, 
impairments, and contingencies would be accounted for and, if 
material, disclosed under U.S. GAAP); Crowe; Dow; and Nutrien 
(noting that it would be operationally possible to track specific 
costs incurred to mitigate transition risks or costs incurred due to 
severe weather events and natural conditions).
    \1925\ See letter from Dow (explaining, however, that 
``[q]uantifying the indirect impact of [severe weather events] on 
sales and cost of sales would be exceedingly difficult and require 
significant judgment, estimates and assumptions, thereby limiting 
the comparability of such information with other registrants and the 
usefulness of such information to investors'').
    \1926\ See letter from Crowe. See also letter from PwC (stating 
that the financial impact of some climate-related risks--for 
example, losses arising from asset impairments or operations and 
maintenance expenses associated with site restoration--may already 
be disclosed under existing GAAP, although the disclosures may not 
clearly link to the impact of climate).
    \1927\ See letter from Dell.
    \1928\ See letter from MFA. See also letter from Ceres, et al. 
(``Disclosure of financial impacts from climate-related activities 
should be derived from transactions and amounts recorded in the 
books and records underlying the financial statements.'').
---------------------------------------------------------------------------

    A few commenters recommended alternative approaches that focused on 
requiring the disclosure of discrete expenditures. For example, one 
commenter recommended that the Commission require a table in a note to 
the financial statements that presents discrete and separable 
expenditures, both expensed and capitalized, in three distinct 
categories: (i) climate-related events, (ii) transition activities for 
publicly-disclosed climate-related targets and goals, and (iii) all 
other transition activities.\1929\ Similarly, another commenter 
recommended that the Commission should require disclosure of 
``identifiable direct costs and capital expenditures incurred for the 
express purpose of addressing climate events and transition issues,'' 
which ``could be produced and audited with a level of certainty and 
comparability that is consistent with GAAP financial statements.'' 
\1930\
---------------------------------------------------------------------------

    \1929\ See letter from Amazon. See also letter from C2ES (Feb. 
13, 2023) (describing the expenditure table included in Amazon's 
comment letter as a more workable alternative but reiterating 
concerns with other aspects of the proposed rules, such as the 
disclosure threshold).
    \1930\ See letter from ABA. See also letter from Ceres 
(recommending disclosure of current period and planned capital 
expenditures to show the portion of investments attributable to 
addressing transition risks and opportunities and the adaptation to 
or mitigation of physical risks associated with climate change).
---------------------------------------------------------------------------

    Other commenters recommended taking a more aggregated approach to 
disclosure. For example, one commenter suggested aggregating costs and 
benefits relating to climate-related events into categories (revenues, 
expenditures, and profits), and aggregating impacts on the balance 
sheet into the categories (assets, liabilities, and equity), which the 
commenter stated would ensure investors are able to identify the 
magnitude of the impacts affecting the company without unnecessary 
complication and cost for registrants.\1931\ Another commenter 
recommended requiring disclosure at the event or activity level rather 
than disclosing impacts on financial statement line items, and focusing 
on discrete, material climate-related events and transition 
activities.\1932\ Similarly, another commenter recommended analyzing 
potential impacts by broad accounting topics, such as impairments or 
useful life of assets, which would simultaneously cover several lines 
of the income statement, balance sheet, and cash flow statement.\1933\ 
One commenter suggested that the Commission could enhance comparability 
by identifying a minimum set of line items for which disclosure is 
required while permitting registrants to present disclosure on 
additional line items in order to better reflect their business model 
and industry.\1934\ On the other hand, one commenter recommended a more 
disaggregated approach to disclosure.\1935\
---------------------------------------------------------------------------

    \1931\ See letter from PIMCO.
    \1932\ See letter from Alphabet et al.
    \1933\ See letter from TotalEnergies. See also letter from 
iClima Earth (``Require companies to split both their revenue and 
their CAPEX figures into `green' and `brown.' '').
    \1934\ See letter from Eni SpA.
    \1935\ See letter from Dana Invest. (``We would propose a 
separate disclosure footnote to disaggregate any category impact if 
any single identified climate-related risk within an aggregated 
category was 1% or more of the total line item on its own.'').
---------------------------------------------------------------------------

    Additionally, one commenter recommended that the Commission adopt a 
``top down approach'' by linking disclosure of short-term risks 
identified under the proposed amendments to Regulation S-K to financial 
statement impacts that would be required to be disclosed at a specified 
threshold, and supplemented by the disclosure of other material 
impacts.\1936\ Another commenter suggested requiring the disclosure of 
climate-related cash-flow metrics, focused on providing gross cash 
flows of climate-related expenditures, with an indication of which cash 
flows have been capitalized, which the commenter stated would provide 
an understanding of real cash-flow impacts that could be more directly 
linked to the Regulation S-K disclosures and would be more useful for 
investors.\1937\ One commenter stated that the Commission should 
consider amending its industry guides for the oil and gas industry, 
among others, to require better disclosure of the financial statement 
impacts of climate change.\1938\
---------------------------------------------------------------------------

    \1936\ See letter from KPMG (noting that this approach would be 
based on amounts recorded in the financial statements).
    \1937\ See letter from CFA Institute.
    \1938\ See letter from Ceres (recommending that the Commission 
also consider also expanding its industry guides for mining, bank 
holding companies, real estate limited partnerships, and property-
casualty insurance underwriters). The industry guides for oil and 
gas, mining, and bank and savings and loan companies have been 
codified by the Commission. See 17 CFR 229.1201 through 1208 (oil 
and gas); 17 CFR 229.1300 through 1305 (mining); and 17 CFR 229.1401 
through 1406 (bank and savings and loan).
---------------------------------------------------------------------------

c. Final Rules
    After consideration of the comments, including those expressing 
significant concerns about the burdens associated with this aspect of 
the proposal, we are not adopting the proposed Financial Impact 
Metrics.\1939\ While the proposed Financial Impact Metrics would have 
provided additional transparency for investors, we were persuaded by 
those commenters that stated the proposed Financial Impact Metrics 
would be burdensome and costly for registrants because of the updates 
that would be necessary to internal systems and processes. \1940\ 
Therefore, at this time, we have chosen not to adopt these disclosures. 
These concerns led us to adopt a significantly narrower set of 
requirements that are focused on requiring the disclosure of a discrete 
set of actual expenses that registrants incur and can attribute to 
severe weather events and other natural conditions. In line with the 
views of certain commenters,\1941\ we expect these requirements to be 
more feasible for registrants to disclose under current financial 
reporting processes. Moreover, given the overlapping nature of some of 
the disclosures that would have been required by the proposed Financial 
Impact Metrics and the capitalized costs, expenditures expensed, 
charges, and losses that are required to be disclosed under the final 
rules,\1942\ the requirements we are adopting will provide many of the 
same benefits of transparency and insights that the proposed Financial 
Impact Metrics would have provided, albeit without as much detail, 
which should reduce the burden on registrants.
---------------------------------------------------------------------------

    \1939\ As discussed in greater detail below, since we are not 
adopting the proposed Financial Impact Metrics, a registrant will 
not have the option to disclose the impact of any climate-related 
opportunities on the Financial Impact Metrics. See infra section 
II.K.5.c. For the same reason, we are not adopting the requirement 
set forth in proposed Rule 14-02(i) requiring a registrant to 
include the impacts of any climate-related risks identified pursuant 
to proposed Item 1502(a) on the Financial Impact Metrics.
    \1940\ See supra note 1791 and accompanying text.
    \1941\ See supra notes 1924 and 1926 and accompanying text.
    \1942\ See supra notes 1732 and 1735.
---------------------------------------------------------------------------

    In addition, as discussed in greater detail below in section 
II.K.3.c.ii, we emphasize that registrants currently have an obligation 
under GAAP to consider material impacts on the financial statements, 
and the fact that the impact may be driven by climate-related matters 
does not alter registrants'

[[Page 21790]]

financial reporting obligations.\1943\ Therefore, a registrant should 
consider whether it currently has an obligation to disclose information 
that would have been covered by the proposed Financial Impact Metrics. 
Our decision not to adopt the proposed Financial Impact Metrics does 
not affect registrants' ongoing responsibility to consider material 
impacts, including those that may be climate-related, when preparing 
their financial statements and related disclosures.
---------------------------------------------------------------------------

    \1943\ See infra notes 2068 and 2069 and accompanying text.
---------------------------------------------------------------------------

    Although we are not adopting the proposed Financial Impact Metrics 
at this time, certain aspects of the proposed rules discussed at length 
above also applied to, or were substantially similar to, the proposed 
Expenditure Metrics. For example, the proposed one percent disclosure 
threshold and terminology such as ``severe weather events and other 
natural conditions'' were included in the proposals for both proposed 
metrics.\1944\ A number of commenters provided feedback on these issues 
generally, without indicating that their comments were limited to only 
the proposed Financial Impact Metrics or to only the proposed 
Expenditure Metrics.\1945\ In addition, some of the alternatives 
discussed above are relevant to the proposed Expenditure Metrics.\1946\ 
As such, we also considered these comments with respect to the proposed 
Expenditure Metrics. Below, our discussion focuses on additional issues 
that commenters raised with respect to the proposed Expenditure 
Metrics. As a result, our rationale for the final rules takes into 
consideration all of the commenter feedback we received on the proposed 
rules.
---------------------------------------------------------------------------

    \1944\ See Proposing Release, sections II.F.2 and 3.
    \1945\ See, e.g., letters from B. Herron (opposing the 1% 
disclosure threshold generally without distinguishing between the 
proposed Financial Impact Metrics and the proposed Expenditure 
Metrics); Moody's (``[W]e therefore suggest the Commission dispense 
with the one-percent rule in favor of a more principles-based 
approach for reporting any financial statement metrics.''); and 
Sens. J. Reed et al. (stating its support for the 1% disclosure 
threshold without distinguishing between the proposed Financial 
Impact Metrics and the proposed Expenditure Metrics).
    \1946\ See supra section II.K.2.b.iv.
---------------------------------------------------------------------------

3. Expenditure Effects
a. Proposed Rules
    The Commission proposed to amend Regulation S-X to require a 
registrant to disclose Expenditure Metrics. As proposed, the 
Expenditure Metrics referred to the positive and negative impacts 
associated with the same severe weather events, other natural 
conditions, transition activities, and identified climate-related risks 
as the proposed Financial Impact Metrics.\1947\ Registrants would have 
been required to separately aggregate the amounts of (i) expenditures 
expensed and (ii) capitalized costs incurred during the fiscal years 
presented.\1948\ For each of those categories, a registrant would have 
been required to disclose separately the amount incurred during the 
fiscal years presented (i) toward positive and negative impacts 
associated with the climate-related events and (ii) toward transition 
activities.\1949\ The proposed rules provided that the registrant could 
also choose to disclose the impact of efforts to pursue climate-related 
opportunities.\1950\ As discussed above, under the proposal, if a 
registrant elected to disclose the impact of an opportunity, it would 
have been required to do so consistently and would have been required 
to follow the same presentation and disclosure threshold requirements 
applicable to the required disclosures of the Expenditure 
Metrics.\1951\ The Proposing Release explained that the amount of 
expenditure disclosed pursuant to the proposed Expenditure Metrics 
would be a portion, if not all, of the registrant's total recorded 
expenditure (expensed or capitalized), as calculated pursuant to the 
accounting principles applicable to the registrant's financial 
statements.\1952\
---------------------------------------------------------------------------

    \1947\ See Proposing Release, section II.F.3.
    \1948\ The Proposing Release explained that these metrics are 
focused on expenditures (spending) incurred in each reported fiscal 
year(s), and it stated that the number of periods of the expenditure 
metrics should correspond to the number of years of income statement 
or cash flow statement presented in the consolidated financial 
statements. See id.
    \1949\ See id.
    \1950\ See id.
    \1951\ See id.
    \1952\ See id. (citing 17 CFR 210.4-01(a)(1) and (2)).
---------------------------------------------------------------------------

    The proposed Expenditure Metrics were subject to the same 
disclosure threshold as the Financial Impact Metrics, which the 
Commission explained would promote comparability, consistency, and 
clarity in determining when information must be disclosed.\1953\ The 
Commission explained in the Proposing Release that for purposes of 
calculating the disclosure thresholds for the Expenditure Metrics, a 
registrant could separately determine the amount of expenditure 
expensed and the amount of expenditure capitalized; however, a 
registrant would have been required to aggregate expenditure related to 
climate-related events and transition activities within the categories 
of expenditure (i.e., amount capitalized and amount expensed).\1954\ 
This approach was designed to better reflect the significance of 
climate-related expenditure compared to a calculation approach that 
allowed for a disclosure threshold to be measured at the individual 
event or activity level, which may result in more limited disclosures.
---------------------------------------------------------------------------

    \1953\ See id.
    \1954\ See id.
---------------------------------------------------------------------------

    The Proposing Release provided examples of how a registrant would 
evaluate and disclose the proposed Expenditure Metrics, including 
examples of contextual information that could require disclosure, such 
as information about the specific climate-related events and transition 
activities that were aggregated for purposes of determining the impacts 
on the capitalized and expensed amounts.\1955\ To provide additional 
clarity, the proposed rules clarified that a registrant may be required 
to disclose the amount of expenditure expensed or capitalized costs, as 
applicable, incurred for the climate-related events to increase the 
resilience of assets or operations, retire or shorten the estimated 
useful lives of impacted assets, relocate assets or operations at risk, 
or otherwise reduce the future impact of severe weather events and 
other natural conditions on business operations.\1956\ The proposed 
rules also clarified that a registrant may be required to disclose the 
amount of expenditure expensed or capitalized costs, as applicable, 
incurred for climate-related transition activities related to research 
and development of new technologies, purchase of assets, 
infrastructure, or products that are intended to reduce GHG emissions, 
increase energy efficiency, offset emissions (purchase of energy 
credits), or improve other resource efficiency.\1957\
---------------------------------------------------------------------------

    \1955\ See id.
    \1956\ See id.
    \1957\ See id.
---------------------------------------------------------------------------

    The Commission stated in the Proposing Release that separate 
disclosure of total expense and total capitalized costs incurred toward 
the climate-related events and transition activities should provide 
important information to help investors make better informed investment 
or voting decisions.\1958\ The Commission pointed out that the 
financial impacts of expenditure typically appear in different places 
within the financial statements (e.g., in an asset line item(s) on the 
balance sheet or in an expense line item(s) in the income statement), 
and therefore the proposed approach, which would require registrants to 
first identify the relevant climate-related

[[Page 21791]]

expenditures and then compile those impacts in one location, was 
intended to address this dispersed presentation.\1959\
---------------------------------------------------------------------------

    \1958\ See id.
    \1959\ See id.
---------------------------------------------------------------------------

b. Comments
    As discussed above, some commenters generally stated that they 
supported the proposed amendments to Regulation S-X, including the 
financial statement disclosures.\1960\ Other commenters specifically 
stated that they supported the proposed Expenditure Metrics.\1961\ As 
previously noted, some of the commenters who supported the proposed 
amendments to Regulation S-X, including the Expenditure Metrics, 
recommended revising certain aspects of the proposal,\1962\ such as the 
one percent disclosure threshold.\1963\
---------------------------------------------------------------------------

    \1960\ See, e.g., letters from A. Cramer, AGs of Cal. et al.; 
Anthesis; Arjuna; Bailard; BC IM Corp.; Bloomberg; Better Markets; 
Church Grp.; Climate Accounting Audit Project; Can. PCPP; CFB; CSB; 
Dana Invest.; D. Higgins; Domini Impact; Ecofin; Educ. Fnd. Amer.; 
H. Huang; IASJ; IMA; Impax Asset Mgmt.; Inherent Grp.; K. Ramanna et 
al.; LSEG; Mercy Invest.; Miller/Howard; MRTI; NY City Comptroller; 
NY SIF; NY St. Comptroller; Parnassus; Prentiss; R. Bentley; R. 
Burke; RMI; Rockefeller Asset Mgmt.; R. Palacios; Seventh Gen.; SKY 
Harbor; Terra Alpha; UAW Retiree; UNCA; United Church; US SIF; and 
Xpansiv.
    \1961\ See, e.g., letters from As You Sow; BMO Global Asset 
Mgmt.; Boston Trust; CalPERS; Carbon Tracker; CEMEX; ERM CVS; ICGN; 
M. Hadick; Morningstar; PRI; Sarasin; SEIA; Sens. J. Reed et al.; S. 
Spears; UCS; and WSP.
    \1962\ See, e.g., letters from AFG; Amer. Academy Actuaries; BC 
IM Corp.; BHP; Calvert; CEMEX; CO PERA; IAA; ISS ESG; Northern 
Trust; PGIM; PwC; TIAA; TotalEnergies; and Trane.
    \1963\ See, e.g., letters from AFG; Amer. Academy Actuaries; BC 
IM Corp.; BHP; Calvert; CEMEX; CO PERA; IAA; ISS ESG; Northern 
Trust; PGIM; PwC; TotalEnergies; and Trane.
---------------------------------------------------------------------------

    Many of the commenters that supported the proposed Expenditure 
Metrics stated that the disclosure requirement would provide useful 
information to investors.\1964\ For example, one commenter stated that 
the proposed Expenditure Metrics would allow investors to gauge whether 
the qualitative discussions included in a registrant's periodic report 
match the substance of the registrant's expenditures.\1965\ Another 
commenter stated that requiring the reporting of expenses associated 
with climate-related events would allow investors to ``better 
understand the overall vulnerability of assets, loss experience, and 
long term investment in asset resiliency or adaptation.'' \1966\ 
Several commenters noted that the proposed Expenditure Metrics would 
help investors understand a registrant's ability to meet stated GHG 
emissions reduction targets or other climate-related targets and 
goals.\1967\ One commenter stated that understanding the quantification 
of costs such as operating and capital expenditures enables it to 
improve its valuation models.\1968\ Another commenter noted favorably 
that the proposed Expenditure Metrics were similar to one of the TCFD's 
seven cross-sector metrics, and that the ISSB's exposure draft 
similarly included language requiring ``the amount of capital 
expenditure, financing, or investment deployed towards climate-related 
risks and opportunities.'' \1969\ A few commenters specifically stated 
that they supported applying the one percent disclosure threshold to 
the proposed Expenditure Metrics.\1970\
---------------------------------------------------------------------------

    \1964\ See, e.g., letters from BMO Global; Boston Trust; 
CalPERS; Carbon Tracker; IAA; ICGN; PRI; Sarasin; SEIA; Sens. J. 
Reed et al.; and WSP.
    \1965\ See letter from CalPERS.
    \1966\ See letter from IAA. See also letter from Boston Trust 
(stating that the proposed Expenditure Metrics would help investors 
assess a registrant's exposure to physical risks and evaluate its 
overall resilience planning).
    \1967\ See letters from BMO Global Asset Mgmt.; NY City 
Comptroller; PRI; Sens. J. Reed et al.; and S. Spears. See also 
letter from M. Hadick (stating that investors need to know if a 
registrant's level and type of capital expenditures is commensurate 
with the registrant's plans).
    \1968\ See letter from Rockefeller Asset Mgmt.
    \1969\ See letter from PRI. The exposure draft preceded the 
final standards adopted by the ISSB in June 2023, i.e., General 
Requirements for Disclosure of Sustainability-related Financial 
Information (IFRS S1) and Climate-related Disclosures (IFRS S2). See 
supra note 150 and accompanying text.
    \1970\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and Sarasin. See also letter from Morningstar 
(``Morningstar recommends applying the same threshold to financial 
impact and expenditure metrics.'').
---------------------------------------------------------------------------

    On the other hand, consistent with the feedback the Commission 
received on the proposed Financial Impact Metrics, and as discussed at 
length above, many of the commenters who provided feedback on the 
proposed Expenditure Metrics did not support the proposed requirements. 
Many commenters generally stated that they did not support the proposed 
amendments to Regulation S-X for the feasibility and other reasons 
described above.\1971\ Other commenters specifically stated that they 
disagreed with the proposed Expenditure Metrics.\1972\ For example, 
some commenters stated that the proposed Expenditure Metrics would be 
time intensive and costly for companies.\1973\ One of these commenters 
stated that registrants ``do not measure capital expenditures by 
climate purpose'' and therefore the proposed disclosures would require 
``the implementation of costly controls and procedures organization 
wide.'' \1974\ Similarly, another commenter stated that many smaller 
issuers use accounting software packages that offer limited expenditure 
tracking functionality and therefore the proposed Expenditure Metrics 
would likely require significant upgrades to cash outflow tracking 
infrastructure.\1975\ Some commenters stated that they opposed the use 
of a one percent disclosure threshold in the context of the Expenditure 
Metrics.\1976\ Other commenters raised concerns about registrants' 
abilities to separately identify the cost of climate risk mitigation 
activities.\1977\ A few commenters stated that the proposed Expenditure 
Metrics would not provide decision-useful information to investors 
because, among other things, the information is unlikely to be 
comparable among registrants.\1978\
---------------------------------------------------------------------------

    \1971\ See, e.g., letters from AAFA; AAR; ACA Connects; AEPC; 
AFEP; AFPA; AHLA; Airlines for America; Alliance Resource; Allstate; 
Alphabet et al.; Amer. Bankers; Amer. Chem.; APCIA; API; Autodesk; 
Barrick Gold; B. Herron; BlackRock; BNP Paribas; BOA; BPI; Brigham; 
Business Roundtable; CA Bankers; Cal. Resources; Can. Bankers; 
Chamber; Chevron; Cleary Gottlieb; Cleco; Cleveland Cliffs; Climate 
Risk Consortia; ConocoPhillips; Corteva; CREFC; CRE Fin. et al.; 
Deutsche Bank; Devon Energy; Dominion Energy; EEI & AGA; Energy 
Infrastructure; Energy Transfer; EPSA; Ernst & Young LLP; Exxon; 
FedEx; Fed. Hermes; Fidelity; G. Farris; GM; Grant Thornton; IC; 
ICI; IIB; IIF; INGAA; IPA; ITIC; JPN Bankers; K. Connor; K. Tubb, 
Heritage Fnd, Linklaters; LTSE; LSTA; Magellan; Mid-Size Bank; 
Moody's; MRC Global; Mtg. Bankers; NAFO; NAM; Nareit; NG; NMA; NMHC 
et al.; NRF; NRP; NYSE SAC; Occidental Petroleum; Petrol. OK; PPL; 
Reinsurance AA; RILA; Royal Gold; Salesforce; Shell; SIA; SMME; Soc. 
Corp. Gov.; SouthState; Southwest Air; State St.; Sullivan Cromwell; 
Tapestry Network; Travelers; TRC; Tucson Electric; Tyson; Vodafone; 
Wells Fargo; Western Midstream; and Williams Cos.
    \1972\ See, e.g., letters from ACLI; AFPM; HDA; HP; IADC; 
McCormick; NIRI; NOV; and Transocean.
    \1973\ See, e.g., letters from BP; Cohn Rez.; HP; IADC; NOV; and 
Transocean.
    \1974\ See letter from HP.
    \1975\ See letter from Cohn Rez.
    \1976\ See, e.g., letters from C2ES; and TotalEnergies.
    \1977\ See, e.g., letters from PGEC; and Unilever.
    \1978\ See, e.g., letters from ACLI; and IADC.
---------------------------------------------------------------------------

    Some commenters asserted that the proposed Financial Impact and 
Expenditure Metrics would require overlapping disclosure.\1979\ These 
commenters generally stated that registrants should only be required to 
disclose the relevant information once.\1980\ One of these commenters 
recommended that the proposed Expenditure Metrics focus on actions 
related to transition plans and the mitigation of physical risks.\1981\ 
On the other hand, one commenter stated that

[[Page 21792]]

the Commission should require both the proposed Financial Impact and 
Expenditure Metrics in the final rules because they provide different 
perspectives and are both decision-useful for investors.\1982\
---------------------------------------------------------------------------

    \1979\ See, e.g., letters from BIO; BHP; Carbon Tracker; Eni 
SpA; KPMG; Morningstar; PGIM; SIA; and TotalEnergies. See also supra 
note 1735 (discussing the overlapping nature of the proposed 
Financial Impact and Expenditure Metrics).
    \1980\ See, e.g., letters from BIO; BHP; Carbon Tracker; Eni 
SpA; KPMG; and TotalEnergies.
    \1981\ See letter from PGIM.
    \1982\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    Some commenters agreed that it would be appropriate to require 
separate disclosure of capitalized costs and expenditures 
expensed.\1983\ One of these commenters explained that capitalized 
costs and expenditures expensed have different effects on the value of 
assets and are recorded separately elsewhere in the financial 
statements.\1984\ Another commenter stated that requiring the 
disclosures of expenditures expensed would be particularly helpful 
because otherwise they may not be subject to the same scrutiny or 
disclosure requirements as capitalized costs.\1985\ Several commenters 
stated that additional examples or guidance would be useful.\1986\
---------------------------------------------------------------------------

    \1983\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Eni SpA; and Morningstar.
    \1984\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \1985\ See letter from Carbon Tracker.
    \1986\ See, e.g., letters from Eni Spa; Morningstar; and 
TotalEnergies.
---------------------------------------------------------------------------

    Some commenters requested clarification regarding the proposed 
Expenditure Metrics. One commenter suggested that the Commission should 
provide an accounting definition of ``expenditures.'' \1987\ Another 
commenter asked the Commission to clarify what it meant by a 
``capitalized cost,'' for example, whether it only includes costs 
associated with purchases of Property, Plant and Equipment (PP&E) or if 
the definition is broader and also includes costs initially recognized 
as a debit on the balance sheet such as prepaid expenses.\1988\ The 
commenter also noted that costs could be both capitalized and expensed 
in the same period, and therefore the rules should address how the 
costs should be presented in that circumstance.\1989\ Similarly, one 
commenter asserted that whether something is identified as an 
expenditure or a capitalized cost would require registrants to make 
subjective judgments that are unlikely to be uniform across 
industries.\1990\ Another commenter warned that a registrant could 
``game'' the rules by classifying costs as expenditures, rather than 
capitalizing the costs, to avoid triggering the disclosure 
threshold.\1991\ Some commenters generally asked the Commission to 
provide additional examples and guidance for calculating the proposed 
Expenditure Metrics.\1992\
---------------------------------------------------------------------------

    \1987\ See letter from TotalEnergies.
    \1988\ See letter from Grant Thornton.
    \1989\ See id.
    \1990\ See letter from Can. Bankers.
    \1991\ See letter from Sarasin.
    \1992\ See, e.g., letters from J. McClellan (seeking 
clarification on expensed or capitalized costs partially incurred 
towards the climate-related events and transition activities); RSM 
US LLP; and Salesforce (seeking clarification around what 
constitutes ``expenditures incurred for climate-related transition 
activities related to research and development of new technologies, 
purchase of assets, infrastructure or products that are intended to 
reduce GHG emissions, increase energy efficiency, offset emissions 
(purchase of energy credits), or improve other resource 
efficiency'').
---------------------------------------------------------------------------

c. Final Rules
i. Scope (Rules 14-02(c) and (d))
    The proposed Expenditure Metrics would have required registrants to 
disclose expenditures expensed and capitalized costs to mitigate the 
risks of severe weather events and other natural conditions and related 
to transition activities.\1993\ After consideration of the comments, we 
are adopting a requirement (Rules 14-02(c) and (d)) to disclose 
expenditures expensed and capitalized costs with a number of changes 
from the proposed rules based on commenter feedback.\1994\ In response 
to the concerns identified by commenters above, we have modified the 
proposed requirements and are adopting final rules that require 
disclosures that significantly reduce the burdens for registrants while 
providing investors with decision-useful information.
---------------------------------------------------------------------------

    \1993\ See Proposing Release, section II.F.3.
    \1994\ See supra note 1720 and accompanying text.
---------------------------------------------------------------------------

    The final rules focus on requiring the disclosure of capitalized 
costs, expenditures expensed, charges, and losses incurred as a result 
of severe weather events and other natural conditions, which is similar 
to certain of the alternatives suggested by commenters.\1995\ Having 
considered the various alternatives presented by commenters, we 
concluded that focusing on the disclosure of discrete expenditures 
related to severe weather events and other natural conditions strikes 
an appropriate balance between providing investors with useful 
information and limiting the burdens on registrants.
---------------------------------------------------------------------------

    \1995\ See supra section II.K.2.b.iv. See also letter from Dell 
(requesting that the ``Commission consider limiting Article 14 of 
Regulation S-X requirements to physical impacts and related 
expenditures only'').
---------------------------------------------------------------------------

    Under the final rules, a registrant must disclose:
    (1) The aggregate amount of expenditures expensed as incurred and 
losses, excluding recoveries, incurred during the fiscal year as a 
result of severe weather events and other natural conditions, and
    (2) The aggregate amount of capitalized costs and charges, 
excluding recoveries, recognized during the fiscal year as a result of 
severe weather events and other natural conditions.\1996\
---------------------------------------------------------------------------

    \1996\ See 17 CFR 210.14-02(c), (d). Under the final rules, 
disclosure must be provided for the registrant's most recently 
completed fiscal year, and to the extent previously disclosed or 
required to be disclosed, for the historical fiscal year(s) included 
in the consolidated financial statements in the filing. See 17 CFR 
210.14-01(d). In addition, foreign private issuers that file 
consolidated financial statements under home country GAAP and 
reconcile to U.S. GAAP, would be required to use U.S. GAAP 
(including the provisions of the final rules) as the basis for 
calculating and disclosing this information. Foreign private issuers 
that file consolidated financial statements under IFRS as issued by 
the IASB, would apply IFRS and the final rules as the basis for 
calculating and disclosing the financial statement effects. See also 
infra note 2380 which discusses proposed amendments to Form 20-F.
---------------------------------------------------------------------------

    The proposed rules would have required registrants to disclose 
costs and expenditures incurred to ``mitigate the risks from severe 
weather events and other natural conditions.'' \1997\ Some commenters 
indicated that it would be feasible, and significantly less burdensome, 
to instead segregate and quantify discrete costs incurred due to severe 
weather events.\1998\ Requiring disclosure of expenditures related to 
mitigation activities would present challenges for registrants in terms 
of forecasting and determining their expectations about future severe 
weather events at the time they are making expenditure decisions. In 
addition, costs and expenditures related to mitigation activities may 
present similar issues to transition activities, which are discussed in 
further detail below, because the mitigation of the risks of severe 
weather events may be only one of several reasons why a company makes a 
business decision to incur a particular expenditure. Therefore, we have 
decided to require registrants to disclose capitalized costs, 
expenditures expensed, charges, and losses incurred ``as a result of'' 
severe weather events and other natural conditions.\1999\ The 
capitalized costs,

[[Page 21793]]

expenditures expensed, charges, and losses that will be disclosed under 
the final rules are already captured in a registrant's income statement 
or balance sheet and measured and reported in accordance with U.S. GAAP 
or IFRS.\2000\ Thus, this approach will be less costly and burdensome 
for registrants as compared to the proposed rules.
---------------------------------------------------------------------------

    \1997\ See Proposing Release, section II.F.3.
    \1998\ See, e.g., letters from Dow (stating that direct costs 
related to property damage and related repair costs as a result of 
extreme weather events on the U.S. Gulf Coast ``can easily be 
segregated, analyzed, and quantified within our current 
processes''); and Nutrien (stating that if there is a fire at one of 
its locations that it can attribute to a severe weather event it 
could ``readily identify costs associated with demolition, clean-up 
and rebuilding of those physical assets for disclosure'').
    \1999\ See 17 CFR 210.14-02(c) and (d). Although the proposed 
Expenditure Metrics only required the disclosure of costs and 
expenditures related to the mitigation of risks from severe weather 
events and other natural conditions, the proposed Financial Impact 
Metrics would have required registrants to disclose costs and 
expenditures incurred as a result of severe weather events and other 
natural conditions because those costs would have constituted line-
item impacts to a registrant's financial statements. Therefore, the 
requirement to disclose costs and expenditures incurred as a result 
of severe weather events and other natural conditions is a subset of 
the information that was included in the proposal.
    \2000\ See, e.g., letter from KPMG (``We recommend that the 
final rule clarify that the required disclosures are indeed a 
disaggregation of amounts already recognized in the financial 
statements.'').
---------------------------------------------------------------------------

    In response to commenter requests for additional clarity,\2001\ we 
are prescribing an attribution principle that registrants must use to 
determine whether a capitalized cost, expenditure expensed, charge, or 
loss is ``as a result of'' a severe weather event or other natural 
condition.\2002\ The attribution principle will also simplify the 
determination of the amount required to be disclosed by eliminating the 
need to allocate portions of costs and expenditures, which will reduce 
compliance costs for registrants.\2003\
---------------------------------------------------------------------------

    \2001\ See supra note 1912 and accompanying text.
    \2002\ The attribution principle is discussed in greater detail 
below in section II.K.3.c.iii. See also 17 CFR 210.14-02(g).
    \2003\ See id. The attribution principle will also apply to 
recoveries, which are discussed in greater detail below in section 
II.K.3.c.iv. See also 17 CFR 210.14-02(f) and (g).
---------------------------------------------------------------------------

    Under the final rules, the requirement to disclose capitalized 
costs, expenditures expensed, charges, and losses incurred as a result 
of severe weather events and other natural conditions remains subject 
to a one percent disclosure threshold; however, we are modifying the 
denominators used for the threshold and adopting de minimis thresholds 
that exempt disclosure of amounts that aggregate to less than $100,000 
in the income statement or less than $500,000 in the balance sheet, as 
explained in greater detail below.\2004\ In addition, under the final 
rules, registrants must separately disclose, as part of the required 
contextual information, any recoveries resulting from severe weather 
events and other natural conditions to reflect the net effect that 
severe weather events and other natural conditions have on a 
registrant's financial statements.\2005\
---------------------------------------------------------------------------

    \2004\ See 17 CFR 210.14-02(b).
    \2005\ See 17 CFR 210.14-02(f). See infra section II.K.6.a.iii 
for further discussion of the requirement to disclose contextual 
information.
---------------------------------------------------------------------------

    As proposed, the Expenditure Metrics would have required 
registrants to disclose separately the aggregate amount of expenditure 
expensed and the aggregate amount of capitalized costs.\2006\ In a 
shift from the proposal, the final rules require registrants to 
separately disclose where on the income statement and balance sheet, as 
applicable, the capitalized costs, expenditures expensed, charges, and 
losses are presented.\2007\ As explained above, significantly fewer 
line items are impacted by the final rules we are adopting than would 
have been impacted by a requirement to disclose the proposed Financial 
Impact Metrics. Only those line items that reflect capitalized costs, 
expenditures expensed, charges, and losses fall within the scope of the 
disclosures, as is further illustrated below in section II.K.3.c.vii. 
For example, we do not expect that gross revenues would be impacted 
under the final rules. In addition, we do not believe that requiring 
registrants to disclose in which line item each of the required 
capitalized costs, expenditures expensed, charges, and losses are 
presented will increase the burden as compared to the proposed 
Expenditure Metrics because the disclosures required under the final 
rules are simply a disaggregation of financial statement line items. 
Requiring registrants to separately disclose in which line item the 
capitalized costs, expenditures expensed, charges, and losses are 
presented will enhance the usefulness of the disclosures for investors 
by allowing them to understand the effects of severe weather events and 
other natural conditions on a registrant's financial position and 
performance. This information will facilitate their analyses and cash 
flow projections year-on-year and across registrants.
---------------------------------------------------------------------------

    \2006\ See Proposing Release, section II.F.3.
    \2007\ See 17 CFR 210.14-02(c), (d), and (e)(1).
---------------------------------------------------------------------------

    The proposed rules would have required registrants to disclose 
expenditures expensed and capitalized costs incurred to reduce GHG 
emissions or otherwise mitigate exposure to transition risks.\2008\ 
With respect to transition activities, many commenters pointed out that 
registrants make business decisions, such as incurring an expenditure 
to purchase a piece of machinery that is more energy efficient, for 
multiple reasons, and as a result, a registrant's transition activities 
may be inextricably intertwined with its ordinary business 
activities.\2009\ Consequently, commenters raised concerns about 
registrants' abilities to identify, attribute, and quantify the impact 
of transition activities on the financial statements.\2010\ In 
addition, requiring disclosure for transition activities would present 
challenges for registrants in terms of forecasting and determining 
their expectations about transition activities at the time they are 
making expenditure decisions. Taking these comments into consideration, 
we have determined not to require registrants to disclose costs and 
expenditures related to general transition activities in the financial 
statements at this time.
---------------------------------------------------------------------------

    \2008\ See Proposing Release, section II.F.3.
    \2009\ See supra note 1892 and accompanying text.
    \2010\ See supra notes 1902 and 1907 and accompanying text.
---------------------------------------------------------------------------

    Although we are not adopting the broader requirement for disclosure 
of transition activities in the financial statements, registrants will 
be required to disclose capitalized costs, expenditures expensed, and 
losses related to the purchase and use of carbon offsets and RECs in 
the financial statements.\2011\ The proposed rules identified the 
amount of expensed or capitalized cost, as applicable, related to 
``offset emissions (purchase of energy credits)'' as one example of the 
disclosures that may be required \2012\ and the purchase and use of 
carbon offsets and RECs is a type of transition activity that does not 
present the definitional or scoping concerns presented by transition 
activities more generally. In addition, carbon offsets and RECs that 
are expensed or capitalized are discrete transactions that are 
currently captured in a registrant's income statement or balance 
sheet.\2013\ Moreover, requiring the disclosure of capitalized costs, 
expenditures expensed, and losses related to the acquisition and use of 
carbon offsets and RECs will complement the disclosures regarding 
carbon offsets and RECs required by the amendments to Regulation S-K 
that we are adopting in this release.\2014\
---------------------------------------------------------------------------

    \2011\ See 17 CFR 210.14-02(e). See also 17 CFR 229.1500(a) and 
(m) (defining ``carbon offsets'' and ``renewable energy credits or 
certificates'').
    \2012\ See Proposing Release, section II.F.3.
    \2013\ There is currently a diversity in practice in accounting 
for carbon offsets and RECs. See infra note 2110.
    \2014\ See supra note 2023.
---------------------------------------------------------------------------

    Furthermore, although the final rules under Article 14 do not 
require registrants to disclose costs and expenditures incurred to 
reduce GHG emissions or otherwise mitigate exposure to transition risks 
in the financial statements, the final rules under subpart 1500 of 
Regulation S-K will require registrants to provide quantitative and 
qualitative disclosure of material expenditures in certain 
circumstances as described in greater

[[Page 21794]]

detail above,\2015\ which should result in the disclosure of some of 
the information for expenditures related to transition activities that 
we would have expected to be disclosed under the proposed rules, albeit 
outside of the financial statements. Requiring the disclosure of these 
expenditures outside of the financial statements and subject to 
materiality rather than a bright-line threshold, among other things, 
should mitigate the compliance burden and related concerns raised by 
commenters with respect to the proposed requirement to disclose 
transition expenditures in the financial statements.\2016\ While we are 
adopting the requirements to disclose expenditures related to 
transition activities outside the financial statements, we remind 
registrants that current accounting standards may require the 
disclosure of material expenditures within the financial 
statements,\2017\ which may include material expenditures incurred in 
furtherance of a registrant's transition activities, depending upon the 
application of these current accounting standards. Current accounting 
standards specify minimum presentation and disclosure requirements. 
Importantly, however, the FASB's Conceptual Framework provides 
additional guidance for evaluating whether financial information is 
representationally faithful. In particular, the Conceptual Framework 
states ``[t]o be a perfectly faithful representation,'' a depiction 
``would be complete, neutral and free from error.'' The Conceptual 
Framework further states, ``[a] complete depiction includes all 
information necessary for a user to understand the phenomenon being 
depicted, including all necessary descriptions and explanations'' 
\2018\ (emphasis added). Accordingly, additional disaggregation and 
disclosure of material expenditures, whether on the face of the primary 
financial statements or in the notes to the financial statements, may 
be needed to meet the objective of the financial reporting as explained 
by the Conceptual Framework.\2019\ For example, a registrant may 
consider whether disaggregating material cash outflows to acquire 
property, plant, and equipment \2020\ purchased to meet the 
registrant's transition plans, targets, or goals on the statement of 
cash flows or in a related note is appropriate to provide complete 
information about the entity's cash flows for the period.
---------------------------------------------------------------------------

    \2015\ See supra sections II.D.2.c (transition plan disclosure) 
and II.G.3.a (targets and goals disclosure).
    \2016\ See supra section II.D.2.c. for additional discussion of 
how these revisions mitigate the compliance burdens.
    \2017\ See, e.g., ASC 230 Statement of Cash flows (requiring 
classification of cash receipts and cash payments as resulting from 
operating, investing, and financing activities); ASC 280 Segments 
(noting that a registrant ``shall disclose both of the following 
about each reportable segment if the specified amounts are included 
in the determination of segment assets reviewed by the chief 
operating decision maker or are otherwise regularly provided to the 
chief operating decision maker, even if not included in the 
determination of segment assets . . . (b) total expenditures for 
additions to long-lived assets . . .'') (ASC 280-10-50-25); and ASC 
730 Research and Development (requiring disclosure of the total 
research and development costs charged to expense in each period for 
which an income statement is presented) (ASC 730-10-50-1).
    \2018\ See FASB, Statement of Financial Accounting Concepts No. 
8--Conceptual Framework for Financial Reporting--Chapter 3, 
Qualitative Characteristics of Useful Financial Information (As 
Amended) (Aug. 2018), para. QC12-QC13.
    \2019\ See FASB, Statement of Financial Accounting Concepts No. 
8--Conceptual Framework for Financial Reporting--Chapter 1, The 
Objective of General Purpose Financial Reporting (As Amended) (Dec. 
2021).
    \2020\ ASC 230-10-45-13.
---------------------------------------------------------------------------

    Under the final rules, registrants are required to disclose the 
aggregate amounts of (1) carbon offsets and RECs expensed, (2) carbon 
offsets and RECs capitalized, and (3) losses incurred on the 
capitalized carbon offsets and RECs during the fiscal year.\2021\ This 
disclosure requirement is not subject to the one percent disclosure 
threshold that applies to the disclosure of severe weather events and 
other natural conditions. Instead, disclosure is required if carbon 
offsets or RECs have been used as a material component of a 
registrant's plan to achieve disclosed climate-related targets or 
goals,\2022\ which is consistent with the requirement to disclose 
information about carbon offsets and RECs included in the amendments to 
Regulation S-K that we are adopting in this release and therefore will 
help limit the burden for registrants and avoid confusion for 
investors.\2023\ In addition, registrants are required to disclose the 
beginning and ending balances of capitalized carbon offsets and RECs on 
the balance sheet for the fiscal year.\2024\ The beginning and ending 
balances are currently existing information in a registrant's balance 
sheet that will provide investors with information to help them 
understand the registrant's activity related to the purchase and use of 
carbon offsets and RECs, further illustrating how a registrant is using 
carbon offsets and RECs as a material component of its plan to achieve 
a target or goal. Registrants are also required to disclose where on 
the income statement or balance sheet the capitalized costs, 
expenditures expensed, and losses related to carbon offsets and RECs 
are presented under the final rules.\2025\
---------------------------------------------------------------------------

    \2021\ See 17 CFR 210.14-02(e).
    \2022\ See 17 CFR 210.14-02(e)(1).
    \2023\ See 17 CFR 229.1504(d) (requiring the disclosure of 
certain information regarding carbon offsets or RECs ``if carbon 
offsets or RECs have been used as a material component of a 
registrant's plan to achieve climate-related targets or goals''). 
See also supra section II.G.3.b.
    \2024\ See 17 CFR 210.14-02(e)(1).
    \2025\ See id.
---------------------------------------------------------------------------

    One commenter stated that the proposed rules would likely require 
many smaller issuers to make significant upgrades to their cash outflow 
tracking infrastructure.\2026\ The commenter identified upgrades that 
would be needed to cash outflow tracking infrastructure to capture the 
costs and investments for each separate risk, transition activity, and 
weather event.\2027\ However, as discussed above, the final rules will 
not require disclosure of the proposed Financial Impact Metrics or 
costs and expenditures related to transition activities in the 
financial statements. Rather, the amendments to Regulation S-X have 
been narrowed to focus on severe weather events and other natural 
conditions and carbon offsets and RECs, which will be less burdensome 
for registrants. Furthermore, the final rules do not require any 
disclosure of the impacts to the statement of cash flows.
---------------------------------------------------------------------------

    \2026\ See supra note 1975 and accompanying text.
    \2027\ See id.
---------------------------------------------------------------------------

    We did not include in the final rules the proposed requirement for 
a registrant to disclose the impact of any climate-related risks 
identified by the registrant pursuant to proposed Item 1502(a) on any 
of the financial metrics included in the proposed rules, including the 
proposed Expenditure Metrics.\2028\ A few commenters sought 
clarification about the scope of this proposed requirement or 
questioned what disclosure objective it was intended to achieve.\2029\ 
Because the final rules we are adopting are more narrowly focused on 
requiring the disclosure of capitalized costs, expenditures expensed, 
charges, and losses incurred as a result of severe weather events and 
other natural conditions, we do not think it would be in keeping with 
this approach to also require a registrant to disclose the impacts from 
any climate-related risks identified by the registrant pursuant to Item 
1502(a).
---------------------------------------------------------------------------

    \2028\ See Proposing Release, section II.F.2.
    \2029\ See, e.g., letters from ABA; Amer. for Fin. Reform, 
Sunrise Project et al.; and Deloitte & Touche. See also letter from 
Travelers (Mar. 10, 2023) (objecting to the proposed requirement for 
a registrant to disclose the impact of any climate-related risks 
identified by the registrant pursuant to proposed Item 1502(a) on 
any of the financial metrics included in the proposed rule).

---------------------------------------------------------------------------

[[Page 21795]]

    We recognize that a number of commenters expressed support for the 
Expenditure Metrics as proposed, including some who stated that the 
proposed requirements would provide investors with important 
information about ``long term investments in asset resiliency'' or 
would help investors understand a registrant's ability to meet its 
climate-related targets and goals.\2030\ Although the final rule is 
more narrow in scope than the proposal, the information elicited by the 
final rules will provide investors with comparable, reliable, and 
decision-useful information about registrants' capitalized costs, 
expenditures expensed, charges, and losses related to severe weather 
events and other natural conditions, which will serve to protect 
investors, while minimizing costs and burdens on registrants.
---------------------------------------------------------------------------

    \2030\ See supra notes 1966 and 1967 and accompanying text.
---------------------------------------------------------------------------

ii. Disclosure Threshold (Rule 14-02(b))
    In the final rules, we are retaining a quantitative disclosure 
threshold for capitalized costs, expenditures expensed, charges, and 
losses incurred as a result of severe weather events and other natural 
conditions.\2031\ Providing a bright-line standard for registrants will 
simplify compliance compared to a more principles-based standard, 
reduce the risk of underreporting such information, and promote 
comparability and consistency among a registrant's filings over time 
and among different registrants.\2032\ Accordingly, the final rules 
require disclosure of:
---------------------------------------------------------------------------

    \2031\ See 17 CFR 210.14-02(b).
    \2032\ See Proposing Release, section II.F.2.
---------------------------------------------------------------------------

    (1) Expenditures expensed as incurred and losses if the aggregate 
amount of such expenditures expensed as incurred and losses equals or 
exceeds one percent of the absolute value of income or loss before 
income tax expense or benefit for the relevant fiscal year; and
    (2) Capitalized costs and charges recognized if the aggregate 
amount of the absolute value of capitalized costs and charges 
recognized equals or exceeds one percent of the absolute value of 
stockholders' equity or deficit, at the end of the relevant fiscal 
year.\2033\
---------------------------------------------------------------------------

    \2033\ See 17 CFR 210.14-02(b).
---------------------------------------------------------------------------

    Such disclosure is not required, however, if the aggregate amount 
of expenditures expensed and losses as incurred in the income statement 
is less than $100,000 for the relevant fiscal year.\2034\ With respect 
to the balance sheet, registrants are not required to provide 
disclosure if the aggregate amount of capitalized costs and charges is 
less than $500,000 for the relevant fiscal year.\2035\
---------------------------------------------------------------------------

    \2034\ See 17 CFR 210.14-02(b)(1).
    \2035\ See 17 CFR 210.14-02(b)(2).
---------------------------------------------------------------------------

    In a shift from the proposal, we are using different denominators 
for the disclosure thresholds. Specifically, the denominators we are 
adopting are: (1) income or loss before income tax expense or benefit, 
and (2) stockholders' equity or deficit.\2036\ Income or loss before 
income tax expense or benefit is a frequently disclosed line item on 
the income statement that provides an accounting-based measure of 
financial performance. Stockholders' equity or deficit is a disclosed 
line item in the balance sheet that reflects stockholders' ownership 
interest in the book value of the registrant and represents the net 
difference between the assets and liabilities of the registrant.
---------------------------------------------------------------------------

    \2036\ See 17 CFR 210.14-02(b).
---------------------------------------------------------------------------

    Although we did not receive commenter feedback specifically 
objecting to the denominators for the proposed Expenditure Metrics 
(i.e., ``total expenditure expensed'' or ``total capitalized costs''), 
we have decided to use these alternative denominators because income or 
loss before income tax expense or benefit and stockholders' equity or 
deficit are well known and understood by registrants and investors and 
are easily calculable based on line items in the financial statements 
that are defined under U.S. GAAP and IFRS.\2037\ These alternative 
denominators are broadly responsive to commenters who raised concerns 
that the proposed rules would be inconsistent with existing GAAP \2038\ 
or would not result in comparable disclosure,\2039\ although neither of 
these concerns was specifically directed at the proposed denominators 
for the disclosure threshold. Since the line items we have chosen for 
the denominators in the final rules are well known and represent 
aggregated financial activity, we expect at least some companies will 
have insight into the expected amount or magnitude of these 
denominators in advance of the end of the fiscal year, which could help 
facilitate the establishment of internal accounting controls related to 
the required disclosure and support the establishment of ICFR and 
accurate and timely disclosure.\2040\ In addition, as mentioned above, 
income or loss before income tax expense or benefit is a measure of 
profitability, and requiring a registrant to disclose expenditures 
expensed and losses incurred as a result of severe weather events and 
other natural conditions will help investors understand the impact 
these events and conditions had on the registrant's profitability. 
Likewise, stockholders' equity or deficit represents shareholders' 
interest in the book value of an entity, and requiring a registrant to 
disclose the capitalized costs and charges incurred as a result of 
severe weather events and other natural conditions will help investors 
understand the impact these events and conditions have on assets 
attributable to shareholders.
---------------------------------------------------------------------------

    \2037\ For example, while some registrants are not explicitly 
required to present income or loss before income tax expense or 
benefit in accordance with 17 CFR 210.5-03.10 in their financial 
statements, U.S. GAAP includes presentation and disclosure 
requirements that result in information sufficient to calculate 
income or loss before income tax expense or benefit, and registrants 
often do present this amount. In addition, while IFRS does not 
explicitly require income or loss before income tax expense or 
benefit, the standards do require disclosure of profit or loss and 
income tax expense.
    \2038\ See supra note 1797 and accompanying text.
    \2039\ See supra note 1793 and accompanying text.
    \2040\ Some commenters raised concerns that registrants would 
not be able to calculate the monetary value for the 1% disclosure 
threshold until the end of the relevant period, which would require 
registrants to evaluate every transaction to determine if it counts 
towards the threshold. See supra note 1814 and accompanying text. 
Our decision to use income or loss before income tax expense or 
benefit and shareholders' equity or deficit as the denominators in 
the final rules should mitigate this concern to some extent for 
registrants because we expect that many registrants will have 
insight into the magnitude of these denominators prior to the end of 
the fiscal year.
---------------------------------------------------------------------------

    The final rules provide that the disclosure thresholds should be 
calculated using the absolute values of the relevant denominator.\2041\ 
We think it is appropriate to use the absolute values because the 
balances for these line items may represent debit or credit balances 
(which are not inherently either positive or negative) in the books and 
records, and thus using an absolute value will avoid any confusion that 
could arise from using a negative number resulting from an accounting 
convention for the disclosure threshold.\2042\
---------------------------------------------------------------------------

    \2041\ See 17 CFR 210.14-02(b).
    \2042\ Other rules in Regulation S-X use absolute values in 
determining whether a threshold has been exceeded. See 17 CFR 210.1-
02(w) (setting forth the income test for determining whether a 
subsidiary is a significant subsidiary).
---------------------------------------------------------------------------

    In addition, the final rules require registrants to use the 
absolute value of capitalized costs and charges recognized for the 
numerator to determine whether the applicable disclosure threshold is 
triggered for the balance sheet disclosures since capitalized costs and 
charges can offset one another.\2043\ Expenditures expensed as incurred 
and losses in the income statement do not offset one another and 
therefore the use of absolute values is unnecessary to

[[Page 21796]]

determine whether the applicable disclosure threshold is triggered. 
Although the proposed Expenditure Metrics did not use absolute values 
in the numerator to determine whether the applicable disclosure 
threshold was triggered,\2044\ the proposed Financial Impact Metrics 
did, and commenter feedback on the use of absolute values in that 
context was varied. A few commenters supported using the absolute 
value, and one investor stated that the absolute value would better 
reflect the significance of the impact on a registrant's financial 
performance and position.\2045\ On the other hand, a few commenters 
objected to using the absolute value and stated it could result in the 
disclosure of individually immaterial information.\2046\ We agree with 
the commenter that stated using the absolute value to determine whether 
the disclosure threshold is triggered will better reflect the 
significance of the impact on a registrant's financial position because 
the absolute value takes into account each of the relevant capitalized 
costs or charges (i.e., the full magnitude of the costs or charges), 
whereas a net amount would not necessarily reflect the total effect on 
the registrant.
---------------------------------------------------------------------------

    \2043\ See 17 CFR 210.14-02(b)(2).
    \2044\ As explained above, the proposed Expenditure Metrics did 
not require the disclosure of charges, and therefore there was no 
potential for offsetting, although charges would have been required 
disclosures under the proposed Financial Impact Metrics. See supra 
note 1732.
    \2045\ See supra note 1856 and accompanying text.
    \2046\ See supra note 1854 and accompanying text.
---------------------------------------------------------------------------

    In a further shift from the proposal, we have included de minimis 
thresholds in the final rules.\2047\ As discussed above, some 
commenters expressed the view that the proposed one percent disclosure 
threshold would place an unreasonable burden on smaller companies 
because it is more likely that the impacts on smaller companies would 
exceed the one percent disclosure threshold.\2048\ In addition, a few 
commenters mentioned a de minimis exception in their letters.\2049\ We 
recognize the possibility that a one percent disclosure threshold could 
be disproportionately burdensome for smaller companies or companies in 
the early stages of developing a product or business line for which one 
percent of income or loss before income tax expense or benefit or 
stockholders' equity or deficit could be a very small amount. In 
addition to smaller companies, we think de minimis thresholds will also 
be helpful for companies that have income or loss before income tax 
expense or benefit near breakeven in a particular year, perhaps due to 
anomalous circumstances. Therefore, we have included in the final rules 
de minimis thresholds of: (1) $100,000 for expenditures expensed as 
incurred and losses in the income statement, and (2) $500,000 for 
capitalized costs and charges recognized on the balance sheet.\2050\ As 
a practical matter, this means that, under the final rules, registrants 
for which one percent of the absolute value of income or loss before 
income tax expense or benefit is less than $100,000 will not have to 
provide disclosure until the aggregate amount of expenditures expensed 
and losses incurred as a result of severe weather events and other 
natural conditions equals or exceeds $100,000.\2051\ Similarly, under 
the final rules, registrants for which one percent of the absolute 
value of stockholders' equity or deficit is less than $500,000 will not 
have to provide disclosure until the absolute value of the aggregate 
amount of capitalized costs and charges incurred as a result of severe 
weather events and other natural conditions equals or exceeds 
$500,000.\2052\ We have decided to use a higher de minimis threshold 
for capitalized costs and charges recognized on the balance sheet 
because generally the disclosure threshold applicable to the balance 
sheet--one percent of the absolute value of stockholders' equity or 
deficit--will result in larger numbers than the disclosure threshold 
applicable to the income statement, and therefore a larger de minimis 
threshold is appropriate and proportionate. Moreover, as noted below in 
section IV, in 2022 the $100,000 de minimis value for the income 
statement would have exceeded one percent of income or loss before 
income tax expense or benefit for approximately 17% of registrants, and 
the $500,000 de minimis value for the balance sheet would have exceeded 
one percent of stockholders' equity or deficit for approximately 24% of 
registrants. Thus, approximately the same number of companies will 
benefit from the de minimis thresholds by using these values.
---------------------------------------------------------------------------

    \2047\ See 17 CFR 210.14-02(b).
    \2048\ See supra note 1823 and accompanying text.
    \2049\ See letter from NAM (``The extreme burden of building new 
processes and systems to track quantitative climate impacts, with no 
materiality threshold or even a de minimis exception for minor 
events or immaterial impacts, would impose colossal costs and strain 
resources at all public companies.''). See also letter from 
Cleveland Cliffs (stating a similar view).
    \2050\ See 17 CFR 210.14-02(b). There is precedent in Regulation 
S-X for using $100,000 as a de minimis threshold. See 17 CFR 210.3-
11 (permitting a registrant to submit unaudited financial statements 
if gross receipts and expenditures are not in excess of $100,000).
    \2051\ See 17 CFR 210.14-02(b)(1). For example, if a registrant 
had $5 million in income or loss before income tax expense or 
benefit for the relevant fiscal year, the registrant's disclosure 
threshold for the income statement would be $50,000 ($5,000,000 x 
.01 = $50,000). Since $50,000 falls below the $100,000 de minimis 
threshold, the registrant would not be required to provide the 
disclosure required by Rule 14-02(b)(1) and (c) until the aggregate 
amount of expenditures expensed as incurred and losses equals or 
exceeds $100,000 (i.e., the de minimis threshold).
    \2052\ See 17 CFR 210.14-02(b)(2). For example, if a registrant 
had $25 million in stockholders' equity or deficit for the relevant 
fiscal year, the registrant's disclosure threshold for the balance 
sheet would be $250,000 ($25,000,000 x .01 = $250,000). Since 
$250,000 falls below the $500,000 de minimis threshold, the 
registrant would not be required to provide the disclosure required 
by Rule 14-02(b)(2) and (d) until the aggregate amount of 
capitalized costs and charges equals or exceeds $500,000 (i.e., the 
de minimis threshold).
---------------------------------------------------------------------------

    While a number of commenters asserted that requiring disclosure at 
a one percent threshold would result in an excessive amount of 
immaterial detail for investors, the changes we have made from the 
proposal address this concern.\2053\ Specifically, the final rules 
require disclosure of specific categories of discrete capitalized 
costs, expenditures expensed, charges, and losses, which in our view is 
unlikely to result in immaterial disclosure. As discussed in greater 
detail below, the final rules also include an attribution principle 
that limits the required disclosure to circumstances where the severe 
weather event or other natural condition was a significant contributing 
factor in incurring the capitalized cost, expenditure expensed, charge, 
or loss.\2054\ The final rules include de minimis thresholds, and the 
denominators used in the final rules--stockholders' equity or deficit 
and income or loss before income tax expense or benefit--are aggregated 
amounts and therefore we expect that in many instances they will result 
in a larger denominator than what was included in the proposal. Given 
the narrower scope of the final rules, the one percent threshold should 
not result in an excessive amount of detail or immaterial disclosure. 
Some commenters also raised concerns that the one percent disclosure 
threshold could confuse investors by giving too much prominence to the 
climate-related disclosures relative to the impacts of other risks 
disclosed in the financial statements or could suggest a level of 
precision that does not exist.\2055\ However, the final rules require 
disclosure of capitalized costs, expenditures expensed, charges, and

[[Page 21797]]

losses that are currently recorded in a registrant's financial 
statements in accordance with GAAP, and therefore the disclosures 
should have the same degree of precision as the other information 
provided in the financial statements. Moreover, the required 
disclosures will be in a note to the financial statements along with 
other disaggregated disclosures addressing a variety of topics, and 
therefore its placement will be on equal footing with other information 
included in such notes.
---------------------------------------------------------------------------

    \2053\ See supra note 1809 and accompanying text.
    \2054\ See 17 CFR 210.14-02(g) and infra Section II.K.3.c.iii.
    \2055\ See supra notes 1810 and 1811 and accompanying text.
---------------------------------------------------------------------------

    Other commenters stated that applying the one percent disclosure 
threshold on a line-item basis could result in only partial disclosure 
of expenditures related to a climate-related event since the impact 
could be recorded in multiple financial statement line items--for which 
the disclosure threshold may not be triggered--which would diminish the 
usefulness of the information to investors.\2056\ Our decision not to 
adopt the proposed Financial Impact Metrics should alleviate this 
concern to a great extent. However, it remains true that, under the 
final rules, the application of the disclosure threshold separately to 
(i) capitalized costs and charges in the balance sheet, and (ii) 
expenditures expensed and losses in the income statement could result 
in a situation where the threshold for only one of the financial 
statements is triggered and certain costs related to a particular 
severe weather event or other natural condition may not be required to 
be disclosed. We acknowledge that in some circumstances this may result 
in investors only receiving a partial picture of the financial 
statement effects of a particular event or condition; however, applying 
the disclosure threshold separately to the income statement and the 
balance sheet will be more straightforward for registrants to implement 
and therefore will help to limit the overall burden of the final rules. 
Moreover, registrants are not prohibited from disclosing how the severe 
weather event or other natural condition affected both the income 
statement and balance sheet, even if the disclosure threshold for one 
of the financial statements is not triggered. One commenter suggested 
that a registrant could ``game'' the rules by classifying costs as 
expenditures, rather than capitalizing costs, to avoid triggering the 
disclosure threshold.\2057\ We think the likelihood of this occurring 
is low because registrants are required to follow GAAP in determining 
whether to expense a cost or capitalize it and these amounts will be 
subject to audit.
---------------------------------------------------------------------------

    \2056\ See supra note 1813.
    \2057\ See supra note 1991.
---------------------------------------------------------------------------

    Certain commenters argued that the Commission should apply a 
different percentage threshold, such as five or ten percent.\2058\ 
Although we considered those options, in light of the other changes we 
are making to the disclosure threshold, such as using an aggregated 
denominator and including a de minimis threshold, we think one percent 
will generally not result in immaterial disclosure nor result in undue 
burdens on registrants. In this regard, we agree with those commenters 
who stated that the appropriate percentage threshold depends upon what 
is used as the denominator.\2059\ For the same reason, we considered, 
but are not adopting, the other alternative disclosure thresholds that 
commenters suggested, such as only using a dollar threshold or 
requiring the disclosure of all relevant expenditures.\2060\
---------------------------------------------------------------------------

    \2058\ See supra notes 1837 and 1838 and accompanying text.
    \2059\ See supra note 1839 and accompanying text.
    \2060\ See supra notes 1846 and 1848 and accompanying text.
---------------------------------------------------------------------------

    Certain commenters stated that the examples provided in the 
Proposing Release of other one percent disclosure thresholds were not 
analogous.\2061\ Generally, these commenters suggested that the 
examples were not analogous, at least in part, because they involved 
amounts that are knowable under current accounting practice and have 
discrete impacts on a smaller number of larger line items (as opposed 
to every line item).\2062\ Although the alignment with other disclosure 
thresholds is not dispositive of whether a threshold elicits 
appropriate disclosure for investors, the final rules' focus on 
requiring the disclosure of amounts that are currently recorded in a 
registrant's financial statements in accordance with GAAP and that 
pertain to a significantly smaller number of line items (as well as the 
revisions made to the denominators for the disclosure thresholds) 
should align the final rules more closely with other instances where 
the Commission has used a one percent or other numerical disclosure 
threshold.\2063\
---------------------------------------------------------------------------

    \2061\ See supra note 1817.
    \2062\ See, e.g., letters from BHP (``Further, while we 
acknowledge that the Commission currently uses a specific 1% 
threshold for certain disclosures, we note that the disclosure 
examples provided by the Commission are generally narrow in scope, 
factual in nature and limited to certain line items in the financial 
statements (for example, the amount of excise taxes included in 
revenue)''); Ernst & Young LLP (``But we note that, unlike the 
climate-related impacts, excise taxes are discrete event charges 
that are easily calculated and tracked in a registrant's accounting 
books and records.''); and IADC (``The Commission argues that a 1% 
quantitative threshold is used in other contexts, but the examples 
the Commission cites are circumstances where the quantitative 
amounts involved are knowable under current accounting practice, 
have discrete impacts on specific financial line items, and address 
scenarios in which more detailed disclosure is appropriate.'').
    \2063\ As noted in the Proposing Release, Regulation S-X (and 
other aspects of the Federal securities laws) includes a variety of 
different percentage thresholds prescribing disaggregated 
disclosure-rather than relying only on principles-based materiality 
thresholds. See, e.g., 17 CFR 210.5-03.1(a) (stating that if the 
total sales and revenues reported under this caption includes excise 
taxes in an amount equal to 1% or more of such total, the amount of 
such excise taxes shall be shown on the face of the statement 
parenthetically or otherwise); 17 CFR 210.5-02.8 (requiring 
registrants to state separately, in the balance sheet or a note 
thereto, any amounts in excess of 5% of total current assets).
---------------------------------------------------------------------------

    We have considered the feedback we received from commenters urging 
the Commission to forgo the one percent disclosure threshold and 
instead require disclosure only if material.\2064\ We agree that the 
concept of materiality plays an important role in the Federal 
securities laws. As such, as discussed above, we have significantly 
modified the scope of the proposed disclosures and the proposed 
disclosure threshold and have included de minimis exceptions to focus 
the final requirements on eliciting material information for investors. 
We are not, however, eliminating the threshold entirely and moving to a 
more principles-based disclosure standard because, as discussed in the 
Proposing Release,\2065\ the proposed quantitative disclosure threshold 
provides registrants with greater clarity in implementing the rules, 
reduces the risk of underreporting, and increases consistency and 
comparability. This approach is consistent with the feedback we 
received from some commenters that expressed concerns about the risks 
of underreporting in the context of the financial statements, as 
evidenced by the limited climate-related disclosure under current 
accounting standards despite increasing demand by investors for such 
disclosure.\2066\
---------------------------------------------------------------------------

    \2064\ See supra note 1827 and accompanying text.
    \2065\ See Proposing Release, section II.F.2.
    \2066\ See supra note 1833. But see, e.g., letter from M. Winden 
(suggesting increased enforcement to the extent underreporting 
exists).
---------------------------------------------------------------------------

    We agree with, and further emphasize, the point made by those 
commenters who asserted that registrants are already required to 
disclose the financial statement effect of material climate risks under 
existing rules.\2067\ Registrants currently have an

[[Page 21798]]

obligation to consider material impacts on the financial statements, 
and the fact that a material impact may be driven by climate-related 
matters does not alter a registrant's obligation.\2068\ The Commission 
and accounting standard-setting bodies and their staff have all 
reminded registrants, through the issuance of guidance, of existing 
accounting and disclosure requirements that may apply to climate-
related matters when there is a material impact on the financial 
statements.\2069\ Although the final rules require registrants to 
disclose certain expenditures if they exceed the one percent disclosure 
threshold, that requirement does not affect registrants' ongoing 
responsibility to consider material impacts, whether climate-related or 
not, when preparing their financial statements and related 
disclosures.\2070\ This may include determining whether costs and 
expenditures that do not trigger the disclosure threshold may be 
material to the registrant, taking into consideration all relevant 
quantitative and qualitative factors.\2071\
---------------------------------------------------------------------------

    \2067\ See supra note 1716 and accompanying text. See also 
letter from CFA Institute (``We would also observe that existing 
U.S. GAAP and IFRS standards--as highlighted in publications by the 
FASB and IASB, as noted by the SEC in the Proposal--require 
consideration of climate-related risks in the measurement of various 
financial statement estimates.'').
    \2068\ For example, although U.S. GAAP and IFRS Accounting 
Standards do not refer explicitly to climate-related matters, 
registrants have an obligation to consider material impacts when 
applying, for example, FASB ASC Topic 330 Inventory (IAS 2 
Inventories) and FASB ASC Topic 360 Property, Plant, and Equipment 
(IAS 36 Impairment of Assets). See also supra note 2069.
    \2069\ See, e.g., 2010 Guidance (stating that ``registrants must 
also consider any financial statement implications of climate change 
issues in accordance with applicable accounting standards, including 
[FASB ASC] Topic 450, Contingencies, and [FASB ASC] Topic 275, Risks 
and Uncertainties.''); FASB Staff Educational Paper, Intersection of 
Environmental, Social, and Governance Matters with Financial 
Accounting Standards (Mar. 2021), available at https://www.fasb.org/Page/ShowPdf?path=FASB_Staff_ESG_Educational_Paper_FINAL.pdf (``When 
applying the financial accounting standards, an entity must consider 
the effects of certain material ESG matters, similar to how an 
entity considers other changes in business and operating environment 
that have a material direct or indirect effect on the financial 
statements and notes thereto.''); IFRS, Effects of climate-related 
matters on financial statements (Nov. 2020 and July 2023), available 
at https://www.ifrs.org/content/dam/ifrs/supporting-implementation/documents/effects-of-climate-related-matters-on-financial-statements.pdf (stating that the IFRS has re-published ``this 
educational material to remind stakeholders of the long-standing 
requirements in IFRS Accounting Standards to report on the effects 
of climate-related matters in the financial statements when those 
effects are material.'').
    \2070\ See id. Notwithstanding the final rules' 1% disclosure 
threshold, registrants have a fundamental obligation not to make 
materially misleading statements or omissions in their disclosures 
and may need to provide such additional information as is necessary 
to keep their disclosures from being misleading. See 17 CFR 230.408 
and 17 CFR 240.12b-20.
    \2071\ See Concept Release (discussing materiality in the 
context of, among other matters, restating financial statements). 
See also Staff Accounting Bulletin No. 99 (Aug. 12, 1999), available 
at https://www.sec.gov/interps/account/sab99.htm (emphasizing that a 
registrant or an auditor may not substitute a percentage threshold 
for a materiality determination that is required by applicable 
accounting principles).
---------------------------------------------------------------------------

iii. Attribution Principle (Rule 14-02(g))
    A number of commenters raised concerns about the ability of 
registrants to isolate, attribute, and quantify expenditures related to 
severe weather events and other natural conditions.\2072\ In response 
to these concerns, we are adopting a principle for attributing a cost, 
expenditure, charge, loss, or recovery to a severe weather event or 
other natural condition and for determining the amount to be disclosed. 
The final rules (Rule 14-02(g)) require a registrant to attribute a 
cost, expenditure, charge, loss, or recovery to a severe weather event 
or other natural condition and disclose the entire amount of the 
expenditure or recovery when the event or condition is a significant 
contributing factor in incurring the cost, expenditure, charge, loss, 
or recovery.\2073\
---------------------------------------------------------------------------

    \2072\ See supra notes 1902 and 1907 and accompanying text.
    \2073\ See 17 CFR 210.14-02(g).
---------------------------------------------------------------------------

    Some commenters suggested that registrants should be permitted to 
make a reasonable estimate and disclose the assumptions that resulted 
in the estimate, or suggested that the Commission did not need to 
prescribe a particular approach to attribution or quantification 
because registrants already have experience allocating costs across 
risks when preparing financial statements.\2074\ Although we considered 
those possibilities, we are adopting ``significant contributing 
factor'' as the attribution principle for the final rules, which was 
recommended by a commenter.\2075\ We think it is appropriate to do so 
for a number of reasons. First, it is important to establish an 
attribution principle because allowing a registrant to apply an entity-
specific methodology may not result in consistent or comparable 
information from one registrant to another which would limit the 
usefulness of the disclosures to investors. Second, the ``significant 
contributing factor'' principle will strike an appropriate balance by 
requiring disclosure when a severe weather event or other natural 
condition was a significant factor resulting in the registrant 
incurring the expenditure or receiving the recovery, while not 
requiring disclosure where a severe weather event or other natural 
condition was only a minor factor, thereby reducing the cost burden on 
registrants. Moreover, many areas of U.S. GAAP currently require a 
registrant to apply the concept of significance (even though U.S. GAAP 
does not define the term ``significant''),\2076\ which should help 
facilitate registrants' use of this attribution principle. Although the 
application of this attribution principle may require the exercise of 
judgment, financial statement preparers are accustomed to applying 
judgment in many circumstances under U.S. GAAP, and, as stated above, 
preparers have experience applying the concept of significance.\2077\ 
Finally, in addition to enhancing consistency and comparability of how 
the disclosures are developed, specifying an attribution and 
quantification principle in the final rules will reduce the burden 
associated with attributing (since there is no allocation involved) and 
quantifying costs and expenditures.
---------------------------------------------------------------------------

    \2074\ See supra notes 1913 and 1921 and accompanying text.
    \2075\ See supra note 1918 and accompanying text.
    \2076\ See, e.g., FASB ASC Topic 280 Segment Reporting, FASB ASC 
323 Equity Method and Joint Ventures, FASB ASC 810 Consolidations, 
and FASB ASC 820 Fair Value Measurement.
    \2077\ To illustrate the application of the attribution 
principle, if a tornado damages the roof of a registrant's factory 
and the registrant incurs costs to repair the damage, the tornado 
would be a significant contributing factor in incurring the costs to 
repair the roof and the registrant would be required to disclose the 
entire cost incurred (if the applicable disclosure threshold is 
triggered), notwithstanding the fact that if the roof had been in 
place for some period of time there could be other factors that 
contributed to the roof's condition after the tornado.
---------------------------------------------------------------------------

iv. Recoveries (Rule 14-02(f))
    In addition, the final rules (Rule 14-02(f)) provide that, if a 
registrant is required to disclose capitalized costs, expenditures 
expensed, charges, or losses incurred as a result of severe weather 
events and other natural conditions, then it must separately disclose 
the aggregate amount of any recoveries recognized during the fiscal 
year as a result of the severe weather events and other natural 
conditions for which capitalized costs, expenditures expensed, charges, 
or losses have been disclosed.\2078\ Registrants would have been 
required to disclose the financial impacts of severe weather events and

[[Page 21799]]

other natural conditions, including the receipt of insurance proceeds, 
as part of the Financial Impact Metrics included in the proposed rules. 
Although we are not adopting the proposed Financial Impact Metrics, 
along the lines of the proposal, the final rules provide that any 
recoveries should be disclosed as part of the contextual information 
required by the rules.\2079\ Several commenters raised concerns about 
the treatment of mitigation efforts, such as insurance, under the 
proposed rules.\2080\ Relatedly, other commenters asserted that 
registrants should not be permitted to use ``net'' amounts to determine 
whether disclosure is required under the rules.\2081\ Having considered 
those comments, we are persuaded that permitting a registrant to use a 
net amount to determine whether capitalized costs, expenditures 
expensed, charges, and losses have exceeded the disclosure threshold 
would be inconsistent with the intent of the rules because the net 
amount could obscure the magnitude of the financial effects of severe 
weather events and other natural conditions experienced by the 
registrant. For example, obtaining insurance is a risk mitigation 
activity that may ultimately result in payment to the registrant for 
costs and expenditures incurred, but it does not mean that the 
financial effects did not occur in the first place. The existence of 
recoveries, such as insurance proceeds, is important information for 
investors because without it, investors could be under the 
misperception that severe weather events and other natural conditions 
have a greater effect on a registrant's operations than is the case. 
Therefore, requiring registrants to disclose whether they have 
recognized any recoveries, such as insurance proceeds, as a result of 
the severe weather events and natural conditions for which capitalized 
costs, expenditures expensed, charges, or losses have been disclosed, 
will provide investors with information that is important to understand 
the financial statement effects of the capitalized costs, expenditures 
expensed, charges, and losses.\2082\ In addition, such disclosure will 
complement other contextual information that may be disclosed by a 
registrant such as a discussion of the composition of the capitalized 
costs, expenditures expensed, charges, or losses.\2083\ Similar to the 
final rules' other disclosure requirements, a registrant will be 
required to identify where the recoveries are presented in the income 
statement and the balance sheet.\2084\
---------------------------------------------------------------------------

    \2078\ See 17 CFR 210.14-02(f). We expect most recoveries to 
consist of insurance proceeds; however, we appreciate that other 
transactions or agreements may result in recovery of amounts as a 
result of severe weather events and other natural conditions, such 
as guarantees or indemnifications, and therefore have not limited 
the disclosure to only insurance proceeds.
    \2079\ See id. See infra section II.K.6.a.iii for further 
discussion of the requirement to disclose contextual information.
    \2080\ See supra note 1858 and accompanying text.
    \2081\ See supra note 1861 and accompanying text.
    \2082\ One commenter appeared to suggest that it would be 
contrary to accounting principles to require registrants to disclose 
costs and expenditures that are not net of insurance proceeds. See 
letter from Prologis. However, the final rules do not prescribe how 
a registrant must account for insurance proceeds in its financial 
statements, and registrants should prepare their financial 
statements in accordance with GAAP. Rather, the final rules require 
a registrant to disaggregate certain costs and expenditures in the 
notes to the financial statements and require a registrant to 
disclose separately whether it has recognized any recoveries, such 
as insurance proceeds, as part of the contextual information that 
must be provided to help investors understand the financial 
statement effect.
    \2083\ See 17 CFR 210.14-02(a).
    \2084\ See 17 CFR 210.14-02(f). Under the final rules it is 
possible that the disclosure threshold could be triggered for a 
registrant's balance sheet, but not its income statement, and vice 
versa, resulting in only partial disclosure of capitalized costs, 
expenditures expensed, charges, and losses related to severe weather 
events and other natural conditions incurred during the fiscal year. 
See supra section II.K.3.c.ii. The final rules require a registrant 
to disclose the aggregate amount of any recoveries recognized during 
the fiscal year as a result of the severe weather events and other 
natural conditions for which capitalized costs, expenditures 
expensed, charges, or losses have been disclosed. See 17 CFR 210.14-
02(f). We acknowledge that in some circumstances this may result in 
a registrant only disclosing a portion of its expenditures 
corresponding to the event or condition that resulted in the 
recovery, which could create the impression that a registrant's 
recoveries for a particular fiscal year exceed its expenditures 
related to severe weather events and other natural conditions. 
However, as explained above, to the extent this is a concern for an 
issuer, there is nothing in the final rules that would prevent a 
registrant from disclosing how the severe weather event or other 
natural condition affected both the income statement and balance 
sheet, even if the disclosure threshold for one of the financial 
statements is not triggered. See supra section II.K.3.c.ii.
---------------------------------------------------------------------------

v. Severe Weather Events and Other Natural Conditions (Rules 14-02(c) 
and (d))
    A number of commenters requested that the Commission provide 
additional guidance to help registrants apply the meaning and scope of 
``severe weather events and other natural conditions.'' \2085\ Some 
commenters pointed out that the proposed amendments to Regulation S-K 
used the phrase ``extreme weather events,'' and that the examples of 
extreme weather events provided in the Proposing Release were 
different, but overlapping, with the examples of severe weather events 
included in the proposed amendments to Regulation S-X.\2086\ In 
response to these comments and to provide greater clarity, the final 
amendments to Regulation S-K and Regulation S-X both use the phrase 
``severe weather events.'' \2087\ In addition, both include the same 
examples; specifically, in a change from the proposal, the examples of 
severe weather events included in the final amendments to Regulation S-
X include hurricanes and tornadoes.\2088\ These revisions are 
consistent with our expectation that there will be significant overlap 
between the severe weather events and other natural conditions a 
registrant identifies for purposes of disclosure under Rule 14-02 and 
the types of physical risks (i.e., acute risks (including severe 
weather events) and chronic risks) a registrant identifies for purposes 
of disclosure under the amendments to Regulation S-K.
---------------------------------------------------------------------------

    \2085\ See supra note 1865 and accompanying text.
    \2086\ See supra note 1866 and accompanying text.
    \2087\ See 17 CFR 229.1500 (defining ``physical risks'' to 
include ``acute risks'' (including severe weather events) and 
``chronic risks''); and 17 CFR 210.14-02 (c), (d), and (h). Although 
we do not believe there was any confusion about this issue, for the 
avoidance of doubt, we are confirming that ``severe'' modifies both 
the weather events and other natural conditions. See 17 CFR 210.14-
02(c), (d), and (h).
    \2088\ See 17 CFR 229.1500; and 17 CFR 210.14-02 (c), (d), and 
(h). The proposed amendments to Regulation S-K included hurricanes, 
floods, tornadoes, and wildfires as examples of ``acute risks'' and 
included sustained higher temperatures, sea level rise, and drought 
as examples of ``chronic risks.'' These remain unchanged in the 
final amendments to Regulation S-K. See 17 CFR 229.1500. As noted 
above, the final amendments to Regulation S-X include hurricanes and 
tornadoes as examples of severe weather events and other natural 
conditions, in addition to the following examples that were included 
in the proposed amendments to Regulation S-X and remain unchanged in 
the final rules: flooding, drought, wildfires, extreme temperatures, 
and sea level rise. We have retained the ``extreme temperatures'' 
terminology in the final amendments to Regulation S-X instead of 
using the ``sustained higher temperatures'' terminology included in 
the final amendments to Regulation S-K because we want to emphasize 
that disclosure under Rule 14-02 is only required if the weather 
event or other natural condition is ``severe.''
---------------------------------------------------------------------------

    However, in response to questions raised by commenters,\2089\ we 
are clarifying that a registrant is not required to make a 
determination that a severe weather event or other natural condition 
was, in fact, caused by climate change in order to trigger the 
disclosure required by Rule 14-02 related to such event or condition. 
Requiring such a determination for severe weather events or other 
natural conditions was not the intent of the proposed amendments to 
Regulation S-X, and it is not required by Rule 14-02.\2090\ In this 
way, although there is

[[Page 21800]]

significant overlap between the disclosure of climate-related physical 
risks pursuant to Regulation S-K and the severe weather events and 
other natural conditions that a registrant identifies pursuant to Rule 
14-02, the events covered by Rule 14-02 would also cover severe weather 
events and other natural conditions that are not necessarily related to 
climate.\2091\
---------------------------------------------------------------------------

    \2089\ See supra note 1873 and accompanying text.
    \2090\ Similarly, a few commenters raised concerns about 
determining the cause of a wildfire, see supra note 1886 and 
accompanying text, but as we have stated, registrants will not be 
required to determine the cause of the severe weather event or 
natural condition for purposes of providing disclosure under Rule 
14-02. The cause of a severe weather event or natural condition is 
irrelevant in determining whether disclosure is required under Rules 
14-01 and 14-02.
    \2091\ For example, the ``natural conditions'' referenced in 
Rule 14-02 need not be climate-related, and therefore may include 
types of non-climate-related occurrences, such as earthquakes, if 
severe and depending on the registrant's particular facts and 
circumstances. See letter from Chamber. In addition to simplifying 
the analysis for registrants, as discussed below, disclosure of 
these non-climate-related severe weather events and other natural 
conditions is consistent with the other event-based disclosure 
reflected in the final amendments to Regulation S-X and will elicit 
material information for investors.
---------------------------------------------------------------------------

    Since Rule 14-02 requires event-based disclosure, the decision not 
to require a registrant to determine whether a severe weather event or 
other natural condition was caused by climate change should simplify 
the analysis that a registrant has to undertake to determine whether 
disclosure is required. We expect that the final rules will elicit 
disclosure appropriately aligned with the corresponding risk-based 
Regulation S-K disclosure without presenting the financial-statement 
specific challenges associated with making a determination about 
whether particular events relate to climate or climate change.
    The list of examples of severe weather events and other natural 
conditions included in Rule 14-02 is not intended to be exclusive or 
exhaustive, nor are the examples intended to create a presumption about 
whether disclosure is required for those events in every 
circumstance.\2092\ Rather, under the final rules, registrants will 
have the flexibility to determine what constitutes a severe weather 
event or other natural condition based on the particular risks faced by 
the registrant, taking into consideration the registrant's geographic 
location, historical experience,\2093\ and the financial impact of the 
event on the registrant, among other factors. We do not agree with 
those commenters who suggested that we should provide a comprehensive 
list of severe weather events, or refer to a list from another source, 
because doing so would be inconsistent with the dynamic nature of these 
events.\2094\ Furthermore, a particular weather event may be ``severe'' 
in one region but not in another region.
---------------------------------------------------------------------------

    \2092\ We believe providing examples of severe weather events 
and other natural conditions will aid in the comparability of the 
resulting disclosure while assisting issuers in making the 
disclosures. See Proposing Release, section II.F.2.
    \2093\ For example, in determining whether high temperatures 
constitute a severe natural condition, a relevant factor may include 
average seasonal temperatures.
    \2094\ See supra notes 1867 and 1870 and accompanying text.
---------------------------------------------------------------------------

    We considered whether the non-exclusive list of examples should be 
expanded to include other types of severe weather events or other 
natural conditions identified by commenters in their comment letters; 
\2095\ however, we designed the list as non-exhaustive and non-
exclusive because we think it is more appropriate to take a flexible 
approach to enable registrants to exercise judgment in identifying 
severe weather events or other natural conditions based on the impacts 
those events have on their financial condition.
---------------------------------------------------------------------------

    \2095\ See, e.g., letters from Anthesis (cyclones, water stress, 
severe participation, and severe wind); Chamber (earthquakes); 
Climate Advisers (deforestation); and WSP (water stress).
---------------------------------------------------------------------------

    Some commenters asserted that allowing registrants to exercise 
judgment about which severe weather events or natural conditions to 
analyze would reduce comparability.\2096\ Although more prescriptive 
requirements can increase comparability, our view is that greater 
flexibility for registrants to determine which severe weather events 
and other natural conditions affect them in light of their particular 
facts and circumstances will yield better disclosures for investors 
compared to a static list of potential events that may or may not be 
relevant to every registrant now and in future years. Additionally, 
requiring registrants to use a prescribed list of events could lead to 
significant gaps in disclosure over time. We expect that the final 
rules will give registrants the flexibility to adopt reasonable 
approaches to identifying severe weather events and other natural 
conditions and adapt to changing circumstances. As a result, the final 
rules provide a level of flexibility that even a regularly updated, 
prescribed list of events would be unable to match--resulting in what 
we believe is appropriate, decision-useful information to investors.
---------------------------------------------------------------------------

    \2096\ See supra note 1872 and accompanying text.
---------------------------------------------------------------------------

    Some commenters raised questions about how to identify the 
beginning and ending dates of severe weather events and how to disclose 
weather events where the impact from the weather event may continue 
into the future.\2097\ We have streamlined the final rules to focus on 
requiring the disclosure of expenditures for specific transactions that 
are recorded in a registrant's books and records during the fiscal 
year, and that are attributable to severe weather events or other 
natural conditions. This more straightforward approach will make it 
clearer when disclosure is required and avoid many of the questions 
raised by commenters in this regard.
---------------------------------------------------------------------------

    \2097\ See supra notes 1881 and 1882 and accompanying text.
---------------------------------------------------------------------------

vi. Carbon Offsets and Renewable Energy Credits (Rule 14-02(e))
    If carbon offsets or RECs have been used as a material component of 
a registrant's plan to achieve its disclosed climate-related targets or 
goals, the final rules (Rule 14-02(e)) require registrants to disclose 
(1) the aggregate amount of carbon offsets and RECs expensed, (2) the 
aggregate amount of capitalized carbon offsets and RECs recognized, and 
(3) the aggregate amount of losses \2098\ incurred on the capitalized 
carbon offsets and RECs, during the fiscal year.\2099\ As explained 
above, although the final rules do not include a requirement for 
registrants to disclose costs and expenditures related to transition 
activities in the financial statements as proposed,\2100\ we think it 
is appropriate to require registrants to disclose costs, expenditures, 
and losses related to one type of transition activity--the acquisition 
\2101\ and use of carbon offsets and RECs--because the acquisition and 
use of carbon offsets and RECs do not present the definitional or 
scoping concerns raised by commenters with respect to transition 
activities generally.\2102\ Significantly, requiring disclosure of 
capitalized costs, expenditures expensed, and losses recognized in the 
notes to the financial statements when carbon offsets or RECs have been 
used as a material component of a registrant's plan to achieve its 
disclosed climate-related targets or goals will complement the 
disclosures required by the amendments to Regulation S-K \2103\ and 
will anchor the

[[Page 21801]]

disclosures required outside the financial statements to those required 
within the financial statements, making a connection which one 
commenter generally described as having ``a focusing effect'' and 
increasing ``the reliability and consistency of both.'' \2104\ Although 
we considered applying the one percent disclosure thresholds applicable 
to severe weather events and other natural conditions to carbon offsets 
and RECs, using the same trigger for disclosure in the amendments to 
Regulation S-K and the amendments to Regulation S-X will provide 
investors with a comprehensive understanding of the registrant's use of 
carbon offsets and RECs, which will help investors evaluate the role of 
these instruments in a registrant's climate-related strategy and help 
them assess the likely financial effects of a disclosed material 
transition risk.\2105\
---------------------------------------------------------------------------

    \2098\ For example, an impairment could result in the 
recognition of a loss on a capitalized carbon offset.
    \2099\ See 17 CFR 210.14-02(e)(1). The final rules do not 
prevent registrants from disclosing additional information about 
other transactions involving their carbon offsets and RECs.
    \2100\ See Proposing Release, section II.F.3. Proposed Rule 14-
02(f), which would have required the disclosure of expenditures 
related to transition activities, provided that a registrant may be 
required to disclose the amount of expense or capitalized cost, as 
applicable related to ``offset emissions (purchase of energy 
credits),'' among other things. See supra note 2012.
    \2101\ Carbon offsets and RECs may be acquired in various ways. 
For example, they may be purchased or granted.
    \2102\ See supra note 1891 and accompanying text.
    \2103\ See 17 CFR 229.1504(d).
    \2104\ See supra note 1718 and accompanying text. This commenter 
was referring generally to the Commission's proposal to amend both 
Regulation S-K and Regulation S-X when it stated its support for 
anchoring disclosures required outside the financial statements to 
disclosures required inside the financial statements and was not 
directly addressing the requirement to disclose expenditure related 
to carbon offsets or RECs. See id. However, this commenter's general 
assertion is equally applicable to the requirements in the final 
rules to disclose certain information about carbon offsets and RECs 
inside and outside the financial statements.
    \2105\ See letter from J. McClellan (stating that a registrant's 
intent to meet its climate-related targets or goals through any 
purchase of offsets or RECs ``is directly connected to climate 
related financial metrics'' and ``[t]here is consensus that 
significant capital expenditures will be required to meet the most 
ambitious targets, and investors will want to understand how a 
registrant is deploying capital against its target.'').
---------------------------------------------------------------------------

    In addition, the final rules require registrants to disclose the 
beginning and ending balances of capitalized carbon offsets and RECs on 
the balance sheet for the fiscal year.\2106\ The beginning and ending 
balances of carbon offsets and RECs are an important data point for 
investors to understand as they assess a registrant's transition risks. 
Specifically, while the disclosure of expenditures related to the 
acquisition and use of carbon offsets and RECs will provide information 
about the registrant's activity throughout the fiscal period, it does 
not provide information about the carbon offsets still available to the 
registrant for use in future periods, which some commenters indicated 
is important information.\2107\ The requirement to provide the 
beginning and ending balances will help provide a more complete picture 
of the financial impact of a registrant's use of carbon offsets and 
RECs as a material component of its plan to achieve a disclosed target 
or goal. While this particular data point was not part of the proposal, 
which would have required disclosure of costs and expenditures related 
to transition activities more generally, the beginning and ending 
balances are currently existing information in a registrant's balance 
sheet and therefore we expect the cost and burdens of disclosing this 
information to be minimal. The final rules also require a registrant to 
disclose where on the balance sheet and income statement these 
capitalized costs, expenditures expensed, and losses are 
presented.\2108\ If a registrant is required to disclose capitalized 
costs, expenditures expensed, and losses related to carbon offsets and 
RECs, the final rules provide that a registrant must also state, as 
part of the contextual information required, the registrant's 
accounting policy for carbon offsets and RECs.\2109\ We understand 
there is currently a diversity in practice in how registrants account 
for carbon offsets and RECs, and therefore an explanation of the 
registrant's accounting policy will help enhance the usefulness and 
comparability of this disclosure for investors.\2110\
---------------------------------------------------------------------------

    \2106\ See 17 CFR 210.14-02(e)(1).
    \2107\ See, e.g., letters from Rockefeller Asset Mgmt. (``It 
would be helpful to understand a company's intended utilization of 
carbon offsets and the corresponding quantification of carbon 
credits that may need to be purchased.''); and Carbon Direct 
(``Accurate and separate disclosure of . . . the procurement and 
retirement of carbon offset credits to attempt to compensate for 
these emissions, are critical for informed investment decisions.'').
    \2108\ See 17 CFR 210.14-02(e)(1).
    \2109\ See 17 CFR 210.14-02(e)(2). See infra section 
II.K.6.a.iii for further discussion of the requirement to disclose 
contextual information.
    \2110\ On Dec. 15, 2021, the FASB Chair added a research project 
to explore accounting for regulatory credits (such as carbon offsets 
and RECs among others). Respondents provided feedback on this 
project indicating that the lack of guidance in GAAP for accounting 
for regulatory credits results in a significant diversity in 
practice. In May 2022, the FASB added a project to its technical 
agenda on regulatory credits (such as carbon offsets and RECs among 
others). See 2021 FASB Agenda Consultation Report, available at 
https://fasb.org/Page/ShowPdf?path=2021%20FASB%20Agenda%20Consultation%20Report.pdf. In 
addition, in July 2022, the IASB added a pollutant pricing 
mechanisms project to their reserve list as a result of its Third 
Agenda Consultation. The project aims to develop specific 
requirements for pollutant pricing mechanisms. See Third Agenda 
Consultation Feedback Statement, available at https://www.ifrs.org/content/dam/ifrs/project/third-agenda-consultation/thirdagenda-feedbackstatement-july2022.pdf.
---------------------------------------------------------------------------

vii. Presentation of Disclosure (Rules 14-02(c) and (d))
    As discussed above, the final rules (Rule 14-02(c) and (d)) require 
disclosure of the amount of (1) capitalized costs and charges on the 
balance sheet, and (2) expenditures expensed as incurred and losses in 
the income statement, during the fiscal year, as a result of severe 
weather events and other natural conditions.\2111\ Under the final 
rules, registrants must separately aggregate the (1) capitalized costs 
and charges on the balance sheet, and (2) expenditures expensed as 
incurred and losses in the income statement to determine whether the 
applicable disclosure threshold is triggered and for purposes of 
disclosure.\2112\ The capitalized costs, expenditures expensed, 
charges, and losses must be segregated between the balance sheet and 
the income statement depending on which financial statement they are 
recorded within upon recognition in accordance with applicable GAAP. 
For each of the balance sheet and income statement disclosures, if the 
applicable disclosure threshold is met, a registrant is required to 
disclose the aggregate amount of expenditures expensed and losses and 
the aggregate amount of capitalized costs and charges incurred during 
the fiscal year and separately identify where on the income statement 
and balance sheet these amounts are presented as illustrated in greater 
detail below.\2113\
---------------------------------------------------------------------------

    \2111\ See 17 CFR 210.14-02(c) and (d).
    \2112\ See 17 CFR 210.14-02(b), (c), and (d). Similarly, the 
proposed Expenditure Metrics would have required a registrant to 
separately aggregate the amount of expenditures expensed and the 
amount of capitalized costs to determine whether the applicable 
disclosure threshold was triggered. See Proposing Release, section 
II.F.3.
    \2113\ See 17 CFR 210.14-02(c) and (d).
---------------------------------------------------------------------------

    With respect to capitalized costs, expenditures expensed, and 
losses related to carbon offsets and RECs, registrants must disclose 
these amounts if carbon offsets or RECs have been used as a material 
component of a registrant's plan to achieve its disclosed climate-
related targets or goals.\2114\ Unlike the disclosures related to 
severe weather events and other natural conditions, a registrant is not 
required to separately determine whether the disclosure threshold is 
triggered for costs, expenditures, and losses that are recorded on the 
balance sheet versus the income statement for disclosures related to 
carbon offsets and RECs.\2115\ If disclosure is required because carbon 
offsets or RECs have been used as a material component of a 
registrant's plan to achieve its disclosed climate-related targets or 
goals, then a registrant must separately disclose the following: (1) 
the aggregate amount of each of the capitalized costs, expenditures 
expensed, and losses related to carbon

[[Page 21802]]

offsets and RECs during the fiscal year; (2) the beginning and ending 
balances of capitalized carbon offsets and RECs on the balance sheet 
for the fiscal year; and (3) where on the balance sheet and the income 
statement the capitalized costs, expenditures expensed, and losses 
related to carbon offsets and RECs are presented, as illustrated in 
greater detail below.\2116\
---------------------------------------------------------------------------

    \2114\ See 17 CFR 210.14-02(e)(1).
    \2115\ See id.
    \2116\ See id.
---------------------------------------------------------------------------

    We are providing the following example to help illustrate the 
operation of the final rules. Assume a registrant (1) capitalized 
$1,200,000 of expenditures related to Severe Weather Event A; (2) 
incurred an impairment charge of $750,000 in the income statement to 
write-off $750,000 of inventory from the balance sheet related to 
Natural Condition B; (3) capitalized $1,000,000 of expenditures to 
replace the inventory written off related to Natural Condition B; (4) 
expensed $2,000,000 of expenditures related to Severe Weather Event C; 
and (5) received $400,000 in insurance recoveries related to Severe 
Weather Event A. The registrant determined that Severe Weather Events A 
and C and Natural Condition B were significant contributing factors in 
incurring the capitalized costs, expenditures expensed, charges, 
losses, and recovery described above. In addition, the registrant used 
carbon offsets and RECs as a material component of its plan to achieve 
a disclosed climate-related target or goal, and it capitalized 
$1,000,000 and expensed $3,000,000 of carbon offsets or RECs during the 
period. The registrant had a beginning balance of capitalized carbon 
offsets or RECs of $2,500,000 and ended the year with $500,000 in 
capitalized carbon offsets or RECs remaining on its balance sheet. The 
registrant would determine whether the financial statement effects as a 
result of severe weather events and other natural conditions would 
trigger the disclosure requirements based on the thresholds, as 
illustrated below:

----------------------------------------------------------------------------------------------------------------
                                     Current fiscal year
                                           balances
                                    (stockholders' equity
                                     from balance sheet,      Severe        Natural        Severe     Percentage
       Expenditure category         income or loss before    weather      condition B     weather       impact
                                    income tax expense or    event A                      event C
                                     benefit from income
                                          statement)
----------------------------------------------------------------------------------------------------------------
Balance Sheet (capitalized costs             $150,000,000   $1,200,000      $1,750,000  ...........         1.97
 and charges).....................
Income Statement (expenditures                 75,000,000  ...........         750,000   $2,000,000         3.67
 expensed as incurred and losses).
----------------------------------------------------------------------------------------------------------------

    In the above example, the expenditures incurred toward Severe 
Weather Event A was $1,200,000 (capitalized on balance sheet), the 
capitalized cost, charge, and loss incurred as a result of Natural 
Condition B was $1,750,000 (charge on balance sheet and loss in income 
statement of $750,00 and capitalized cost of $1,000,000 on the balance 
sheet), and the expenditures incurred toward Severe Weather Event C was 
$2,000,000 (expense in the income statement). The aggregate amount of 
the absolute value of capitalized costs and charges on the balance 
sheet ($2,950,000) exceeded the one percent threshold of stockholders' 
equity, and therefore disclosure would be required for these costs and 
charges. The aggregate amount of expenditures expensed as incurred and 
losses in the income statement ($2,750,000) exceeded the one percent 
threshold of income or loss before income tax expense or benefit, and 
therefore disclosure would be required for the expenses and loss. In 
addition, the registrant used carbon offsets and RECs as a material 
component of its plan to achieve a disclosed climate-related target or 
goal, and therefore disclosure would be required for the carbon offsets 
and RECs. The registrant's resulting disclosure of such costs and 
expenditures may be provided, for example, as illustrated in the 
following table (excluding disclosure of contextual information):
    Note X. Financial statement effects related to severe weather 
events and other natural conditions and carbon offsets and renewable 
energy credits:

----------------------------------------------------------------------------------------------------------------
                                                    Balance sheet                   Income statement
                                             -------------------------------------------------------------------
                  Category                       Year ended Dec. 31,               Year ended Dec. 31,
                                             -------------------------------------------------------------------
                                                  20X2         20X3         20X1         20X2          20X3
----------------------------------------------------------------------------------------------------------------
Severe Weather Events and Other Natural
 Conditions.
Capitalized Costs and Charges:
    Inventory...............................           $-          \a\  ...........  ...........  ..............
                                                              $250,000
    PP&E....................................           $-    1,200,000  ...........  ...........  ..............
Expenditures Expensed as Incurred and
 Losses:
    General & Administrative................  ...........  ...........           $-           $-    $(2,000,000)
    Other Income/(Loss).....................  ...........  ...........           $-           $-       (750,000)
----------------------------------------------------------------------------------------------------------------
\a\ $1,000,000 + ($750,000) = $250,000.

    In this example, the required contextual information may include 
disclosure such as the specific severe weather events, natural 
conditions, and transactions that were aggregated for purposes of 
determining the effects on the balance sheet and income statement 
amounts and, if applicable, policy decisions made by a registrant, such 
as any significant judgments made to determine the amount of 
capitalized costs, expenditures expensed, charges,

[[Page 21803]]

and losses.\2117\ Also, as part of the contextual information, a 
registrant would be required to disclose the $400,000 in insurance 
recoveries recognized in the consolidated financial statements as a 
result of Severe Weather Event A, including identification of where it 
is presented in the income statement or balance sheet.
---------------------------------------------------------------------------

    \2117\ See 17 CFR 210.14-02(a). See infra section II.K.6.a.iii 
for further discussion of the requirement to disclose contextual 
information.

                         Carbon Offsets and RECs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Carbon Offsets and RECs at Jan. 1, 20X3.................      $2,500,000
    Capitalized Carbon Offsets and RECs.................       1,000,000
    Expensed Carbon Offsets and RECs....................     (3,000,000)
                                                         ---------------
Carbon Offsets and RECs at Dec. 31, 20X3................        $500,000
------------------------------------------------------------------------
Carbon offsets and RECs are presented in the Intangible Assets line item
 on the balance sheet and expensed in the General and Administrative
 line item on the income statement.\a\
------------------------------------------------------------------------
\a\ As noted above, there is diversity in practice in accounting for
  carbon offsets and RECs. See supra note 2110 and accompanying text. In
  this example, the entity capitalizes all of its costs of carbon
  offsets and RECs and presents these amounts within the intangible
  assets line item. We are providing this example for illustrative
  purposes only and this is not meant to indicate a preferred method of
  accounting or presentation. Registrants should consider their specific
  facts and circumstances when determining the appropriate accounting
  treatment and disclose their accounting policy in accordance with 17
  CFR 210.14-02(e)(2).

    In this example, the required contextual information would include 
the registrant's accounting policy for the carbon offsets and 
RECs.\2118\
---------------------------------------------------------------------------

    \2118\ See 17 CFR 210.14-02(a) and (e)(2).
---------------------------------------------------------------------------

    Currently, expenditures, costs, charges, losses, and recoveries may 
appear in different places within the financial statements (e.g., in 
one or more asset line items or expense line items on the balance sheet 
or income statement, respectively). The final rules address this 
dispersed presentation by requiring registrants to first identify the 
relevant expenditures, costs, charges, losses, and recoveries and then 
separately disclose where on the balance sheet and income statement 
these costs and expenditures are presented.\2119\ Such an approach 
should provide insight into, and context for understanding, the nature 
of a registrant's business, and provide consistency and comparability 
for users of the financial statements.
---------------------------------------------------------------------------

    \2119\ See 17 CFR 210.14-02(c), (d), (e)(1), and (f).
---------------------------------------------------------------------------

    Similar to the examples of disclosure that were included in the 
proposed rules, the final rules state that a registrant may be required 
to disclose the aggregate amount of expenditures expensed and losses as 
incurred as a result of severe weather events and other natural 
conditions, for example, to restore operations, relocate assets or 
operations affected by the event or condition, retire affected assets, 
repair affected assets, recognize impairment loss of affected assets, 
or otherwise respond to the effect that severe weather events and other 
natural conditions had on business operations.\2120\ The final rules 
also state that a registrant may be required to disclose the aggregate 
amount of capitalized costs and charges incurred as a result of severe 
weather events and other natural conditions, for example, to restore 
operations, retire affected assets, replace or repair affected assets, 
recognize an impairment charge for affected assets, or otherwise 
respond to the effect that severe weather events and other natural 
conditions had on business operations.\2121\
---------------------------------------------------------------------------

    \2120\ See 17 CFR 210.14-02(c). In response to a question raised 
by a commenter, with respect to the capitalized costs, expenditures 
expensed, charges, and losses incurred as a result of severe weather 
events and other natural conditions, we are clarifying that the 
final rules do not require a registrant to disclose both the 
capitalization of expenditures and subsequent expense of 
expenditures in the same period. See supra note 1989. Rather, the 
final rules require the disclosure of expenditures expensed and 
losses ``as incurred.'' See 17 CFR 210.14-02(c). For example, a 
registrant that purchased new machinery to replace machinery that 
was damaged due to a severe weather event would be required to 
disclose the cost to purchase the new machinery (assuming the 
relevant disclosure threshold is met), but the registrant would not 
be required to disclose (or include in the numerator for purposes of 
calculating the disclosure threshold) the subsequent depreciation 
associated with the machinery.
    \2121\ See 17 CFR 210.14-02(d).
---------------------------------------------------------------------------

4. Financial Estimates and Assumptions (Rule 14-02(h))
a. Proposed Rules
    The Commission proposed to require registrants to disclose whether 
the estimates and assumptions used to produce their consolidated 
financial statements were impacted by exposures to risks and 
uncertainties associated with, or known impacts from, severe weather 
events and other natural conditions or any climate-related risks 
identified by the registrant pursuant to Item 1502(a) of Regulation S-
K.\2122\ For such impacts, registrants would have been required to 
provide a qualitative description of how these events impacted the 
development of the estimates and assumptions used in the preparation of 
their financial statements.\2123\
---------------------------------------------------------------------------

    \2122\ See Proposing Release, section II.F.4.
    \2123\ See id.
---------------------------------------------------------------------------

    Like the other proposed financial statement metrics, the proposed 
rules also included a provision that would have required separate 
disclosure focused on transition activities, including identified 
transition risks.\2124\ If the estimates and assumptions the registrant 
used to produce the consolidated financial statements were impacted by 
risks and uncertainties associated with, or known impacts from, a 
potential transition to a lower carbon economy or any climate-related 
targets it disclosed, the registrant would have been required to 
provide a qualitative description of how the development of the 
estimates and assumptions were impacted by such a potential transition 
or the registrant's disclosed climate-related targets.\2125\ If a 
registrant elected to disclose the impact of an opportunity on its 
financial estimate and assumptions, then it would have been required to 
do so consistently and would have been required to follow the same 
applicable presentation and disclosure requirements.\2126\
---------------------------------------------------------------------------

    \2124\ See id.
    \2125\ See id.
    \2126\ See id.
---------------------------------------------------------------------------

    The Commission explained in the Proposing Release that estimates 
and assumptions are currently required for accounting and financial 
reporting purposes (e.g., projected financial information used in 
impairment calculations, estimated loss contingencies, estimated credit 
risks, commodity price assumptions) and expressed its belief that the 
proposed disclosures could provide decision-useful information and 
transparency to investors about the impact of climate-related events 
and transition activities, including disclosed targets and goals, on

[[Page 21804]]

such estimates and assumptions.\2127\ In addition, the Commission 
stated that such disclosure could allow investors to evaluate the 
reasonableness of the registrant's estimates and assumptions, which are 
used to prepare the registrant's financial statements.\2128\ The 
Proposing Release noted that current accounting standards require 
registrants to consider how climate-related matters may intersect with 
and affect the financial statements, including their impact on 
estimates and assumptions. However, the Proposing Release explained 
that the nature of climate-related events and transition activities 
discussed in the proposed rules may manifest over a longer time 
horizon, and therefore targeted disclosure requirements may be 
necessary to elicit decision-useful information for investors in a 
consistent manner.\2129\
---------------------------------------------------------------------------

    \2127\ See id.
    \2128\ See id.
    \2129\ See id.
---------------------------------------------------------------------------

    In addition, the Commission noted in the Proposing Release that 
some registrants have already provided disclosure along the lines of 
the proposed requirements, which the Commission said provided support 
for the feasibility of making such disclosures.\2130\ The Proposing 
Release provided examples of financial statement estimates and 
assumptions that may require disclosure pursuant to the proposed rules, 
such as those related to the estimated salvage value of certain assets, 
estimated useful life of certain assets, projected financial 
information used in impairment calculations, estimated loss 
contingencies, estimated reserves (such as environmental reserves or 
loan loss allowances), estimated credit risks, fair value measurement 
of certain assets, and commodity price assumptions.\2131\
---------------------------------------------------------------------------

    \2130\ See id.
    \2131\ See id.
---------------------------------------------------------------------------

b. Comments
    A number of commenters stated that they supported the proposal to 
require the disclosure of whether and how the estimates and assumptions 
the registrant used to produce the consolidated financial statements 
were impacted by exposures to risks and uncertainties associated with, 
or known impacts from, severe weather events and other natural 
conditions and a potential transition to a lower carbon economy, or any 
climate-related targets disclosed by the registrant.\2132\ Several 
commenters stated that the proposed rules would provide useful 
information for investors.\2133\ For example, one commenter asserted 
that disclosures of registrants' estimates and assumptions are 
``[e]qually if not more important'' than the line item disclosures 
themselves.\2134\ Another commenter stated that requiring the 
disclosure of impacts on estimates and assumptions is necessary because 
for financial risk to be assessed and quantified using financial 
metrics, investors need to understand the degree of uncertainty of 
projections and be able to use that information to alter investment 
choices.\2135\ One commenter stated that it would use disclosures about 
impacts on estimates and assumptions to uncover emerging trends 
affecting the registrant or other companies similarly situated with 
respect to the climate related event.\2136\
---------------------------------------------------------------------------

    \2132\ See, e.g., letters from As You Sow; Bailard; BC IM Corp.; 
Boston Trust; CalPERS; Calvert; Center Amer. Progress; D. Higgins; 
H. Huang; IAA; ICGN; U.S. Reps. Castor et al.; Miller/Howard; NY St. 
Comptroller; PRI; R. Bentley; R. Burke; Rho Impact; Sens. J. Reed et 
al.; SKY Harbor; and UCS.
    \2133\ See, e.g., letters from Calvert; Carbon Tracker; PwC; and 
SKY Harbor.
    \2134\ See letter from Calvert.
    \2135\ See letter from IAA.
    \2136\ See letter from SKY Harbor.
---------------------------------------------------------------------------

    The Commission included a request for comment in the Proposing 
Release asking if it should require disclosure of only significant or 
material estimates and assumptions that were impacted by climate-
related events and transition activities, or whether it should require 
disclosure of only estimates and assumptions that were materially 
impacted by climate-related events and transition activities.\2137\ A 
number of commenters recommended that the Commission only require the 
disclosure of estimates and assumptions that were materially impacted 
by climate-related events.\2138\ On the other hand, a few commenters 
recommended that the Commission only require the disclosure of material 
estimates and assumptions impacted by climate-related events.\2139\ A 
few commenters recommended that the Commission require disclosure of 
material estimates and assumptions that were materially impacted by 
climate-related events.\2140\ At least two commenters more generally 
stated that the proposed estimates and assumptions disclosure should be 
qualified by materiality.\2141\ Some of these commenters asserted that 
if not qualified by materiality, the proposed rules would result in a 
large volume of immaterial information.\2142\ On the other hand, one 
commenter stated that the requirement should not be limited to only 
significant or material estimates and assumptions because it would 
create a risk that registrants would fail to produce decision-useful 
information for investors.\2143\
---------------------------------------------------------------------------

    \2137\ See Proposing Release, section II.F.4.
    \2138\ See, e.g., letters from AAFA; Abrasca; Airlines for 
America; ITIC; KPMG; and Unilever.
    \2139\ See, e.g., letters from C2ES; Eni Spa; and Morningstar.
    \2140\ See, e.g., letters from BIO; and CEMEX. See also letter 
from Carbon Tracker (``In principle, the focus should be on the 
significant accounting estimates and assumptions that would be 
materially impacted by an energy transition (e.g., climate-related 
events and transition activities).'').
    \2141\ See, e.g., letters from SIFMA AMG; and T. Rowe Price. 
Similarly, one commenter suggested that the disclosure of financial 
estimates and assumptions impacted by climate-related opportunities 
should only be required where the opportunities are highly likely to 
occur or a core element of the registrant's strategy, but if the 
opportunity is otherwise uncertain, it should not be factored into 
the estimates or assumptions. See letter from Sarasin.
    \2142\ See, e.g., letters from SIFMA AMG; and T. Rowe Price.
    \2143\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    A few commenters stated that they did not support the proposed 
disclosures of estimates and assumptions.\2144\ For example, some 
commenters pointed out that existing accounting standards already 
require the disclosure of material financial estimates and related 
assumptions, which would include those impacted by climate-related 
risks.\2145\ Another commenter stated that amending Regulation S-X to 
require these disclosures when, in its view, existing standards already 
require this disclosure could lead registrants to include a statement 
in their reports that climate-related events were not considered (if 
they were not a key assumption in calculating estimates), which could 
imply a negative connotation that, in fact, they should have been 
considered.\2146\
---------------------------------------------------------------------------

    \2144\ See, e.g., letters from Carpenter Tech; D. Burton, 
Heritage Fdn.; McCormick; Petrol. OK; Reinsurance AA; and 
TotalEnergies.
    \2145\ See, e.g., letters from AFEP (pointing to IFRS accounting 
standards); TotalEnergies (``[W]e believe existing accounting 
standards already require disclosure of material financial estimates 
and related assumptions.''); and Western Midstream (``The disclosure 
of contingencies and management's assessment of long-lived asset 
impairments are already critical accounting estimates for many 
companies requiring significant judgment and disclosure in the 
financial statements.'').
    \2146\ See letter from Alliance Resource.
---------------------------------------------------------------------------

    Some commenters stated that it would be challenging to provide the 
disclosures,\2147\ or stated that additional guidance was needed.\2148\ 
For example, one commenter stated that without additional guidance it 
would be

[[Page 21805]]

challenging for registrants to develop estimates to isolate the 
relevant exposures.\2149\ Another commenter stated that it would be 
helpful to provide additional guidance about when the disclosures would 
be triggered when there may be more than one contributing factor.\2150\ 
This commenter suggested focusing on changes to estimates and 
assumptions primarily or solely due to climate rather than instances 
when changes ``are inextricably linked to other contributing factors.'' 
\2151\ Another commenter suggested that the Commission should clarify 
that registrants have an existing obligation to disclose climate-
related financial estimates and assumptions and the proposed rule is 
providing guidance on the form and location of the already required 
disclosure.\2152\
---------------------------------------------------------------------------

    \2147\ See, e.g., letters from AAR; and Ernst & Young LLP.
    \2148\ See, e.g., letters from Ernst & Young LLP; and PwC.
    \2149\ See letter from Ernst & Young LLP.
    \2150\ See letter from PwC.
    \2151\ See letter from PwC.
    \2152\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    Some commenters stated that the scope of the proposed disclosures 
should be limited to critical accounting estimates.\2153\ In 
particular, one commenter suggested it would be more meaningful if the 
proposed requirements were included in a registrant's MD&A section of 
its periodic reports along with the other critical accounting 
estimates.\2154\ One commenter stated that the Commission should not 
limit disclosure to whether and how climate-related events and 
transition activities affected critical accounting estimates.\2155\ 
This same commenter also stated that the Commission should not limit 
the disclosures of impacts to financial estimates and assumptions to 
only a subset of risks.\2156\
---------------------------------------------------------------------------

    \2153\ See, e.g., letters from PwC and RSM US LLP. See also Eni 
Spa (``We agree that financial estimates and assumptions impacted by 
climate-related events and transition risks are critical accounting 
estimates and so should fall within the scope of 17 CFR 
229.303(b)(3).''). Critical accounting estimates are those estimates 
made in accordance with generally accepted accounting principles 
that involve a significant level of estimation uncertainty and have 
had or are reasonably likely to have a material impact on the 
financial condition or results of operations of the registrant. See 
17 CFR 229.303(b)(3).
    \2154\ See letter from RSM US LLP.
    \2155\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al. See also letter from Sarasin (``We believe the critical 
accounting estimate disclosure requirement terminology is 
appropriate to capture the need for climate-related disclosures, but 
should not limit the disclosure needed to understand fully how 
climate considerations have been incorporated into the critical 
assumptions and estimates.'').
    \2156\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

    The Commission included a request for comment in the Proposing 
Release asking if, for the proposed financial statement metrics, it 
should require a registrant to disclose material changes in estimates, 
assumptions, or methodology among fiscal years and the reasons for 
those changes, and if so, whether the Commission should require the 
material changes disclosure to occur on a quarterly, or some other, 
basis.\2157\ Some commenters stated that registrants should be required 
to disclose material changes in estimates and assumptions for the 
proposed financial statement metrics.\2158\ A few of these commenters 
noted that current regulations already require disclosure of material 
changes in estimates and assumptions.\2159\ However, some commenters 
asserted that current regulations may not be effectively eliciting this 
disclosure.\2160\ One commenter suggested that the Commission should 
require material changes in estimates and assumptions to be provided on 
a quantitative basis by financial statement caption because the 
information would be useful in showing the variability of key estimates 
and assumptions going forward and their future impact on cash 
flows.\2161\ With respect to timing, one commenter suggested that 
disclosures regarding material changes in estimates and assumptions 
could be made on an annual basis with prior year changes and 
adjustments noted.\2162\ Conversely, one commenter stated that 
registrants should not be required to disclose material changes in 
estimates and assumptions.\2163\ In addition, one commenter asked the 
Commission to clarify that nothing in the proposed rules would create 
an affirmative obligation for a foreign private issuer to provide 
interim updates for any material changes beyond what they would already 
be required to disclose on Form 6-K.\2164\
---------------------------------------------------------------------------

    \2157\ See Proposing Release, section II.F.4.
    \2158\ See, e.g., letters from ERM CVS; Carbon Tracker; Center 
Amer. Progress; CFA Institute; ICGN; Morningstar; and Sarasin.
    \2159\ See, e.g., letters from Carbon Tracker; ICGN; and 
Sarasin.
    \2160\ See, e.g., letters from Carbon Tracker; and Center Amer. 
Progress.
    \2161\ See letter from CFA Institute.
    \2162\ See letter from Carbon Tracker.
    \2163\ See letter from TotalEnergies.
    \2164\ See letter from BHP.
---------------------------------------------------------------------------

c. Final Rules
    We are adopting the proposed requirements (Rule 14-02(h)) for 
registrants to disclose impacts on financial estimates and assumptions 
with some modifications.\2165\ First, the Commission proposed to 
require a registrant to disclose whether the estimates and assumptions 
the registrant used to produce the consolidated financial statements 
were impacted by risks and uncertainties associated with, or known 
impacts from, a potential transition to a lower carbon economy or any 
climate related targets disclosed by the registrant.\2166\ The final 
rules, instead of requiring disclosures related to ``a potential 
transition to a lower carbon economy,'' require registrants to disclose 
financial estimates and assumptions related to a narrower category of 
transition activities, specifically, ``any . . . transition plans 
disclosed by the registrant.'' \2167\ As noted above, commenters, 
including registrants, raised concerns about the scope of transition 
activities and potential difficulties with identifying and quantifying 
their impacts when they overlapped with a registrant's ordinary 
business decisions.\2168\ To reduce the potential burden on 
registrants, we have decided to narrow the scope of transition 
activities covered by this aspect of the final rule to only those 
transition plans disclosed by the registrant.\2169\ Consistent with the 
proposed rules, the final rules also require a registrant to disclose 
whether the estimates and assumptions the registrant used to produce 
the consolidated financial statements were impacted by risks and 
uncertainties associated with, or known impacts from, any climate-
related targets disclosed by the registrant.\2170\
---------------------------------------------------------------------------

    \2165\ See 17 CFR 210.14-02(h).
    \2166\ See Proposing Release, section II.F.4.
    \2167\ See 17 CFR 210.14-02(h).
    \2168\ See supra note 1892 and accompanying text.
    \2169\ See 17 CFR 210.14-02(h).
    \2170\ See id.
---------------------------------------------------------------------------

    Second, consistent with commenters' suggestion,\2171\ we are 
modifying the proposed requirements by adding a materiality qualifier 
in the final rules. The final rules require registrants to disclose 
whether the estimates and assumptions used to prepare the consolidated 
financial statements were materially impacted by exposures to risks and 
uncertainties associated with, or known impacts from, severe weather 
events and other natural conditions, such as hurricanes, 
tornadoes,\2172\ flooding, drought, wildfires, extreme temperatures, 
and sea level rise, or any climate-related targets or transition

[[Page 21806]]

plans disclosed by the registrant.\2173\ If so, then consistent with 
the proposed rules, the final rules require registrants to provide a 
qualitative description of how the development of such estimates and 
assumptions were impacted by the events, conditions, and disclosed 
targets or transition plans identified above.\2174\
---------------------------------------------------------------------------

    \2171\ See supra notes 2138-2141 and accompanying text.
    \2172\ We have added hurricanes and tornadoes to the list of 
severe weather events and other natural conditions included in Rule 
14-02(h) to be consistent with the addition of these two types of 
severe weather events or natural conditions in Rule 14-02(c) and 
(d). See supra section II.K.3.c.v.
    \2173\ See 17 CFR 210.14-02(h). As previously discussed, the 
final rules include similar requirements under subpart 1500 of 
Regulation S-K to disclose material impacts on financial estimates 
and assumptions as a direct result of disclosed actions under a 
transition plan or as a direct result of a disclosed target or goal 
or actions taken to make progress toward meeting the target or goal. 
See 17 CFR 229.1502(e), discussed supra section II.D.2, and 17 CFR 
229.1504(c)(2), discussed supra section II.G.3. When responding to 
these Regulation S-K provisions, a registrant may cross-reference 
from the disclosure provided under 17 CFR 210.14-02(h) to the extent 
such disclosure is responsive to these subpart 1500 provisions.
    \2174\ See 17 CFR 210.14-02(h). For the avoidance of doubt, if 
the registrant's estimates and assumptions were not materially 
impacted by exposures to risks and uncertainties associated with, or 
known impacts from, severe weather events and other natural 
conditions, or any climate-related targets or transition plans 
disclosed by the registrant, then no disclosure is required under 
Rule 14-02(h).
---------------------------------------------------------------------------

    As described above, a number of commenters indicated that if we 
adopted a requirement to disclose impacts on estimates and assumptions, 
then it would be appropriate to include a materiality qualifier in the 
final rules, and those commenters recommended various permutations 
related to the materiality qualifier.\2175\ After considering this 
feedback, we have modified the final rules to focus on estimates and 
assumptions that have been materially impacted because a registrant may 
use numerous inputs and assumptions, including qualitative 
considerations, when developing accounting estimates. Focusing on 
estimates and assumptions that were materially impacted by the events, 
conditions, and disclosed targets and plans will help to reduce 
operational challenges and burdens that could arise if registrants were 
required to assess all impacts when determining the disclosures that 
would be required. We considered whether it would be appropriate to 
instead include two materiality qualifiers and require the disclosure 
of material estimates and assumptions that were materially impacted. 
However, we think that adding a second materiality qualifier is 
unnecessary because the disclosures that would result from the two 
different alternatives would likely be the same. Namely, we think it is 
unlikely that there could be ``material'' impact to an estimate or 
assumption if the estimate or assumption itself was not material to the 
financial statements.\2176\ We also considered whether to require 
disclosure of any impacts to material estimates and assumptions or to 
not include any materiality qualifiers in the final rules, but we think 
the approach we are taking appropriately balances investors' need for 
decision-useful information with a desire to reduce operational 
challenges for registrants.
---------------------------------------------------------------------------

    \2175\ See supra notes 2138-2141 and accompanying text.
    \2176\ See supra note 381 and accompanying text.
---------------------------------------------------------------------------

    We continue to believe that disclosure of whether and how climate-
related events impacted the development of financial estimates and 
assumptions will provide important information to investors. As the 
Commission stated in the Proposing Release, such disclosure will 
provide insight into the impacts described above on the registrant's 
financial statements and will allow investors to assess the 
reasonableness of the registrant's estimates and assumptions.\2177\ 
Among other things, these disclosures will allow investors to evaluate 
material impacts on future cash flows, which will help investors make 
more informed investing decisions. We also agree with those commenters 
that stated disclosure of impacts on financial estimates and 
assumptions would enable investors to evaluate a registrant's 
``physical risk resilience,'' \2178\ or would inform investors ``of the 
scope, likelihood, and magnitude of potential risks as perceived by the 
company'' and enable ``comparative analysis against peers.'' \2179\
---------------------------------------------------------------------------

    \2177\ See Proposing Release, section II.F.4.
    \2178\ See letter from Morningstar.
    \2179\ See letter from BMO Global.
---------------------------------------------------------------------------

    Some commenters stated that they did not support the proposed 
requirement to disclose financial estimates and assumptions because 
existing accounting standards already require the disclosure of this 
information and therefore this additional requirement would be 
unnecessary or could be confusing for investors.\2180\ Although we 
agree with commenters that U.S. GAAP and IFRS require the disclosure of 
material estimates and assumptions in many circumstances,\2181\ 
including significant inputs associated with material estimates and 
assumptions, the final rules will enhance transparency and consistency 
by requiring registrants to disclose how estimates and assumptions are 
materially impacted by severe weather events, natural conditions, and 
disclosed targets and transition plans, which may require more specific 
disclosures in certain situations than is currently required under 
applicable accounting standards.
---------------------------------------------------------------------------

    \2180\ See supra notes 2145 and 2146 and accompanying text.
    \2181\ See supra note 2145.
---------------------------------------------------------------------------

    In addition, although we agree with commenters that the proposed 
requirements share similarities with critical accounting 
estimates,\2182\ we do not think those disclosures obviate the need for 
this requirement because the final rules go further by requiring 
specific disclosure about how estimates and assumptions are materially 
impacted by risks and uncertainties associated with, or known impacts 
from, severe weather events and other natural conditions and any 
climate-related targets or transition plans disclosed by the 
registrant. While critical accounting estimates are often presented 
outside of the financial statements, the disclosure regarding material 
impacts to estimates and assumptions will be located in a single note 
to the financial statements along with the other financial statement 
disclosures we are adopting, which will enhance the usefulness of the 
disclosure to investors. Furthermore, we do not think the required 
disclosure will be confusing to investors. To the contrary, it will 
provide investors with more decision-useful information about the 
estimates and assumptions used to prepare the financial statements than 
is required under applicable accounting standards. Registrants are 
presumably making business decisions and taking actions to achieve 
their disclosed transition plans and targets and these decisions may 
have material impacts on their estimates and assumptions. Providing 
investors with an understanding of these impacts will help them better 
evaluate a registrant's financial position, performance, and future 
cash flows. Other commenters raised concerns about registrants' 
abilities to isolate the relevant impacts when there may be more than 
one contributing factor.\2183\ We expect these concerns to be mitigated 
to some extent by the final rules, which include a materiality 
qualifier and thereby focus management on a narrower category of 
impacts for which management should have greater insight. In addition, 
the final rules require registrants to provide a qualitative 
description of the impacts, which generally is less burdensome to 
produce than if management had to identify a specific amount.
---------------------------------------------------------------------------

    \2182\ See supra notes 2153 and 2154 and accompanying text.
    \2183\ See supra note 2150 and accompanying text.
---------------------------------------------------------------------------

    In addition, we are reiterating a few examples that were included 
in the Proposing Release where severe weather events, natural 
conditions, or a registrant's disclosed targets or transition plans 
could affect a

[[Page 21807]]

registrant's financial estimates and assumptions.\2184\ For example, a 
registrant's climate-related targets and related commitments, such as a 
disclosed commitment to achieve net-zero emissions by 2040, may impact 
certain accounting estimates and assumptions. Also, for example, if a 
registrant disclosed a commitment that would require decommissioning an 
asset by a target year, then the registrant's useful life and salvage 
value estimates used to compute depreciation expense as well as its 
measurement of asset retirement obligation should reflect alignment 
with that commitment. Financial statement estimates and assumptions 
that may require disclosure pursuant to the final rules may include 
those related to the estimated salvage value of certain assets, 
estimated useful life of certain assets, projected financial 
information used in impairment calculations, estimated loss 
contingencies, estimated reserves (such as environmental reserves, 
asset retirement obligations, or loan loss allowances), estimated 
credit risks, fair value measurement of certain assets, and commodity 
price assumptions.
---------------------------------------------------------------------------

    \2184\ See Proposing Release, section II.F.4.
---------------------------------------------------------------------------

    Finally, although we considered whether it would be appropriate to 
require disclosure of material changes in estimates, assumptions, or 
methodology among fiscal years and the reasons for those changes,\2185\ 
at this time we are not including such a requirement in the final 
rules. The narrower scope of the final rules, which is focused on 
discrete transactions that are currently recognized in a registrant's 
financial statements in accordance with GAAP, reduces the need for 
explicit requirements regarding material changes in estimates and 
assumptions underlying the financial disclosures. Current requirements 
under GAAP would continue to apply to material changes in estimates and 
assumptions.\2186\ In addition, in response to the commenter that asked 
for clarification about whether foreign private issuers would have to 
provide interim updates,\2187\ we are clarifying that the final rules 
will not affect existing filing obligations under Form 6-K.
---------------------------------------------------------------------------

    \2185\ See supra note 2157 and accompanying text.
    \2186\ See FASB ASC Topic 250, Accounting Changes and Error 
Corrections and IFRS IAS 8 Accounting Policies, Changes in 
Accounting Estimates and Errors.
    \2187\ See supra note 2164 and accompanying text.
---------------------------------------------------------------------------

5. Opportunities
a. Proposed Rules
    The proposed rules would have permitted a registrant, at its 
option, to disclose the impact of any opportunities arising from severe 
weather events and other natural conditions, any impact of efforts to 
pursue climate-related opportunities associated with transition 
activities, and the impact of any other climate-related opportunities, 
including those identified by the registrant pursuant to proposed Item 
1502(a) of Regulation S-K, on any of the financial statement 
metrics.\2188\ The Proposing Release explained that if a registrant 
makes a policy decision to disclose the impact of a climate-related 
opportunity on the proposed financial statement metrics, it must do so 
consistently (e.g., for each fiscal year presented in the consolidated 
financial statements, for each financial statement line item, for all 
relevant opportunities identified by the registrant) and must follow 
the same presentation and disclosure threshold requirements applicable 
to the required disclosures related to the financial impact metrics and 
expenditure metrics.\2189\
---------------------------------------------------------------------------

    \2188\ See Proposing Release, sections II.F.2, 3, and 4.
    \2189\ See Proposing Release, section II.F.2.
---------------------------------------------------------------------------

b. Comments
    A number of commenters stated that they supported the proposal to 
make the disclosure of climate-related opportunities optional.\2190\ 
Commenters stated that investors would benefit from this information 
about positive impacts,\2191\ including because it is key for investors 
to understand how a company is reducing its climate-related financial 
risks.\2192\ However, a few of these commenters explained that concerns 
about requiring the sharing of sensitive or competitive business 
information weighed in favor of making the proposed disclosure 
optional.\2193\ In addition, some commenters stated that they supported 
the proposal to require the disclosure of opportunities to be made 
consistently.\2194\
---------------------------------------------------------------------------

    \2190\ See, e.g., letters from Anthesis; BC IM Corp.; Bloomberg; 
C2ES; Eni Spa; ERM CVS; ICGN; Miller/Howard; Moody's; NY City 
Comptroller; Reinsurance AA; Sarasin; TotalEnergies; and T. 
Peterson.
    \2191\ See, e.g., letters from Anthesis; C2ES; and Mazars.
    \2192\ See letter from C2ES.
    \2193\ See, e.g., letters from Anthesis; C2ES; and Reinsurance 
AA.
    \2194\ See, e.g., letters from ICGN; RSM US LLP; and Sarasin.
---------------------------------------------------------------------------

    One commenter asserted that the disclosure of opportunities in the 
financial statements should be limited to amounts that can be 
objectively verified and reliably quantified.\2195\ Similarly, another 
commenter stated it should be limited to ``virtually certain 
opportunities'' to avoid misleading investors.\2196\ A few commenters 
expressed concerns about potential greenwashing related to the 
disclosure of opportunities.\2197\ However, one commenter explained 
that, although there is a risk that the disclosure of opportunities 
could lead to greenwashing, by including the information in a filing 
with the Commission, registrants would be subject to liability and 
would be required to disclose their assumptions and 
methodologies.\2198\
---------------------------------------------------------------------------

    \2195\ See letter from PwC.
    \2196\ See letter from CEMEX.
    \2197\ See, e.g., letters from Bloomberg; D. Higgins; R. 
Bentley; and R. Burke.
    \2198\ See letter from Anthesis.
---------------------------------------------------------------------------

    Other commenters stated that the disclosure of opportunities should 
not be permitted in the audited financial statements.\2199\ For 
example, one commenter explained that opportunities should not be 
disclosed in the financial statements because opportunities appear to 
be forward-looking and speculative and may be subject to management 
bias.\2200\ Some commenters stated that it may be difficult to develop 
internal controls for the disclosure of opportunities \2201\ or that 
opportunities may be complex to audit.\2202\ A few commenters suggested 
that registrants could address opportunities in the MD&A section of 
their periodic reports.\2203\
---------------------------------------------------------------------------

    \2199\ See, e.g., letters from McCormick; and Nutrien.
    \2200\ See letter from Nutrien.
    \2201\ See, e.g., letters from CEMEX; and Nutrien.
    \2202\ See, e.g., letters from CEMEX; and RSM US LLP.
    \2203\ See, e.g., letters from Eni Spa; Mazars (recommending 
that opportunities would be discussed in the financial statements 
and in MD&A); and RSM US LLP.
---------------------------------------------------------------------------

    Some commenters stated that they would support the Commission 
mandating the disclosure of opportunities.\2204\ One of these 
commenters stated that mandated disclosure of opportunities would 
facilitate an understanding of the strategic or competitive advantages 
a company may have in terms of furthering physical risk 
resilience.\2205\ Another commenter expressed support for mandatory 
disclosure of climate-related opportunities except when such 
opportunities are unrelated to the registrant's core or existing lines 
of

[[Page 21808]]

business.\2206\ Relatedly, one commenter requested that the Commission 
clarify that the disclosure of opportunities is optional because the 
interaction between proposed rules 14-02(b) and (j) could give the 
impression that disclosure of opportunities is required if the impact 
is greater than one percent.\2207\
---------------------------------------------------------------------------

    \2204\ See, e.g., letters from BHP; Morningstar; and We Mean 
Business.
    \2205\ See letter from Morningstar.
    \2206\ See letter from We Mean Business.
    \2207\ See letter from Deloitte & Touche.
---------------------------------------------------------------------------

    A few commenters recommended revisions or clarifications to the 
definition of opportunities. For example, one commenter pointed out 
that financial statements typically include backward-looking financial 
results and therefore the use of the term opportunities in the 
financial statements should be clarified.\2208\ Another commenter 
asserted that the definition of ``climate-related opportunities'' 
provided in proposed Item 1500(b) is confusing when applied to the 
disclosure of opportunities in the financial statements, which would be 
made on a line item basis, because the definition refers to the actual 
or potential positive impacts of climate-related conditions and events 
on a registrant's consolidated financial statements ``as a whole.'' 
\2209\ Other commenters suggested that the definition of climate-
related opportunities should be revised to include activities in the 
forestry and forest products sector \2210\ and the positive impacts of 
a company's competitive positioning, brand strength, and 
reputation.\2211\ One commenter asserted that the disclosure of 
opportunities should not impact the reporting relevant for the 
disclosure thresholds because it could potentially discourage companies 
from disclosing impacts from opportunities and triggering the 
threshold.\2212\ One commenter requested that the Commission provide 
additional guidance around the definition of climate-related 
opportunities.\2213\
---------------------------------------------------------------------------

    \2208\ See letter from CFA Institute.
    \2209\ See letter from Chamber.
    \2210\ See letter from NAFO.
    \2211\ See letter from Moody's.
    \2212\ See letter from Morningstar.
    \2213\ See letter from PwC.
---------------------------------------------------------------------------

c. Final Rules
    In light of the changes to other aspects of the final rules, we 
have decided not to adopt the proposed rules related to the disclosure 
of opportunities. First, as discussed above, we have decided not to 
adopt: (1) the proposed Financial Impact Metrics,\2214\ (2) the 
proposed requirement to disclose costs and expenditures related to 
general transition activities in the financial statements (e.g., a 
portion of the proposed Expenditure Metrics), and (3) the proposed 
requirement to disclose the impacts of any climate-related risks 
identified pursuant to proposed Item 1502(a) of Regulation S-K. The 
proposed rules would have permitted a registrant to disclose the impact 
of any opportunities with respect to each of these disclosure 
items.\2215\ Because these disclosure items will not be included in the 
final rules, there is no reason to adopt final requirements regarding 
the disclosure of opportunities with respect to these items.
---------------------------------------------------------------------------

    \2214\ See supra note 1735 for an explanation regarding the 
overlap between the proposed Financial Impact Metrics and the 
proposed Expenditure Metrics.
    \2215\ See Proposing Release, sections II.F.2, 3, and 4.
---------------------------------------------------------------------------

    Second, as discussed above in section K.3.c, in a modification from 
the proposed rules, the final rules require the disclosure of 
capitalized costs, expenditures expensed, charges, and losses incurred 
as a result of severe weather events.\2216\ Unlike the proposed rules, 
the final rules do not make a distinction between ``risks'' and 
``opportunities'' in the financial statement disclosure requirements. 
Therefore, we do not think it is necessary to retain a provision 
related to the disclosure of opportunities. To the extent that a 
registrant incurs costs and expenditures as a result of a severe 
weather event (applying the final rules' attribution principle), the 
registrant would be required to disclose these costs and expenditures 
under the final rules regardless of the reason for the expenditure 
(assuming the disclosure threshold is met). However, we do not expect 
that registrants will commonly incur costs, expenditures, charges, and 
losses as a result of severe weather events or other natural conditions 
in furtherance of an opportunity. In this regard, our expectation is 
consistent with the Proposing Release, which did not provide any 
examples of opportunities associated with severe weather events and 
other natural conditions in the discussion of the proposed Expenditure 
Metrics.\2217\ To the extent that a registrant identifies a cost or 
expenditure incurred as a result of severe weather events or other 
natural conditions that it believes was incurred in furtherance of an 
opportunity, disclosure of the cost or expenditure would be required 
(assuming the other requirements of the final rules are satisfied) as 
explained above. However, the registrant would not be required to 
identify any costs or expenditures disclosed under Article 14 as 
related to an ``opportunity'' as explained in greater detail 
below.\2218\
---------------------------------------------------------------------------

    \2216\ See 17 CFR 210.14-02(c) and (d). The proposed rules would 
have required the disclosure of costs and expenditures to ``mitigate 
the risks from severe weather events and other natural conditions.'' 
See Proposing Release, section II.F.3.
    \2217\ See Proposing Release, section II.F.3 (stating, in the 
discussion of the proposed Expenditure Metrics, that a registrant 
may choose to disclose the impact of efforts to pursue climate-
related opportunities associated with transition activities but 
remaining silent with respect to opportunities for costs and 
expenditures related to severe weather events and other natural 
conditions).
    \2218\ The same analysis applies to opportunities related to 
carbon offsets and RECs. The requirement in the final rules to 
disclose capitalized costs, expenditures expensed, and losses 
related to carbon offsets and RECs was not included in the proposed 
rules because the proposed rules required the disclosure of costs 
and expenditures related to transition risks more generally, and 
therefore the proposed rules did not separately address 
opportunities related to carbon offsets and RECs. Under the final 
rules, a registrant is required to disclose capitalized costs, 
expenditures expensed, and losses related to carbon offsets and RECs 
regardless of the reason for the expenditure (assuming the 
disclosure threshold is met) for the same reasons as discussed in 
this paragraph with respect to severe weather events. See 17 CFR 
210.14-02(e).
---------------------------------------------------------------------------

    The same analysis applies to opportunities related to carbon 
offsets and RECs. The requirement in the final rules to disclose 
capitalized costs, expenditures expensed, and losses related to carbon 
offsets and RECs was not included in the proposed rules because the 
proposed rules required the disclosure of costs and expenditures 
related to transition risks more generally, and therefore the proposed 
rules did not separately address opportunities related to carbon 
offsets and RECs. Under the final rules, a registrant is required to 
disclose capitalized costs, expenditures expensed, and losses related 
to carbon offsets and RECs regardless of the reason for the expenditure 
(assuming the disclosure threshold is met) for the same reasons as 
discussed in the previous paragraph with respect to severe weather 
events. We expect that registrants will most commonly incur costs, 
expenditures, and losses in connection with the acquisition and use of 
carbon offsets and RECs as part of a strategy to mitigate transition 
risk as opposed to in furtherance of an opportunity. However, to the 
extent that a registrant incurs such costs, expenditures, and losses in 
furtherance of an opportunity, the registrant would not be required to 
identify any amounts disclosed under the final rules as related to an 
``opportunity'' as explained in greater detail below.
    Third, as discussed above in section K.4, we are adopting Rule 14-
02(h),

[[Page 21809]]

which we have modified from the proposal, to require registrants to 
disclose whether the estimates and assumptions the registrant used to 
produce the consolidated financial statements were materially impacted 
by exposures to risks and uncertainties associated with, or known 
impacts from, severe weather events and other natural conditions or any 
climate-related targets or transition plans disclosed by the 
registrant.\2219\ After further consideration, we believe that 
including a provision regarding the disclosure of the impact of 
opportunities on the financial estimates and assumptions is also 
unnecessary. That is because Rule 14-02(h) requires a registrant to 
disclose the ``known impacts'' on its financial estimates and 
assumptions and ``impacts'' is not limited to negative impacts.\2220\ 
Nor does ``known impacts'' draw a distinction between the impacts 
resulting from ``risks'' or ``opportunities.'' In other words, to the 
extent that a registrant's financial estimates and assumptions are 
materially impacted by severe weather events or other natural 
conditions or disclosed targets or transition plans, the registrant 
would be required to disclose this material impact under the final 
rules regardless of the reason for the impact.\2221\ Therefore, we are 
not adopting the proposed rules related to the voluntary disclosure in 
the financial statements of the impact of any opportunities related to 
financial estimates and assumptions.
---------------------------------------------------------------------------

    \2219\ See 17 CFR 210.14-02(h).
    \2220\ See id.
    \2221\ See id.
---------------------------------------------------------------------------

    The approach we are taking in the final rules will mitigate many of 
the concerns that commenters raised about the disclosure of 
opportunities, while still providing investors with decision-useful 
information about a registrant's capitalized costs, expenditures 
expensed, charges, losses, and material impacts to estimates and 
assumptions. As discussed above, the final rules do not distinguish 
between ``risks'' and ``opportunities'' in requiring the disclosure of 
capitalized costs, expenditures expensed, charges, losses, and material 
impacts to estimates and assumptions, and registrants will not be 
required to identify any amounts disclosed under the final rules as 
related to a ``risk'' or ``opportunity.'' Furthermore, any capitalized 
costs, expenditures expensed, charges, losses, and material impacts to 
financial estimates and assumptions required to be disclosed under the 
final rules are limited to those that a registrant has actually 
incurred and recorded in its books and records. These aspects of the 
final rules should alleviate commenters' concerns about the potential 
for greenwashing,\2222\ issues regarding auditability,\2223\ and 
concerns that registrants could be required to disclose sensitive or 
competitive business information related to opportunities.\2224\ 
Similarly, commenters' concerns about the definition of 
``opportunities'' as applied to the financial statement disclosures 
\2225\ are rendered moot because, as explained above, the final rules 
will not require registrants to identify particular capitalized costs, 
expenditures expensed, charges, losses, or material impacts to 
estimates and assumptions as derived from an opportunity, and 
furthermore the final rules no longer include a definition of 
opportunities.\2226\
---------------------------------------------------------------------------

    \2222\ See supra note 2197 and accompanying text.
    \2223\ See supra note 2202 and accompanying text.
    \2224\ See supra note 2193 and accompanying text.
    \2225\ See supra note 2208 and accompanying text.
    \2226\ See supra section II.C.1.c.
---------------------------------------------------------------------------

6. Financial Statement Disclosure Requirements
a. Contextual Information (Rule 14-02(a)) and Basis of Calculation 
(Rule 14-01(c))
i. Proposed Rules
    In the Proposing Release, the Commission explained that because the 
proposed financial statement metrics would involve estimation 
uncertainties driven by the application of judgments and assumptions, 
similar to other financial statement disclosures, registrants would be 
required to disclose contextual information to enable a reader to 
understand how it derived the financial statement metrics, including a 
description of significant inputs and assumptions used, and if 
applicable, policy decisions made by the registrant to calculate the 
metrics.\2227\
---------------------------------------------------------------------------

    \2227\ See Proposing Release, section II.F.1. In the Proposing 
Release, the Commission explained that inputs and assumptions may 
include the estimation methodology used to disaggregate the amount 
of impact on the financial statements between the climate-related 
events and activities and other factors. The Proposing Release also 
stated that policy decisions may include a registrant's election to 
disclose the impacts from climate-related opportunities. See 
Proposing Release, section II.F.1.
---------------------------------------------------------------------------

    To avoid potential confusion, maintain consistency with the rest of 
the financial statements, and to aid comparability, the Commission 
proposed that registrants would be required to calculate the financial 
statement metrics using financial information that is consistent with 
the scope of the rest of the registrant's consolidated financial 
statements included in the filing.\2228\ Therefore, registrants would 
have to include in any such calculation financial information from 
subsidiaries.\2229\
---------------------------------------------------------------------------

    \2228\ See id.
    \2229\ See id. (citing 17 CFR 210.3-01(a) (``There shall be 
filed, for the registrant and its subsidiaries consolidated, audited 
balance sheets as of the end of each of the two most recent fiscal 
years.'')).
---------------------------------------------------------------------------

    The Commission also proposed basis of calculation requirements 
providing that a registrant would be required to apply the same set of 
accounting principles that it is required to apply in preparation of 
the rest of its consolidated financial statements included in the 
filing, whenever applicable.\2230\
---------------------------------------------------------------------------

    \2230\ See id. 17 CFR 210.4-01(a)(1) states that financial 
statements filed with the Commission that are not prepared in 
accordance with GAAP will be presumed misleading or inaccurate 
unless the Commission has otherwise provided. The Commission stated 
in the Proposing Release that, for the avoidance of doubt, it was 
clarifying the application of this concept to the proposed rules by 
requiring a registrant to apply the same set of accounting 
principles that it is required to apply in the preparation of the 
rest of its consolidated financial statements included in the 
filing, whenever applicable. See Proposing Release, section II.F.1 
(citing 17 CFR 210.4-01(a)(2) (discussing the application of U.S. 
GAAP, IFRS, and the use of other comprehensive sets of accounting 
principles (with reconciliation to U.S. GAAP))).
---------------------------------------------------------------------------

ii. Comments
    Many of the commenters that specifically addressed the proposed 
requirement to provide contextual information supported it.\2231\ 
Commenters who supported the proposal generally stated that contextual 
information would provide important information to investors and would 
help them understand the financial statement disclosures.\2232\ One 
commenter stated that the requirement to provide contextual information 
would make comparisons easier across registrants.\2233\ Another 
commenter confirmed that it would use contextual information in 
evaluating a registrant's securities.\2234\
---------------------------------------------------------------------------

    \2231\ See, e.g., letters from CalPERS; CEMEX; CFA Institute; E. 
Ocampo; ICGN; KPMG; Mazars; Morningstar; PwC; Sarasin; SKY Harbor; 
and TotalEnergies.
    \2232\ See, e.g., letters from Mazars; PwC; and SKY Harbor.
    \2233\ See letter from Amer. For Fin. Reform, Evergreen Action, 
et al.
    \2234\ See letter from SKY Harbor.
---------------------------------------------------------------------------

    A few commenters specifically disagreed with the proposal to 
require contextual information.\2235\ One commenter expressed concern 
that a registrant would be required to make many assumptions and policy 
decisions in order to disclose contextual information and asserted that 
the proposed requirement could result in inconsistent and incomparable 
information that is not useful for

[[Page 21810]]

investors.\2236\ Another commenter stated that the Proposing Release 
does not provide any guidance on the necessary level of detail required 
for contextual information and that contextual information will not 
help registrants distinguish between climate and non-climate related 
activities or help registrants determine how to allocate impacts to 
particular line items.\2237\ One commenter stated that while it 
supported the need for transparency in definitions and methodologies 
used, it believed it would be possible to simplify the requirement to 
provide contextual information, in particular, by making the 
information required in the audited financial statements less 
prescriptive.\2238\ Finally, in the Proposing Release, the Commission 
requested comment on whether providing additional examples or guidance 
would assist registrants in disclosing contextual information. 
Commenters had different views on whether additional examples or 
guidance would be helpful, but generally did not provide the Commission 
with any specific recommendations.\2239\
---------------------------------------------------------------------------

    \2235\ See, e.g., letters Corteva; and Energy Transfer.
    \2236\ See letter from Energy Transfer.
    \2237\ See letter from Chamber.
    \2238\ See letter from BNP Paribas.
    \2239\ See, e.g., letters from CFA Institute; E. Ocampo; Grant 
Thornton; and Third Coast.
---------------------------------------------------------------------------

    Commenters who addressed the issue generally agreed with the 
proposal to require registrants to calculate the financial statement 
metrics using financial information that is consistent with the scope 
of the rest of the registrant's consolidated financial statements and 
to use the same accounting principles that the registrant is required 
to apply in preparing the rest of its consolidated financial statements 
including in the filing.\2240\ One commenter stated that applying the 
same set of accounting principles consistently throughout a 
registrant's consolidated financial statements is important and would 
aid comparability.\2241\ Another commenter asked the Commission to 
clarify the phrase ``whenever applicable'' as used in proposed Rule 14-
01(c)(2), which directs a registrant to, ``whenever applicable, apply 
the same accounting principles that it is required to apply in the 
preparation of the rest of its consolidated financial statements . . . 
.'' \2242\ This commenter stated that the phrase ``whenever 
applicable'' is confusing because it is presumed that GAAP applies to 
the proposed financial statement metrics and therefore the Commission 
should clarify any circumstances it is aware of where the accounting 
principles would conflict with, or be inconsistent with, GAAP.\2243\ 
With respect to the proposed requirement to use financial information 
that is consistent with the scope of the rest of the registrant's 
consolidated financial statements, one commenter stated that the 
proposed rule ``makes no allowance for wholly-owned subsidiaries, which 
may lead to duplication and double counting.'' \2244\
---------------------------------------------------------------------------

    \2240\ See, e.g., letters from BHP; CEMEX; CFA; Eur. Banking 
Fed.; Eni Spa; IAA; KPMG; Mazars; Morningstar; Nutrien; and Sarasin.
    \2241\ See letter from IAA.
    \2242\ See letter from Deloitte & Touche.
    \2243\ See id.
    \2244\ See letter from PPL.
---------------------------------------------------------------------------

    In addition, most commenters supported requiring the application of 
existing GAAP to the proposed financial statement metrics.\2245\ 
However, a number of commenters raised concerns that certain of the 
proposed financial statement metrics would not necessarily comport with 
GAAP, including amounts for lost revenues, cost savings, or cost 
reductions.\2246\ In addition, in response to a question in the 
Proposing Release, certain commenters stated that the proposed 
financial statement metrics should be calculated at a reportable 
segment level when a registrant has more than one reportable segment, 
as defined by FASB ASC Topic 280 Segment Reporting, or presented by 
geographic areas that are consistent with the registrant's reporting 
pursuant to FASB ASC Topic 280-10-50-41.\2247\ On the other hand, some 
commenters stated that they did not support calculating and presenting 
the disclosures at a segment or geographic level because it would be 
too complex or would result in the disclosure of irrelevant 
information.\2248\
---------------------------------------------------------------------------

    \2245\ See, e.g., letters from Chamber; Eni Spa; KPMG; and 
Mazars.
    \2246\ See letter from Chamber. See also, e.g., letters from 
KPMG; PwC; SIFMA; and Soc. Corp. Gov.
    \2247\ See, e.g., letters from Eni Spa; ICGN; Mazars; Moody's; 
Morningstar; and Sarasin.
    \2248\ See, e.g., letters from Abrasca; BHP; and SEC 
Professionals.
---------------------------------------------------------------------------

iii. Final Rules
    After consideration of the comments, we are adopting the 
requirement (Rule 14-02(a)) to provide contextual information with 
certain clarifying modifications. We have decided to include in the 
text of the final rules two additional types of contextual information 
a registrant is required to disclose.\2249\ In addition to the types of 
contextual information included in the proposed rules, registrants will 
also be required to disclose significant judgments made and other 
information that is important to an investor's understanding of the 
financial statement effect.\2250\ Therefore, under the final rules, a 
registrant must ``[p]rovide contextual information, describing how each 
specified financial statement effect . . . was derived, including a 
description of significant inputs and assumptions used, significant 
judgments made, [and] other information that is important to understand 
the financial statement effect and, if applicable, policy decisions 
made by the registrant to calculate the specified disclosures.'' \2251\ 
Similar to the Proposing Release, in the discussion of the financial 
statement disclosures above, we provided certain non-exclusive examples 
of the types of contextual information that registrants may be required 
to disclose depending on the particular facts and circumstances. We 
agree with the commenters who stated that contextual information will 
help investors understand the required financial statement 
effects.\2252\ The financial statement disclosures we are adopting may 
involve estimation uncertainties that are driven by the application of 
judgments and assumptions, like certain other financial statement 
disclosures,\2253\ and therefore disclosure of contextual information 
will facilitate investors' understanding of the financial statement 
effects and will be an integral part of the financial statements.
---------------------------------------------------------------------------

    \2249\ See 17 CFR 210.14-02(a).
    \2250\ See id.
    \2251\ See id.
    \2252\ See supra note 2232 and accompanying text.
    \2253\ For example, the application of FASB ASC Topic 606 
Revenue from Contracts with Customers and ASC Topic 326 Financial 
Instruments--Credit Losses require the application of judgment when 
applying GAAP to the financial statements. FASB ASC 275-10-50-6 
through 50-15A require the disclosure of information about certain 
significant estimates. In addition, FASB ASC 235-10-05-3, 05-4, and 
50-1 require the disclosure of information about accounting 
policies.
---------------------------------------------------------------------------

    In response to certain commenters' requests for clarification or 
additional guidance,\2254\ as noted above, we decided to include in the 
final rules two additional types of contextual information that will 
enhance investors' understanding of the financial statement 
disclosures. We have decided to include ``significant judgments'' as an 
additional type of contextual information in the final rules because 
registrants will need to exercise judgment when preparing their 
disclosures, and disclosing contextual information about those 
judgments will help investors understand and evaluate the 
reasonableness of the disclosures.\2255\

[[Page 21811]]

Given the narrower scope of the disclosure requirements that we are 
adopting, we expect that the final rules require fewer inputs and 
assumptions than would have been required under the proposal; however, 
we are retaining the references to inputs and assumptions in the final 
rules because it is possible, though less likely, that preparation of 
the financial statement disclosures could involve estimation 
uncertainty and require the registrant to exercise judgment in the 
selection of inputs and assumptions.\2256\ In addition, to enhance 
understanding of the financial statement disclosures, the final rules 
explicitly require disclosure of other information that is important to 
understand the financial statement effects.\2257\ In section 
II.K.3.c.iv above, we have specified one instance where the final rules 
require registrants to disclose this type of contextual information 
because we think the information is important to understand the 
financial statement effects of the disclosed capitalized costs, 
expenditures expensed, charges, or losses.\2258\ By requiring the 
disclosure of information that is important to understand the financial 
statement effects, the requirement to provide contextual information 
will also help registrants avoid having incomplete and potentially 
misleading disclosures.
---------------------------------------------------------------------------

    \2254\ See supra note 2239 and accompanying text.
    \2255\ See 17 CFR 210.14-02(a). Registrants are regularly 
required to exercise judgment when applying GAAP to prepare their 
financial statements and therefore the fact that the final rules 
will require registrants to exercise judgment is not unusual. For 
example, FASB ASC Topic 606 Revenue from Contracts with Customers 
requires an entity to disclose significant judgments in the 
application of the guidance (ASC 606-10-50-17), FASB ASC Topic 820 
Fair Value Measurement requires an entity to disclose judgments and 
assumptions about assets and liabilities measured at fair value in 
the financial statements, and FASB ASC Topic 842 Leases requires a 
lessees to disclose information about significant assumptions and 
judgments made in applying the requirements of Topic 842.
    \2256\ See 17 CFR 210.14-02(a).
    \2257\ See id.
    \2258\ See id.
---------------------------------------------------------------------------

    We disagree with the commenters who stated that requiring 
disclosure of contextual information would result in inconsistent and 
incomparable information that is not useful for investors.\2259\ On the 
contrary, the requirement to provide contextual information will 
improve the comparability of disclosures by enabling investors to 
understand how registrants have exercised judgment and made assumptions 
in determining the financial statement effect. This will enable 
investors to compare judgments and assumptions made by registrants, 
including across industries, which will provide investors with useful 
information for purposes of their investment and voting decisions. 
Furthermore, although we are clarifying aspects of the contextual 
information requirement, we disagree with the commenters who stated 
that the requirement to provide contextual information should be 
simplified and that more guidance is needed with respect to the level 
of detail required.\2260\ The final rules intentionally provide 
flexibility to registrants to allow them to include contextual 
information that is tailored to their particular circumstances thereby 
improving the usefulness for investors of the disclosures. One 
commenter stated that a registrant would be required to make many 
assumptions and policy decisions to disclose contextual 
information.\2261\ As noted above, the final rules focus on requiring 
the disclosure of capitalized costs, expenditures expensed, charges, 
and losses incurred as a result of severe weather events and other 
natural conditions, which require fewer assumptions and policy 
decisions by the registrant than would have been required under the 
proposed rules. As a result, we expect the extent of contextual 
information provided under the final rules will be reduced as compared 
to the proposal.
---------------------------------------------------------------------------

    \2259\ See supra note 2236 and accompanying text.
    \2260\ See supra notes 2237 and 2238 and accompanying text.
    \2261\ See supra note 2236 and accompanying text.
---------------------------------------------------------------------------

    We are also adopting the requirements (Rule 14-01(c)) for 
registrants to calculate the financial statement effects using 
financial information that is consistent with the scope of the rest of 
the registrant's consolidated financial statements and to apply the 
same set of accounting principles that a registrant is required to 
apply in preparation of the rest of its consolidated financial 
statements, consistent with the proposal.\2262\ As the Commission 
explained in the Proposing Release, requiring registrants to calculate 
the financial statement disclosures using financial information that is 
consistent with the scope of the rest of the registrant's consolidated 
financial statements will avoid potential confusion, maintain 
consistency, and aid comparability.\2263\ In addition, we agree with 
the commenter who stated that applying the same set of accounting 
principles to the financial statement disclosures will aid 
comparability.\2264\ We are not aware of any circumstances where the 
final rules will require a registrant to deviate from GAAP, and 
therefore we are striking the words ``[w]henever applicable'' from the 
final rules, in response to the commenter who stated that this phrase 
was confusing because it could imply that the Commission is aware of 
circumstances where the applicable accounting principles would be 
inconsistent with GAAP.\2265\ In addition, it is important for 
investors to be provided with information that is consistent across 
financial statements.
---------------------------------------------------------------------------

    \2262\ See 17 CFR 210.14-01(c).
    \2263\ See Proposing Release, section II.F.1. As noted above, 
one commenter stated that the proposed rule ``makes no allowance for 
wholly-owned subsidiaries, which may lead to duplication and double 
counting.'' See supra note 2244 and accompanying text. Although the 
comment letter does not provide additional context for this 
statement, we think the commenter may have the misimpression that 
the proposed disclosure threshold would have been evaluated at the 
parent and subsidiary level separately. On the contrary, and as 
proposed, the final rules will require registrants to calculate the 
financial statement disclosure using financial information that is 
consistent with the scope of the rest of its consolidated financial 
statements included in the filing, which we do not believe would 
result in any double-counting or duplication.
    \2264\ See supra note 2241 and accompanying text.
    \2265\ See supra note 2242 and accompanying text.
---------------------------------------------------------------------------

    As discussed above, the Commission also received feedback about 
whether registrants should be required to calculate the proposed 
financial statement metrics at a reportable segment level or to present 
the metrics by geographic areas.\2266\ The Commission did not propose 
such requirements and--although we do not necessarily agree with those 
commenters that stated requiring disclosure at a segment or geographic 
level would be too complex or result in the disclosure of irrelevant 
information \2267\--we think the approach to disclosure we are adopting 
strikes an appropriate balance between providing consistent, 
comparable, and decision-useful information to investors and the 
associated burdens to registrants.
---------------------------------------------------------------------------

    \2266\ See supra notes 2247 and 2248 and accompanying text.
    \2267\ See supra note 2248 and accompanying text.
---------------------------------------------------------------------------

    Finally, several areas of commenter question or concern related to 
the requirements discussed above are addressed by our decision to not 
adopt the proposed Financial Impact Metrics and to focus on the 
disaggregation and disclosure of discrete transactions that are 
recorded in the financial statements. For example, concerns about the 
interaction between GAAP and the proposed Financial Impact Metrics will 
not apply to the final rules.\2268\ For the sake of clarity, however, 
we reiterate that the rules the Commission is adopting require 
registrants to apply existing GAAP recognition and

[[Page 21812]]

measurement requirements to the financial statement disclosures.
---------------------------------------------------------------------------

    \2268\ See supra note 2246 and accompanying text.
---------------------------------------------------------------------------

b. Historical Periods (Rule 14-01(d))
i. Proposed Rules
    The Commission proposed to require a registrant to provide 
disclosure for the registrant's most recently completed fiscal year and 
for the historical fiscal year(s) included in the registrant's 
consolidated financial statements in the applicable filing.\2269\ The 
Proposing Release stated that a registrant would not need to provide a 
corresponding historical metric for a fiscal year preceding its current 
reporting fiscal year if it is eligible to take advantage of the 
accommodation in 17 CFR 230.409 (``Rule 409'') or 17 CFR 240.12b-21 
(``Rule 12b-21'').\2270\ The Commission explained that requiring 
disclosure of current and, when known or reasonably available to the 
registrant without unreasonable effort or expense, historical periods, 
should allow investors to analyze trends in relevant impacts on the 
consolidated financial statements and to better evaluate the narrative 
trend disclosure provided pursuant to proposed subpart 1500 of 
Regulation S-K.\2271\
---------------------------------------------------------------------------

    \2269\ See Proposing Release, section II.F.1.
    \2270\ See id.
    \2271\ See id.
---------------------------------------------------------------------------

ii. Comments
    A few commenters supported the requirement as proposed.\2272\ One 
commenter indicated that the accommodation in Rule 409 or Rule 12b-21 
would be sufficient for issuers to rely upon when historical 
information subject to disclosure is unknown or not reasonably 
available.\2273\ On the other hand, some commenters stated that it was 
not clear when a registrant could take advantage of the accommodations 
provided by these rules or that the requirements applicable to these 
rules made it difficult for registrants to rely upon them.\2274\
---------------------------------------------------------------------------

    \2272\ See, e.g., letters from Center Amer. Progress; 
Morningstar; and Sarasin.
    \2273\ See letter from Center Amer. Progress.
    \2274\ See, e.g., letters from BOA; CAQ; Cleary Gottlieb; INGAA; 
RSM US LLP; Soc. Corp. Gov.; TRC; and Western Midstream.
---------------------------------------------------------------------------

    Most commenters that provided feedback on the proposed financial 
statement metrics did not support requiring registrants to provide 
disclosure for historical period(s) that occurred prior to the 
compliance date of the rule and instead recommended requiring 
disclosure on a prospective basis and phasing in disclosure for 
historical periods over time.\2275\ These commenters generally observed 
that it would be challenging and burdensome for registrants to provide 
disclosure for historical periods that occurred prior to the compliance 
date because many registrants do not currently collect or report the 
information that would have been required under the proposal.\2276\ One 
commenter stated that issuers would have to ``retroactively estimate 
their historical data,'' which would be ``burdensome and unlikely to 
produce reliable and consistent disclosures for investors.'' \2277\ 
Other commenters pointed out that even if historical information is 
available, issuers may not be able to conclude that they had adequate 
controls in place prior to the compliance date for the rule.\2278\ As 
an alternative, some commenters recommended that the Commission delay 
the effective date of the proposed rule to help facilitate the 
disclosure of information for historical periods.\2279\
---------------------------------------------------------------------------

    \2275\ See, e.g., letters from ABA; AEPC; AFPA; AFPM; Allstate; 
Alphabet et al.; API; Autodesk; Baker Tilly; BDO USA LLP; BHP; BOA; 
BP; CAQ; CCR; CEMEX; CFA Institute; Chamber; Corteva; Crowe; Dell; 
Deloitte & Touche; D. Hileman Consulting; E. Ocampo; Energy 
Infrastructure; Energy Transfer; Etsy; FHL Bank Des Moines; HP; 
Hydro One; IAA; IMA; INGAA; Marathon; McCormick; Microsoft; NAFO; 
NAM; Nareit; NMHC et al.; Northern Trust; PFG; PPL; PSC; PwC; RILA; 
Royal Gold; RSM US LLP; SEC Professionals; SIFMA; SouthState; 
Sullivan Cromwell; TotalEnergies; TRC; Walmart; Western Midstream; 
and WSP.
    \2276\ See, e.g., letters from Abrasca; Alphabet et al.; API; 
BlackRock; Cal. Resources; Deloitte & Touche; Devon Energy; Nutrien; 
and TRC.
    \2277\ See letter from BlackRock.
    \2278\ See, e.g., letters from Autodesk; CAQ; Dell; and Etsy.
    \2279\ See, e.g., letters from Ernst & Young LLP; and NASBA.
---------------------------------------------------------------------------

    Several commenters stated that disclosure of historical information 
on a prospective basis would be useful information for investors.\2280\ 
These commenters generally observed that the disclosure of historical 
information would be valuable for illuminating material changes to 
estimates and assumptions and historical trends.\2281\
---------------------------------------------------------------------------

    \2280\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Center Amer. Progress; and E. Ocampo.
    \2281\ See id.
---------------------------------------------------------------------------

    The Commission included a request for comment in the Proposing 
Release asking if information for all periods in the consolidated 
financial statements should be required for registrants that are filing 
an initial registration statement.\2282\ A few commenters supported 
requiring a registrant to provide disclosure for all periods in the 
consolidated financial statements for registrants filing an initial 
registration statement.\2283\ On the other hand, one commenter 
recommended that, for newly public companies on an ongoing basis, the 
Commission require disclosure only for the most recent fiscal year for 
which audited financial statements are included in the initial 
registration statement to ``reduce the barriers to market.'' \2284\ In 
addition, one commenter asked whether the proposed financial statement 
metrics would need to be restated or adjusted for historical periods if 
climate-related impacts (both physical and transition events) are not 
identifiable and do not occur until after the metrics are first 
reported.\2285\
---------------------------------------------------------------------------

    \2282\ See Proposing Release, section II.F.1.
    \2283\ See, e.g., letters from Center Amer. Progress; and 
Sarasin.
    \2284\ See letter from KPMG.
    \2285\ See letter from Climate Risk Consortia.
---------------------------------------------------------------------------

iii. Final Rules
    After consideration of comments, we have decided to require a 
registrant to provide disclosure for historical fiscal year(s) included 
in a registrant's consolidated financial statements on a prospective 
basis only.\2286\ Under the final rules (Rule 14-01(d)), disclosure 
must be provided for the registrant's most recently completed fiscal 
year, and to the extent previously disclosed or required to be 
disclosed, for the historical fiscal year(s), for which audited 
consolidated financial statements are included in the filing.\2287\ 
Subject to the compliance date discussed below,\2288\ registrants will 
be required to provide disclosure for the registrant's most recently 
completed fiscal year for which audited financial statements are 
included in the filing in any filings to which the final rules apply; 
however, registrants are not required to provide disclosure for 
historical fiscal year(s) included in that filing. For example, subject 
to the compliance date, a registrant that files its annual report will 
only be required to provide the applicable disclosure for the 
registrant's most recently completed fiscal year for which audited 
financial statements are included in the filing. For each subsequent 
fiscal year's annual report, the registrant will be required to provide 
the applicable disclosure for an additional fiscal year until the 
required disclosure is provided for the entire period covered by the 
registrant's financial statements.\2289\ Initial

[[Page 21813]]

registration statements are subject to the final rules to the same 
extent as the other Commission filings to which the rules apply.\2290\ 
Specifically, a registrant engaged in an IPO that has a fiscal year 
that is subject to the final rules is required to provide disclosure 
for the registrant's most recently completed fiscal year for which 
audited financial statements are included in the filing. However, such 
registrant will not be required to provide disclosure for any preceding 
fiscal years included in the initial registration statement because as 
new entrants to the public markets such registrants would not have 
previously disclosed or been required to disclose the information 
required by the final rules.\2291\
---------------------------------------------------------------------------

    \2286\ See 17 CFR 210.14-01(d).
    \2287\ See id.
    \2288\ See infra section II.O for a discussion of the compliance 
date for the rules.
    \2289\ As discussed in more detail above in section II.K.3.c.ii, 
the final rules call for disclosure triggered off both the balance 
sheet and the income statement. A registrant that is required to 
include balance sheets as of the end of its two most recent fiscal 
years and income statements as of the end of its three most recent 
fiscal years would be required to disclose two years of the 
financial statement effects that correspond to the balance sheet and 
three years of the financial statement effects that correspond to 
the income statement. See 17 CFR 210.3-01(a), 210.3-02(a). An EGC 
may, in a Securities Act registration statement for the IPO of its 
equity securities, ``provide audited statements of comprehensive 
income and cash flows for each of the two fiscal years preceding the 
date of the most recent audited balance sheet (or such shorter 
period as the registrant has been in existence).'' See 17 CFR 210.3-
02(a). A smaller reporting company is required to ``file an audited 
balance sheet as of the end of each of the most recent two fiscal 
years, or as of a date within 135 days if the issuer has existed for 
a period of less than one fiscal year, and audited statements of 
comprehensive income, cash flows and changes in stockholders' equity 
for each of the two fiscal years preceding the date of the most 
recent audited balance sheet (or such shorter period as the 
registrant has been in business).'' See 17 CFR 210.8-02.
    \2290\ See 17 CFR 210.14-01(d). See infra section II.L.3 for 
further discussion of the decision not to provide an exemption or 
transitional relief for registrants engaged in an IPO.
    \2291\ See 17 CFR 210.14-01(d). See, e.g., letter from KPMG 
(``[F]or initial public offerings of securities, we recommend that 
the Commission permit newly public companies on an ongoing basis to 
provide the proposed information only for the most recent fiscal 
year for which audited financial statements are included in the 
initial registration statement.'').
---------------------------------------------------------------------------

    We agree with those commenters who stated that the disclosure of 
historical information would be useful for investors because it would 
illuminate changes to the financial statement disclosures and 
trends.\2292\ However, we recognize that it may be difficult for 
registrants to compile and produce the required disclosures for periods 
that occurred prior to the compliance date of the rules. Therefore, we 
are modifying the proposed rules to require registrants to provide 
disclosure for historical fiscal year(s) only on a prospective basis, 
which will further limit the burdens on reporting companies or 
companies considering an IPO without unduly compromising the intended 
benefit to investors. This modification, when combined with the phased 
in compliance dates for the final rules, will provide registrants with 
sufficient time to prepare their disclosures.
---------------------------------------------------------------------------

    \2292\ See supra note 2280.
---------------------------------------------------------------------------

    Finally, in response to a question raised by a commenter about 
whether the proposed financial statement disclosures would need to be 
restated or adjusted for historical periods if climate-related impacts 
are not identifiable until after the metrics are first reported,\2293\ 
we are clarifying that registrants should apply the principles in FASB 
ASC Topic 250 Accounting Changes and Error Corrections or IFRS 
International Accounting Standard (``IAS'') 8 Accounting Policies, 
Changes in Accounting Estimates and Errors, as appropriate, in these 
circumstances.
---------------------------------------------------------------------------

    \2293\ See supra note 2285.
---------------------------------------------------------------------------

7. Inclusion of Disclosures in the Financial Statements (Rule 14-01(a))
a. Proposed Rules
    The Commission proposed to require registrants to include the 
proposed financial statement metrics in the financial statements, which 
would result in the metrics being (i) included in the scope of any 
required audit of the financial statements in the relevant disclosure 
filing, (ii) subject to audit by an independent registered public 
accounting firm, and (iii) within the scope of the registrant's 
ICFR.\2294\ The proposed disclosures shared many characteristics with 
other financial statement disclosures, and the proposed financial 
statement metrics would reflect financial data that is derived from the 
registrant's consolidated balance sheets, income statements, and 
statements of cash flows, and would be presented in a similar way to 
existing financial statement disclosures.\2295\ The Commission 
explained in the Proposing Release that requiring the proposed 
financial statement metrics to be included in a note to the financial 
statements, and therefore subject to audit and within the scope of 
ICFR, should enhance the reliability of the proposed financial 
statement metrics.\2296\
---------------------------------------------------------------------------

    \2294\ See Proposing Release, section II.F.5.
    \2295\ See id.
    \2296\ See id.
---------------------------------------------------------------------------

b. Comments
    As discussed above, a number of commenters stated that the proposed 
financial statement metrics should be included in the financial 
statements and subject to audit.\2297\ One commenter explained that 
subjecting the disclosures to audit would be important because ``[a]s 
investors, we look to auditors to provide robustly independent 
challenge to ensure the assumptions and estimates underpinning the 
financial statements are sound, and the statements themselves provide a 
fair representation of the entity's economic health.'' \2298\ Another 
commenter stated that requiring the disclosures to be audited ``will 
result in more decision useful information because investors can 
presume it to be accurate, truthful, and complete.'' \2299\ In response 
to a request for comment included in the Proposing Release, a few 
commenters stated that the proposed financial metrics should not be 
included in a separate or supplemental document instead of the 
financial statements.\2300\ One of these commenters said that doing so 
``could send a perverse message that climate impacts are not financial 
or material for corporate earnings and financial condition, which 
would, in our view, be misleading.'' \2301\ One commenter suggested 
that the Commission apply the ICFR requirements set forth in Item 308 
of Regulation S-K to the proposed financial statement metrics, if 
finalized.\2302\
---------------------------------------------------------------------------

    \2297\ See supra note 1715 and accompanying text. See also, 
e.g., letters from Anthesis; BC IM Corp.; Climate Accounting Audit 
Project; I. Millenaar; PwC (recommending that the Commission provide 
additional flexibility with respect to the placement of the 
disclosures within the notes to the financial statements because in 
some cases information may be more effectively presented together 
with other related disclosures instead of a climate-related 
footnote); and Third Coast.
    \2298\ See letter from Sarasin.
    \2299\ See letter from Sens. J. Reed, et al.
    \2300\ See, e.g., letters from Center Amer. Progress; CFA 
Institute; Sarasin (``While we can support a separate climate report 
that brings together all the material climate-related financial 
impacts, this should not replace the disclosures within the 
financial statements (including in the Notes) that appropriately 
reflect the financial consequences of these climate factors.''); and 
TotalEnergies. See also letter from CalSTRS (``We prefer the 
information to be included in existing reports instead of additional 
reports; companies already publish sustainability-related reports or 
web pages with climate information that is disconnected from 
financial data.'').
    \2301\ See letter from Sarasin (noting that there could be an 
argument for companies to both include climate impacts in their 
existing financial statements as proposed and publish a stand-alone 
audited climate report, which aggregates climate impacts).
    \2302\ See letter from RSM US LLP.
---------------------------------------------------------------------------

    Conversely, a number of commenters were opposed to including the 
financial impact of climate-related risks in the financial 
statements.\2303\ As discussed above, many commenters asserted the 
disclosures should instead be included in the MD&A section of a 
registrant's periodic reports.\2304\ Other commenters stated that the 
proposed disclosures should be included alongside the

[[Page 21814]]

proposed amendments to Regulation S-K in the new climate-related 
discussion section.\2305\ A few commenters stated that if the 
Commission adopts the proposed financial statement metrics, then they 
should be provided in supplemental information or a schedule outside of 
the financial statements,\2306\ although some of these commenters had 
different views about whether disclosure in a supplemental schedule 
should be subject to audit and ICFR requirements.\2307\ Some commenters 
stated that the Commission should consider including the proposed 
disclosures outside of Form 10-K in an alternative report.\2308\
---------------------------------------------------------------------------

    \2303\ See, e.g., letters from ACLI; AFEP; APCIA; Cleveland 
Cliffs; Cohn Rez.; D. Burton, Heritage Fdn.; NAFO; Nutrien; and 
Western Midstream.
    \2304\ See supra note 1724 and accompanying text.
    \2305\ See letter from AFPA; Autodesk; D. Burton, Heritage Fdn.; 
NAFO; NAM; GPA Midstream; and Southwest Air.
    \2306\ See, e.g., letters from AutoDesk; BIO; Eni Spa (noting 
that the financial assumptions impacted by climate-related events 
should nevertheless be included in the notes to the financial 
statements); McCormick; Nutrien; and Soros Fund.
    \2307\ See letters from CEMEX (disclosures should be subject to 
audit and ICFR requirements); Eni Spa (disclosures should not be 
subject to audit but should be subject to ICFR requirements); and 
BIO (disclosures should not be subject to audit or ICFR 
requirements).
    \2308\ See letters from AAFA; AHLA; Allstate; Eversource; FedEx; 
and NRF. See also letter from ICI (recommending that the Commission 
require a registrant to provide material climate-related disclosures 
in Commission filings and require a registrant to furnish any 
additional mandated information that the registrant determines is 
not material in a new climate report).
---------------------------------------------------------------------------

    Other commenters generally stated that if the Commission adopts the 
proposed financial statements metrics they should be exempted from the 
audit requirement.\2309\ One of these commenters noted that ``[d]ata 
processes and controls over climate-related information are not as 
mature as financial reporting processes and controls'' and ``[t]o 
mature these processes and controls to a level of audit readiness will 
take significant time.'' \2310\ A few commenters stated that the 
proposed disclosure requirements did not have to be included in an 
audited note to the financial statements to be ``valid and reliable.'' 
\2311\ Similarly, one commenter stated that disclosures included in a 
Commission filing but outside of the audited financial statements would 
be subject to ``the existing level of oversight, regulation, and 
liability associated with [Commission] filings.'' \2312\ One commenter 
stated that the Commission should exclude the proposed rules from ICFR 
requirements until the Commission has established appropriate 
guidelines for audit and assurance.\2313\
---------------------------------------------------------------------------

    \2309\ See, e.g., letters from AFPA; AGCA; APCIA; Chamber; 
Cleco; Climate Risk Consortia; NAM; NMHC, et al.; and SIA.
    \2310\ See letter from SIA.
    \2311\ See letter from Cleco; and EEI & AGA.
    \2312\ See letter from Connor Grp.
    \2313\ See letter from BIO.
---------------------------------------------------------------------------

    Other commenters suggested that the Commission defer making a 
determination about audit and ICFR requirements for the proposed 
financial statement disclosures. For example, one commenter suggested 
that the Commission defer making a determination until after issuers 
have had an opportunity to familiarize themselves with any new 
requirements.\2314\ In addition, one commenter stated that the 
Commission should not impose any financial statement disclosure 
requirements or require certifications pursuant to the Sarbanes-Oxley 
Act until generally accepted accounting rules have been established by 
the FASB.\2315\ A few commenters suggested including the proposed 
financial statement metrics outside of the financial statements 
initially with a transition to the financial statements.\2316\
---------------------------------------------------------------------------

    \2314\ See letter from TIAA.
    \2315\ See letter from RILA. See also letter from Climate Risk 
Consortia (stating it would be premature to require an audit because 
the FASB ``has not yet developed climate accounting standards for 
GAAP'').
    \2316\ See letters from CFA Institute; and USGBC.
---------------------------------------------------------------------------

    A few commenters stated that PCAOB auditing standards would be 
applicable or should be applied to the proposed financial statement 
metrics.\2317\ A number of commenters asserted that it would be 
necessary to develop additional guidance regarding the application of 
PCAOB auditing standards to the proposed financial statement 
metrics.\2318\ One commenter stated that guidance would be helpful to 
registrants because it would ``better enable them to effectively obtain 
or prepare necessary data, information and analysis, and for auditors 
to obtain sufficient appropriate audit evidence related to these 
metrics.'' \2319\ Some commenters suggested particular standards for 
which additional specific guidance would be needed for the proposed 
financial statement metrics.\2320\ For example, one commenter asserted 
additional guidance was needed regarding PCAOB Auditing Standard (AS) 
2105, Consideration of Materiality in Planning and Performing an Audit, 
because ``if the proposed one percent disclosure threshold for 
disclosure of climate-related impacts on the financial statement line 
items is not considered material, current PCAOB auditing standards may 
not require the auditor to perform audit procedures for those 
disclosures.'' \2321\
---------------------------------------------------------------------------

    \2317\ See, e.g., letters from CAQ; CEMEX; and ERM CVS.
    \2318\ See, e.g., letters from ABA; Baker Tilly; BOA; CalPERS 
(``The Commission would have to instruct the PCAOB to prioritize the 
development and adoption of standards for auditing such metrics.''); 
Climate Accounting Audit Project (noting that additional guidance 
may be required with respect to already existing auditor obligations 
as well); Eni Spa; ERM CVS; Mazars; RSM US LLP; Sarasin; and 
Williams Cos.
    \2319\ See letter from Mazars.
    \2320\ See, e.g., letters from Baker Tilly (identifying PCAOB 
Auditing Standards (AS) 2105); ERM CVS (identifying AS 1200, AS 
1201, AS 1205, AS 1210, AS 2100, AS 2101, AS 2105, AS 2200, AS 2400, 
and AS 2800); and RSM US LLP (identifying AS 2105).
    \2321\ See letter from RSM US LLP. See also letters from CAQ 
(noting that there could be a situation where the climate-related 
metrics are in scope for the audit, but the underlying financial 
statement line items ordinarily would not be because of the risk 
assessment judgments made by the auditor and therefore auditors may 
decide to scope in these lower risk accounts, which could create 
significant inefficiencies and increased audit costs with minimal 
benefits for investors); and Baker Tilly (stating that some of the 
items within the proposed financial statement metrics might not be 
part of significant, in-scope accounts subject to PCAOB auditing 
standards).
---------------------------------------------------------------------------

    Some commenters agreed that additional guidance and auditing 
standards may be needed, but did not identify particular standards for 
which guidance is needed.\2322\ More generally, one commenter stated 
that the PCAOB should provide guidance to auditors regarding what is 
expected and then should undertake reviews to ensure proper 
implementation.\2323\ Another commenter suggested that the PCAOB should 
issue guidance confirming existing audit requirements regarding the 
consideration of material climate risk and should increase its focus on 
this issue during the auditor inspection process.\2324\ Conversely, one 
commenter asserted that the proposed financial impact disclosures would 
leave auditors open to ``second guessing'' during the PCAOB inspection 
process.\2325\
---------------------------------------------------------------------------

    \2322\ See, e.g., letters from BOA; Climate Accounting Audit 
Project; Eni Spa; Mazars; Sarasin; and Williams Cos.
    \2323\ See letter from Sarasin.
    \2324\ See letter from Climate Accounting Auditing Project.
    \2325\ See letter from Chamber.
---------------------------------------------------------------------------

    Another commenter suggested that the audits of any expenditures and 
costs related to severe weather events and other natural conditions 
should be a separate assurance engagement outside of the scope of the 
current financial statement and internal controls audits and that these 
separate engagements should be governed by clearly defined weather-
related cost accounting standards and an appropriately tailored PCAOB 
assurance standard that provides implementation examples.\2326\ One 
commenter suggested that the Commission consider allowing

[[Page 21815]]

sustainability consultants or experts outside of the traditional 
accounting sector to audit the proposed financial statement 
metrics.\2327\ Another commenter stated that it may be necessary for an 
auditor to tailor its audit opinion to explain that the note to the 
financial statements was not prepared in accordance with IFRS 
disclosure requirements, but in accordance with Commission disclosure 
requirements and based upon financial statement information prepared in 
accordance with IFRS.\2328\
---------------------------------------------------------------------------

    \2326\ See letter from Cohn Rez.
    \2327\ See letter from I. Millenaar.
    \2328\ See letter from CFA Institute.
---------------------------------------------------------------------------

    Alternatively, some commenters asserted that there are no clearly 
established auditing standards for registrants with respect to the 
proposed financial statement metrics.\2329\ One commenter argued that 
``[g]iven the subjectivity inherent in assigning the required 
quantitative financial impacts, it is unclear how auditors will 
evaluate and subsequently provide assurance with respect to these 
decisions and the associated disclosures.'' \2330\ Another commenter 
suggested that it would be preferable to include the proposed financial 
statement metrics outside of the financial statements to avoid 
``distracting'' the PCAOB from its ``core mission.'' \2331\
---------------------------------------------------------------------------

    \2329\ See, e.g., letters from FedEx; G. Farris; Marathon; NAM; 
and Sullivan Cromwell.
    \2330\ See letter from NAM.
    \2331\ See letter from D. Burton, Heritage Fdn.
---------------------------------------------------------------------------

    With respect to timing, one commenter stated that any changes to 
PCAOB standards would need to be implemented and effective before the 
proposed disclosures are required to be included in the audited 
financial statements.\2332\ Another commenter stated that the 
Commission will have to instruct the PCAOB to prioritize the 
development and adoption of standards for auditing the proposed 
financial statement metrics.\2333\ Another commenter asserted that the 
proposed timeline for adoption of final rules would not provide issuers 
with enough time to integrate a robust ICFR framework for the proposed 
financial impact metrics that would be auditable.\2334\
---------------------------------------------------------------------------

    \2332\ See letter from RSM US LLP.
    \2333\ See letter from CalPERS.
    \2334\ See letter from G. Farris.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission solicited comment on 
whether it would be clear that the proposed climate-related financial 
statement metrics would be included in the scope of the audit when the 
registrant files financial statements prepared in accordance with IFRS 
as issued by the IASB, and whether it would be clear that the proposed 
rules would not alter the basis of presentation of financial statements 
as referred to in an auditor's report.\2335\ The Commission also 
solicited comment on whether it should amend Form 20-F, or other forms, 
to clarify the scope of the audit or the basis of presentation.\2336\ 
In response, one commenter asserted that disclosure of the basis of 
presentation is important for understanding and comparability, and 
noted that since the basis of presentation of climate-related financial 
metrics may be different from the basis of presentation of the 
financial statements due to boundary differences, there should be 
disclosure when these differ.\2337\ One commenter stated that the 
Commission should amend Form 20-F and other forms to make it clear that 
the scope of the audit must include the proposed financial statement 
footnote.\2338\ On the other hand, one commenter stated that the scope 
of the audit is clear, and therefore it did not believe it was 
necessary to amend Form 20-F.\2339\ One commenter asserted that the 
proposed climate-related financial statement metrics and related audit 
requirements for foreign filers should align with those for domestic 
filers.\2340\ Another commenter stated that foreign private issuers 
should be allowed to disclose the proposed financial statement metrics 
as unaudited supplemental financial information.\2341\
---------------------------------------------------------------------------

    \2335\ See Proposing Release, section II.F.5.
    \2336\ See id.
    \2337\ See letter from ERM CVS.
    \2338\ See letter from Center Amer. Progress.
    \2339\ See letter from Eni Spa.
    \2340\ See letter from RSM US LLP.
    \2341\ See letter from Abrasca.
---------------------------------------------------------------------------

    Some commenters stated that the audit and ICFR assessment required 
for the proposed financial statement metrics would result in 
significant costs for registrants \2342\ or would result in an increase 
in audit fees for registrants.\2343\ A few commenters stated that they 
expected the audit costs would be higher than the estimated amount 
included in the proposal.\2344\ For example, a registrant stated that 
its auditors estimated the cost of the audit to be within the range of 
$70,000 to $225,000 per year.\2345\ One commenter stated that 
registrants' audit fees would increase ``due to the significant level 
of assurance required based on the low thresholds applied.'' \2346\ 
Another commenter stated that the costs of the audit will depend on the 
granularity and complexity of the information required.\2347\ One 
commenter stated if specialists are needed this would increase the cost 
of the audit for companies.\2348\ Another commenter stated that the 
costs would be out of proportion to the value of the information to 
investors.\2349\ Other commenters stated that it is likely that the 
costs of auditing the proposed financial statement footnotes would 
decrease \2350\ or stabilize \2351\ over time like other areas of audit 
work.
---------------------------------------------------------------------------

    \2342\ See, e.g., letters from AAR; Airline for America; 
Autodesk; NAM; Occidental Petroleum; Reinsurance AA; and Williams 
Cos.
    \2343\ See, e.g., letters from Alliance Resource; Crowe; Mazars; 
and Shell.
    \2344\ See, e.g., letters from AAR; BDO USA LLP; Business 
Roundtable; Cohn Rez.; EEI & AGA; and Nutrien.
    \2345\ See letter from Nutrien.
    \2346\ See letter from Shell.
    \2347\ See letter from Eni Spa.
    \2348\ See letter from CEMEX.
    \2349\ See letter from Shearman Sterling.
    \2350\ See, e.g., letters from Eni Spa; and Mazars.
    \2351\ See letter from CEMEX.
---------------------------------------------------------------------------

    Finally, some commenters observed that the safe harbor established 
by the Private Securities Litigation Reform Act (PSLRA) does not apply 
to forecasting information in the financial statements and urged the 
Commission to include a safe harbor for any forward-looking financial 
disclosures included in the financial statements and footnotes.\2352\ 
Other commenters generally recommended including a safe harbor for the 
proposed financial statement metrics and did not appear to limit their 
recommendation to only forward-looking statements.\2353\ Commenters 
generally claimed that a safe harbor was necessary to protect 
registrants from liability in light of the estimates, judgments, and 
assumptions that would be required to disclose the proposed financial 
statement metrics.\2354\
---------------------------------------------------------------------------

    \2352\ See, e.g., letters from Cleary Gottlieb; IIB; NMA; and 
Soc. Corp. Gov.
    \2353\ See, e.g., letters from APCIA; AAFA; BIO; BOA; Can. 
Bankers; Devon Energy; FedEx; IC; IIF; KPMG; LTSE; NAM; NMA; NMHC, 
et al.; Southside Bancshares; and TotalEnergies.
    \2354\ See, e.g., letters from BOA; LTSE; NAM; Soc. Corp. Gov.; 
and TotalEnergies.
---------------------------------------------------------------------------

c. Final Rules
    As explained above, we believe it is appropriate to require that 
the financial statement effects disclosure we are adopting be presented 
in a note to the financial statements (Rule 14-01(a)).\2355\ 
Identifying a specific location for the disclosures--a note to the 
financial statements--will make the information more accessible for 
investors.\2356\ In

[[Page 21816]]

addition, we agree with the commenter that stated that including the 
disclosure of the financial statement effects in the financial 
statements will facilitate investor decision-making.\2357\ As is true 
of any disclosures included in the financial statements, subjecting the 
required disclosures to a financial statement audit and registrants' 
ICFR will enhance the reliability of that information. The scope of the 
final rules is significantly narrower than the proposal and requires 
the disclosure of costs and expenditures for transactions that are 
currently recorded in registrants' books and records and materially 
impacted financial estimates and assumptions. These modifications will 
ease many of the burdens that registrants identified with respect to 
requiring the disclosures to be subject to audit and ICFR.
---------------------------------------------------------------------------

    \2355\ See 17 CFR 210.14-01(a).
    \2356\ See, e.g., letters from PGIM; and UAW Retiree. See also 
IAC Recommendation (indicating its support for requiring the 
presentation of disclosures in the financial statements and stating 
``[m]aking this information available in a predictable way that is 
consistent with the location of other important data helps achieve 
the goal of consistent dissemination of this important 
information'').
    \2357\ See letter from Sarasin.
---------------------------------------------------------------------------

    We considered the various alternatives suggested by commenters, 
including whether to require the disclosure of financial statement 
effects to be provided in supplemental information or a schedule 
outside of the financial statements.\2358\ The financial statement 
disclosures we are adopting, however, present financial information 
that is derived from registrants' books and records and is already 
included in registrants' financial statements. Therefore, presenting 
this information in a note to the financial statements, consistent with 
other financial statement disclosures, will enhance its accessibility 
and usefulness for investors. We do not think it would be appropriate 
to exempt these financial statement disclosures from audit or ICFR 
requirements. Providing an exemption from audit or ICFR for the 
financial statement disclosure requirements in the final rules could 
confuse investors about which parts of the financial statements are 
covered by audit and ICFR. Nevertheless, the phase in periods provided 
for in the final rules should give registrants and their auditors time 
to familiarize themselves with the new requirements before the 
compliance date and should help to mitigate the concerns raised by 
commenters.
---------------------------------------------------------------------------

    \2358\ See supra notes 2306 and 2308 and accompanying text.
---------------------------------------------------------------------------

    With respect to auditing standards, PCAOB standards can and will 
apply to the financial statement disclosures included in a note to the 
financial statements. We understand that a number of commenters raised 
concerns about applying PCAOB standards and stated that additional 
guidance would be needed.\2359\ The modifications made to the final 
rules to narrow their scope to capitalized costs, expenditures 
expensed, charges, and losses derived from transactions and amounts 
recorded in registrant's books and records underlying the financial 
statements and materially impacted estimates and assumptions, along 
with the Commission's adoption of an attribution principle, will help 
to mitigate commenters' concerns about the auditability of the 
disclosures. In light of these modifications, we expect that including 
the financial statement note as part of the audited financial 
statements will allow the disclosures to be readily incorporated into 
the scope of the financial statement and ICFR audits that registrants 
currently obtain and that existing PCAOB auditing standards will 
readily apply.
---------------------------------------------------------------------------

    \2359\ See, e.g., supra note 2318 and accompanying text.
---------------------------------------------------------------------------

    Several commenters raised concerns about how auditors would address 
the one percent disclosure threshold when considering materiality in 
planning and performing an audit.\2360\ Auditors should apply the 
concepts of materiality in PCAOB AS 2105, Consideration of Materiality 
in Planning and Performing an Audit, to the rules we are adopting. In 
applying the concept of materiality, auditors should remain alert for 
misstatements that could be material due to quantitative or qualitative 
factors and lesser amounts of misstatement could influence the judgment 
of a reasonable investor because of qualitative factors.\2361\ Under 
PCAOB Auditing Standards, auditors should also evaluate whether, in 
light of particular circumstances, there are certain accounts or 
disclosures for which there is a substantial likelihood that 
misstatements of lesser amounts than the materiality level established 
for the financial statements as a whole would influence the judgment of 
a reasonable investor. If so, the Auditing Standards provide that the 
auditor should establish separate materiality levels for those accounts 
or disclosures to plan the nature, timing, and extent of audit 
procedures for those accounts or disclosures.\2362\ Additionally, there 
are numerous rules in Regulation S-X as well as other disclosure 
requirements within GAAP that include a percentage disclosure 
threshold.\2363\ Based on staff experience, we understand that auditors 
have developed procedures for auditing such disclosures and have not 
claimed an inability to audit that information. We expect auditors 
similarly will be able to apply the concepts of materiality and to 
audit the financial statement disclosures included in the final rules, 
particularly given the final rules' narrower scope. Therefore, there is 
no need to delay the requirement to obtain an audit or exclude the 
financial statement disclosures from the scope of the audit or the 
registrants' ICFR. The rules we are adopting will provide the suitable 
criteria necessary for the disclosures to be subject to audit. 
Nevertheless, the Commission will work with the PCAOB to address any 
issues that come to light regarding the auditing of this information 
and will consider issuing additional guidance to the extent needed and 
helpful.
---------------------------------------------------------------------------

    \2360\ See supra note 2321 and accompanying text.
    \2361\ See PCAOB AS 2105, paragraph .03.
    \2362\ See id., paragraph .07.
    \2363\ See, e.g., supra note 2063 and accompanying text; FASB 
ASC 280-10-50-12 (requiring the reporting of separate information 
about an operating segment that meets certain quantitative 
thresholds), 280-10-50-14 (stating that if total of external revenue 
reported by operating segments constitutes less than 75% of total 
consolidated revenue, additional operating segments shall be 
identified as reportable segments (even if they do not meet the 
criteria in paragraph 280-10-50-12) until at least 75% of total 
consolidated revenue is included in reportable segments), 280-10-50-
42 (stating, among other things, that if revenues from transactions 
with a single external customer amount to 10% or more of a public 
entity's revenues, the public entity shall disclose that fact, the 
total amount of revenues from each such customer, and the identity 
of the segment or segments reporting the revenues), and 323-10-50-3 
(requiring, among other things, disclosure of the names of any 
significant investee entities in which the investor holds 20% or 
more of the voting stock, but the common stock is not accounted for 
on the equity method, together with the reasons why the equity 
method is not considered appropriate, and the names of any 
significant investee corporations in which the investor holds less 
than 20% of the voting stock and the common stock is accounted for 
on the equity method, together with the reasons why the equity 
method is considered appropriate).
---------------------------------------------------------------------------

    Finally, we do not agree with the commenter who suggested that 
consultants or experts outside of the traditional accounting sector 
should be allowed to audit the proposed financial statement 
disclosures.\2364\ The auditor's unqualified opinion contains an 
expression of opinion on the financial statements, taken as a whole, 
which refers to a complete set of financial statements, including the 
related financial statements notes and any related schedules.\2365\ As 
stated above, we expect that the audit procedures applied to the 
financial statement note will be incorporated into the scope of 
registrants' current financial statement and internal controls audit 
and therefore PCAOB-registered public accounting firms will be able to 
apply sufficient,

[[Page 21817]]

appropriate audit procedures to these disclosures as required by 
law.\2366\ Moreover, PCAOB-registered accounting firms are subject to 
periodic inspection by the PCAOB and are required to comply with PCAOB 
rules, including a requirement to establish a system of quality control 
that is implemented throughout the accounting firm, which will enhance 
investors' confidence in the accuracy of registrants' disclosures.
---------------------------------------------------------------------------

    \2364\ See supra note 2327 and accompanying text.
    \2365\ See PCAOB AS 3101, paragraph .08, The Auditor's Report on 
an Audit of the Financial Statements When the Auditor Expresses an 
Unqualified Opinion.
    \2366\ See 15 U.S.C. 7212 (``It shall be unlawful for any person 
that is not a registered public accounting firm to prepare or issue, 
or to participate in the preparation or issuance of, any audit 
report with respect to any issuer, broker, or dealer.''). See also 
letter from CalPERS (``We expect that the regular auditor will do 
the audit.'').
---------------------------------------------------------------------------

    However, this does not mean that the auditor cannot use the work of 
an auditor specialist while performing its work if the auditor 
determines doing so would be appropriate in accordance with applicable 
auditing standards. PCAOB AS 2101, paragraph .16, Audit Planning, 
states that auditors should determine whether specialized skill or 
knowledge, such as an auditor specialist, is needed to perform the 
appropriate risk assessments, plan or perform audit procedures, or 
evaluate audit results. Auditors may use the work of auditors' 
specialists to assist in their evaluation of significant accounts and 
disclosures, including accounting estimates. In doing so, auditors 
consider the requirements within PCAOB AS 1201, Supervision of the 
Audit Engagement, when using the work of auditor-employed specialists, 
and AS 1210, Using the Work of an Auditor-Engaged Specialists, when 
using the work of an auditor engaged specialist, as appropriate.
    The Commission received mixed feedback about whether it would be 
clear that: (i) the financial statement disclosure requirements would 
be included in the scope of the audit when a registrant files financial 
statements prepared in accordance with IFRS as issued by the IASB, and 
(ii) the proposed rules would not alter the basis of presentation of 
financial statements as referred to in an auditor's report.\2367\ 
Therefore, we are clarifying that the financial statement disclosure 
requirements we are adopting in this release must be included in the 
scope of the audit when a registrant files financial statements in 
accordance with IFRS as issued by the IASB. We believe that these 
disclosures are important and should be required regardless of the GAAP 
followed. Furthermore, registrants that file financial statements 
prepared using IFRS as issued by the IASB are subject to the existing 
requirement to comply with Regulation S-X,\2368\ and we are not aware 
of any policies that would prevent registrants from including the 
financial statement disclosures in a note in the financial statements 
prepared in accordance with IFRS as issued by the IASB. Further, the 
final rules will not alter the basis of presentation of financial 
statements referred to in an auditor's report. The instructions to Form 
20-F make it clear that the issuer's financial statements must be 
audited in accordance with PCAOB standards.\2369\ PCAOB AS 3101.08 
states that the first section of the auditor's report must include a 
``statement identifying each financial statement and any related 
schedule(s) that has been audited'' and a ``statement indicating that 
the financial statements, including the related notes and any related 
schedule(s), identified and collectively referred to in the report as 
the financial statements, were audited.'' \2370\ As the disclosure 
requirements we are adopting will be included in a note to the foreign 
private issuer's financial statements and based on information that is 
recognized and measured in the foreign private issuer's financial 
statements in accordance with IFRS as issued by the IASB, they will be 
within the scope of the statement by the registrant's auditor that the 
financial statements ``including any related notes'' were audited.
---------------------------------------------------------------------------

    \2367\ See supra notes 2337-2339 and accompanying text.
    \2368\ See Acceptance from Foreign Private Issuers of Financial 
Statements Prepared in Accordance with International Financial 
Reporting Standards Without Reconciliation to U.S. GAAP, Rel. No. 
33-8879 (Dec. 21, 2007) [73 FR 986, 999 n.136 (Jan. 4, 2008)] 
(stating that ``Regulation S-X will continue to apply to the filings 
of all foreign private issuers, including those who file financial 
statements prepared using IFRS as issued by the IASB,'' but 
providing that such issuers ``will comply with IASB requirements for 
form and content within the financial statements, rather than with 
the specific presentation and disclosure provisions in Articles 4, 
5, 6, 7, 9, and 10 of Regulation S-X'').
    \2369\ See, e.g., General Instruction E(c)(2) and Instruction 2 
to Item 8.A.2 of Form 20-F.
    \2370\ See PCAOB AS 3101, paragraph .08.
---------------------------------------------------------------------------

    A number of commenters provided feedback on the cost of the audit 
for the proposed financial statement metrics and some of these 
commenters suggested that the estimate included in the proposal was too 
low \2371\ or that the proposed financial statement metrics would 
result in significant fees or an increase the cost of the audit.\2372\ 
Given the narrower scope of the final rules and their focus on costs 
and expenditures for transactions that are currently recorded in 
registrants' books and records and material impacts to financial 
estimates and assumptions rather than the proposed Financial Impact 
Metrics, we expect any increases to the cost of the audit due to the 
financial statement disclosures will be relatively modest for most 
companies.\2373\ In addition, we agree with those commenters that 
stated the costs of auditing the proposed note to the financial 
statements would likely decrease or stabilize over time like other 
areas of audit work.\2374\ The financial statement disclosures we are 
adopting share many similarities with other disclosures in the 
financial statements, in particular because they are based in 
transactions currently recorded in registrants' books and records, and 
therefore the cost trajectory for auditing should be similar over time.
---------------------------------------------------------------------------

    \2371\ See supra note 2344 and accompanying text.
    \2372\ See supra notes 2343 and accompanying text.
    \2373\ See infra section IV.C.3.b.v.
    \2374\ See supra notes 2350-2351 and accompanying text.
---------------------------------------------------------------------------

    Finally, a number of commenters argued that the Commission should 
adopt a safe harbor for the financial statement metrics.\2375\ Some of 
these commenters limited their request to forward-looking financial 
disclosures included in the financial statements, while other 
commenters did not appear to limit their request for a safe harbor to 
forward-looking financial disclosures. By narrowing the scope of 
financial statement disclosures and focusing on costs and expenditures 
for transactions that are currently recorded in registrants' books and 
records and material financial estimates and assumptions, the final 
rules avoid many of the complexities associated with the proposed rules 
and therefore we do not think it would be necessary or appropriate to 
adopt a safe harbor for the financial statement disclosures.
---------------------------------------------------------------------------

    \2375\ See supra notes 2353 and accompanying text.
---------------------------------------------------------------------------

L. Registrants Subject to the Climate-Related Disclosure Rules and 
Affected Forms

1. Proposed Rules
    The Commission proposed to apply the proposed climate-related 
disclosure rules to a registrant with Exchange Act reporting 
obligations pursuant to Exchange Act section 13(a) \2376\ or section 
15(d) \2377\ and companies filing a Securities Act or Exchange Act 
registration statement.\2378\ The Commission proposed to require such 
registrants to include climate-related disclosures, including the 
proposed financial statement metrics,\2379\ in

[[Page 21818]]

Securities Act or Exchange Act registration statements (Securities Act 
Forms S-1, F-1, S-3, F-3, S-4, F-4, and S-11, and Exchange Act Forms 10 
and 20-F) \2380\ and Exchange Act annual reports (Forms 10-K and 20-F). 
Similar to the treatment of other important business and financial 
information, the proposed rules also required registrants to disclose 
any material change to the climate-related disclosures provided in a 
registration statement or annual report in their Form 10-Q (or, in 
certain circumstances, Form 6-K for a registrant that is a foreign 
private issuer that does not report on domestic forms).\2381\
---------------------------------------------------------------------------

    \2376\ 15 U.S.C. 78m(a).
    \2377\ 15 U.S.C. 78o(d).
    \2378\ See Proposing Release, section II.J.
    \2379\ See Form 20-F, General Instruction B(d) (stating that 
Regulation S-X applies to the presentation of financial information 
in the form). Although Item 17 and 18 of Form 20-F, and the forms 
that refer to Form 20-F (including Forms F-1 and F-3) permit a 
foreign private issuer to file financial statements prepared in 
accordance with IFRS as issued by the IASB, proposed Article 14 
disclosure was nevertheless required (similar to disclosure required 
by Article 12 of Regulation S-X). See Acceptance from Foreign 
Private Issuers of Financial Statements Prepared in Accordance with 
International Financial Reporting Standards Without Reconciliation 
to U.S. GAAP, Rel. No. 33-8879 (Dec. 21, 2007) [73 FR 986 (Jan. 4, 
2008)], 999, note 136 (stating that ``Regulation S-X will continue 
to apply to the filings of all foreign private issuers, including 
those who file financial statements prepared using IFRS as issued by 
the IASB,'' but providing that such issuers ``will comply with IASB 
requirements for form and content within the financial statements, 
rather than with the specific presentation and disclosure provisions 
in Articles 4, 5, 6, 7, 9, and 10 of Regulation S-X'').
    \2380\ Form 20-F is the Exchange Act form used by a foreign 
private issuer for its annual report or to register a class of 
securities under section 12 of the Exchange Act. We proposed to 
amend Part I of Form 20-F to require a foreign private issuer to 
provide the climate-related disclosures pursuant to the proposed 
rules either when registering a class of securities under the 
Exchange Act or when filing its Exchange Act annual report. The 
proposed rules further required a foreign private issuer to comply 
with the proposed rules when filing a Securities Act registration 
statement on Form F-1. Because Form F-1 requires a registrant to 
include the disclosures required by Part I of Form 20-F, the 
proposed amendment to Form 20-F rendered unnecessary a formal 
proposed amendment to Form F-1. We similarly did not propose to 
formally amend Forms S-3 and F-3 because the climate-related 
disclosure would be included in a registrant's Form 10-K or 20-F 
annual report that is incorporated by reference into those 
Securities Act registration statements.
    \2381\ Form 6-K is the form furnished by a foreign private 
issuer with an Exchange Act reporting obligation if the issuer: (i) 
makes or is required to make the information public pursuant to the 
law of the jurisdiction of its domicile or in which it is 
incorporated or organized, or (ii) files or is required to file the 
information with a stock exchange on which its securities are traded 
and which was made public by that exchange, or (iii) distributes or 
is required to distribute the information to its security holders. 
See General Instruction B to Form 6-K. That instruction currently 
lists certain types of information that are required to be furnished 
pursuant to subparagraphs (i), (ii), and (iii), above. While we 
proposed to amend Form 6-K to add climate-related disclosure to the 
list of the types of information to be provided on Form 6-K, we 
explained that a foreign private issuer would not be required to 
provide the climate-related disclosure if such disclosure is not 
required to be furnished pursuant to subparagraphs (i), (ii), or 
(iii) of General Instruction B.
---------------------------------------------------------------------------

    The Commission proposed to amend Form 20-F and the Securities Act 
forms that a foreign private issuer may use to register the offer and 
sale of securities under the Securities Act to require the same 
climate-related disclosures as proposed for a domestic 
registrant.\2382\ The Commission explained that, because climate-
related risks potentially impact both domestic and foreign private 
issuers regardless of the registrant's jurisdiction of origin or 
organization, requiring that foreign private issuers provide this 
disclosure is important to achieving the Commission's goal of more 
consistent, reliable, and comparable information across 
registrants.\2383\ The Proposing Release further noted that Form 20-F 
imposes substantially similar disclosure requirements as those required 
for Form 10-K filers on matters that are similar and relevant to the 
proposed climate-related disclosures, such as risk factors and 
MD&A.\2384\
---------------------------------------------------------------------------

    \2382\ See Proposing Release, section II.J.
    \2383\ See id.
    \2384\ See id.
---------------------------------------------------------------------------

    The Commission proposed to exempt SRCs from the proposed Scope 3 
emissions disclosure requirement. SRCs would otherwise be subject to 
all of the proposed rules. The Commission did not propose to exempt 
EGCs from the proposed rules noting that, due to their broad impact 
across industries and jurisdictions, climate-related risks may pose a 
significant risk to the operations and financial condition of 
registrants, both large and small.\2385\ The Commission did, however, 
solicit comment on whether the proposed rules should apply to EGCs or 
to other issuers, such as business development companies 
(``BDCs'').\2386\
---------------------------------------------------------------------------

    \2385\ See Proposing Release, section II.J.
    \2386\ A BDC is a closed-end investment company that has a class 
of its equity securities registered under, or has filed a 
registration statement pursuant to, section 12 of the Exchange Act, 
and elects to be regulated as a business development company. See 
section 54 of the Investment Company Act, 15 U.S.C. 80a-53. Like 
other section 12 registrants, BDCs are required to file Exchange Act 
annual reports.
---------------------------------------------------------------------------

    The proposed climate-related disclosure rules would not have 
applied to asset-backed issuers. The proposed rules also would not have 
required the proposed disclosures on the following forms, although the 
Commission solicited comment regarding such application:
     Form 40-F, the Exchange Act form used by a Canadian issuer 
eligible to report under the Multijurisdictional Disclosure System 
(``MJDS'') to register securities or to file its annual report under 
the Exchange Act;
     Form S-8, the Securities Act form used to register 
securities pursuant to an employee benefit plan; and
     Form 11-K, the Exchange Act form used for annual reports 
with respect to employee stock purchase, savings, and similar 
plans.\2387\
---------------------------------------------------------------------------

    \2387\ See Proposing Release, section II.J.
---------------------------------------------------------------------------

    The Commission also requested comment on whether the Commission 
should exclude Securities Act registration statements filed in 
connection with a registrant's IPO from the scope of the proposed 
climate-related disclosure rules instead of including them, as 
proposed.\2388\ The Commission further solicited comment on whether to 
require climate-related disclosure on Forms S-4 and F-4, as proposed. 
Specifically, the Commission requested comment on whether it should 
provide transitional relief for recently acquired companies such that 
registrants would not be required to provide the climate-related 
disclosures for a company that is the target of a proposed acquisition 
under Form S-4 or F-4 until the fiscal year following the year of the 
acquisition if the target company is not an Exchange Act reporting 
company and is not the subject of foreign or alternative climate-
related disclosure requirements that are substantially similar to the 
Commission's proposed requirements.
---------------------------------------------------------------------------

    \2388\ See id.
---------------------------------------------------------------------------

2. Comments
    Many commenters supported the proposal to include the climate-
related disclosures in Securities Act and Exchange Act registration 
statements and Exchange Act annual reports.\2389\ One commenter stated 
that it supported the placement of the climate-related disclosures in a 
company's annual report or registration statement instead of in a 
separate report because of its belief in integrated reporting, which 
facilitates a better understanding of a business.\2390\ Another 
commenter stated that inclusion of the proposed climate-related 
disclosures in registrants' annual reports and registration statements 
will dramatically improve the transparency of climate-related issues 
that affect registrants to the securities markets and drive consistency 
with which such data is prepared, presented, and audited.\2391\
---------------------------------------------------------------------------

    \2389\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; Bloomberg; Boston Common Asset Mgmt.; CalPERS; 
CalSTRS; CEMEX; CFA; NY SIF; TotalEnergies; Unilever; and Xpansiv.
    \2390\ See letter from Unilever.
    \2391\ See letter from Xpansiv.
---------------------------------------------------------------------------

    Many other commenters opposed requiring the climate-related 
disclosures to be included in existing forms and recommended that some 
or all of the

[[Page 21819]]

climate-related disclosures be included in a new and separately 
furnished form.\2392\ Some commenters stated that GHG emissions 
disclosures should be furnished on a separate form, which would be due 
after the deadline for a registrant's Exchange Act annual report, among 
other reasons, to better align this disclosure with GHG emissions 
reporting pursuant to the EPA's Greenhouse Gas Reporting Program 
(``GHGRP'').\2393\ Other commenters asserted that climate information 
that was ``beyond that traditionally required for other risk factors'' 
should be furnished supplementally on a new form.\2394\ Still other 
commenters, pointing to what they characterized as the rules' novelty 
and complexity, stated that most of the required climate disclosures 
should be furnished on one or more separate forms.\2395\
---------------------------------------------------------------------------

    \2392\ See, e.g., letters from Amer. Chem. Council; API; 
BlackRock; Chevron; D. Hileman Consulting; FedEx; NRF; and RILA.
    \2393\ See, e.g., letters from Amer. Bankers; ConocoPhillips; 
GM; and PIMCO.
    \2394\ See, e.g., letter from Amer. Chem. Council. See also 
BlackRock (recommending that certain GHG metrics and information on 
internal carbon pricing, scenario analyses, transition plans and 
climate-related targets or goals be furnished supplementally on a 
new form).
    \2395\ See, e.g., letters from API; Chevron; D. Hileman 
Consulting (stating that GHG emissions disclosures should be 
reported on one separate form and disclosures pertaining to climate-
related risks, impacts, governance, risk management, and targets and 
goals should be reported on another separate form.); FedEx; NRF; and 
RILA.
---------------------------------------------------------------------------

    One commenter opposed requiring climate-related disclosures in 
Securities Act registration statements unless the disclosures are 
incorporated by reference from another filing (e.g., from Form 10-K or 
20-F).\2396\ This commenter stated that excluding climate disclosures 
from these registration statements would prevent the climate disclosure 
rules from acting as a barrier to entry to the capital markets or 
unnecessarily delaying a pending merger and/or acquisition (``M&A'') 
transaction.\2397\
---------------------------------------------------------------------------

    \2396\ See letter from PwC.
    \2397\ See id.
---------------------------------------------------------------------------

    Commenters offered varied input on the application of the proposed 
rules to SRCs. Some commenters supported exempting SRCs from all of the 
proposed climate-related disclosure requirements \2398\ on the grounds 
that the compliance burden would be disproportionately greater for 
SRCs, as a proportion of overall revenue.\2399\ One commenter suggested 
that SRCs should be allowed to opt-out of climate disclosures for a 
period of ten years following an evaluation of certain factors, 
including the proportion of public investors and other metrics related 
to the registrant's climate impact.\2400\ Many commenters \2401\ 
supported the proposed exemption for Scope 3 emissions included in the 
proposed rules, asserting that SRCs will face significant data 
collection and reporting costs \2402\ and that SRCs need time to 
implement new technologies that will aid data collection and 
reporting.\2403\ Other commenters further stated that the Commission 
was underestimating these compliance costs and the resultant burdens it 
would impose on SRCs.\2404\ A number of commenters supported the 
proposed exemption for SRCs given the risk that the reporting burden 
would be passed to smaller downstream companies and urged the 
Commission to consider the impact of its climate disclosure 
requirements on those entities when considering exemptions for 
SRCs.\2405\
---------------------------------------------------------------------------

    \2398\ See, e.g., letters from Baker Tilly; BIO; BDO USA LLP; MD 
State Bar; Securities Law Comm.; and Volta.
    \2399\ See, e.g., letters from OTC Markets; UPS; and Nasdaq.
    \2400\ See, e.g., letter from Cohn Rez.
    \2401\ See, e.g., letters from AIMA; Dechert; ICBA; Fidelity; 
and SIA.
    \2402\ See, e.g., letter from Fortive (``Notwithstanding the 
proposed exemption for smaller reporting companies, the 
administrative and financial costs associated with collecting and 
measuring such data would be particularly burdensome for many 
registrants that currently do not report such information on a 
voluntary basis, especially small, medium-sized and newly reporting 
companies.''). See also letters from NAHB; and ICSWG.
    \2403\ See, e.g., letter from AEM.
    \2404\ See, e.g., letters from Baker Tilly US LLP (June 17, 
2022) (``Baker Tilly''); BIO; and J. Herron.
    \2405\ See, e.g., letters from ARA et al.; FPA; and HAAA.
---------------------------------------------------------------------------

    Some commenters stated that the proposed rules would discourage 
private companies from joining the public markets due to the high cost 
of complying with climate disclosures.\2406\ Other commenters urged the 
Commission to ameliorate the compliance costs for newly public 
companies by implementing exemptions for EGCs \2407\ and recommended 
that the Commission offer a phase in for newly public companies until 
the end of the first full fiscal year after going public.\2408\ Others 
recommended scaling and delaying the compliance requirements for both 
EGCs and SRCs.\2409\
---------------------------------------------------------------------------

    \2406\ See, e.g., letters from OTC Markets; MD State Bar; 
Securities Law Comm.; and NAHB.
    \2407\ See, e.g., letter from Connor Group.
    \2408\ See, e.g., letter from Shearman Sterling.
    \2409\ See SBCFAC Recommendation; Small Business Forum 
Recommendation (2023).
---------------------------------------------------------------------------

    A number of commenters opposed providing exemptions for SRCs, in 
particular for some or all of the proposed GHG requirements.\2410\ Some 
of these commenters instead favored longer compliance deadlines to ease 
the compliance burden for registrants, including SRCs,\2411\ while 
other commenters asserted that it was important not to exempt SRCs 
indefinitely from the requirement to disclose GHG emissions, 
particularly because this class of registrants is a significant portion 
of public companies.\2412\ Another commenter stated that SRCs have 
disproportionately higher exposure to climate-related risk, and 
indicated that while it may be appropriate to mitigate their compliance 
burden, disclosure would provide necessary transparency into the 
operations and financial condition of these registrants.\2413\ A 
different commenter stated that the ability of large filers to disclose 
Scope 3 emissions depended in part on smaller registrants disclosing 
Scope 1 and 2 emissions.\2414\ In addition, as discussed below,\2415\ 
commenters weighed in on the phase in periods that should apply to 
SRCs.\2416\
---------------------------------------------------------------------------

    \2410\ See, e.g., letters from Anthesis; CalSTRS; The Center for 
Biological Diversity (June 17, 2022) (``CBD''); CNX; ICI; 
ClientEarth; FFAC; OMERS; Prentiss; NCF; NY City Comptroller; WAP; 
and Essex Invest. Mgmt. (opposing exempting SRCs from providing 
Scope 3 disclosures); Terra Alpha; ClientEarth; and Defenders 
Wildlife (opposing any exemptions for SRCs).
    \2411\ See, e.g., letter from Anthesis.
    \2412\ See, e.g., letter from Essex Invest. Mgmt. (``As stated 
in the text to the proposed rule, SRCs make up approximately half of 
domestic filers in terms of numbers. By exempting SRCs from scope 3 
reporting indefinitely, it will impair investors' ability to fully 
analyze the extent of the climate-related risks that SRCs face.'' 
See also, e.g., letter from Ceres (stating that ``[w]e . . . do not 
object, in principle, to the proposed safe harbor and exemption for 
SRCs'' but indicating that ``we believe all of these measures should 
be temporary'').
    \2413\ See, e.g., letter from ICI. See also, e.g., letter from 
CalSTRS stating (``We need reliable numbers for small companies as 
well as for large companies; we have the same responsibility to vote 
proxies and monitor small companies as we do large companies.'')
    \2414\ See, e.g., letter from J. McClellan.
    \2415\ See infra section II.O.2.
    \2416\ See, e.g., letter from Morningstar.
---------------------------------------------------------------------------

    Some commenters recommended that the Commission exempt EGCs from 
the proposed rules or at least provide them with the same 
accommodations as SRCs.\2417\ Commenters stated that the large 
compliance costs of the proposed rules may deter many potential EGCs

[[Page 21820]]

from going public.\2418\ Other commenters opposed exempting EGCs from 
the proposed rules because such companies, like SRCs, may be exposed to 
climate-related risks.\2419\ Some commenters recommended providing EGCs 
with a longer phase in period rather than exempting them from the 
proposed rules.\2420\
---------------------------------------------------------------------------

    \2417\ See, e.g., letters from BIO; Davis Polk; Grant Thornton; 
D. Burton, Heritage Fdn.; J. Herron; Nasdaq (recommending phase ins 
for EGCs similar to those proposed for SRCs); Shearman Sterling 
(recommending that EGCs be exempt from proposed attestation 
requirement for Scopes 1 and 2 emissions); and SBCFAC Recommendation 
(recommending scaled and delayed disclosure for SRCs and EGCs).
    \2418\ See, e.g., letters from Davis Polk; Grant Thornton.
    \2419\ See, e.g., letters from ICI; PwC; and Soros.
    \2420\ See, e.g., letters from ICI; and Soros.
---------------------------------------------------------------------------

    Several commenters recommended that the Commission exempt BDCs from 
the proposed rules.\2421\ Commenters stated that subjecting BDCs to the 
proposed rules would be inappropriate because they are pooled 
investment vehicles that are more like registered investment companies 
than operating companies, which would also make the disclosure of GHG 
emissions difficult.\2422\ Commenters further stated that BDCs would be 
subject to the Commission's proposed rules regarding ESG disclosures 
for certain investment advisers and investment companies,\2423\ if 
adopted, which the commenters asserted is a more suitable regulation 
for BDCs than proposed subpart 1500.\2424\ Some commenters similarly 
recommended the exemption of other registered collective investment 
vehicles, such as real estate investment trusts (``REITs''),\2425\ and 
exchange-traded products (i.e., pooled investment vehicles listed on 
securities exchanges that are not investment companies registered under 
the Investment Company Act),\2426\ and issuers of non-variable 
insurance contracts \2427\ because of their differences with registered 
operating companies.
---------------------------------------------------------------------------

    \2421\ See, e.g., letters from AIC; BlackRock; Dechert LLP (June 
17, 2022) (``Dechert''); Fidelity; D. Burton, Heritage Fdn.; ICI; 
Northern Trust; Stradley Ronon Stevens and Young (June. 15, 2022) 
(``Stradley Ronon''); and TIAA.
    \2422\ See, e.g., letters from AIC; Dechert; Fidelity; ICI; and 
Northern Trust.
    \2423\ See Enhanced Disclosures by Certain Investment Advisers 
and Investment Companies about Environmental, Social, and Governance 
Investment Practices, Release No. 33-11068 (May 25, 2022) [87 FR 
36654 (June 17, 2022)].
    \2424\ See, e.g., letters from AIC; Dechert; ICI; and Stradley 
Ronon.
    \2425\ See, e.g., letters from Fidelity; and TIAA.
    \2426\ See, e.g., letters from AIC; BlackRock; ICI; and Northern 
Trust.
    \2427\ See, e.g., letter from Committee of Annuity Insurers 
(June 17, 2022) (``CAI'').
---------------------------------------------------------------------------

    Several commenters supported requiring foreign private issuers to 
provide the same climate disclosures as domestic registrants, as 
proposed.\2428\ Commenters stated that because foreign private issuers 
are exposed to climate-related risks in much the same way as domestic 
registrants, they should be subject to the same disclosure 
requirements.\2429\ Commenters also stated that applying the same 
climate-related disclosure requirements to domestic and foreign 
registrants would enhance the comparability of such disclosure.\2430\
---------------------------------------------------------------------------

    \2428\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CEMEX; Futurepast; SKY Harbor; and WBCSD.
    \2429\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; and WBCSD.
    \2430\ See, e.g., letters from CEMEX; and Futurepast.
---------------------------------------------------------------------------

    Other commenters stated that the Commission should permit foreign 
private issuers to follow the climate disclosure requirements of their 
home jurisdiction or of an alternative reporting regime to which they 
are subject.\2431\ Commenters stated that such treatment would 
alleviate the burden of having to comply with more than one set of 
climate disclosure requirements and would help prevent the Commission's 
climate disclosure rules from deterring foreign private issuers from 
becoming or remaining U.S. registrants.\2432\ One commenter recommended 
that the Commission exempt foreign private issuers from the proposed 
climate disclosure rules in order to discourage foreign private issuers 
from delisting from U.S. securities exchanges.\2433\
---------------------------------------------------------------------------

    \2431\ See, e.g., letters from AllianceBernstein; Davis Polk; 
Linklaters L; PGIM; PwC; and SAP SE (June 16, 2022) (``SAP'').
    \2432\ See, e.g., letter from Davis Polk.
    \2433\ See letter from Soc. Corp. Gov.
---------------------------------------------------------------------------

    Some commenters supported the rule proposal to require a registrant 
to disclose any material changes to the climate disclosures provided in 
its Exchange Act annual report in a subsequently filed Form 10-Q or 
furnished Form 6-K.\2434\ In this regard, one commenter stated that 
because climate-related risks are financial risks, they should be 
subject to the same disclosure requirements as other financial 
risks.\2435\ Another commenter stated that the proposed requirement 
should apply to any material change in a registrant's disclosure 
related to governance, strategy, risk management, and targets and 
goals, and not just to changes in previously reported quantitative 
information.\2436\
---------------------------------------------------------------------------

    \2434\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; CEMEX; D. Hileman Consulting; J. Herron; and 
TotalEnergies; see also letter from Morningstar (stating that any 
changes that would materially impact a company's GHG emissions 
disclosure should be reported at least in its Form 10-K, if not in 
its quarterly reports, as this information could significantly 
impact an investor's decision-making).
    \2435\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \2436\ See letter from D. Hileman Consulting.
---------------------------------------------------------------------------

    Other commenters, however, opposed the disclosure of climate-
related information on a quarterly basis.\2437\ One commenter stated 
that an interim updating requirement to report a material change in 
climate-related disclosures is not necessary because Form 10-Q already 
requires an update to risk factor disclosure provided by registrants 
other than SRCs and related material financial impacts disclosure would 
be required in an interim MD&A.\2438\ This commenter further stated 
that intra-year updates on climate-related disclosures would create 
meaningful incremental costs for registrants but offer little 
additional value to investors.\2439\ Another commenter that opposed 
quarterly updating stated that ``many, if not most, climate metrics, 
risks, opportunities, and strategies are long-term in nature and cannot 
meaningfully be assessed on a quarter-to-quarter basis.'' \2440\ Other 
commenters asserted that requiring the disclosure of climate-related 
information in Form 10-Q, in addition to Form 10-K, would overwhelm 
investors with information of limited usefulness and, due to its 
novelty, should not be required to be disclosed in Commission periodic 
reports.\2441\
---------------------------------------------------------------------------

    \2437\ See, e.g., letters from Etsy; and Sullivan Cromwell.
    \2438\ See letter from Sullivan Cromwell.
    \2439\ See id.
    \2440\ Letter from Etsy.
    \2441\ See, e.g., letters from API; and Chamber.
---------------------------------------------------------------------------

    Many commenters supported not subjecting MJDS filers to the 
proposed climate disclosure rules, as proposed.\2442\ Commenters stated 
that excluding MJDS filers from the Commission's climate disclosure 
rules would be consistent with the purpose of the MJDS, which is to 
enhance the efficiency of cross-border capital raising between the 
United States and Canada by in part permitting Canadian registrants to 
follow their home jurisdiction laws and rules when registering 
securities in the United States and satisfying their reporting 
obligations under the Exchange Act.\2443\ Commenters also noted that in 
October 2021, the Canadian Securities Administrators proposed a 
specific climate-related disclosure framework

[[Page 21821]]

(``CSA Proposed Instrument'') \2444\ that is primarily modeled on the 
TCFD framework.\2445\ According to commenters, once the CSA Proposed 
Instrument is adopted, MJDS filers will provide climate-related 
disclosures pursuant to the CSA Instrument that is similar to the 
disclosures required pursuant to the Commission's proposed rules.\2446\ 
One commenter, however, opposed excluding MJDS filers from the 
Commission's disclosure rules at least until the CSA Proposed 
Instrument is finalized and the Commission has determined that the CSA 
final Instrument is substantially similar to the Commission's climate-
related rules.\2447\
---------------------------------------------------------------------------

    \2442\ See, e.g., letters from ACLI; Barrick Gold Corporation 
(June 17, 2022) (``Barrick Gold''); Business Council of Canada (June 
16, 2022) (``BCC''); Can. Bankers; Davies Ward Phillips & Vineberg 
LLP (June 17, 2022) (``Davies Ward''); Dorsey Whitney (Oct. 31, 
2022) (``Dorsey''); Enbridge; Enerplus; Hydro One; Nutrien (June 17, 
2022); and Suncor Energy Inc. (June 17, 2022) (``Suncor'').
    \2443\ See, e.g., letters from Can. Bankers; Davies Ward; and 
Dorsey.
    \2444\ See CSA Consultation, Climate-related Disclosure Update 
and CSA Notice and Request for Comment, Proposed National Instrument 
51-107, Disclosure of Climate-related Matters (Oct. 2021).
    \2445\ See, e.g., letters from BCC; Can. Bankers; and Davies 
Ward.
    \2446\ See id.
    \2447\ See letter from PwC.
---------------------------------------------------------------------------

    Many commenters supported excluding asset-backed issuers from the 
proposed rules, as proposed.\2448\ One commenter stated that 
application of the proposed rules to asset-backed issuers would be 
inappropriate because of the unique market structure of asset-backed 
securities, regarding which the relevant disclosures for most investors 
relate to matters tied to credit quality and payment performance of the 
securitized pools, and not to commitments of the sponsoring company 
relating to climate.\2449\ Another commenter stated that any climate-
related disclosure requirements would need to be based on a framework 
that is particularly suited for asset-backed issuers, such as the ABS 
Climate Disclosure Framework that is being developed by the Structured 
Finance Association.\2450\ Other commenters stated that, because asset-
backed securitizations are essential for making home mortgages and car 
loans available to Americans, including those in low-income 
communities, and because application of the proposed rules to asset-
backed issuers would motivate them to exclude such loans from their 
financed emissions, such application would result in disproportionate 
and negative impacts on low-income communities.\2451\
---------------------------------------------------------------------------

    \2448\ See, e.g., letters from American Financial Services 
Association (June 16, 2022) (``AFSA''); J. Herron; IECA; Structured 
Finance Association (June 17, 2022) (``SFA); and J. Weinstein.
    \2449\ See letter from AFSA.
    \2450\ See letter from SFA.
    \2451\ See letters from IECA; and J. Weinstein.
---------------------------------------------------------------------------

    One commenter expressly opposed excluding asset-backed issuers from 
the proposed rules.\2452\ This commenter stated that asset-backed 
issuers are subject to many of the same climate risks as other issuers 
and require similar disclosure. As an example of the need for such 
disclosure, this commenter stated that there are growing concerns that 
asset-backed issuers are not fully disclosing that properties within 
the asset pools that they securitize are located in areas particularly 
vulnerable to increased risk of sea-level rise and extreme 
flooding.\2453\ Another commenter supported excluding asset-backed 
issuers from the Commission's climate disclosure rules at this time, 
but encouraged the Commission to consider, in due time, separate rules 
requiring climate-related disclosures from such issuers.\2454\ This 
commenter stated that, while it believed that all financial and 
nonfinancial corporations should be expected to provide consistent 
climate-related disclosures with respect to their equity or debt (or 
debtlike) issuances, a more tailored, risk-based approach may be more 
appropriate for climate-related disclosures with respect to 
securitizations.\2455\
---------------------------------------------------------------------------

    \2452\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \2453\ See id.
    \2454\ See letter from Morningstar.
    \2455\ See id.
---------------------------------------------------------------------------

    One commenter opposed applying the Commission's climate disclosure 
rules to Form S-8 filings without stating the reasons why.\2456\ No 
commenter addressed whether the proposed rules should apply to Form 11-
K filings.
---------------------------------------------------------------------------

    \2456\ See letter from J. Herron.
---------------------------------------------------------------------------

    Several commenters raised concerns about the application of the 
proposed disclosure requirements to newly public companies.\2457\ For 
example, commenters stated that application of the proposed rules to 
IPOs could deter many companies from going public due to the increased 
compliance costs and litigation risks associated with providing the 
climate-related disclosures, which would run counter to the 
Commission's mission of facilitating capital formation.\2458\ One 
commenter further stated that because private companies already face 
complex, lengthy, and costly processes to prepare for an IPO, the 
additional compliance burden imposed by the proposed climate disclosure 
rules would have a chilling effect on the use of the public securities 
markets to raise capital and on the broader U.S. economy.\2459\
---------------------------------------------------------------------------

    \2457\ See, e.g., letters from AIC; Baker Tilly; BDO USA; 
Nasdaq; PwC; RILA; Shearman Sterling; SIFMA; Soros Fund; and 
Sullivan Cromwell.
    \2458\ See, e.g., letters from AIC; and Nasdaq.
    \2459\ See letter from Nasdaq.
---------------------------------------------------------------------------

    Commenters raised similar concerns about the proposed rules in the 
context of M&A transactions. For example, one commenter stated that, 
given the scale of the disclosure and work necessary to comply with the 
proposed climate disclosure rules, having to prepare this disclosure 
for a private target on a stand-alone basis before the acquiring 
registrant can file its Form S-4 or F-4 to register the securities 
being issued in connection with the business combination would 
materially delay those filings and significantly extend the overall 
transaction timeline.\2460\ According to this commenter, public 
companies could be placed at a competitive disadvantage when bidding to 
acquire a private target company under the proposal because it would be 
necessary to screen prospective acquisitions for the ability to produce 
climate-related disclosures.\2461\ Another commenter stated that a 
private target may not have collected climate-related data prior to its 
acquisition, and it could be ``incredibly burdensome'' for the private 
company to go back in time and measure the impact of climate-related 
events during a period when it was not collecting such data.\2462\ 
Commenters noted that integrating a recently acquired company takes 
considerable time and resources, and the Commission should allow for 
delayed reporting so that an acquiring company need not alter its 
acquisition schedule to account for the difficulties in assuming 
responsibility for climate-related disclosures.\2463\ Because of the 
above concerns, commenters urged the Commission not to adopt compliance 
deadlines for the proposed climate disclosure requirements that would 
substantially influence the probability or timing of M&A transactions 
and IPOs.\2464\
---------------------------------------------------------------------------

    \2460\ See letter from Shearman Sterling.
    \2461\ See id.
    \2462\ See letter from Nasdaq.
    \2463\ See letters from Etsy; and Sullivan Cromwell.
    \2464\ See, e.g., letter from Shearman Sterling.
---------------------------------------------------------------------------

    Some commenters opposed excluding IPO registrants from the scope of 
the proposed climate disclosure rules.\2465\ After stating that 
companies that are going public should be held to the same reporting 
and disclosure requirements of all other public companies, one 
commenter noted that the rule proposal already contains a number of 
accommodations for filers, which should not be expanded.\2466\ Another 
commenter opposed exempting IPO registrants from the proposed rules 
because that would lower investor

[[Page 21822]]

protections in the public markets, which is contrary to the 
Commission's mission and purpose.\2467\ One other commenter stated that 
because investors need information about a registrant's climate-related 
risks at every stage of capital formation, it supported requiring a 
registrant to provide climate-related disclosures about a target 
company in its Form S-4 or F-4.\2468\
---------------------------------------------------------------------------

    \2465\ See letters from AGs of Cal. et al.; Amer. for Fin. 
Reform, Sunrise Project et al.; and CFA.
    \2466\ See letter from CFA (stating that the proposed rule 
``includes a safe harbor with limited reach, phase in periods for 
compliance, and reasonable boundaries for disclosure, and the 
Commission should not expand or loosen these accommodations.'').
    \2467\ See letter from AGs of Cal. et al.
    \2468\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
---------------------------------------------------------------------------

3. Final Rules
    The final rules will apply to Exchange Act periodic reports \2469\ 
and Securities Act and Exchange Act registration statements largely as 
proposed, with some modifications as described below. As we stated 
above when discussing our reasons for amending Regulations S-K and S-
X,\2470\ we are requiring climate-related disclosures in most 
Securities Act or Exchange Act registration statements and Exchange Act 
periodic reports. We believe disclosures about climate-related risks 
and their financial impacts should be treated like other business and 
financial information because they are necessary to understand a 
company's operating results and prospects and financial 
condition.\2471\
---------------------------------------------------------------------------

    \2469\ Although we generally refer to the final rules applying 
to Exchange Act periodic reports, the only time a registrant will 
disclose climate-related information responsive to the final rules 
in a Form 10-Q is when it elects to disclose its Scopes 1 and/or 2 
emissions pursuant to Item 1505 of Regulation S-K. A foreign private 
issuer that is subject to the GHG emissions reporting requirement, 
however, is required to provide the GHG emissions disclosure in its 
annual report on Form 20-F, although it may provide such emissions 
disclosure on a delayed basis in an amendment to that filing. See 
supra section II.H. The other portions of the final rules are not 
applicable to Exchange Act periodic reports other than annual 
reports.
    \2470\ See supra section II.A.3.
    \2471\ See id.
---------------------------------------------------------------------------

    We are taking this approach instead of adopting a new form for 
climate-related disclosures as suggested by commenters because it is 
more consistent with the Commission's integrated disclosure system for 
business and financial reporting and will improve the transparency and 
comparability of climate-related disclosures for investors as they will 
be included and incorporated into forms with which registrants and 
investors alike are familiar, and alongside information regarding a 
registrant's business, results of operations, and financial condition, 
which will facilitate an understanding of the impacts of climate-
related risks.\2472\ While we understand the concern of commenters that 
recommended the creation of a new form for climate-related 
disclosures,\2473\ revisions to the proposed rules \2474\ and 
strengthened accommodations regarding certain types of disclosures 
\2475\ and for certain issuers \2476\ will address many of these 
concerns.
---------------------------------------------------------------------------

    \2472\ See, e.g., supra notes 2390 and 2391 and accompanying 
text.
    \2473\ See supra notes 2392-2395 and accompanying text.
    \2474\ See, e.g., the adoption of less prescriptive requirements 
and a materiality qualifier for several of the final rule 
provisions.
    \2475\ See, e.g., supra section II.J (discussing the adoption of 
an expanded safe harbor provision).
    \2476\ See, e.g., supra section II.H (discussing the exemption 
from Scopes 1 and 2 emissions reporting for both SRCs and EGCs); and 
infra section II.O (discussing the adoption of different compliance 
dates for different types of filers).
---------------------------------------------------------------------------

    The final rules require registrants that file their Exchange Act 
annual reports on Forms 10-K, as well as their Exchange Act and 
Securities Act registration statements on Form 10 and Form S-1, S-4 
(except as provided below), or S-11, as applicable, to include the 
climate-related disclosures required by the final rules in these 
forms.\2477\ The final rules will also require foreign private issuers 
that file their Exchange Act annual reports or registration statements 
on Form 20-F and their Securities Act registration statements on Form 
F-1 or Form F-4 (except as provided below) to provide the same climate-
related disclosures as domestic registrants.\2478\ As commenters noted, 
because foreign private issuers are exposed to climate-related risks in 
the same way as domestic registrants, they should be subject to the 
same disclosure requirements.\2479\ Applying the same climate-related 
disclosure requirements to domestic and foreign registrants will also 
help achieve the Commission's goal of providing more consistent, 
reliable, and comparable information across registrants for investors. 
While we acknowledge commenters who suggested that foreign private 
issuers be permitted to substitute compliance with the final rules 
through disclosures made in response to requirements of other 
jurisdictions, we are not adopting substituted compliance at this time. 
We believe it makes sense to observe how reporting under international 
climate-related reporting requirements and practices develop before 
making a determination whether such an approach would result in 
consistent, reliable, and comparable information for investors. The 
Commission may consider such accommodations in the future depending on 
developments in the international climate reporting practices and our 
experience with disclosures under the final rules.\2480\
---------------------------------------------------------------------------

    \2477\ Registrants may incorporate by reference the climate-
related disclosures required by the final rules to the extent they 
are permitted to do so under Forms S-1, S-4, and S-11. See, e.g., 
Form S-1, General Instruction VII (setting forth the requirements a 
registrant must meet in order to incorporate by reference certain 
information required by Form S-1). If a registrant is eligible and 
elects to incorporate by reference certain information required by 
Forms S-1, S-4, and S-11, those forms also require the registrant to 
incorporate by reference its latest Form 10-K and all other Exchange 
Act reports filed since the end of the fiscal year covered by that 
Form 10-K. See Form S-1, Item 12; Form S-4, Items 11 and 13; Form S-
11, Item 29. In addition to those filings that a registrant is 
required to incorporate by reference, a registrant may also 
incorporate by reference its required emissions disclosure, if 
applicable, from the prior filing that contained such disclosure to 
satisfy its Item 1505 disclosure obligations under Form S-1, S-4, or 
S-11 if (1) such Form S-1, S-4, or S-11 becomes effective after 
filing its Form 10-K for its latest fiscal year but before filing a 
Form 10-K/A or its Form 10-Q for the second quarter of its current 
fiscal year containing the prior year's emissions disclosure and (2) 
the registrant, pursuant to Item 1505(c)(1), discloses the 
information required by Item 1505 in either a Form 10-K/A or its 
second quarter Form 10-Q rather than in its Form 10-K (in both the 
prior and current fiscal year). See also 17 CFR 230.411 and 17 CFR 
240.12b-23.
    \2478\ Forms S-3 and F-3 are not being amended to reference 
subpart 1500 because the required climate-related disclosures would 
be included in a registrant's Form 10-K or 20-F annual report that 
is incorporated by reference into those Securities Act registration 
statements. See Proposing Release, section J, note 690. However, as 
discussed in section II.H.3 above, we are amending these forms to 
clarify the date as of which disclosure required by Item 1505(a) 
must be incorporated.
    \2479\ See supra note 2429 and accompanying text.
    \2480\ See also discussion infra section IV.A.4 and IV.C.3.
---------------------------------------------------------------------------

    In a change from the proposed rules, the final rules will not apply 
to private companies that are parties to business combination 
transactions, as defined by Securities Act Rule 165(f),\2481\ involving 
a securities offering registered on Forms S-4 and F-4.\2482\ We 
acknowledge the concerns of commenters about the difficulties and costs 
associated with private target companies complying with the proposed 
disclosure requirements in the business combination context in addition 
to complying with certain other disclosure requirements under 
Regulation S-K and Regulation S-X,\2483\ as well as concerns that the 
application of those

[[Page 21823]]

requirements to private target companies could impact the timing of or 
discourage business combination activity in U.S. public markets.\2484\ 
Disclosure pursuant to subpart 1500 of Regulation S-K and Article 14 of 
Regulation S-X will only be required for a registrant or company being 
acquired that is subject to the reporting requirements of Section 13(a) 
or 15(d) of the Exchange Act.\2485\
---------------------------------------------------------------------------

    \2481\ See 17 CFR 230.165.
    \2482\ While Form S-1 may be used for business combination 
transactions, climate-related disclosure will also be required for 
reporting companies that are parties to the transaction.
    \2483\ See, e.g., Form S-4, Part I.C, Item 17(b) (requiring, 
with respect to a company being acquired that is not subject to the 
reporting requirements of Section 13(a) or 15(d) of the Exchange 
Act, a brief description of its business, disclosure pursuant to 
Item 2-01 of Regulation S-K (market price of and dividends on the 
company's equity), disclosure pursuant to Item 303 of Regulation S-K 
(MD&A), disclosure pursuant to Item 304 of Regulation S-K (changes 
in and disagreements with accountants), and, in certain 
circumstances, financial information).
    \2484\ See, e.g., letters from Shearman Sterling (stating that 
private targets are ``unlikely to have the extensive climate change 
disclosure prepared in advance of entering into a business 
combination with a public company.''); and Sullivan Cromwell 
(stating that, ``in addition to having the resources necessary to 
collect emissions data from the target company, acquirors would need 
to expend significant resources to ensure that (1) it has 
appropriate controls and procedures in place to assess the quality 
of the information and (2) such information is being collected and 
measured on a basis consistent with the emissions calculations 
throughout its organization.'').
    \2485\ The discussion throughout this release regarding the 
application of the subpart 1500 disclosure requirements to business 
combination transactions involving a securities offering registered 
on Forms S-4 and F-4 also applies to certain business combination 
transactions for which a proxy statement on Schedule 14A or an 
information statement on Schedule 14C is required to be filed. See 
17 CFR 240.14a-101, Item 14(c)(1) (requiring, for certain business 
combination transactions, disclosure of ``the information required 
by Part B (Registrant Information) of Form S-4 . . . or Form F-4 . . 
. , as applicable, for the acquiring company'') and Item 14 (c)(2) 
(requiring, for certain business combination transactions, 
disclosure of ``the information required by Part C (Information with 
Respect to the Company Being Acquired) of Form S-4 . . . or Form F-4 
. . . , as applicable''); and 17 CFR 240.14c-101, Item 1 (``Furnish 
the information called for by all of the items of Schedule 14A . . . 
which would be applicable to any matter to be acted upon at the 
meeting if proxies were to be solicited in connection with the 
meeting.''). The information required by Parts B and C of Forms S-4 
and F-4 includes the information required by General Instructions 
B.3 and C.3 to those forms. See Form S-4, General Instruction B.3 
(``If the registrant is subject to the reporting requirements of 
Section 13(a) or 15(d) of the Exchange Act, then . . . the 
information required by subpart 1500 of Regulation S-K . . . must be 
provided with respect to the registrant . . . ''); Form F-4, General 
Instruction B.3 (same); Form S-4, General Instruction C.3 (``If the 
company being acquired is subject to the reporting requirements of 
Section 13(a) or 15(d) of the Exchange Act, then . . . the 
information required by subpart 1500 of Regulation S-K . . . must be 
provided with respect to the company being acquired . . . ''); Form 
F-4, General Instruction C.3 (same).
---------------------------------------------------------------------------

    In another change from the proposed rules, the final rules will not 
require registrants to disclose any material change to the climate-
related disclosures provided in a registration statement or annual 
report in its Form 10-Q or, in certain circumstances, Form 6-K for a 
registrant that is a foreign private issuer that does not report on 
domestic forms. This is consistent with the annual reporting 
requirement adopted by the Commission in other contexts.\2486\ We are 
mindful of the concern expressed by many commenters about the potential 
compliance costs of the proposed rules, including the proposed interim 
updating requirement.\2487\ This change will help to mitigate the 
compliance burden.\2488\
---------------------------------------------------------------------------

    \2486\ See, e.g., Modernization of Property Disclosures for 
Mining Registrants, Release No. 33-10570 (Oct. 31, 2018) [83 FR 
66344 (Dec. 26, 2018)]; and Cybersecurity Risk Management, Strategy, 
Governance, and Incident Disclosure, Release No. 33-11216 (Jul. 26, 
2023) [88 FR 51896 (Aug. 4, 2023)].
    \2487\ See, e.g., letter from Sullivan Cromwell.
    \2488\ See supra note 2469.
---------------------------------------------------------------------------

    Also as proposed, the final rules will not apply to Canadian 
registrants that use the MJDS and file their Exchange Act registration 
statements and annual reports on Form 40-F. As many commenters stated, 
excluding MJDS filers from the Commission's climate disclosure rules is 
consistent with the purpose of the MJDS and will continue to allow MJDS 
registrants to follow their home jurisdiction laws and rules when 
registering securities in the United States and satisfying their 
reporting obligations under the Exchange Act.\2489\
---------------------------------------------------------------------------

    \2489\ See supra note 2443 and accompanying text.
---------------------------------------------------------------------------

    The proposed rules would have required SRCs to comply with all of 
the proposed climate-related disclosure requirements, except for 
disclosure pertaining to Scope 3 emissions, from which they were 
proposed to be exempted.\2490\ Similarly, most of the final rules will 
apply to SRCs, except for the disclosures requiring Scopes 1 and 2 
emissions, from which SRCs will be exempted.\2491\ Although some 
commenters asked the Commission to exclude SRCs from all of the 
Commission's climate disclosure rules,\2492\ we do not believe that 
such a blanket exemption would be appropriate in light of the fact 
that, as some commenters noted, SRCs are exposed to climate-related 
risks to the same extent as other registrants.\2493\ For similar 
reasons, the final rules will apply to EGCs, as proposed, except for 
the exemption regarding Scopes 1 and 2 emissions disclosure. However, 
we acknowledge that some aspects of the final rules could impose 
significant burdens on smaller and early growth stage registrants, 
particularly if the costs of compliance do not scale with the size of 
the firm and divert resources that are needed to expand the 
registrant's business. Because we expect the compliance burden and 
costs for the GHG emissions disclosure requirement to be proportionally 
greater for such registrants, not requiring SRCs and EGCs to disclose 
their Scopes 1 and/or 2 emissions will help address these concerns. For 
these reasons, we find that it is necessary and appropriate in the 
public interest and consistent with the protection of investors to not 
include SRCs and EGCs within the scope of the GHG emissions disclosure 
requirement,\2494\ but to include them within the scope of the other 
aspects of the final rules.\2495\ Moreover, the streamlined 
requirements and disclosure accommodations we are adopting, which will 
help limit the compliance burden of the final rules for all 
registrants, should further alleviate commenters' concerns about the 
impact of the proposed rules on SRCs and EGCs. In particular, adding 
materiality qualifiers and making several of the disclosure provisions 
less prescriptive should enable registrants, including SRCs and EGCs, 
to provide disclosure that better fit their particular facts and 
circumstances, which should lessen the need for scaled disclosure for 
SRCs and EGCs. Additionally, as discussed below, we are providing 
extended phase ins based on filer status, which will provide SRCs and 
EGCs with additional time to prepare for the final rules.
---------------------------------------------------------------------------

    \2490\ See Proposing Release, section II.J.
    \2491\ As discussed in section II.H.3 above, the final rules 
will not require any registrant to disclose its Scope 3 emissions.
    \2492\ See supra notes 2398 and 2417 and accompanying text.
    \2493\ See supra notes 948 and 2419 and accompanying text.
    \2494\ All registrants subject to the final rules, including 
SRCs and EGCs, are not required to disclose GHG emissions metrics 
other than as required by Item 1505, including where GHG emissions 
are included as part of a transition plan, target or goal.
    \2495\ See 15 U.S.C. 77z-3 and 15 U.S.C. 78mm.
---------------------------------------------------------------------------

    Similarly, we are not providing an exemption or transitional relief 
for registrants engaged in an IPO, as recommended by some commenters, 
because of these streamlined requirements and other 
accommodations.\2496\ In addition, we note that exempting EGCs from the 
GHG emissions disclosure requirement will significantly reduce the 
compliance burden of the final rules for most new registrants, as 
historically EGCs have accounted for almost 90% of IPO companies.\2497\ 
Moreover, providing a longer transition period before SRCs and EGCs 
must first comply with the final rules should help those entities that 
go public to develop the appropriate

[[Page 21824]]

controls and procedures for providing the required climate-related 
disclosures. We further note that initial filings from registrants that 
are not SRCs or EGCs and that determine that they have material Scope 1 
and/or Scope 2 emissions will only be required to provide emissions 
data for one year because they will not have previously provided such 
disclosure in a Commission filing.\2498\
---------------------------------------------------------------------------

    \2496\ See supra note 2457 and accompanying text.
    \2497\ Wilmer Hale, 2023 IPO Report, 2 (Mar. 31, 2023), 
available at https://www.wilmerhale.com/insights/publications/2023-ipo-report (``IPOs by emerging growth companies (EGCs) accounted for 
87% of the year's IPOs, a share modestly lower than the 93% in 2021 
and the 89% average that has prevailed since enactment of the JOBS 
Act in 2012.'').
    \2498\ See supra section II.H.3.
---------------------------------------------------------------------------

    The final rules also will not apply to asset-backed securities 
issuers, as proposed. Although we recognize that, as one commenter 
noted, climate-related risks may be relevant for some of the pooled 
assets that comprise certain asset-backed securities,\2499\ we believe 
that adoption of climate-related disclosure requirements for certain 
types of securities, such as asset-backed securities, should consider 
the unique structure and characteristics of those securities, 
consistent with other Commission disclosure requirements applicable to 
asset-backed securities issuers.\2500\ Accordingly, while the 
Commission may consider climate-related disclosure requirements for 
asset-backed securities issuers in a future rulemaking, we decline to 
adopt such requirements as part of this rulemaking.
---------------------------------------------------------------------------

    \2499\ See supra notes 2452 and 2453 and accompanying text.
    \2500\ See supra note2450 and accompanying text. See also 17 CFR 
229.1100 through 229.1125 (Regulation AB).
---------------------------------------------------------------------------

    We are not exempting other registrants, such as BDCs, REITs, or 
issuers of registered non-variable insurance contracts from the final 
rules. As with operating companies, these entities may face material 
climate-related risks that would impact an investment or voting 
decision and will have only limited disclosure obligations to the 
extent climate-related risks are not material in a given case. We 
acknowledge commenters that noted that certain registered collective 
investment vehicles have differences from operating companies, but, in 
our view, those differences are not significant enough in this context 
to warrant the differential treatment we are applying to asset-backed 
securities issuers. Further, because the final rules have been modified 
and streamlined from proposed, as described above, to the extent a 
climate-related risk is not material to such registrants the 
information required to be disclosed would be limited. Likewise, we are 
not exempting BDCs as suggested by other commenters. While we 
acknowledge that, if the Commission's proposed rules regarding ESG 
disclosures for certain investment advisers and investment companies 
were adopted, there may be some overlap in the required disclosures, we 
nonetheless believe that the climate-related information required to be 
disclosed by the final rules in a registrant's Securities Act 
registration statements and Exchange Act reports will be important to 
investors and should apply to BDCs and REITs. Finally, with respect to 
issuers of registered non-variable insurance contracts, if the final 
rules would otherwise apply solely as a result of a registrant's 
offerings of registered index-linked annuities, the final rules may not 
apply prior to required compliance.\2501\ To the extent such a 
registrant is subject to the final rules in connection with offerings 
of other types of registered non-variable insurance contracts, as noted 
above, to the extent a climate-related risk is not material to such 
registrants the information required to be disclosed would be limited.
---------------------------------------------------------------------------

    \2501\ See Division AA, Title I of the Consolidated 
Appropriations Act, 2023, Public Law 117-328; 136 Stat. 4459 (Dec. 
29, 2022) and Registration for Index-Linked Annuities; Amendments to 
Form N-4 for Index-Linked and Variable Annuities (``RILA Act''), 
Release No. 33-11250 (Sept. 29, 2023) [17 FR 71088 (Oct. 13, 2023)]. 
If the Commission adopts this proposal substantially as proposed, or 
insurers are able to register offerings of registered index-linked 
annuities on Form N-4 pursuant to a provision in the RILA Act, the 
registration statement for a registered-index linked annuity would 
not be required to include the information required by the final 
rules adopted in this release. We also anticipate that in these 
circumstances insurance companies generally will rely on Exchange 
Act Rule 12h-7 if they would otherwise be subject to Exchange Act 
reporting obligations solely by reason of their offerings of 
registered index-linked annuities.
---------------------------------------------------------------------------

    Finally, as proposed, the final rules will not apply to Forms S-8 
and 11-K.

M. Structured Data Requirement (Item 1508)

1. Proposed Rules
    The proposed rules would have required a registrant to tag the 
proposed climate-related disclosures in a structured, machine-readable 
data language. Specifically, the proposed rules would have required a 
registrant to tag climate-related disclosures in Inline eXtensible 
Business Reporting Language (``Inline XBRL'') in accordance with 17 CFR 
232.405 (Rule 405 of Regulation S-T) and the EDGAR Filer Manual. The 
proposed requirements would include block text tagging and detail 
tagging of narrative and quantitative disclosures provided pursuant to 
subpart 1500 of Regulation S-K and Article 14 of Regulation S-X.
2. Comments
    Commenters that addressed this aspect of the proposal largely 
supported requiring registrants to tag climate-related disclosures, 
including block text tagging and detail tagging of narrative and 
quantitative disclosures in Inline XBRL, as proposed.\2502\ Commenters 
indicated that Inline XBRL is a functional tool familiar to most 
investors and that it would be a useful tool for climate-related 
disclosures.\2503\ Some commenters questioned the utility of climate-
related disclosures without digital tagging and asserted that the 
benefit to end users of this information far outweighed the costs to 
issuers, particularly given that issuers should already have 
established the necessary software, skills, and processes to comply 
with the proposed requirements.\2504\
---------------------------------------------------------------------------

    \2502\ See, e.g., letters from Impact Capital Managers, Inc.; 
ISS ESG; Crowe LLP; Eni SpA; CFA (noting that ``Even retail 
investors who do not have the same capacity to conduct that analysis 
directly would still benefit from tagging if, as we expect, 
independent third parties use the data to analyze companies' 
performance on climate-related criteria and communicate their 
findings broadly to the investing public''); Ceres; The Deep South 
Center for Environmental Justice (June 17, 2022) (``Deep South''); 
London Stock Exchange Group (June 17, 2022) (``LSEG'') Earthjustice; 
Data Foundation (June 17, 2022) (``Data Fnd''); TotalEnergies; John 
Turner, CEO, XBRL US (June 23, 2023) (``XBRL US''); Eric Pedersen, 
Head of Responsible Investments in Nordea Asset Management (June 17, 
2022) (``Nordea Asset Mgmt''); Church Grp.; Bloomberg; BHP; CalPERS; 
Ethic; Harvard Mgmt.; Can. Coalition GG; Morningstar, Inc.; Patrick 
Callery, XBRL International, Inc.; Prime Buchholz, LLC; Treehouse 
Investments, LLC; Trakref, Xpansiv Ltd.; Seattle City ERS; Asia 
Investor Group on Climate Change, Asia Investor Group on Climate 
Change; Clara Miller; M. Hadick; R. Palacios. But see Alliance 
Resource (``Requiring XBRL tagging of information would increase 
costs and impose time constraints on registrants. Requiring the use 
of XBRL would be a departure from other areas of Securities and 
Exchange Act filings outside the financial statements and given the 
differences in the estimates and assumptions used to calculate Scope 
1, 2, and 3 emissions, we believe the use of XBRL for these 
disclosures would not be meaningful to investors.'').
    \2503\ See, e.g., letters from ISS ESG; Ceres.
    \2504\ See, e.g., letters from XBRL International; Ceres.
---------------------------------------------------------------------------

    One commenter questioned how many investors use this functionality 
and suggested that tagging should instead be voluntary.\2505\ Another 
commenter stated that tagging of climate-related disclosures under 
subpart 1500 of Regulation S-K should not be required because currently 
registrants only tag their financial statements including any footnotes 
and schedules set forth in Article 12 of Regulation S-X.\2506\ This 
commenter also asserted that, if the Commission

[[Page 21825]]

were to adopt an Inline XBRL tagging requirement as proposed, it should 
approve and update a taxonomy prior to compliance, otherwise 
registrants would create custom tags which would reduce the 
comparability and utility of the required disclosures. One supportive 
commenter stated that the Commission should consider developing 
guidance to help standardize climate-related custom tags ``to foster 
comparability and faster access across corporate disclosures.'' \2507\ 
Yet another supportive commenter recommended that ``the Commission 
avoid custom tags within the Inline XBRL schema because they erode the 
comparability of the climate-related disclosures.'' \2508\
---------------------------------------------------------------------------

    \2505\ See, e.g., letters from Sky Harbor.
    \2506\ See, e.g., letter from American Fuel & Petrochemical 
Manufacturers.
    \2507\ See, e.g., letter from ISS ESG.
    \2508\ See, e.g., letter from Morningstar.
---------------------------------------------------------------------------

    Commenters largely supported the proposal to require tagging of 
both quantitative climate-related metrics and qualitative climate-
related disclosures, stating that tagging will maximize efficiency and 
make the information easier to consume.\2509\ One of these commenters 
stated that detail and block text tagging ``of all disclosure, as 
opposed to only quantitative metrics, expedites aggregation, filtering, 
and synthesis of corporate reporting in addition to making the 
reporting more accessible and usable in the first place.'' \2510\ 
Another commenter stated that tagging of both narrative and 
quantitative information is necessary to increase efficiencies in the 
capital markets as a new volume of information becomes available.\2511\
---------------------------------------------------------------------------

    \2509\ See, e.g., letters from CalPERS; ISS ESG; and 
Morningstar, Inc. See also, e.g., XBRL US; and XBRL International, 
Inc.
    \2510\ See, e.g., letter from ISS ESG.
    \2511\ See, e.g., letter from Morningstar.
---------------------------------------------------------------------------

    The Commission also solicited comment on whether there are any 
third-party taxonomies the Commission should consider in connection 
with the proposed tagging requirements.\2512\ While one commenter 
\2513\ suggested the registrant should have the ability to select the 
structured data language it wanted to use, most commenters stated that 
the Commission should require tagging in Inline XBRL, as 
proposed.\2514\ One commenter noted the importance of interoperability 
with international regulators and organizations when considering 
alternatives.\2515\ Another commenter emphasized that machine-readable 
data that are interoperable with international standards was necessary 
to ensure effective usage in the current international regulatory 
environment.\2516\ A different commenter similarly stated that the ISSB 
has been refining the XBRL climate risk disclosure taxonomy since its 
inception and recommended that the Commission build its taxonomy based 
on this work, which would further facilitate global alignment of 
disclosure standards.\2517\ Other commenters stated that the existing 
XBRL taxonomy is both familiar and available to issuers and consumers 
of financial data.\2518\
---------------------------------------------------------------------------

    \2512\ See Proposing Release, section II.L.
    \2513\ See, e.g., letter from TotalEnergies.
    \2514\ See, e.g., letters from ISS ESG; XBRL US, Morningstar US, 
XBRL International.
    \2515\ See, e.g., letter from Eni Spa.
    \2516\ See, e.g., letter from Data Fnd, urging the Commission to 
consider adopting international standards to ensure the highest 
possibility for data comparability across reporting regimes and 
international regulatory bodies.
    \2517\ See, e.g., letter from Ceres (also noting that the ISSB 
released a Sustainability Disclosure Taxonomy for public comment on 
May 25, 2022).
    \2518\ See, e.g., letter from ISS ESG.
---------------------------------------------------------------------------

3. Final Rules
    After considering comments, we are adopting the structured data 
requirements as proposed.\2519\ For registrants that are LAFs, 
compliance with the structured data requirements for disclosures under 
subpart 1500 of Regulation S-K will be required for all disclosures 
beginning one year after initial compliance with the disclosure 
requirements.\2520\ Other categories of filers will be required to 
comply with the tagging requirements upon their initial compliance with 
subpart 1500. Likewise, with respect to any specific provisions that 
have an extended compliance date that begins on or after the initial 
tagging compliance date for LAFs, filers will be required to tag such 
information at initial compliance.\2521\ Because non-LAF registrants 
will have a later date than LAF registrants to comply overall with the 
final rules, we are not adopting a separate later compliance date 
regarding the structured data requirements for non-LAF registrants.
---------------------------------------------------------------------------

    \2519\ Item 1508 of Regulation S-K and Rule 405(b)(4)(vii) of 
Regulation S-T (requiring disclosures filed pursuant to subpart 1500 
of Regulation S-K to be submitted as an Interactive Data File). 
Because financial statements are already structured in Inline XBRL, 
no new regulatory text is necessary to structure the disclosures 
filed pursuant to Article 14 of Regulation S-X. See Rule 
405(b)(1)(i) of Regulation S-T.
    \2520\ See infra at section II.O.3 for a more detailed 
discussion of compliance dates.
    \2521\ This includes Item 1502(d)(2), Item 1502(e)(2), Item 
1504(c)(2), Item 1505, and Item 1506.
---------------------------------------------------------------------------

    Since all issuers that will be subject to the final rules must 
currently tag disclosures in Inline XBRL,\2522\ the requirement will 
not unduly add to companies' burden, and we believe any incremental 
costs are appropriate given the significant benefits to investors, as 
detailed by commenters, including improving the usefulness and 
comparability of disclosures, as well as making such disclosures easier 
to locate and review. With respect to the commenter that stated that 
registrants should not be required to tag climate-related disclosures 
because they currently only tag financial statement disclosures, we 
note that all issuers, including smaller reporting companies, must tag 
in Inline XBRL cover page disclosures and financial statement 
disclosures, which includes both detail and block text tagging. In 
addition, we note that the limited incremental additional cost 
associated with tagging additional disclosures results in a significant 
benefit to investors in terms of the ability to readily find and 
analyze disclosures. As the Commission stated in the Proposing Release 
and as confirmed by commenters, Inline XBRL tagging will enable 
automated extraction and analysis of the information required by the 
final rules, allowing investors and other market participants to more 
efficiently identify responsive disclosure, as well as perform large-
scale aggregation, comparison, filtering, and other analysis of this 
information across registrants, as compared to requiring a non-machine 
readable data language such at HTML.\2523\ The Inline XBRL requirement 
will also enable automatic comparison of tagged disclosures against 
prior periods. If we were not to adopt the Inline XBRL requirement as 
suggested by some commenters, some of these benefits would be 
diminished, in particular the enhanced comparability of the disclosures 
required under the final rules. We are not allowing for voluntary 
tagging, as suggested by one commenter, because to do so would likely 
negatively impact the completeness of the data, thereby diminishing the 
usefulness of the information.
---------------------------------------------------------------------------

    \2522\ See Rules 405, 406, and 408 of Regulation S-T.
    \2523\ These considerations are generally consistent with 
objectives of the recently enacted Financial Data Transparency Act 
of 2022, which directs the establishment by the Commission and other 
financial regulators of data standards for collections of 
information, including with respect to periodic and current reports 
required to be filed or furnished under Exchange Act sections 13 and 
15(d). Such data standards must meet specified criteria relating to 
openness and machine-readability and promote interoperability of 
financial regulatory data across members of the Financial Stability 
Oversight Council. See James M. Inhofe National Defense 
Authorization Act for Fiscal Year 2023, Public Law 117-263, tit. 
LVIII, 136 Stat. 2395, 3421-39 (2022).
---------------------------------------------------------------------------

    With respect to the commenter that suggested registrants should 
have the ability to select a structured data language, we have 
concluded that leaving the particular structured data language 
unspecified could lead to

[[Page 21826]]

different issuers using different data languages for the same 
disclosure, thus hindering the interoperability and usability of the 
data. We agree with commenters that stated that the existing Inline 
XBRL data language is familiar to registrants and investors, and 
therefore continued use of this structured data language will ease 
registrants' cost of compliance and burdens on investors.
    We acknowledge commenters that noted the importance of 
interoperability with international standards. The staff will keep this 
consideration in mind as it develops a draft taxonomy for the final 
rules and will seek to incorporate elements from third-party taxonomies 
whenever appropriate to do so. With respect to the commenter who called 
for the Commission to approve a taxonomy prior to compliance, 
consistent with the Commission's common practice, a draft taxonomy will 
be made available for public comment, and the Commission will 
incorporate a final taxonomy into an updated version of EDGAR before 
the tagging requirements take effect. We acknowledge commenters who 
expressed concerns about the potential for extensive custom tagging, 
and the possible resulting effect on data quality and usefulness. In 
order to address these concerns and provide sufficient time for the 
adoption of a final taxonomy that will take into consideration initial 
disclosures that will be provided in response to the final rules, we 
are delaying compliance with the structured data requirements for one 
year beyond initial compliance with the disclosure requirements for LAF 
registrants, which have the earliest compliance date regarding the 
final rules.\2524\ This approach should both help lessen any compliance 
burden and improve data by reducing the need for extensive custom 
tagging.
---------------------------------------------------------------------------

    \2524\ See infra at section II.O.3.
---------------------------------------------------------------------------

N. Treatment for Purposes of the Securities Act and the Exchange Act

1. Proposed Rules
    The Commission proposed to treat the proposed required climate-
related disclosures as ``filed'' and therefore subject to potential 
liability under Exchange Act section 18,\2525\ except for disclosures 
furnished on Form 6-K.\2526\ The proposed filed climate-related 
disclosures would also be subject to potential section 11 liability 
\2527\ if included in, or incorporated by reference into, a Securities 
Act registration statement. This treatment would apply both to the 
disclosures in response to proposed subpart 1500 of Regulation S-K and 
to proposed Article 14 of Regulation S-X.
---------------------------------------------------------------------------

    \2525\ 15 U.S.C. 78r.
    \2526\ See Proposing Release, section II.L.
    \2527\ 15 U.S.C. 77k.
---------------------------------------------------------------------------

    The Commission proposed that Form 6-K disclosures would not be 
treated as ``filed'' because the form, by its own terms, states that 
``information and documents furnished in this report shall not be 
deemed to be `filed' for the purposes of section 18 of the Act or 
otherwise subject to the liabilities of that section.'' \2528\ As the 
Commission explained when proposing the climate-related disclosure 
rules,\2529\ the treatment of disclosures on Form 6-K as furnished is a 
long-standing part of the foreign private issuer disclosure 
system.\2530\
---------------------------------------------------------------------------

    \2528\ Form 6-K, General Instruction B.
    \2529\ See Proposing Release at section II.L.
    \2530\ See Periodic Report of Foreign Issuer, Release No. 34-
8069 (Apr. 28, 1967) [32 FR 7853 (May 30, 1967)]. Form 6-K's 
treatment as furnished for purposes of section 18 has existed since 
the Commission adopted the form.
---------------------------------------------------------------------------

2. Comments
    Commenters expressed differing views on whether we should treat 
Commission-mandated climate-related disclosures as filed or furnished. 
Several commenters supported the proposed treatment of disclosures 
required by both proposed subpart 1500 of Regulation S-K and proposed 
Article 14 of Regulation S-X as filed.\2531\ One commenter stated that 
because climate-related disclosures will provide information that is 
important for investors in securities analysis and the management of 
investment risk, these disclosures should be treated the same as other 
critical information filed under Regulations S-X and S-K that is 
material and necessary for investors' assessment of registrants' 
financial performance and future prospects.\2532\ Other commenters 
stated that the treatment of climate-related disclosures as filed, 
which would allow liability under section 18 to attach to false or 
misleading statements, will communicate to registrants the importance 
of these disclosures and deter them from greenwashing or otherwise 
making misleading statements.\2533\ Still other commenters stated that 
the proposed treatment of climate-related disclosures as filed would 
help ensure that the disclosures are accurate and consistent.\2534\ One 
such commenter stated that the treatment of climate-related disclosures 
as filed could substitute for the proposed requirement to provide 
assurance for certain GHG emissions disclosures, which the commenter 
opposed.\2535\
---------------------------------------------------------------------------

    \2531\ See, e.g., letters from Amer. for Fin. Reform, Sunrise 
Project et al.; AGs of Cal. et al.; CalPERS; Ceres; CFA; Engine No. 
1; Franklin Templeton; PwC; SKY Harbor; and TotalEnergies.
    \2532\ See letter from Amer. for Fin. Reform, Sunrise Project et 
al.
    \2533\ See letters from AGs of Cal. et al.; and CFA.
    \2534\ See, e.g., letters from Ceres; Franklin Templeton; PwC; 
and SKY Harbor.
    \2535\ See letter from SKY Harbor.
---------------------------------------------------------------------------

    Several other commenters opposed the proposed treatment of climate-
related disclosures as filed.\2536\ Some of these commenters stated 
that the Commission should treat climate-related disclosures as 
furnished rather than filed because of the complexities and 
uncertainties involved in such disclosures, particularly regarding 
those pertaining to GHG emissions disclosures.\2537\ In this regard one 
commenter stated that the ``evolving and uncertain nature of Scope 3 
measurement and tracking capabilities (and, for some smaller companies, 
the novelty of Scope 1 and Scope 2 reporting) could make it difficult 
for [registrants] to reach the degree of certainty necessary to assume 
the liability burden associated with reports filed with the 
[Commission].'' \2538\ Other commenters stated that the proposed 
treatment would deter registrants from providing expansive climate-
related disclosures because of the potential liability under Exchange 
Act section 18 and Securities Act section 11.\2539\
---------------------------------------------------------------------------

    \2536\ See, e.g., letters from Amer. Chem.; AGC; BlackRock; 
Chevron; D. Burton, Heritage Fdn.; GPA Midstream; HP; MFA; Nareit; 
Nasdaq; NAM; RILA; Soc. Corp. Gov.; UPS; and Williams Cos.
    \2537\ See, e.g., letters from Alphabet et al.; Chevron; D. 
Burton, Heritage Fdn.; GPA Midstream; HP; NAM; RILA; UPS; and 
Williams Cos.
    \2538\ See letter from NAM; see also letter from Alphabet et al.
    \2539\ See, e.g., letters from BlackRock; J. Herron; and Nareit.
---------------------------------------------------------------------------

    Several commenters supported the proposed treatment of climate-
related disclosures on a Form 6-K as furnished.\2540\ One commenter 
stated that it saw no reason to disrupt the well-established treatment 
of information provided on a Form 6-K.\2541\ Other commenters supported 
the proposed Form 6-K treatment because they believed that all climate-
related disclosures should be treated as furnished.\2542\
---------------------------------------------------------------------------

    \2540\ See, e.g., letters from BHP; CEMEX; and J. Herron.
    \2541\ See letter from BHP.
    \2542\ See, e.g., letters from CEMEX; and J. Herron; see also 
letter from Nasdaq (stating that the Commission should treat all 
climate-related disclosures as furnished while also stating that the 
Commission has ``not explained why it has discriminated between 
foreign and domestic companies in this regard'').
---------------------------------------------------------------------------

3. Final Rules
    As proposed, the climate-related disclosures provided pursuant to 
the

[[Page 21827]]

final rules will be treated as filed. Climate-related disclosures will 
therefore be subject to potential liability pursuant to Exchange Act 
section 18 and, if included or otherwise incorporated by reference into 
a Securities Act registration statement, Securities Act section 11 as 
well. Treating climate-related disclosures as filed will help promote 
the accuracy and consistency of such disclosures. In this regard, we 
believe climate-related disclosures should be subject to the same 
liability as other important business or financial information that the 
registrant includes in its registration statements and periodic 
reports. While we acknowledge commenters' concerns regarding the 
complexities and evolving nature of climate data methodologies, 
particularly with regard to GHG emissions metrics,\2543\ the 
modifications we have made to the proposed rules should help to 
mitigate this concern. These modifications include: limiting the scope 
of the GHG emissions disclosure requirement; \2544\ revising several 
provisions regarding the impacts of climate-related risks on strategy, 
targets and goals, and climate-related metrics so that registrants will 
only be required to provide the disclosures in certain circumstances, 
such as when material to the registrant; \2545\ and providing an 
additional PSLRA safe harbor for several types of climate-related 
disclosures.\2546\ We also are providing registrants with a transition 
period based on filer status and the content of the required 
information to afford registrants additional time to prepare to provide 
the climate-related disclosures.\2547\ For these reasons, we are 
requiring the climate-related disclosures to be filed rather than 
furnished.
---------------------------------------------------------------------------

    \2543\ See supra notes 2537 and 2538 and accompanying text.
    \2544\ See supra section II.H.3.
    \2545\ See supra sections II.D., II.G.3, and II.H.3.
    \2546\ See supra section II.J.3.
    \2547\ See infra section II.O.3.
---------------------------------------------------------------------------

O. Compliance Date

1. Proposed Rules
    The Commission proposed phase in dates for complying with the 
proposed rules that differed based on a registrant's filing status or 
status as an SRC.\2548\ In proposing the different compliance dates, 
the Commission recognized that many registrants may require time to 
establish the necessary systems, controls, and procedures to comply 
with the proposed climate-related disclosure requirements. The 
Commission also indicated that it was appropriate to apply the rules 
first to LAFs because many LAFs are already collecting and disclosing 
climate-related information, have already devoted resources to these 
efforts, and have some levels of controls and processes in place for 
such disclosure.\2549\ In addition, by providing AFs and NAFs with 
additional time, and SRCs with the greatest amount of time, to prepare 
for complying with the proposed rules, the Commission sought to provide 
registrants, especially smaller registrants, with additional time to 
prepare for the proposed climate-related disclosures.\2550\
---------------------------------------------------------------------------

    \2548\ See Proposing Release, section II.M.
    \2549\ See id.
    \2550\ See id.
---------------------------------------------------------------------------

    The Commission summarized the proposed phase ins for compliance in 
the following table, which was included in the Proposing Release. The 
table assumed, for illustrative purposes, that the proposed rules would 
be adopted with an effective date in December 2022, and that the 
registrant has a December 31 fiscal year-end. The proposed compliance 
dates in the table applied to both annual reports and registration 
statements.

                                      Compliance Dates Under Proposed Rules
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Registrant type                                 Disclosure compliance date              Financial statement
                                                                                         metrics audit
                                                                                         compliance date
----------------------------------------------------------------------------------------------------------------
                                    All proposed              GHG emissions metrics:
                                     disclosures, including    Scope 3 and.
                                     GHG emissions metrics:   associated intensity
                                     Scope 1, Scope 2, and     metric.
                                     associated intensity
                                     metric, but.
                                    excluding Scope 3.......
----------------------------------------------------------------------------------------------------------------
LAFs..............................  Fiscal year 2023 (filed   Fiscal year 2024 (filed   Same as disclosure
                                     in 2024).                 in 2025).                 compliance date.
AFs and NAFs......................  Fiscal year 2024 (filed   Fiscal year 2025 (filed
                                     in 2025).                 in 2026).
SRCs..............................  Fiscal year 2025 (filed   Exempted................
                                     in 2026).
----------------------------------------------------------------------------------------------------------------

2. Comments
    Many responsive commenters supported different compliance dates 
based on a registrant's status as an LAF, AF, NAF, or SRC.\2551\ Some 
commenters supported the phase in schedule, as proposed.\2552\ One 
commenter stated that the proposed phase in periods would give 
sufficient lead time for registrants to prepare while also not unduly 
delaying the disclosures for investors.\2553\
---------------------------------------------------------------------------

    \2551\ See, e.g., letters from Alphabet et al.; CEMEX; CAQ 
(recommending phase in schedule by type of disclosure and filer 
status); Ceres; Franklin Templeton; J. Herron; IADC; ICI; 
Institutional Shareholder Services (June 22, 2022) (``ISS''); KPMG 
(recommending phase in schedule by type of disclosure in addition to 
filer status); Northern Trust; NRF; PwC; SKY Harbor; Soros Fund; 
TotalEnergies; US SIF; and XBRL.
    \2552\ See, e.g., letters from ISS; SKY Harbor; and 
TotalEnergies.
    \2553\ See letter from SKY Harbor.
---------------------------------------------------------------------------

    Several commenters stated that the proposed phase in schedule would 
be challenging even for LAFs to meet and that additional time would be 
needed for registrants to develop the reporting controls and procedures 
necessary to prepare disclosures that are high quality and reliable for 
investors.\2554\ Commenters recommended that the proposed compliance 
dates be extended by various periods, such as by: one year; \2555\ two 
years; \2556\ three years; \2557\

[[Page 21828]]

or five years.\2558\ Some commenters opposed the proposed compliance 
dates without specifying what dates would be appropriate.\2559\ Other 
commenters recommended that the Commission shorten the proposed phase 
in periods.\2560\
---------------------------------------------------------------------------

    \2554\ See, e.g., letters from Alphabet et al; ConocoPhillips; 
HP; PwC; RILA; Shearman Sterling; SIFMA; and Williams Cos.
    \2555\ See, e.g., letters by HP; ICI (recommending extending the 
compliance date for financial metrics disclosure by at least one 
year); Microsoft (requesting one-year extension of the compliance 
date for GHG emissions, financial metrics, and impact disclosures); 
Nikola; Northern Trust (recommending extending by one year the 
compliance date for GHG emissions); PwC (recommending a one year 
delayed effective date); and Shearman Sterling.
    \2556\ See, e.g., letters from Alphabet et al.; AXPC; KPMG 
(recommending extending the phase in periods by two-three years); 
NRF; RILA; SIFMA (recommending two-year extension of the compliance 
date for Scope 3 emissions disclosure); and US TAG TC207.
    \2557\ See, e.g., letters from CEMEX (recommending extending the 
compliance date for Scope 3 emissions disclosure by LAFs by three-
five years); SIFMA (recommending three-four year extension for 
compliance with financial metrics disclosure); and Williams Cos. 
(recommending three-five year extension for all registrants, 
including LAFs).
    \2558\ See, e.g., letters from API; and ConocoPhillips 
(recommending extending the compliance date for Scopes 1 and 2 
emissions disclosures to at least five years from date of adoption).
    \2559\ See, e.g., letters from AGCA; Crowe LLP (June 16, 2022) 
(``Crowe'') (recommending extending the phase in periods for GHG 
emissions and financial metrics disclosures); Eni SpA (recommending 
a phase in for financial metrics disclosure); IADC; and Nasdaq.
    \2560\ See, e.g., letters from AGs of Cal. et al. (recommending 
shortening the phase in period for all registrants other than LAFs 
by one year); CalSTRS (recommending setting the phase in periods to 
the earliest possible dates); and Ceres (recommending moving up 
disclosure proposed to be required for fiscal year 2025 by one 
year).
---------------------------------------------------------------------------

3. Final Rules
    Similar to the proposed rules, we are adopting delayed and 
staggered compliance dates for the final rules that vary according to 
the filing status of the registrant.\2561\ We continue to believe that 
initially applying the disclosure requirements to LAFs is appropriate 
because many LAFs are already collecting and disclosing climate-related 
information,\2562\ and therefore will have devoted resources to these 
efforts and have some levels of controls and processes in place for 
such disclosure. In comparison, registrants that are not LAFs may need 
more time to develop the systems, controls, and processes necessary to 
comply with the climate disclosure rules and may face proportionately 
higher costs. Accordingly, we are providing such registrants additional 
time to comply, with SRCs, EGCs, and NAFs receiving the longest phase 
in period. Although we recognize that some SRCs and EGCs may 
technically be classified as AFs, such registrants may face the same 
difficulties as other SRCs and EGCs in complying with the final rules, 
and accordingly, the extended compliance date applies to them based on 
their status as SRCs or EGCs.
---------------------------------------------------------------------------

    \2561\ For the avoidance of doubt, notwithstanding the fact that 
we generally use the term ``registrant'' in this section, the 
compliance dates discussed herein also apply to the information 
required to be provided pursuant to new General Instruction C.3 of 
Forms S-4 and F-4 with respect to a company being acquired.
    \2562\ See infra section IV.A.5. See also, e.g., letters from 
Amazon; Dell; and Microsoft.
---------------------------------------------------------------------------

    To address the concerns of many commenters that the proposed 
compliance schedule was too challenging even for LAFs to meet, we are 
providing an extended and phased in compliance period for each type of 
registrant and for certain types of disclosures. For example, we are 
providing a further phased in compliance date for registrants that may 
be required to disclose their Scopes 1 and 2 emissions that differs 
from the proposed compliance schedule, which would have required 
registrants to provide those emissions disclosures by the same deadline 
as for the other climate disclosures. This will help address the 
concern of commenters that additional time is required for registrants, 
including many LAFs, to enhance or implement new policies, processes, 
controls, and system solutions in order to provide the GHG emissions 
disclosures if required. We are also providing a further phased-in 
compliance date for the requirements to provide quantitative and 
qualitative disclosures about material expenditures and material 
impacts to financial estimates and assumptions required by Item 
1502(d)(2), Item 1502(e)(2), and Item 1504(c)(2) until the fiscal year 
immediately following the fiscal year of the registrant's initial 
compliance date for subpart 1500 disclosures based on its filer status, 
for the reasons discussed above.\2563\
---------------------------------------------------------------------------

    \2563\ See supra sections II.D.1.c, II.D.2.c, and II.G.3.a.
---------------------------------------------------------------------------

    The following table summarizes the phased in compliance dates of 
the final rules, both for subpart 1500 of Regulation S-K and Article 14 
of Regulation S-X. The compliance dates in the table apply to both 
annual reports and registration statements; in the case of registration 
statements, compliance would be required beginning in any registration 
statement that is required to include financial information for the 
full fiscal year indicated in the table.

                                                       Compliance Dates Under the Final Rules \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Registrant type                     Disclosure and financial statement
                                               effects audit
                                                    GHG emissions/assurance                   Electronic tagging
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  All Reg. S-K and..  Item 1502(d)(2),..  Item 1505.........  Item 1506--.......  Item 1506--.......  Item 1508--Inline
                                  S-X disclosures,..  Item 1502(e)(2),    (Scopes 1 and.....  Limited...........  Reasonable........   XBRL tagging
                                  other than as.....   and.               2 GHG emissions)..  assurance.........  assurance.........  for subpart 1500
                                  noted in this       Item 1504(c)(2)...                                                               \2\
                                   table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
LAFs............................  FYB 2025..........  FYB 2026..........  FYB 2026..........  FYB 2029..........  FYB 2033..........  FYB 2026.
AFs (other than SRCs and EGCs)..  FYB 2026..........  FYB 2027..........  FYB 2028..........  FYB 2031..........  N/A...............  FYB 2026.
SRCs, EGCs, and NAFs............  FYB 2027..........  FYB 2028..........  N/A...............  N/A...............  N/A...............  FYB 2027.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ As used in this chart, ``FYB'' refers to any fiscal year beginning in the calendar year listed.
\2\ Financial statement disclosures under Article 14 will be required to be tagged in accordance with existing rules pertaining to the tagging of
  financial statements. See Rule 405(b)(1)(i) of Regulation S-T.

    For example, an LAF with a January 1 fiscal-year start and a 
December 31 fiscal year-end date will not be required to comply with 
the climate disclosure rules (other than those pertaining to GHG 
emissions and those related to Item 1502(d)(2), Item 1502(e)(2), and 
Item 1504(c)(2), if applicable) until its Form 10-K for fiscal year 
ended December 31, 2025, due in March 2026. If required to disclose its 
Scopes 1 and/or 2 emissions, such a filer will not be required to 
disclose those emissions until its Form 10-K for fiscal year ended 
December 31, 2026, due in March 2027, or in a registration statement 
that is required to include financial information for fiscal year 2026. 
Such emissions disclosures would not be subject to the requirement to 
obtain limited assurance until its Form 10-K for fiscal year ended 
December 31, 2029, due in March 2030, or in a registration statement 
that is required to include financial information for fiscal year 2029. 
The registrant would be required to obtain reasonable assurance over 
such emissions disclosure beginning with its Form 10-K for fiscal year 
ended December 31, 2033, due in March 2034, or in a registration 
statement that is required to include financial information for fiscal 
year 2033. If required to make disclosures pursuant to Item 1502(d)(2), 
Item 1502(e)(2), or Item 1504(c)(2), such a filer will not be required 
to make such disclosures until its Form 10-K for fiscal year ended 
December 31, 2026, due in March 2027,

[[Page 21829]]

or in a registration statement that is required to include financial 
information for fiscal year 2026.
    As another example, an AF that is not an SRC or EGC with a January 
1 fiscal-year start and December 31 fiscal year-end date will not be 
required to comply with the climate disclosure rules (other than those 
pertaining to GHG emissions and those related to Item 1502(d)(2), Item 
1502(e)(2), and Item 1504(c)(2), if applicable) until its Form 10-K for 
the fiscal-year ending December 31, 2026, due in March 2027. If 
required to disclose its Scopes 1 and 2 emissions, such a filer will 
not be required to disclose those emissions until its Form 10-K for 
fiscal year ending December 31, 2028, due in March 2029, or in a 
registration statement that is required to include financial 
information for fiscal year 2028, and it would not be required to 
obtain limited assurance over such disclosure until its Form 10-K for 
fiscal year ending December 31, 2031, due in March 2032, or in a 
registration statement that is required to include financial 
information for fiscal year 2031. If required to make disclosures 
pursuant to Item 1502(d)(2), Item 1502(e)(2), or Item 1504(c)(2), such 
a filer will not be required to make such disclosures until its Form 
10-K for fiscal year ended December 31, 2027, due in March 2028, or in 
a registration statement that is required to include financial 
information for fiscal year 2027.
    We are adopting a separate compliance date for the structured data 
(electronic tagging) requirements of the final rules that is one year 
following the earliest compliance date (which applies to LAFs) under 
the final rules.\2564\ We are adopting a later compliance date for the 
structured data requirements to improve the quality of the structured 
data, as discussed above.\2565\ Accordingly, LAFs will not be required 
to comply with the structured data requirements when first complying 
with the climate disclosure rules in subpart 1500 required in 2025 but 
will be required to do so when complying with the climate disclosure 
rules in subpart 1500 for fiscal year 2026; tagging of disclosures 
provided in response to Item 1502(d)(2), Item 1502(e)(2), Item 
1504(c)(2), Item 1505, and Item 1506 will be required at the time of 
initial compliance with these provisions. AFs (other than SRCS and 
EGCs) will be required to comply with the structured data requirements 
when first complying with the relevant provisions of subpart 1500 for 
the fiscal year that begins in 2026. Similarly, SRCs, EGCs, and NAFs 
will be required to comply with the structured data requirements when 
first complying with the climate disclosure rules for the fiscal year 
that begins in 2027. For these non-LAF registrants, we are not adopting 
a later compliance date for the structured data requirements because we 
are adopting later compliance dates regarding the final rules overall 
for these registrants, which will provide them with additional time to 
meet the final rules' structured data requirements.
---------------------------------------------------------------------------

    \2564\ We note that the final rules do not alter the 
requirements for registrants to tag their financial statement 
disclosures in Inline XBRL. Accordingly, financial statement 
disclosures provided pursuant to new Article 14 of Regulation S-X 
will be required to be tagged in accordance with those requirements 
at the time they are first required. See Rule 405(b)(1)(i) of 
Regulation S-T.
    \2565\ See discussion supra at section II.M.3.
---------------------------------------------------------------------------

III. Other Matters

    The Commission considers the provisions of the final rules to be 
severable to the fullest extent permitted by law. ``If parts of a 
regulation are invalid and other parts are not,'' courts ``set aside 
only the invalid parts unless the remaining ones cannot operate by 
themselves or unless the agency manifests an intent for the entire 
package to rise or fall together.'' Bd. of Cnty. Commissioners of Weld 
Cnty. v. EPA, 72 F.4th 284, 296 (D.C. Cir. 2023); see K Mart Corp. v. 
Cartier, Inc., 486 U.S. 281, 294 (1988). ``In such an inquiry, the 
presumption is always in favor of severability.'' Cmty. for Creative 
Non-Violence v. Turner, 893 F.2d 1387, 1394 (D.C. Cir. 1990). 
Consistent with these principles, while the Commission believes that 
all provisions of the final rules are fully consistent with governing 
law, if any of the provisions of these rules, or the application 
thereof to any person or circumstance, is held to be invalid, the 
Commission intends that such invalidity shall not affect other 
provisions or application of such provisions to other persons or 
circumstances that can be given effect without the invalid provision or 
application. For instance, but without limitation, each of the 
following portions of the final rules serves distinct but related 
purposes and is capable of operating independently: (1) climate-related 
risk disclosures, (2) targets and goals disclosures, (3) GHG emissions 
disclosures and assurance, and (4) Article 14 financial statement 
disclosures. Moreover, many of the required disclosure items in the 
final rules operate independently in that not all registrants are 
required to provide each of the required disclosures, and some 
disclosures will only be provided to the extent applicable. For 
example, disclosures related to a registrant's use of transition plans, 
scenario analysis, or internal carbon prices would depend upon a 
registrant's activities, if any, to mitigate or adapt to material 
climate-related risks. Similarly, governance disclosures would only be 
required to the extent that a registrant has information responsive to 
the disclosure requirements. In addition, the GHG emissions disclosure 
requirements will apply only with respect to LAFs and AFs (other than 
SRCs and EGCs). Thus, while the final rules are each intended to 
improve the overall consistency, comparability, and reliability of 
climate-related disclosures as discussed throughout this release, the 
invalidity of any particular disclosure requirement would not undermine 
the operability or usefulness of other aspects of the final rules.
    Pursuant to the Congressional Review Act,\2566\ the Office of 
Information and Regulatory Affairs has designated these rules a ``major 
rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \2566\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

IV. Economic Analysis

    We are mindful of the economic effects that may result from the 
final rules, including the benefits, costs, and the effects on 
efficiency, competition, and capital formation.\2567\ This section 
analyzes the expected economic effects of the final rules relative to 
the current baseline, which consists of the regulatory framework of 
disclosure requirements in existence today, the current disclosure 
practices of registrants, and the use of such disclosures by investors 
and other market participants. Where possible, we have attempted to 
quantify these economic effects. In many cases, however, we are unable 
to reliably quantify the potential benefits and costs of the final 
rules because we lack information necessary to provide a reasonable 
estimate. For example, existing empirical evidence does not allow us to 
reliably quantify how enhancements in climate-related disclosure may 
improve information processing by investors, or company

[[Page 21830]]

monitoring of climate-related risks. Where quantification of the 
economic effects of the final rules is not practical or possible, we 
provide a qualitative assessment of the effects.
---------------------------------------------------------------------------

    \2567\ Section 2(b) of the Securities Act, 15 U.S.C. 77b(b), and 
section 3(f) of the Exchange Act, 17 U.S.C. 78c(f), require the 
Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate 
in the public interest, to consider, in addition to the protection 
of investors, whether the action will promote efficiency, 
competition, and capital formation. Further, section 23(a)(2) of the 
Exchange Act, 17 U.S.C. 78w(a)(2), requires the Commission, when 
making rules under the Exchange Act, to consider the impact that the 
rules would have on competition, and prohibits the Commission from 
adopting any rules that would impose a burden on competition not 
necessary or appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    The final rules will provide investors with more consistent, 
comparable, and reliable disclosures with respect to registrants' 
climate-related risks that have materially impacted, or are reasonably 
likely to have a material impact on, the registrant's business 
strategy, results of operations, or financial condition, the governance 
and management of such risks, and the financial statement effects of 
severe weather events and other natural conditions, which will enable 
investors to make more informed investment and voting decisions.\2568\ 
Many investors have expressed concern that the current landscape of 
primarily voluntary climate-related disclosures is inadequate.\2569\ By 
requiring registrants to provide climate-related information in a more 
standardized format in Commission filings, the final rules will 
mitigate the challenges that investors currently confront in obtaining 
consistent, comparable, and reliable information, assessing the nature 
and extent of the climate-related risks faced by registrants and their 
impact on registrants' business operations and financial condition, and 
making comparisons across registrants. Further, a mandatory disclosure 
regime will generally provide investors with access to climate-related 
disclosures on a more timely and regular basis than a voluntary 
disclosure regime.\2570\ As a result, the final rules will reduce 
information asymmetry between investors and registrants, which can 
reduce investors' uncertainty about estimated future cash flows. This 
effect contributes to a lowering of the risk premium that investors 
demand and therefore registrants' cost of capital. The final rules will 
also reduce information asymmetry among investors by narrowing the 
informational gap between informed and uninformed traders, which can 
reduce adverse selection problems and improve stock liquidity.\2571\ 
Further, by enabling climate-related information to be more fully 
incorporated into securities prices, the final rules will allow 
climate-related investment risks to be borne by those investors who are 
most willing and able to bear them. Taken together, the final rules are 
expected to promote investor protection, the efficient allocation of 
capital, and, for some registrants, capital formation.\2572\
---------------------------------------------------------------------------

    \2568\ See infra section IV.C.1.
    \2569\ See infra section IV.B.
    \2570\ As industry observers have noted, many companies do not 
disclose their climate and other sustainability data until more than 
12 months after the end of their fiscal year. See, e.g., Corporate 
Knights, Measuring Sustainability Disclosure (2019), available at 
https://www.corporateknights.com/wp-content/uploads/2021/08/CK_StockExchangeRanking_2020.pdf. See letter from Morningstar 
(stating that ``Currently, a lack of clear disclosure standards for 
the timing of `sustainability reports,' which is the primary source 
for emissions data, greatly hinders investor knowledge. For example, 
some registrants released 2021 reports--detailing 2020 data--as late 
as November 2021.''); see also letters from Miller/Howard (stating 
that requiring disclosure in filings with the Commission will 
provide users with confidence that they are receiving the ``most 
recent'' climate-related information); and Calvert (stating that 
``57% of 2,207 companies disclosed their Scope 1 and 2 emissions 
with a one or two year delay.''). Furthermore, a voluntary regime 
may allow registrants to provide disclosures at irregular or multi-
year intervals. In contrast, the final rules will generally require 
disclosures on an annual basis, which will allow investors to make 
better comparisons across time.
    \2571\ See Corporate Knights, supra note 2570.
    \2572\ See infra section IV.D.
---------------------------------------------------------------------------

    We recognize that the final rules will impose additional costs on 
registrants, investors, and other parties. Registrants will face 
increased compliance burdens, with the extent of these burdens varying 
based on a registrant's filer status, existing climate-related 
disclosure practices (if any), and other characteristics. For example, 
additional compliance burdens could be significant for registrants that 
are not already collecting climate-related information and providing 
climate-related disclosures. In other cases, the compliance burden 
could be more modest, such as for registrants that are already 
collecting climate-related information and providing information 
similar to what is required by the rules we are adopting. Additionally, 
the requirements will pose a comparatively smaller compliance burden 
for those registrants that do not have material climate-related risks. 
Other potential costs for registrants include increased litigation risk 
and the potential disclosure of proprietary information about a 
registrant's operations, business, and/or production processes.\2573\ 
Beyond registrants, certain third parties, such as market participants, 
customers, and suppliers, could face reduced demand for their services 
or higher prices for their inputs as a result of the final rules' 
required disclosures.
---------------------------------------------------------------------------

    \2573\ See infra section IV.C.2.
---------------------------------------------------------------------------

A. Baseline and Affected Parties

    The baseline against which the costs, benefits, and the effects on 
efficiency, competition, and capital formation of the final rules are 
measured consists of current requirements for climate-related 
disclosures and current market practice as it relates to such 
disclosures. The economic analysis considers existing regulatory 
requirements, including recently adopted rules, as part of its economic 
baseline against which the benefits and costs of the final rules are 
measured.\2574\
---------------------------------------------------------------------------

    \2574\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. 
Cir. 2022). This approach also follows Commission staff guidance on 
economic analysis for rulemaking. See SEC Staff, Current Guidance on 
Economic Analysis in SEC Rulemaking (Mar. 16, 2012), available at 
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``SEC Guidance on 
Economic Analysis (2012)'') (``The economic consequences of proposed 
rules (potential costs and benefits including effects on efficiency, 
competition, and capital formation) should be measured against a 
baseline, which is the best assessment of how the world would look 
in the absence of the proposed action.''); see id. (``The baseline 
includes both the economic attributes of the relevant market and the 
existing regulatory structure.''). The best assessment of how the 
world would look in the absence of the proposed or final action 
typically does not include recently proposed actions, because that 
would improperly assume the adoption of those proposed actions.
---------------------------------------------------------------------------

    One commenter stated that our analysis should account for the 
``[s]taggering aggregate costs and unprecedented operational 
challenges'' of recently proposed rules in three categories, including 
``[c]orporate governance.'' \2575\ Another commenter identified two 
specific rules with which these final amendments could ``interact in 
obvious or non-obvious ways that raise costs for businesses.'' \2576\ 
Implementation of one of these, adopted in the Cybersecurity 
Disclosures Adopting Release,\2577\ could involve the

[[Page 21831]]

same staff and resources as implementation of the final climate 
disclosure rules. However, we expect minimal overlap in the 
implementation periods of the two rules because the only remaining 
compliance dates for the rules adopted in the Cybersecurity Disclosures 
Adopting Release are for cybersecurity incident disclosure by smaller 
reporting companies by June 15, 2024, structured data requirements for 
Form 8-K and Form 6-K disclosures by December 18, 2024, and structured 
data requirements for Item 106 of Regulation S-K and Item 16K of Form 
20-F disclosures beginning with annual reports for fiscal years ending 
on or after December 15, 2024. By contrast, the earliest compliance 
date for these final rules covers activities occurring in fiscal year 
2025.
---------------------------------------------------------------------------

    \2575\ See letter from Member of the U.S. House of 
Representatives Patrick McHenry and 28 other House Members (Sept. 
26, 2023). Although the commenter did not identify specific rules 
that should be considered as part of this analysis, we considered 
the ``corporate governance'' category noted by the commenter 
(because the final rules include disclosure provisions related to 
governance of climate-related risks) and identified Cybersecurity 
Risk Management, Strategy, Governance, and Incident Disclosure, 
supra note 2486 (``Cybersecurity Disclosures Adopting Release'') as 
a rule with potentially overlapping implementation costs (discussed 
infra note 2577 and accompanying text).
    \2576\ See Overdahl exhibit to letter from Chamber (citing 
Mandel and Carew (2013)). In addition to the Cybersecurity 
Disclosures Adopting Release, discussed infra, this commenter 
identified Share Repurchase Disclosure Modernization, Release Nos. 
34-97424, IC-34906 (May 3, 2023) [88 FR 36002 (June 1, 2023)]. That 
rule was vacated by the U.S. Court of Appeals for the Fifth Circuit 
in December 2023. See Chamber of Com. of the U.S. v. SEC, 88 F.4th 
1115 (Dec. 19, 2023).
    \2577\ See Cybersecurity Disclosures Adopting Release. The 
Cybersecurity Disclosures Adopting Release requires current 
disclosure about material cybersecurity incidents, and periodic 
disclosures about a registrant's processes to assess, identify, and 
manage material cybersecurity risks, management's role in assessing 
and managing material cybersecurity risks, and the board of 
directors' oversight of cybersecurity risks. For a full discussion 
of compliance dates for these amendments, see id. at section II.I.
---------------------------------------------------------------------------

    This section describes the current regulatory and economic 
landscape with respect to climate-related disclosures. It discusses the 
parties likely to be affected by the final rules, current trends in 
registrants' voluntary reporting on climate risks, related assurance 
practices, and existing mandatory disclosure rules under state and 
other Federal laws as well as from other jurisdictions in which 
registrants may operate.
1. Affected Parties
    The disclosure requirements being adopted in this release will 
apply to Securities Act and Exchange Act registration statements as 
well as Exchange Act annual and quarterly reports. Thus, the parties 
that are likely to be affected by the final rules include: registrants 
subject to the disclosure requirements imposed by these forms, as 
detailed below; consumers of the climate-related risk information, such 
as investors, analysts, and other market participants; and third-party 
service providers who may collect and process this information, 
including assurance providers and ratings providers.
    The final rules will affect both domestic registrants and foreign 
private issuers, but will not apply to Canadian registrants that use 
the MJDS and file their Exchange Act registration statements and annual 
reports on Form 40-F.\2578\ We estimate that during calendar year 2022, 
excluding registered investment companies, there were approximately 
6,870 registrants that filed on domestic forms,\2579\ and approximately 
920 foreign private issuers that filed on Form 20-F. Among domestic 
registrants, approximately 34 percent were LAFs, 10 percent were AFs, 
and 56 percent were NAFs. In addition, we estimate that approximately 
57 percent of domestic registrants and 37 percent of foreign private 
issuers were either SRCs, EGCs, or both.
---------------------------------------------------------------------------

    \2578\ The number of domestic registrants and foreign private 
issuers affected by the final rules is estimated as the number of 
companies, identified by Central Index Key (``CIK''), that filed a 
unique Form 10-K or Form 20-F during calendar year 2022, excluding 
asset-backed securities issuers. For the purposes of this economic 
analysis, these estimates do not include registrants that did not 
file a unique annual report. This approach avoids including entities 
whose reporting obligation would be satisfied by a parent or other 
company, such as co-issuers of debt securities or guarantors, or who 
otherwise have a suspended reporting obligation. The estimates for 
the percentages of SRCs, EGCs, AFs, LAFs, and NAFs are based on data 
obtained by Commission staff using a computer program that analyzes 
SEC filings, with supplemental data from Ives Group Audit Analytics 
and manual review of filings by Commission staff. Because this 
manual review takes a substantial amount of time, the Commission 
staff performs this process at the end of each calendar year rather 
than at the end of each quarter. Data for the 2023 filings is not 
yet available and fully reviewed, so the release includes 2022 
numbers. Additionally, there are no 2023 updates for several 
sections of the baseline (such as those that rely on data or reports 
from third parties that have not completed their reviews of 2023), 
so the release includes 2022 data to provide for comparability 
across the release.
    \2579\ This number includes approximately 50 foreign private 
issuers that filed on domestic forms in 2022, approximately 120 
BDCs, and 300 REITs.
---------------------------------------------------------------------------

    The final rules will require disclosures in registered offerings, 
except with respect to business combination transactions involving a 
company not subject to the reporting requirements of Section 13(a) or 
15(d) of the Exchange Act. In many cases, registrants will be able to 
meet these requirements by incorporating by reference from their 
periodic reports. Registrants that have not previously filed periodic 
reports, such as companies conducting IPOs, will not have previously 
filed such reports to incorporate by reference. In 2022, there were 
approximately 390 such companies that conducted registered offerings on 
Form S-1 or F-1.\2580\
---------------------------------------------------------------------------

    \2580\ This estimate was calculated by searching EDGAR for all 
registrants who filed a Form S-1 or F-1 in the year 2022. If 
multiple registration statements were filed in 2022 by the same 
registrant, the earliest was used. This list of registrants was then 
compared to a list of periodic reports (Forms 10-K, 10-Q, 20-F, 8-K) 
in EDGAR dating back to 2015. Approximately 390 registrants filed 
registration statements in 2022 that had not previously filed a Form 
10-K, 10-Q, 20-F, or 8-K. Of those, approximately 180 did not 
subsequently file a Form 10-K, 10-Q, 20-F, or 8-K in 2022 or 2023, 
for example by operation of 17 CFR 240.12h-5 or 12hndash;7, 
indicating that they may incur lower or no cost of ongoing 
compliance because they are exempt from ongoing Exchange Act 
reporting obligations.
---------------------------------------------------------------------------

2. Current Commission Disclosure Requirements
    As discussed above and in the Proposing Release, existing 
disclosure requirements may, depending on circumstance, require the 
disclosure of climate-related risk.\2581\ The 2010 Guidance describes 
how the Commission's existing disclosure requirements can encompass 
climate-related risk.\2582\ The 2010 Guidance emphasized that certain 
existing disclosure requirements in Regulation S-K and Regulation S-X 
may require disclosure related to climate change. With respect to the 
most pertinent non-financial statement disclosure rules, the Commission 
noted that: Item 101 (Description of Business) expressly requires 
disclosure regarding certain costs of compliance with environmental 
laws; \2583\ Item 103 (Legal Proceedings) requires disclosure regarding 
any material pending legal proceeding to which a registrant or any of 
its subsidiaries is a party; Item 105 (Risk Factors) requires 
disclosure regarding the most significant factors that would make an 
investment in the registrant speculative; \2584\ and Item 303 (MD&A) of 
Regulation S-K requires material historical and prospective narrative 
disclosure enabling investors to assess the financial condition and 
results of

[[Page 21832]]

operations of a registrant.\2585\ While these provisions elicit some 
decision-useful climate-related disclosure,\2586\ they have not 
resulted in consistent and comparable information about the actual and 
potential material impacts of climate-related risks on a registrant's 
business or financial condition, which many investors have increasingly 
stated that they need in order to make informed investment and voting 
decisions.\2587\
---------------------------------------------------------------------------

    \2581\ See discussion supra section I.A; Proposing Release 
sections I.A, IV.A.2; see also supra section II.B. for discussion of 
the historical evolution of Commission rules requiring registrant 
disclosure. The Commission considers the current disclosure of 
climate risk-related information as part of the baseline against 
which the benefits and costs of the final rules are measured. We 
disagree with the commenter who said that the baseline discussion in 
the Proposing Release was ``in effect suggesting that anything 
climate-related should be presumed to be material.'' (Overdahl 
exhibit to letter from Chamber). The baseline includes both the 
required disclosure of material information under Commission 
regulation, as well as requirements under other laws that may apply 
to registrants, and current market practices which may include 
voluntary disclosures. See also section IV.F.1. discussing the 
benefits and costs of a principles-based approach.
    \2582\ For an overview of how climate change issues may be 
required to be disclosed under existing rules, primarily Regulation 
S-K and Regulation S-X, see 2010 Guidance, section III.
    \2583\ Item 101 of Regulation S-K was amended in 2019. See 
Release No. 33-10618. When the 2010 Guidance was issued, Item 
101(c)(1)(xii) required disclosure ``as to the material effects that 
compliance with Federal, state and local provisions which have been 
enacted or adopted regulating the discharge of materials into the 
environment, or otherwise relating to the protection of the 
environment, may have upon the capital expenditures, earnings and 
competitive position of the registrant and its subsidiaries. The 
registrant shall disclose any material estimated capital 
expenditures for environmental control facilities for the remainder 
of its current fiscal year and its succeeding fiscal year and for 
such further periods as the registrant may deem material.''
    \2584\ Risk Factors disclosure was required by Item 503(c) of 
Regulation S-K at the time of the 2010 Guidance. It was moved to 
Item 105 of Regulation S-K in 2019. See Release No. 33-10618.
    \2585\ The 2010 Guidance also discusses corollary provisions 
applicable to foreign private issuers not filing on domestic forms 
and states that, in addition to the Regulation S-K items discussed 
therein, registrants must also consider any financial statement 
implications of climate-related matters in accordance with 
applicable accounting standards, including FASB ASC Topic 450, 
Contingencies, and FASB ASC Topic 275, Risks and Uncertainties. 
Finally, the 2010 Guidance noted the applicability of Securities Act 
Rule 408 and Exchange Act Rule 12b-20, which require a registrant to 
disclose, in addition to the information expressly required by 
Commission regulation, ``such further material information, if any, 
as may be necessary to make the required statements, in light of the 
circumstances under which they are made, not misleading.''
    \2586\ See, e.g., Jeong-Bon Kim, Chong Wang & Feng Wu, The Real 
Effects of Risk Disclosures: Evidence from Climate Change Reporting 
in 10-Ks, 28 Rev. Acct. Stud. 2271 (2023) (finding that the 2010 
Guidance resulted in a large increase in the number of firms 
providing climate-related disclosures).
    \2587\ See supra section I.A.
---------------------------------------------------------------------------

3. Existing State and Other Federal Laws
    Existing state and other Federal laws require certain climate-
related disclosures or reporting. For instance, within the insurance 
industry there are requirements for mandatory climate risk disclosure 
for any domestic insurers that write more than $100 million in annual 
net written premium.\2588\ As of 2022, 14 states \2589\ and the 
District of Columbia require these domestic insurers to disclose their 
climate-related risk assessment and strategy via the NAIC Climate Risk 
Disclosure Survey, which the NAIC revised in 2022 to align with the 
TCFD framework.\2590\ Survey question topics include climate risk 
governance, climate risk management, and modeling. For reporting year 
2021, 62 registrants provided climate risk disclosures in response to 
the NAIC survey.\2591\ For reporting year 2022, insurers were allowed 
to submit a completed TCFD report or a survey response: 96 registrants 
provided either a TCFD report or a survey response.\2592\
---------------------------------------------------------------------------

    \2588\ ``Net written premium'' is defined as the premiums 
written by an insurance company, minus premiums paid to reinsurance 
companies, plus any reinsurance assumed.
    \2589\ The 14 states are California, Connecticut, Delaware, 
Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, 
Oregon, Pennsylvania, Rhode Island, Vermont, and Washington. 
Colorado enacted legislation requiring insurers to participate 
beginning in 2024. Co. Rev. Stat. 10-3-244 (enacted May 11, 2023).
    \2590\ NAIC News Release, U.S. Insurance Commissioners Endorse 
Internationally Recognized Climate Risk Disclosure Standard for 
Insurance Companies (Apr. 8, 2022), available at https://content.naic.org/article/us-insurance-commissioners-endorse-internationally-recognized-climate-risk-disclosure-standard; NAIC, 
Redesigned State Climate Risk Disclosure Survey (adopted Apr. 6, 
2022), available at https://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-applications/ClimateSurvey/upload/2022RevisedStateClimateRiskSurvey.pdf.
    \2591\ This estimate is based on 20-F and 10-K filings in 
calendar year 2021 and 2021 NAIC survey results available at https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1 (last 
visited Jan. 16, 2024). See supra note 2578 for more information on 
how the Commission staff estimated the number of registrants.
    \2592\ This estimate is based on 20-F and 10-K filings in 
calendar year 2022, and 2022 NAIC survey results, available at 
https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1 (last 
visited Jan. 16, 2024).
---------------------------------------------------------------------------

    Federal and state reporting requirements related to GHG emissions 
also exist. At the Federal level, the GHGRP requires that each facility 
that directly emits more than 25,000 metric tons of CO2e per 
year report these direct emissions to the EPA.\2593\ Additionally, 
facilities that supply certain products that would result in over 
25,000 metric tons of CO2e per year if those products were 
released, combusted, or oxidized must similarly report these 
``supplied'' emissions to the EPA.\2594\ The resulting emissions data 
are then made public through the EPA's website. The EPA estimates that 
the reporting required under the GHGRP covers 85 to 90 percent of all 
GHG emissions from over 8,000 facilities in the United States,\2595\ 
and we estimate that approximately 365 registrants had an ownership 
stake in facilities that reported to the GHGRP in 2022.\2596\ Gases 
that must be reported under the GHGRP include all those referenced by 
the GHG Protocol, which are also included within these final rules' 
definition of ``greenhouse gases.'' \2597\
---------------------------------------------------------------------------

    \2593\ See 40 CFR part 98 (2022); see also EPA Fact Sheet. The 
EPA's emissions data does not include emissions from agriculture, 
land use, or direct emissions from sources that have annual 
emissions of less than 25,000 metric tons of CO2e per year. See also 
letter from EPA (describing differences between the GHGRP and the 
SEC's proposed rule and noting the ``Clean Air Act authority for 
reporting and the purpose of the GHGRP are distinct from those of 
the SEC's proposed rule.'').
    \2594\ See EPA Fact Sheet; see also EPA, Learn About the 
Greenhouse Gas Reporting Program (GHGRP), available at https://www.epa.gov/ghgreporting/learn-about-greenhouse-gas-reporting-program-ghgrp (Updated June 20, 2023). According to the EPA, 
``direct emitters'' are facilities that combust fuels or otherwise 
put GHGs into the atmosphere directly from their facility. See EPA, 
Greenhouse Gas Search User Guide, available at https://www.epa.gov/enviro/greenhouse-gas-search-user-guide (Updated Jan. 17, 2024). An 
example of a direct emitter is a power plant that burns coal or 
natural gas and emits CO2 directly into the atmosphere. 
Id. ``Suppliers'' are those entities that supply products into the 
economy which if combusted, released, or oxidized emit GHGs into the 
atmosphere. Id. An example of a supplier is a gasoline importer or 
distributer, which sells gasoline in the U.S. that is burned in cars 
throughout the country. Id. While the GHGRP does not represent the 
total GHG emissions in the U.S., it is the only dataset containing 
facility-level data for large sources of direct emissions, thus 
including the majority of U.S. GHG emissions. See EPA, 2022 GHGRP 
Overview Report, available at https://www.epa.gov/system/files/documents/2023-10/ghgrp-2022-overview-profile.pdf. The EPA estimates 
that the GHGRP data reported by direct emitters covers about half of 
all U.S. emissions. Id. When including the greenhouse gas 
information reported by suppliers to the GHGRP, emissions coverage 
reaches approximately 85-90% of U.S. GHG emissions. Id.
    \2595\ See EPA Fact Sheet.
    \2596\ This estimate is based on parent company data provided by 
the EPA (GHGRP Reported Data (2022), supra note 2594), as well as 
registrant data gathered by Commission staff from Commission 
filings. Parent companies from the GHGRP reporting data were matched 
to registrants based on company name using Levenshtein Distance, as 
well as the reported city and state of the parent company. Matches 
were then manually reviewed by Commission staff.
    \2597\ The EPA also requires reporting on some gases (e.g., 
fluorinated ethers, perfluoropolyether) that are considered optional 
under the GHG Protocol and that are not included within this final 
rules' definition of ``greenhouse gases.''
---------------------------------------------------------------------------

    In light of the existence of the GHGRP, some commenters questioned 
the need for the proposed rules.\2598\ One commenter stated ``[t]he 
natural question is why the SEC feels compelled to require its own GHG 
emissions disclosures when the EPA already has a public reporting 
program that covers 85 to 90 percent of all GHG emissions from over 
8,000 facilities in the United States.'' \2599\ While we acknowledge 
that the GHGRP and the final rules both address reporting of GHGs, 
there are distinct and significant differences between both the goals 
and requirements of the GHGRP and the final rules. As the EPA noted in 
its comment letter: ``[T]he GHGRP . . . informs the development of 
greenhouse gas policies and programs under the Clean Air Act, and 
serves as an important tool for the Agency and the public to understand 
greenhouse gas emissions from facilities covered by the GHGRP 
nationwide. This is distinct from the purposes of the SEC's Proposed

[[Page 21833]]

Rules, which are intended to enhance and standardize climate-related 
disclosures to address investor needs and help issuers more efficiently 
and effectively disclose climate-related risks, benefitting both 
investors and issuers.'' \2600\ In addition to the difference in goals, 
there are several significant differences in the requirements between 
the GHGRP and the final rules. First, the entities required to report 
under the EPA regime may differ from the entities required to report 
under the final rules.\2601\ Second, the EPA requires emissions 
reporting only for U.S. facilities, while the final rules are not 
limited to U.S. facilities. Third, the EPA emissions data do not allow 
a precise disaggregation across the different scopes of emissions for a 
given registrant. In particular, the EPA requires reporting of 
facility-level direct emissions, which may be a subset of the relevant 
registrant's Scope 1 emissions. Finally, the EPA does not require 
reporting of Scope 2 emissions.\2602\
---------------------------------------------------------------------------

    \2598\ See letter from Andrew N. Vollmer (May 9, 2022); see also 
letters from D. Burton; Heritage Fdn. (``The very limited increase 
in actual information that will be achieved by the proposed rule 
will make virtually no difference. And, if it is thought that it 
will, by far the most efficient and effective means of increasing 
the information available would be to amend the EPA rules''); and 
ConocoPhillips (``We believe GHG disclosure regimes established by 
the EPA and regulators in other jurisdictions with broad existing 
GHG emissions coverage should form the basis of GHG emissions 
disclosure and do not believe additional and duplicative Scope 1 and 
2 emissions disclosures will be useful or material to investors in 
many instances.'').
    \2599\ See letter from Andrew N. Vollmer (May 9, 2022).
    \2600\ See letter from EPA.
    \2601\ The EPA requirements apply to facility owners and 
operators, and suppliers, while these final rules apply to 
registrants.
    \2602\ ``The GHGRP does not include emissions from . . . 
reporting of data on electricity purchases or indirect emissions 
from energy consumption, which falls under Scope 2 emissions.'' 
(footnote omitted). EPA, Greenhouse Gas Reporting Program (GHGRP) 
(Updated June 20, 2023), available at https://www.epa.gov/ghgreporting/learn-about-greenhouse-gas-reporting-program-ghgrp.
---------------------------------------------------------------------------

    Many state laws also impose specific GHG emissions reporting 
requirements.\2603\ States' rules vary with respect to reporting 
thresholds and emissions calculation methodologies, but most tend to 
focus on direct emissions, with certain exceptions. For example, in New 
York, any owner or operator of a facility that is a ``major source'' 
must report its annual actual emissions of certain air contaminants to 
the New York State Department of Environmental Conservation.\2604\ 
Colorado requires GHG-emitting entities to report their emissions to 
the state in support of Colorado's GHG inventory and reduction 
efforts.\2605\ California and Washington require annual reporting of 
GHG emissions by industrial sources that emit more than 10,000 metric 
tons of CO2e, transportation and natural gas fuel suppliers, 
and electricity importers.\2606\
---------------------------------------------------------------------------

    \2603\ See, e.g., CA Health & Safety Code Sec.  38530; CO Rev. 
Stat. Sec.  25-7-140; HI Rev. Stat. Sec.  342B-72; MA Gen. Laws ch. 
21N, sec. 2; NJ Rev. Stat. Sec.  26:2C-41; OR Rev. Stat. Sec.  
468A.050; see also NCSL, Greenhouse Gas Emissions Reduction Targets 
and Market-Based Policies (updated Sept. 5, 2023), available at 
https://www.ncsl.org/research/energy/greenhouse-gas-emissions-reduction-targets-and-market-based-policies.aspx.
    \2604\ See 6 NY Codes, Rules & Regs. 202-2.3(c).
    \2605\ 5 Code Colo. Regs. Sec.  1001-26. See also Colo. Dep't of 
Pub. Health & Env't, Greenhouse Gas Reporting, available at https://cdphe.colorado.gov/environment/air-pollution/climate-change#reporting (last visited Sept. 13, 2023).
    \2606\ See 17 Cal. Code Regs. Sec.  95100-95163; WAC 173-441-
010-173-441-070; see also Cal. Air Res. Bd., Mandatory Greenhouse 
Gas Reporting 2020 Emissions Year Frequently Asked Questions (2021), 
available at https://www.arb.ca.gov/cc/reporting/ghg-rep/reported-data/2020mrrfaqs.pdf; see also Was. Dept. of Ecology, Mandatory 
Greenhouse Gas Reports, available at https://ecology.wa.gov/Air-Climate/Reducing-Greenhouse-Gas-Emissions/Tracking-greenhouse-gases/Mandatory-greenhouse-gas-reports.
---------------------------------------------------------------------------

    California also recently enacted two laws requiring additional 
climate-related disclosures and reporting for certain companies doing 
business in the state.\2607\ The Climate Corporate Data Accountability 
Act (Senate Bill 253), which will require companies making over $1 
billion in gross annual revenue to disclose their GHG emissions to the 
state on an annual basis and to obtain independent third-party 
assurance over such disclosures,\2608\ is expected to apply to an 
estimated 5,300 companies doing business in the state.\2609\ The 
Climate-Related Financial Risk Act (Senate Bill 261),\2610\ which will 
require companies with total annual revenue above $500 million to 
publish a biennial report on the company's website disclosing such 
company's climate-related financial risk in accordance with the TCFD 
framework or a comparable disclosure regime,\2611\ and describing what 
measures have been adopted to reduce and adapt to such risk, is 
expected to apply to an estimated 10,000 companies doing business in 
the state.\2612\ Companies subject to the Climate Corporate Data 
Accountability Act will be required to disclose their Scope 1 and Scope 
2 emissions beginning in 2026 and their Scope 3 emissions beginning in 
2027.\2613\ Companies subject to the Climate-Related Financial Risk Act 
will be required to begin reporting their climate-related financial 
risks and measures in 2026.\2614\ We estimate that approximately 1,980 
Commission registrants meet the $1 billion revenue threshold for 
Climate Corporate Data Accountability Act and approximately 2,520 
Commission registrants meet the $500 million revenue threshold for the 
Climate-Related Financial Risk Act.\2615\
---------------------------------------------------------------------------

    \2607\ The California Air Resources Board (``CARB'') will need 
to develop and adopt regulations by January 1, 2025 for the 
disclosure requirements under the Climate Corporate Data 
Accountability Act to become effective. See supra note 156. These 
regulations are expected to provide further details regarding the 
law's compliance requirements, including the content of the 
disclosure, the methodology for calculating emissions that are 
required to be disclosed and what qualifies as ``doing business'' in 
California. The requirements of the Climate-Related Financial Risk 
Act are self-effectuating, such that additional regulations are not 
required to implement the law's reporting requirements; however, the 
law requires the CARB to adopt regulations that authorize it to seek 
administrative penalties from covered entities for failing to make 
the required reports publicly available or publishing inadequate or 
insufficient information in the report. See SB-253, supra note 156.
    \2608\ See SB-253, supra note 156.
    \2609\ See Brent W. Thompson, California's Climate Disclosure 
Requirements: An Overview of Senate Bills 253 and 261, Ca. Lawyers 
Assoc. (Nov. 2023), available at https://calawyers.org/business-law/californias-climate-disclosure-requirements-an-overview-of-senate-bills-253-and-261/.
    \2610\ See SB-261, supra note 155.
    \2611\ A company will satisfy the requirements of the Climate-
Related Financial Risk Act if it prepares a publicly accessible 
biennial report that includes climate-related financial risk 
disclosure information by any of the following methods: (1) pursuant 
to a law, regulation or listing requirement by any regulated 
exchange or government entity, incorporating the disclosure 
requirements that are consistent with the requirements of the- 
Climate-Related Financial Risk Act or (2) voluntarily using a 
framework that meets the requirements of the Climate-Related 
Financial Risk Act or is in compliance with ISSB standards. See SB-
261, supra note 155.
    \2612\ See Thompson, supra note 2609; see also letter from 
Chamber (Dec. 6, 2023) (describing the California laws and 
highlighting differences in purpose, scope, and timing between the 
California laws and the proposed rules) (``letter from Chamber 
II''); see also infra note 3112 and accompanying text discussing 
this comment and the inclusion of California state law in the 
baseline.
    \2613\ See Thompson, supra note 2609.
    \2614\ See id.
    \2615\ Estimates are based on Compustat data for 2022 
registrants. We do not have readily accessible data that could be 
used to reliably estimate the subset of these registrants doing 
business in California. One commenter estimated that 73% of Fortune 
1000 companies would need to comply with both California laws. See 
letter from Amer. for Fin. Reform, Public Citizen and Sierra Club 
(Oct. 26, 2023) (using a list of companies registered with the 
California Secretary of State for their estimate, but describing in 
their methodology discussion why that does not directly correspond 
to ``doing business'' in the state).
---------------------------------------------------------------------------

    As a result of these Federal- and state-level climate-related 
disclosure and reporting requirements, some registrants subject to the 
final rules may already have in place, or may be developing, certain 
processes and systems to track and disclose aspects of their climate-
related risks.
4. International Disclosure Requirements
    Issuers that are listed or operate in jurisdictions outside the 
United States may also be subject to those jurisdictions' disclosure 
and reporting requirements. As discussed in section I.B. above, many 
jurisdictions' current or proposed requirements for climate-risk 
disclosure are aligned with the TCFD's framework for climate-related 
financial reporting.\2616\ Several

[[Page 21834]]

jurisdictions also have announced plans or support for adopting climate 
disclosure requirements that are consistent with the TCFD 
recommendations, and some jurisdictions already require climate-related 
disclosures aligned with the TCFD recommendations.\2617\ The UK, for 
example, has TCFD-aligned disclosure requirements for certain 
issuers.\2618\ Insofar as Commission registrants are listed or have 
operations in these other jurisdictions, they may already be subject to 
these other jurisdictions' disclosure requirements, policies, and 
guidance on reporting certain information about climate-related 
financial risk.
---------------------------------------------------------------------------

    \2616\ See note 46 and accompanying text; see also TCFD, Task 
Force on Climate-Related Financial Disclosure: 2023 Status Report, 
Table D1 (Oct. 2023), available at https://assets.bbhub.io/company/sites/60/2023/09/2023-Status-Report.pdf (``TCFD 2023 Status 
Report''). For more detail on the TCFD recommendations, see 
Proposing Release, section I.D; see also TCFD, Overview (Mar. 2021), 
available at https://assets.bbhub.io/company/sites/60/2020/10/TCFD_Booklet_FNL_Digital_March-2020.pdf. Concurrent with the release 
of its 2023 status report, the TCFD fulfilled its remit and 
transferred to the ISSB its responsibility for tracking company 
activities on climate-related disclosure. Fin. Stability Bd., supra 
note 151. As discussed infra, the TCFD recommendations are 
incorporated into the ISSB standards. Although the TCFD has 
disbanded, in this release we continue to refer to ``TCFD 
recommendations'' as distinct from ISSB standards, both for clarity 
and because not all jurisdictions that implemented TCFD-aligned 
disclosure requirements have implemented the broader and more recent 
ISSB standards.
    \2617\ See Proposing Release, section IV.A.4 (discussing 
disclosure requirements implemented, for example in the United 
Kingdom, Japan, and New Zealand). Commission staff determined that 
in 2022, approximately 1,961 Commission registrants traded in the 
U.K., 52 in Japan, and 2 in New Zealand; however, individual 
requirements in each country determine whether these registrants are 
subject to the climate-related disclosure laws of that country. See 
also TCFD 2023 Status Report, supra note 2616, at Part D.
    \2618\ See Financial Conduct Authority, Climate-related 
Reporting Requirements, available at https://www.fca.org.uk/firms/climate-change-sustainable-finance/reporting-requirements (updated 
June 10, 2022); see also further discussion infra section IV.C.3.a.
---------------------------------------------------------------------------

    Additionally, the ISSB released its climate-related disclosure 
standards in June 2023.\2619\ These standards incorporate the TCFD 
recommendations, such that companies that apply the ISSB standards will 
satisfy the TCFD recommendations, although the ISSB standards include 
some additional disclosure requirements.\2620\ The ISSB provisions 
relating to GHG emissions also align with the GHG Protocol.\2621\ 
Several jurisdictions have announced plans or support for implementing 
the ISSB standards, or local standards based on ISSB standards.\2622\
---------------------------------------------------------------------------

    \2619\ See supra section II.A. describing the standards.
    \2620\ IFRS, IFRS Foundation Publishes Comparison of IFRS S2 
with the TCFD Recommendations (July 24, 2023), available at https://www.ifrs.org/news-and-events/news/2023/07/ifrs-foundation-publishes-comparison-of-ifrs-s2-with-the-tcfd-recommendations/.
    \2621\ See supra section II.A. In the U.S. and other 
jurisdictions, GHG emissions quantification and reporting are 
generally based on the widely-used GHG Protocol, see supra notes 51 
and 1011 and accompanying text. See also Patrick Bolton & Marcin 
Kacperczyk, Global Pricing of Carbon-Transition Risk, 78 J. of Fin. 
3677 (Dec. 2023) (using the GHG Protocol to measure firm-level GHG 
emissions across 77 countries). However, we recognize that there 
exist other standards, e.g., ISO standards, as noted supra note 1011 
and in letters from ISO and Futurepast.
    \2622\ See supra section II.A.
---------------------------------------------------------------------------

    In the EU, the CSRD will apply to approximately 50,000 companies 
when implemented.\2623\ Companies required to report under the CSRD 
beginning on January 1, 2024, will report according to ESRS, adopted in 
July 2023,\2624\ that are closely aligned with the TCFD framework 
\2625\ and ISSB standards, although the CSRD includes some additional 
disclosure requirements.\2626\ This first stage of CSRD implementation 
will primarily affect companies that have more than 500 employees and 
are listed on an EU-regulated market. Subsequent stages will encompass 
other large EU-based companies,\2627\ and later, certain small to 
medium-sized companies and certain non-EU companies operating in the 
EU.\2628\ Finally, in the last stage of CSRD implementation, certain 
non-EU companies operating in the EU would report sustainability 
impacts to the EU,\2629\ but because the ESRS for that stage are not 
yet developed, we cannot assess the extent to which disclosures made 
under this last stage would overlap with either the TCFD framework or 
these final rules.
---------------------------------------------------------------------------

    \2623\ European Parliament, Sustainable Economy: Parliament 
Adopts New Reporting Rules for Multinationals (Nov. 10, 2022), 
available at https://www.europarl.europa.eu/news/en/press-room/20221107IPR49611/sustainable-economy-parliament-adopts-new-reporting-rules-for-multinationals; see also EU Commission's New 
Proposals Aim to Simplify Sustainability Reporting Rules, FinTech 
Global (June 13, 2023), available at https://fintech.global/2023/06/13/eu-commissions-new-proposals-aim-to-simplify-sustainability-reporting-rules/. See supra section II.A.3, at note 154 and 
accompanying text for discussion of the CSRD.
    \2624\ EU Commission Delegated Regulation of July 31, 2023, 
supplementing Directive 2013/34/EU, and Annexes, available at 
https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/corporate-sustainability-reporting-directive_en. ESRS for later stages of the 
CSRD are not yet developed.
    \2625\ See EFRAG, Draft European Sustainability Reporting 
Standards: Appendix IV--TCFD Recommendations and ESRS Reconciliation 
Table (Nov. 2022), available at https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FsiteAssets%2F21%2520Appendix%2520IV%2520-%2520TCFD-EFRAG%2520Comparative%2520analysis%2520final.pdf.
    \2626\ European Commission, Questions and Answers on the 
Adoption of European Sustainability Reporting Standards (July 31, 
2023), available at https://ec.europa.eu/commission/presscorner/detail/en/qanda_23_4043 (``CSRD Q&A''). See also EFRAG, 
Interoperability Between ESRS and ISSB Standards, Discussion Paper 
04-02 (Aug. 23, 2023) (``Companies that are required to report in 
accordance with ESRS will to a very large extent report the same 
information as companies that use ISSB standards.'').
    \2627\ For purposes of the CSRD, a ``large'' company is one that 
meets at least two of the following criteria: balance sheet total 
greater than [euro]25 million; net turnover greater than [euro]50 
million; or more than 250 employees. See Directive (EU) 2023/2775 
amending Directive 2013/34/EU as regards the adjustments of the size 
criteria for micro, small, medium-sized and large undertakings or 
groups (Dec. 21, 2023), available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32023L2775.
    \2628\ See CSRD Q&A, supra note 2626.
    \2629\ See id.

---------------------------------------------------------------------------

[[Page 21835]]

    We estimate that there are approximately 3,700 Commission 
registrants that are traded on a European exchange; however, we 
understand that most of these companies do not trade on an EU-regulated 
market, in which case they may not be impacted by the initial stage of 
CSRD implementation.\2630\ We estimate that approximately 70 Commission 
registrants (fewer than 10 of which are U.S.-based) are listed on EU-
regulated markets and could therefore be subject to reporting under the 
initial set of ESRS in fiscal year 2024.\2631\ Additional registrants 
may have EU subsidiaries or operations that fall within the scope of 
the CSRD, including in later compliance years. Although the number of 
Commission registrants subject to CSRD reporting in 2024 may be 
relatively low, we expect that once the CSRD is fully implemented, it 
could apply to many of the 3,700 Commission registrants that trade on a 
European exchange, as well as other non-EU companies, provided that 
they meet the required turnover and presence thresholds.\2632\ This 
assessment aligns with another estimate, which found that U.S. 
companies could make up 31 percent of an estimated 10,000 U.S., 
Canadian, and British companies required to begin complying with the 
CSRD between 2025 and 2029.\2633\ However, the number of registrants 
affected cannot be determined with specificity because the CSRD 
implementing standards are not fully developed yet, and because the 
number will depend on factors such as, for example, how many Commission 
registrants trade on an exchange defined as an EU-regulated market.
---------------------------------------------------------------------------

    \2630\ ``European exchange'' refers to an exchange located in 
the EU. The first stage of CSRD implementation is specific to 
companies trading on an ``EU-regulated market,'' where ``regulated 
market'' is a defined term under EU securities law, distinct from an 
organized trading facility or multilateral trading facility. See 
Directive 2014/65/EU of the European Parliament and of the Council 
(May 15, 2014), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0065 (updated Mar. 23, 2023).
    \2631\ This analysis is based on listing status data from 
Refinitiv. We note that this figure may not reflect all registrants 
that would be subject to the CSRD rules, as listing status is just 
one of the conditions for required disclosure under the EU rules. 
Fiscal year 2024 reporting is required of companies already subject 
to another EU reporting directive known as the Non-Financial 
Reporting Directive, including large U.S. companies with more than 
500 employees and listed on an EU-regulated market. Among the 
approximately 70 registrants listed on EU-regulated markets, we are 
unable to determine how many are ``large'' as defined in the CSRD, 
as many registrants do not provide geographic breakdowns of turnover 
or assets needed to identify turnover or assets attributable to the 
EU, so it is possible that the lower bound is fewer than 70 
registrants. Even if not subject to CSRD reporting in fiscal year 
2024, however, we anticipate that all or nearly all registrants 
listed on an EU-regulated exchange, and many not listed on such an 
exchange, will be required to report in subsequent compliance years 
as the CSRD phases in. We are not aware of any official analysis 
from European authorities regarding the number of Commission-
registered issuers which will be subject to CSRD reporting.
    \2632\ See generally CSRD Q&A, supra note 2626; Thibault 
Meynier, et al., EU Finalizes ESG Reporting Rules with International 
Impacts, Harvard L. Sch. Forum on Corp. Gov. (Jan. 30, 2023), 
available at https://corpgov.law.harvard.edu/2023/01/30/eu-finalizes-esg-reporting-rules-with-international-impacts/.
    \2633\ Dieter Holger, At Least 10,000 Foreign Companies to be 
Hit by EU Sustainability Rules, Wall St. J. (Apr. 5, 2023), 
available at https://www.wsj.com/articles/at-least-10-000-foreign-companies-to-be-hit-by-eu-sustainability-rules-307a1406 (retrieved 
from Factiva database).
---------------------------------------------------------------------------

    Despite uncertainty as to the parameters of other jurisdictions' 
requirements, the information described above indicates that a 
meaningful number of Commission registrants may be subject to the 
climate-related disclosure and reporting requirements of one or more 
additional jurisdictions. As a result, some registrants subject to the 
final rules may already have in place, or may be developing, processes 
and systems to track and disclose aspects of their climate-related 
risks.
5. Current Market Practices
    This section describes current market practices with regard to 
climate-related disclosure, including disclosures made in Commission 
filings and in other contexts. This section then describes the use of 
third-party frameworks in current disclosures; the disclosure of 
climate-related targets, goals, and transition plans; and the use of 
third-party assurance.
    We recognize that some aspects of the final rules may overlap with 
existing disclosure requirements and practices. The incremental costs 
of the final rules to a specific registrant will depend on the extent 
to which its disclosures resulting from the final rules overlap with 
disclosures that would have occurred in the absence of the final rules, 
as discussed in further detail below.\2634\
---------------------------------------------------------------------------

    \2634\ See section IV.C.3.c, ``Factors that Influence Direct 
Costs.'' The same point applies similarly to the more general costs 
imposed by the final rules: those registrants that currently provide 
(or plan to provide) climate-related disclosures irrespective of the 
final rules will incur lower incremental costs to the extent that 
these disclosures overlap with the final rules' requirements.
---------------------------------------------------------------------------

a. Climate-Related Disclosures in SEC Filings
    The Commission staff reviewed 52,778 annual reports (Forms 10-K and 
20-F) submitted from January 1, 2016, until December 31, 2022, to 
determine how many contain any of the following keywords: ``climate 
change,'' ``climate risk,'' or ``global warming,'' collectively 
referred to as ``climate-related keywords'' throughout this 
section.\2635\ The presence of any of the climate-related keywords in 
any part of the annual report is indicative of some form of climate-
related disclosure.\2636\ Table 1 shows the portion of climate-related 
keywords used in Form 10-Ks and 20-Fs from 2021 through 2022.
---------------------------------------------------------------------------

    \2635\ We follow the approach used in the Proposing Release 
except we have excluded 40-F filers because they are not subject to 
the final rules.
    \2636\ One limitation of using this climate-related keyword 
search is that it is unable to discern the extent or decision-
usefulness of climate-related disclosures, nor can it determine 
specific sub-topics within climate-related disclosures. For these 
reasons, the analysis was supplemented by natural language 
processing (``NLP'') analysis, as described later in this section.

                           Table 1--Filings With Climate-Related Keywords by Form Type
----------------------------------------------------------------------------------------------------------------
                              Form                                  Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
10-K............................................................           4,521          12,846              35
20-F............................................................             662           1,721              38
                                                                 -----------------------------------------------
    Total.......................................................           5,183          14,567              36
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between Jan. 1, 2021, and Dec.
  31, 2022. For each form type, the table indicates how many contain any of the climate-related keywords.

    Figure 1 shows that the percentage of Form 10-K and Form 20-F 
filings with climate-related keywords \2637\ has increased between 2016 
and 2022. As reflected in Table 1, in more recent filings (i.e., those 
submitted in calendar

[[Page 21836]]

years 2021 and 2022) 36 percent of all annual reports contain some 
climate-related keywords, with a slightly greater proportion (38 
percent) among foreign private issuers filing on Form 20-F.\2638\ These 
figures are consistent with data from Bloomberg, which focuses on 
registrants listed on NYSE and NASDAQ, on ESG reporting. Specifically, 
using this data, we find that 39 percent of registrants include a 
discussion of climate related risks in their MD&A section.\2639\
---------------------------------------------------------------------------

    \2637\ See supra note 2636.
    \2638\ Some foreign private issuers may elect to file their 
annual report on Form 10-K and would thus be classified as 
``domestic filers'' in the following analysis.
    \2639\ Bloomberg reports ``[w]hether the Management Discussion 
and Analysis (MD&A) or its equivalent risk section of registrant's 
annual report discusses business risks related to climate change.'' 
As with other summary statistics presented in this release, these 
figures may not be representative of all Commission registrants. For 
example, registrants that are not listed on NYSE or NASDAQ may be 
less likely to include discussions of climate related risks in their 
MD&A section.
---------------------------------------------------------------------------

    Figure 1 shows that the percentage of Form 10-K and 20-F filings 
with climate-related keywords \2640\ has been increasing between 2016 
and 2022. We note that Table 1 reflects the averages of the last two 
years of the time-series shown in Figure 1.
---------------------------------------------------------------------------

    \2640\ See supra note 2636.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TR28MR24.000

BILLING CODE 8011-01-C
    Table 2 provides a breakdown of more recent filings by accelerated 
filer status. Among LAFs, 68 percent provided climate-related keywords 
in 2022, while only 50 percent did so in 2021. Discussions by AFs and 
NAFs also saw increases over the same period (from 40 to 49 percent and 
from 16 to 23 percent, respectively).

[[Page 21837]]



                   Table 2--Filings With Climate-Related Keywords by Accelerated Filer Status
----------------------------------------------------------------------------------------------------------------
                 Year                         Filer status          Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
2021..................................  LAF.....................           1,063           2,126              50
                                        AF......................             373             936              40
                                        NAF.....................             635           3,883              16
                                        All.....................           2,071           6,945              30
2022..................................  LAF.....................           1,726           2,520              68
                                        AF......................             425             863              49
                                        NAF.....................             961           4,241              23
                                        All.....................           3,112           7,622              41
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between Jan. 1, 2021, and Dec.
  31, 2022. For each filer status, the table indicates how many contain any of the climate-related keywords.

    Similarly, Table 3 indicates that the inclusion of climate-related 
keywords by SRCs and EGCs also increased from 2021 to 2022, but that 
climate change discussions remain less common among these registrants 
than among registrants that are not SRCs or EGCs.

                        Table 3--Filings With Climate-Related Keywords by SRC/EGC Status
----------------------------------------------------------------------------------------------------------------
                 Year                         Filer status          Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
2021..................................  SRC & EGC...............             184           2,400               8
                                        SRC.....................             744           4,142              18
                                        EGC.....................             198             984              20
                                        Neither.................           3,016           6,364              47
2022..................................  SRC & EGC...............             440           3,180              14
                                        SRC.....................             912           3,724              24
                                        EGC.....................             424           1,226              35
                                        Neither.................           4,448           7,114              63
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between Jan. 1, 2021, and Dec.
  31, 2022. Filer status SRC, EGC, small emerging growth companies (``SRC & EGC''), and large non-EGC and non-
  SRC companies (``Neither''). For each filer status, the table indicates how many contain any of the climate-
  related keywords.

    Table 4 (presented as a graph in Figure 2) provides a breakdown of 
the recent filings by industry and shows that the industries with the 
highest percentage of annual reports containing climate-related 
disclosure include electric services, maritime transportation, steel 
manufacturing, paper and forest products, and oil and gas, among 
others.

                           Table 4--Filings With Climate-Related Keywords by Industry
----------------------------------------------------------------------------------------------------------------
                            Industry                                Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
Electric Services...............................................             144             157              92
Maritime Transportation.........................................             114             127              90
Steel Manufacturing.............................................              29              33              88
Paper and Forest Products.......................................              44              52              85
Oil and Gas.....................................................             350             445              79
Rail Transportation.............................................              14              18              78
Passenger Air and Air Freight...................................              50              66              76
Trucking Services...............................................              32              44              73
Insurance.......................................................             189             272              69
Real-Estate Investment Trusts...................................             292             483              60
Beverages, Packaged Foods and Meats.............................             138             243              57
Construction Materials..........................................             128             234              55
Automotive......................................................              34              67              51
Capital Goods...................................................             123             243              51
Mining..........................................................             154             332              46
Agriculture.....................................................              32              72              44
Other...........................................................             622           1,454              43
Textiles and Apparel............................................              31              74              42
Banking.........................................................             558           1,460              38
Technology Hardware and Equipment...............................             618           1,725              36
Consumer Retailing..............................................             392           1,229              32
                                                                 -----------------------------------------------
    Total.......................................................           5,188          14,593              36
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between Jan. 1, 2021, and Dec.
  31, 2022. For each industry, the table indicates how many contain any of the climate-related keywords.


[[Page 21838]]

    Figure 2 provides a breakdown by industry of use of climate-related 
keywords.
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TR28MR24.001

    Using the same sample of recent annual reports, Commission staff 
conducted additional analysis using NLP, which can provide insight on 
the semantic meaning of individual sentences within registrants' 
climate-related disclosures and classify them into topics (i.e., 
clusters).\2641\ The NLP analysis suggests that climate-related 
disclosures can be broadly organized into four topics: business impact, 
emissions, international climate accords, and physical risks. The 
analysis finds significant variation, both within the quantity and 
content, of climate-related disclosures across industries, as shown in 
Figures 3 and 4.
---------------------------------------------------------------------------

    \2641\ The specific NLP method used in this analysis is word 
embedding, which utilizes Google's publicly available, pre-trained 
word vectors that are then applied to the text of climate-related 
disclosures within regulatory filings. While this NLP analysis can 
be used to identify the general topic and the extent of disclosures, 
it is limited in its ability to discern the decision-usefulness of 
disclosures from investors' perspective.
---------------------------------------------------------------------------

    Figure 3 presents the intensity of disclosure for domestic annual 
report filings (Form 10-K). The intensity refers to sentences per 
registrant, which is calculated by taking the aggregate number of 
sentences in an industry and dividing it by the total number of 
registrants within the industry (including those that do not include 
any climate-related keywords). Thus, the intensity represents a more 
comparable estimate across industries. Figure 3 shows that registrants 
in the following industries have the highest intensity of

[[Page 21839]]

disclosures: oil and gas, electric services, and mining. The majority 
of these disclosures addressed business impact, followed by emissions, 
international climate accords, and physical risks. Figure 4 presents 
the corresponding information for foreign annual report filings (Form 
20-F). The foreign filings contain considerably higher intensity of 
climate-related keywords. For example, Form 10-K filers in the oil and 
gas industry have approximately 12 sentences per filing containing 
climate-related keywords while foreign filers in the same industry 
devote approximately 75 sentences per filing containing climate-related 
keywords. Overall, the analysis indicates that the majority of the 
disclosure for both domestic and foreign filings is focused on 
transition risks, with comparatively fewer mentions of physical risk.
[GRAPHIC] [TIFF OMITTED] TR28MR24.002


[[Page 21840]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.003

BILLING CODE 8011-01-C
    The Commission staff's findings are consistent with one academic 
study that looked at the extent of climate-related disclosures by 
Commission registrants.\2642\ In this study, a review of Form 10-K 
filings from Russell 3000 companies over the last 12 years found that 
the majority of climate-related disclosure is focused on transition 
risks,\2643\ consistent with the above Commission staff analysis that 
finds that annual filings contain more discussion on emissions and 
international climate accords relative to physical risks. This study 
further found that while 35 percent of Russell 3000 Index companies 
provided climate-related information in 2009, this figure grew to

[[Page 21841]]

60 percent in 2020.\2644\ The study also found that the extent of 
disclosure for a given report has increased.\2645\ In 2009, companies 
mentioned climate risks 8.4 times on average in their Form 10-K.\2646\ 
This figure grew to 19.1 times in 2020.\2647\
---------------------------------------------------------------------------

    \2642\ See Parker Bolstad, Sadie Frank, Erick Gesick & David 
Victor, Flying Blind: What Do Investors Really Know About Climate 
Change Risks in the U.S. Equity and Municipal Debt Markets (Hutchins 
Center Working Paper 67, 2020) (``Hutchins Center Working Paper'').
    \2643\ See id.
    \2644\ See id. The methodology uses a series of keywords to 
determine whether a company provides climate-related disclosures. 
Some keywords may occur in non-climate contexts, which the authors 
note may introduce some bias into the statistics.
    \2645\ See id.
    \2646\ See id.
    \2647\ See id.
---------------------------------------------------------------------------

    The Proposing Release included a similar analysis of climate-
related disclosures in Commission filings using data from earlier 
years.\2648\ That analysis also found that filings by registrants in 
the electric services and oil and gas industries have the most robust 
climate-related discussions.\2649\ In response to this finding, one 
commenter suggested that the current ``principles-based approach is 
working successfully, as these are industries where climate-related 
factors are more likely to have a material impact on the present value 
of future cash flows.'' \2650\ We disagree. The Commission staff's 
analysis focuses on the incidence of climate-related discussion in 
annual reports (Forms 10-K and 20-F).\2651\ The fact that the incidence 
of disclosures may be correlated with the likelihood that climate-
related risks are material to a particular company does not demonstrate 
that registrants are fully disclosing their material climate-related 
risks to investors. For instance, registrants may strategically omit 
information that could be perceived as negative or adverse,\2652\ and 
some studies point to the potential for substantial underreporting of 
material climate-related information within the current principles-
based reporting regime.\2653\
---------------------------------------------------------------------------

    \2648\ See Proposing Release, section IV.A.5.a.
    \2649\ See id.
    \2650\ See Overdahl exhibit to letter from Chamber.
    \2651\ See also section IV.A.5 for an update of the analysis in 
the Proposing Release.
    \2652\ A recent analysis, for example, showed that absent 
mandatory requirements from regulators, voluntary disclosures 
following third-party frameworks were generally of poor quality and 
that companies making these disclosures cherry-picked to report 
primarily non-material climate risk information. See Julia Bingler, 
Mathias Kraus, Markus Leippold & Nicolas Webersinke, Cheap Talk and 
Cherry-Picking: What ClimateBert Has to Say on Corporate Climate 
Risk Disclosures, 47 Fin. Rsch. Letters, Article 102776 (June 2022) 
(``Bingler et al.'') (reviewing annual reports for fiscal years 
2014-2019--i.e., before and after the introduction of TCFD 
recommendations--for a sample of 818 TCFD-supporting firms).
    \2653\ Lee Reiners & Charlie Wowk, Climate Risk Disclosures & 
Practices (2021), available at https://econ.duke.edu/sites/econ.duke.edu/files/documents/Climate-Risk-Disclosures-and-Practices.pdf; Bingler et al.; Morningstar, Corporate Sustainability 
Disclosures (2021), available at https://www.morningstar.com/en-uk/lp/corporate-sustainability-disclosures (``Companies will disclose 
the good and hide the bad while disclosure remains voluntary.'').
---------------------------------------------------------------------------

    In addition, one commenter suggested the Commission examine analyst 
reports and interactions involving analysts to assess ``the 
significance of ESG factors relative to other factors for determining 
the value of securities.'' \2654\ There is academic research that 
considers analyst reports; this literature has found that, while very 
few analyst reports traditionally discuss topics related to climate, 
climate-related disclosures can offer useful predictive signals about 
future financial performance for firms whose industries are most 
exposed to climate-related risk and can influence analysts to revise 
their target prices for these firms.\2655\ Other research has found 
that Form 10-K disclosures on material climate risks are associated 
with increased precision and lower dispersion in analysts' earnings 
forecasts.\2656\ Similarly, in the context of earnings conference calls 
involving analysts, discussions concerning exposure to climate-related 
risks have been shown to contain important information that is priced 
in stocks and options.\2657\ Relatedly, the same commenter suggested 
that the Commission conduct an event study to study price or volume 
responses to climate-related disclosures.\2658\ We decline to follow 
the suggestion in light of the support in peer reviewed literature for 
the importance of climate-related disclosures to investors.\2659\ 
Existing research finds an increase in stock price volatility around 
the day when GHG or carbon emissions are disclosed in a Form 8-K 
filing.\2660\ This suggests that investors find such disclosures to be 
informative.
---------------------------------------------------------------------------

    \2654\ See Overdahl exhibit to letter from Chamber.
    \2655\ See Jesse Yuen-Fu Chan, Climate Change Information and 
Analyst Expectations (July 29, 2022) (Ph.D. dissertation, University 
of Texas, Austin), available at https://repositories.lib.utexas.edu/items/092f6e82-c4b1-4d61-a83b-207643cbb62d.
    \2656\ See Walid Ben-Amar et al., Do Climate Risk Disclosures 
Matter to Financial Analysts?, J. of Bus. Fin. & Acct. (2023), 
available at https://onlinelibrary.wiley.com/doi/10.1111/jbfa.12778 
(using the Materiality Map provided by the Sustainability Accounting 
Standards Board (SASB) to show that the association between 
improvements to forecast precision and climate risk disclosure is 
present only when climate risk is deemed financially material at the 
industry level according to SASB).
    \2657\ See Zacharias Sautner, et al., Firm-Level Climate Change 
Exposure, 78 J. of Fin. 1449 (Feb. 2023) (``Sautner, et al. 
(2023)''); Qing Li, Hongyu Shan, Yuehua Tang & Vincent Yao, 
Corporate Climate Risk: Measurement and Responses (forthcoming Rev. 
Fin. Stud., 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3508497 (retrieved from SSRN Elsevier 
database). Additionally, researchers have noted that, although the 
frequency of such climate-related discussions have historically been 
low, there has been an increase in recent years. See Micha[lstrok] 
Dzieli[nacute]ski, Florian Eugster, Emma Sj[ouml]str[ouml]m & 
Alexander F. Wagner, Climate Talk in Corporate Earnings Calls (Swiss 
Fin. Inst. Rsch. Paper Series 22-14, 2022), available at https://ideas.repec.org/p/chf/rpseri/rp2214.html.
    \2658\ See Overdahl exhibit to letter from Chamber.
    \2659\ See also discussions in sections IV.B.1 and IV.C.1.a.
    \2660\ See Paul A. Griffin, David H. Lont & Estelle Y. Sun, The 
Relevance to Investors of Greenhouse Gas Emission Disclosures, 34 
Contemp. Acct. Rsch. 1265 (2017).
---------------------------------------------------------------------------

b. Additional Trends in Climate-Related Disclosures
    As discussed below, a number of industry and advocacy groups have 
examined the scope of voluntary climate-related disclosures, and their 
findings are relevant to assess the economic impact of the final rules.
i. Prevalence and Scope of Climate-Related Disclosures
    As discussed in the Proposing Release,\2661\ one organization, in 
collaboration with several other organizations, conducted a survey of a 
sample of 436 U.S. public companies across 17 industries that range 
from small to large in terms of market capitalization.\2662\ According 
to the survey, over half of the companies (52 percent) published a CSR, 
sustainability, or a similar report, the contents of which commonly 
include information regarding climate-related risks. The most 
frequently discussed topics in such reports were energy (74 percent), 
emissions (70 percent), environmental policy (69 percent), water (59 
percent), climate mitigation strategy (57 percent), and supplier 
environmental policies (35 percent). Among the registrants that 
reported climate-related information to the public, the majority 
disclosed such information via external reports or company websites 
rather than through regulatory filings. Similar to the Commission 
staff's review, the survey found that about a third (34 percent) of the 
respondents disclosed information regarding ``risks related to climate 
change, greenhouse gas emissions, or energy sourcing'' in their 
Commission filings.\2663\ Among these companies, 82

[[Page 21842]]

percent disclosed such information in Risk Factors, 26 percent in MD&A, 
19 percent in the Description of Business, and 4 percent in Legal 
Proceedings.\2664\
---------------------------------------------------------------------------

    \2661\ See Proposing Release, section IV.A.5.b.
    \2662\ See Center for Capital Markets, 2021 Survey Report: 
Climate Change & ESG Reporting from the Public Company Perspective, 
available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/08/CCMC_ESG_Report_v4.pdf. Sixty-seven percent of 
survey respondents have market capitalization below $5 billion, 
while 32% are below $700 million.
    \2663\ See id.
    \2664\ See id.
---------------------------------------------------------------------------

    One institute issues annual analyses of sustainability reports by 
the companies belonging to the Russell 1000 Index.\2665\ The institute 
found that in calendar year 2022, a record high of 90 percent of these 
companies published sustainability reports, which commonly include 
climate-related information--up from 60 percent in 2018.\2666\ In 
particular, sustainability reporting reached an all-time high of 98 
percent for companies in the top half of the Russell 1000 Index (which 
roughly comprises the S&P 500 Index). However, the most significant 
change was among companies in the bottom half of the Russell 1000 
Index, where sustainability reporting percentage increased to 82 
percent, up from 34 percent in 2018. The percentage of companies from 
each Global Industry Classification Standard (``GICS'') sector \2667\ 
that published a sustainability report in 2021 were: Communications (56 
percent), Consumer Discretionary (81 percent), Consumer Staples (91 
percent), Energy (94 percent), Financials (85 percent), Health Care (69 
percent), Industrials (89 percent), Information Technology (71 
percent), Materials (95 percent), Real Estate (90 percent), and 
Utilities (100 percent).
---------------------------------------------------------------------------

    \2665\ See G&A, Sustainability Reporting Trends, available at 
https://www.ga-institute.com/research/ga-research-directory/sustainability-reporting-trends; see also Proposing Release, section 
IV.A.5.b.
    \2666\ See G&A, 2023 Sustainability Reporting in Focus, 
available at https://www.ga-institute.com/research/ga-research-directory/sustainability-reporting-trends/2023-sustainability-reporting-in-focus.html; see also past reports, available at https://www.ga-institute.com/research/ga-research-directory/sustainability-reporting-trends.html.
    \2667\ For more information on GICS sector categories, see MSCI, 
The Global Industry Classification Standard (GICS), available at 
https://www.msci.com/our-solutions/indexes/gics (last visited Feb. 
28, 2024).
---------------------------------------------------------------------------

    Notwithstanding these investor-led initiatives, disclosures 
currently vary considerably in terms of coverage, location, and 
presentation across companies,\2668\ making it difficult for investors 
to navigate through different information sources and filings to 
identify, compare, and analyze climate-related information.\2669\ For 
example, one commenter submitted a survey reporting that institutional 
investors spend an average of $257,000 and $357,000 on ``collecting 
climate data related to assets'' and ``internal climate-related 
investment analysis,'' respectively.\2670\ An academic study similarly 
finds that ``there exists considerable heterogeneity in what and how 
firms report about their CSR activities . . . The heterogeneity in 
reported CSR topics makes it difficult for users to compare disclosures 
and to benchmark firms' underlying CSR performance.'' \2671\ Some 
studies and commenters have asserted that current disclosures are often 
vague and boilerplate, creating challenges for investors.\2672\ 
Industry observers and some commenters also report that many 
registrants that currently provide voluntary climate-related 
disclosures through sustainability reports often take longer than 12 
months after their fiscal year end to disclose decision-relevant data, 
raising concerns about the timeliness of these reports for 
investors.\2673\ As noted in section II.A.2, many commenters stated 
that the Commission's current reporting requirements do not yield 
adequate or sufficient information regarding climate-related 
risks.\2674\
---------------------------------------------------------------------------

    \2668\ See, e.g., TCFD Report, supra note 46, at 16; see also 
IOSCO Report, supra note 1089; GAO, Climate-Related Risks (2018), 
available at https://www.gao.gov/assets/gao-18-188.pdf (reporting 
that ``investors may find it difficult to navigate through the 
filings to identify, compare, and analyze the climate-related 
disclosures across filings''); letter from Bloomberg.
    \2669\ See letters from Calvert (``Calvert purchases third party 
vendor data to support our ability to assess companies on their ESG 
factors and that provide specific data related to climate change, 
where available. Often vendor information is estimated when a 
company has not disclosed information on its climate-related risks. 
Sometimes the estimates are made across industries, based on what 
other more proactive peers have disclosed. We are concerned about 
the lack of accuracy fostered by estimation methodologies, and also 
the trend for these methodologies to under-estimate actual 
emissions.''); Boston Trust Walden (``our analysts examine 
quantitative and qualitative climate-related corporate disclosure to 
enhance our understanding of the existing and potential financial 
outcomes associated, ranging from risks (e.g., losing the license to 
operate) to opportunities (e.g., generating new sources of revenue). 
In the absence of mandated disclosure requirements, we rely on the 
data of third-party research providers, which includes a mix of 
issuer provided data and estimates. Our analysts then seek to fill 
data gaps through additional research and analysis, outreach via 
written requests, meetings, and shareholder resolutions seeking the 
expanded disclosure we require. These processes for gathering 
necessary climate-related disclosures are inefficient and resource 
intensive.''); NY Office of the State Comptroller; and State of 
Vermont Pension Investment Commission.
    \2670\ See ERM survey attached to letter from ERM (June 16, 
2022) (``ERM survey'').
    \2671\ See Hans B. Christensen, Luzi Hail & Christian Leuz, 
Mandatory CSR and Sustainability Reporting: Economic Analysis and 
Literature Review, 26 Rev. of Acct. Stud. 1176 (2021) (``Christensen 
et al. (2021)'') at 1194.
    \2672\ See SASB, The State of Disclosure: An Analysis of the 
Effectiveness of Sustainability Disclosure in SEC Filings (2017), 
available at https://www.sasb.org/wp-content/uploads/2019/08/StateofDisclosure-Report-web112717.pdf (reporting that about 50% of 
Commission registrants provide generic or boilerplate sustainability 
information in their regulatory filings); see also letter from The 
Institute for Policy Integrity at New York University School of Law, 
Environmental Defense Fund, and Professor Madison Condon (``Inst. 
Policy Integrity et al.'') (``Existing disclosure regulations and 
guidance have proved insufficient to address this asymmetry. In a 
2020 study of climate risk disclosures in 10-K filings, the 
Brookings Institution concluded that though `[d]isclosure has risen 
sharply,' `[m]ore firms are disclosing more general information that 
is essentially of no utility to the marketplace.' '').
    \2673\ See supra note 2570; see also letter from Calvert (``Last 
year, when evaluating disclosure rates of companies in our equities 
portfolios, we found 57% of 2,207 companies disclosed their Scope 1 
and 2 emissions with a one to two year delay . . . [B]y the time 
this data is gathered, there may be a long lag time to the point of 
disclosure--it is not uncommon that GHG emissions disclosure is 
already 12-18 months out of date once it is actually published.'').
    \2674\ See supra section II.A.2.
---------------------------------------------------------------------------

ii. GHG Emissions Reporting
    Commission staff also analyzed the number of registrants that 
recently reported Scope 1 and 2 emissions data. In this analysis, 
Commission staff utilized a database that compiles emissions data 
(among other ESG-related information) from companies' annual filings, 
sustainability reports, or other public disclosures.\2675\ The number 
of registrants that are covered in this database is 5,535, which 
comprises the matched sample. From this matched sample, about 20 
percent of registrants (1,125 out of 5,535) reported their Scope 1 and 
Scope 2 emissions in fiscal year 2021, with the highest disclosure rate 
found among LAFs (50 percent).\2676\ In fiscal year 2022, about 18% of 
registrants (870 out of 5,535) reported their Scope 1 and 2 emissions, 
with the disclosure rate among LAFs at 42 percent. These and other 
statistics are presented in Table 5.
---------------------------------------------------------------------------

    \2675\ Commission staff used the Refinitiv ESG database, which 
covers over 88% of global market capitalization, across more than 
700 different ESG metrics. The U.S. coverage broadly includes listed 
companies belonging to the Russell 3000 Index. The emissions data 
used in this analysis was extracted from Refinitiv on Feb 11, 2024. 
See Refinitiv, Environmental, Social And Governance Scores From 
Refinitiv (May 2022), available at https://www.lseg.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf.
    \2676\ These percentages may be understated to the extent that 
Refinitiv may not be able to fully track all emissions disclosures 
made by Commission registrants. Conversely, compared to the full 
sample of Commission registrants, these figures may be overstated 
given that smaller firms outside of Refinitiv's coverage universe 
(i.e., those outside of the Russell 3000) are less likely to report 
emissions.

[[Page 21843]]



                             Table 5--Number of Registrants That Disclose Scope 1 and 2 Emissions Using Third-Party Data \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Scope 1 and 2 emissions disclosures
                                                            Registrants                  ---------------------------------------------------------------
                                                SEC         covered in     Coverage rate              FY 2021                       FY 2022 \6\
              Filer status                  registrants     third-party       \4\ (%)    ---------------------------------------------------------------
                                                \2\         database\3\                                     Disclosure                      Disclosure
                                                                                             Disclosed      rate\5\ (%)      Disclosed     rate \7\ (%)
(1)                                                  (2)             (3)             (4)             (5)             (6)             (7)             (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
LAF.....................................           2,528           2,059              81           1,026              50             870              42
AF......................................             444             334              75              57              17              50              15
NAF.....................................             507             154              30               8               5              15              10
SRC/EGC.................................           4,265           2,988              70              34               1              50               2
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................           7,744           5,535              71           1,125              20             985              18
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Commission staff used the Refinitiv ESG database. See supra note 2675.
\2\ These statistics are based on SEC registrants filing annual reports in calendar year 2022. See supra note 2578. For LAF, AF, and NAF registrant
  counts, only those that are not SRCs or EGCs are included. We note that several non-SRC/EGC registrants did not disclose their filer status, thus the
  total registrant count in Table 5 is not the same as what is indicated in section IV.A.1.
\3\ The matched sample consists of the number of registrants that are covered in the Refinitiv ESG database.
\4\ Column (4) = (Column (3))/(Column (2)).
\5\ Column (6) = (Column (5))/(Column (3)).
\6\ Data collection of GHG emissions disclosure can lag by 18 months or longer. As a result, the number of disclosers for FY 2022 may not be complete
  and thus understated.
\7\ Column (8) = (Column (7))/(Column (3)).

    We note that the number of registrants providing disclosure in 
fiscal year 2022 may be understated given that data collection of GHG 
emissions can lag by up to 18 months.\2677\ To estimate how this number 
could potentially increase upon the completion of data collection, we 
consider the following assumption: for those registrants that disclosed 
only in fiscal year 2021 (but not in fiscal year 2022), we assume that 
their fiscal year 2022 disclosures are forthcoming.\2678\ Within the 
matched sample, there are 263 LAFs that disclosed in fiscal year 2021 
but not in fiscal year 2022. The corresponding number for AFs is 17. If 
we assume that these registrants subsequently provide their fiscal year 
2022 disclosures, the fiscal year 2022 disclosure rate for LAFs would 
increase from 42% to 55% \2679\ and that of AFs would increase from 15% 
to 20%.\2680\ We recognize, however, that the above assumption may not 
hold true for all of these registrants.
---------------------------------------------------------------------------

    \2677\ The Commission understands that data collection of GHG 
emissions for FY 2022 is ongoing. In addition, some industry 
observers have noted that ``many companies still take more than 12 
months after their fiscal year to disclose their sustainability 
data,'' see, e.g., Corporate Knights, supra note 2570; letter from 
Morningstar (``Currently, a lack of clear disclosure standards for 
the timing of `sustainability reports,' which is the primary source 
for emissions data, greatly hinders investor knowledge. For example, 
some registrants released 2021 reports--detailing 2020 data--as late 
as November 2021.'')
    \2678\ These registrants have demonstrated that they have Scope 
1 and 2 emissions measurement and disclosure processes in place. It 
is therefore plausible that they have forthcoming disclosures for FY 
2022 that is not yet in the dataset.
    \2679\ (870 + 263)/2059 = 55%.
    \2680\ (50+17)/334 = 20%.
---------------------------------------------------------------------------

    Commission staff also analyzed U.S. companies that voluntarily 
responded to CDP's questionnaire and publicly disclosed their 
responses.\2681\ In 2022, 1,311 domestic companies provided responses 
to CDP's questionnaire. Approximately 610 of these were Commission 
registrants,\2682\ suggesting that 10 percent of the approximately 
5,860 domestic registrants that will be subject to the final rules 
provided responses to CDP's questionnaire in 2022. The response rate 
was higher among companies with higher market capitalizations. For 
example, CDP lists 351 respondents as included in its S&P 500 sample, 
suggesting that approximately 70 percent of S&P 500 companies provided 
responses. Of these 351 respondents, 95 percent provided Scope 1 and 
Scope 2 emissions data. In addition, a 2022 report examines Russell 
1000 companies and finds that 57% disclose Scope 1 and 2 
emissions.\2683\
---------------------------------------------------------------------------

    \2681\ This analysis is based on data provided to the Commission 
from CDP, available at https://www.sec.gov/comments/s7-10-22/s71022-206599-416182.xlsx. CDP operates a global disclosure system that 
enables companies, cities, states and regions to measure and manage 
their environmental risks, opportunities and impacts. Despite not 
being a framework like GRI, SASB and TCFD, CDP's questionnaires 
gather both qualitative and quantitative information from across 
governance, strategy, risk, impact and performance. To aid 
comparability and ensure comprehensiveness, CDP includes sector-
specific questions and data points. In 2018, CDP aligned its climate 
change questionnaire with the TCFD. Companies' participation in the 
CDP questionnaire is voluntary. If a company decides to respond to 
the questionnaire and disclose its information to the CDP, it then 
has the option to mark its response as either ``Public'' or 
``Private.'' Importantly, responses marked as ``Private'' are 
available only to the signatory investors of the CDP (non-signatory 
investors and the general public cannot access this information). 
Responses marked as ``Public'' can be accessed by the general public 
at no cost. See CDP, available at https://www.cdp.net/en/info/about-us. In a meeting with CDP officials, the Commission staff was 
informed that the number of public companies that respond to the CDP 
questionnaire but do not publicly disclose their responses is 
negligible. See SEC Meeting Memorandum dated June 15, 2023, 
available at https://www.sec.gov/comments/s7-10-22/s71022-206619-416182.pdf.
    \2682\ This estimate is based on matching CDP survey respondents 
to registrants on ticker, company name, and industry. Five-hundred 
seventy matches were made on ticker. Approximately 40 more matches 
were made on company name using Levenshtein Distance. The matches 
were then manually reviewed by Commission staff to ensure the 
industry description provided by CDP aligned with the SIC code 
assigned to the matched registrant.
    \2683\ See Just Capital, The Current State of Environment 
Disclosure in Corporate America: Assessing What Data Russell 1000 
Companies Publicly Share, available at https://justcapital.com/wp-content/uploads/2022/04/JUST-Capital_Environment-State-of-Disclosure-Report_2022.pdf.
---------------------------------------------------------------------------

c. Use of Third-Party Frameworks
    Multiple third-party reporting frameworks and data providers have 
emerged over the years to facilitate and encourage the reporting of 
climate-related information by companies.\2684\ Due to the voluntary 
nature of third-party frameworks, however, companies often disclose 
some but not all components of those frameworks, and the components 
that are disclosed may not be the same across companies,\2685\ 
resulting in reporting fragmentation.
---------------------------------------------------------------------------

    \2684\ The TCFD, the SASB, the GRI, the Principles for 
Responsible Investment, the PCAF, and the CDP (among others), have 
all developed standards and systems that aim to help firms and 
investors identify, measure, and communicate climate-related 
information and incorporate that information into their business 
practices. Multiple frameworks have emerged, in part, because each 
seeks to provide different information or fulfill different 
functions when it comes to disclosing information related to 
climate-related risks or other ESG factors that may be important to 
investors.
    \2685\ See Reiners et al., supra note 2653.
---------------------------------------------------------------------------

    Some companies follow existing third-party reporting frameworks 
when developing climate-related disclosures

[[Page 21844]]

for Commission filings or to be included in CSR, sustainability, ESG, 
or similar reports. As described in the Proposing Release, for 
instance, one survey found that 59 percent of respondents follow one or 
more such frameworks.\2686\ Among these respondents, 44 percent used 
SASB, 31 percent used the Global Reporting Initiative GRI, 29 percent 
used the TCFD, and 24 percent used the CDP.\2687\ Broadly similar 
statistics on the usage of different reporting frameworks are also 
provided by other studies. For example, another report \2688\ found 
that 78 percent of sustainability reports from Russell 1000 companies 
aligned with SASB reporting standards,\2689\ 54 percent utilized GRI 
reporting standards,\2690\ 50 percent aligned with the TCFD 
recommendations,\2691\ and 53 percent responded to the CDP Climate 
Change questionnaire.\2692\ A review of website sustainability 
disclosures by 80 small- and mid-cap companies across five different 
industries found comparable numbers.\2693\
---------------------------------------------------------------------------

    \2686\ See supra note 2662; see also Proposing Release, section 
IV.A.5.
    \2687\ See Proposing Release at nn.768-770 and accompanying 
text.
    \2688\ See supra note 2666.
    \2689\ See id. Sixty-seven percent of companies in the smaller 
half of the Russell 1000 index (by market capitalization) report 
according to SASB standards. The corresponding statistic for 
companies in the larger half is 88%.
    \2690\ See id. Forty percent of companies in the smaller half of 
the Russell 1000 index (by market capitalization) report according 
to GRI standards. The corresponding statistic for companies in the 
larger half is 66%.
    \2691\ See id. Thirty-two percent of companies in the smaller 
half of the Russell 1000 index (by market capitalization) report 
according to the TCFD recommendations. The corresponding statistic 
for companies in the larger half is 65%.
    \2692\ See id. Thirty-two percent of companies in the smaller 
half of the Russell 1000 index (by market capitalization) responded 
to the CDP Climate Change questionnaire. The corresponding statistic 
for companies in the larger half is 74%.
    \2693\ See White & Case and the Soc. Corp. Gov., A Survey and 
In-Depth Review of Sustainability Disclosures by Small- and Mid-Cap 
Companies (Feb. 18, 2021), available at https://www.whitecase.com/publications/article/survey-and-depth-review-sustainability-disclosures-small-and-mid-cap-companies (Among the companies 
reviewed, 41 companies (51%) provided some form of voluntary 
sustainability disclosure on their websites. Further, nine of those 
41 companies indicated the reporting standards with which they 
aligned their reporting, with the majority of the nine companies not 
following any one set of standards completely. Additionally, six 
companies followed the GRI standards, while three companies stated 
that they follow both the TCFD recommendations and SASB standards).
---------------------------------------------------------------------------

    While these various frameworks are distinct, they overlap in their 
alignment with the TCFD recommendations. According to one report,\2694\ 
the GRI standards exhibit ``Reasonable'' alignment with the TCFD, while 
the SASB standards generally exhibit ``Moderate'' or ``Reasonable'' 
alignment with the majority of the TCFD disclosure items. Additionally, 
the CDP Climate Change questionnaire fully incorporates the TCFD 
framework and thus exhibits full alignment.\2695\ Thus, companies that 
report following the GRI, SASB, or CDP frameworks are, to varying 
degrees, producing disclosures that are in line with the TCFD. However, 
because each framework takes different approaches (e.g., different 
intended audience and/or reporting channel) and because certain 
differences exist in the scope and definitions of certain elements, 
investors may find it difficult to compare disclosures under each 
framework. One organization analyzed the rate of disclosure for each 
TCFD disclosure element for a sample of 659 U.S. companies in 2020 and 
2021, presented in Table 6.\2696\
---------------------------------------------------------------------------

    \2694\ The Corporate Reporting Dialogue is a platform, convened 
by the Value Reporting Foundation, to promote greater coherence, 
consistency, and comparability between corporate reporting 
frameworks, standards, and related requirements. See Driving 
Alignment in Climate-related Reporting, Corporate Reporting Dialogue 
(2019), available at https://www.integratedreporting.org/wp-content/uploads/2019/09/CRD_BAP_Report_2019.pdf (providing a detailed 
assessment of the various frameworks' degrees of alignment with each 
TCFD disclosure item, ranging from maximum to minimum alignment as 
follows: Full, Reasonable, Moderate, Very Limited, and None).
    \2695\ See CDP, supra note 52.
    \2696\ See Moody's Analytics, TCFD-Aligned Reporting by Major 
U.S. and European Corporations (Feb. 2022), available at https://www.moodysanalytics.com/articles/pa/2022/tcfd_aligned_reporting_by_major_us_and_european_corporations. The 
sample for analysis was provided to Moody's Analytics by the TCFD 
and includes 659 companies domiciled in the United States. To arrive 
at these statistics, Moody's conducted an artificial intelligence 
(``AI'') based review of all public filings, including financial 
filings, annual reports, integrated reports, sustainability reports, 
and other publicly available reports that were associated with 
companies' annual reporting on sustainability. Non-public 
disclosures, such as responses to the CDP questionnaire, were not 
included in the analysis.

 Table 6--Third-Party Analysis of TCFD Disclosure Rates From a Sample of
                           U.S. Companies \1\
------------------------------------------------------------------------
                                                              Rate of
                 TCFD disclosure element                  disclosure (%)
------------------------------------------------------------------------
Governance:
    (a) Describe the board's oversight of climate-                    17
     related risks and opportunities....................
    (b) Describe management's role in assessing and                   10
     managing climate-related risks and opportunities...
Strategy:
    (a) Describe the climate-related risks and                        45
     opportunities the organization has identified over
     the short, medium, and long term...................
    (b) Describe the impact of climate-related risks and              34
     opportunities on the organization's businesses,
     strategy, and financial planning...................
    (c) Describe the resilience of the organization's                  5
     strategy, taking into consideration different
     climate-related scenarios, including a 2 [deg]C or
     lower scenario.....................................
Risk Management:
    (a) Describe the organization's processes for                     15
     identifying and assessing climate-related risks....
    (b) Describe the organization's processes for                     17
     managing climate-related risks.....................
    (c) Describe how processes for identifying,                       16
     assessing, and managing climate-related risks are
     integrated into the organization's overall risk
     management.........................................
Metrics and Targets:
    (a) Describe the metrics used by the organization to              21
     assess climate-related risks and opportunities in
     line with its strategy and risk management process.
    (b) Disclose Scope 1, Scope 2, and, if appropriate,               19
     Scope 3 GHG emissions, and the related risks.......
    (c) Describe the targets used by the organization to              25
     manage climate-related risks and opportunities and
     performance against targets........................
------------------------------------------------------------------------
\1\ The source of this table is Moody's Analytics. See supra note 2696.


[[Page 21845]]

    The variety of disclosure frameworks in use, and their varying 
rates of overlap with the TCFD disclosure elements, demonstrates the 
low rate of consistency and comparability among existing climate 
disclosures.
d. Climate-Related Targets, Goals, and Transition Plan Disclosures
    Carbon reduction targets or goals have become an increasing focus 
for both companies and countries.\2697\ For example, 195 parties, 
including the United States, the EU, and the UK, have signed the Paris 
Climate Agreement as of December 2023.\2698\ The agreement aims to 
strengthen the global response to climate change by keeping a rise in 
global temperatures to well below 2[deg] Celsius above pre-industrial 
levels this century, as well as pursue efforts to limit the temperature 
increase even further to 1.5[deg] Celsius.\2699\ A 2022 report, which 
examined approximately 5,300 companies across the globe, found that 
over one-third of these companies announced plans to curb their Scope 1 
or Scope 2 emissions.\2700\ Of these 5,300 companies that also 
responded to the CDP climate survey, the same report found that about 
one-fourth of these companies had established a target to achieve net-
zero carbon emissions.\2701\ In addition, a growing number of companies 
and organizations have signed on to The Climate Pledge, indicating a 
commitment to achieve net-zero emissions by 2040.\2702\ According to 
data from another source, as of August 2023, 5,728 companies had 
established climate targets.\2703\ Of these companies, 710 were located 
in the United States, about half of which were Commission 
registrants.\2704\ The trend in companies disclosing other climate-
related targets has also been increasing over time.\2705\
---------------------------------------------------------------------------

    \2697\ See, e.g., UNFCC COP28 Agreement, supra note 34; Press 
Release, United Nations Framework Convention on Climate Change, 
Commitments to Net Zero Double in Less Than a Year, (Sept. 21, 
2020), available at https://unfccc.int/news/commitments-to-net-zero-double-in-less-than-a-year.
    \2698\ See United Nations, Multilateral Treaties Deposited with 
the Secretary General ch. XXVII, 7.d Paris Agreement (treaty status 
updated Feb. 2024), available at https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-7-d&chapter=27&clang=_en 
treaty collection; see also EU Press Release, Corporate 
Sustainability Due Diligence: Council and Parliament Strike a Deal 
to Protect Environment and Human Rights (Dec. 14, 2023), available 
at https://www.consilium.europa.eu/en/press/press-releases/2023/12/14/corporate-sustainability-due-diligence-council-and-parliament-strike-deal-to-protect-environment-and-human-rights/ (announcing a 
provisional agreement to adopt the Corporate Sustainability Due 
Diligence Directive, which includes a requirement that companies 
ensure their business strategies are compatible with limiting global 
warming to 1.5[deg] Celsius).
    \2699\ See section I.
    \2700\ The Sustainability Yearbook 2022, S&P Global (Feb. 2022), 
available at https://www.spglobal.com/esg/csa/yearbook/2022/downloads/spglobal_sustainability_yearbook_2022.pdf.
    \2701\ Id.
    \2702\ As of February 20, 2024, The Climate Pledge had acquired 
468 signatories, 146 of which are from the United States. See The 
Climate Pledge, available at https://www.theclimatepledge.com/us/en/Signatories (last visited Feb. 20, 2024).
    \2703\ See Target Dashboard, available at https://sciencebasedtargets.org/ (as visited Aug. 16, 2023).
    \2704\ See id.
    \2705\ For example, the percentage of both global and U.S. 
companies with water reduction targets grew by 4% in 2019 on a year-
over-year basis. This represented 28% of major global companies 
(i.e., those listed on the S&P Global 1200 index) and 27% of major 
(i.e., those listed in the S&P 500 index) U.S. companies publicly 
disclosing these targets. See State of Green Business 2021, S&P 
Global (Feb. 4, 2021), available at https://www.spglobal.com/marketintelligence/en/news-insights/research/state-of-green-business-2021.
---------------------------------------------------------------------------

    An increasing number of companies are adopting transition plans, 
according to a 2023 report.\2706\ This report finds that 4,100 
organizations \2707\ across the globe reported having transition plans 
aligned with reaching a temperature change of no more than 1.5[deg] 
Celsius above pre-industrial levels.\2708\ Approximately 43 percent of 
these transition plans are publicly available.\2709\
---------------------------------------------------------------------------

    \2706\ CDP, Are Companies Developing Credible Climate Transition 
Plans? (Feb. 2023), available at https://cdn.cdp.net/cdp-production/cms/reports/documents/000/006/785/original/Climate_transition_plan_report_2022_%2810%29.pdf.
    \2707\ See id. According to the CDP's Transition Plan report, 
``Nearly 20,000 organizations around the world disclosed data 
through CDP in 2022, including more than 18,700 companies worth 50% 
of global market capitalization, and over 1,100 cities, states and 
regions.''
    \2708\ See id.
    \2709\ See id.
---------------------------------------------------------------------------

    Commission staff compared these figures to data related to targets 
and goals on the Bloomberg ESG database, which is focused on 
registrants listed on NYSE and NASDAQ. The results are reported in 
Table 7 below. These results are generally consistent with data from 
the sources discussed above.

                   Table 7--Registrants With Targets or Goals According to Bloomberg ESG Data
----------------------------------------------------------------------------------------------------------------
                                                                     Emission
                                                  Climate change     reduction     Science-based  Net zero plans
                                                     policy \1\     initiatives     targets \3\       \4\ (%)
                                                        (%)           \2\ (%)           (%)
----------------------------------------------------------------------------------------------------------------
All issuers.....................................              37              45              11              17
NAFs............................................              10              11               1               2
AFs.............................................              23              29               2               7
LAFs............................................              55              67              19              27
EGCs............................................               8               9               0               1
Non EGCs........................................              47              58              15              22
SRCs............................................              13              12               0               3
Non SRCs........................................              40              49              12              18
----------------------------------------------------------------------------------------------------------------
Sources: Bloomberg, SEC filings.
\1\ Bloomberg defines this field as indicating: ``Whether the registrant has disclosed its intention to help
  reduce global GHG emissions through its ongoing operations and/or the use of its products and services in its
  annual report or CSR report. Examples might include efforts to reduce GHG emissions, efforts to improve energy
  efficiency, efforts to derive energy from cleaner fuel sources, investment in product development to reduce
  emissions generated or energy consumed in the use of the company's products etc.''
\2\ Bloomberg defines this field as indicating: ``Whether the registrant has disclosed the implementation of any
  initiative to reduce its emissions, such as GHGs, SOX, NOX, or other air pollutants in its annual report or
  CSR report.''
\3\ Bloomberg defines this field as indicating: ``Whether the registrant has disclosed its ambition and
  engagement related to setting science-based GHG emissions reduction targets. Emissions targets are considered
  science-based if they align with the goals of the Paris Climate Agreement to limit warming to well below 2
  degrees Celsius above pre-industrial levels. That is, whether the company has explicitly disclosed that they
  have either committed to setting or have set science-based targets. This information is sourced from a
  company's CSR report.''
\4\ Bloomberg defines this field as indicating: ``Whether the registrant has disclosed its ambition and
  engagement related to achieving Net Zero GHG emissions. Net Zero refers to a state in which GHG emissions
  released into the atmosphere are balanced by removal of emissions from the atmosphere. This information is
  sourced from a company's CSR report.''


[[Page 21846]]

    The results suggest that smaller registrants (NAFs, EGCs, and SRCs) 
are much less likely to have developed climate-related targets and 
goals. For example, the portion of companies that have ``Net Zero 
Plans'' is approximately 1 percent for EGCs and approximately 22 
percent for non-EGCs.
e. Third-Party Assurance of Climate-Related Disclosures
    Among the companies that provide climate-related disclosures, a 
considerable portion include some form of third-party assurance of the 
accuracy of these disclosures. One report finds that 40 percent of 
Russell 1000 Index companies, nearly all of which are LAFs, obtained 
third-party assurance for their sustainability reports in 2022, up from 
24 percent in 2019.\2710\ Among the companies that obtained assurance, 
however, only three percent obtained assurance for the entire report, 
with 58 percent obtaining assurance only with respect to GHG emissions. 
Regarding the level of assurance, the overwhelming majority (92 
percent) obtained limited assurance while only 5 percent obtained 
reasonable assurance. Regarding service providers, 17 percent of 
companies received assurance from an accounting firm, 15 percent from 
small consultancy/boutique firms, and 68 percent from engineering 
firms.\2711\ Because these statistics are limited to Russell 1000 Index 
companies, corresponding figures for the full sample of U.S. 
registrants may differ depending on the extent to which the practice of 
obtaining third-party assurance is concentrated in large 
companies.\2712\ Indeed, based on Commission staff's analysis of 
Bloomberg ESG data, which focuses on registrants listed on NYSE and 
NASDAQ, approximately 15 percent obtained some type of third-party 
assurance or verification \2713\ on their environmental policies and 
data, nearly all of which are non-SRCs and non-EGCs.\2714\ Based on 
analysis of S&P 500 companies from 2010 through 2020, a 2023 study 
finds that the most common form of assurance standard used for GHG 
emissions is the ISO 14064,\2715\ which is the assurance standard 
typically applied by assurance providers who are not accountants.\2716\ 
Specifically, across Scopes 1, 2, and 3 GHG emissions, approximately 40 
percent of the assurance performed utilizes ISO 14064-3. Application of 
other assurance standards are reported to be also consistent across 
Scopes 1, 2, and 3 GHG emissions: around 10 percent for AICPA, around 
10 percent for AccountAbility's AA1000, around 16 percent for IAASB 
ISAE, and around 30 percent for miscellaneous in-house assurance 
standards and protocols.\2717\ An analysis of S&P 500 firms in 2021 
reveals a similar finding with ISO 14064-3 being the most common 
assurance standard referenced in ESG reporting followed by the IAASB 
ISAE, which experienced an increase of 41 more references compared to 
the previous year (i.e., 54 percent increase).\2718\
---------------------------------------------------------------------------

    \2710\ See supra note 2666.
    \2711\ One study finds that assurance service providers that are 
not financial auditors are reported to be not applying the AICPA 
assurance standards. See Brandon Gipper, Samantha Ross & Shawn Shi, 
ESG Assurance in the United States (Aug. 14, 2023), Stanford Univ. 
Grad. Sch. of Bus. Rsch Paper No. 4263085, UC San Francisco Rsch. 
Paper No. Forthcoming, available at https://ssrn.com/abstract=4263085 (retrieved from SSRN Elsevier database) (``Gipper 
et al. (2023)''); see also supra note 1363 (explaining that non-CPAs 
are unable to use AICPA or PCAOB attestation standards).
    \2712\ Other studies also report evidence of third-party 
assurance among smaller samples of companies analyzed. For example, 
according to a recent study by the International Federation of 
Accountants (``IFAC''), in 2019, 99 out of the 100 largest U.S. 
companies by market capitalization provided some form of 
sustainability disclosure, which may contain climate-related 
information among other sustainability-related topics. Seventy of 
those companies obtained some level of third-party assurance, with 
the vast majority being ``limited assurance'' according to the 
study. Of the 70 companies that obtained assurance, the study 
reports that 54 obtained ``limited assurance,'' eight obtained 
``reasonable assurance,'' five obtained ``moderate assurance,'' and 
three did not disclose any assurance. Of the 81 unique assurance 
reports examined in the study, nine were found to be issued by an 
auditing firm, while 72 were issued by another service provider. See 
IFAC, supra note 1089. Among the sample of 436 companies included in 
the CCMC Survey, 28% disclosed that they engaged a third party to 
provide some form of auditing or assurance regarding their climate-
related or ESG disclosure.
    \2713\ As discussed in section II.I.5.c, assurance services are 
services performed in accordance with professional standards that 
are designed to provide assurance, while in many cases verification 
services are not designed to provide assurance.
    \2714\ Consistent with rates of voluntary GHG emissions 
disclosures, the percentages become much smaller when the sample 
analyzed is expanded to include smaller registrants. The breakdown 
for LAF, AFs, and NAFs is as follows: 25%, 4%, and 1%, respectively.
    \2715\ See Gipper et al. (2023).
    \2716\ See Center for Audit Quality, S&P 500 ESG Reporting and 
Assurance Analysis (2023), available at https://www.thecaq.org/sp-500-and-esg-reporting (stating, in the context of the study, that 
the most common standard used by non-accountant providers was ISO 
14064-3).
    \2717\ Percentages do not add up to 100% because assurance 
statements can sometimes reference multiple assurance standards.
    \2718\ Center for Audit Quality, supra note 2716.
---------------------------------------------------------------------------

B. Broad Economic Considerations

1. Investor Demand for Additional Climate Information
    Comments received in response to the Proposing Release, previously 
discussed in section II.A.2, indicate that there is broad support from 
investors for more reliable, consistent, and comparable information on 
how climate-related risks can impact companies' operations and 
financial conditions.\2719\ The results of multiple recent surveys 
\2720\ and evidence in academic studies \2721\ also indicate strong 
demand from investors

[[Page 21847]]

for multiple types for disclosures of climate-related risks faced by 
companies.\2722\ Commenters identified various channels by which 
climate risks can impact financial performance \2723\ and why this 
information is important for their investment decisions. These 
commenters agreed with the Commission's assessment in the Proposing 
Release that the current set of voluntary disclosures are inadequate to 
meet investor needs. Accordingly, these commenters expressed support 
for new rules to enhance the consistency, comparability, and 
reliability of climate-related disclosures.
---------------------------------------------------------------------------

    \2719\ This includes support for climate-related disclosure in 
the form of numerous letters from individuals as well as letters 
from investment managers and investment advisers. See supra section 
II.A.
    \2720\ See, e.g., Morrow Sodali, Institutional Investor Survey 
(2021), available at https://morrowsodali.com/uploads/INSTITUTIONAL-INVESTOR-SURVEY-2021.pdf (``Morrow Sodali (2021)''). This survey 
solicited the views of 42 global institutional investors managing 
over $29 trillion in assets (more than a quarter of global assets 
under management). Results show that 85% of surveyed investors cited 
climate change as the leading issue driving their engagements with 
companies, and 61% indicated that they would benefit from 
disclosures that more clearly link climate-related risks to 
financial risks and opportunities. See also, e,g., E. Ilhan, et al., 
Climate Risk Disclosure and Institutional Investors, 36 Rev. Fin. 
Stud. 2617 (2023) (``Ilhan et al. (2023)'') (``Through a survey and 
analyses of observational data, we provide systematic evidence that 
institutional investors value and demand climate risk 
disclosures''). The sample consists of 439 institutional investor 
respondents. Results show that 68% of respondents either agreed or 
strongly agreed that management discussions on climate risk are not 
sufficiently precise. Also, 74% either agreed or strongly agreed 
that investors should demand that portfolio companies disclose their 
exposure to climate risk, while 59% engaged (or planned to engage) 
portfolio companies to provide disclosures in line with the TCFD. 
Lastly, 73% of institutional investors surveyed either agreed or 
strongly agreed that standardized and mandatory reporting on climate 
risk is necessary. The authors state that ``respondents are likely 
biased toward investors with a high ESG awareness.''
    \2721\ See also Christensen et al. (2021), at 1-73; see also 
Shira Cohen, Igor Kadach & Gaizka Ormazabal, Institutional 
Investors, Climate Disclosure, and Carbon Emissions, 76 J. of Acct. 
& Econ., Article 101640 (2023); Juan Castillo, et al., Does Talking 
the Climate Change Talk Affect Firm Value? Evidence from the Paris 
Agreement (Apr. 6, 2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4411193 (retrieved from SSRN Elsevier 
database); K[ouml]lbel, et al., Ask BERT: How Regulatory Disclosure 
of Transition and Physical Climate Risks Affects the CDS Term 
Structure, 22 J. Fin. Econometrics 30 (2022); Philipp Baier, et al., 
Environmental, Social and Governance Reporting in Annual Reports: A 
Textual Analysis, 29 Fin. Markets, Insts. & Instruments 93 (2020); 
Dirk Black, et al., Investor Commitment to Responsible Investing and 
Firm ESG Disclosure (Oct. 12, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4205956 (retrieved from 
SSRN Elsevier database); Scott Robinson, et al., Environmental 
Disclosures and ESG Fund Ownership (Jan. 31, 2023), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4344219 
(retrieved from SSRN Elsevier database); see also infra notes 2738 
to 2745 and surrounding discussion.
    \2722\ See discussion supra sections I and II.A.; see also 
Christensen et al. (2021) (stating ``it is clear that capital-market 
participants have a demand for CSR information, not least because of 
the potential performance, risk or valuation implications''); 
Investor Agenda, 2021 Global Investor Statement to Governments on 
the Climate Crisis, available at https://theinvestoragenda.org/wp-content/uploads/2021/09/2021-Global-Investor-Statement-to-Governments-on-the-Climate-Crisis.pdf (statement signed in 2021 by 
733 investors collectively managing over $52 trillion in assets).
    \2723\ See infra notes 2738-2745 and accompanying text.
---------------------------------------------------------------------------

    Other commenters questioned both the Commission's rationale for the 
proposed rules and the views of supportive commenters. Some of these 
commenters characterized the demand for climate-related information as 
being concentrated among a small set of institutional investors, who 
did not represent investors more broadly.\2724\ Other commenters 
expressed the view that institutional investors are influenced by 
motives other than the desire to obtain the best financial return for 
their clients.\2725\ Relatedly, one commenter expressed the view that 
climate-related information would not better inform investor decision-
making beyond what is found in current financial disclosures, while 
also stating that the risks that it highlighted were too far in the 
future to matter for current valuation.\2726\
---------------------------------------------------------------------------

    \2724\ See, e.g., letter from Business Roundtable; Nasdaq, The 
SEC's proposal on Climate Change Disclosure: a Survey of U.S. 
Companies (2022) (letter and accompanying survey report), available 
at https://nd.nasdaq.com/rs/303-QKM-463/images/1497-Q22_SEC-Climate-Change-Survey-Findings-Report-Listings-CP-v3.pdf; and Overdahl 
exhibit to letter from Chamber (citing BCG Investor Perspectives 
Series Pulse Check #19 Mar. 18-22, 2022, available at https://web-assets.bcg.com/7e/19/4b86c63541b78f1c9ffa82e42804/bcg-investor-pulse-check-series-19.pdf). From that BCG study, the commenter cites 
a footnote (slide 17): ``However, most of the investors BCG recently 
surveyed indicated that ESG is not currently a primary consideration 
in day-to-day investment decisions and recommendations.'' Simply 
because a matter is not a day-to-day consideration does not imply 
that disclosure relating to it is unimportant to an investor.
    \2725\ See, e.g., letters from Cunningham et al.; David R. 
Burton; Domestic Energy Producers' Alliance; National Fuel 
Corporation; Western Energy Alliance and U.S. Oil & Gas Association; 
and Competitive Enterprise Institute. See also letter from Boyden 
Gray (June 2022), citing Paul G. Mahoney & Julia D. Mahoney, The New 
Separation of Ownership and Control: Institutional Investors and 
ESG, 2 Colum. Bus. L. Rev. 840, 851 (2021), which discusses cases in 
which some institutional investors may act for purposes that are 
contrary to those of their investors but noting that such concerns 
may not apply to all institutional investors.
    \2726\ See Overdahl exhibit to letter from Chamber.
---------------------------------------------------------------------------

    We disagree with the commenters who stated that the demand for 
climate-related information is concentrated among a small group of 
institutional investors. We received numerous comment letters from 
investors, both institutional and individual, expressing a need for 
more reliable, consistent, and comparable climate-related 
information.\2727\ Furthermore, institutional managers' demand for 
climate-related disclosures likely reflects what they believe to be in 
the best interests of their investors and clients, including 
individuals.\2728\ Institutional investors have strong incentives to 
earn financial returns on behalf of their clients.
---------------------------------------------------------------------------

    \2727\ See supra section II.A.2.
    \2728\ See, e.g., letters from PIMCO and ICI. For evidence on 
retail investors using ESG-related information in their decisions; 
see also Q. Li, E. Watts & C. Zhu, Retail Investors and ESG News, 
Jacobs Levy Equity Mgmt. Center for Quantitative Fin. Rsch. Paper 
(2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4384675 (retrieved from SSRN Elsevier 
database); A. Amel-Zadeh, R. Lustermans & M. Pieterse-Bloem, Do 
Sustainability Ratings Matter? Evidence from Private Wealth 
Investment Flows (Mar. 9, 2022).
---------------------------------------------------------------------------

    Moreover, climate risk information can be informative about 
financial performance in a way that goes beyond current accounting 
numbers. As stock prices reflect profits potentially years in the 
future, even long-term climate-related risks can affect profitability, 
though not all climate risks are necessarily long-term. In any case, 
risks to cash flows, even those that are far in the future, can still 
be important for investors today.\2729\
---------------------------------------------------------------------------

    \2729\ See J. van Binsbergen, Duration-Based Stock Valuation: 
Reassessing Stock Market Performance and Volatility (2021), 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3611428 (retrieved from SSRN Elsevier 
database); D. Greenwald, M. Leombroni, H. Lustig & S. van 
Nieuwerburgh, Financial and Total Wealth Inequality with Declining 
Interest Rates (2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3789220 (retrieved from SSRN Elsevier 
database). Both of these papers find that the Macauley duration of 
equity, the weighted average length of time which investors will 
receive the cash flows from the asset, is in excess of 35 years as 
of 2019. This indicates that changes in cash flows in the future can 
impact equity prices today. See E. Ilhan, Z. Sautner & G. Vilkov, 
Carbon Tail Risk, 34 Rev. of Fin. Studs. 1540 (2021), for evidence 
of the market reflecting expectations about future climate events, 
even the rarest ones. See K[ouml]lbel, et al., supra note 2721, for 
evidence of climate risks being priced in CDS contracts with distant 
maturities. See also David C. Ling, Spenser J. Robinson, Andrew 
Sanderford & Chongyu Wang, Climate Change and Commercial Property 
Markets: The Role of Shocks, Retail Investors, and Media Attention 
(Apr. 7, 2023), available at SSRN: https://ssrn.com/abstract=4412550 
(retrieved from SSRN Elsevier database).
---------------------------------------------------------------------------

2. Current Impediments to Climate Disclosures
    In the Proposing Release, the Commission stated that, in practice, 
investors' demand for climate-related information is often met by 
inconsistent and incomplete disclosures due to the considerable 
variation in the coverage, specificity, location, and reliability of 
information related to climate risk.\2730\ Furthermore, the Commission 
noted that multiple third-party reporting frameworks and data providers 
have emerged over the years but these resources lack mechanisms to 
ensure compliance and have contributed to reporting 
fragmentation.\2731\ Many commenters supported these 
observations.\2732\
---------------------------------------------------------------------------

    \2730\ Proposing Release, section IV.B.2.a.
    \2731\ Id.
    \2732\ See supra section II.A.
---------------------------------------------------------------------------

    The Commission also described a set of conditions that could 
contribute to the market failing to achieve an optimal level of climate 
disclosure from the point of view of investors.\2733\ Briefly put, 
these market failures stemmed from the existence of information 
externalities (implying that registrants may fully internalize the 
costs of disclosure but not the benefits, which may lead them to under-
disclose relative to what is optimal from investors' perspective), from 
agency problems in that managers may not be motivated to disclose 
information due to agency concerns, and the fact that disclosures may 
not elicit uniform responses from investors. In articulating these 
market failures, the Commission drew on a long-standing literature in 
economics regarding insufficient private incentives for 
disclosure.\2734\ Academic literature that focuses on climate 
disclosures acknowledges these to be applicable market failures, though 
there

[[Page 21848]]

is a debate over whether these failures justify official sector 
action.\2735\
---------------------------------------------------------------------------

    \2733\ See Proposing Release, section IV.B.2.a.
    \2734\ See id; see also S.J. Grossman, The Informational Role of 
Warranties and Private Disclosure About Product Quality, 24 J. L. & 
Econ. 461 (1981); P. Milgrom, Good News and Bad News: Representation 
Theorems and Applications, 17 Bell J. Econ. 18 (1981); S.A. Ross, 
Disclosure Regulation in Financial Markets: Implications of Modern 
Finance Theory and Signaling Theory, Issues in Financial Regulation 
(McGraw Hill, F.K. Edwards Ed., 1979); Anne Beyer, et al., The 
Financial Reporting Environment: Review of the Recent Literature, 50 
J. Acct. & Econ. 296 (2010).
    \2735\ See Christensen et al. (2021); Richard M. Frankel, S.P. 
Kothari & Aneesh Raghunandan, The Economics of ESG Disclosure 
Regulation (Nov. 29, 2023), available at https://ssrn.com/abstract=4647550 (retrieved from SSRN Elsevier database). See also 
Overdahl exhibit to letter from Chamber (critiquing a rules-based 
approach).
---------------------------------------------------------------------------

    One commenter argued that the Commission must empirically establish 
the existence of a market failure and that the Proposing Release 
``failed to demonstrate that a market failure exists with respect to 
the current principles-based approach.'' \2736\ As discussed in section 
IV.B.1, however, investors have expressed a need for the information 
provided by these disclosures and have stated there is a lack of 
consistency in current disclosures. In addition, there are several 
conditions that inhibit an optimal level of climate-related disclosure 
in the current market, as described above. It is widely accepted that 
such conditions demonstrate barriers to voluntary disclosure, namely, a 
market failure in this context. These together establish the basis for 
Commission action.
---------------------------------------------------------------------------

    \2736\ See Overdahl exhibit to letter from Chamber. This 
commenter also pointed to a statement from a set of economists that 
considered how the Commission should approach disclosures of 
environmental and social issues. The commenter cites to the groups' 
recommendation that, ``that the SEC should not mandate disclosure of 
the firm's impacts on environmental and social (E&S) outcomes.'' See 
Jonathan M. Karpoff, Robert Litan, Catherine Schrand & Roman L. 
Weil, What ESG-Related Disclosures Should the SEC Mandate?, 78 Fin. 
Analysts J. 8 (2022); Fin. Economists Roundtable, Statement on SEC 
Regulation of ESG Issues: SEC Should Mandate ESG Disclosure Limited 
to Matters that Directly Affect the Firm's Cash Flows, (2021) (``FER 
Statement''), available at https://static1.squarespace.com/static/61a4492358cbd07dda5dd80f/t/61e8d6dd8c22c04330637bc9/1642649310539/2021.pdf. Although the final rules require some disclosure of GHG 
emissions, contrary to the FER Statement's concerns, those 
disclosures are not intended to promote an ``understanding [of] how 
the firm's activities affect society.'' Id. Instead, consistent with 
the FER Statement's suggestion, the GHG emissions disclosure 
requirements are intended to help investors understand the risks to 
which registrants are subject so that they can make better-informed 
investment and voting decisions. Moreover, the commenter neglected 
to reference the group's recommendation that ``[t]he SEC should 
mandate disclosure of E&S-related cash flow effects, including 
investments that alter E&S outcomes.'' Overall, therefore, we 
believe our approach is broadly consistent with the FER Statement's 
recommendation to focus on ``understanding the impact of E&S 
activities on the firm's value through their effects on a firm's 
cash flows.''
---------------------------------------------------------------------------

C. Benefits and Costs

    We begin with a general discussion of the final rules' benefits and 
costs (section IV.C.1). We then turn to the benefits and costs that are 
specific to particular provisions of the final rules (section IV.C.2). 
Finally, we discuss estimates of quantifiable direct costs of 
compliance with the final rules (section IV.C.3).
1. General Discussion of Benefits and Costs
a. Benefits
    The final rules will require comprehensive and standardized 
climate-related disclosures, including disclosure on governance, 
business strategy, targets and goals, GHG emissions, risk management, 
and financial statement metrics. This information will enable investors 
to better assess material risks in climate-related reporting and 
facilitate comparisons across firms and over time.
    Academic literature shows a well-established link between climate-
related risks and firm fundamentals.\2737\ In an international study of 
over 17,000 firms from 1995 to 2019, researchers found that increased 
exposure to higher temperatures, a form of physical climate risk, 
reduces firm revenues and operating income.\2738\ Another study found 
that drought risk, another form of physical climate risk, predicts poor 
profit growth.\2739\ A third study found that exposure to physical 
climate risk leads firms to choose capital structures with less debt 
due to higher expected distress costs and greater operating 
costs.\2740\ Researchers have found that banks with financial exposure 
in their lending portfolios to extreme climate-related hazards (e.g., 
hurricanes) experience higher loan losses and lower long-run 
profitability.\2741\ Other studies document effects of climate-related 
transition risks on innovation, employment and investment 
policies.\2742\
---------------------------------------------------------------------------

    \2737\ One commenter said that the Commission did not explain 
``why climate-related information would often be material to 
investors when other information, such as cash flows, profitability 
and industry, are likely to be much more relevant to an investment 
decision.'' See Overdahl exhibit to letter from Chamber (citing BCG 
Investor Perspectives Series Pulse Check #19, supra note 2724). We 
disagree with the premise underlying this comment. Indeed, as other 
commenters have expressed, understanding the impact of climate-
related risks is important, for investors to assess current 
financial information such as cash flows and profitability and thus 
to make informed investment decisions. See supra section IV.B.1. 
Moreover, disclosure regarding the potentially likely material 
impacts of a registrant's climate-related risks may be more 
informative about future cash flows than disclosure regarding its 
current cash flows. This commenter cites as evidence an academic 
study, A. Moss, J.P. Naughton & C. Wang, The Irrelevance of 
Environmental, Social, and Governance Disclosure to Retail 
Investors, Mgmt. Sci. (2023) (also submitted to the comment file by 
the authors, see letter from James P. Naughton). This study suggests 
that the portfolios of retail investors on one trading platform are 
not different on days of ESG press releases. We received numerous 
comments speaking to difficulties in analyzing current climate 
disclosures, and this paper's findings are consistent with this 
feedback. We acknowledge, however, that this study is subject to 
certain limitations, such as the fact that its findings center 
around disclosures on social issues more generally (rather than 
specifically focusing on climate-related risks). Also, voluntary 
disclosures are analytically subject to a dual selection problem. 
See Christensen et al. (2021), at 1208. The dual selection problem 
refers to two concurrent issues that pose challenges in determining 
causality. The first stems from the fact that observable ESG 
disclosures are from companies that voluntarily choose to disclose, 
reflecting a selection bias. The second is the challenge of 
disentangling the effects of disclosure by itself from the effects 
of the underlying CSR activities.
    \2738\ See Nora Pankratz, Rob Bauer & Jeroen Derwall, Climate 
Change, Firm Performance, and Investor Surprises, 69 Mgmt Sci. 7352 
(2023).
    \2739\ See Harrison Hong, Frank Weikai Li & Jiangmin Xu, Climate 
Risks and Market Efficiency, 208 J. of Econometrics 265 (Jan. 2019); 
Claudia Custodio, et al., How Does Climate Change Affect Firm Sales? 
Identifying Supply Effects (June 30, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3724940 (retrieved from 
SSRN Elsevier database) (describing decline in labor and sales due 
to extreme temperatures in manufacturing and other heat-sensitive 
industries).
    \2740\ See Edith Ginglinger & Quentin Moreau, Climate Risk and 
Capital Structure, 69 Mgmt Sci. 7492 (2023). Similar evidence also 
appears in the context of transition risk where researchers find 
that firms with higher carbon emissions exhibit lower leverage when 
their banks through commitments to decarbonize are found to supply 
less credit to these firms. See Marcin T. Kacperczyk & Jos[eacute]-
Luis Peydr[oacute], Carbon Emissions and the Bank-lending Channel 
(Aug. 2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3915486 (retrieved from SSRN Elsevier 
database).
    \2741\ See Yao Lu & Valeri V. Nikolaev, The Impact of Climate 
Hazards on Banks' Long-Run Performance (Sept. 2023), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4569935 
(retrieved from SSRN Elsevier database).
    \2742\ See Sautner, et al. (2023); Li, supra note 2657.
---------------------------------------------------------------------------

    Relatedly, research shows that publicly available climate-related 
information is reflected in asset prices, which is an indication that 
such information affects the prices at which investors are willing to 
buy or sell assets (i.e., their investment decisions).\2743\ For 
example, some studies document a carbon emissions premium: investors 
demand compensation (higher expected returns) for bearing exposure to 
firms with higher carbon emissions.\2744\

[[Page 21849]]

Similar evidence is found in debt and financial derivatives markets 
where climate-related risks are found to be priced in corporate bonds, 
options, credit default swaps, and futures contracts.\2745\ Recent 
academic research also concludes that climate disclosures can be used 
in constructing efficient ``climate-hedging'' portfolios, by allowing 
investors to better identify firms with positive or negative climate 
exposure and adjust their portfolios in response to that 
information.\2746\ Collectively, this research indicates that 
disclosures about climate-related risks, when they are made, become 
priced into the value of a firm, thereby demonstrating that the 
disclosure provides relevant information to investors as they make 
investment decisions.
---------------------------------------------------------------------------

    \2743\ Although the literature shows that financial motivations 
play a central role in driving investor interest in information 
regarding climate- and sustainability-related issues, we acknowledge 
that there coexist investors who exhibit nonpecuniary preferences 
involving this type of information. See S.M. Hartzmark & A.B. 
Sussman, Do Investors Value Sustainability? A Natural Experiment 
Examining Ranking and Fund Flows, 74 J. of Fin. 2789 (Aug. 2019); A. 
Riedl & P. Smeets, Why Do Investors Hold Socially Responsible Mutual 
Funds? 72 J. of Fin. 2505 (Aug. 2017); [Lcaron]. P[aacute]stor, R.F. 
Stambaugh, & L.A. Taylor, Sustainable Investing in Equilibrium, 142 
J. of Fin. Econ 550 (Nov. 2021).
    \2744\ See Patrick Bolton & Marcin T. Kacperczyk, Do Investors 
Care about Carbon Risk? 142 J. of Fin. Econ. 517 (2021). Similar 
evidence on the pricing of information regarding climate-related 
risks more generally, see Sautner, et al. (2023); Griffin, et al., 
supra note 2660; E.M. Matsumura, R. Prakash & S.C. Vera-Munoz, Firm-
value Effects of Carbon Emissions and Carbon Disclosures, 89 Acct. 
Rev. 695 (March 2014); E.M. Matsumura, R. Prakash & S.C. Vera-Munoz, 
Climate Risk Materiality and Firm Risk, Rev. Acct. Stud. (Feb. 5, 
2022) available at https://ssrn.com/abstract=2983977 (retrieved from 
SSRN Elsevier database).
    \2745\ For evidence within the market for corporate bonds, see, 
e.g., Thanh D. Huynh & Ying Xia, Climate Change News Risk and 
Corporate Bond Returns, 56 J. of Fin. & Quant. Analysis 1985 (Sept. 
2021) (``Huynh & Xia (2021)''). For evidence within the market for 
options, see, e.g., E. Ilhan, Z. Sautner, & G. Vilkov, Carbon Tail 
Risk, supra note 2729; Sautner et al. (2023). For evidence within 
the market for credit default swaps, see K[ouml]lbel et al., supra 
note 2721. For evidence within the market for futures contracts, see 
Wolfram Schlenker & Charles A. Taylor, Market Expectations of a 
Warming Climate, 142 J. of Fin. Econ. 627 (Nov. 2021). But see Hong, 
supra note 2739 (finding asset prices may not fully price in climate 
related risks); and evidence finding a lack of relation between 
climate-related risks and asset prices, J. Aswani, A. Raghunandan & 
S. Rajgopal, Are Carbon Emissions Associated with Stock Returns? 28 
Rev. of Fin. 75 (Jan. 2024); R. Faccini, R. Matin & G. Skiadopoulos, 
Dissecting Climate Risks: Are They Reflected in Stock Prices? 155 J. 
of Banking & Fin., Article 106948 (Oct. 2023); J. Murfin & M. 
Spiegel, Is the Risk of Sea Level Rise Capitalized in Residential 
Real Estate?, 33 Rev. of Fin. Stud. 1217 (March 2020). For a 
discussion of seemingly contradictory empirical results found in 
studies involving stock returns and carbon emissions, see Patrick 
Bolton, Zachery Halem & Marcin T. Kacperczyk, The Financial Cost of 
Carbon, 34 J. of Applied Corp. Fin. 17 (June 2022). For further 
evidence in real estate and municipal bonds, see D.D. Nguyen, S. 
Ongena, S. Qi & V. Sila, Climate Change Risk and the Cost of 
Mortgage Credit, 26 Rev. of Fin. 1509 (2022); P. Goldsmith-Pinkham, 
M.T. Gustafson, R.C. Lewis & M. Schwert, Sea-level Rise Exposure and 
Municipal Bond Yields, 36 The Rev. of Fin. Studs. 4588 (2023); M. 
Painter, An Inconvenient Cost: The Effects of Climate Change on 
Municipal Bonds, 135 J. of Fin. Econ. 468 (2020).
    \2746\ See, e.g., Robert F Engle, et al., Hedging Climate Change 
News, 33 Rev. Fin. Stud. 1184 (2020).
---------------------------------------------------------------------------

    Given the usefulness of climate disclosures to investors in 
accurately valuing a company and assessing its risks, the use of a 
standardized disclosure framework will mitigate agency problems arising 
from registrants being able to selectively disclose (i.e., ``cherry 
pick'') information, which reduces transparency and impairs investors' 
ability to effectively assess the potential financial impacts of a 
registrant's climate-related risks. Providing better information to 
investors will, in turn, reduce information asymmetries between 
managers and investors as well as amongst investors \2747\ (i.e., 
reduce any informational advantages), which will improve liquidity and 
reduce transaction costs for investors (i.e., reduce adverse 
selection), and may lower firms' cost of capital.\2748\
---------------------------------------------------------------------------

    \2747\ This information asymmetry can result from the fact that 
it currently requires considerable resources to infer a registrant's 
exposure to or management of climate-related risks using the 
existing publicly available information provided through voluntary 
disclosures. See, e.g., letters from Vermont Pension Investment 
Commission; CalSTERS; and Wellington (describing how these 
commenters currently glean such information, incurring costs related 
to development of proprietary models, devoting considerable 
resources to reviews of public information, and subscribing to 
services from other data providers).
    \2748\ See section IV.E. for more information on capital market 
benefits; see also Christensen et al. (2021), at 1202, 1208; Yakov 
Amihud & Haim Mendelson, Liquidity and Stock Returns, 42 Fin. 
Analysts J. 43 (May-June 1986); Lawrence R. Glosten & Paul R. 
Milgrom, Bid, Ask and Transaction Prices in a Specialist Market with 
Heterogeneously Informed Traders, 14 J. of Fin. Econ. 71 (March 
1985); R.E. Verrecchia, Essays on Disclosure, 32 J. of Acct. & Econ. 
97 (Dec. 2001). More recently, researchers used international 
evidence to find that mandatory ESG disclosures improves stock 
liquidity, see P. Krueger, Z. Sautner, D.Y. Tang & R. Zhong, The 
Effects of Mandatory ESG Disclosure Around the World, Euro. Corp. 
Gov. Inst.--Finance Working Paper No. 754/2021 (Jan. 12, 2024). 
Asymmetric information occurs when one party to an economic 
transaction possesses greater material knowledge than the other 
party. Adverse selection occurs when the more knowledgeable party 
only chooses to transact in settings that, based on their private 
information, is advantageous for them. Less informed parties, aware 
of their informational disadvantage, might be less inclined to 
transact at all for fear of being taken advantage of. See George 
Akerlof, The Market for Lemons, Quality Uncertainty and the Market 
Mechanism, 84 Q. J. of Econ. 488 (Aug. 1970). One commenter claimed 
that the final rules could result in adverse selection if companies 
with the most exposure to climate risks choose to de-register or opt 
out of registration (see letter from Chamber). We disagree with this 
claim. We believe the benefits of being a public registered company 
are sufficiently strong such that it is unlikely many companies will 
choose to avoid becoming or continuing as a public registered 
company as a result of the final rules. See section IV.E.3 for more 
information.
---------------------------------------------------------------------------

    The final rules will also integrate climate-related risk 
disclosures into the existing Regulation S-K and S-X disclosure 
frameworks. Investors will therefore find information about all the 
material risks that companies face--not just climate-related risks--
within a centralized source (i.e., Commission filings, as opposed to 
sustainability reports, brochures, or company websites), thereby 
reducing search costs, and will receive this information in a more 
timely manner and on a regular schedule.\2749\ These benefits should be 
especially pronounced for financial institutions with significant 
exposure to climate-related risks through their portfolio companies 
since any enhancements in the portfolio companies' disclosures will 
better position the institutions to assess their portfolio-level 
risks.\2750\
---------------------------------------------------------------------------

    \2749\ See supra note 2570.
    \2750\ See Report on Climate-Related Financial Risk 2021, FSOC, 
available at https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf (``Demand for information about climate-related 
risks and opportunities has grown significantly, driven by investors 
and financial institutions that are interested in managing their 
exposure to climate risks . . . Further, it is important to note 
that to assess and quantify their own climate-related financial 
risks, particularly transition risks, financial institutions need 
access to climate-related risk information from the companies they 
are financing and investing in.''); CDP, CDP Non-Disclosure 
Campaign: 2021 Results (2021), available at https://cdn.cdp.net/cdp-production/cms/reports/documents/000/006/069/original/CDP_2021_Non-Disclosure_Campaign_Report_10_01_22_%281%29.pdf; see also letter 
from BNP Paribas (``Given the increasing awareness of corporates and 
the financial community about the need to accelerate the transition 
to a low carbon economy, establishing robust and comparable climate 
related disclosure standards is critical to providing investors 
decision-useful information. In particular, this information is 
essential for banks and asset managers to assess climate-related 
risks for lending purposes and making investment decisions, to 
define portfolio alignment strategies in the context of a 
registrant's net zero commitments . . .'').
---------------------------------------------------------------------------

    Furthermore, by treating the climate-related disclosures as 
``filed,'' these disclosures will be subject to potential liability 
under the Exchange Act and the Securities Act, which will incentivize 
registrants to take additional care to ensure the accuracy of the 
disclosures, thereby resulting in more reliable disclosures.\2751\ 
Several commenters expressed support for treating climate-related 
disclosures as filed, noting that it would help improve investor 
confidence in the accuracy and completeness of such disclosures.\2752\
---------------------------------------------------------------------------

    \2751\ However, we note that these benefits will be mitigated 
for certain forward-looking statements, including those related to 
transition plan disclosures, scenario analysis, internal carbon 
pricing, and climate-related targets and goals, as these statements 
will have the benefit of safe harbor protections if the safe harbor 
requirements are satisfied.
    \2752\ See, e.g., letters from Amer. For Fin. Reform, Sunrise 
Project et al.; Ags of Cal. et al.; CalPERS; Ceres; CFA; Engine No. 
1; Franklin Templeton; PwC; SKY Harbor; and TotalEnergies.
---------------------------------------------------------------------------

    For disclosures other than financial statement disclosures, the 
final rules will provide registrants with the flexibility to determine 
the appropriate placement within their filing of climate-related 
disclosures. While this could affect investors' ability to easily 
locate and compare those disclosures, we believe that this concern is 
largely

[[Page 21850]]

mitigated by the final rules' structured data requirement. The 
structured disclosure requirements we are adopting, including the 
requirement to tag such disclosures using XBRL, will enable search and 
retrieval of the disclosures on an automated and large-scale basis, 
allowing investors, and the market, to process information much more 
effectively and efficiently as compared to manual searches through 
unstructured formats. This will improve investors' assessment of 
companies' estimated future cash flows, leading to more accurate 
company valuations and lowering companies' cost of capital.\2753\
---------------------------------------------------------------------------

    \2753\ See Christensen et al. (2021), at 1187; R. Lambert, C. 
Leuz & R.E. Verrecchia, Accounting Information, Disclosure, and the 
Cost of Capital, 45 J. of Acct. Rsch. 385 (May 2007); D. Easley & M. 
O'Hara, Information and the Cost of Capital, 59 J. of Fin 1553 (Aug. 
2004); R. Lambert, C. Leuz & R.E. Verrecchia, Information Asymmetry, 
Information Precision, and the Cost of Capital, 16 Rev. of Fin. 1 
(Jan. 2012).
---------------------------------------------------------------------------

    Additionally, having access to more reliable information could 
result in cost savings for those investors who collect or organize 
information about climate-related risks. Several commenters emphasized 
the scale of the resources required to render the currently available 
information on climate-related disclosures useful to their 
decisions.\2754\
---------------------------------------------------------------------------

    \2754\ See, e.g., letter from CalSTRS (stating, ``The current 
reporting requirements are insufficient for investors to assess 
corporate climate risk and the related financial impacts to execute 
investment decisions. CalSTRS spends approximately $2,200,000 per 
year to access climate research, analyze available data, and develop 
methods to estimate climate risks and opportunities for assets in 
our portfolio. In addition to two full-time investment staff 
members, CalSTRS consults external advisors to learn how other 
global asset owners determine climate risk exposures to their 
portfolios given the lack of reliable, consistent, and comprehensive 
data. A conservative estimate of the variable cost of these combined 
human resources is $550,000 annually.'').
---------------------------------------------------------------------------

    Similarly, investors also may benefit from the final rules if the 
required disclosures change the nature and degree to which investors 
rely on third parties that provide ESG ratings or scores. To the extent 
there is overlap between the disclosures required by the final rules 
and the types of information considered by ESG ratings providers, the 
final rules may reduce reliance on these third parties, thereby 
reducing costs incurred by investors to obtain decision-useful 
information. ESG ratings are not necessarily standardized or 
transparent with respect to their underlying methodologies, and several 
studies have found that different ESG ratings providers often assign 
inconsistent ratings for the same registrant.\2755\ To the extent the 
final rules reduce reliance on these ratings, registrants and investors 
could benefit by saving money that would otherwise be spent on 
obtaining third-party ESG ratings.\2756\ Alternatively, the disclosures 
elicited by the final rules may increase the value of these third-party 
services to the extent that the third-party services are able to 
leverage the enhanced disclosures to provide investors with greater 
market insights. The disclosures may also allow registrants to better 
monitor ESG ratings, which could reduce the risk of greenwashing.
---------------------------------------------------------------------------

    \2755\ Florian Berg, Julian K[ouml]lbel & Roberto Rigobon, 
Aggregate Confusion: The Divergence of ESG Ratings, 26 Rev. Fin. 
1315 (Nov. 2022). The authors found that the correlations between 
six different ESG ratings are on average 0.54, and range from 0.38 
to 0.71, while the correlations between credit ratings were 0.99. 
See also Scott Robinson et al., supra note 2721; Dane Christensen, 
George Serafeim & Anywhere Sikochi, Why is Corporate Virtue in the 
Eye of the Beholder? The Case of ESG Ratings, Acct. Rev. (Feb. 26, 
2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3793804 (retrieved from SSRN Elsevier 
database).
    \2756\ Because ESG ratings encompass information beyond climate-
related matters, registrants and investors may still obtain ESG 
ratings for reasons unrelated to climate-related information.
---------------------------------------------------------------------------

b. Costs
    The final rules will impose direct costs of compliance on 
registrants. We use the term ``direct costs'' or ``compliance costs'' 
to include (1) any costs related to developing or maintaining systems 
for collecting information to comply with the final rules, (2) costs of 
preparing and presenting the resulting disclosures for Commission 
filings, which we refer to as ``reporting costs,'' \2757\ (3) costs 
associated with assuring the accuracy of the disclosures, such as audit 
and attestation costs, and (4) any legal or disclosure review costs 
incurred to support management's assertion that the disclosures comply 
with the final rules. These costs could be incurred internally (e.g., 
through employee hours or hiring additional staff) or externally (e.g., 
via third-party service providers, such as auditors or consultants). 
Numerous commenters expressed concerns over the direct costs of 
compliance on registrants of the proposed rules.\2758\ As discussed in 
section II.A, the final rules include certain modifications relative to 
the proposed rules that reduce overall costs and help address 
commenters' concerns about the time and resources required to comply 
with the final rules' requirements.\2759\ This concern could further be 
mitigated for certain registrants to the extent that the final rules 
generally align with the disclosure frameworks that they are already 
using for their voluntary disclosures or disclosures that are, or will 
be, required by state, Federal, or other laws.\2760\ Many commenters 
submitted cost estimates for the proposed rules that varied 
considerably depending on a given company's size, industry, complexity 
of operations, and other characteristics. We review these comments and 
discuss cost estimates in detail in sections IV.C.2 and IV.C.3. The 
remainder of this section focuses on other costs that may result from 
the final rules.
---------------------------------------------------------------------------

    \2757\ Specifically, ``reporting costs'' refer to the costs of 
preparing information to be presented in Commission filings, 
separate from any prior costs or resources expended in obtaining or 
developing such information. For example, the final rules will 
require some registrants to disclose their Scope 1 and 2 emissions. 
For registrants that already disclose them, the incremental cost 
will only be the reporting cost, distinct from any costs they have 
previously voluntarily incurred related to developing emissions 
measurement/estimation systems and processes in order to quantify 
their emissions.
    \2758\ See, e.g., letters from Chamber; Nutrien; Williams 
Companies; Energy Transfer LP; Hess; PPL; NRF; RILA; ConocoPhillips; 
NASDAQ; API; and SCG.
    \2759\ See, e.g., letter from Chamber.
    \2760\ See section IV.A.3 for discussion of existing state and 
Federal laws.
---------------------------------------------------------------------------

    The final rules may result in additional litigation risk for 
registrants.\2761\ However, the final rules include several changes 
from the proposal to mitigate these concerns. For example, certain 
forward-looking statements, including those related to transition plan 
disclosures, scenario analysis, internal carbon pricing, and climate-
related targets and goals, will have the benefit of certain liability 
protections if the adopted safe harbor requirements are satisfied. 
Another example is the inclusion of phase in periods after the 
effective date to provide registrants with additional time to become 
familiar with and meet the final rules' disclosure requirements. In 
addition, Scope 3 emissions disclosure is no longer required and the 
amendments to Regulation S-X have been modified to lessen the 
compliance requirements, among other examples.
---------------------------------------------------------------------------

    \2761\ See letter from NAM (expressing concern about treating 
climate-related disclosures as ``filed,'' noting the ``evolving and 
uncertain nature'' of GHG emissions disclosures could make it 
difficult for registrants to reach the degree of certainty necessary 
to assume the liability burden associated with reports filed with 
the Commission); see also letter from Chamber (noting that the 
complexity of the proposed rules could increase the likelihood of 
nuisance lawsuits that are intended to extract a settlement thereby 
increasing the cost of compliance with the rules). This commenter 
also pointed out that audit costs could increase if auditors were 
also subject to increased litigation risk. See also letter from 
Cunningham et al. (noting that ``The SEC recognizes that a major 
cost of the Proposal concerns litigation risk.''); Overdahl exhibit 
to letter from Chamber (noting the increase in litigation risk can 
also result in higher insurance costs for registrants and auditors).

---------------------------------------------------------------------------

[[Page 21851]]

    Some commenters expressed concerns that the proposed disclosures 
would over-emphasize climate risks relative to other types of risks 
that investors might find important.\2762\ A related concern that 
commenters raised is that potentially voluminous disclosures could 
obscure the information that investors deem most relevant to their 
investment or voting decisions.\2763\ To mitigate such concerns (in 
addition to concerns related to the compliance costs) the final rules 
are less prescriptive in certain places relative to the proposed rules. 
The final rules also have additional materiality qualifiers such that 
registrants that determine climate risks to be immaterial will have 
fewer disclosure obligations relative to the proposal. These costs also 
are expected to be mitigated by the structured data requirements of the 
final rules, which will make it easier for investors to find and 
analyze relevant information in filings. These changes also address 
other commenters' concerns that mandatory climate disclosure 
requirements that are too prescriptive or granular may lead to 
inefficient changes in business strategies and limit or halt innovation 
in the market for voluntary climate disclosures.\2764\
---------------------------------------------------------------------------

    \2762\ See, e.g., Overdahl exhibit to letter from Chamber, 
stating, ``because climate-related information is just one factor 
among many other (potentially more relevant) factors, climate-
related information is often not material;'' see also letters from 
API; Western Energy Alliance and the U.S. Oil & Gas Association; 
Matthew Winden; American Council of Engineering Companies; Chamber; 
and Wisconsin Manufacturers & Commerce.
    \2763\ See, e.g., letters from Chamber; Soc. Corp. Gov.; and 
ConocoPhillips. For example, investors may be unable to review all 
potentially relevant information, resulting in suboptimal decisions. 
See, e.g., H.A. Simon, A Behavioral Model of Rational Choice, 69 Q. 
J. of Econ. 99 (Feb. 1955); H.A. Simon, Rationality As Process and 
As Product of Thought, 68 a.m. Econ. Rev. 1 (May 1978); K.L. 
Chapman, N. Reiter & H.D. White, et al., Information Overload and 
Disclosure Smoothing, 24 Rev Acct. Stud. 1486 (Dec. 2019).
    \2764\ See, e.g., letters from API; Matthew Winden; Footwear 
Distributors & Retailers of America; Petrol. OK.; and Chamber.
---------------------------------------------------------------------------

    We also acknowledge the concerns expressed by several commenters 
that the proposed rules would have required the disclosure of 
confidential or proprietary information,\2765\ which can put affected 
registrants at a competitive disadvantage. This consequence could alter 
registrants' incentives to develop strategies to manage climate-related 
risks where it would otherwise be beneficial to do so.\2766\ The final 
rules have been narrowed relative to the proposed rules to provide 
additional flexibility to limit costs associated with the disclosure of 
competitively sensitive information, while retaining disclosures that 
will help investors understand registrants' climate-related risks. In 
particular, we have eliminated certain prescriptive requirements from 
the proposal that commenters identified as potentially revealing 
competitively sensitive information and for which the benefits to 
investors were less apparent.\2767\ For example, by providing 
registrants with flexibility to determine how best to describe their 
strategy towards managing climate-related risks, the final rules may 
enable them to avoid disclosure of competitively sensitive 
information.\2768\ Furthermore, while we have eliminated the 
requirement to disclose ZIP code level information, the final rules 
continue to require location disclosures sufficient to understand a 
registrants' exposure to physical risks. We also have eliminated the 
requirement to disclose interim targets or goals. At the same time, we 
acknowledge that, in some instances, a more flexible approach may also 
result in less comparable disclosures. While this has the possibility 
of reducing the value of the disclosures to investors, we believe this 
approach appropriately balances investor protection with concerns 
raised by commenters.
---------------------------------------------------------------------------

    \2765\ See, e.g., supra notes 479, 596, and surrounding text. 
Proprietary costs are generally relevant for reporting that involves 
information about a companies' business operations or production 
processes and disclosures that are specific, detailed and process-
oriented. See, e.g., C. Leuz, A. Triantis & T.Y. Wang, Why Do Firms 
Go Dark? Causes and Economic Consequences of Voluntary SEC 
Deregistrations, 45 J. of Acct. & Econ. 181 (Aug. 2008); D.A. Bens, 
P.G. Berger & S.J. Monahan, Discretionary Disclosure in Financial 
Reporting: An Examination Comparing Internal Firm Data to Externally 
Reported Segment Data, 86 Acct. Rev. 417 (March 2011).
    \2766\ See section IV.D.
    \2767\ See, e.g., letter from Business Roundtable (June 17, 
2022).
    \2768\ See, e.g., discussion in section II.C.1.c.
---------------------------------------------------------------------------

    Relatedly, the final rules may have indirect cost implications for 
third-party service providers, such as ESG ratings providers. For 
example, the increased disclosures may reduce institutional investors' 
reliance on ESG ratings providers, which could negatively impact these 
providers.\2769\ Conversely, more comprehensive disclosures could 
reduce the cost of producing ESG ratings or may improve the 
informational content of the ratings, thereby increasing demand. This 
could benefit not only the ratings providers, but also investors that 
rely on ESG ratings.
---------------------------------------------------------------------------

    \2769\ We note that this ``cost'' is from the perspective of the 
ratings providers and could be offset by the efficiency gain that 
renders their intermediation less necessary; as such, it reflects 
more of a transfer than a net economic ``cost.''
---------------------------------------------------------------------------

    Many commenters raised concerns about costs to third parties from 
the proposed rules,\2770\ with one commenter stating that ``measuring 
and reporting of GHG emissions would be a prerequisite for doing 
business with registrants and most retailers under this proposal.'' 
\2771\ Compared to the proposed rules, the final rules do not impose 
such costs because they do not include Scope 3 disclosure requirements. 
Other disclosure items under the final rules may continue to result in 
registrants seeking input from third parties, such as those disclosure 
items requiring disclosure of material impacts from climate-related 
risks on purchasers, suppliers, or other counterparties to material 
contracts with registrants. However, the final rules limit the 
compliance burden of this requirement by limiting information that 
should be disclosed to that which is ``known or reasonably available,'' 
thereby eliminating any potential need for registrants to undertake 
unreasonable searches or requests for information from such third 
parties. Given the more flexible and tailored approach in the final 
rules, such consultations will pertain only to parties whose 
relationship with the registrant is most likely to materially impact 
the registrant's strategy, business model and outlook, as well as 
parties from whom the registrant may be best positioned to request 
information, thus lowering these costs.
---------------------------------------------------------------------------

    \2770\ See letter from the Heritage Foundation, which estimates 
compliance costs of the proposed rules on non-registrants would 
total $14 billion.
    \2771\ See letter from International Dairy Foods Association.
---------------------------------------------------------------------------

    Some commenters asserted that a registrant's compliance costs could 
be passed on to other parties such as consumers (via higher prices), 
workers (through reduced wages or benefits), or shareholders (in the 
form of lower earnings).\2772\ Other commenters stated that compliance 
costs could vary across industries.\2773\ We acknowledge that third 
parties could bear some of the increased costs of compliance arising 
from the final rules and that this effect may be more pronounced in 
certain industries than in others. The final rules include significant 
changes from the proposal that lower the burdens on registrants. To the 
extent that these changes result in lower compliance costs, they also 
will help mitigate any adverse effects on other parties.
---------------------------------------------------------------------------

    \2772\ See, e.g., letters from National Fuel Corporation; 
Petrol. OK; Footwear Distributors & Retails of America; Truth in 
Energy and Climate; ASA; and David R. Burton.
    \2773\ See letters from API; and Matthew Winden.
---------------------------------------------------------------------------

    There is some existing academic literature on costs related to 
mandatory climate-related disclosures in other

[[Page 21852]]

jurisdictions.\2774\ Some studies report lower profitability and costly 
operational adjustments for firms affected by mandatory CSR disclosure 
and GHG emissions reporting in China and the United Kingdom, 
respectively.\2775\ However, other studies do not find an impact on 
financial operating performance from mandating climate-related 
disclosures.\2776\ Another study showed aggregate stock price movement 
associated with mandatory climate-related disclosure; while the study 
found, on average, a negative market reaction, the negative stock 
returns were concentrated in firms with weak ESG performance and 
disclosure, while firms with above-median ESG performance and 
disclosure exhibited a positive abnormal return.\2777\ We note that 
differences between the final rules and these other mandates (e.g., 
materiality qualifiers) suggest that similar costs associated with the 
final rules may be lower.
---------------------------------------------------------------------------

    \2774\ Commenters stated that there is limited evidence on the 
overall economic impact of mandatory climate-related disclosure 
regimes in other jurisdictions. See letter from Committee on Capital 
Markets Regulation (June 16, 2022) (``CCMR''); and Overdahl exhibit 
to letter from Chamber; see also Christensen et al. (2021).
    \2775\ See Y. Chen, M. Hung & Y. Wang, The Effect of Mandatory 
CSR Disclosure on Firm Profitability and Social Externalities: 
Evidence from China, 65 J. of Acct. & Econ. 169 (2018); see also 
letter from CCMR (citing, as evidence of negative effects to firm 
financial performance from mandatory climate-related disclosures, 
Jouvenot & P. Krueger, Mandatory Corporate Carbon Disclosure: 
Evidence from a Natural Experiment (Aug. 8, 2019), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3434490 
(retrieved from SSRN Elsevier database)).
    \2776\ See B. Downar, J. Ernstberger, S. Reichelstein, S. 
Schwenen & A. Zaklan, The Impact of Carbon Disclosure Mandates on 
Emissions and Financial Operating Performance, 26 Rev. of Acct. 
Stud. 1137 (2021).
    \2777\ See letter from CCMR. See also Proposing Release, section 
IV.C.1., at n. 848, citing Jody Grewal, Edward J. Riedl & George 
Serafeim, Market Reaction to Mandatory Nonfinancial Disclosure, 65 
Mgmt Sci. 3061 (2019). We note that the study's findings are based 
on the assumption that the only news disproportionately affecting 
the treated companies was the policy at issue, as opposed to some 
other event(s) impacting the treated companies.
---------------------------------------------------------------------------

    As discussed in sections IV.C.2.f and IV.C.3.c, the final rules may 
have implications for assurance providers or, more generally, for third 
parties with climate-related expertise. In the short run, the rules may 
increase demand (and accordingly, the cost) for climate-related 
expertise and/or assurance of emissions disclosures. Over time, we 
expect the supply of third parties with climate-related expertise will 
adjust to correspond with the increased demand, leading to reduced 
costs.
    Finally, the modifications made in the final rules to reduce 
overall costs will help address, to an extent, some commenters' 
concerns that costs associated with the proposed rules could factor 
into a company's decision to become or remain a public reporting 
company.\2778\ In response to other commenters' concerns,\2779\ the 
final rules also provide EGCs and SRCs with a longer phase in period 
for climate-related disclosures (including financial statement 
disclosures under Regulation S-X) and exempt EGCs and SRCs from GHG 
emissions disclosure requirements. And, while climate-related 
disclosures will be required in registration statements for firms 
conducting IPOs, we are not applying the subpart 1500 and Article 14 
disclosure requirements to a private company that is a party to a 
business combination transaction, as defined by Securities Act Rule 
165(f), involving a securities offering registered on Form S-4 or F-
4.\2780\
---------------------------------------------------------------------------

    \2778\ See, e.g., letter from Chamber and section II.L.2. For 
example, private companies might decide to defer a public offering, 
and existing public companies might decide to deregister from U.S. 
securities markets or not pursue mergers that would subject the 
merged company to reporting requirements. Other provisions that will 
reduce costs for conducting an IPO include (i) registrants will only 
have to provide Article 14 disclosure for historical fiscal years on 
a prospective basis, and (ii) the PSLRA statutory safe harbor for 
forward-looking statements (with respect to transition plans, 
scenario analysis, targets and goals) will apply to registration 
statements in IPOs.
    \2779\ See sections II.H.2 and II.O.2 for a discussion of 
commenters' concerns on GHG emissions disclosures and phase in 
periods, respectively.
    \2780\ See supra section II.L.3. While this approach avoids 
imposing additional costs on companies engaged in business 
combination transactions involving a private company, we note that 
investors will not have the benefit of the disclosures required by 
the final rules with respect to such private company.
---------------------------------------------------------------------------

2. Analysis of Specific Provisions
    The costs incurred by any particular registrant may vary 
significantly depending upon which, if any, of the disclosures required 
under the final rules are applicable to that registrant's operations 
and circumstances. We discuss the costs of specific components of the 
rules below.
a. Disclosure of Climate-Related Risks
    The final rules require registrants to identify any climate-related 
risks that have materially impacted or are reasonably likely to have a 
material impact on the registrant, including on its strategy, results 
of operations, or financial condition.\2781\ For any risks identified, 
registrants are required to provide information necessary to an 
understanding of the nature of the risk presented and whether the risk 
is a physical or transition risk. Registrants are also required to 
classify whether these risks are reasonably likely to manifest in the 
short-term and in the long-term. For both physical and transition 
risks, registrants are required, as applicable, to provide detailed 
information on these risks (e.g., the particular type of transition 
risk as well as the geographic location and nature of the properties, 
processes, or operations subject to the physical risk).
---------------------------------------------------------------------------

    \2781\ See 17 CFR 229.1502(a).
---------------------------------------------------------------------------

    This aspect of the final rules will improve investors' 
understanding of what a registrant considers to be the relevant short-
term and long-term climate-related risks that have materially impacted 
or are reasonably likely to have a material impact on its business. As 
a number of commenters have noted, climate-related risks often 
translate into material financial risks with implications for firm 
growth and profitability, and therefore investors would benefit from a 
disclosure regime that requires registrants to provide information on 
climate-related risks that is accurate and more comparable to each 
other.\2782\
---------------------------------------------------------------------------

    \2782\ See, e.g., letters from PIMCO (``[W]e believe climate 
risks often pose a material financial risk, and therefore, investors 
need disclosure of climate risks that is complete, reliable, and 
consistent in order to analyze how climate-related risks may affect 
a company's business or overall financial performance.''); 
Wellington (``Accurate and comparable information about climate risk 
is critical to Wellington Management's ability to make informed 
investment decisions on behalf of our clients. Because climate 
change will continue to profoundly impact society, economies and 
markets, investors need more information to better price these risks 
and fully assess the value of an issuer's securities.''); and 
AllianceBernstein (``[M]aterial risks and opportunities associated 
with climate change as fundamental financial factors that impact 
company cash flows and the valuation investors attribute to those 
cash flows. Regulatory changes, physical risks, and changing 
consumer decision criteria and preferences are all factors that 
asset managers need to understand and integrate into their 
investment processes to make optimal investment decisions on behalf 
of their clients.'')
---------------------------------------------------------------------------

    Academic research has found that retail investors as well as 
institutional investors value and utilize information on climate-
related risks in decision-making.\2783\ As numerous commenters 
stated,\2784\ climate-related risks and

[[Page 21853]]

their impacts on businesses are often not reported in a way that is 
useful to investors. Commenters noted that with the limitations to the 
currently available climate-related disclosures, extensive costs in the 
form of data gathering, research and analysis are needed to process 
them and to fill data gaps where possible in forming investment 
decisions.\2785\ We expect the final rules to reduce these information 
processing costs for investors.\2786\
---------------------------------------------------------------------------

    \2783\ See supra section IV.B.1. One commenter suggested that 
institutional investors and retail investors may have different 
preferences for climate-related information, especially when the 
former consider investment portfolios and the latter consider 
individual companies. See letter from Society for Corp. Gov. The 
commenter further argued that retail investors are unlikely to care 
about climate-related information given their investment horizon. 
Because of the documented impact of climate-related risks, including 
distant ones, on asset prices, we disagree with these assertions.
    \2784\ See section IV.B; see also, e.g., letters from BlackRock 
(``Compared to the existing voluntary framework, the Commission's 
detailed analytical and disclosure roadmap . . . is more likely to 
increase the comparability and consistency of issuers' climate-
related disclosures.''); Calvert (``Currently, climate change 
disclosures are largely voluntary, unverified, and 
idiosyncratic.''); CFA (``The current voluntary climate-related 
disclosure regime has resulted in inadequate and inconsistent 
information which falls short of investor demands and prevents 
market participants from reasonably assessing the risks of climate 
change.''); and Wellington (``Currently, our evaluation of the 
positive and negative impacts of climate change on issuers is 
limited by inadequate information and the absence of a standardized 
framework for disclosure.'' and that ``For a significant number of 
issuers, information is not sufficient to support equivalent 
analysis.'').
    \2785\ See letter from Wellington (``We were able to make these 
and other determinations based on available information (including 
internal and external estimates), and only after extensive research 
and analysis. For a significant number of issuers, information is 
not sufficient to support equivalent analysis.''); Boston Trust 
Walden (``Evaluation of climate risk across investment portfolios 
represents a cost to investors and results in the gathering of data 
that is often incomplete and not comparable. At Boston Trust Walden, 
our analysts examine quantitative and qualitative climate-related 
corporate disclosure to enhance our understanding of the existing 
and potential financial outcomes associated, ranging from risks 
(e.g., losing the license to operate) to opportunities (e.g., 
generating new sources of revenue). In the absence of mandated 
disclosure requirements, we rely on the data of third-party research 
providers, which includes a mix of issuer provided data and 
estimates. Our analysts then seek to fill data gaps through 
additional research and analysis, outreach via written requests, 
meetings, and shareholder resolutions seeking the expanded 
disclosure we require. These processes for gathering necessary 
climate-related disclosures are inefficient and resource 
intensive.'').
    \2786\ The final rules may also lead to a lower cost of capital 
for some registrants, as we discuss below.
---------------------------------------------------------------------------

    We expect the final rules will help investors gain a more accurate 
and complete understanding of the climate-related risks that a 
registrant determines have materially impacted or are reasonably likely 
to materially impact its strategy, results of operations, or financial 
condition. By distinguishing between climate-related risks that 
manifest in the short-term and long-term, the final rules will help 
inform investors about which risks are salient to their investment 
decision-making and which are not, depending on the time horizon 
investors are focused on. For instance, longer term risks may be less 
certain and are less likely to have impacts on cash flows in the short-
term. As such, some investors may choose to focus more on short-term 
risks. Conversely, an investor with a long investment horizon may 
choose to focus on the risks that match its investment horizon.\2787\ 
This temporal standard is consistent with an existing MD&A disclosure 
requirement and therefore should provide a degree of familiarity to 
registrants and investors as they prepare and analyze these 
disclosures.\2788\ This aspect of the final rules will impose 
additional costs on registrants (e.g., direct compliance costs and 
indirect costs resulting from, for example, increased litigation risk). 
These costs are discussed in greater detail in sections IV.C.1 and 
IV.C.3.
---------------------------------------------------------------------------

    \2787\ See letter from Vanguard (``climate risks to be material 
and fundamental risks for investors and the management of those 
risks is important for price discovery and long-term shareholder 
returns.'').
    \2788\ See, e.g., letter from ABA (``We believe that climate-
related matters should be addressed within the same time short- and 
long-term time frames used in MD&A.''); 17 CFR 229.303(b)(1) 
(``Analyze the registrant's ability to generate and obtain adequate 
amounts of cash to meet its requirements and its plans for cash in 
the short-term (i.e., the next 12 months from the most recent fiscal 
period end required to be presented) and separately in the long-term 
(i.e., beyond the next 12 months).''); see also section II.C.2.
---------------------------------------------------------------------------

b. Disclosure Regarding Impacts of Climate-Related Risks on Strategy, 
Business Model, and Outlook
    The final rules require registrants to describe the actual and 
potential material impacts of any climate-related risks identified in 
response to Item 1502(a) on the registrant's strategy, business model, 
and outlook.\2789\ With respect to their strategy, business model, and 
outlook, the final rules specify that registrants are required to 
assess, as applicable, any material impacts on a non-exclusive list of 
items: business operations; products or services; suppliers, 
purchasers, or counterparties to material contracts (to the extent 
known or reasonably available); activities to mitigate or adapt to 
climate-related risks; and expenditure for research and development. 
Registrants are also required to discuss whether and how the registrant 
considers these impacts as part of its strategy, financial planning, 
and capital allocation.
---------------------------------------------------------------------------

    \2789\ See 17 CFR 1502(b)-(g).
---------------------------------------------------------------------------

    We expect the resulting disclosures to provide investors with a 
better understanding of how climate-related risks have materially 
impacted or are reasonably likely to have a material impact on the 
registrant. Such disclosures will directly benefit investors who use 
this information to evaluate the financial prospects of the firms in 
which they are looking to invest.\2790\ Discussions of material impacts 
on strategy, business model, or outlook will help investors determine 
whether and how registrants are addressing identified material climate-
related risks. This type of disclosure could be particularly useful 
when comparing the approaches taken by similarly situated registrants. 
For example, one registrant may disclose that it is actively shifting 
assets away from exposure to flood zones, while another might disclose 
that it is investing in such assets as they are considered currently 
undervalued. These disclosures will allow an investor to choose to 
invest in the company with climate-related risk strategies that best 
align with the investor's investment objectives.
---------------------------------------------------------------------------

    \2790\ See P. Krueger, Z. Sautner & L.T. Starks, The Importance 
of Climate Risks for Institutional Investors, 33 Rev. of Fin. Stud. 
1067 (March 2020); Ilhan et al. (2023).
---------------------------------------------------------------------------

    Under the final rules, if a registrant has adopted a transition 
plan to manage a material transition risk, it must describe the plan. 
The registrant must also provide an annual update about any actions 
taken during the year under the plan, including how these expenditures 
have impacted the registrant's financial condition, or results of 
operations, along with quantitative and qualitative disclosure of 
material expenditures incurred and material impacts on financial 
estimates and assumptions as a direct result of the transition plan. We 
expect these disclosures to provide investors with more complete and 
reliable information about how registrants plan to address material 
transition risks. A number of commenters indicated that these 
disclosures would help investors assess the registrant's approach to 
managing climate-related risks and achieving its climate-related 
targets and goals.\2791\ This benefit could be reduced if these 
disclosures provide opportunities for greenwashing. However, we expect 
this risk to be reduced given that these disclosures will include 
quantitative and qualitative information on expenditures that are filed 
with the Commission and are subject to the

[[Page 21854]]

applicable liability provisions under the Securities Act and Exchange 
Act. The requirement to provide annual updates should further mitigate 
these concerns. The updating requirement will be particularly 
beneficial to investors as it will allow them to analyze the impacts of 
transition plans on a registrant's operations and financial condition 
over time.
---------------------------------------------------------------------------

    \2791\ See, e.g., letters from CalPERS; Morningstar; Change 
Finance; see also letter from ICI (``We support [transition plan] 
disclosure as it would inform investors of the nature of the risks 
and the company's actions or plans to mitigate or adapt to them.''); 
and the CFA Institute (``We support the Proposed Rule's requirement 
that a registrant disclose, if it has adopted a transition plan 
(i.e., a strategy and implementation plan to reduce climate-related 
risks) as part of its climate-related risk management strategy. We 
agree with the view that it will facilitate investor understanding 
of whether the company has a plan and whether it may be effective in 
the short, medium, and long term in achieving such a transition. 
Presently, many companies have made net-zero commitments by 2050 but 
have made little if any disclosures regarding how they plan to get 
there. This requirement would necessitate that they do so.'')
---------------------------------------------------------------------------

    The requirement to describe quantitatively and qualitatively the 
material expenditures incurred and material impacts on financial 
estimates and assumptions as a direct result of the transition plan 
will help investors better understand a registrant's approach to 
managing climate-related risks so they have information necessary to 
assess how those actions have impacted the registrant. Including a 
quantitative description of material expenditures incurred will 
discourage boilerplate disclosures and, to some extent, facilitate 
comparisons across registrants. However, we acknowledge commenters who 
raised concerns about the difficulties of attributing expenditures to 
these types of activities.\2792\ We recognize that similarly situated 
registrants may take different approaches in their determination of 
which expenditures to include and whether to quantitatively or 
qualitatively identify portions of expenditures specifically tied to 
these activities. To the extent that registrants take different 
approaches to identifying such expenditures, the comparability benefits 
of the disclosure will be diminished. Nevertheless, the qualitative 
discussion accompanying the disclosures should provide the context 
necessary for investors to understand the registrant's approach to 
these activities and provide an assessment of the impact of these 
activities on the registrant's financial condition.
---------------------------------------------------------------------------

    \2792\ See supra notes 1891 and 1892, and accompanying text.
---------------------------------------------------------------------------

    If a registrant uses scenario analysis to assess the impact of 
climate-related risks on its business, results of operations, or 
financial condition, and if, based on the results of such scenario 
analysis, the registrant determines that a climate-related risk is 
reasonably likely to have a material impact on its business, results of 
operations, or financial condition, the registrant must describe each 
such scenario. This description must include a brief description of the 
parameters, assumptions, and analytical choices used, as well as the 
expected material impacts on the registrant under each such scenario. 
Disclosures about the use of scenario analysis to stress test 
businesses across a range of possible future climate and climate policy 
scenarios can vary significantly.\2793\ As such, the final rules will 
inform investors about whether a registrant is using scenario analysis 
to manage a material climate risk, and for those investors who view 
scenario analysis as an important tool for climate risk management, 
allow them to factor this information into their investment 
decisions.\2794\ The required disclosures around parameters, 
assumptions, and analytical choices used by a registrant when 
conducting scenario analysis will allow investors to better understand 
the methodology underlying the scenario analysis and thereby improve 
investors' assessment of the appropriateness of a registrant's strategy 
and business model in light of foreseeable climate-related risks.\2795\
---------------------------------------------------------------------------

    \2793\ See Using Scenarios to Assess and Report Climate-Related 
C2ES 20 Financial Risk, C2ES (Aug. 2018), https://www.c2es.org/document/using-scenarios-to-assess-and-report-climate-related-financial-risk/; FRB of New York, Climate Stress Testing, Staff 
Report No. 1059 (2023).
    \2794\ See, e.g., Council of Institutional Investors; Boston 
Common Asset Management; Boston Walden Trust; Domini; University 
Network for Investor Engagement; AllianceBernstein.
    \2795\ See, e.g., letter from Bloomberg (stating ``scenario 
analysis is a useful tool to describe the resilience of a company's 
strategy to the risks and opportunities of climate change and to 
develop a more informed view of implications for enterprise value 
and value chains''); see also supra notes 540-542 and accompanying 
text; see also letter from Wellington (``[i]nformation concerning 
scenario analysis would also help investors evaluate the resilience 
of the registrant's business strategy in the face of various climate 
scenarios that could impose potentially different climate-related 
risks.'').
---------------------------------------------------------------------------

    If a registrant's use of an internal carbon price is material to 
how it evaluates and manages climate-related risks disclosed in 
response to Item 1502(a), then the registrant must disclose in units of 
the registrant's reporting currency information about the price per 
metric ton of CO2e, and the total price, including how the 
total price is estimated to change over the short-term and long-term, 
as applicable. For registrants that use more than one internal carbon 
price to evaluate and manage a material climate-related risk, these 
disclosures apply to each internal carbon price and the registrant must 
disclose reasons for using different prices. If the scope of entities 
and operations involved in the use of an internal carbon price 
described is materially different from the organizational boundaries 
used for the purpose of calculating GHG emissions pursuant to Item 
1505, the final rules require registrants to describe the difference. 
We expect this disclosure will provide investors with more standardized 
and decision-useful information regarding whether a registrant's use of 
an internal carbon price is material and, if so, how it impacts its 
strategy, results of operations, and financial condition. This is 
important to address issues with increased voluntary corporate 
disclosures of internal carbon pricing.\2796\ By mandating that 
registrants disclose any material differences in their boundaries used 
for internal carbon pricing and GHG emissions measurement, the final 
rules will help clarify for investors the scope of entities and 
operations included in a registrant's application of internal carbon 
pricing and improve the transparency about the methodology underlying 
the use of internal carbon pricing so that investors may better compare 
such use across registrants.
---------------------------------------------------------------------------

    \2796\ See CDP, supra note 608.
---------------------------------------------------------------------------

    In addition to the general cost considerations discussed in section 
IV.C.1.b, these provisions may have certain unintended effects on 
registrants and investors. In particular, as some commenters noted, it 
is possible that requiring registrants to disclose specific facts about 
their use of transition plans, scenario analysis, and internal carbon 
prices to address climate-related risks could deter registrants from 
utilizing these methods or cause them to abandon them, for example 
because of perceived litigation risk or because of the direct costs of 
preparing such disclosure.\2797\ This could have negative consequences 
for investors if the use of these methods would have helped registrants 
better manage climate-related risks and therefore make value-maximizing 
decisions in light of those risks. However, if registrants' use of 
these methods becomes a common practice,\2798\ due to investor demand 
or otherwise, this deterrence effect is likely to be limited.
---------------------------------------------------------------------------

    \2797\ See, e.g., letters from OMERS; Cemex; and NAM.
    \2798\ See, e.g., Climate Action 100+, Progress Update 2022 
(2022), available at https://www.climateaction100.org/wp-content/uploads/2023/01/CA-100-Progress-Update-2022-FINAL-2.pdf (stating 
that ``91% of focus companies have now aligned with TCFD 
recommendations, either by supporting the TCFD principles or by 
employing climate scenario planning'').
---------------------------------------------------------------------------

    There are potential costs that could result from scenario analysis 
disclosures under the final rules. First, commenters expressed concern 
that the disclosure of the scenario analysis results could confuse 
investors to the extent they inadvertently suggest that the chance of a 
loss occurring due to a rare event is more likely.\2799\ The 
commenters' concern could materialize if, for

[[Page 21855]]

instance, a scenario analysis suggests a heightened risk of a once-in-
a-hundred-year flood over the next 30 years, and disclosure of this 
causes certain investors, particularly those not familiar with such 
analysis, not to invest in the registrant despite the fact that the 
registrant actually has the same risk profile as other companies that 
have not made this disclosure. However, we expect any potential 
investor confusion in such a case will be mitigated because, under the 
final rules, the registrant would not be required to disclose this 
information if it determines that this scenario, like other very remote 
scenarios, are not likely to have a material impact on its business or 
financial condition. In addition, when disclosure is required, 
information accompanying the scenario analysis results--such as the 
assumptions and parameters underlying the analysis--should help provide 
investors the necessary context for understanding the import of the 
disclosed analysis.\2800\ Second, in disclosing scenario analysis 
assumptions and inputs as well as information about internal carbon 
prices, a registrant may face competitive harm to the extent that the 
disclosures reveal competitively sensitive information, such as asset 
allocation decisions. However, we expect that the degree of flexibility 
offered by the disclosure requirements in the final rules will help 
avoid the exposure of confidential or proprietary information, though 
they may make the disclosures less comparable.
---------------------------------------------------------------------------

    \2799\ See, e.g., letter from the BPI.
    \2800\ We note that other disclosure requirements, such as those 
relating to market risk disclosures, convey to investors complex 
information about uncertain future risks that registrants face.
---------------------------------------------------------------------------

    Overall, by focusing on climate-related risks that are material to 
the registrant's business, the final rules seek to avoid imposing costs 
associated with disclosing large amounts of detailed information that 
may be less relevant to investors. Finally, some of the required 
disclosures (e.g., forward-looking statements concerning transition 
plans, scenario analysis, and internal carbon pricing) will be subject 
to PSLRA safe harbors, which may reduce litigation costs where the safe 
harbors are applicable.\2801\
---------------------------------------------------------------------------

    \2801\ See supra section II.J.3 for a discussion of the 
disclosures required under the final rules that will be subject to 
PSLRA safe harbors. See also 17 CFR 229.1507.
---------------------------------------------------------------------------

c. Governance Disclosure
    The final rules require a registrant to disclose information 
concerning the board's oversight of climate-related risks as well as 
management's role in assessing and managing the registrant's material 
climate-related risks.\2802\ The final rules require a registrant to 
identify, if applicable, any board committee or subcommittee 
responsible for the oversight of climate-related risks and to describe 
the processes by which the board or such committee or subcommittee is 
informed about such risks. Additionally, if there is a disclosed 
climate-related target or goal or transition plan, the registrant must 
describe whether and how the board oversees progress against the target 
or goal or transition plan. In describing management's role in 
assessing and managing the registrant's material climate-related risks, 
the registrant should address, as applicable, the following non-
exclusive list of disclosure items: (1) whether and which management 
positions or committees are responsible for assessing and managing 
climate-related risks and the relevant expertise of the position 
holders or committee members; (2) the processes by which such positions 
or committees assess and manage climate-related risks; and (3) whether 
such positions or committees report information about such climate-
related risks to the board of directors or a committee or subcommittee 
of the board of directors. Like other parts of the final rules, these 
provisions provide some flexibility for registrants to tailor their 
disclosures to suit their particular facts and circumstances while 
helping to ensure that investors receive information regarding the 
board's and management's role in addressing and managing climate-
related risks.\2803\
---------------------------------------------------------------------------

    \2802\ See 17 CFR 229.1501.
    \2803\ See, e.g., letters from Wellington (``The proposed 
enhancements to disclosure on governance would help investors assess 
whether the issuer is appropriately considering risks and provide 
investors with valuable information about how the issuer plans to 
address these risks. This disclosure, in turn, gives investors 
insight into potential future capital allocation, expansion plans, 
and potential vulnerabilities associated with the issuer's business 
model (e.g., significant exposure to the impact of a carbon 
price).''); and Institute of Internal Auditors (``The board is 
accountable for the success of the organization and needs assurance 
from an independent source to fulfill its duties. . . . Effective 
governance inspires stakeholders' confidence and trust that a 
company's decisions, actions, and outcomes can address priorities 
and achieve the organization's desired purpose.'').
---------------------------------------------------------------------------

    The disclosures required by the final rules will enable investors 
to better understand how the company's leadership (i.e., its board of 
directors and management) is informed about climate-related risks and 
how the company's leadership considers such factors as part of its 
business strategy, risk management, and financial oversight. Managers 
and directors typically play a key role in identifying and addressing 
these risks.\2804\ Commenters stated that governance-focused 
information on how such risks are being overseen by the board is 
``fundamental'' for investors, and supported ``full disclosure with 
respect to how and to whom within the company's organization 
accountability for climate-related risks is assigned'' so that 
investors may assess a registrant's risk management systems in this 
context.\2805\ The disclosures required by the final rules will inform 
investors about whether the organization has assigned climate-related 
responsibilities to management-level positions and/or to the board and, 
if so, whether those responsibilities include assessing and/or managing 
climate-related risks. As a result, investors will be better able to 
understand and evaluate the processes, if any, by which the registrant 
assesses and manages material climate-related risks.
---------------------------------------------------------------------------

    \2804\ See Henry He Huang, Joseph Kerstein, Chong Wang & Feng 
Wu, Firm Climate Risk, Risk Management, and Bank Loan Financing, 43 
Strategic Management Journal 2849 ((June 2022); see also Walid Ben-
Amar & Philip McIlkenny, Board Effectiveness and the Voluntary 
Disclosure of Climate Change Information, 24 Business Strategy and 
the Environment 704 (2015).
    \2805\ See, e.g., letter from Canadian Coalition for Good 
Governance (noting that ``If a company cannot articulate how 
material climate-related risks are identified and clearly integrated 
into its governance philosophy and approach, this is a significant 
red flag for investors.''); see also GHGSAT who state that ``A 
challenge to the implementation of the TCFD framework has been a 
lack of education on the topic at the board level and a shortage of 
time for boards to consider the issues.''
---------------------------------------------------------------------------

    Information regarding whether and how the board oversees progress 
on material climate-related targets or goals or transition plans will 
provide useful context for the final rules' other targets or goals or 
transition plan disclosure requirements. Researchers have found that 
oversight systems at the board level can provide an important signal 
about how directors of the registrants recognize and address relevant 
climate-related risks.\2806\
---------------------------------------------------------------------------

    \2806\ V. Ramani & B. Ward, How Board Oversight Can Drive 
Climate and Sustainability Performance, 31 J. of Applied Corp. Fin. 
80 (2019).
---------------------------------------------------------------------------

    The final rules require disclosure of board-level governance, if 
any, of climate-related risks irrespective of the materiality of those 
risks. This disclosure will allow investors to understand whether 
climate-risks are among those that are significant enough to be 
considered at the board level and how management and the board 
collectively oversee such risks. Regardless of the potential impact of 
such risks to the company, the decision to oversee climate-related 
risks at the board level as opposed to delegating

[[Page 21856]]

entirely to management can provide useful information for understanding 
the company's overall approach to risk management and how climate-
related risks factor into such processes.
    Commenters asserted that the proposed rules may disproportionally 
burden small registrants that may not have the internal management 
organizations and processes in place to assess and manage climate-
related risks.\2807\ This provision of the final rules does not require 
registrants to disclose any information when such internal management 
organizations and processes are absent. In these cases, registrants 
will not incur any direct costs associated with producing these 
disclosures. As with any other disclosure requirement, smaller 
registrants that are required to disclose governance information under 
the final rules may be disproportionally affected in terms of costs 
relative to larger registrants because of the direct fixed costs 
associated with producing disclosure.
    Finally, we recognize that the disclosure requirements may either 
prompt or deter companies from overseeing climate-related risks at the 
board or management level. To the extent that the final rules lead 
companies to alter their governance structures in ways that are less 
efficient (e.g., by diverting board or management attention from other 
pressing corporate matters or devoting internal resources and expertise 
to climate-related risks at the expense of other concerns), investors 
could incur costs in the form of diminished shareholder value. One 
commenter noted that the adverse effects could be particularly 
pronounced for smaller registrants that may be less likely to have 
internal management organizations and processes in place to assess and 
manage climate-related risks.\2808\ We acknowledge these potential 
costs but also note that several changes from the proposal help to 
mitigate such effects. For example, by adopting less prescriptive 
disclosure requirements compared to the those in the proposal and only 
requiring disclosure of management's role in overseeing material 
climate related risks, the final rules are less likely to have such 
unintended effects on the registrant's governance structure and 
processes. Finally, we reiterate that the final rules are focused on 
disclosure and do not require registrants to change their governance or 
other business practices.
---------------------------------------------------------------------------

    \2808\ See letter from Chamber.
---------------------------------------------------------------------------

    Other commenters expressed concern that the proposed requirement to 
disclose board members' climate expertise would impose costs by placing 
pressure on registrants to fill limited numbers of board seats with 
individuals with a narrow skillset, rather than those with wide ranging 
expertise or skillsets that may be better suited to the company's 
needs.\2809\ Some commenters also noted the limited number of climate-
risk experts compared to the demand for such individuals for board 
seats, which could increase costs for registrants that feel pressured 
to appoint climate-risk experts to the board as a result of the final 
rules.\2810\ Similar concerns were raised with respect to the proposed 
requirement to disclose management's relevant expertise.\2811\ In light 
of the comments, the Commission is not requiring the disclosure of 
board expertise. We are, however, adopting the requirement to disclose 
the relevant expertise of management to provide investors with useful 
information about the expertise of those responsible for identifying 
material climate risks and communicating those risks to the 
board.\2812\ We acknowledge the incremental cost of making this 
disclosure and the potential for indirect costs if registrants decide 
to hire climate experts in response to the disclosure requirement. 
While acknowledging these costs, we reiterate that the Commission 
remains agnostic about whether and/or how registrants govern climate-
related risks. Registrants remain free to establish or retain the 
procedures and practices that they determine best fit their business. 
Overall, we agree with commenters that stated that investors will 
benefit from this disclosure given the direct role that management 
plays in overseeing any material climate-related risks.\2813\
---------------------------------------------------------------------------

    \2809\ See supra note 637 and accompanying text.
    \2810\ See, e.g., supra note 650.
    \2811\ See, e.g., supra note 695 and accompanying text.
    \2812\ See supra section II.E.2.c.
    \2813\ See section II.E.2.ii.
---------------------------------------------------------------------------

d. Targets and Goals Disclosure
    The final rules will require a registrant to disclose any climate-
related target or goal if such target or goal has materially affected 
or is reasonably likely to materially affect the registrant's business, 
results of operations, or financial condition.\2814\ Under the final 
rules, a registrant must provide any additional information or 
explanation necessary to an understanding of the material impact or 
reasonably likely material impact of the target or goal, including, as 
applicable, a description of: (1) the scope of activities included in 
the target; (2) the unit of measurement; (3) the defined time horizon 
by which the target is intended to be achieved and whether the time 
horizon is based on goals established by a climate-related treaty, law, 
regulation, policy, or organization; (4) if the registrant has 
established a baseline for the target or goal, the defined baseline 
time period and the means by which progress will be tracked; and (5) a 
qualitative description of how the registrant intends to meet these 
climate-related targets or goals. Registrants are also required to 
provide certain information if carbon offsets or RECs have been used as 
a material component of a registrant's plan to achieve climate-related 
targets or goals. Furthermore, registrants must disclose any progress 
made toward meeting the target or goal, how any such progress has been 
achieved, any material impacts to the registrant's business, results of 
operations, or financial condition as a direct result of the target or 
goal (or actions taken to make progress toward meeting the target or 
goal), and include quantitative and qualitative disclosure of any 
material expenditures and material impacts on financial estimates and 
assumptions as a direct result of the target or goal (or actions taken 
to make progress toward meeting the target or goal). This disclosure 
must be updated each fiscal year by describing the actions taken during 
the year to achieve its targets or goals.\2815\
---------------------------------------------------------------------------

    \2814\ See 17 CFR 229.1504.
    \2815\ As with forward-looking statements concerning transition 
plans, scenario analysis, and internal carbon pricing, forward-
looking statements related to targets and goals will be covered by 
the PSLRA safe harbor, which may reduce litigation costs.
---------------------------------------------------------------------------

    The final rules will help investors to understand how a 
registrant's target or goal impacts its business and financial 
condition. Such disclosure will enable investors to better understand 
the costs associated with pursuing these objectives as well as the 
benefits associated with achieving them. While some registrants may 
currently provide disclosure about their climate-related targets or 
goals, those voluntary disclosures generally do not provide investors 
with an understanding of whether and how the climate-related targets or 
goals materially impact or are reasonably likely to materially impact 
the registrant's business, results of operations, or financial 
condition. In addition, without a requirement to disclose material 
targets or goals, investors have no way of knowing if there are 
nonpublic targets or goals that could be relevant to their investment 
decisions, or if the registrant has simply not set any such targets or 
goals. Furthermore, voluntary disclosures

[[Page 21857]]

about climate-related targets or goals are often missing key pieces of 
information that investors need to understand them, such as the plan 
for achieving them.\2816\ The final rules will address these knowledge 
gaps by supplementing the existing publicly available information.
---------------------------------------------------------------------------

    \2816\ See, e.g., Kenji Watanabe, Antonios Panagiotopoulos & 
Siyao He, Assessing Science-Based Corporate Climate Target-Setting, 
(June 9, 2023), at Appendix 4, available at https://www.msci.com/www/research-report/assessing-science-based/03881548607.
---------------------------------------------------------------------------

    The final rules will allow for greater comparability across 
registrants. However, we recognize that the requirement to disclose 
targets and goals may prompt registrants to forgo establishing targets 
or goals that may be or may become material in order to avoid the 
disclosure requirements. This effect may be mitigated to the extent 
that registrants also consider other factors (e.g., investor demand) 
for having or not having climate-related targets and goals when making 
such decisions.
    The greater transparency from the required disclosure of specific 
details related to these targets and goals in Commission filings may 
help alleviate concerns regarding the issue of greenwashing in existing 
voluntary disclosures, as noted by commenters.\2817\ Academic studies 
have found that existing information about climate-related targets and 
goals can suffer from considerable imprecision and inaccuracy despite 
efforts by certain organizations to create more accountability and 
transparency.\2818\ As a result, under the current voluntary framework, 
investors may not be able to distinguish between targets and goals that 
are material and those that are more akin to puffery and are unlikely 
to be material to a registrant. For example, disclosures that 
explicitly link a target to a material impact on a registrant's 
financial condition will both inform investors about the potential 
costs and benefits of the target, while also lending credibility 
towards the registrant's efforts to achieve the target. Thus, by 
requiring disclosures about material targets and goals in Commission 
filings, the final rules should enhance the reliability and utility of 
such information for investors.\2819\ In addition, since any 
greenwashing under the current voluntary disclosure regime could lead 
investors to over- or under-estimate the potential impact of targets or 
goals on a registrant's business strategy, results of operations, or 
financial conditions, the disclosures required by the final rules will 
further enable investors to draw more informed conclusions about how 
targets and goals may impact the business.
---------------------------------------------------------------------------

    \2817\ See, e.g., letters from D. Hileman Consulting; and Sen. 
Schatz et al.
    \2818\ See, e.g., Bingler et al.; see also Memorandum Concerning 
Staff Meeting with Representatives of South Pole (Jan. 14, 2022) 
(``South Pole Memo'').
    \2819\ See, e.g., letter from Center Amer. Progress 
(``Disclosures around management's plans to address climate risks, 
including how management is meeting or not meeting the targets or 
goals in those plans, are essential for investors and other market 
participants.'').
---------------------------------------------------------------------------

    We are not adopting the proposed requirement to disclose metrics 
quantifying a registrant's progress towards its target or goal. By not 
requiring registrants to provide quantification of its targets and 
goals metrics, we avoid some of the cost concerns raised by comments 
associated with such disclosure, including Scope 3 emissions 
disclosures and other potentially difficult-to-calculate metrics.\2820\ 
Nevertheless, we expect the final rules to result in some costs 
associated with developing systems for measuring progress made on 
targets or goals because registrants may still have to track their 
progress for purposes of providing the required disclosures, if they do 
not already have those processes in place. Further, the final rules' 
more flexible approach may limit the usefulness of targets and goals 
disclosures relative to the proposed rules. In particular, if a 
registrant provides boilerplate qualitative disclosures, then it would 
be harder for investors to assess the disclosures' credibility. 
However, the final rules requirement to provide quantitative and 
qualitative disclosures of material expenditures and material impacts 
on financial estimates and assumptions related to targets and goals 
will mitigate this concern to some extent. This disclosure will also 
inform investors about the financial implications of pursuing these 
targets and goals. For instance, investment in achieving targets could 
be value-enhancing in the long run but reduce cash flow in the short 
run. By facilitating a better understanding of these impacts, investors 
will be better positioned to value companies and make investment and 
voting decisions.
---------------------------------------------------------------------------

    \2820\ See section II.H.2. As noted above, the final rules will 
not require disclosure of Scope 3 emissions information, including 
in the context of a registrant's targets or goals.
---------------------------------------------------------------------------

    Quantitative disclosures of expenditures and impacts may facilitate 
comparisons across registrants; although, as noted in section IV.C.2.b 
above, the comparability benefits of this quantitative disclosure 
depend on the degree of variation in management determinations of which 
portion of their expenditures can be directly attributable to targets 
and goals. In addition, as discussed above, these disclosures may lead 
some registrants to report figures that overstate the impact of targets 
and goals (if, for example, the registrant determines not to deduct the 
portion of expenditures that are unrelated to pursuit of the target or 
goal). However, we expect that accompanying qualitative discussion 
should provide investors the context necessary to draw informed 
conclusions.
    In a change from the proposal, the final rules do not require 
disclosure of interim targets set by the registrant. Rather, 
registrants have flexibility to determine whether to disclose their 
interim targets, if any, in describing their plans to achieve their 
targets and goals or in the context of describing their progress 
towards such targets or goals.
    If carbon offsets or RECs have been used as a material component of 
a registrant's plan to achieve climate-related targets or goals, the 
final rules require registrants to separately disclose the amount of 
carbon avoidance, reduction, or removal represented by the offsets or 
the amount of generated renewable energy represented by the RECs, the 
nature and source of the offsets or RECs, a description and location of 
the underlying projects, any registries or other authentication of the 
offsets or RECs, and the costs of the offsets or RECs. Describing the 
features of RECs will help investors understand how registrants are 
managing their climate-related risks.\2821\ For example, one commenter 
said that ``not all offsets or RECs are equal'' and that information on 
RECs would ``allow investors to better assess the use of capital, the 
integrity and validity of such offsets or RECs, and the degree that the 
registrants emissions profile and offsets or RECs could be at risk due 
to policy or regulation changes.'' \2822\ These disclosures also will 
provide context for any required disclosures of Scope 1 or Scope 2 GHG 
emissions (i.e., if such emissions are material for an LAF or an AF). 
In addition, more complete disclosures about carbon offsets and RECs 
may help deter potential greenwashing that results from a lack of 
reliable basic information. Because these disclosures comprise basic 
facts associated with the registrant's purchased carbon offsets and 
RECs, we do not expect that collecting and reporting this information 
will constitute a significant burden.
---------------------------------------------------------------------------

    \2821\ See, e.g., letters from AllianceBernstein; Carbon Direct; 
CarbonPlan; and Ceres.
    \2822\ See letter from CalPERS.

---------------------------------------------------------------------------

[[Page 21858]]

e. GHG Emissions Metrics
    The final rules will require LAFs and AFs (that are not SRCs or 
EGCs) to disclose Scope 1 and/or Scope 2 emissions, if such emissions 
are material, for their most recently completed fiscal year and, to the 
extent previously disclosed in a Commission filing, for the historical 
fiscal year(s) included in the consolidated financial statements in the 
filing.\2823\ By specifying that these registrants must provide 
information on material GHG emissions, the final rules will give 
investors access to a more comprehensive set of emissions data than 
under the baseline. Investors can use this data to assess exposures to 
certain types of climate-related risks and provide quantitative 
contextual data to supplement a registrant's description of the 
material climate-related risks it faces, as well as progress on the 
management of those risks, as a part of assessing the registrant's 
overall business and financial condition. Because the value of a 
company's equity is derived from expected future cash flows, disclosure 
of GHG emissions can help investors understand whether those emissions 
are likely to subject the registrant to a transition risk that will 
materially impact its business, results of operations, or financial 
condition in the short- or long-term and incorporate risks associated 
with such future cash flows into asset values today. Indeed, academic 
literature shows that risks both in the near term and far into the 
future are priced into current asset valuations.\2824\ Thus, for many 
registrants, GHG emissions can be helpful to assess the registrants' 
exposure to climate-related risks, particularly to material transition 
risks.\2825\
---------------------------------------------------------------------------

    \2823\ See 17 CFR 229.1505.
    \2824\ For evidence that points to the pricing of short-term 
climate-related risks, see R. Faccini, R. Matin & G. Skiadopoulos, 
Dissecting Climate Risks: Are They Reflected in Stock Prices? 155 J. 
of Banking & Fin., Article 106948 (Oct. 2023); Huynh & Xia (2021). 
For evidence that points to the pricing of long-term climate-related 
risks, see M. Painter, An Inconvenient Cost: The Effects of Climate 
Change on Municipal Bonds, 135 J. of Fin. Econ. 468 (2020); D.D. 
Nguyen, S. Ongena, S. Qi & V. Sila, Climate Change Risk and the Cost 
of Mortgage Credit, 26 Rev. of Fin. 1509 (2022); Huynh & Xia (2021).
    \2825\ See letters from CALSTRS; Vanguard; Fidelity; BlackRock; 
CALPERS; and State of NY Office of the Comptroller.
---------------------------------------------------------------------------

    As noted in section IV.A, many registrants currently do not provide 
quantitative disclosures on their Scope 1 and 2 emissions. This lack of 
information on emissions makes it more difficult for investors to 
assess the degree of risk in individual companies, to compare those 
risks across companies, and to value securities. By requiring 
disclosure of GHG emissions for specified registrants for the same 
historical periods as those included in the financial statements in the 
relevant filing, the final rules will help investors develop a more 
accurate assessment of those registrants' exposure and approach to 
climate-related risks over time. For example, Scope 1 and Scope 2 
emissions disclosure may be relevant to investors' assessment of a 
registrant's progress made on targets or goals or towards its 
transition plan.\2826\
---------------------------------------------------------------------------

    \2826\ Research has shown that issuers tend to ``cherry-pick'' 
the baseline year (i.e., pick the year with highest emissions within 
the past few years) when forming an emissions target so that any 
progress appears in the most favorable light. See P. Bolton & M. 
Kacperczyk, Firm Commitments, National Bureau of Economic Research, 
No. w31244 (May 2023). The final rules will thus benefit investors 
by helping them identify when such cherry-picking occurs so as to 
arrive at a more informed assessment about the registrant's progress 
towards meeting its targets or goals.
---------------------------------------------------------------------------

    The final rules will provide informational benefits beyond those 
associated with the voluntary disclosure of emissions that may be found 
in sustainability reports or other places, such as company websites. In 
particular, the overall mix of information disclosed to the market can 
be distorted when only a certain subset of companies (e.g., those with 
lower emissions or those that face lower costs of emissions 
measurement) have stronger incentives to make voluntary disclosures. 
The final rules may offset this distortion because disclosure is only 
required if a registrant determines that its Scope 1 and Scope 2 
emissions are material. The materiality qualifier will allow 
registrants that determine that their emissions are immaterial to avoid 
the full costs of emissions measurement and disclosure. It will also 
mitigate the risk that investors could be burdened with large amounts 
of information that is less relevant for their investment and voting 
decisions. In addition, mandatory disclosure of Scope 1 and Scope 2 
emissions data in Commission filings may deter potential greenwashing 
that could occur with voluntary disclosures.\2827\
---------------------------------------------------------------------------

    \2827\ R. Yang, What Do We Learn from Ratings About Corporate 
Social Responsibility? New Evidence of Uninformative Ratings, 52 J. 
of Fin. Intermediation, Article 100994 (Oct. 2022); Soh Young In & 
Kim Schumacher, Carbonwashing: A New Type of Carbon Data-related ESG 
Greenwashing (2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3901278 (retrieved from SSRN Elsevier 
database); V. Kalesnik, M. Wilkens & J. Zink, Do Corporate Carbon 
Emissions Data Enable Investors to Mitigate Climate Change?, 48 J. 
of Portfolio Mgmt. 119 (2022) (``Kalesnik et al.'').
---------------------------------------------------------------------------

    Some commenters questioned the value of GHG disclosures in light of 
existing requirements for some registrants to report emissions pursuant 
to the GHGRP.\2828\ As previously discussed,\2829\ the data available 
from the GHGRP is generally not suited to help investors understand how 
a registrant's exposure and approach to managing climate-related risks 
may impact its future cash flows and profitability for several reasons. 
First, the GHGRP requires that emissions are reported at the facility-
level rather than the registrant-level. Second, suppliers of certain 
products must report their ``supplied emissions,'' conditional on these 
emissions exceeding a specified threshold.\2830\ Third, GHGRP reporting 
is limited to U.S. facilities. Some commenters asserted that the GHGRP 
could not be substituted for the proposed rules given the different 
disclosure requirements and the different objectives of the two 
reporting regimes.\2831\
---------------------------------------------------------------------------

    \2828\ See supra section IV.A.3 and letters from Chamber; Elaine 
Henry; BOK Financial; David R. Burton; Permian Basin; and Petroleum 
Association.
    \2829\ See supra section IV.A.3.
    \2830\ In addition, as previously discussed, the EPA emissions 
data only reflects a portion of emissions. See supra section IV.A.3. 
The EPA's emissions data therefore presents challenges for investors 
to use, especially as the data are made public by facility and not 
by company. While each facility is matched to its parent company, 
this company may not be the entity registered with the SEC and thus 
the reported information may be less relevant to investors. See also 
letter from EPA (containing a tabular comparison of the EPA 
disclosures to the proposed disclosures).
    \2831\ See, e.g., letters from EPA; and Marathon Oil.
---------------------------------------------------------------------------

    While there are differences between the EPA's GHGRP and the Scope 1 
and 2 emissions disclosures in the final rules, we expect that 
registrants subject to both reporting regimes would face reduced costs 
of compliance with the final rules to the extent there is overlap 
between the reporting requirements of the GHGRP and the final rules. As 
discussed in section IV.A, the GHGRP covers 85 to 90 percent of all GHG 
emissions in the U.S. and includes those emissions referenced by the 
GHG Protocol and included in the final rules' definition of 
``greenhouse gasses.'' \2832\ As such, we expect that entities subject 
to the GHGRP disclosure and reporting requirements may consequently 
have lower incremental information gathering costs under the final 
rules for those emissions already required to be calculated and 
reported by a registrant pursuant to the GHGRP. For example, because 
both the GHGRP and the final rules require companies to collect 
information to report and disclose their Scope 1 emissions, to the 
extent that the information and reporting activities overlap, 
registrants subject to both the

[[Page 21859]]

final rules and the GHGRP may face lower incremental information 
gathering costs. However, as one commenter noted, ``[t]he Commission-
proposed regulation is not completely in alignment with the US EPA 
regulation. Thus, an assessment, plan of action, and implementation of 
changes will be needed for many companies to be compliant with the 
requirements of both agencies.'' \2833\ In addition as noted above, 
this lower incremental cost would only apply to direct emissions from 
U.S.-based facilities, not registrants' international facilities or 
operations.
---------------------------------------------------------------------------

    \2832\ See supra section IV.A.3.
    \2833\ Letter from Marathon Oil.
---------------------------------------------------------------------------

    Limiting the disclosure requirement to larger companies (i.e., 
those with greater resources that tend to be already calculating 
emissions, as noted in section IV.A) will help to balance the concerns 
of commenters who stated that the evolving nature of current emissions 
measurement technologies could impose significant compliance costs on 
registrants, especially those not currently familiar with reporting 
this information.\2834\
---------------------------------------------------------------------------

    \2834\ See letters from Blackrock; Business Roundtable; and 
Chevron. See also Kalesnik, et al., supra note 2827.
---------------------------------------------------------------------------

    Although the final rules limit disclosures to circumstances in 
which emissions are material for registrants, we expect most, if not 
all, LAFs and AFs that are not EGCs or SRCs will need to assess or 
estimate their Scope 1 and 2 emissions to reach a materiality 
determination. As a result, we expect these registrants will, to some 
extent, need to adopt controls and procedures to assess the materiality 
of their Scope 1 and 2 emissions and determine whether disclosure is 
required if they do not already have them in place. Registrants that 
determine that their Scope 1 and 2 emissions are material may likewise 
need to adopt further controls and procedures, including measurement 
technologies and other tools to track and report the information to the 
extent they do not already do so. The final rules may also affect 
registrants that currently track and/or report this information.\2835\ 
For example, some registrants may only be measuring some Scope 1 or 
Scope 2 emissions.\2836\ Any investments in systems or technologies to 
better measure Scope 1 and Scope 2 emissions will improve the quality 
of available data \2837\ on emissions but will also contribute to the 
direct costs of compliance.\2838\
---------------------------------------------------------------------------

    \2835\ As we discuss below, the costs for existing registrants 
who track and disclose emissions will be limited because the final 
rules enable registrants to continue to use the operational and 
organizational boundaries they already use to track emissions.
    \2836\ See Kalesnik, et al., supra note 2827 (noting that many 
registrants do not fully measure their Scope 1 emissions).
    \2837\ A number of studies have raised concerns about the 
quality of existing emissions data. For example, one study found 
that third-party estimates of emissions, which represent a 
significant fraction of the emissions data available in several 
existing databases, are materially less accurate than self-reported 
emissions data by issuers. See Kalesnik et al., supra note 2827. 
Another study examined emissions data reported to CDP between 2010 
and 2019 and found that 38.9% of the reports exhibited disparities 
between the reported total emissions and sum of reported emissions 
by various sub-categories. See S. Garcia-Vega, A.G. Hoepner, J. 
Rogelj & F. Schiemann, Abominable Greenhouse Gas Bookkeeping Casts 
Serious Doubts On Climate Intentions of Oil and Gas Companies 
(working paper, Mar. 2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4451926 (retrieved from SSRN Elsevier 
database).
    \2838\ See sections IV.C.1.b and IV.C.3 for additional 
information on the associated compliance costs.
---------------------------------------------------------------------------

    The benefits of this component of the final rules depend on the 
extent to which Scope 1 and 2 emissions disclosures are accurate and 
thus provide reliable reflections of registrants' exposure to material 
climate-related risks, their management of that risk, and their 
progress on transition plans and/or targets and goals (to the extent 
they have them). Several commenters noted that many registrants have 
had more experience measuring and disclosing Scope 1 and 2 emissions 
than Scope 3 emissions, and that those methodologies, from their 
experiences, are well-established and are considered fairly 
robust.\2839\ Nevertheless, according to studies as well as commenter 
feedback, there may be issues with errors and inconsistencies in 
voluntary Scope 1 and 2 emissions disclosures.\2840\ The final rules 
will benefit investors by improving the accuracy and reliability of 
this information--first through requiring registrants to subject GHG 
emissions disclosures, to the extent they are required to make them, to 
disclosure controls and procedures; and second, by requiring assurance. 
The final rules also permit the disclosure of reasonable estimates for 
Scope 1 and 2 emissions provided that such estimates are accompanied by 
disclosure of underlying assumptions and reasons for using estimates, 
which will help investors better understand the metrics that 
registrants are disclosing.
---------------------------------------------------------------------------

    \2839\ See letters from National Retail Federation; AHLA; and 
Aerospace Industries Association.
    \2840\ See Kalesnik et al., supra note 2827; Garcia-Vega et al., 
supra note 2837; see also letter from Calvert (``Research 
demonstrates about 30% of companies that disclose such information 
in their own reporting make errors on a regular to periodic basis, 
despite the well-established rules and systems that already exist to 
ensure proper reporting of such emissions. In many cases, this 
appears to stem from a lack of effective internal controls or well-
functioning monitoring systems.'').
---------------------------------------------------------------------------

    Scope 1 and 2 emissions may not fully reflect a registrant's 
exposure to transition risks because some of those risks would only be 
captured through other metrics such as Scope 3 emissions.\2841\ For 
example, registrants facing similar exposure to emissions-related 
climate risks may report different Scope 2 emissions levels depending 
on, for example, whether they pay directly for their utilities (counted 
as Scope 2) or their leases provide for utilities expenses (counted as 
Scope 3), or, as another example, whether they have employees who work 
from home and therefore who do not contribute directly to utilities 
expenses. Recognizing these limitations, the final rules also require 
disclosures on methodology, significant inputs, significant 
assumptions, organizational boundaries, operational boundaries, and 
reporting standard used with respect to Scope 1 and 2 emissions. These 
disclosures will provide additional context to help investors 
understand the disclosures and will enable investors to draw more 
reliable comparisons across registrants. For example, disclosure of 
operational boundaries will help distinguish registrants that rely on 
utilities provided by third parties from those that pay directly for 
their utilities, which will assist investors in accounting for this 
difference when comparing reported emissions and thus climate-related 
risk across registrants.
---------------------------------------------------------------------------

    \2841\ See letters from Wellington; and Calvert.
---------------------------------------------------------------------------

    In a change from the proposal, we are exempting SRCs and EGCs from 
the GHG emissions disclosure requirements in order to limit the costs 
of this disclosure requirement for such registrants. This exemption 
should also mitigate the risk of deterring prospective EGCs or SRCs 
from conducting IPOs or inducing EGCs or SRCs to deregister under the 
Exchange Act as a result of the costs associated with compliance with 
the requirements to disclose material Scopes 1 and 2 emissions. 
Registrants that already measure their GHG emissions tend to be larger 
companies (with greater exposure to various climate-related transition 
risks by virtue of their size and economic footprint) as observed in 
our own baseline analysis (see Table 5) and in the assessments of 
commenters, many of whom supported exemptions for SRCs and EGCs as they 
would be disproportionately impacted by the requirement.\2842\ While 
these

[[Page 21860]]

exemptions may limit the benefit of achieving greater consistency and 
comparability across registrants, exempting SRCs and EGCs from this 
disclosure requirement at this time is appropriate given the relatively 
larger burden GHG emissions reporting requirements could have on these 
firms \2843\ and the differences in the existing levels of climate-
related disclosure between larger companies and smaller companies.
---------------------------------------------------------------------------

    \2842\ See, e.g., letters from U.S. SBA (``Small entities will 
need to allocate larger shares of their technological, financial, 
and staff resources to comply with the proposed rules. 
Representatives from the biotechnology, plastics, and equipment 
manufacturing industries have reported to Advocacy that small 
businesses in their industries have not traditionally tracked GHG 
emissions or other climate-related metrics. These businesses would 
either need to develop modeling software to track climate metrics 
in-house or hire third-party consultants to do so . . . Small 
private companies have also voiced that the costs of collecting and 
analyzing GHG emissions data could be prohibitive.''); Soros Fund 
(suggesting that EGCs and SRCs should be allowed additional time to 
adjust to climate disclosure requirements, be afforded an additional 
safe harbor and be exempt from financial statement metrics 
disclosure); and SBCFAC Recommendation (recommending ``scaling and 
delaying the compliance requirement for emerging growth companies, 
along with smaller reporting companies.'').
    \2843\ Even for SRCs and EGCs that are currently calculating GHG 
emissions, there could be certain fixed costs associated with 
preparing this information for disclosure in Commission filings that 
would not scale with the size of the registrant and would therefore 
be more burdensome to these entities. We expect benefits to scale 
with the size of the firm.
---------------------------------------------------------------------------

    Commenters raised concerns about the costs of providing GHG 
emissions on a disaggregated basis.\2844\ However, many commenters also 
explained that disaggregated disclosures could be decision useful, as 
emissions from specific constituent gases could have differential 
effects on a company's cash flows or business operations.\2845\ For 
example, a registrant may be subject to methane fees by the EPA, in 
which case information about the registrant's methane emissions could 
factor into investors' decision making. To balance these views, some 
commenters suggested that the final rules should require constituent 
gases to be disclosed on a disaggregated basis only when individually 
material.\2846\ We agree with those commenters and believe that this 
approach will provide investors with decision-useful information about 
GHG emissions without imposing undue compliance costs on registrants to 
produce disaggregated data in circumstances in which the disaggregation 
may not be particularly useful for investors.\2847\
---------------------------------------------------------------------------

    \2844\ See, e.g., letters from ABA; ERM CVS; Sullivan Cromwell; 
and T. Rowe Price.
    \2845\ See, e.g., letters from PwC; and WRI.
    \2846\ See, e.g., letter from Deloitte & Touche (``Many 
emissions category calculation methods are estimate-based and rely 
on proxy data; the potential variance in actual can be significant 
and is largely unknown in many instances. Especially given these 
challenges, the Commission may consider whether the disaggregated 
data by each constituent greenhouse gas should only be required to 
be disclosed when individually material.'').
    \2847\ Id.
---------------------------------------------------------------------------

    The final rules also permit registrants to calculate and disclose 
GHG emissions according to the methodology that best matches their 
particular facts and circumstances. The benefit of this flexible 
approach is that registrants will have the opportunity to provide 
investors with information about their GHG emissions using the latest 
and most suitable methodology as measurement technologies and standards 
continue to develop. For example, while many companies calculate their 
GHG emissions pursuant to the GHG Protocol, others utilize different 
approaches, such as certain ISO standards.\2848\ This flexibility, 
which may include registrants' ability to round as appropriate, will 
serve to limit costs.\2849\ Conversely, it could also make comparisons 
less straightforward, which may attenuate some of the expected benefits 
of the final rules. However, there are several reasons to believe that 
this reduction in comparability will not significantly undermine the 
utility of the required disclosures. First, the required disclosures 
will expand upon and enhance the quality of the existing set of GHG 
emissions disclosures that investors already find useful despite the 
variation in methodologies that produce existing emission 
disclosures.\2850\ Second, the contextual disclosures (e.g., 
operational boundaries) will enable investors to better understand the 
quantitative disclosures and make adjustments to facilitate comparisons 
with other registrants that are otherwise not possible under the 
baseline. Third, to the extent that industry-specific approaches to 
disclosing emissions continue to develop and evolve, the final rules 
will permit registrants within those industries to adopt those 
approaches, which will help investors to compare peer companies within 
an industry. Finally, as we discuss in the next subsection, obtaining 
assurance over GHG emissions disclosure provides investors with an 
additional degree of reliability regarding not only the figures that 
are disclosed, but also the key assumptions, methodologies, and data 
sources the registrant used to arrive at those figures.
---------------------------------------------------------------------------

    \2848\ See letters from Futurepast (referencing ISO 14064-1, 
Specification with Guidance at the Organization Level for 
Quantification and Reporting of Greenhouse Gas Statements; and ISO 
14067, Carbon Footprint of Products--Requirements and Guidelines for 
Quantification); and ISO Comm. GHG; see also, e.g., letters from 
Alphabet et al.; As You Sow; Beller et al.; CalSTRS; CFA; Dell; 
Deloitte & Touche; Engine No. 1; ERM CVS; KPMG; Morningstar; Soc. 
Corp. Gov.; and WRI.
    \2849\ See letter from AGs of TX et al.
    \2850\ See, e.g., letters from Vanguard; Fidelity; BlackRock; 
CALSTRS; and CALPERS for investors who derive utility from existing 
emissions disclosures.
---------------------------------------------------------------------------

    These disclosures complement the other required disclosures about 
the organizational boundaries (used to calculate emissions versus those 
used in their financial statements) as well as carbon offsets and RECs, 
which offer important context for facilitating comparisons between 
companies as discussed above. In fact, by not requiring organizational 
boundaries to necessarily conform to those used in the company's 
consolidated financial statements, the final rules permit the 
development of a standardized framework (e.g., control approach) for 
measuring emissions across registrants. Commenters supported this 
approach as it would allow registrants to continue to measure emissions 
using their current approach and procedures.\2851\ That is, by not 
imposing a prescriptive methodology for GHG emissions disclosures, the 
final rules provide space for the continued development of a shared 
reporting framework for issuers to disclose information that ultimately 
may enhance the degree of comparability of registrant-level GHG 
emissions data, to the benefit of investors, registrants and the market 
(relative to the baseline).\2852\
---------------------------------------------------------------------------

    \2851\ See, e.g., letters from API; ACORE; AHLA; and Chevron.
    \2852\ See, e.g., letters from Alphabet et al.; and Alliance-
Bernstein.
---------------------------------------------------------------------------

    Finally, as discussed in section II.I above, we are following the 
suggestions of many commenters and allowing registrants more time to 
report emissions given the inherent challenges with reporting sooner 
that commenters highlighted.\2853\ By delaying the requirement to 
disclose GHG emissions until later in the year, the final rules will 
provide additional time to prepare the information for filing (more 
consistent with current voluntary reporting practices),\2854\ which 
should improve its accuracy and reduce costs for registrants but may 
result in delayed disclosure in some instances. The delay in annual 
reporting may also allow registrants to leverage disclosures they may 
have already prepared for other reporting regimes. Nonetheless, even 
with the extended filing deadline for

[[Page 21861]]

registrants, investors will still benefit from receiving this 
information in a more timely and predictable manner than they currently 
do.\2855\
---------------------------------------------------------------------------

    \2853\ See, e.g., letters from Morningstar; and American Banker.
    \2854\ See, e.g., supra note 2570 (stating ``many companies 
still take more than 12 months after their fiscal year to disclose 
their sustainability data'').
    \2855\ See, e.g., letter from Morningstar (``Currently, a lack 
of clear disclosure standards for the timing of `sustainability 
reports,' which is the primary source for emissions data, greatly 
hinders investor knowledge. For example, some registrants released 
2021 reports--detailing 2020 data--as late as November 2021.'').
---------------------------------------------------------------------------

f. Attestation Over GHG Emissions Disclosure
    The proposed rules would have required LAFs and AFs to provide an 
attestation report covering the disclosure of its Scope 1 and Scope 2 
emissions at the limited assurance level for the second and third 
fiscal years after the Scopes 1 and 2 emissions disclosure compliance 
date, and at the reasonable assurance level beginning in fiscal year 
four. In a change from the proposal, the final rules require LAFs and 
AFs to provide an attestation report at the limited assurance level for 
Scope 1 and/or Scope 2 emissions disclosures beginning the third fiscal 
year after the compliance date for GHG emissions reporting and require 
an LAF to provide an attestation report at the reasonable assurance 
level for Scope 1 and/or Scope 2 emissions disclosures beginning the 
seventh fiscal year after the compliance date for GHG emissions 
reporting.\2856\
---------------------------------------------------------------------------

    \2856\ See 17 CFR 229.1506.
---------------------------------------------------------------------------

    Many commenters stated that the proposed assurance requirements 
would be too costly.\2857\ In response to these commenters' concerns, 
and in a shift from the proposal, the final rules will exempt SRCs and 
EGCs from the requirement to obtain assurance, since SRCs and EGCs will 
not be required to disclose GHG emissions. In addition, the final rules 
do not require AFs to provide attestation reports at the reasonable 
assurance level. We have determined that it is appropriate to apply the 
reasonable assurance requirement to a more limited pool of 
registrants--LAFs--at this time because a number of LAFs are already 
collecting and disclosing climate-related information, including GHG 
emissions data and larger issuers generally bear proportionately lower 
compliance costs than smaller issuers due to the fixed cost components 
of such compliance.
---------------------------------------------------------------------------

    \2857\ See, e.g., letters from AFPM; AHLA; Amer. Chem.; 
Bipartisan Policy (``While emissions data is no doubt important for 
companies to evaluate, especially those that are large emitters, 
attesting or certifying this data as accurate is far more costly 
than with financial data because the market for emissions is not at 
all well-developed.''); Eversource; Business Roundtable; Chamber; 
ConocoPhillips (``the availability of assurance providers is 
currently insufficient to meet demand and will likely trigger a 
surge in costs''); McCormick (``While unknown at this time, due to 
the fact that these types of disclosures have never been required by 
the SEC in the past and in this form, these added costs must be well 
understood and measured against the benefit.''); NOIA; PPL; SBCFAC 
Recommendation; SIFMA; Soc. Corp. Gov.; Sullivan Cromwell; and 
Travelers.
---------------------------------------------------------------------------

    For both LAFs and AFs, the extended phased in compliance dates will 
further address concerns about the immediate costs of compliance under 
the final rules.\2858\ Specifically, the final rules provide 
registrants with two phased in compliance periods--one phased in 
compliance period before GHG emissions disclosures are required, and 
another, later phased in compliance period before assurance over GHG 
emissions disclosures is required. These phased in compliance periods 
will give registrants time to develop and implement processes and 
controls to produce high quality GHG emissions data and disclosures. In 
addition, the phased in compliance periods will provide existing GHG 
emissions assurance providers with time to train additional staff and 
undertake other preparations for these engagements as necessary, as 
well as facilitate the entry of new GHG emissions attestation providers 
into the market to meet demand.\2859\ As the availability of assurance 
providers increases and the quality of registrants' reporting improves, 
we expect the costs of assurance will decrease.
---------------------------------------------------------------------------

    \2858\ See letter from BOA (stating that a delay in the 
compliance date ``would give additional time to attestation 
providers to obtain the necessary staff and resources to meet future 
demand and could help to reduce costs for registrants''); see also 
letter from Corteva (stating that a minimum one-year extension to 
the implementation deadlines set forth in the proposal ``would 
reduce the risk of reporting delays, give registrants further 
opportunities to improve data quality and internal control 
processes, and work with assurance providers to ensure a more 
productive assurance process'').
    \2859\ There can be barriers to entry due to consolidation 
around a few major assurance providers. See Gipper et al. (2023); 
see also discussion of similar concerns raised in the context of 
recent California laws, discussed infra note 3118 and accompanying 
text.
---------------------------------------------------------------------------

    Many commenters also pointed out the benefits of attestation 
reports covering the disclosure of registrants' Scope 1 and Scope 2 
emissions, including increased investor protection \2860\ and 
mitigation against the risk of potential greenwashing.\2861\ Academic 
research shows that voluntary assurance improves the quality of GHG 
emissions disclosures and CSR disclosures more generally,\2862\ and 
that investors perceive CSR disclosures to be more credible when they 
are accompanied by the assurance reports, regardless of the assurance 
level.\2863\ Broadly, academic research also suggests that the market 
values voluntary audits \2864\ and due to this demand firms voluntarily 
submit to audits.\2865\ Furthermore, practitioner evidence suggests 
that the demand for voluntary ESG assurance is increasing.\2866\ And 
while some registrants may meet this demand by obtaining voluntary 
assurance; others may not. Indeed, research shows that many firms do 
not obtain voluntary assurance,\2867\ and that assurance provided on a 
voluntary basis may vary widely in form and content.\2868\ Hence, we 
expect there to be benefits from requiring LAFs and AFs to provide the 
attestation reports covering their Scope 1 and/or Scope 2 emission

[[Page 21862]]

disclosures.\2869\ The assurance requirement in the final rules will 
require an independent third-party to provide a check on the accuracy 
and completeness of a registrant's GHG emissions disclosures before the 
information is provided to investors, which as explained above, will 
likely contribute to lowering the cost of capital and analyst forecast 
errors.\2870\ While the academic accounting literature, as one 
commenter has noted, has traditionally found that ``auditing assurance 
for corporate social responsibility in the US has not led to positive 
market effects,'' \2871\ more recent evidence on specifically carbon 
emissions assurance has revealed a positive link between external 
assurance of carbon emissions and market value.\2872\
---------------------------------------------------------------------------

    \2860\ See, e.g., letters from Better Markets; CAQ; and SFERS.
    \2861\ See, e.g., letters from BNP Paribas; and UAW Retiree. In 
response to one commenter who asserted a lack of factual evidence on 
the extensiveness of greenwashing (see Overdahl exhibit to letter 
from Chamber), we note that recent analysis shows greenwashing risk 
has accelerated. See RepRisk, On the Rise: Navigating the Wave of 
Greenwashing and Social Washing (Oct. 2023), available at https://www.reprisk.com/news-research/reports/on-the-rise-navigating-the-wave-of-greenwashing-and-social-washing.
    \2862\ See, e.g., letter from F. Berg; Brandon Gipper, et al., 
Carbon Accounting Quality: Measurement and the Role of Assurance, 
supra note 1243; B. Ballou, P.C. Chen, J.H. Grenier & D.L. Heitger 
(2018); L. Luo, Q. Tang, H. Fan & J. Ayers, Corporate Carbon 
Assurance and the Quality of Carbon Disclosure, 63 Acct. & Fin. 657 
(2023); W. Maroun, Does External Assurance Contribute to Higher 
Quality Integrated Reports?, 38 J. of Acct. and Public Policy 106670 
(2019); Corporate Social Responsibility Assurance and Reporting 
Quality: Evidence from Restatements, 37 J. of Acct. and Public 
Policy 167 (2018).
    \2863\ H. Hoang & K.T. Trotman, The Effect of CSR Assurance and 
Explicit Assessment on Investor Valuation Judgments, 40 Auditing: A 
J. of Practice & Theory 19 (2021).
    \2864\ See, e.g., C.S. Lennox & J.A. Pittman, Voluntary Audits 
Versus Mandatory Audits, 86 Acct. Rev. 1655 (2011); T. Bourveau, J. 
Brendel & J. Schoenfeld, Decentralized Finance (DeFi) Assurance: 
Audit Adoption and Capital Markets Effects (2023), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4457936 
(retrieved from SSRN Elsevier database).
    \2865\ See, e.g., T. Bourveau, M. Breuer, J. Koenraadt & R. 
Stoumbos, Public Company Auditing Around the Securities Exchange 
Act, Columbia Bus. School Rsch. Paper (revised Feb. 2023), available 
at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3837593.
    \2866\ See Center for Audit Quality, supra note 2716.
    \2867\ As of 2020, the voluntary assurance rate of ESG reports 
in the U.S. was 46%. Gipper et al. (2023).
    \2868\ For example, there was significant heterogeneity in the 
content of voluntary assurance reports over financial statements 
provided in the U.S. prior to the adoption of the mandatory audit 
requirements of the Exchange Act. See Bourveau, et al., supra note 
2865; Gipper et al. (2023) also document that there is a 
heterogeneity of the types of metrics being voluntarily assured, 
depending on the type of the assuror. For example, financial 
auditors tend to assure slightly more metrics (93%) than non-
financial assurers (89%). See Gipper et al. (2023), at Table IA-2.
    \2869\ See, e.g., Cohen, et al., supra note 2721; Ilhan et al. 
(2023).
    \2870\ See, e.g., Casey, et al., supra note 1207 (finding that 
corporate social responsibility (``CSR'') assurance results in lower 
cost-of-capital along with lower analyst forecast errors and 
dispersion, and that financial analysts find related CSR reports to 
be more credible when independently assured).
    \2871\ See Overdahl exhibit to letter from Chamber; see also 
Charles H. Cho, Giovanna Michelon, Dennis M. Patten & Robin W. 
Roberts, CSR Report Assurance in the USA: An Empirical Investigation 
of Determinants and Effects, 5 Sustainability Acct., Mgmt. and 
Policy J. 130 (2014).
    \2872\ Y. Shen, Z.W. Su, G. Huang, F. Khalid, M.B. Farooq & R. 
Akram, Firm Market Value Relevance of Carbon Reduction Targets, 
External Carbon Assurance and Carbon Communication, 11 Carbon Mgmt. 
549 (2020).
---------------------------------------------------------------------------

    Other commenters stated that there is a lack of expertise to meet 
the demand for required attestation services.\2873\ These commenters 
raised concerns that this lack of expertise, coupled with the proposed 
rules' requirements for assurance providers, would increase costs of 
obtaining assurance. Other commenters stated that they were opposed to 
the proposed assurance requirements because the requirements would 
preclude assurance providers from applying the ISO 14064-3 standards, 
which is the most common standard used by non-accountant assurance 
providers.\2874\ As discussed in the baseline, most companies that 
currently obtain some type of third-party verification or assurance do 
not obtain these services from accounting firms.\2875\ The proposed 
requirements would not have limited the scope of providers to 
accounting firms. However, the proposed requirements regarding the 
attestation standards would have prevented providers from using certain 
attestation standards widely used by non-accounting firm providers, 
such as ISO 14064-3, which could have resulted in providers needing to 
become familiar with different standards or registrants needing to 
change assurance providers, which would have increased the costs of 
obtaining assurance. The final rules address these concerns by 
modifying the requirements for the attestation standards such that an 
attestation report pursuant to the ISO 14064-3 standards will satisfy 
the requirements in the final rule.
---------------------------------------------------------------------------

    \2873\ See, e.g., letters from ABA; Amer. Chem.; Eversource; 
PPL; Soc. Corp. Gov.; Soros Fund (``Financial audits are different 
than climate disclosure audits and auditors do not have specific 
expertise to ensure the best outcomes.''); SouthState; and Sullivan 
Cromwell (``The number of qualified providers would likely be 
insufficient to meet the demand for their services prompted by the 
Proposed Rules, at least in the near term.'').
    \2874\ See, e.g., letter from Futurepast; see also section 
IV.A.5.e.
    \2875\ While this is true in the U.S., we note that in Europe 
and other parts of the world, accountants are the primary service 
provider. See IFAC, supra note 1089 (approximately 57% of 
engagements assurance reports were conducted by audit firms in 
2021).
---------------------------------------------------------------------------

    Commenters also asserted that assurance standards and methodologies 
are still evolving.\2876\ Consistent with these commenters' assertions, 
prior research shows that the field of sustainability assurance--which 
presumably encompasses the assurance over emissions disclosures--is 
fairly new and thus may not provide the same benefits as decades of 
financial audit practice.\2877\ While we acknowledge that the field of 
GHG emission assurance is still maturing, as discussed elsewhere, a 
number of registrants currently obtain voluntary assurance over their 
GHG emissions disclosures, which presumably they would not do if 
existing assurance standards were unworkable or did not meaningfully 
enhance the reliability of those disclosures. The final rules permit 
registrants to follow any attestation standards that are publicly 
available at no cost or that are widely used for GHG emissions 
assurance and that are established by a body or group that has followed 
due process procedures including the broad distribution of the 
framework for public comment. These conditions will help ensure that 
any standards used for GHG assurance services under the final rules are 
sufficiently developed to provide meaningful investor protection 
benefits, while still providing a degree of flexibility to registrants 
given the emerging nature of GHG assurance services. In addition, the 
final rules include a longer phase in period before LAFs and AFs are 
required to comply with the assurance requirements, which also provides 
additional time for standards and methodologies to further develop.
---------------------------------------------------------------------------

    \2876\ See, e.g., letters from ABA (``As the reporting and 
attestation standards develop further, a single standards-setting 
body emerges as the clear leader, and third parties begin to become 
qualified under these standards, the Commission can then assess 
whether an attestation standard is appropriate.''); Mid-Size Bank; 
Nasdaq (``To encourage disclosures while the attestation industry 
continues to mature, the Commission should eliminate the attestation 
requirement for Scope 1 and 2 emissions, and permit all issuers to 
disclose a voluntary attestation in accordance with proposed Item 
1505(e)(1-3) of Regulation S-K.''); SIFMA; and Tata Consultancy 
Services (June 17, 2022) (``We do not subscribe to the view that an 
attestation of reported emissions would be appropriate at such a 
nascent stage of adoption of climate-related disclosure standards 
and practices.'')
    \2877\ See K. Hummel, C. Schlick & M. Fifka, The Role of 
Sustainability Performance and Accounting Assurors in Sustainability 
Assurance Engagements, 154 J. of Bus. Ethics 733 (2019); M.B. Farooq 
& C. De Villiers, Sustainability Assurance: Who Are The Assurance 
Providers and What Do They Do?, Challenges in Managing Sustainable 
Business: Reporting, Taxation, Ethics, & Governance (S. Arvidsson, 
ed., 2019) (``Farooq and Villiers (2019)''); C. Larrinaga, et al., 
Institutionalization of the Contents of Sustainability Assurance 
Services: A Comparison Between Italy and United States, 163 J. of 
Bus. Ethics 67 (2020). Academic evidence also suggests that 
sustainability report restatements are positively associated with 
the presence of sustainability assurance reports. See G. Michelon, 
D.M. Patten & A.M. Romi, Creating Legitimacy for Sustainability 
Assurance Practices: Evidence from Sustainability Restatements, 28 
European Acct. Rev. 395 (2019). This finding is more pronounced 
``for error restatements than for restatements due to methodological 
updates.'' See also R. Hoitash & U. Hoitash, Measuring Accounting 
Reporting Complexity with XBRL, 93 Acct. Rev. 259 (2018) (finding 
misstatements are more likely in areas of reporting complexity).
---------------------------------------------------------------------------

    The final amendments also require the GHG emissions attestation 
report be prepared and signed by a GHG emissions attestation provider 
who is an expert in GHG emissions by virtue of having significant 
experience in measuring, analyzing, reporting, or attesting to GHG 
emissions. This provider must be independent with respect to the 
registrant, and any of its affiliates, for whom it is providing the 
attestation report, during the attestation and professional engagement 
period.
    The final rule's expertise requirement for attestation providers 
should enhance the overall benefits of obtaining GHG emissions 
assurance, consistent with academic research showing that industry 
specialist auditors deliver higher quality financial statement audits 
than non-specialist auditors \2878\ and that audit clients are willing 
to pay more for audit services of more experienced audit 
partners.\2879\
---------------------------------------------------------------------------

    \2878\ See, e.g., K.J. Reichelt & D. Wang, National and 
Office[hyphen]specific Measures of Auditor Industry Expertise and 
Effects on Audit Quality, 48 J. of Acct. Rsch. 647 (2010); W.R. 
Knechel, et al., The Demand Attributes of Assurance Services 
Providers and the Role of Independent Accountants, 10 Int'l J. of 
Auditing 143 (2006).
    \2879\ D. Aobdia, S. Siddiqui & A. Vinelli, Heterogeneity in 
Expertise in a Credence Goods Setting: Evidence from Audit Partners, 
26 Rev. of Acct. Stud. 693 (2021).

---------------------------------------------------------------------------

[[Page 21863]]

    Similarly, the final rules' independence requirement for 
attestation providers is consistent with the similar requirement that 
has long existed for financial statement auditors and will enhance the 
perceived credibility of the GHG emissions assurance.\2880\ Attestation 
providers that are not accountants may incur additional costs to 
familiarize themselves with these requirements.
---------------------------------------------------------------------------

    \2880\ See, e.g., M. DeFond & J. Zhang, A Review of Archival 
Auditing Research, 38 J. of Acct. & Econ. 275 (2014); W.R. Knechel 
et al., supra note 1206.
---------------------------------------------------------------------------

    The final rules also require LAFs and AFs to disclose, after 
requesting relevant information from any GHG emissions attestation 
provider as necessary, whether the GHG emissions attestation provider 
is subject to any oversight inspection program, and if so, which 
program (or programs) and whether the GHG emissions attestation 
engagement is included within the scope of authority of such oversight 
inspection program. While the final rules do not require that the GHG 
emissions attestation provider be subjected to mandatory oversight and 
inspection processes, disclosure of whether this is the case will 
provide investors with a better understanding of the qualifications of 
the GHG emissions attestation provider, which in turn will help them 
determine whether the assurance services have enhanced the reliability 
of the GHG emissions disclosure. For example, academic research shows 
that oversight inspections of financial statement audits by the PCAOB 
have significantly increased the credibility of the financial statement 
audits.\2881\ Similarly, in the context of inspections of PCAOB-
registered public accounting firms, academic literature suggests that 
engagement-specific PCAOB inspections may have spillover effects on 
non-inspected engagements.\2882\
---------------------------------------------------------------------------

    \2881\ See, e.g., B. Gipper, C. Leuz & M. Maffett, Public 
Oversight and Reporting Credibility: Evidence from the PCAOB Audit 
Inspection Regime, 33 Rev. of Fin. Stud. 4532 (2020); P.T. 
Lamoreaux, Does PCAOB Inspection Access Improve Audit Quality? An 
Examination of Foreign Firms Listed in the United States, 61 J. of 
Acct. & Econ. 313 (2016).
    \2882\ See, e.g., Aobdia, Impact, supra note 1555 (concluding 
that ``engagement-specific PCAOB inspections influence non-inspected 
engagements, with spillover effects detected at both partner and 
office levels'' and that ``the information communicated by the PCAOB 
to audit firms is applicable to non-inspected engagements''); 
Aobdia, Economic Consequences, supra note 1555 (concluding that 
``common issues identified in PCAOB inspections of individual 
engagements can be generalized to the entire firm, despite the PCAOB 
claiming its engagement selection process targets higher risk 
clients'' and that ``[PCAOB quality control] remediation also 
appears to positively influence audit quality'').
---------------------------------------------------------------------------

    Furthermore, the final rules require AFs and LAFs subject to Item 
1506(a) to disclose whether any GHG emissions attestation provider that 
was previously engaged to provide attestation over the registrant's GHG 
emissions disclosure for the fiscal year covered by the attestation 
report resigned (or indicated that it declined to stand for re-
appointment after the completion of the attestation engagement) or was 
dismissed. If so, the registrant is required to disclose certain 
information about whether there were any disagreements with the former 
GHG emissions attestation provider and to describe the disagreement. 
The registrant also must disclose whether it has authorized the former 
GHG emissions attestation provider to respond fully to the inquiries of 
the successor GHG emissions attestation provider concerning the subject 
matter of the disagreement. Due to the readily available nature of this 
information for registrants, we do not expect that it would be costly 
for registrants to include these disclosures in the filing that 
contains the GHG emissions disclosures and attestation report, when 
applicable. The disclosure of the existence of a disagreement in the 
event of the resignation or dismissal of the GHG emissions attestation 
provider will enable investors to assess the possible effects of such 
disagreement and whether it could have impacted the reliability of the 
GHG emissions disclosure, which, as discussed in Section II.H above, 
provides investors with information about a registrant's business, 
results of operations, and financial condition. This disclosure 
requirement also may limit a registrant's incentive to dismiss 
attestation providers that it views as unfavorable.\2883\
---------------------------------------------------------------------------

    \2883\ Registrants may have incentives to search for a favorable 
assurance conclusion or opinion, similar to those previously 
documented in the market for credit ratings. See P. Bolton, X. 
Freixas, & J. Shapiro, The Credit Ratings Game, 67 J. of Fin. 85 
(2012).
---------------------------------------------------------------------------

    In addition, the final rules require any registrant that is not 
required to include a GHG emissions attestation report pursuant to Item 
1506(a) to disclose certain information if the registrant's GHG 
emissions disclosure were voluntarily subjected to third-party 
assurance, which is consistent with the proposed rules and with the 
feedback provided by several commenters.\2884\ There is some academic 
evidence suggesting that the assurance approaches of accountants and 
non-accountants differ (thus potentially reducing comparability across 
what is being assured),\2885\ that firms choose accountants vs. non-
accountants as their GHG emissions assurance providers depending on 
their internal objectives,\2886\ and that market participants draw 
inferences from the attributes of the assurance providers.\2887\ We 
expect that greater disclosures about the nature of voluntarily 
obtained Scope 1 and Scope 2 emissions attestation reports will help 
investors determine whether the assurance services have enhanced the 
reliability of the GHG emissions disclosure.\2888\ However, the 
liability and accompanying litigation risk associated with including 
these disclosures in Commission filings could disincentivize some 
registrants from voluntarily obtaining assurance, particularly if they 
have lower confidence in the quality of the services performed. These 
concerns are mitigated to some extent with respect to liability under 
section 11 of the Securities Act by the final rules' amendment to Rule 
436, which provides that any description of assurance regarding a 
registrant's GHG emissions disclosures provided in accordance with Item 
1506(e) (i.e., assurance voluntarily obtained over GHG emissions 
disclosures) shall not be considered part of the registration statement 
prepared or certified by a person within the meaning of sections 7 and 
11 of the Securities Act.\2889\
---------------------------------------------------------------------------

    \2884\ See, e.g., letters from Amer. for Fin. Reform; Sunrise 
Project et al.; CEMEX; and C. Howard; see also letter from Chamber 
(opposing any mandatory assurance requirements but stating ``to the 
extent companies are obtaining assurances, the SEC's alternative 
that registrants disclose what types of assurance, if any, they are 
obtaining may be appropriate'').
    \2885\ Farooq and Villiers (2019), supra note 2877.
    \2886\ R. Datt, L. Luo & Q. Tang, Corporate Choice of Providers 
of Voluntary Carbon Assurance, 24 Int'l J. of Auditing 145 (2020).
    \2887\ G. Pflugrath, P. Roebuck & R. Simnett, Impact of 
Assurance and Assu'er's Professional Affiliation on Financial 
Analy'ts' Assessment of Credibility of Corporate Social 
Responsibility Information, 30 Auditing: A J. of Practice & Theory 
239 (2011). However, another study did not find that the investors 
cared whether a sustainability assurance provider was affiliated 
with the audit profession or not (see, e.g., R. Simnett, A. 
Vanstraelen & W.F. Chua, Assurance on Sustainability Reports: An 
International Comparison, 84 Acct. Rev. 937 (2009).
    \2888\ Academic research shows that the market trusts more 
voluntary disclosures by managers with established reputations for 
better accuracy or ``forthcomingness'' of such past disclosures. 
See, e.g., H.I. Yang, Capital Market Consequences of Managers' 
Voluntary Disclosure Styles, 53 J. of Acct. and Econ. 167 (2012); A. 
Beyer & R.A. Dye, Reputation Management and the Disclosure of 
Earnings Forecasts, 17 Rev. of Acct. Stud. 877 (2012); P.C. Stocken, 
Credibility of Voluntary Disclosure, RAND J. of Econ. 359 (2000).
    \2889\ See 17 CFR 230.436(i)(2); supra section II.I.5.c; see 
also supra section II.I.2.c. But see supra note 1397 (noting that 
amending Rule 436 to eliminate potential section 11 liability could 
``reduce the incentives for GHG emissions attestation providers to 
perform a thorough analysis and ensure that their attestation report 
. . . is true and that there was no omission to state a material 
fact required to be stated therein or necessary to make the 
statements therein not misleading'').

---------------------------------------------------------------------------

[[Page 21864]]

g. Risk Management Disclosure
    The final rules require a registrant to describe any processes it 
has for identifying, assessing, and managing material climate-related 
risks.\2890\ A registrant with such a process should address, as 
applicable, the following non-exclusive list of disclosure items: (1) 
how it identifies whether it has incurred or is reasonably likely to 
incur a material physical or transition risk; (2) how it decides 
whether to mitigate, accept, or adapt to the particular risk; and (3) 
how it prioritizes whether to address the climate-related risk. 
Furthermore, the final rules specify that registrants who manage a 
material climate-related risk must disclose whether and how their 
processes for identifying, assessing, and managing climate-related 
risks have been integrated into their overall risk management system or 
processes.
---------------------------------------------------------------------------

    \2890\ See 17 CFR 229.1503.
---------------------------------------------------------------------------

    These disclosures will allow investors to better assess the risk 
management processes registrants use to evaluate and address material 
climate-related risks that may have or are reasonably likely to have an 
impact on companies' operations and financial conditions. Climate-
related risks could impact companies' financial performance in a number 
of ways. For example, physical risks could result in asset impairments 
and business interruptions. Regulatory changes could render certain 
business plans less or unprofitable. Shifts in consumer preferences 
could increase or decrease demand for certain types of products. While 
some of these risks may be relatively straightforward to evaluate, 
others may require expertise and detailed knowledge about a company's 
business partners and operations. The risk management disclosures in 
the final rules will provide investors with a more detailed 
understanding of how a registrants' risk management systems identify, 
evaluate, and address climate-related risks, which could contribute to 
better-informed investment and voting decisions.\2891\
---------------------------------------------------------------------------

    \2891\ See letters from the Investment Company Institute (``We 
also support companies being required to disclose whether and how 
climate-related risks are integrated into the company's overall risk 
management system or processes. This disclosure should help 
investors assess how the company handles climate-related risk as 
compared to other risks.''); Vanguard (``We consider climate risks 
to be material and fundamental risks for investors and the 
management of those risks is important for price discovery and long-
term shareholder returns.''); and Calvert (``We support the SEC's 
mandated approach for registrants to describe processes for 
identifying, assessing and managing climate-related risks, including 
both physical and transition risks. In order for us to evaluate 
issuer risks properly, we need transparent disclosure that allows us 
to assess how companies are determining the materiality of climate-
related risks, including how they measure the potential scope and 
impact of an identified climate-related risk and how the risks 
identified in the disclosures relate back to that issuer's strategy, 
business model and outlook.'').
---------------------------------------------------------------------------

    As one example of how investors could use risk management 
disclosure, one commenter explained:``[we] identified a semi-conductor 
manufacturer as a more attractive investment when we learned it was 
diversifying its manufacturing locations to diversify its water 
sourcing.'' \2892\ However, a commenter also noted that ``[f]or a 
significant number of issuers, information is not sufficient to support 
equivalent analysis.'' \2893\ In this respect, requiring a registrant 
to describe its process for identifying, assessing, and managing 
material climate-related risks, such as water sourcing risks, will 
allow investors to more fully evaluate the drivers and outcomes of the 
registrant's risk management decisions. These disclosures will also 
benefit investors by providing context for the other disclosures 
required by the final rules. For example, investors can use these 
disclosures to better understand the steps a registrant took to 
identify material climate-related risks in the context of the 
registrant's disclosures about the types of material climate-related 
risks it faces.
---------------------------------------------------------------------------

    \2892\ See letter from Wellington.
    \2893\ Id.
---------------------------------------------------------------------------

    The requirement to disclose the extent to which a registrant's 
processes for identifying, assessing, and managing climate-related 
risks have been integrated into its overall risk management system or 
processes provision will help investors understand and assess the 
effectiveness of those climate risk management processes.
    There are many climate risk management approaches available to firm 
managers, ranging from divestment from certain suppliers to engagement 
with their business partners to hedging to incorporating climate risk 
into their financial planning.\2894\ To the extent that there is 
variation in risk management practices across registrants or such 
practices change over time, the final rules will allow investors to 
compare those risk management practices when making investment 
decisions.
---------------------------------------------------------------------------

    \2894\ See, e.g., Keely Bosn, Amelia Brinkerhoff, Katherine 
Cunningham & Shirui Li, Climate Risk Management: Strategies for 
Building Resilience to Climate Change in the Private Sector (2020), 
available at https://deepblue.lib.umich.edu/bitstream/handle/2027.42/154987/370%20Climate%20Risk%20Management_%20Zurich.pdf 
(documenting various divestment and planning strategies in managing 
climate-related risk among companies in the insurance and financial 
services industries).
---------------------------------------------------------------------------

    As discussed in section IV.C.3, we expect registrants to incur some 
additional compliance costs as a result of these disclosures; however, 
to limit the costs associated with these disclosures, we are not 
requiring several of the prescriptive elements found in the proposed 
rules, including a separate disclosure item on how a registrant 
determines how to mitigate any high priority risks.\2895\ While these 
disclosures may have been low cost to produce for some registrants that 
already create TCFD-compliant sustainability reports, we opted for a 
more flexible approach for the reasons discussed above. In providing 
that registrants only need to describe the process for identifying, 
assessing, and managing material climate-related risks, the final rules 
further limit the compliance costs for registrants. Nonetheless, 
registrants may still choose to include the details set forth in the 
proposed rules if they are relevant to their risk management practices.
---------------------------------------------------------------------------

    \2895\ For instance a registrant will not be required to 
disclose, as applicable, how it: (1) determines the relative 
significance of climate-related risks compared to other risks; (2) 
considers existing or likely regulatory requirements or policies, 
such as GHG emissions limits, when identifying climate-related 
risks; (3) considers shifts in customer or counterparty preferences, 
technological changes, or changes in market prices in assessing 
potential transition risks; or (4) determines the materiality of 
climate-related risks.
---------------------------------------------------------------------------

    Under the approach taken in the final rules, investors will benefit 
from a discussion tailored to the registrant's facts and circumstances. 
For example, registrants will be able to exclude information that they 
deem to be less relevant or useful to understanding the registrant's 
approach to managing material climate-related risks. However, this 
flexibility could potentially result in disclosures that are not fully 
comparable across registrants, which could reduce the benefits of this 
provision. The more flexible approach we are adopting could also reduce 
the risk that a registrant would have to disclose confidential 
information, a concern raised by some commenters.\2896\
---------------------------------------------------------------------------

    \2896\ See, e.g., letters from Cemex; Chief Execs. (noting that 
registrants may simply start making generic disclosures); AFPA; 
American AALA et al.; IADC; and Sullivan Cromwell.
---------------------------------------------------------------------------

    The benefits of the final rules will be lessened to the extent that 
this existing voluntary reporting overlaps in content with the required 
disclosures.\2897\ However, even in these cases, investors will benefit 
from having this

[[Page 21865]]

information set forth in a Commission filing, which will improve its 
reliability of this information and reduce search costs for investors. 
We also expect the final rules to address concerns expressed by 
commenters that existing voluntary disclosures are often deficient in 
terms of understandability, transparency, and detail.\2898\ Therefore, 
we expect the final rules will result in more consistent, comparable, 
and reliable information about registrants' risk management processes 
as compared to the baseline.
---------------------------------------------------------------------------

    \2897\ See supra section IV.A., particularly IV.A.5., for a 
discussion of existing trends in voluntary disclosure.
    \2898\ See letters from Bloomberg; and PRI.
---------------------------------------------------------------------------

h. Financial Statement Disclosures
i. Expenditure Disclosures
    The final rules require an issuer to disclose the following 
categories of expenditures: (1) expenditures expensed as incurred and 
losses resulting from severe weather events and other natural 
conditions; (2), capitalized costs and charges resulting from severe 
weather events and other natural conditions; and (3) if carbon offsets 
or RECs or certificates have been used as a material component of a 
registrant's plans to achieve its disclosed climate-related targets or 
goals, the aggregate amount of carbon offsets and RECs expensed, the 
aggregate amount of capitalized carbon offsets and RECs recognized, and 
the aggregate amount of losses incurred on the capitalized carbon 
offsets and RECs.\2899\ Under the final rules, a capitalized cost, 
expenditure expensed, charge, loss, or recovery results from a severe 
weather event or other natural condition when the event or condition is 
a ``significant contributing factor'' in incurring the capitalized 
costs, expenditure expensed, charge, loss, or recovery.\2900\
---------------------------------------------------------------------------

    \2899\ See 17 CFR 210.14-02(b), (c), (d) and (e).
    \2900\ See 17 CFR 210.14-02(g).
---------------------------------------------------------------------------

    The final rules require financial statement disclosures only if the 
capitalized costs, expenditures expensed, charges, and losses incurred 
as a result of severe weather events and other natural conditions 
exceed certain thresholds.\2901\ Specifically, a registrant will be 
required to disclose capitalized costs and charges incurred as a result 
of severe weather events or other natural conditions if the aggregate 
amount of the absolute value of capitalized costs and charges incurred 
is one percent or more of the absolute value of shareholders' equity or 
deficit, but no disclosure will be required if such amount is less than 
$500,000 for the relevant fiscal year.\2902\ Similarly, a registrant 
will be required to disclose expenditures expensed and losses incurred 
as a result of severe weather events and other natural conditions if 
the aggregate amount of such expenditures expensed and losses is one 
percent or more of the absolute value of income or loss before income 
tax expense (``pretax income''), but no disclosure will be required if 
such amount is less than $100,000 for the relevant fiscal year.\2903\ 
If the disclosure threshold is triggered, registrants will be required 
to disclose the aggregate amount of the capitalized costs, expenditures 
expensed, charges, and losses and identify where the amounts are 
presented in the income statement and the balance sheet.
---------------------------------------------------------------------------

    \2901\ See 17 CFR 210.14-02(b).
    \2902\ See 17 CFR 210.14-02(b)(2).
    \2903\ See 17 CFR 210.14-02(b)(1).
---------------------------------------------------------------------------

    We expect that disclosure of capitalized costs, expenditures 
expensed, charges, and losses incurred resulting from severe weather 
events and other natural conditions will enable investors to better 
assess the effects of these events and conditions (i.e., types of 
physical risks) on a registrant's financial position and financial 
performance. Better disclosures of physical risks can provide decision-
useful information to investors.\2904\ For example, one study found 
that a one standard deviation increase in exposure to heat stress is 
associated with a 40 basis point increase in yields on corporate 
bonds.\2905\ Another study found that stock price reactions to climate-
related risk disclosures in earnings calls are more negative for 
companies that have experienced a severe weather event in the 
quarter.\2906\
---------------------------------------------------------------------------

    \2904\ H. Hong, et al., supra note 2739.
    \2905\ Viral V. Acharya, Timothy Johnson, Suresh Sundaresan & 
Tuomas Tomunen, Is Physical Climate Risk Priced? Evidence From 
Regional Variation in Exposure to Heat Stress, Nat'l Bureau of Econ. 
Rsch., No. w304452022 (2022).
    \2906\ Brian Bratten & Sung-Yuan (Mark) Cheng, The Information 
Content of Managers' Climate Risk Disclosure (Sept. 2023), available 
at https://ssrn.com/abstract=4068992 (retrieved from SSRN Elsevier 
database).
---------------------------------------------------------------------------

    We anticipate that these financial statement disclosures will 
result in increased consistency and comparability relative to 
registrants' current disclosure practices. In particular, our decision 
to use a bright-line threshold will ensure that investors have access 
to decision-useful information for all registrants that have been 
meaningfully impacted by severe weather-related events and other 
natural conditions. Comparisons across registrants may enable investors 
to assess how different registrants manage and respond to severe 
weather events and other natural conditions, while comparisons over 
time will enable investors to evaluate how registrants are adapting to 
these types of events and conditions.
    A better understanding of registrants' exposure to severe weather 
events and other natural conditions will help individual investors 
manage their portfolio-level exposure to climate-related physical 
risks. Whereas some climate-related risks may be company-specific, 
others may be correlated across different registrants and across 
time.\2907\ The financial statement disclosures required by the final 
rules will provide investors with information to help assess which 
types of climate-related physical risks are company-specific, and 
therefore diversifiable, and which are not. This will better equip 
investors to limit their portfolio-level exposure to non-diversifiable 
climate-related physical risks by selecting companies less sensitive to 
any non-diversifiable risks related to severe weather events and other 
natural conditions.
---------------------------------------------------------------------------

    \2907\ See Acharya, et al., supra note 2905 (finding ``evidence 
that other dimensions of physical climate risk--estimated damages 
due to droughts, floods, hurricanes and sea level rise--have 
systematic asset pricing effects in these three asset classes. This 
is consistent with these risks being smaller economically and more 
idiosyncratic (i.e., diversifiable and/or insurable) compared to 
heat stress.'').
---------------------------------------------------------------------------

    The value of this financial statement information to assessing risk 
exposure depends in part on the extent to which past exposure to severe 
weather events or other natural conditions predicts future exposure to 
those events or conditions.\2908\ For example, commenters questioned 
the benefits of disclosures related to physical risks given their view 
that there is inherent uncertainty of trends in exposure.\2909\ 
However, other commenters indicated that a better understanding of the 
impact of past severe weather events would help them assess a 
registrant's exposure to physical risks going forward, and some 
commenters highlighted the value of having quantitative estimates of 
impacts.\2910\

[[Page 21866]]

We agree that discussion of past impacts could be informative. The 
required expenditure disclosures will help investors identify the 
relative magnitude of different risk trends in various types of risk 
over time. Moreover, historical data may help investors assess a 
company's response to severe weather events or other natural 
conditions. This will help investors assess a registrant's risk 
management and risk mitigation. This information will allow investors 
to better tailor their decisions to their own risk-tolerance.
---------------------------------------------------------------------------

    \2908\ See, e.g., Harrison Hong, Neng Wang & Jinqiang Yang, 
Mitigating Disaster Risks in the Age of Climate Change, Nat'l Bur. 
of Econ. Rsch. Working Paper No. w27066 (2020) (concluding that past 
exposure predicts future exposure); letter from AEI (expressing the 
opposite view); see also, Michael Barnett et al., Pricing 
Uncertainty Induced by Climate Change, 33 Rev. of Fin. Stud. 1024 
(2020).
    \2909\ See, e.g., letter from AEI.
    \2910\ See, e.g., letters from RMI (``Especially for physical 
risks, losses incurred may be indicative of chronic risk exposure 
(e.g., assets in areas that are drought-prone or exposed to sea 
level rise), or they may stem from acute climate impacts . . . it 
will be important for investors to have the information necessary to 
assess forward-looking risk exposures.''); Amer. Academy Actuaries 
(``Identification of material risks without sufficient quantitative 
disclosure of financial impact would not benefit investors, so 
investors want to understand the relative magnitude of various 
climate risks, track the size of various climate risks over time, 
and compare the climate risk of different registrants.'').
---------------------------------------------------------------------------

    In the context of the proposal, commenters expressed concern that 
these benefits will be lessened if reporting companies choose to apply 
the final rules in different ways.\2911\ For example, investors may 
mistakenly conclude that a registrant has a very high level of exposure 
to climate-related physical risks simply because the registrant takes a 
very inclusive approach to identifying ``severe weather events or other 
natural conditions.'' Different interpretations of which ``capitalized 
costs,'' ``expenditures expensed,'' ``charges,'' or ``losses'' are 
required to be disclosed by the final rules could similarly reduce the 
comparability benefits.\2912\ The final rules address this concern by 
narrowing the scope of the disclosures (as discussed below). Any 
differences in application may be relatively benign or they may be used 
strategically to highlight or downplay certain aspects of the effects 
on the registrant's financial statements. We expect the inclusion of 
these disclosures in the financial statements to mitigate these types 
of concerns, as the disclosures will be subject to ICFR and an audit by 
an independent registered public accounting firm. Moreover, we believe 
the final rules' requirement to disclose contextual information, such 
as a description of significant inputs and assumptions used, 
significant judgments made, and if applicable, policy decisions made by 
the registrant to calculate the specified disclosures, alongside the 
expenditures disclosures should help to mitigate the concerns discussed 
above by providing additional transparency and facilitating 
comparability,\2913\ although we note that some commenters were 
skeptical about the added value of contextual information in this 
respect.\2914\
---------------------------------------------------------------------------

    \2911\ See, e.g., letter from ACLI.
    \2912\ See, e.g., letter from Grant Thornton LLP (``The Final 
Rule should explain whether (a) capitalized costs consist only of 
costs associated with purchases of property, plant, and equipment, 
or (b) the definition is broader, including any costs initially 
recognized as a debit on the registrant's balance sheet, such as 
prepaid expenses.'').
    \2913\ See 17 CFR 210.14-02(a).
    \2914\ See, e.g., letter from ABA, Securities Law Comm.
---------------------------------------------------------------------------

    Several commenters highlighted comparability concerns resulting 
from ambiguities and uncertainty related to the definition of 
transition activities and the proposal's approach to attribution. For 
example, one commenter asked whether replacing a light bulb with an LED 
bulb would constitute a transition expense.\2915\ Another commenter 
asked how a registrant should identify the portion of a cost that could 
be attributable to drought.\2916\ These hypotheticals, and many others 
raised by commenters, are addressed by limiting the financial statement 
disclosures to the capitalized costs, expenditures expensed, charges, 
and losses incurred as a result of severe weather events and other 
natural conditions and the capitalized costs, expenditures expensed, 
and losses related to carbon offsets and RECs (instead of requiring the 
disclosure of expenditures related to transition activities generally 
in the financial statements) \2917\ and by the revised approach to 
attribution. However, we recognize that some issuers will apply the 
final rules differently than others. For example, several commenters 
pointed out that some registrants might consider a hurricane to be a 
severe weather event regardless of whether hurricanes are common to the 
area while others might base this assessment on whether a weather event 
is uncharacteristic or more severe than usual.\2918\ Although a more 
prescriptive requirement could increase comparability, it may do so at 
the expense of disclosure that is more decision-useful for investors 
for the reasons stated above.\2919\ We also expect comparability of the 
disclosures to improve over time as registrants gain more experience 
applying the disclosure thresholds and attribution standards and 
consensus emerges among registrants regarding best practices for 
compliance with the final rules.
---------------------------------------------------------------------------

    \2915\ See letter from Amazon.
    \2916\ See letter from ABA, Securities Law Comm.
    \2917\ Although we are requiring disclosure of material 
expenditures incurred and material impacts on financial estimates 
and assumptions that (i) ``in management's assessment, directly 
result from activities to mitigate or adapt to climate-related 
risks, including adoption of new technologies or processes'' (See 17 
CFR 229.1502(d)(2)); or (ii) ``occur as a direct result of the 
target or goal or the actions taken to make progress toward meeting 
the target or goal.'' (See 17 CFR 229.1504(c)(2)).
    \2918\ See, e.g., letter from PwC.
    \2919\ See id.
---------------------------------------------------------------------------

    In addition to reducing information asymmetry about the impact of 
severe weather events and other natural conditions, these disclosures 
will improve consistency and comparability relative to registrants' 
current disclosure practices. We are unable to quantify these benefits, 
and we are cognizant that registrants will exercise discretion in 
making their disclosures. Nevertheless, we expect comparability of the 
disclosures to improve over time as consensus emerges among registrants 
on best practices for compliance with the final rules.
    The benefits of the disclosures will also be reduced if the final 
rules result in disclosures that are not decision-useful to investors, 
for example if they represent a small portion of capitalized costs, 
expenditures expensed, charges, and/or losses. We believe that the 
final rules mitigate this risk by not requiring disclosure if the 
aggregate amount of the absolute value of the effects of severe weather 
events or other natural conditions is less than one percent of pretax 
income for income statement effects or of shareholders' equity for 
balance sheet effects.\2920\ However, we recognize the possibility that 
these thresholds may nonetheless result in some disclosure of 
information that is not decision-useful for investors, depending upon 
the facts and circumstances of the particular company, especially for 
companies with limited pretax income or shareholders' equity. Some 
commenters took issue with the use of absolute values for determining 
whether the disclosure threshold is triggered, explaining that if the 
net effect of an event is not material, it is not clear why the 
positive and negative components would be material.\2921\ Others had a 
contrary view and thought it was important to delineate the positive 
and negative effects to help protect against greenwashing.\2922\ Many 
commenters viewed a one percent threshold in the context of the 
financial statement disclosure to be too low.\2923\ The de minimis 
thresholds partially address this concern. For example, we estimate 
that in 2022, the de minimis value of $100,000 exceeded one percent of 
the absolute value of pretax income for approximately 17 percent of 
companies

[[Page 21867]]

and the de minimis value of $500,000 exceeded one percent of the 
absolute value of shareholders' equity for approximately 24 percent of 
companies.\2924\ Conversely, it is also possible that some disclosures 
that would have been decision-useful to investors may not meet the 
disclosure thresholds and therefore will not be required to be included 
in the note to the financial statements under the final rules.
---------------------------------------------------------------------------

    \2920\ The choice of a 1% threshold is consistent with what the 
Commission currently uses in other contexts for disclosure of 
certain items within the financial statements (e.g., Sec. Sec.  
210.5-03.1(a) and 210.12-13).
    \2921\ See, e.g., letter from Cemex.
    \2922\ See, e.g., letter from ClientEarth.
    \2923\ See, e.g., letter from Moody's.
    \2924\ Estimates are based on 2022 registrants (supra note 2578) 
and data from Compustat.
---------------------------------------------------------------------------

    The disclosure thresholds may also result in partial disclosures of 
the financial effects of severe weather events and other natural 
conditions. For example, if a registrant exceeds the income statement 
threshold, but not the balance sheet threshold, it is only required to 
disclose expenditures expensed as incurred and losses on the income 
statement and it need not disclose the effects on the balance sheet, if 
any. Some registrants may find it simplest to disclose how the severe 
weather event or natural condition affected both the income statement 
and balance sheet while others might limit their disclosure to the 
rules' requirements. If so, the disclosures could lead to confusion 
about, for example, how and whether the severe weather event affected 
the financial statements for which disclosure is not required. We 
acknowledge that in some circumstances this may result in investors 
only receiving a partial picture of the financial statement effects of 
a particular event or condition; however, we think that applying the 
disclosure threshold separately to the income statement and the balance 
sheet will be more straightforward for registrants to implement and 
therefore will help to limit the overall burden of the final rules. To 
the extent this is a concern for an issuer, there is nothing in the 
final rules that would prevent a registrant from disclosing how the 
severe weather event or other natural condition affected both the 
income statement and balance sheet, even if the disclosure threshold 
for one of the financial statements is not triggered.
    Some commenters raised the possibility that the financial statement 
disclosures could confuse or distract investors from other factors that 
contribute meaningfully to the financial statements.\2925\ We believe 
our decision to limit the scope of disclosure to expenditures resulting 
from severe weather events and other natural conditions should mitigate 
these concerns.\2926\ Furthermore, the fact that the information is 
tagged in Inline XBRL will facilitate an investor's ability to extract 
and sort the information that the investor deems more useful.\2927\
---------------------------------------------------------------------------

    \2925\ See, e.g., letter from API stating (``The flood of 
information and the presumed importance that would attach to it by 
virtue of the SEC's mandate could easily distract investors from 
equally important or more topically relevant material information 
that a registrant discloses.'').
    \2926\ The final rules are not the only place where 
disaggregated disclosure is required. We note that U.S. GAAP and 
IFRS require the disaggregation of certain information on the face 
of the financial statements or in the notes to the financial 
statements. For example, FASB ASC Topic 220 Income Statement--
Reporting Comprehensive Income requires the nature and financial 
effects of each event or transaction that is unusual in nature or 
occurs infrequently to be presented separately in the income 
statement or in the notes to the financial statements. See ASC 220-
20-50-1.
    \2927\ See infra section IV.C.2.ix.
---------------------------------------------------------------------------

    Many commenters raised concerns about registrants' ability to 
isolate or attribute particular costs or expenses to severe weather 
events and other natural conditions or to transition activities, 
explaining it would be complicated and costly.\2928\ We believe that 
this cost is largely mitigated by the attribution principle included in 
the final rules, which requires registrants to disclose the entire 
capitalized cost, expenditure expensed, charge, or loss, provided that 
a severe weather event or other natural condition was a ``significant 
contributing factor'' to incurring the expense.
---------------------------------------------------------------------------

    \2928\ See, e.g., letter from BOA.
---------------------------------------------------------------------------

    The requirement in the final rules to disclose where in the income 
statement or the balance sheet the disclosed expenditures expensed, 
capitalized costs, charges, and losses are presented could result in 
some incremental compliance costs. However, the expenditures expensed, 
capitalized costs, charges, and losses subject to disclosure are all 
captured in the books and records of the registrant and are measured 
and recognized in accordance with GAAP, such that concerns commenters 
raised about needing to develop and test new systems to track line-item 
impacts of climate-related expenses should be substantially mitigated 
under the final rules, relative to the proposed rules.\2929\
---------------------------------------------------------------------------

    \2929\ See, e.g., letter from Amer. Bankers.
---------------------------------------------------------------------------

    Many commenters expressed concerns with the proposed one percent 
disclosure thresholds as discussed in detail in section II.K.2.b.ii. 
Some of these commenters specifically highlighted that registrants 
would have challenges estimating or determining one percent of the 
individual line items before period end, which would require the 
tracking of all financial impacts and expenditures throughout the 
reporting period.\2930\ In response to these commenters' 
feedback,\2931\ the final rules do not require the disclosure of the 
proposed Financial Impact Metrics, which would have required the 
disclosure of financial impacts (and the determination of whether the 
disclosure threshold was met) on a line-by-line basis. Instead, the 
final rules focus on the disclosure of discrete expenditures and 
require the disclosure threshold to be calculated once for impacts to 
the income statement and once for impacts to the balance sheet using as 
the denominator income or loss before income tax expense or benefit and 
shareholders' equity or deficit, respectively. In addition to reducing 
the number of calculations that are necessary to determine whether 
disclosure is required as compared to the proposal, as discussed above 
in section II.K.3.c.ii, we believe that simplifying the threshold in 
this manner will give registrants the ability to estimate the amount or 
magnitude of these denominators earlier in the fiscal year, as compared 
to the proposed rules. As a result, the burdens on registrants 
associated with the final rules will be much less than they would have 
been under the proposed disclosure thresholds. That said, we recognize 
that registrants may need to track their expenditures expensed, 
capitalized costs, charges, and losses incurred as a result of severe 
weather events throughout the year to comply with the final rules.
---------------------------------------------------------------------------

    \2930\ See, e.g., letter from ABA, Securities Law Comm.
    \2931\ See section II.K.c.2.
---------------------------------------------------------------------------

    Any differences in application of the rules that are not fully 
addressed by subjecting the disclosures to third-party audits could 
also introduce some incremental legal and compliance costs. For 
example, registrants may face some litigation risk stemming from their 
classification of expenditures. As above, we expect some of these costs 
to decrease over time as registrants gain experience applying the final 
rules and best practices emerge for application of the final rules.
    The final rules also require that a registrant disclose, as part of 
the required contextual information, recoveries resulting from severe 
weather events and natural conditions, if they are required to disclose 
capitalized costs, expenditures expensed, charges, or losses incurred 
resulting from the same severe weather events or natural conditions. 
This provision will allow investors to better understand the net impact 
of severe weather events.

[[Page 21868]]

    Finally, the rules also require disclosure of expenditures 
expensed, capitalized costs, and losses resulting from the purchase and 
use of carbon offsets and RECs if carbon offsets or RECs have been used 
as a material component of a registrant's plans to achieve its 
disclosed climate-related targets or goals. As discussed in more detail 
in section IV.C.2.d, providing investors with disclosure regarding 
expenditures resulting from a registrant's purchase and use of carbon 
offsets and RECs will allow investors to better understand the 
registrant's approach to meeting its targets or goals and any 
applicable requirements set by other regulators.\2932\ These 
disclosures could introduce some incremental compliance and audit 
costs, but we expect these costs to be relatively small as these 
expenditures expensed, capitalized costs, and losses are discrete and 
easily identifiable.
---------------------------------------------------------------------------

    \2932\ See, e.g., letters from Amer. For Fin. Reform; and 
Sunrise Project et al.
---------------------------------------------------------------------------

ii. Contextual Information, Historical Periods, and Other Requirements
    The final rules require registrants to provide contextual 
information, to accompany the financial statement disclosures of 
expenditures expensed as incurred losses and resulting from severe 
weather events and other natural conditions, capitalized costs and 
charges resulting from severe weather events and other natural 
conditions, and, if carbon offsets or renewable energy credits or 
certificates have been used as a material component of a registrant's 
plants to achieve its disclosed targets or goals, the aggregate among 
of carbon offsets and renewable energy credits or certificates 
expensed, the aggregate amount of capitalized carbon offsets and 
renewable energy credits or certificates recognized, and the aggregate 
amount of losses incurred on the capitalized carbon offsets and 
renewable energy certificates or credits.\2933\ This information will 
explain the basis for the financial statement disclosures, including a 
description of any significant inputs and assumptions used, significant 
judgments made to calculate the disclosures, and other information that 
is important to an investor's understanding of the financial statement 
effects. The rules further require that a registrant use financial 
information that is consistent with the scope of its consolidated 
financial statements and apply the same accounting principles that it 
is required to apply in the preparation of its consolidated financial 
statements.
---------------------------------------------------------------------------

    \2933\ See 17 CFR 210.14-02(a).
---------------------------------------------------------------------------

    Collectively, the inclusion of contextual information and the 
presentation of financial statement disclosures that are consistent 
with the rest of the financial statements should improve investors' 
ability to understand and compare registrants' financial statement 
effects. Several commenters agreed with this rationale for providing 
contextual information.\2934\
---------------------------------------------------------------------------

    \2934\ See, e.g., letters from Airlines for America; and IATA.
---------------------------------------------------------------------------

    It is possible that some disclosures of contextual information may 
be of limited usefulness to investors in understanding the financial 
statement effects. Likewise, some registrants may provide disclosures 
with a level of detail that investors deem immaterial. Ultimately, the 
level of detail important to understand a particular registrant's 
disclosure of the financial statement effects and thus necessary for 
compliance with the final rules will depend on the specific facts and 
circumstances faced by that registrant. We therefore believe that the 
flexibility provided in the final rules achieves the benefits of 
eliciting disclosures that are both comparable and most likely to be 
relevant to investors' understanding of the registrant's financial 
statement disclosures, without imposing significant additional costs on 
registrants and the investors who use the disclosures. This conclusion 
is supported by commenters' reactions to the proposal, which were 
generally supportive of the requirement to provide contextual 
information.\2935\
---------------------------------------------------------------------------

    \2935\ See section II.K.6.a
---------------------------------------------------------------------------

    In a change from the proposal, the final rules require the 
presentation of the financial statement disclosures on a prospective 
basis only. That is, the final rules require registrants to provide 
disclosure for the registrant's most recently completed fiscal year, 
and to the extent previously disclosed or required to be disclosed, for 
the historical fiscal year(s) included in the consolidated financial 
statements in the filing. This approach will lower the initial 
compliance costs of the rule, although investors will not immediately 
benefit from the ability to make year-over-year comparisons of the 
financial statement effects.
iii. Financial Estimates and Assumptions
    The final rules require registrants to disclose whether the 
estimates and assumptions the registrant used to produce the 
consolidated financial statements were materially impacted by exposures 
to risks and uncertainties associated with, or known impacts from, 
severe weather events and other natural conditions, such as hurricanes, 
tornadoes, flooding, drought, wildfires, extreme temperatures, and sea 
level rise, or any climate-related targets or transition plans 
disclosed by the registrant.\2936\
---------------------------------------------------------------------------

    \2936\ See 17 CFR 210.14-02(b)(h).
---------------------------------------------------------------------------

    These disclosures will provide investors with information as to the 
sensitivity of the financial information to climate-related risks, as 
explained by some commenters.\2937\ Consider, for example, a registrant 
that recently disclosed a net-zero emissions target. Investors could 
benefit from understanding how that target impacted the assumptions and 
estimates that went into the preparation of the registrant's financial 
statements. This benefit, as well as any costs of the provision, will 
be lessened if registrants would have disclosed the impact of these 
events, conditions, targets, or plans on their financial estimates and 
assumptions regardless of the adoption of the final rules.\2938\
---------------------------------------------------------------------------

    \2937\ See, e.g., letter from IAA.
    \2938\ See, e.g., letter from TotalEnergies.
---------------------------------------------------------------------------

iv. Inclusion of Climate-Related Disclosures in the Financial 
Statements
    The required disclosures must be included in a note to the 
financial statements and thus audited by an independent registered 
public accounting firm in accordance with existing Commission rules and 
PCAOB auditing standards.\2939\ Subjecting these financial statement 
disclosures to reasonable assurance pursuant to an audit will subject 
these disclosures to the same financial statement audit and ICFR as 
similar financial disclosures, which will alleviate possible concerns 
about the consistency, quality, and reliability of the financial 
statement disclosures and thereby provide an important benefit to 
investors.\2940\ Assurance can increase the relevance and reliability 
of disclosures.\2941\ In addition, by including the required 
disclosures in the financial statements,

[[Page 21869]]

they will be subject to a registrant's ICFR and the requirement for 
management to establish and maintain an adequate control structure and 
provide an annual assessment of the effectiveness of ICFR.\2942\ 
Furthermore, for AFs and LAFs, the registrant's independent auditor 
must attest to, and report on, management's assessment of the 
effectiveness of the registrant's ICFR.\2943\ Effective ICFR can reduce 
the risk of material misstatements to the financial statements and 
thereby enhance the reliability and improve investor confidence in the 
disclosure.
---------------------------------------------------------------------------

    \2939\ See 17 CFR 210.14-01(a).
    \2940\ See section II.K.1.
    \2941\ See DeFond et al., supra note 2880; V.K. Krishnan, The 
Association Between Big 6 Auditor Industry Expertise and the 
Asymmetric Timeliness of Earnings, 20 J. of Acct., Auditing and Fin. 
209 (2005); W. Kinney & R. Martin, Does Auditing Reduce Bias in 
Financial Reporting? A Review of Audit-Related Adjustment Studies, 
13 Auditing: A J. of Practice & Theory 149 (1994); K.B. Behn, J.H. 
Choi & T. Kang, Audit Quality and Properties of Analyst Earnings 
Forecasts, 83 Acct. Rev. 327 (2008). Some commenters expressed 
similar views. See, e.g., letters from CAQ; Ceres; Impax Asset 
Mgmt.; San Francisco Employees' Retirement System; and UNEP-FI.
    \2942\ See 17 CFR 210.13a-15, 210.15d-15.
    \2943\ See 15 U.S.C. 7262.
---------------------------------------------------------------------------

    Inclusion of these disclosures in the financial statements will 
increase the compliance costs of the final rules as audit firms will 
need to apply sufficient appropriate audit procedures to the 
application of the rules to each registrant's circumstances. However, 
we believe these increased costs will be limited because the final 
rules will require disclosure of capitalized costs, expenditures 
expensed, charges, and losses that are already required to be recorded 
in a registrant's financial statements. The incremental compliance 
costs will be due to the requirement to separately disaggregate and 
disclose these costs, expenditures, charges, and losses in the notes to 
the financial statements.\2944\ Over time, we expect audits of these 
disclosures will become more streamlined and therefore the costs 
associated with these disclosures should also decrease. We discuss 
these costs in detail in section IV.C.3.
---------------------------------------------------------------------------

    \2944\ The incremental costs include the disclosure of financial 
statement estimates and assumptions materially impacted by severe 
weather events and other conditions or disclosed targets or 
transition plans; however, we believe these incremental costs will 
be minimal.
---------------------------------------------------------------------------

i. Structured Data Requirement
    Under the final rules, the new climate-related disclosures will be 
required to be tagged in the Inline XBRL structured data language on a 
phased in basis.\2945\ The provision requiring Inline XBRL tagging of 
climate-related disclosures will benefit investors by making those 
disclosures more readily available for aggregation, comparison, 
filtering, and other enhanced analytical methods.\2946\ These benefits 
are expected to reduce search costs and substantially improve 
investors' information-processing efficiency.\2947\ Structured data 
requirements for public company financial statement disclosures have 
been observed to reduce information-processing costs, thereby 
decreasing information asymmetry and increasing transparency by 
incorporating more company-specific information into the financial 
markets.\2948\ In addition, the Inline XBRL requirement for the 
climate-related disclosures will further limit agency problems, as 
requirements for financial statement tagging have been observed to 
facilitate external monitoring of registrants through the 
aforementioned reduction of information processing costs.\2949\
---------------------------------------------------------------------------

    \2945\ See 17 CFR 229.1508; 17 CFR 232.405. LAFs must begin 
complying with the disclosure requirements in filings covering 
fiscal year 2025 and must comply with the tagging requirements in 
filings covering fiscal year 2026. Other categories of filers must 
comply with the tagging requirements upon their initial compliance 
with the climate disclosure rules. For example, AFs must comply with 
tagging requirements when they first provide climate disclosures in 
filings covering fiscal year 2026. See section II.N.
    \2946\ See Darren Bernard, Elizabeth Blankespoor, Ties de Kok & 
Sara Toynbee, Confused Readers: A Modular Measure of Business 
Complexity (June 15, 2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4480309 (retrieved from SSRN Elsevier 
database) (developing an algorithm mimicking a sophisticated general 
user of financial statements by training it on a random sample of 
sentences with inline XBRL tags to understand a large corpus of 
numerical concepts based on surrounding text).
    \2947\ The findings on XBRL cited in the following paragraphs 
are not necessarily focused on climate-related disclosures and 
metrics, but we expect the findings to be generally applicable and 
to result in similar benefits for investors.
    \2948\ See, e.g., Y. Cong, J. Hao & L. Zou, The Impact of XBRL 
Reporting on Market Efficiency, 28 J. Info. Sys. 181 (2014) (finding 
support for the hypothesis that ``XBRL reporting facilitates the 
generation and infusion of idiosyncratic information into the market 
and thus improves market efficiency''); Y. Huang, J.T. Parwada, Y.G. 
Shan & J. Yang, Insider Profitability and Public Information: 
Evidence From the XBRL Mandate (working paper, 2019) (finding XBRL 
adoption levels the informational playing field between insiders and 
non-insiders); J. Efendi, J.D. Park & C. Subramaniam, Does the XBRL 
Reporting Format Provide Incremental Information Value? A Study 
Using XBRL Disclosures During the Voluntary Filing Program, 52 
Abacus 259 (2016) (finding XBRL filings have larger relative 
informational value than HTML filings); J. Birt, K. Muthusamy & P. 
Bir, XBRL and the Qualitative Characteristics of Useful Financial 
Information, 30 Acct. Res. J. 107 (2017) (finding ``financial 
information presented with XBRL tagging is significantly more 
relevant, understandable and comparable to non-professional 
investors''); S.F. Cahan, S. Chang, W.Z. Siqueira & K. Tam, The 
Roles of XBRL and Processed XBRL in 10-K Readability, J. Bus. Fin. 
Acct. (2021) (finding Form 10-K file size reduces readability before 
XBRL's adoption since 2012, but increases readability after XBRL 
adoption, indicating ``more XBRL data improves users' understanding 
of the financial statements'').
    \2949\ See, e.g., P.A. Griffin, H.A. Hong, J.B. Kim & J.H. Lim, 
The SEC's XBRL Mandate and Credit Risk: Evidence on a Link Between 
Credit Default Swap Pricing and XBRL Disclosure, 2014 American 
Accounting Association Annual Meeting (2014) (attributing the 
negative association between XBRL information and credit default 
swap spreads to ``(i) a reduction in firm default risk from better 
outside monitoring and (ii) an increase in the quality of 
information about firm default risk from lower information cost''); 
J.Z. Chen, H.A. Hong, J.B. Kim & J.W. Ryou, Information Processing 
Costs and Corporate Tax Avoidance: Evidence from the SEC's XBRL 
Mandate, 40 J. Acct. Pub. Pol. (2021) (finding XBRL reporting 
decreases likelihood of company tax avoidance, because ``XBRL 
reporting reduces the cost of IRS monitoring in terms of information 
processing, which dampens managerial incentives to engage in tax 
avoidance behavior'').
---------------------------------------------------------------------------

    Investors with access to XBRL analysis software may directly 
benefit from the availability of the climate-related disclosures in 
Inline XBRL, whereas other investors may indirectly benefit from the 
processing of Inline XBRL disclosures by asset managers and by 
information intermediaries such as financial analysts.\2950\ In that 
regard, XBRL requirements for public company financial statement 
disclosures have been observed to increase the number of companies 
followed by analysts, decrease analyst forecast dispersion, and, in 
some cases, improve analyst forecast accuracy.\2951\ Should similar 
impacts on the analysts' informational environment arise from climate-
related disclosure tagging requirements, this will likely benefit 
retail investors, who have generally been observed to rely on analysts' 
interpretation of financial disclosures rather than directly

[[Page 21870]]

analyzing those disclosures themselves.\2952\
---------------------------------------------------------------------------

    \2950\ Additional information intermediaries that have used XBRL 
disclosures may include financial media, data aggregators and 
academic researchers. See, e.g., Nina Trentmann, Companies Adjust 
Earnings for Covid-19 Costs, But Are They Still a One-Time Expense?, 
The Wall Street Journal (2020), available at https://www.wsj.com/articles/companies-adjust-earnings-for-covid-19-costs-but-are-they-still-a-one-time-expense-11600939813 (retrieved from Factiva 
database) (citing XBRL research software provider Calcbench as data 
source); Bloomberg Lists BSE XBRL Data, XBRL (2018), available at 
https://www.xbrl.org/news/bloomberg-lists-bse-xbrl-data/; R. Hoitash 
& U. Hoitash, supra note 2877. See 2019 Pension Review First Take: 
Flat to Down, Goldman Sachs Asset Management (2020) (an example of 
asset manager use of XBRL data), available at https://www.gsam.com/content/dam/gsam/pdfs/common/en/public/articles/2020/2019_Pension_First_Take.pdf (citing XBRL research software provider 
Idaciti as a data source).
    \2951\ See, e.g., A.J. Felo, J.W. Kim & J. Lim, Can XBRL 
Detailed Tagging of Footnotes Improve Financial Analy'ts' 
Information Environment?, 28 Int'l J. Acct. Info. Sys. 45 (2018); Y. 
Huang, Y.G. Shan & J.W. Yang, Information Processing Costs and Stock 
Price Informativeness: Evidence from the XBRL Mandate, 46 Aust. J. 
Mgmt. 110 (2020) (finding ``a significant increase of analyst 
forecast accuracy post-XBRL''); M. Kirk, J. Vincent & D. Williams, 
From Print to Practice: XBRL Extension Use and Analyst Forecast 
Properties (working paper, 2016) (finding ``the general trend in 
forecast accuracy post-XBRL adoption is positive''); C. Liu, T. Wang 
& L.J. Yao, XBRL's Impact on Analyst Forecast Behavior: An Empirical 
Study, 33 J. Acct. Pub. Pol. 69 (2014) (finding ``mandatory XBRL 
adoption has led to a significant improvement in both the quantity 
and quality of information, as measured by analyst following and 
forecast accuracy''). But see S.L. Lambert, K. Krieger & N. Mauck, 
Analysts' Forecasts Timeliness and Accuracy Post-XBRL, 27 Int'l. J. 
Acct. Info. Mgmt. 151 (2019) (finding significant increases in 
frequency and speed of analyst forecast announcements, but no 
significant increase in analyst forecast accuracy post-XBRL).
    \2952\ See, e.g., A. Lawrence, J. Ryans & E. Sun, Investor 
Demand for Sell-Side Research, 92 Acct. Rev. 123 (2017) (finding the 
``average retail investor appears to rely on analysts to interpret 
financial reporting information rather than read the actual 
filing''); D. Bradley, J. Clarke, S. Lee & C. Ornthanalai, Are 
Analyts' Recommendations Informative? Intraday Evidence on the 
Impact of Time Stamp Delays, 69 J. Fin. 645 (2014) (concluding 
``analyst recommendation revisions are the most important and 
influential information disclosure channel examined'').
---------------------------------------------------------------------------

    With respect to the Inline XBRL tagging requirements, various 
preparation solutions have been developed and used by operating 
companies to fulfill their structuring requirements, and some evidence 
suggests that, for smaller companies, XBRL compliance costs have 
decreased over time.\2953\ One commenter, in opposing the proposed 
Inline XBRL requirements, stated that the requirements would increase 
costs for registrants.\2954\ While we acknowledge that costs for 
registrants will increase as a result of the tagging requirements, this 
increase should be mitigated by the fact that filers subject to the 
final rules are already subject to Inline XBRL requirements for other 
disclosures in Commission filings, including financial statement 
disclosures and disclosures outside the financial statements.\2955\ As 
such, the final rules do not impose Inline XBRL compliance requirements 
on filers that would otherwise not be subject to such requirements, and 
filers may be able to leverage existing Inline XBRL preparation 
processes and/or expertise in complying with the climate-related 
disclosure tagging requirements.
---------------------------------------------------------------------------

    \2953\ An AICPA survey of 1,032 reporting companies with $75 
million or less in market capitalization in 2018 found an average 
cost of $5,476 per year, a median cost of $2,500 per year, and a 
maximum cost of $51,500 per year for fully outsourced XBRL creation 
and filing, representing a 45% decline in average cost and a 69% 
decline in median cost since 2014. See AICPA, XBRL Costs for Small 
Reporting Companies Have Declined 45% Since 2014 (2018), available 
at https://us.aicpa.org/content/dam/aicpa/interestareas/frc/accountingfinancialreporting/xbrl/downloadabledocuments/xbrl-costs-for-small-companies.pdf; see also letter from Nasdaq; Request for 
Comment on Earnings Releases and Quarterly Reports, Release No. 33-
10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)] (stating that a 
2018 Nasdaq survey of 151 listed registrants found an average XBRL 
compliance cost of $20,000 per quarter, a median XBRL compliance 
cost of $7,500 per quarter, and a maximum, XBRL compliance cost of 
$350,000 per quarter in XBRL costs).
    \2954\ See letter from Alliance Resource.
    \2955\ See 17 CFR 229.601(b)(101); 17 CFR 232.405; see also 17 
CFR 229.601(b)(104); 17 CFR 232.406 for requirements related to 
tagging cover page disclosures in Inline XBRL. Beginning in July 
2024, filers of most fee-bearing forms will also be required to 
structure filing fee information in Inline XBRL. The Commission will 
provide an optional web tool that will allow filers to provide those 
tagged disclosures without the use of Inline XBRL compliance 
services or software; see 17 CFR 229.601(b)(107); 17 CFR 232.408; 
Filing Fee Disclosure and Payment Methods Modernization, Release No. 
33-10997 (Oct. 13, 2021) [86 FR 70166 (Dec. 9, 2021)].
---------------------------------------------------------------------------

    Many commenters agreed that the proposed structuring requirement 
would enable more efficient data processing and more informed 
investment decisions.\2956\ One commenter noted that tagging the new 
disclosures in Inline XBRL would, by allowing the disclosed information 
to be more readily incorporated into investors' analyses, promote the 
efficiency of the U.S. capital markets.\2957\ Another commenter stated 
that tagging the new disclosures would offer significant benefits to 
both institutional and retail investors.\2958\ A different commenter 
indicated that the tagging requirement should enable investors to 
compare the adequacy of risk analysis and mitigation planning among 
registrants in the same economic sector.\2959\
---------------------------------------------------------------------------

    \2956\ See letters from Crowe LLP; Institute of Internal 
Auditors; Data Foundation; Arcadia Power, Climate & Company; 
MovingWorlds; Rho Impact; Trakref; Bloomberg; London Stock Exchange 
Group; Morningstar; MSCI; AIMCo et al.; CalPERS; Can. Coalition GG; 
Church Investment Group; CII; PRI; SCERS; Treehouse Invest.; 
Research Affiliates; Cedar Street Asset Management; Ceres; Corbel 
Capital Partners; Decatur Capital Management; Nordea Asset 
Management; Ethic; First Eagle; Impact Capital Managers; ICI; ICSWG; 
Liontrust; Nipun Capital; and Prime Buchholz.
    \2957\ See letter from Climate Advisers.
    \2958\ See letter from CFA.
    \2959\ See letter from IATP.
---------------------------------------------------------------------------

    One commenter questioned the benefits of requiring the new 
disclosures to be structured by asserting that investors and market 
participants who need to extract and analyze the disclosures required 
under subpart 1500 of Regulation S-K can perform the same search 
manually by using the appropriate Item reference as is done for current 
searches.\2960\ However, the availability of such disclosures in a 
machine-readable form will allow for search and retrieval of 
disclosures on an automated, large-scale basis, greatly increasing the 
efficiency of information acquisition as compared to manual searches 
through unstructured formats.\2961\
---------------------------------------------------------------------------

    \2960\ See letter from AFPM.
    \2961\ See, e.g., Joung W. Kim & Jee Hae Lim, The Impact of 
XBRL-tagged Financial Notes on Information Environment, The 2015 
Annual Summer/International Conference-Korean Accounting Association 
(2015) (finding block and detail tagging of financial statement 
footnotes in XBRL filings improve the readability of 10-K filings 
and the explanatory power of certain accounting figures like net 
income and book value of equity on stock price).
---------------------------------------------------------------------------

    Other commenters expressed concern that the potential for excessive 
use of extensions (i.e., custom tags) would detract from the 
aforementioned benefits of structured data.\2962\ We agree that the 
inappropriate use of custom tags hinders the benefits of tagging. 
However, we do not believe the final rules will result in an excessive 
use of custom tags, because filers will be prohibited from using custom 
tags unless there is no suitable standard tag for their disclosure in 
the related climate taxonomy, which the Commission will publish before 
the tagging compliance date.\2963\ The climate taxonomy will contain 
standard tags that cover each new disclosure provision, so we do not 
expect custom tagging for climate disclosures will be excessive. Also, 
as discussed above, the one-year transition period for tagging 
requirements will enable the climate taxonomy development process to 
leverage samples of climate disclosures in Commission filings to 
further build out the list of standard tags and adapt to common 
disclosure practices. This should further reduce the likelihood of 
excessive custom tags and thus improve data quality.\2964\ Such 
improvement in data quality will come at the cost of data users having 
one less year of tagged climate disclosures, making the climate 
disclosures filed during that year more difficult to analyze 
efficiently.
---------------------------------------------------------------------------

    \2962\ See letters from BHP; Morningstar; and Ethic.
    \2963\ See 17 CFR 232.405(c)(1)(iii)(B). Studies have found 
informational benefits resulting from the proper use of custom tags. 
See, e.g., Joseph Johnston, Extended XBRL Tags and Financial 
Analysts' Forecast Error and Dispersion, 34 J. of Info. Sys. 105 
(Sept. 2020) (finding custom tags to be ``robustly negatively 
related to analysts' forecast error and dispersion'').
    \2964\ See supra section II.O.
---------------------------------------------------------------------------

3. Quantifiable Direct Costs on Registrants
    In this section, we attempt to quantify the direct costs of 
compliance for registrants that will be impacted by the final 
rules.\2965\ These costs could be incurred internally (e.g., through 
employee hours or hiring additional staff) or externally (e.g., via 
third-party service providers, such as auditors or consultants).
---------------------------------------------------------------------------

    \2965\ See supra section IV.C.1.b.
---------------------------------------------------------------------------

    Our estimates are informed, in part, by feedback we received from 
public comment letters. As discussed below, however, commenters offered 
a wide range of cost estimates, suggesting that there is significant 
heterogeneity when it comes to expected compliance costs among 
registrants, and such estimates may not provide a representative view 
of the costs of compliance for all affected registrants.
    The cost estimates submitted by commenters varied considerably 
depending on a given company's size,

[[Page 21871]]

industry, complexity of operations, and other characteristics. This 
variability adds to the challenges in estimating compliance costs. 
Additionally, many commenters provided aggregate cost estimates that 
did not include certain elements required by the final rules, or 
included other elements that are not required in the final rules,\2966\ 
without providing a breakdown of the component costs. Without a 
breakdown of component costs, it is difficult to use these cost 
estimates to quantify the direct cost of the final rules. Furthermore, 
changes from the proposal, often in response to commenter concerns 
about costs, will result in corresponding differences in the 
anticipated cost of the final rules as compared to the proposal.\2967\ 
Nonetheless, we have endeavored below to factor these comments into our 
analysis to determine registrants' approximate cost of compliance with 
the final rules.
---------------------------------------------------------------------------

    \2966\ Commenters' estimates that include the cost of 
voluntarily undertaking a specific activity (e.g., the costs of 
setting targets or goals, formulating transition plans, or 
conducting scenario analysis) may not be indicative of the 
compliance costs of the final rules since the final rules do not 
necessarily require the undertaking of such activities, but rather 
require only the attendant disclosures in certain cases.
    \2967\ For example, as compared to the proposed rules, the final 
rules include a number of changes intended to reduce the burden of 
the Regulation S-X disclosure requirements and do not require Scope 
3 emissions reporting.
---------------------------------------------------------------------------

a. Comments and Data on Direct Cost Estimates of the Proposed Rules
    In the Proposing Release, the Commission requested comment on all 
aspects of its economic analysis, including the potential costs and 
benefits of the proposed rules and alternatives, and whether the 
proposed rules, if adopted, will promote efficiency, competition, and 
capital formation or have an impact on investor protection.\2968\ The 
Commission specifically requested empirical data, estimation 
methodologies, and other factual support for commenters' views, in 
particular, on costs and benefits estimates.\2969\
---------------------------------------------------------------------------

    \2968\ See Proposing Release, section IV.G.
    \2969\ See id.
---------------------------------------------------------------------------

    We received many comments asserting that the direct costs imposed 
by the proposed rules would be much greater than the Commission 
estimated.\2970\ Many letters from individual companies and industry 
groups provided quantitative estimates of the cost to comply with the 
proposed rules that were considerably higher than the estimates 
included in the Proposing Release.\2971\ One commenter conducted a 
survey of 263 public companies between April and June 2022.\2972\ 
Seventy-nine percent of non-SRC respondents in this survey asserted 
that the Commission under-estimated the costs of compliance with the 
proposed rules. Seventy-three percent of survey participants responded 
that their compliance costs under the proposed rules would exceed the 
Commission's estimates in the Proposing Release, with 41 percent of 
respondents stating that the compliance costs would exceed $1 million 
on an ongoing basis.\2973\ Another commenter, a biotechnology trade 
association, surveyed its members and found that 56 percent of 
respondents expected that the proposed rules would be more expensive 
than the Commission's estimates, with 40 percent indicating it would 
cost between $0.5 and $1.0 million.\2974\ Additionally, a survey of 
corporate executives indicated that 61 percent of respondents expect 
that the proposed rules would impose $750,000 or more in first year 
compliance costs.\2975\ Some commenters specifically identified the GHG 
emissions reporting and Regulation S-X provisions of the proposed rules 
as likely to impose large cost burdens on both registrants and 
potentially on non-registrants.\2976\
---------------------------------------------------------------------------

    \2970\ See, e.g., letters from Soc. Corp. Gov. (June 17, 2022); 
Chamber; Business Roundtable; S.P. Kothari, et al.; Biotechnology 
Innovation Organization; Committee on Corporate Reporting; American 
Automotive Leasing Association (AALA); America Car Rental 
Association; Truck Renting and Leasing Association (TRALA); AEPC. 
Some commenters also critiqued our PRA analysis, asserting that it 
used the wrong cost of labor and did not include the costs to non-
registrants. See letter from the Heritage Foundation.
    \2971\ See, e.g., letters from Soc. Corp. Gov. (June 17, 2022); 
RILA; NRF; ConocoPhillips; API; PPL Corporation; Nutrien; and 
Chamber.
    \2972\ See letter from Nasdaq.
    \2973\ Id. Twelve percent of the participants in the survey were 
SRCs.
    \2974\ See letter from Biotechnology Innovation Organization.
    \2975\ PwC, Change in the Climate: How US business leaders are 
preparing for the SEC's climate disclosure rule (2023), available at 
https://www.pwc.com/us/en/services/esg/library/sec-climate-disclosure-survey.html (discussing survey, conducted between Dec. 
2022 and Jan. 2023, that solicits the views of 300 executives at 
U.S.-based public companies with at least $500 million in annual 
revenue with respect to the proposed rules).
    \2976\ See, e.g., letter from Chamber. Concerns about burdens 
for non-registrants were mostly focused on the proposed rules' Scope 
3 GHG emissions disclosure requirements. The final rules do not 
require disclosures of Scope 3 emissions.
---------------------------------------------------------------------------

    To help assess the direct costs of the final rules, we conducted a 
detailed review of compliance cost estimates from commenters and other 
public sources. The nature of the cost information ranged from survey 
results, estimates directly from identifiable companies, estimates of 
anonymous companies, and general estimates, either based on industry 
experience, fees for related services, or derived as part of similar 
rulemaking processes in other jurisdictions. We describe below the cost 
estimates provided in these letters and other sources.
    One commenter provided cost information from seven large-cap 
companies in various industries on their current voluntary climate-
reporting practices, which vary in their degrees of alignment with the 
proposed or final rules.\2977\ The responses varied considerably 
regarding the reporting activities, disclosure elements, and costs. The 
number of staff required to produce the voluntary disclosures ranged 
from two to 20 full-time equivalents (``FTEs''). Reported employee 
hours for climate reporting (including TCFD reporting) ranged from 
7,500 to 10,000 hours annually. One company reported spending 9 months 
to prepare its TCFD report and 4 months responding to the CDP 
questionnaire. Commonly cited external advisory services include 
environmental engineering consultants; emissions, climate science, and 
modeling consultants; outside counsel; and sustainability or 
sustainability reporting consultants, with costs ranging from $50,000 
to $1.35 million annually. Third-party assurance costs ranged from 
$10,000 to $600,000. One company reported that it incurred initial 
costs of approximately $1.3 million to establish a baseline for SASB 
and TCFD reporting, while another company estimated that new or 
enhanced systems, controls, audit, and other costs associated with any 
additional disclosure requirements would be over $1 million.
---------------------------------------------------------------------------

    \2977\ See letter from Soc. Corp. Gov (June 11, 2022), 
referencing a comment it submitted in response to Acting Chair 
Allison Herren Lee's request for public input on climate 
disclosures. See Acting Chair Allison Herren Lee Public Statement, 
Public Input Welcomed on Climate Change Disclosures, available at 
https://www.sec.gov/news/public-statement/lee-climate-change-disclosures. Comment letters in response to this request are 
available at https://www.sec.gov/comments/climate-disclosure/cll12.htm.
---------------------------------------------------------------------------

    The same commenter submitted another letter presenting detailed 
annual cost estimates from 13 companies (11 large-cap, 1 mid-cap, and 1 
small-cap).\2978\ Similar to their first comment, the responses 
displayed considerable variation with respect to

[[Page 21872]]

current disclosure scope, granularity, and reported costs. Specific 
estimates of initial costs to comply with the proposed rules included 
$5 to $10 million,\2979\ $6 million (with $4 to $5 million in ongoing 
costs),\2980\ $10 million (with ``much of it recurring''),\2981\ and 
$650,000 to $1.5 million (with $650,000 in ongoing costs).\2982\ In 
many cases, the reported costs in this comment letter aggregated 
several different disclosure items and related activities without 
providing a cost breakdown. In other cases, costs were much more 
specific. For example, some companies reported their costs of measuring 
emissions. One small-cap company estimated $300,000 annually in 
internal staff time for its Scope 1 emissions data collection and 
reporting. This letter also included the aggregate ongoing costs of 
measuring Scope 1, Scope 2, and some Scope 3 emissions \2983\ from 
three different companies. These companies' respective estimates are 
$200,000,\2984\ $75,000,\2985\ and 188 internal hours.\2986\ Other 
specific cost estimates included assurance (ranging from $10,000 to 
$550,000, depending on the scope and level of assurance), external 
consultants (ranging from $55,000 to $990,000), and other activities 
related to sustainability reporting.
---------------------------------------------------------------------------

    \2978\ See letter from Soc. Corp. Gov (June 17, 2022). The 
commenter acknowledges that these companies are ``not the norm. They 
represent a discrete subset of predominantly larger companies that 
have undertaken these reporting efforts voluntarily and generally 
reflect a much greater level of maturity in climate-related 
reporting than the average company.''
    \2979\ Id. See Company 1 (large-cap company).
    \2980\ Id. See Company 2 (large-cap company). Throughout this 
release, ``ongoing costs'' refer to recurring costs on an annual 
basis.
    \2981\ Id. See Company 3 (large-cap company).
    \2982\ Id. See Company 4 (small-cap company).
    \2983\ Disclosing ``some Scope 3 emissions'' generally means 
that the commenter discloses some--but not all--categories of Scope 
3 emissions. For example, one company ``discloses Scope 1 and Scope 
2 and some Scope 3 (fuel and energy-related activities, business 
travel, and use of sold products) GHG emissions . . .'' See letter 
from Soc. Corp. Gov (June 17, 2022).
    \2984\ Id. See Company 9 (large-cap company).
    \2985\ Id. See Company 11 (large-cap company).
    \2986\ Id. See Company 10 (large-cap company).
---------------------------------------------------------------------------

    A public report presents detailed climate-related reporting cost 
estimates from three anonymous companies.\2987\ One company, a large-
cap financial institution, reported that the cost of issuing their 
first TCFD report was less than $100,000 and that annual ongoing costs 
for responding to the CDP questionnaire is likewise less than $100,000. 
Another company, a mid-cap waste management company, stated that the 
cost of producing their first TCFD and SASB report were both less than 
$10,000. This company reported that its total annual employee costs 
associated with climate disclosure are approximately $12,600. It also 
reported incurring annual third-party costs between $60,000 to $160,000 
to ``develop [its] corporate sustainability report and microsite, both 
of which contain GHG climate-related information.'' This company 
estimates the cost of producing voluntary climate-related disclosures 
to be less than 5 percent of its total SEC compliance-related costs. 
The remaining company, a large-cap industrial manufacturing company, 
reported that the combined cost of producing its first TCFD, SASB, and 
GRI disclosures amounted to between $250,000 and $350,000 (without 
providing a breakdown of component costs), while the cost of responding 
to its first CDP questionnaire was less than $50,000. This company 
reported that it also spent $400,000 annually for third-party auditors 
and consultants that provide support in the company's climate 
disclosure efforts.
---------------------------------------------------------------------------

    \2987\ See L. Reiners & K. Torrent, The Cost of Climate 
Disclosure: Three Case Studies on the Cost of Voluntary Climate-
Related Disclosure, Climate Risk Disclosure Lab (2021), available at 
https://econ.duke.edu/sites/econ.duke.edu/files/documents/The%20Cost%20of%20Climate%20Disclosure.pdf. This source was also 
reviewed as part of the proposed rules. See Proposing Release, 
section IV.C.2.a.
---------------------------------------------------------------------------

    Another commenter provided the results of a survey, conducted from 
February to March 2022, of corporate issuers and institutional 
investors (``ERM survey'').\2988\ The results reflect the responses of 
39 issuers, of which 29 were LAFs.\2989\ The ERM survey presents 
issuers' average annual costs in seven categories: GHG analysis and/or 
disclosures ($237,000); \2990\ climate scenario analysis and/or 
disclosures ($154,000); \2991\ additional climate-related analysis and/
or disclosures ($130,000); \2992\ internal climate risk management 
controls ($148,000); \2993\ proxy responses to climate related 
proposals ($80,000); assurance/audits related to climate ($82,000); and 
other climate-related disclosure costs not covered by the previous six 
categories ($76,000).
---------------------------------------------------------------------------

    \2988\ See ERM survey, supra note 2670. The 39 issuers included 
the following industries: healthcare and pharmaceuticals; 
financials, insurance, and professional services; consumer 
discretionary products; communication services; transportation, 
construction, and industrials; consumer staples; oil, gas, and 
energy; utilities; real estate; metals, plastics, and other raw 
material; and information technology.
    \2989\ See id. Respondent market capitalizations ranged from 
less than $300 million to more than $200 billion, with the highest 
proportion of respondents (34%) having a market capitalization 
between $10 billion and $50 billion.
    \2990\ This survey category includes all costs relating to the 
development of GHG inventories with analysis and disclosure of Scope 
1, Scope 2, and/or Scope 3 emissions.
    \2991\ This survey category includes all costs to issuers 
related to conducting assessments of the impact of climate risks in 
the short-, medium-, or long-term using scenario analysis as well as 
TCFD/CDP disclosure of risks and opportunities. Respondents were 
asked to exclude from this category any costs that they included in 
their costs of GHG emissions analysis and disclosures.
    \2992\ This survey category includes additional voluntary 
climate-related analyses and disclosures for processes largely 
disconnected from current and proposed climate-related disclosures 
such as outreach, engagement, and management.
    \2993\ This survey category includes costs for internal climate 
risk management controls, namely the costs related to integrating 
climate risk into enterprise risk management, oversight at the board 
level, strategic planning, internal audit, and other fundamental 
business processes. In addition, this category includes issuer costs 
related to climate-related data collection and aggregation, 
including IT costs and staff time; internal review of climate-
related data collection by management, board committees, and the 
board; in-house counsel drafting; and review by outside counsel.
---------------------------------------------------------------------------

    We also reviewed annual cost estimates associated with existing 
climate-related disclosure policies in the U.K. In 2021, the U.K. 
Financial Conduct Authority (``FCA'') adopted a comply-or-explain 
disclosure rule (``FCA rule''), which originally applied only to 
commercial companies with a U.K. premium listing \2994\ but, effective 
2022, was subsequently expanded to include issuers of standard listed 
shares.\2995\ The U.K. Department for Business, Energy, and Industrial 
Strategy (``BEIS'') adopted a similar--albeit mandatory--disclosure 
rule (``BEIS rule''), also effective 2022,\2996\

[[Page 21873]]

that was previously used to inform the Commission's cost estimates of 
the proposed rules.\2997\ The BEIS rule generally applies to companies 
that have over 500 employees and/or a turnover of more than [pound]500 
million.\2998\ Both rules exhibit significant overlap as they are both 
largely based on the TCFD framework's major components, including 
disclosure on governance, strategy, and risk management, all of which 
have similar counterparts in the final rules. Both UK rules also 
include scenario analysis and metrics and targets; however, because 
undertaking these activities is not required under the final rules 
(only their disclosure in specific circumstances), we focus on the cost 
estimates of the other components that are more relevant to the final 
rules.\2999\
---------------------------------------------------------------------------

    \2994\ See FCA, Policy Statement PS20/17, Proposals to Enhance 
Climate-related Disclosures by Listed Issuers and Clarification of 
Existing Disclosure Obligations (Dec. 2020), available at https://www.fca.org.uk/publication/policy/ps20-17.pdf. This document states 
that the rule would apply to 480 companies that have a premium 
listing. A premium listed company is a company listed on the London 
Stock Exchange that is subject to more stringent compliance and 
disclosure requirements in addition to the minimum standards 
outlined in the UK provisions that implemented the EU Consolidated 
Admissions and Reporting Directive (CARD) and the EU Transparency 
Directive.
    \2995\ See FCA, Consultation Paper CP21/18, Enhancing Climate-
related Disclosures by Standard Listed Companies and Seeking Views 
on ESG Topics in Capital Markets (June 2021), available at https://www.fca.org.uk/publication/consultation/cp21-18.pdf. Cost estimates 
of the FCA rule are sourced from this document. See also FCA, Policy 
Statement PS21/23, Enhancing Climate-related Disclosures by Standard 
Listed Companies (Dec. 2021). This rule applies to 244 issuers: 148 
issuers of standard listed equity shares as well as 96 additional 
issuers (i.e., standard listed issuers of Global Depository Receipts 
and standard listed issuers of shares other than equity shares, 
excluding standard listed investment entities and shell companies). 
A standard listed company is a company listed on the London Stock 
Exchange that is subject to the minimum standards outlined in the UK 
provisions that implemented the EU Consolidated Admissions and 
Reporting Directive (CARD) and the EU Transparency Directive.
    \2996\ U.K. Final Stage Impact Assessment, Mandating Climate-
related Financial Disclosures By Publicly Quoted Companies, Large 
Private Companies and Limited Liability Partnerships (LLPs) (2021), 
available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1055931/tcfd-final-stage-ia.pdf (``BEIS Final Stage Impact Assessment''). Cost 
estimates of the BEIS rule (with the exception of familiarization 
costs) are sourced from this document.
    \2997\ See Proposing Release, section IV.C.2.a, which also 
reviews the BEIS rule (referred to as the ``UK Impact Assessment'' 
in the Proposing Release). The estimated costs of the BEIS rule, as 
outlined in the following paragraphs, are the same as those 
presented in the proposed rules, with the exception of applying an 
updated exchange rate to convert the costs from GBP to USD.
    \2998\ Specifically, the BEIS rule applies to relevant Public 
Interest Entities (``PIEs''), including UK Premium and Standard 
listed companies with over 500 employees, UK registered companies 
with securities admitted to the Alternative Investment Market with 
more than 500 employees, limited liability partnerships with over 
500 employees and a turnover of over [pound]500 million, and UK 
registered companies that are not included in the categories above 
and that have over 500 employees and a turnover of over [pound]500 
million.
    \2999\ The following cost estimates from the BEIS and FCA 
reflect internal labor costs with the assumption that affected 
entities have no pre-existing climate-related disclosure practices 
that fulfill the stated requirements. The costs are converted from 
GBP to USD using the 2022 average exchange rate of $1.2369 USD/GBP.
---------------------------------------------------------------------------

    One-time implementation costs--which consist of ``familiarization 
costs'' and ``legal review''--are estimated to be $19,543 \3000\ by the 
BEIS and $15,147 by the FCA. The BEIS rule presents first-year cost 
estimates of complying with climate-related disclosures associated with 
Governance ($11,256),\3001\ Strategy ($16,080),\3002\ and Risk 
Management ($13,359),\3003\ for a combined total of $40,694, which is 
assumed to remain the same in subsequent years. This contrasts with the 
FCA's corresponding first-year costs of $183,028 and ongoing costs of 
$86,270 for larger issuers.\3004\ The FCA rule also estimates costs for 
small and medium-sized issuers, with corresponding costs of $137,271 in 
the first year and $64,702 in subsequent years.
---------------------------------------------------------------------------

    \3000\ The familiarization cost component is sourced from the 
BEIS Consultation Stage Impact Assessment (as opposed to Final 
Stage), which assumes that scenario analysis requirements are not 
part of the familiarization process, and thus may be a relatively 
better representation of the corresponding cost with respect to the 
final rules. The familiarization cost is estimated to be 
[pound]12,600. See BEIS Final Stage Impact Assessment2996. The other 
initial cost related to legal review ([pound]3,200), as outlined in 
the BEIS Final Stage Impact Assessment, is added to obtain 
[pound]15,800 ($19,543). See supra note 2996.
    \3001\ Governance costs include the ongoing cost to those in 
scope to implement, document and disclose governance of their 
climate related risks and opportunities and to coordinate across 
internal business functions.
    \3002\ Strategy costs include the ongoing reporting costs to 
those entities in scope of internally coordinating, documenting and 
disclosing climate-related risks and opportunities the company has 
identified, as well as reporting the impact of these risks on the 
company's business, strategy, and financial planning. This estimate 
does not include scenario analysis, which is discussed separately in 
a later paragraph.
    \3003\ Risk management costs are the ongoing annual costs to 
those entities in scope to disclose the company's management of 
climate-related risks, including the coordination across functions 
internally, identification and assessment of risks and their 
integration into the company's overarching risk-management strategy. 
This also includes the time taken to identify and analyze major risk 
exposures in the context of the company's business strategy.
    \3004\ The FCA presents aggregated costs for governance, 
strategy, and risk management disclosure instead of individual costs 
for each of the aforementioned disclosure categories. The cost 
discrepancy relative to the BEIS rule is primarily driven by 
significantly different assumptions of internal labor requirements, 
such as the number of employees, salaries, and required hours.
---------------------------------------------------------------------------

    These estimates from the FCA and BEIS rules help to inform our 
assessment of the compliance costs of similar provisions of the final 
rules amending Regulation S-K, as our approach for these provisions is 
based, in part, on the TCFD recommendations. However, it is important 
to note that these estimates are intended to reflect compliance costs 
of the typical company within the designated sample of affected 
entities and are conditional upon several assumptions regarding the 
number of required staff, the rank or title of the staff, the required 
labor hours, and local wage data. Actual costs can vary significantly 
depending on company characteristics, such as company size, industry, 
business model, the complexity of the company's corporate structure, 
existing climate-related disclosure practices, and internal expertise, 
etc.
    Another commenter provided cost estimates reported by an anonymous 
company, referred to as a ``Well-known seasoned issuer.'' \3005\ This 
company, which has made TCFD-aligned disclosures public on its website 
(including Scope 1, Scope 2, and Scope 3 emissions disclosures) 
estimated that, combined with the amounts the company currently spends 
on voluntary climate disclosure, the company would need to spend a 
total of approximately $35 million over five years to implement 
climate-related reporting in order to comply with the proposed rules, 
if adopted as proposed. Within this amount, the company estimates one-
time expenses of $19 million and recurring expenses averaging $3.1 
million per year. The primary categories of expenses are audit fees, 
professional services, subscriptions, labor, licenses, and training. 
The company estimates that compliance with the provisions amending 
Regulation S-X, as proposed, would have initial costs of $1.5 million 
to $2.0 million and subsequent ongoing costs of $1.0 million to $2.0 
million annually. The company also estimated compliance costs for the 
proposed Scope 3 emissions disclosure to be $15.6 million over five 
years, with a significant part of this cost attributable to attestation 
requirements and with ``filing'' Scope 3 information.\3006\
---------------------------------------------------------------------------

    \3005\ See letter from Chamber.
    \3006\ See letter by API. We note that the proposed rules would 
not have imposed any attestation requirements with respect to Scope 
3 emissions disclosure.
---------------------------------------------------------------------------

    Several letters from professional trade or industry organization 
also provided cost estimates. One commenter stated that the ``cost of 
registrants trying to report in alignment with just certain aspects of 
TCFD for their first time on a voluntarily basis can be around 
$500,000. . . . The actual cost for complete alignment to TCFD could be 
up to $1,000,000 per registrant over several years,'' which does not 
include the annual cost associated with preparing for and conducting 
attestation.\3007\ Another commenter said that based on member 
feedback, the ``true initial set up and ongoing compliance costs for a 
typical retailer will be more than 35 times the amount that the SEC has 
estimated . . . . Members estimate that the initial costs of 
implementing the proposed rules would be somewhere in the $5 million to 
$15 million range.'' \3008\ Other commenters estimated the initial cost 
of complying with the proposed amendments to Regulation S-X would 
exceed $100 million.\3009\ One commenter estimated that the combined 
costs of ``complying with the reporting requirements under S-X and S-K 
would

[[Page 21874]]

cost companies $3 to $7 million annually.'' \3010\
---------------------------------------------------------------------------

    \3007\ See letter from AEPC.
    \3008\ See letter from RILA.
    \3009\ See letters from Western Energy Alliance (suggesting 
initial compliance costs to be ``over $100 million for large 
companies when considering not just the new systems but the staff 
training required'') and API (without specifying whether the $100 
million figure reflects implementation costs or ongoing annual 
costs).
    \3010\ See letter from National Retail Federation.
---------------------------------------------------------------------------

    One commenter included cost estimates provided by members of its 
trade association with respect to their on-going efforts, prior to the 
proposed rules, in measuring GHG emissions.\3011\ One member reported 
that an average automated GHG measuring system would cost $250,000 to 
purchase and set up, with ongoing annual costs of approximately 
$100,000. Another member reported that ``completing questionnaires and 
conducting emissions measurements through an automated GHG measuring 
program with applicable audits costs the company about $15,000 per year 
to maintain.'' Another member company's mature Scope 1 and 2 emissions 
reporting programs resulted in 100 to 200 resource hours per year.
---------------------------------------------------------------------------

    \3011\ See letter from IDFA.
---------------------------------------------------------------------------

    Several individual registrants also provided cost estimates of 
either their own current climate-reporting practices or expected 
practices if the proposed rules were adopted as proposed. One 
multinational registrant that engages in hydrocarbon exploration and 
production estimated that initial compliance costs with respect to the 
proposed rules would range from $100 to $500 million.\3012\ This 
registrant expressed concerns about the burden of complying with the 
proposed rules, particularly with the proposed amendments to Regulation 
S-X. This registrant estimated ongoing costs to be $10 to $25 million 
annually. One energy company noted that it expected compliance costs to 
be at least four to five times the estimates provided in the Proposing 
Release, primarily due to the necessary increases in staff and the 
added costs in auditing and attestation fees.\3013\ Other energy 
companies estimated that compliance with the proposed amendments to 
Regulation S-X and reporting Scope 3 emissions would likely exceed $100 
million \3014\ and $1 million,\3015\ respectively.
---------------------------------------------------------------------------

    \3012\ See letter from ConocoPhillips.
    \3013\ See letter from PPL Corporation.
    \3014\ See letter from Western Energy Alliance.
    \3015\ See letter from Williams, Inc.
---------------------------------------------------------------------------

    Another commenter, a multinational energy company, estimated its 
internal burden hours for Scope 3 emissions reporting to be 650 hours 
in the first year and 100 hours annually in subsequent years.\3016\ A 
different commenter reported that it allocates one full-time consultant 
and 20 employees working part time each year from November to March as 
part of its process to measure Scope 1, Scope 2, and some Scope 3 
emissions, collect and validate data, estimate and review emissions, 
and obtain third-party limited assurance for GHG-related data in its 
sustainability report.\3017\ Another commenter that already tracks some 
Scope 1 emissions estimated that it may incur an additional cost of 
$10,556,800 or more to track and report Scope 1 emissions from 
additional facilities as a result of the proposed rules.\3018\ A 
multinational fertilizer company estimated that the direct and indirect 
costs of compliance with the proposed rules would be between $35 
million and $55 million, with assurance costs related to financial 
statement metrics estimated to be $70,000 to $225,000 annually.\3019\
---------------------------------------------------------------------------

    \3016\ See letter from [Oslash]rsted.
    \3017\ See letter from Air Products and Chemicals, Inc.
    \3018\ See letter from Energy Transfer LP. This commenter 
derived this cost based on estimates from the EPA's mandatory GHG 
reporting rule. See Mandatory Reporting of Greenhouse Gases, 74 FR 
56, 260, 363 tbl. VII-2 (Oct. 30, 2009). This commenter estimated 
this cost to be $7,000,000 in 2006 dollars, which was adjusted for 
inflation to obtain $10,556,800 in 2023 dollars.
    \3019\ See letter from Nutrien. This estimate includes costs 
associated with conducting scenario analysis and including the 
related information in public disclosures; measuring and reporting 
Scope 1 and 2 emissions by each GHG, obtaining reasonable assurance 
on Scope 1 and 2 emissions by each GHG; measuring and reporting 
Scope 3 emissions by each GHG for public disclosure subject to DCP; 
and disclosure of the proposed Financial Impact Metrics within the 
audited financial statements, among other proposed disclosures. 
These costs include internal costs, external professional service 
fees, and additional systems and internal control processes that the 
commenter indicated would need to be designed and operating 
effectively for public disclosure of high-quality information.
---------------------------------------------------------------------------

    We also reviewed memoranda of staff meetings with external parties 
that further inform our assessment of the final rules' compliance 
costs.\3020\ One organization presented pricing information for the 
following relevant services provided: TCFD reporting, excluding 
measuring emissions and establishing targets ($100,000 average); 
assessing Scopes 1, 2, and 3 emissions ($75,000 to $125,000); and 
target setting ($20,000 to $30,000).\3021\ A different organization 
indicated fees would range from $11,000 to $105,000 for services 
related to GHG accounting (Scopes 1, 2, and 3 emissions).\3022\ Another 
organization estimated that costs for assessing Scopes 1 and 2 
emissions would range between $25,000 and $45,000 and assessing Scopes 
1, 2, and 3 emissions would cost between $50,000 and $125,000, 
depending on whether a given company already has emissions-measuring 
systems and processes in place.\3023\
---------------------------------------------------------------------------

    \3020\ The meeting memoranda are available at the same location 
as the comment letters in response to the Proposing Release. See 
supra note 19. Some of these meetings occurred prior to the 
Proposing Release and thus any data included in the memoranda do not 
reflect specific details of the proposed rules; however, we have 
considered these memoranda as part of this assessment as they 
contain relevant cost information.
    \3021\ See Memorandum Concerning Staff Meeting With 
Representatives of S&P Global (Feb. 4, 2022); see also Proposing 
Release, supra note 1027.
    \3022\ See South Pole Memo; see also Proposing Release, note 
1037. These numbers have been converted from EUR based on the 2022 
average exchange rate of $1.0538 USD/EUR, rounded to the nearest 
$100.
    \3023\ See Memorandum Concerning Staff Meeting with 
Representatives of Persefoni (Nov. 30, 2021); see also Proposing 
Release, at n. 1036.
---------------------------------------------------------------------------

    The cost information in the above sources indicates the variance 
and the scale of compliance costs the proposed rules would have imposed 
on registrants. We note, however, that many of the estimates combine 
the costs of multiple components without providing a breakdown of 
component costs, which makes it difficult to isolate only the 
components that are applicable to the proposed or final rules. 
Furthermore, these voluntary cost estimates may reflect some selection 
bias such that they may be skewed toward a certain demographic (e.g., 
large-cap companies) and thus may not be representative of the broad 
sample of affected registrants. Finally, to the extent that the cost 
estimates are specific to the proposed rules, they do not account for 
the changes made to the final rules. For example, the final rules' 
requirements with respect to financial statements have been narrowed 
relative to the proposed rules.\3024\ In addition, the final rules do 
not require the disclosure of Scope 3 emissions. Nevertheless, we use 
this cost information to the extent possible to inform our assessment 
of the expected compliance costs of the final rules, as outlined in the 
following subsection.
---------------------------------------------------------------------------

    \3024\ See, e.g., supra sections II.K.2.c and II.K.3.c.
---------------------------------------------------------------------------

b. Direct Cost Estimates for the Final Rules
    The final rules will impose a number of new disclosure requirements 
on registrants. These requirements will result in additional compliance 
costs for registrants, and, depending on the nature of the registrant's 
operations and its existing disclosure practices, these additional 
compliance costs could be significant. Using comment letters and other 
sources, we take a conservative approach (i.e., erring on the side of 
overstating costs rather than understating them) to estimate 
approximate compliance costs for the final rules, which are discussed 
in

[[Page 21875]]

subsequent sections and summarized immediately below.
    With respect to the Regulation S-K amendments pertaining to 
governance disclosure (Item 1501); disclosure regarding the impacts of 
climate-related risks on strategy, business model, and outlook (Items 
1502(a) through (e) and (g)); and risk management disclosure (Item 
1503), we estimate that compliance costs will be $327,000 in the first 
year of compliance and $183,000 annually in subsequent years.\3025\ For 
those registrants that conduct scenario analysis and are required to 
provide attendant disclosures (Item 1502(f)), we estimate the reporting 
costs will be $12,000 in the first year and $6,000 in subsequent 
years.\3026\ Some registrants will be required to disclose Scope 1 and 
2 GHG emissions (Item 1505) after a specified phase in period. We 
estimate that the compliance costs for these disclosures will be 
$151,000 in the first year of compliance and $67,000 annually in 
subsequent years.\3027\ After an additional phase in period, applicable 
registrants will be required to obtain assurance for their emissions 
disclosures (Item 1506). Limited assurance for emissions disclosures is 
estimated to cost $50,000 while reasonable assurance is estimated to 
cost $150,000.\3028\ For registrants that voluntarily establish targets 
or goals and are required to provide attendant disclosures (Item 1504), 
we estimate the reporting costs will be $10,000 in the first year of 
establishing the target and $5,000 in subsequent years.\3029\ With 
respect to amendments to Regulation S-X, we estimate an upper bound of 
$500,000 in the first year of compliance, while the annual cost in 
subsequent years is estimated to have an upper bound of $375,000.\3030\ 
Incremental audit fees are estimated to have an upper bound of $23,000 
for all years.\3031\
---------------------------------------------------------------------------

    \3025\ See section IV.C.3.b.i.
    \3026\ See section IV.C.3.b.iv.
    \3027\ See section IV.C.3.b.ii.
    \3028\ See section IV.C.3.b.iii.
    \3029\ See section IV.C.3.b.iv.
    \3030\ See section IV.C.3.b.v.
    \3031\ Id.
---------------------------------------------------------------------------

    We emphasize that there could be a considerable range in actual 
compliance costs given that not all costs listed above will apply to 
all registrants or during all measurement periods. Depending on the 
registrant, annual compliance costs (averaged over the first ten years 
of compliance) could range from less than $197,000 to over 
$739,000.\3032\ A registrant's compliance costs may be at the lower end 
of the cost range if, for example, it does not conduct scenario 
analysis, does not have material Scope 1 and 2 emissions, has no 
climate-related target or goal, and has no applicable expenditures or 
financial statement impacts that require disclosure, thereby avoiding 
the corresponding costs of the aforementioned disclosure items. 
However, this registrant may have exposures to material climate risks 
that necessitate governance disclosure; disclosure regarding climate-
related risks that have material impacts on strategy, business model, 
and outlook; and risk management disclosure. In this case, the cost of 
these required disclosures--estimated to be $327,000 in the first year 
of compliance and $183,000 annually in subsequent years \3033\--would 
comprise the full compliance cost of the final rules. This corresponds 
with an average annual compliance cost of $197,000 (rounded to the 
nearest $1,000) over the first ten years of compliance.\3034\ 
Incremental compliance costs would be even lower for registrants that 
already provide these disclosures (either voluntarily or as required by 
other laws or jurisdictions).\3035\
---------------------------------------------------------------------------

    \3032\ Registrants will incur compliance costs for different 
disclosure items at different times due to applicable phase in 
periods. For ease of comprehension and comparability, these 
estimates are presented as the average annual compliance cost over 
the first ten years of compliance. See infra notes 3034 and 3036 for 
additional details.
    \3033\ See section IV.C.3.b.i.
    \3034\ ($327,000 + $183,000*(9 years))/10 = $197,400.
    \3035\ See supra section IV.A for a discussion on existing laws 
(domestic and foreign) that elicit similar disclosures and current 
market practices with respect to climate-related disclosures. See 
also infra section IV.C.3.c.
---------------------------------------------------------------------------

    At the upper end of the cost range, for example, there may be other 
registrants for which all estimated compliance costs apply. In this 
example, these registrants could incur an estimated $872,000 \3036\ in 
the first year of compliance and lower annual costs in subsequent 
years. After the respective phase in periods, these registrants would 
incur additional costs for GHG emissions disclosure, limited assurance, 
and subsequently reasonable assurance (assuming the registrant is an 
LAF). This registrant would incur an average annual compliance cost of 
$739,000 (rounded to the nearest $1,000) over the first ten years of 
compliance.\3037\ These examples highlight the potential range in 
compliance costs depending on a given registrant's circumstances, 
including (but not limited to) industry, size, existing climate-related 
disclosure practices, and whether the registrant's climate-risk 
exposure exceeds applicable materiality thresholds for disclosure.
---------------------------------------------------------------------------

    \3036\ $327,000 (governance disclosure; disclosure regarding 
climate-related risks that have material impacts on strategy, 
business model, and outlook; and risk management disclosure) + 
$12,000 (reporting cost of scenario analysis) + $10,000 (reporting 
cost of target or goal) + $500,000 (disclosures related to 
amendments to Regulation S-X, upper bound) + $23,000 (audit fees, 
upper bound) = $872,000.
    \3037\ Total compliance costs are calculated each year for the 
first ten years of compliance, taking into account the various 
disclosure items and their respective phase in periods. The average 
of these annual costs is $738,700.
---------------------------------------------------------------------------

    Regarding assessing materiality to determine whether disclosure is 
required under the final rules, we acknowledge that some registrants 
may need to expend resources to first determine whether particular 
disclosure items are material, even in cases where registrants 
ultimately determine they do not need to make disclosure. While 
commenters provided estimates of the overall costs of measuring and 
assessing GHG emissions and making disclosure under TCFD disclosure 
frameworks, they did not provide a level of detail that would enable us 
to reliably disaggregate the materiality determination from the costs 
of disclosure more broadly. We also note that the cost of such a 
determination could vary depending on the registrant's facts and 
circumstances and may in some cases be de minimis. While we have not 
provided a standalone cost estimate of making such materiality 
determinations, our estimates of the costs of governance disclosure, 
disclosure regarding the impacts of climate-related risks on strategy, 
business model, and outlook, and risk management disclosure begin with 
TCFD disclosure as a starting point.\3038\ Thus, to the extent that a 
materiality or similar assessment is included in TCFD disclosure, this 
cost is reflected in the Commission's compliance cost estimates with 
respect to the above disclosure items.
---------------------------------------------------------------------------

    \3038\ See section IV.C.3.b.i.
---------------------------------------------------------------------------

    Moreover, the above estimates are conditional upon several factors. 
First, they depend on the sample of sources and commenters that 
voluntarily provided relevant cost information.\3039\ To the extent 
that this sample is not representative of the broad set of affected 
registrants, the resulting estimates may similarly be less 
representative. In addition to company size and industry, another 
relevant factor may be the decision to engage third-party advisory 
services. Some registrants may determine that engaging such advisory 
services will better position them to comply with the final rules, 
while others may decide to use in-

[[Page 21876]]

house resources.\3040\ The above estimates incorporate information on 
both internal costs (e.g., employee hours) and external costs (e.g., 
hiring third parties or consultants), as provided by comment letters 
and other sources.\3041\ Second, several analytical assumptions were 
incorporated in the estimation process. While we endeavored to apply 
them consistently and in a conservative manner throughout the analysis, 
actual compliance costs may differ to the extent that these assumptions 
do not reflect a given registrant's specific circumstances.
---------------------------------------------------------------------------

    \3039\ See supra section IV.C.3.a.
    \3040\ For example, registrants that are required to disclose 
emissions may be more likely to rely on external services. 
Registrants facing climate-related risks that are complex or a 
myriad may also be more likely to engage third party services. We 
emphasize that the final rules impose no requirement with respect to 
the use of third-party services and that registrants are free to 
decide how best to meet compliance based on their specific 
circumstances.
    \3041\ Some commenters provided TCFD disclosure costs and 
separate costs for sustainability consultants. See, e.g., letters 
from Soc. Corp Gov (June 11, 2021, and June 17, 2022). However, the 
latter were often not explicitly tied to TCFD, but rather associated 
with sustainability reports or other disclosures and activities not 
necessarily required by the final rules. In these cases, we only 
used the TCFD disclosure costs due to their direct relevance while 
omitting the cost of sustainability consultants as we could not 
reliably determine what portion were directly attributable to the 
TCFD and the provisions of interest. For GHG emissions, some 
companies' estimates included both internal and external costs, some 
mentioned the use of external costs but did not provide dollar 
estimates, while others did not engage external services at all. We 
have incorporated all available information to the extent possible 
in our estimation process.
---------------------------------------------------------------------------

    The above compliance cost estimates exhibit certain features that 
may make them conservative. First, the cost estimates from comment 
letters and other sources, which serve as inputs in our cost estimation 
process, are almost all from large-cap companies. To the extent that 
compliance costs increase with company size, smaller registrants can 
expect lower costs.\3042\ Furthermore, there are numerous instances in 
which analytical assumptions were required due to insufficient 
information from the source material. Wherever possible, assumptions 
that tend to overstate actual costs were chosen over those that would 
tend to understate them. Certain registrants may nonetheless incur 
costs that exceed our estimates. However, we believe that due to the 
nature of our cost estimation process, the majority of registrants will 
incur costs that do not exceed our estimates. Furthermore, our 
estimates assume registrants have no pre-existing climate-related 
disclosure practices. As a result, those that already provide 
disclosures that meet some of the final rules' requirements will face 
lower incremental costs.\3043\
---------------------------------------------------------------------------

    \3042\ Nevertheless, we recognize that in some cases, certain 
components of compliance costs may not vary with size and may be 
higher in proportional terms for smaller registrants.
    \3043\ See section IV.C.3.c.
---------------------------------------------------------------------------

    We recognize that some comment letters in response to the proposed 
rules contained compliance cost estimates that significantly exceed the 
Commission's estimates of the final rules.\3044\ We reiterate that this 
discrepancy is likely attributable to a number of changes from the 
proposed rules that reduce compliance costs. For example, the final 
rules do not require Scope 3 emissions reporting and have less 
burdensome requirements with respect to the amendments to Regulation S-
X, thereby resulting in reduced compliance costs.
---------------------------------------------------------------------------

    \3044\ See section IV.C.3.c.
---------------------------------------------------------------------------

    Our compliance cost estimation process consists of five elements. 
First, we estimate the aggregate costs of complying with three specific 
provisions that have similar counterparts within the TCFD framework: 
governance disclosure; disclosure regarding climate-related risks that 
have material impacts on strategy, business model, and outlook; and 
risk management disclosure. Second, we estimate the cost of assessing 
and disclosing Scope 1 and 2 emissions. Third, we estimate the cost of 
obtaining third-party assurance for GHG emissions disclosures. Fourth, 
we estimate the reporting costs of scenario analysis and targets and 
goals. Fifth, we estimate the costs associated with complying with the 
amendments to Regulation S-X and incremental audit costs. We proceed 
with a review of each element that describes how we arrived at the 
above compliance cost estimates.
i. Cost Estimates of Governance Disclosure; Disclosure Regarding 
Impacts of Climate-Related Risks on Strategy, Business Model, and 
Outlook; and Risk Management Disclosure
    We begin by reviewing estimates from commenters and other sources 
with respect to the costs of TCFD disclosure with the objective of 
informing our assessment on the costs of similar provisions of the 
final rules. Specifically, these provisions of interest include 
governance disclosure; disclosure regarding climate-related risks that 
have material impacts on strategy, business model, and outlook; and 
risk management disclosure. We begin by focusing on these specific 
provisions separate from other components (e.g., GHG emissions 
measurement or targets and goals) because these other components are 
not necessarily required in all circumstances or by all registrants.
    In many cases, however, commenters provided one aggregate cost for 
their TCFD disclosure that also included the costs of GHG emissions 
measurement or target and goals-related activities. Without a breakdown 
of component costs, we face challenges in isolating the costs of the 
relevant provisions. Moreover, some commenters provided only a single 
aggregate cost that, in addition to their TCFD disclosure, includes 
several other components not required by the final rules,\3045\ which 
poses similar challenges in separately estimating the component costs.
---------------------------------------------------------------------------

    \3045\ For example, an anonymous large-cap company ``noted that 
combined costs for producing its first TCFD, SASB, and GRI 
disclosures were between $200,00 and $350,000.'' See supra note 
2987.
---------------------------------------------------------------------------

    To account for these challenges, we used an approach that takes 
these aggregate cost estimates and applies adjustments derived from 
specific estimates from other sources, allowing us to obtain a more 
targeted ``adjusted cost.'' For example, some commenters provided their 
cost estimates specifically for measuring emissions, from which we can 
determine the median reported emissions-measurement cost. Thus, if a 
given commenter provided an aggregate cost of TCFD disclosure that 
includes the measuring of emissions, we applied an adjustment (i.e., 
subtracted the median reported emissions-measurement cost), which 
results in an adjusted cost estimate for the remaining portion of TCFD 
disclosures (i.e., the provisions of interest). We applied similar 
adjustments throughout the analysis, as described in detail below.
    While this approach can help us arrive at more granular cost 
estimates, we also recognize its limitations. Primarily, the median 
reported cost of a given component may be different from the actual 
cost incurred by a specific registrant (due to differences in company 
size, industry, climate reporting practices, or other factors) such 
that applying the adjustment may not yield a true representation of 
that registrant's cost breakdown. However, we believe this issue is 
mitigated to some extent because almost all estimates used in this 
analysis are from large cap companies and thus of relatively comparable 
size. Furthermore, while a given cost adjustment may be overstated for 
some registrants and understated for others, these discrepancies should 
partially offset each other when we subsequently take

[[Page 21877]]

the median \3046\ of the resulting adjusted costs.
---------------------------------------------------------------------------

    \3046\ Throughout the cost estimation process, we use medians 
instead of means since the former is less sensitive to outliers.
---------------------------------------------------------------------------

    Table 8 presents an overview of the cost estimation methodology 
with respect to the provisions of interest. Column (1) specifies the 
commenter or other public source that contains cost estimates specific 
to TCFD disclosures. Some sources contained costs for multiple, 
anonymous companies. Where applicable, these company descriptions are 
provided in Column (2). Column (3) shows the ongoing costs of TCFD 
disclosures before cost adjustments are applied. Some costs are taken 
directly from the source, whereas in other cases, specific assumptions 
and calculations are applied to obtain an estimate (see table footnotes 
for details). For example, if a source provided estimates in the form 
of FTEs or burden hours, we converted them to dollars according to 
hourly cost estimates consistent with the PRA.\3047\ Some sources only 
provided an initial cost (i.e., first-year startup cost) without 
providing ongoing, annual costs. In these cases, we estimate the 
ongoing cost by applying a percentage reduction derived from other 
sources. Furthermore, because the CDP questionnaire exhibits full 
alignment with the TCFD recommendations,\3048\ we also included 
estimates for responding to the CDP questionnaire, from which we 
estimated the equivalent cost for TCFD disclosures by applying a 
conversion factor.\3049\
---------------------------------------------------------------------------

    \3047\ The PRA assumes that internal burden hours cost $444/
hour, while external burden hours cost $600/hour. See section V.
    \3048\ For information on how the CDP questionnaire is fully 
aligned with the TCFD, see CDP, How CDP is aligned to the TCFD, 
supra note 52.
    \3049\ Two companies referenced in comment letters noted that it 
takes a designated number of staff four months to complete the CDP 
questionnaire and nine months to complete TCFD disclosures. Based on 
these estimates, we incorporate the assumption that the CDP-to-TCFD 
cost ratio is 4 to 9 (``4-to-9 ratio''). See letters from Soc. Corp. 
Gov. (June 11, 2021 and June 17, 2022).
---------------------------------------------------------------------------

    We determined that some of the costs in Column (3) include the 
costs of setting targets and goals or measuring GHG emissions, as 
indicated in Columns (4) and (5), respectively. Where applicable, these 
costs are subtracted from Column (3) to obtain the adjusted cost in 
Column (6), which represents the aggregate, annual ongoing cost 
estimate for provisions of interest: governance disclosure; disclosure 
regarding climate-related risks that have material impacts on strategy, 
business model, and outlook; and risk management disclosure.

Table 8--Cost Estimates of Governance Disclosure; Disclosure Regarding Climate-Related Risks That Have Material Impacts on Strategy, Business Model, and
                                                         Outlook; and Risk Management Disclosure
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Ongoing cost
                                                                     of TCFD                                    Adjustment: Scope 1, Scope
         Commenter or source              Type of company (if      disclosures    Adjustment: setting targets       2, and some Scope 3        Adjusted
                                              specified)              (pre-         and goals ($54,015) \1\       emissions ($79,236) \2\      cost \3\
                                                                   adjustment)
(1)                                    (2).....................             (3)  (4).........................  (5).........................          (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Society for Corporate Governance       Financial Services        \4\ $1,918,080  Included....................  Included....................   $1,784,829
 (June 11, 2021).                       company.                  \5\ 8,524,800  ............................  Included....................    8,445,564
                                       Energy company..........
                                       Comm. Services company..     \6\ 865,385  Included....................  Included....................      506,862
Society for Corporate Governance       Company 5...............     \7\ 360,000  ............................  Included....................      280,764
 (June 17, 2022).                      Company 6...............   \8\ 2,237,760  Included....................  Included....................    2,104,509
FCA rule.............................  ........................      \9\ 86,270  ............................  ............................       86,270
BEIS rule............................  ........................     \10\ 40,694  ............................  ............................       40,694
The Climate Risk Disclosure Lab......  Large-cap financial          \11\ 56,000  ............................  ............................       56,000
                                        institution.
                                       Mid-cap company.........      \12\ 5,600  ............................  ............................       $5,600
                                       Large-cap company.......     \13\ 63,000  ............................  ............................       63,000
American Exploration and Production    ........................    \14\ 280,000  ............................  ............................      280,000
 Council.
S&P Global...........................  ........................     \15\ 56,000  ............................  ............................       56,000
                                                                                                                                            ------------
    Median...........................  ........................  ..............  ............................  ............................         \16\
                                                                                                                                                183,135
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The adjustment factor for setting targets and goals is $54,015, which is determined by relevant cost estimates presented in Table 9.
\2\ The adjustment factor for assessing Scope 1, Scope 2, and some Scope 3 emissions is $79,236, which is determined by relevant cost estimates
  presented in Table 10.
\3\ The adjusted cost is calculated as Column (3) minus adjustment factors where applicable, as indicated by Columns (4) and (5). If Column (4)
  indicates ``Included,'' then $54,015 is subtracted from Column (3). Similarly, if Column (5) indicates ``Included,'' then $79,236 is subtracted from
  Column (3). The net result is the ``adjusted cost,'' presented in Column (6).
\4\ See letter from Soc. Corp. Gov (June 11, 2021). This company reported that three FTEs ``plus others'' spend nine months for TCFD reporting. (3
  FTEs)*(40 hrs/wk)*(36 wks)*($444/hr) = $1,918,080. The source does not specify how many hours are contributed by the ``others,'' thus the estimated
  cost may be understated.
\5\ See id. This company reported TCFD-aligned reporting process involved 40 people from the company and took six months of nearly full-time
  participation by 20 core team members. (20 FTEs)*(40 hrs/wk)*(24 wks)*($444/hr) = $8,524,800. The source does not specify how many hours are
  contributed by those outside of the 20 core members, thus the estimated cost may be understated.
\6\ See id. This company reported spending $1.25 million on both CDP and TCFD disclosures, in addition to several other components. We first estimate
  the TCFD component by applying the 4-to-9 ratio. ($1.25 million)*(9/13) = $865,385.
\7\ See letter from Soc. Corp. Gov (June 17, 2022). This company reported spending ``$160,000 for CDP and other climate-related surveys, including
  supply chain surveys.'' To be conservative, we assume that the $160,000 is the cost for CDP only, then apply the 4-to-9 ratio. $160,000*(\9/4\) =
  $360,000.
\8\ See id. This company reported that ``two employees focus on climate change, including disclosure, and 1.5 employees focus on sustainability
  reporting overall,'' spending nine months on its TCFD report. (3.5 FTEs)*(40 hrs/wk)*(36 wks)*($444/hr) = $2,237,760.
\9\ See supra note 2995. This is the ongoing cost of ``coordination of disclosure inputs across functions'' ([pound]69,747 for larger issuers), which is
  in line with the TCFD disclosure categories of Governance, Strategy, and Risk Management. This cost is converted to USD based on the 2022 average
  exchange rate. ([pound]69,747)*(1.2369 USD/GBP) = $86,270. This reflects a 56% reduction from initial to ongoing costs, which we consider in
  determining the appropriate percentage reduction in subsequent calculations.

[[Page 21878]]

 
\10\ See supra note 2996. This figure adds the ongoing costs of disclosure associated with Governance ([pound]9,100), Strategy ([pound]13,000), and Risk
  Management ([pound]10,800). The total ([pound]32,900) is converted to USD based on the 2022 average exchange rate. ([pound]32,900)*(1.2369 USD/GBP) =
  $40,694. This reflects a 32% reduction from initial to ongoing costs, which we consider in determining the appropriate percentage reduction in
  subsequent calculations.
\11\ See supra note 2987. This company reported that the cost of issuing its first TCFD report was less than $100,000. To be conservative, we assume
  $100,000 is the initial cost. To estimate ongoing costs, we refer to the percentage reduction from initial to ongoing costs as reflected by the FCA
  rule (56%) and the BEIS rule (32%), of which the median is 44%. ($100,000)*(1-0.44) = $56,000.
\12\ See id. This company reported that the cost of producing its first TCFD report was less than $10,000. To be conservative, we assume $10,000 is the
  initial cost. In estimating ongoing costs, we refer to the percentage reduction from initial to ongoing costs as reflected by the FCA rule (56%) and
  the BEIS rule (32%), of which the median is 44%. $10,000*(1-0.44) = $5,600.
\13\ See id. This company reported that the combined cost for producing their first TCFD, SASB, and GRI disclosures was between $200,000 and $350,000
  but did not provide the cost for TCFD only. However, it noted that the cost of preparing its first CDP questionnaire did not exceed $50,000. To be
  conservative, we assume the initial CDP-related cost is $50,000. We apply the 4-to-9 ratio to convert this to the initial costs of TCFD disclosure and
  then apply a 44% reduction to estimate the ongoing cost. $50,000*(\9/4\)*(1-0.44) = $63,000.
\14\ See letter from AEPC. This commenter stated that initial costs to report in alignment with certain aspects of the TCFD can be around $500,000. To
  estimate ongoing costs, we refer to the percentage reduction from initial to ongoing costs as reflected by the FCA rule (56%) and the BEIS rule (32%),
  of which the median is 44%. $500,000*(1-0.44) = $280,000.
\15\ See supra note 3021. This source, which provided indicative fees for TCFD reporting services, noted that the average cost would be around $100,000.
  To estimate ongoing costs, we refer to the percentage reduction from initial to ongoing costs as reflected by the FCA rule (56%) and the BEIS rule
  (32%), of which the median is 44%. $100,000*(1-0.44) = $56,000.
\16\ When there is an even number of data points, there is no single middle value. In such cases, the median is computed as the arithmetic mean of the
  two middle data points. Accordingly, the median of Column (6) is calculated as follows: ($86,270 + $280,000)/2 = $183,135.

    We next discuss our estimation process and methodology involved in 
producing the numbers in Table 8, including which cost estimates were 
included versus excluded, what assumptions were incorporated, and how 
the adjustment factors for targets and goals and GHG emissions 
measurement were calculated and applied. Many commenters did not 
explicitly state whether the costs of measuring emissions or setting 
targets and goals were included in their TCFD costs. As a result, we 
assumed that such costs were included only if such activities were 
contained in their qualitative description of climate-related 
disclosure activities. Of the twelve cost estimates presented in Table 
8, we assume that three included the cost of target-related activities, 
as indicated in Column (4).\3050\ We also assume that five estimates 
included the costs of measuring Scope 1, Scope 2, and some Scope 3 
emissions, as indicated in Column (5).\3051\
---------------------------------------------------------------------------

    \3050\ The Financial Services company stated that it ``reports 
on its progress towards its low-carbon financing and carbon-
neutrality goals; the percentage of renewable energy sourced to 
support its operations and the percentage of energy reductions year 
over year.'' The Communication Services company reports that it 
gathers metrics/data related to carbon abatement, renewable energy, 
water conservation, and incurs expenses for monitoring and data 
quality. (See letter from Soc. Corp. Gov (June 11, 2021)). Company 6 
stated that it ``gathers data and reports on progress towards the 
company's low-carbon financing goal, progress toward the company's 
carbon-neutrality goal, the percentage of renewable energy sourced 
to support the company's operations, the percentage of energy 
reduction year-over-year.'' (See letter from Soc. Corp. Gov (June 
17, 2022)). Based on the description of these activities, we assume 
that these three companies included the costs of setting targets and 
goals in their reported costs. The Large-cap financial institution 
stated that it ``is committed to achieving net-zero emissions by 
2050 and is in the process of implementing the Paris Agreement 
Capital Transition Assessment (PACTA) methodology to align its loan 
portfolio with the goals of the Paris Agreement.'' See supra note 
2987. However, given their relatively low reported costs, we assume 
that the cost of setting targets and goals is not included in order 
to remain conservative in our estimation.
    \3051\ The Financial Services company, Communications Services 
company, Company 5, and Company 6 all explicitly state that they 
measure and report Scopes 1, 2, and some Scope 3 emissions. The 
Energy company does not explicitly state that it measures emissions, 
however it states that it requires ``consultants in emissions, 
climate science, and modeling,'' ``multiple engineering 
disciplines,'' and ``GHG emissions reporting expertise'' as part of 
its disclosures. See letters from Soc. Corp. Gov (June 11, 2021 and 
June 17, 2022). Thus, we assume that these five companies included 
the costs of measuring Scope 1, 2, and some Scope 3 emissions within 
their reported costs. The Large-cap financial institution and Mid-
cap company also report measuring the three scopes of emissions, 
however given their relatively low reported costs, we assume that 
the cost of measuring emissions is not included in order to remain 
conservative in our estimation.
---------------------------------------------------------------------------

    We next review cost estimates specific to setting targets and goals 
and assessing GHG emissions (Scope 1, Scope 2, and some Scope 3) from 
other sources in order to obtain their adjustment factors ($54,015 and 
$79,236, respectively). We recognize that the final rules do not 
necessarily require registrants to incur costs associated with setting 
targets and goals or measuring all three scopes of GHG emissions. We 
review such cost estimates because we determined that some of the 
sources in Table 8 included them with their overall TCFD-related costs; 
however, they should not necessarily be interpreted as direct 
compliance costs resulting from the final rules. Instead, we use these 
cost estimates to obtain appropriate adjustment factors that are 
subsequently subtracted from the applicable estimates in Column (3).
    The adjustment factor for setting targets and goals is $54,015, as 
indicated in Column (4). To obtain this number, we begin by reviewing 
four sources that provided more specific cost estimates related to 
targets and goals,\3052\ which are presented in Table 9. The BEIS rule 
estimated that Metrics and Targets (including the cost of data 
gathering and cost of reporting, unrelated to GHG emissions) would have 
an ongoing cost of $72,359, while the FCA rule estimated the ongoing 
cost to be $53,507.
---------------------------------------------------------------------------

    \3052\ These sources generally do not provide sufficient detail 
on precisely what the targets and goals disclosure would consist of; 
therefore, it is difficult to determine to what extent the 
corresponding cost estimates are applicable to the final rules' 
requirements on targets and goals. We can nevertheless use these 
sources to help us arrive at better informed compliance cost 
estimates. Similar reasoning can be applied to the cost estimates of 
scenario analysis, discussed in section IV.C.3.b.iv.
---------------------------------------------------------------------------

    The remaining two sources only provided initial costs. Thus, to 
estimate the ongoing cost, we referred to the percent reduction from 
initial to ongoing costs reflected by the BEIS rule (23 percent 
reduction) and FCA rule (67 percent reduction), which yields a median 
percent reduction of 45 percent. One source estimated that setting 
targets would come with an initial cost ranging from $20,000 to 
$30,000.\3053\ We apply the 45 percent reduction to arrive at an 
ongoing cost estimate of $13,750. Another company reported that it 
spent $1 million as an initial cost for target baseline and 
projections.\3054\ We similarly apply the 45 percent reduction to 
arrive at an ongoing cost estimate of $550,000. The median of the 
ongoing costs of setting targets in Table 9 is $54,015, which is used 
as the adjustment factor for setting targets and goals (as indicated in 
Column (4) of Table 9).
---------------------------------------------------------------------------

    \3053\ See supra note 3021.
    \3054\ See letter from Soc. Corp. Gov. (June 17, 2022).

[[Page 21879]]



           Table 9--Ongoing Costs of Setting Targets and Goals
------------------------------------------------------------------------
                                                      Ongoing costs of
                Commenter or source                  setting targets and
                                                            goals
------------------------------------------------------------------------
BEIS rule.........................................           \1\ $72,359
FCA rule..........................................            \2\ 35,671
Society for Corporate Governance (June 17, 2022)..           \3\ 550,000
S&P Global........................................           \4\ 13,750
------------------------------------------------------------------------
\1\ See supra note 2996. The BEIS rule estimated that the ongoing cost
  metrics and targets disclosure is [pound]58,500 ([pound]52,000 for
  annual data gathering and [pound]6,500 for the cost of reporting). We
  apply the 2022 average exchange rate. ([pound]58,500)*(1.2369 USD/GBP)
  = $72,359. This reflects a 23% reduction from initial to ongoing
  costs, which we consider in determining the appropriate percentage
  reduction in subsequent calculations.
\2\ See supra note 2995. The FCA rule estimated that ongoing costs for
  metrics and targets disclosure is [pound]43,259; however, this figure
  includes assessing Scopes 1 and 2 emissions. The corresponding initial
  cost disaggregates the cost, with two-thirds allocated to metrics and
  targets unrelated to Scopes 1 and 2 emissions. We assume the ongoing
  cost reflects the same proportional allocation and then we apply the
  2022 average exchange rate. ([pound]43,259)*(2/3)*(1.2369 USD/GBP) =
  $35,671. This reflects a 67% reduction from initial to ongoing costs,
  which we consider in determining the appropriate percentage reduction
  in subsequent calculations.
\3\ See letter from Soc. Corp. Gov (June 17, 2022). ``Company 7'' in
  this comment letter reported that it spent $1 million on ``building a
  database for target baseline and projections,'' but did not provide
  the ongoing cost. To estimate the ongoing cost, we refer to the
  percentage reduction from initial to ongoing costs as reflected by the
  BEIS rule (23%) and the FCA rule (67%), of which the median is 45%.
  ($1,000,000)*(1-0.45) = $550,000.
\4\ See supra note 3021. The S&P Global meeting memorandum provides
  estimates on the initial cost of setting target ($20,000-$30,000) but
  does not provide estimates with respect to the ongoing cost. To
  estimate the ongoing cost, we refer to the percentage reduction from
  initial to ongoing costs as reflected by the BEIS rule (23%) and the
  FCA rule (67%), of which the median is 45%. We apply this median
  percentage reduction to the midpoint of the initial cost: ($25,000)*(1-
  0.45) = $13,750.

    Next, we focus on the adjustment factor for assessing Scope 1, 
Scope 2, and some Scope 3 emissions (as indicated in Column (5) of 
Table 8). To obtain this number, we review eight relevant estimates, 
which are presented in Table 10. Where necessary, modifications or 
assumptions are applied to the estimates (see table footnotes for 
details). Lastly, we take the median of these eight data points to 
obtain the adjustment factor for measuring Scope 1, Scope 2, and some 
Scope 3 emissions: $79,236. We reiterate that the final rules do not 
require the disclosure of Scope 1 and 2 emissions in all cases or from 
all registrants, and Scope 3 disclosures are not required. We reviewed 
these emissions cost in this section because we subtract them from 
applicable estimates in Column (3) of Table 8, which we have deemed to 
include emissions costs.

                Table 10--Ongoing Costs of Measuring Scope 1, Scope 2, and Some Scope 3 Emissions
----------------------------------------------------------------------------------------------------------------
                                                                                              Ongoing costs of
                                                                                             measuring Scope 1,
            Commenter or source                         Company  (if specified)               Scope 2, and some
                                                                                              Scope 3 emissions
----------------------------------------------------------------------------------------------------------------
Society for Corporate Governance (June 17,  Company 9.....................................          \1\ $200,000
 2022).                                     Company 10....................................            \2\ 83,472
                                            Company.......................................            \3\ 75,000
ERM Survey................................  ..............................................           \4\ 182,985
Air Products and Chemicals, Inc...........  ..............................................         \5\ 4,032,000
Persefoni.................................  ..............................................            \6\ 50,000
S&P Global................................  ..............................................            \7\ 40,000
South Pole................................  ..............................................           \8\ 23,184
----------------------------------------------------------------------------------------------------------------
\1\ See letter from Soc. Corp. Gov. (June 17, 2022). Company 9 discloses Scope 1 and Scope 2 and some Scope 3
  GHG emissions but does not specify which categories of Scope 3 emissions are reported. The company ``conducts
  the emissions inventory/data gathering in-house at an estimated cost of at least $200,000 annually.'' Thus, we
  assume that $200,000 is the ongoing cost of measuring Scope 1, Scope 2, and some Scope 3 emissions. This
  estimate may be understated as it is presented as a minimum cost.
\2\ See id. Company 10 discloses Scope 1 and Scope 2 and some Scope 3 (fuel and energy-related activities,
  business travel, and use of sold products) GHG emissions. Approximately five to seven staff members are
  involved with the emissions calculations and reporting to various agencies and for verification. The company
  estimates 188 hours for emissions gathering/annual operating reporting across the company's utility and gas
  infrastructure business unit and preparing its final verification support. Thus, we assume the 188 burden
  hours is the ongoing costs of measuring the specified scopes of emissions. (188 hours)*($444/hr) = $83,472.
\3\ See id. Company 11 discloses Scope 1, Scope 2, and some Scope 3 (business travel, commuting, waste,
  downstream leased assets) GHG emissions. The company estimated its internal time and external resources
  associated with emissions inventory/data gathering to be about $75,000 annually.
\4\ See ERM survey. The ERM survey indicated that the average spend for GHG analysis and/or disclosures is
  $237,000 annually. This survey category included all costs related to developing GHG inventories, including
  analysis and disclosure of Scope 1, Scope 2, and/or Scope 3 emissions. This category also included preparation
  of GHG data for inclusion in public reporting, any analysis related to setting science-based targets, and
  other similar efforts to understand GHG emissions. Because this estimate includes targets, we subtract the
  median ongoing cost of targets ($54,015), as reported in Table 9. $237,000-$54,015 = $182,985.
\5\ See letter from Air Products and Chemicals, Inc. This company reports Scope 1, Scope 2, and Scope 3
  emissions, but does not specify which categories of Scope 3. The company's emissions reporting process
  requires one full-time consultant and 20 employees working part-time each year from Nov. to Mar. (1 full-time
  consultant)*(40 hrs/wk)*(20 weeks)*($600/hr) + (20 employees)*(20 hrs/wk)*(20 wks)*($444/hr) = $4,032,000.
  However, this estimate may be overstated because it includes the cost of third-party limited assurance for GHG
  emissions.
\6\ See supra note 3023. Persefoni estimates that the cost of assessing Scope 1, Scope 2, and Scope 3 emissions
  for companies of ``high maturity'' (i.e., those that are already measuring/tracking Scope 1, Scope 2, and
  Scope 3 emissions, among other activities) is $50,000, which we assume to reflect ongoing costs. The commenter
  further estimates that the corresponding cost for companies that do not already measure/track such emissions
  would be $125,000. If this figure is assumed to represent initial costs, then the estimates reflect a 60%
  reduction from initial to ongoing costs, which we consider in determining the appropriate percentage reduction
  in subsequent calculations.

[[Page 21880]]

 
\7\ See supra note 3021. S&P Global estimated that the cost of assessing Scope 1, Scope 2, and Scope 3 emissions
  for the first time is between $75,000 and $125,000. We take the midpoint of this range ($100,000) and apply
  the same percent reduction (60%) reflected in the Persefoni meeting memorandum to estimate ongoing costs.
  $100,000*(1-0.6) = $40,000.
\8\ See South Pole Memo. South Pole indicated that conducting a bottom-up assessment of Scope 1, Scope 2, and
  Scope 3 emissions for the first time can cost between [euro]10,000 and [euro]100,000. We take the midpoint
  ([euro]55,000), apply the 2022 average exchange rate ($1.0538 USD/[euro]), and apply the same percent
  reduction (60% reduction) reflected in the Persefoni meeting memorandum to estimate ongoing costs.
  ([euro]55,000)*(1.0538 USD/[euro])*(1-0.6) = $23,184.

    There were other commenters and sources that contained individual 
cost estimates specific to only Scope 1,\3055\ Scopes 1 and 2 
combined,\3056\ or only Scope 3 emissions measurement,\3057\ as opposed 
to an aggregate cost that combines all three scopes. However, because 
we determined that all estimates indicated by Column (5) of Table 8 
include the aggregate cost of all three scopes of emissions and to 
remain conservative in our estimation, we opted not to use estimates of 
individual scopes of emissions for comparability.\3058\
---------------------------------------------------------------------------

    \3055\ See letters from Soc. Corp. Gov. (June 17, 2022); and 
IDFA.
    \3056\ See supra notes 3021, 3023, and 2995; see also letter 
from IDFA.
    \3057\ See letters from Williams, Inc.; and [Oslash]rsted.
    \3058\ In some cases, commenters' estimates of assessing Scope 1 
emissions are greater than other commenters' combined estimates of 
assessing Scope 1, Scope 2, and some Scope 3 emissions. However, 
because the resulting adjustment factor will be subtracted from 
Column (3) of Table 8 to obtain compliance costs, we do not include 
the greater Scope 1 cost estimates in order to remain conservative 
and to avoid understating final compliance costs. In the following 
subsection, however, we include these cost estimates when estimating 
the combined costs of Scopes 1 and 2 emissions in a similar bid to 
remain conservative.
---------------------------------------------------------------------------

    We have so far obtained the adjustment factors for setting targets 
and goals ($54,015) and measuring Scope 1, Scope 2, and some Scope 3 
emissions ($79,236). We next subtract these amounts, where applicable, 
from Column (3), from which the result is presented as the adjusted 
cost in Column (6). The median of the adjusted costs is $183,135. We 
next extrapolate the initial cost using the assumption of a 44 percent 
cost reduction \3059\ from the first year to subsequent years of these 
corresponding disclosures. Thus, we estimate that the aggregate 
compliance costs for governance disclosure; disclosure regarding 
climate-related risks that have material impacts on strategy, business 
model, and outlook; and risk management disclosure are $327,000 for the 
first year and $183,000 for subsequent years (rounded to the nearest 
$1,000).\3060\
---------------------------------------------------------------------------

    \3059\ As noted earlier in this subsection, the FCA rule and 
BEIS rule reflect a 56% and 32% reduction in cost, respectively, 
from initial year to subsequent years regarding the provisions of 
interest (i.e., governance disclosure; disclosure regarding climate-
related risks that have material impacts on strategy, business 
model, and outlook; and risk management disclosure). The median, 
44%, is used to estimate the initial cost.
    \3060\ No commenters or sources offered estimates specific to 
the cost of the disclosure of material expenditures directly related 
to climate-related activities as part of a registrant's strategy, 
transition plan and/or targets and goals. Nevertheless, the 
Commission's estimates (i.e., $327,000 for the first year and 
$183,000 annually in subsequent years) should reflect this cost 
based on our application of conservative assumptions and because of 
the small expected incremental cost given that registrants will 
likely be tracking the material expenditures under the financial 
statement disclosure requirements.
---------------------------------------------------------------------------

    There were additional estimates associated with TCFD disclosure 
costs that were ultimately not included in this analysis, mainly due to 
the lack of details needed to obtain a quantitative estimate.\3061\ For 
example, one commenter stated that their ``Head of Corporate ESG 
Strategy and Reporting leads a team of employees that required seven 
months to gather data and draft disclosures for our 2021 TCFD Report in 
coordination with numerous subject matter experts across our entire 
organization.'' \3062\ However, the commenter did not specify how many 
staff or FTEs are involved, which precludes us from reliably 
calculating burden hours and associated costs. Another commenter 
asserted that the ``actual cost for complete alignment to TCFD could be 
up to $1,000,000 per registrant over several years.'' Because the 
commenter did not provide the number of years, however, we are unable 
to obtain the annual costs.\3063\ Other sources provided costs that had 
general descriptions (e.g., ``implementation costs'' or ``two FTEs . . 
. dedicated to climate reporting'') that did not explicitly mention 
``TCFD'' disclosures.\3064\ We similarly did not include such estimates 
given that we cannot reliably infer whether these costs are reflective 
of TCFD disclosures and the specific provisions of interest.
---------------------------------------------------------------------------

    \3061\ See, e.g., letters from Soc. Corp. Gov. (June 11, 2021); 
Nasdaq; Chamber; and AEPC.
    \3062\ See letter from Nasdaq.
    \3063\ See letter from AEPC.
    \3064\ See, e.g., letters from RILA; Nutrien; and Soc. Corp. 
Gov. (June 11, 2021).
---------------------------------------------------------------------------

ii. Cost Estimates of Scope 1 and 2 Emissions Disclosures
    The final rules require the disclosure of Scope 1 and 2 emissions, 
if material, by LAFs and AFs, while SRCs and EGCs are exempt.\3065\ To 
inform our assessment of the associated cost, we review comment letters 
and other sources that contain relevant estimates, presented in Table 
11. We note that three of the estimates are specific to the cost of 
assessing Scope 1 emissions only.\3066\ Nevertheless, we include them 
in Table 11 because (a) these Scope 1 emissions cost estimates are 
generally higher than other estimates that include both Scope 1 and 2 
emissions, and (b) the costs can only increase if the Scope 1 emissions 
estimates are adjusted to also account for Scope 2 emissions (i.e., 
they are understated with respect to the cost of both Scope 1 and 2 
emissions). Thus, we include the Scope 1 emissions cost estimates to 
remain conservative in our estimation.
---------------------------------------------------------------------------

    \3065\ See 17 CFR 229.1505(a)(1).
    \3066\ The cost estimates that are specific to Scope 1 only are 
those from the Society for Corporate Governance (Company 4), Energy 
Transfer LP, and IDFA ($100,000).

                              Table 11--Costs of Assessing Scope 1 and 2 Emissions
----------------------------------------------------------------------------------------------------------------
            Commenter or Source                         Company (if specified)                  Ongoing cost
----------------------------------------------------------------------------------------------------------------
Persefoni.................................  ..............................................           \1\ $25,000
FCA rule..................................  ..............................................            \2\ 17,836
S&P Global................................  ..............................................            \3\ 40,000
International Dairy Foods Association.....  ..............................................            \4\ 66,600
International Dairy Foods Association.....  ..............................................           \5\ 100,000
Energy Transfer LP........................  ..............................................        \6\ 10,162,035
Society for Corporate Governance (June 17,  Company 4.....................................           \7\ 300,000
 2022).
                                                                                           ---------------------

[[Page 21881]]

 
    Median................................  ..............................................               $66,600
----------------------------------------------------------------------------------------------------------------
\1\ See supra note 3023. Persefoni estimated that the ongoing cost is $25,000. This reflects a 44% cost
  reduction from its initial cost estimate, which we consider in determining the appropriate percentage
  reduction in subsequent calculations.
\2\ See supra note 2995. The FCA estimates initial costs to be [pound]43,259, which is converted to dollars
  based on the 2022 average exchange rate. ([pound]43,259)*(1.2369 USD/GBP) = $53,507. The ongoing costs,
  however, are not explicitly provided, but instead are grouped with another disclosure component. Because the
  initial costs make up one third of the total initial cost when combined with this other component, we assume
  that the same proportion holds with respect to ongoing costs. $53,507/3 = $17,836. This reflects a 67% cost
  reduction from its initial cost estimate, which we consider in determining the appropriate percentage
  reduction in subsequent calculations.
\3\ See supra note 3021.
\4\ See letter from IDFA. One unnamed company reported that it spends between 100 and 200 hours to maintain
  automated GHG aggregation and reporting software system for Scope 1 and Scope 2 emissions. We take the
  midpoint of the burden hours and convert to dollars based on $444/hr. (150 hours)*($444/hr) = $66,600.
\5\ See id. Another unnamed company reported that it spends about $100,000 to maintain its GHG measuring system,
  with the context suggesting that this is specific to Scope 1 emissions. Although this estimate does not
  include the cost of assessing Scope 2, it is nevertheless included to remain conservative in our estimation.
\6\ See letter from Energy Transfer LP. This company stated that although it already tracks Scope 1 emissions to
  some degree, the incremental costs to comply with the proposed rules would be approximately $7 million in 2006
  dollars, which is equivalent to $10,162,035 in 2022 dollars. However, because this is only the incremental
  cost, it is presumably understated with respect to the full cost (i.e., incremental costs are a subset of the
  full cost of disclosure). It is further understated since the estimate is specific to Scope 1 emissions only,
  whereas we seek to estimate the costs of assessing Scope 1 and 2 emissions. Nevertheless, because this
  estimate is greater than the other estimates in Table 11, it is included to remain conservative in our
  estimation.

    The median ongoing cost of assessing Scope 1 and 2 emissions in 
Table 11 is $66,600. To estimate the initial cost, we refer to two 
sources that reported both initial and ongoing costs to inform our 
assessment of the percentage reduction between the two costs. One 
organization's estimated costs reflect a reduction of 44 percent \3067\ 
while another's reflect a reduction of 67 percent.\3068\ We use the 
median (56 percent) to extrapolate the initial cost. As a result, we 
estimate that the cost of assessing Scope 1 and 2 emissions is $151,000 
\3069\ for the first year and $67,000 for subsequent years (rounded to 
the nearest $1,000).
---------------------------------------------------------------------------

    \3067\ See supra note 3023; see also footnote 1 in Table 11.
    \3068\ See supra note 2995; see also footnote 2 in Table 11.
    \3069\ ($66,600)/(1-0.56) = $151,364.
---------------------------------------------------------------------------

iii. Cost Estimates of Assurance for Scope 1 and 2 Emissions 
Disclosures
    With respect to Scope 1 and 2 emissions disclosures, the final 
rules require assurance at different levels (limited or reasonable) 
with different phase in periods depending on whether the registrant is 
an LAF or AF, while SRCs and EGCs are exempt.\3070\ To assess the costs 
of assurance, we reviewed comment letters that provided relevant, 
quantitative cost estimates, as presented in Table 12.
---------------------------------------------------------------------------

    \3070\ See supra section II.I.
---------------------------------------------------------------------------

    The estimates displayed varying degrees of assurance ``coverage'' 
(i.e., which specific disclosures were being assured). Some commenters 
reported assurance costs but did not explicitly define what climate-
related disclosure items were being assured.\3071\ In such cases, we 
applied the conservative assumption that the reported assurance costs 
were specific to their GHG emissions disclosures only. Other estimates 
were specifically attributed to Scope 1 and 2 emissions,\3072\ 
consistent with the final rules' requirements, where applicable. The 
majority of estimates, however, pertained to the combined assurance 
costs for all three scopes of emissions,\3073\ which presumably 
overstate the assurance costs for Scope 1 and 2 emissions only. 
Nevertheless, we include these estimates for two reasons: first, we 
included them because we cannot reliably isolate the assurance costs 
for Scope 1 and 2 emissions only (i.e., by excluding Scope 3 
emissions); and second, by including costs that are overstated relative 
to what the final rules require, we remain conservative in our 
estimation.
---------------------------------------------------------------------------

    \3071\ See, e.g., letters from Soc. Corp. Gov (June 11, 2021 and 
June 17, 2022); and Persefoni.
    \3072\ See, e.g., letters from Soc. Corp. Gov (June 17, 2022); 
and IDFA.
    \3073\ See, e.g., letters from Soc. Corp. Gov (June 11, 2021 and 
June 17, 2022).
---------------------------------------------------------------------------

    Other commenters, however, stated that their assurance cost 
estimates covered both their GHG emissions and the proposed financial 
statement disclosures.\3074\ It is likely that a significant portion of 
these costs is attributable to the proposed financial statement 
disclosures, which several commenters stated would come with high 
costs.\3075\ We therefore did not include these estimates as they are 
less likely to be representative of assurance costs for Scope 1 and 2 
only compared to other aggregate estimates.
---------------------------------------------------------------------------

    \3074\ See letters from Soc. Corp. Gov (June 17, 2022); and 
Cummins.
    \3075\ See letter from ERM CVS (stating that the ``fees for the 
[attestation for climate-related data, including GHG emissions] may 
be small compared to the financial audit fees'' associated with the 
proposed rules).
---------------------------------------------------------------------------

    The estimates also varied in the level of assurance, with most 
estimates equally split between either limited assurance or not 
specifying the level assurance. To be conservative, any estimates that 
did not specify the level of assurance were assumed to be limited 
assurance. One commenter estimated only the incremental cost of 
switching from limited to reasonable assurance.\3076\ While we cannot 
infer the actual costs of either limited or reasonable assurance in 
this case, we nevertheless include the incremental cost because it is 
relatively high, allowing us to remain conservative in our estimation.
---------------------------------------------------------------------------

    \3076\ See letter from Salesforce.

[[Page 21882]]



                       Table 12--Costs of Limited Assurance for GHG Emissions Disclosures
----------------------------------------------------------------------------------------------------------------
                                                                                              Limited assurance
                 Commenter                              Company (if specified)                      cost
----------------------------------------------------------------------------------------------------------------
Society for Corporate Governance..........  Basic Materials...............................           \1\ $30,000
(June 11, 2021)...........................  Comm. Services................................           \2\ 600,000
                                            Health Care...................................            \3\ 22,000
Society for Corporate Governance..........  Company 1.....................................           \4\ 400,000
(June 17, 2022)...........................  Company 3.....................................            \5\ 13,000
                                            Company 5.....................................            \6\ 45,000
                                            Company 6.....................................            \7\ 15,000
                                            Company 7.....................................            \8\ 50,000
                                            Company 8.....................................            \9\ 12,500
                                            Company 9.....................................           \10\ 72,000
                                            Company 10....................................           \11\ 15,000
                                            Company 11....................................           \12\ 15,000
                                            Company 12....................................           \13\ 75,000
                                            Company 13....................................          \14\ 550,000
Persefoni.................................  ..............................................           \15\ 82,000
International Dairy Foods Association.....  ..............................................           \16\ 62,500
Salesforce................................  ..............................................          \17\ 800,000
                                                                                           ---------------------
    Median................................  ..............................................                50,000
----------------------------------------------------------------------------------------------------------------
\1\ See letter from Soc. Corp. Gov (June 11, 2021). The Basic Materials company reported spending $30,000 for
  assurance over its Scope 1, 2, and 3 emissions without specifying the level of assurance.
\2\ See id. The Communication Services (``Comm. Services'') company, which discloses Scope 1, 2, and 3 emissions
  (among other climate-related disclosures), reported that assurance costs are approximately $600,000 annually
  without specifying the coverage or level of assurance.
\3\ See id. The Health Care company, which discloses Scope 1, Scope 2, and Scope 3 (among other climate-related
  disclosures), reported that assurance costs are $22,000 without specifying the coverage or level of assurance.
\4\ See letter from Soc. Corp. Gov (June 17, 2022). Company 1 reported spending over $400,000 for ``limited
  assurance from a public company accounting firm over select environmental metrics disclosed in its
  sustainability report, including its Scope 1, 2 (location-based and market-based), and Scope 3 (including a
  comparison against the base year) GHG emissions; total energy consumed; percentage grid electricity;
  percentage renewable energy; and water usage.''
\5\ See id. Company 3 currently pays $13,000 annually for limited assurance over its Scope 1, Scope 2, and one
  category of Scope 3 emissions. The cost estimated may be understated given that this company believes that its
  current assurance may not be in compliance with the proposed rules and that costs may increase if the rule is
  adopted as proposed.
\6\ See id. Company 5 reported spending over $45,000 annually for ``limited assurance from a professional audit
  firm for disclosure in its sustainability report of its Scope 1 and 2 GHG emissions and defined categories of
  its Scope 3 GHG emissions (exclusive of processing and use of, and end-of-life treatment for, sold products,
  and certain other downstream activities).''
\7\ See id. Company 6 reported spending $15,000 annually for assurance over its Scope 1 and 2 emissions and
  certain Scope 3 operational emissions (such as emissions associated with business travel and downstream leased
  assets) without specifying the level of assurance.
\8\ See id. Company 7 reported spending $50,000 annually for assurance over its Scope 1, Scope 2, and some
  categories of Scope 3 emissions without specifying the level of assurance.
\9\ See id. Company 8 reported spending between $10,000 and $15,000 annually for assurance over its Scope 1 and
  2 emissions. We include the midpoint of this range in the table ($12,500).
\10\ See id. Company 9 reported spending $10,000 for reasonable assurance over its Scope 1, Scope 2, and some
  Scope 3 emissions. It also noted that another firm offered to do the same work for $180,000. To be
  conservative, we use this higher estimate instead. Next, we extrapolate the cost of limited assurance based on
  a comment letter, which states that the cost of reasonable assurance could be 2-3 times higher than limited
  assurance. See letter from Center for Climate and Energy Solutions. By taking the midpoint (2.5), we estimate
  the cost of limited assurance: $180,000/2.5 = $72,000.
\11\ See id. Company 10 reported spending $15,000 annually for limited assurance over its Scope 1, Scope 2, and
  partial Scope 3 (fuel and energy-related activities and business travel) emissions.
\12\ See id. Company 11 reported spending $15,000 annually for limited assurance over its Scope 1, Scope 2, and
  some Scope 3 (business travel, commuting, waste, downstream leased assets) emissions.
\13\ See id. Company 12 reported spending $30,000 for limited assurance over its Scope 1, 2, and 3 emissions. It
  also noted that another firm offered to do the same work for $75,000. To be conservative, we use this higher
  estimate instead.
\14\ See id. Company 13 reported spending $550,000 for limited assurance over its Scope 1, 2, and 3 emissions.
\15\ See ERM survey. The ERM survey indicates that 28 respondents spend an average of $82,000 for assurance/
  audits related to climate. According to the commenter, this ``survey did not ask issuer respondents to include
  details of the specific level of assurance or the scope of business practices covered, whether assurance
  covered all locations or all business units, or whether it consisted of limited or reasonable assurance. The
  costs reported by issuer respondents may include third-party assurance of Scope 1 and/or 2 GHG emissions
  metrics, financial metrics, or both.'' Although the level and coverage of assurance are unspecified, we apply
  the conservative assumption that the reported cost pertains to limited assurance of Scope 1 and 2 emissions.
\16\ See letter from IDFA. An unnamed, privately held company reported that it discloses Scope 1 and 2
  emissions. It further states that it spends between ``$50,000-$75,000 or more that is necessary to
  periodically hire a 3rd party consultant to review and re-validate the company's internal systems.'' The level
  of assurance is unspecified. We include the midpoint of this range in the table ($62,500).
\17\ See letter from Salesforce. This commenter did not provide actual costs of limited or reasonable assurance,
  but it estimated that its incremental cost of switching from limited to reasonable assurance over its Scope 1,
  2, and 3 emissions could range from $1 to 3 million. We include this incremental cost since it serves as a
  lower bound for its reasonable assurance costs. We take the midpoint of this range ($2 million) and convert to
  limited assurance (see footnote 10 of this table): ($2 million)/2.5 = $800,000. This estimate is understated
  considering that it is derived from the incremental cost as opposed to actual cost.

    Table 12 presents the cost estimates of limited assurance from 
commenters, with any adjustments or assumptions explained in the table 
footnotes. The median of these estimates ($50,000) is subsequently used 
to extrapolate the cost of reasonable assurance. One commenter stated 
that reasonable assurance may cost two to three times more than limited 
assurance, based on input from stakeholders with expertise in 
developing GHG inventories for companies.\3077\ We use the upper end of

[[Page 21883]]

this range and assume that reasonable assurance is three times the cost 
of limited assurance. As a result, we estimate that the cost of limited 
assurance for Scope 1 and Scope 2 emissions disclosures is $50,000, 
while the cost for reasonable assurance is $150,000.
---------------------------------------------------------------------------

    \3077\ See letter from Center for Climate and Energy Solutions.
---------------------------------------------------------------------------

    Costs may vary, however, depending on the type of assurance 
provider. Specifically, assurance provided by a registered public 
accounting firm may cost more than if it were provided by a different 
type of service provider. However, the final rules do not require 
assurance to be obtained from a registered public accounting 
firm.\3078\ Conversely, costs may be lower if a registrant uses its 
auditor to also provide assurance over its GHG emissions disclosures 
rather than contracting with a different third-party. We also note that 
some of the companies listed in Table 12 indicated that they were 
unsure as to whether their current assurance practices would meet the 
proposed rules' requirements.\3079\ We are likewise unable to make this 
determination without additional details on these companies' assurance 
practices. If these companies were to incur additional costs to meet 
the final rules' assurance requirements, the Commissions' compliance 
cost estimates may be understated in this regard. However, we believe 
that our conservative approach in other aspects (e.g., incorporating 
assurance costs that cover all three scopes of emissions instead of 
just Scopes 1 and 2 emissions) mitigate this concern.
---------------------------------------------------------------------------

    \3078\ One commenter suggested that most registrants will 
nevertheless seek assurance from registered public accounting firms 
to comply with the proposed rules. See letter from Soc. Corp. Gov. 
(June 17, 2022). To the extent that this is also true of the final 
rules, registrants may incur higher assurance costs.
    \3079\ See letter from Soc. Corp. Gov (June 17, 2022).
---------------------------------------------------------------------------

iv. Estimates of Reporting Costs for Scenario Analysis and Targets/
Goals
    While the final rules do not require any registrants to undertake 
activities related to scenario analysis or setting targets and goals, 
they may require the attendant disclosures under specific 
circumstances,\3080\ which will result in affected registrants 
incurring associated reporting costs. To estimate this reporting cost, 
we first review comment letters and other sources that inform our 
assessment on the costs of undertaking scenario analysis and targets or 
goals, then apply the assumption that 10 percent of this cost comprise 
the reporting cost.\3081\
---------------------------------------------------------------------------

    \3080\ See sections II.G and II.D.3.
    \3081\ The BEIS rule estimates that in the first year of 
compliance, the reporting cost of metrics and targets disclosure is 
approximately 9.4% of the cost of the ``annual data gathering'' 
activity associated with metrics and targets (see supra note 2996). 
We similarly assume that reporting costs are 10% of the cost of 
undertaking the associated activity.
---------------------------------------------------------------------------

    Table 13 presents the relevant sources of the costs of scenario 
analysis.\3082\ The FCA rule estimates the ongoing cost to be $40,688 
for larger issuers. The BEIS rule contains ongoing cost estimates for 
two different types of scenario analysis: qualitative ($32,190) and 
quantitative ($79,706). Because the final rules allow for registrants 
to provide disclosures of either type, where applicable, we include the 
estimates of both. Finally, a survey indicates that the respondents' 
average annual expenditures is $154,000. The median of these ongoing 
costs is $60,197. We next extrapolate the initial cost. Some of the 
sources provide both the initial and ongoing cost of scenario analysis 
(see Table 13 footnotes), from which we determine the median percentage 
cost reduction (50 percent). This implies an initial cost of $120,394. 
Assuming that 10 percent of these costs comprise the reporting costs, 
we estimate that the reporting costs of scenario analysis is $12,000 in 
the initial year and $6,000 annually in subsequent years (rounded to 
the nearest $1,000).
---------------------------------------------------------------------------

    \3082\ See supra note 3052.

                  Table 13--Costs of Scenario Analysis
------------------------------------------------------------------------
                 Commenter or source                      Ongoing cost
------------------------------------------------------------------------
FCA rule.............................................         \1\ 40,688
BEIS rule: qualitative scenario analysis.............         \2\ 32,190
BEIS rule: quantitative scenario analysis............         \3\ 79,706
ERM survey...........................................       \4\ 154,000
------------------------------------------------------------------------
\1\ See supra note 2995. The FCA rule estimates ongoing costs to be
  [pound]32,896 for larger issuers, which is converted to dollars based
  on the 2022 average exchange rate. ([pound]32,896)*(1.2369 USD/GBP) =
  $40,688. This reflects a 50% reduction from the initial cost estimate
  ($81,377), which we consider in determining the appropriate percentage
  reduction in subsequent calculations.
\2\ See supra note 2996. The BEIS rule estimates ongoing costs of
  qualitative scenario analysis to be [pound]26,025, which is converted
  to dollars based on the 2022 average exchange rate.
  ([pound]26,025)*(1.2369 USD/GBP) = $32,190. This reflects a 25%
  reduction from the initial cost estimate ($42,920), which we consider
  in determining the appropriate percentage reduction in subsequent
  calculations.
\3\ See id. The BEIS rule estimates ongoing costs of quantitative
  scenario analysis to be [pound]64,440 ([pound]52,040 for writing or
  quantifying scenarios and [pound]12,400 additional cost for quality
  assurance and internal verification). This is converted to dollars
  based on the 2022 average exchange rate. ([pound]64,440)*(1.2369 USD/
  GBP) = $79,706. The initial cost estimate is $240,194 ([pound]112,400
  for developing a model for conducting scenario analysis, [pound]69,390
  for writing and quantifying scenarios, and [pound]12,400 additional
  cost for quality assurance and internal verification, converted to
  dollars based on the 2022 average exchange rate). This reflects a 67%
  reduction from initial to ongoing costs, which we consider in
  determining the appropriate percentage reduction in subsequent
  calculations.
\4\ See ERM survey. The ERM survey indicates that $154,000 is the
  average of respondents' expenditures with respect to scenario
  analysis, which ``includes all costs to a company related to
  conducting assessments of the impact of climate in the short, medium,
  or long term using scenario analysis as well as TCFD/CDP disclosure of
  risks and opportunities.'' The survey does not include data on initial
  costs.

    With respect to the reporting costs of targets and goals 
disclosure, we refer to Table 9, which presents the ongoing costs of 
undertaking targets and goals. The median ongoing cost of targets is 
$54,015. Using the median percent cost reduction from the initial year 
(45 percent), we extrapolate the initial cost to be $98,209. We assume 
10 percent comprise the reporting costs.\3083\ Thus, we estimate that 
the reporting costs of targets and goals are $10,000 in the initial 
year of disclosure and $5,000 annually in subsequent years (rounded to 
the nearest $1,000).
---------------------------------------------------------------------------

    \3083\ See supra note 3081.
---------------------------------------------------------------------------

v. Cost Estimates of Amendments to Regulation S-X and Incremental Audit 
Fees
    We reviewed comment letters that provided cost estimates pertaining 
to the amendments to Regulation S-X, which were often in the millions 
of dollars.\3084\ We considered these

[[Page 21884]]

estimates, presented in Table 14, when developing our cost estimates 
but made adjustments to reflect the changes made to the final 
rules,\3085\ which we expect will substantially reduce the compliance 
burden compared to the proposal.
---------------------------------------------------------------------------

    \3084\ See, e.g., letters from API; Chamber; NRF; WEA/USOGA; and 
Williams Cos.
    \3085\ See section II.K.

        Table 14--Estimated Costs of Amendments to Regulation S-X
------------------------------------------------------------------------
                Commenter                              Cost
------------------------------------------------------------------------
Chamber of Commerce\1\..................  $1.5-2.5 million (initial); $1-
                                           2 million (ongoing).
Williams Companies, Inc.................  ``Millions of dollars'' \2\
                                           (initial).
Western Energy Alliance and U.S. Oil and  > $100 million\3\ (initial).
 Gas Association.
1. The Chamber of Commerce stated that
 this estimate was provided by one Well-
 Known Seasoned Issuer it consulted
 regarding the proposed amendments.
2. Williams Cos. estimated the costs of
 implementing the proposed amendments to
 Regulation S-X would be in the
 ``millions of dollars'' without
 providing a more specific estimate.
3. Western Energy Alliance and U.S. Oil
 and Gas Association stated that this
 estimate was based on discussions with
 public companies that estimated costs
 of over $100 million for large
 companies when considering the need for
 new systems and staff training.
------------------------------------------------------------------------

    We consider the ``millions of dollars'' estimate provided by 
Williams Companies, Inc. as the median \3086\ cost estimate. Assuming 
the range ``millions of dollars'' refers to a number less than $10 
million but more than $1 million,\3087\ we take the midpoint of $5 
million as the starting point for our estimate of the costs of the 
proposed Regulation S-X amendments.
---------------------------------------------------------------------------

    \3086\ See supra note 3046.
    \3087\ We recognize the possibility that the commenter's 
language of ``millions of dollars'' may be referring to a number 
greater than $10 million. However, if the commenter was referring to 
``tens of millions'' or ``hundreds of millions'' of dollars, we 
assume that the commenter would have stated it as such. Without 
additional information, we believe it is reasonable to read this 
comment as meaning less than $10 million.
---------------------------------------------------------------------------

    We believe the $5 million, however, should be adjusted downward as 
the costs associated with the final rules should be significantly less 
than the proposed rules. Many of the concerns that commenters expressed 
about the proposed rules were primarily focused on the expected 
challenges and costs related to implementing the proposed Financial 
Impact Metrics, which would have constituted most of the costs 
associated with the proposed amendments to Regulation S-X. 
Specifically, these commenters expressed concerns about implementing 
new accounting processes, policies, controls, and IT systems to 
identify and distinguish activities related to climate-related risks 
and transition activities from normal routine business activities and 
then to calculate the disclosure threshold and track those impacts on a 
line-by-line basis.\3088\ These commenters also highlighted challenges 
posed by the significant number of estimates and assumptions that, in 
their view, would be required to prepare the proposed 
disclosures.\3089\
---------------------------------------------------------------------------

    \3088\ See, e.g., letter from NRF (``Existing accounting systems 
are not designed for tracking and reporting such cost impacts, 
particularly with no meaningful cost threshold, across all line 
items, because registrants do not have systems in place to collect, 
calculate, and report these line items, especially at such a 
granular level.'').
    \3089\ See, e.g., letter from Chamber (``[T]he Proposed Rules 
require untold estimates, assumptions and judgments against the 
backdrop of significant data limitations and speculative 
impacts.'').
---------------------------------------------------------------------------

    As discussed in greater detail above, the final rules have been 
significantly revised compared to the proposal to reduce burdens on 
registrants. The final rules do not include the proposed Financial 
Impact Metrics, which should result in a substantial reduction in 
compliance costs and burdens.\3090\ For example, registrants will not 
be required to disclose any impacts to the Statement of Cash Flows. 
Moreover, registrants will not be required to disclose any impacts to 
revenues, costs savings, or cost reductions, which some commenters 
stated would be particularly difficult to disclose because such amounts 
are not currently captured in a registrant's books and records.\3091\ 
In addition, registrants will not be required to apply the 1% 
disclosure threshold on a line-by-line basis.
---------------------------------------------------------------------------

    \3090\ See letter from Williams Cos. (``Accounting for climate 
impacts would require companies to write entirely new and 
significant accounting policies, design and implement new controls, 
and develop and potentially pay for new software.'').
    \3091\ See, e.g., letters from Chamber (stating that ``GAAP 
financial statement line-items do not include amounts for lost 
revenues, cost savings, or cost reductions''); and Williams Cos. 
(stating that ``lost revenue'' does not exist under GAAP).
---------------------------------------------------------------------------

    Instead, the final rules focus the financial statement disclosures 
on expenditures related to a narrower category of activities as 
compared to the proposal: severe weather events and other natural 
conditions and the purchase and use of carbon offsets and RECs (one 
type of transition activity).\3092\ Commenters stated that discrete 
expenditures of this type are captured in the books and records and 
would be feasible to disclose.\3093\ Under the final rules, registrants 
will be required to apply the 1% disclosure threshold to severe weather 
events and other natural conditions. In addition, instead of applying 
the 1% disclosure threshold on a line-by-line basis throughout the 
financial statements as would have been required under the proposed 
rules, the 1% disclosure threshold will be applied only to two amounts 
under the final rules to determine if disclosure is required.\3094\ 
Specifically, disclosure is required only if (1) the aggregate amount 
of expenditures expensed as incurred and losses equals or exceeds one 
percent of the absolute value of income or loss before income tax 
expense or benefit; and/or (2) the aggregate amount of the absolute 
value of capitalized costs and charges equals or exceeds one percent of 
the absolute value of stockholders' equity or deficit, subject to de 
minimis thresholds.\3095\ In addition, the final rules prescribe an 
attribution principle--significant contributing factor--in response to 
commenters' concerns about their ability to isolate and attribute 
expenditures to severe

[[Page 21885]]

weather events and other natural conditions.\3096\
---------------------------------------------------------------------------

    \3092\ See 17 CFR 210.14-02(c), (d), and (e).
    \3093\ See letters from Autodesk (noting that if a fire or storm 
destroys a registrant's facilities, the associated costs, 
impairments, and contingencies would be accounted for and, if 
material, disclosed under U.S. GAAP); Crowe; Dow; and Nutrien 
(noting that it would be operationally possible to track specific 
costs incurred to mitigate transition risks or costs incurred due to 
severe weather events and natural conditions).
    \3094\ See 17 CFR 210.14-02(b).
    \3095\ See id.
    \3096\ See 17 CFR 210.14-02(g). See also letter from NAM 
(``Companies would be required to count every single financial 
impact that could plausibly be attributable to climate risks, 
weather events, or transition activities, somehow determine the 
degree of climate causation associated with each, and then aggregate 
these impacts to determine if they meet the proposed 1% threshold--
for each line item in the consolidated financial statements.'').
---------------------------------------------------------------------------

    The final rules require registrants to disclose costs, 
expenditures, and losses incurred in connection with the purchase and 
use of carbon offsets and RECs only if carbon offsets or RECs have been 
used as a material component of a registrant's plans to achieve its 
disclosed climate-related targets or goals.\3097\ As explained above, 
this requirement is narrower than the proposed rules, which would have 
required registrants to disclose expenditures incurred to reduce GHG 
emissions or otherwise mitigate exposure to transition risks in the 
financial statements. Although registrants will not be required to 
disclose expenditures generally related to transition activities in the 
financial statements, under the final rules, registrants are required 
to disclose material expenditures incurred that directly result from: 
(1) disclosed activities to mitigate or adapt to climate-related risk 
(in management's assessment); (2) disclosed transition plans; and (3) 
disclosed targets and goals, as part of the final amendments to 
Regulation S-K. Since these disclosure requirements are no longer part 
of the amendments to Regulation S-X, the disclosures will fall outside 
the scope of the financial statement audit and a company's ICFR, which, 
along with the materiality qualifier, should further reduce costs and 
burdens as compared to the proposed rules.\3098\
---------------------------------------------------------------------------

    \3097\ See 17 CFR 210.14-02(e).
    \3098\ See 17 CFR 229.1502(d)(2), (e)(2) and 17 CFR 
229.1504(c)(2).
---------------------------------------------------------------------------

    In addition, the final rules limit the scope of the requirement to 
disclose estimates and assumptions in the financial statements to only 
those estimates and assumptions materially impacted by severe weather 
events and natural conditions and any climate-related targets or 
transition plans disclosed by the registrant, whereas under the 
proposed rules, registrants would have been required to disclose 
estimates and assumptions impacted by transition activities more 
generally.\3099\
---------------------------------------------------------------------------

    \3099\ See 17 CFR 210.14-02(h).
---------------------------------------------------------------------------

    Finally, the final rules require the disclosure for historical 
fiscal year(s) only to the extent the required information was 
previously disclosed or required to be disclosed (i.e., on a 
prospective basis).\3100\ Commenters stated that the proposed 
requirement to provide disclosure for the historical fiscal year(s) 
included in the consolidated financial statements would be burdensome 
and costly because, among other things, it would require issuers to 
``retroactively estimate their historical data.'' \3101\ However, under 
the final rules, no registrants will be required to provide disclosure 
for fiscal periods in which they were not required to collect or report 
the data.
---------------------------------------------------------------------------

    \3100\ See 17 CFR 210.14-01(d).
    \3101\ See letter from BlackRock; see also letter from Autodesk 
(stating that ``it may be prohibitively costly'' for registrants to 
accurately compile the necessary data, particularly for historical 
periods).
---------------------------------------------------------------------------

    After taking into account the fact that the final rules eliminate 
many of the primary drivers of the costs identified by commenters, and 
based on staff knowledge of accounting practices, we are using $500,000 
as an estimated initial direct cost of compliance. While this 
represents a significant reduction from the median cost estimate 
provided by commenters, we view it as an upper bound estimate given the 
numerous changes from the proposal and the fact that discrete 
expenditures of this type are already captured in the books and records 
and therefore should be less costly to disclose.\3102\ Thus, we expect 
that in many cases, based on staff knowledge of accounting practices, 
costs will be significantly lower.
---------------------------------------------------------------------------

    \3102\ See supra note 3093.
---------------------------------------------------------------------------

    Although we anticipate that the amendments to Regulation S-X we are 
adopting will be significantly less costly to apply than the proposed 
rules, registrants will incur some implementation costs related to 
adjustments in processes and systems, including systems of internal 
control. We expect these adjustments will be far fewer than would have 
been required under the proposed rules.
    With respect to the final amendments to Regulation S-X, registrants 
may need to adjust their internal processes and systems to (1) 
identify, track, and disclose the costs, expenditures, charges, and 
losses incurred as a result of severe weather events and other natural 
conditions and related to the purchase and use of carbon offsets and 
RECs; (2) calculate the disclosure thresholds; (3) identify and 
disclose the amount of relevant recoveries; (4) evaluate and disclose 
financial estimates and assumptions materially impacted by severe 
weather events and other natural conditions or disclosed targets; and 
(5) to provide contextual information.
    To calculate the upper bound of the range for ongoing costs, we 
used the estimates for the initial and ongoing costs related to the 
proposed amendments to Regulation S-X provided by the Chamber of 
Commerce to determine that the expected the ongoing costs would be 
approximately 75% of the initial cost.\3103\ Applying that reduction to 
the upper bound of the Commission's initial cost estimate of $500,000 
results in an estimated upper bound of $375,000 for compliance with the 
amendments to Regulation S-X on an ongoing, annual basis.\3104\ As 
noted above, given the feedback from commenters that our cost estimates 
in the proposed rules were too low, we have considered the upper bound 
of the estimated range in evaluating the economic impact of the final 
rules. However, we acknowledge the precise amount of both the 
implementation costs and ongoing costs will vary depending on a number 
of factors including the size and complexity of the registrant (and its 
financial reporting systems), and the frequency in which the registrant 
is exposed to severe weather events and other natural conditions, among 
other factors.
---------------------------------------------------------------------------

    \3103\ The initial range provided by the Chamber of Commerce was 
$1.5-$2.5 million while the ongoing estimate was $1 million-$2 
million. To arrive at 75%, we take the midpoint of the two ranges 
($1.5 million ongoing cost to $2 million initial cost).
    \3104\ This figure is based on the $500,000 estimate for initial 
implementation costs multiplied by 75%. See id.
---------------------------------------------------------------------------

    We also consider incremental audit fees resulting from the final 
rules. To be clear, these incremental audit fees are separate from the 
fees associated with mandatory assurance over GHG emissions disclosure. 
In the Proposing Release, we estimated this incremental cost to be 
$15,000 with respect to the proposed rules.\3105\ Several commenters 
asserted that actual costs would be much higher.\3106\ One commenter 
estimated incremental audit fees of $70,000 to $225,000 per year.\3107\ 
Based on the final rules' significant reductions in the burden of 
complying with the amendments to Regulation S-X, we expect a 
corresponding reduction in the cost of the audit. As a result, we are 
using an upper bound cost estimate of $23,000 in incremental audit fees 
per year (rounded to the nearest $1,000).
---------------------------------------------------------------------------

    \3105\ See Proposing Release, section IV.C.2.a.
    \3106\ See, e.g., letters from Nutrien; Soc. Corp. Gov (June 17, 
2022); National Association of Manufacturers; Edison Electric 
Institute; ConocoPhillips; Business Roundtable; Association of 
American Railroads; Ernst & Young LLP; and ABA.
    \3107\ See letter from Nutrien.
---------------------------------------------------------------------------

c. Factors that Influence Direct Costs
    Incremental compliance costs may be relatively lower for 
registrants that

[[Page 21886]]

already disclose any of the information required by the final rules. 
For instance, covered registrants that already disclose Scope 1 and 2 
emissions will face lower incremental costs relative to those that have 
never previously disclosed such information, all else equal. As 
discussed in section A.5.a, the Commission staff found that 41 percent 
of annual reports on Form 10-K and Form 20-F filed in 2022 contained 
some degree of climate-related disclosures. To the extent that these 
disclosures meet some of the final rules' requirements, these 
registrants would face lower incremental costs.
    Some industry reports also document how a sizeable portion of U.S. 
companies report climate-related information under one or more third-
party frameworks that are either fully or partially aligned with the 
TCFD disclosure elements. Registrants with operations in foreign 
jurisdictions \3108\ that have disclosure requirements based on the 
TCFD's framework for climate-related financial reporting may also face 
lower incremental costs.\3109\ To the extent that the final rules 
overlap with the TCFD framework, we expect lower incremental compliance 
costs for registrants that already provide most or all disclosures 
according to the TCFD or related frameworks, including the CDP, which 
has fully integrated the TCFD disclosure elements into its disclosure 
questionnaire, and other frameworks and/or standards partly aligned 
with the TCFD framework.
---------------------------------------------------------------------------

    \3108\ Morningstar reports that over 35% of S&P 500 revenues 
came from foreign markets, while this percentage is around 20% for 
the revenues coming from companies belonging to the Russell 2000 
index. See Gabrielle Dibenedetto, Your U.S. Equity Fund is More 
Global Than You Think, Morningstar (Mar. 14, 2019), available at 
https://www.morningstar.com/articles/918437/your-us-equity-fund-is-more-global-than-you-think.
    \3109\ See section IV.A.4 for a discussion on International 
Disclosure Requirements.
---------------------------------------------------------------------------

    Similarly, while registrants in the insurance industry may face 
higher compliance costs due to their complex exposure to climate-
related risks, they have existing disclosure obligations that may 
effectively lower their incremental costs due to the final rules. As 
discussed in section IV.A.3, a large subset of insurance companies 
must, by state law, disclose their climate-related risk assessment and 
strategy via the NAIC Climate Risk Disclosure Survey. For example, a 
comment letter by a state insurance commissioner stated that because 
this survey overlaps extensively with the TCFD recommendations, these 
companies should be able to easily switch from their current reporting 
to reporting via the TCFD framework,\3110\ and accordingly, similar 
portions of the final rules.
---------------------------------------------------------------------------

    \3110\ See letter from Mike Kreidler, Office of the Insurance 
Commissioner, State of Washington (June 14, 2021).
---------------------------------------------------------------------------

    We reiterate that not all quantifiable cost estimates will be 
applicable to all registrants. For instance, the final rules will not 
require SRCs and EGCs to incur costs of assessing their GHG emissions 
or obtaining the associated assurance. Other registrants may not have 
to provide certain disclosures due to materiality qualifiers. Risk 
management disclosure, for example, will only be required with respect 
to climate risks that are material. Other disclosures that may not 
apply to all registrants include scenario analysis and targets and 
goals. The final rules do not require any registrants to undertake such 
activities, but if registrants voluntarily do so, the related 
disclosures (and costs) would only be required following a materiality 
determination. As a result, while certain registrants may incur some 
costs in order to make the prerequisite materiality determination, 
those that subsequently deem a disclosure component to be non-material 
would accordingly avoid the remaining portions of the estimated 
compliance costs associated with the disclosure (e.g., drafting, 
vetting and review, other reporting costs, and assurance in cases where 
Scope 1 and 2 emissions are not material).
    With regard to California state laws on climate-related disclosure, 
registrants that will be required to comply with the Climate Corporate 
Data Accountability Act and the Climate-Related Financial Risk Act may 
experience reduced costs of compliance with the final rules to the 
extent the California laws impose similar requirements for those 
registrants that are subject to them. Several commenters asserted that 
the recently enacted California laws, which reach some of the same 
entities and require some of the same types of disclosure as these 
final rules, could affect the benefits and costs of the final 
rules.\3111\ Another commenter stated that the Commission could not 
rely on the California laws to reduce cost estimates because, based on 
the compliance dates in the Proposing Release, the final rules would 
precede the California laws in implementation.\3112\ We disagree with 
that comment, in that enacted laws--even if not fully implemented--
imply future costs and benefits, and so we appropriately consider 
existing enacted laws as part of the baseline against which we consider 
the economic effects of the final rules.\3113\ However, our estimates 
of the final rules' direct compliance costs do not reflect any 
adjustments with respect to the California laws because, as discussed 
below, the details of their implementation are uncertain.
---------------------------------------------------------------------------

    \3111\ See, e.g., letters from Amer. for Fin. Reform, Public 
Citizen and Sierra Club (Oct. 26, 2023); Institute for Policy 
Integrity et. al; and Rep. Maxine Waters.
    \3112\ Letter from Chamber II.
    \3113\ See SEC Guidance on Economic Analysis (2012), supra note 
2574 (describing the baseline as ``the best assessment of how the 
world would look in the absence of the proposed action'').
---------------------------------------------------------------------------

    We expect that entities subject to the California laws could have 
lower incremental information gathering costs with respect to the final 
rules to the extent that there is overlap in the information that is 
required to be collected and reported under the final rules and the 
California laws. For example, because both the Climate Corporate Data 
Accountability Act and the final rules require companies to collect 
information to disclose their Scope 1 and Scope 2 emissions and 
``obtain an assurance engagement of the disclosure,'' to the extent 
that the information and reporting activities overlap, registrants 
subject to the final rules and the Climate Corporate Data 
Accountability Act may face lower incremental information gathering 
compliance costs.\3114\ However, the extent and overall impact of 
overlapping disclosure obligations are unclear.\3115\ The scope and 
requirements of the California laws differ from the final rules, such 
that compliance with the final rules could require information 
collection and reporting activities in addition to those performed to 
satisfy the California requirements.\3116\

[[Page 21887]]

Additionally, one of the California laws allows the covered entity to 
satisfy certain California disclosure requirements with a disclosure 
prepared pursuant to another law or regulation.\3117\ Therefore, while 
the California requirements may mitigate the costs of the final rules 
for some registrants, the degree of mitigation will depend on the 
regulations ultimately adopted and on the ways in which entities 
organize their compliance activities to satisfy reporting obligations 
in different jurisdictions.
---------------------------------------------------------------------------

    \3114\ One commenter agreed that compliance with the California 
laws could reduce the cost of compliance with the final rules, 
stating that ``. . . the costs of compliance with other provisions 
of the proposed rule will be reduced substantially due to overlap 
with California's new laws.'' Letter from Amer. for Fin. Reform. 
Public Citizen and Sierra Club (Oct. 26, 2023).
    \3115\ For example, the Climate Corporate Data Accountability 
Act directs a state agency to adopt implementing regulations by 
January 1, 2025 for reporting to begin in 2026. The details of those 
regulations are not yet available.
    \3116\ One commenter identified two differences in scope between 
the California laws and the proposed rules: (1) the Climate 
Corporate Data Accountability Act requires GHG emission disclosures 
``based on different organizational boundaries'' than the proposed 
rules; and (2) Climate Related Financial Risk Act requires biennial 
reporting, instead of annual reporting. See letter from Chamber II. 
This commenter also stated there could be additional administrative 
costs related to coordinating compliance with different reporting 
regimes. Id. We agree that differences such as these reduce the 
potential for cost mitigation through overlapping requirements 
(although we note that, in a change from the proposal, the final 
rules allow the organizational boundaries to differ from those used 
in the financial statements; see supra note 1034 and accompanying 
text).
    \3117\ See Climate Related Financial Risk Act, adding section 
38533(b)(1)(A).
---------------------------------------------------------------------------

    One commenter suggested that the California laws could increase 
compliance costs by increasing demand, and thus the cost, for external 
consultants and services.\3118\ We acknowledge this could occur in the 
short term; however, over the long-term, we expect that increased 
demand would cause new providers to enter the market, resulting in a 
corresponding increase in supply. An increase in the supply of 
providers would lead to greater competition among the external 
consultants, resulting in lower fees charged by consultants. To that 
end, the phased implementation of the final rules should mitigate most 
costs stemming from any shortage of consultants.
---------------------------------------------------------------------------

    \3118\ See letter from Chamber II; see also supra note 3125 and 
accompanying text.
---------------------------------------------------------------------------

    Registrants that have more exposure to material climate-related 
risks may face higher compliance costs to the extent that they must 
provide more extensive disclosures. However, we note that industries in 
which climate-risks are most likely to be material are also those that 
are already providing some degree of voluntary or mandatory 
disclosures.\3119\
---------------------------------------------------------------------------

    \3119\ See section IV.A.5.a.
---------------------------------------------------------------------------

    The incremental costs of the financial statement disclosures may be 
somewhat higher for companies with exposure to severe weather events or 
other natural conditions that are difficult to assess, track, and 
disclose in the financial statements. For example, companies (e.g., 
banks) with complicated asset structures or with operations in many 
jurisdictions may incur more costs to identify the expenditures for 
which a severe weather event or other natural condition was a 
``significant contributing factor.''
    Incremental costs, either proportionally or in dollar terms, may be 
higher for smaller registrants, such as SRCs and EGCs, considering that 
they are less likely to have climate-related disclosure systems and 
processes already in place.\3120\ If smaller firms were to face higher 
proportional fixed costs in meeting the disclosure requirements, they 
may potentially be placed at a competitive disadvantage relative to 
larger firms.\3121\ Conversely, incremental costs may be lower for 
smaller firms to the extent that their assets and operations are less 
complex, which may allow them to prepare responsive disclosures at 
lower cost. We recognize that a portion of the final rules' compliance 
costs is ``fixed'' in the sense that the costs do not scale with 
registrant size or its level of resources. We therefore expect that 
smaller registrants will have more difficulty allocating resources to 
comply with the final rules as compared to larger firms.\3122\ To 
mitigate these compliance burdens, the final rules provide SRCs and 
EGCs certain accommodations, including being exempt from the GHG 
emissions disclosure requirement and the accompanying assurance 
requirement, as well as an extended phased in compliance period, which 
will allow such issuers both more time to prepare for initial 
compliance, as well as the benefit of observing market practices prior 
to preparing their initial disclosures required in response to the 
final rules.
---------------------------------------------------------------------------

    \3120\ Commission staff's analysis of registrants' annual 
filings indicate that SRCs and EGCs are less likely to have climate-
related disclosures (as indicated by the presence of climate-related 
keywords) within their filings (see section IV.A.5.a); see also 
section IV.A.5.b.ii for another Commission staff analysis that finds 
that SRCs and EGCs are less likely to disclose GHG emissions.
    \3121\ See, e.g., letters from Chamber and NAM.
    \3122\ See, e.g., letter from CrowdCheck Law (``For example, for 
two companies we have worked with that recently became Exchange Act 
reporting companies, the estimated costs for the first year of 
compliance with the proposed rules would represent approximately 
18.5% and 15%, respectively, of their entire gross revenues for the 
year prior to becoming a reporting company.''); see also letter from 
Independent Community Bankers (stating that ``the compliance cost 
burden for the smallest community banks is double that of the 
largest community banks'').
---------------------------------------------------------------------------

    We expect compliance costs to decrease over time. For example, a 
registrant disclosing climate-related information for the first time is 
likely to incur initial fixed costs to develop and implement the 
necessary processes and controls.\3123\ Once the company invests in the 
institutional knowledge and systems to prepare the disclosures, the 
procedural efficiency of these processes and controls should 
subsequently improve, leading to lower costs in subsequent years.
---------------------------------------------------------------------------

    \3123\ See letter from Financial Executives International's 
(``FEI'') Committee on Corporate Reporting (``CCR'') (June 10, 
2021); see also Proposing Release section IV.C.4.c.
---------------------------------------------------------------------------

    Mandated climate disclosures may heighten demand for third-party 
services related to preparing the required disclosures, especially if 
registrants' current service providers cannot provide the specific 
services that registrants may seek to comply with the final 
rules.\3124\ In the short term, there could be a potential increase in 
the prices of such services, leading to higher compliance costs. In the 
long term, however, this heightened demand is expected to spur 
competition, innovation, and economies of scale that could over time 
lower associated costs for such services and improve their 
availability.\3125\ Moreover, the aggregate accumulation of 
institutional knowledge may lead to a broad convergence of disclosure-
related best practices, which could further reduce the costs of the 
required disclosures.
---------------------------------------------------------------------------

    \3124\ See supra note 1372 and accompanying text in section 
II.I.2.c.
    \3125\ See also supra notes 2873, 3118 and accompanying text.
---------------------------------------------------------------------------

    Overall, the market effects deriving from competition and 
innovation could enhance the efficiency and availability of relevant 
services, thereby lowering compliance costs. These positive 
externalities from standard reporting practices can provide additional 
market-wide cost savings to the extent that they reduce duplicative 
effort in the production and acquisition of information.\3126\
---------------------------------------------------------------------------

    \3126\ See Christensen et al. (2021).
---------------------------------------------------------------------------

D. Other Economic Effects

    The analysis of benefits and costs in section IV.C is generally 
based on the assumption that the final rules will not cause registrants 
to change how they manage climate-related risks, but rather how they 
produce the associated disclosures. In this section, we consider the 
possibility that the rules may influence how some companies approach 
climate-related risks. For example, if agency conflicts currently 
prompt some managers to ignore long-run climate-related risks, in an 
effort to increase short-term cash flows, the additional transparency 
provided by the final rules may lead managers to focus more on long-run 
considerations if that is what their shareholders demand. Conversely, 
if some managers currently are over-prioritizing climate-related risks 
as compared to what investors view as optimal, the final rules may lead 
those managers to scale back their level of investment in managing 
climate-related risks. Generally, we expect that any resulting changes 
in behavior will

[[Page 21888]]

primarily stem from investors' improved ability to assess managerial 
decisions. That is, to the extent the final rules prompt managers to 
alter their approach to climate-related risks, it may be because they 
expect that failing to do so might prompt a negative stock price 
reaction to the disclosures.\3127\
---------------------------------------------------------------------------

    \3127\ See M. Kahn, J. Matsusaka & C. Shu, Divestment and 
Engagement: The Effect of Green Investors on Corporate Carbon 
Emissions (Oct. 3, 2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4592023 (retrieved from SSRN Elsevier 
database).
---------------------------------------------------------------------------

    Registrants may change their behavior in response to the proposed 
disclosure requirements by managing exposures to certain physical or 
transition risks. For example, empirical evidence shows that mandatory 
reporting of GHG emissions results in reduced aggregate reported 
emissions among affected firms.\3128\ The final rules will require the 
disclosure of the location of company properties or operations subject 
to material physical risks (Item 1502(a)(1)), which could allow 
investors to better assess companies' exposures to such risks. It is 
possible that, in response to or anticipation of investor reactions, 
companies may relocate properties or operations to geographical areas 
less exposed to physical risks or give preference to such areas for 
future business activity. Any such changes to registrant behavior 
resulting from the final rules may come with the potential cost of 
lower productivity, profitability, or market share.\3129\ In the case 
of relocation, for example, the alternate location may be more costly 
to operate. Similarly, we also recognize that some of the costs 
associated with the final rules may prompt some registrants to abandon 
or forgo adoption of material targets or goals relating to GHG 
emissions. To avoid direct costs of compliance or to simply report a 
lower emissions amount in their required disclosures, some registrants 
may take steps to reorganize their business in order to shift certain 
parts of their Scope 1 and Scope 2 emissions into the Scope 3 emissions 
category.\3130\ This potential response from registrants obscures the 
registrants' true risk exposure and therefore could diminish the 
benefits of the disclosure related to investors' ability to assess 
exposure to climate-related transition risks.
---------------------------------------------------------------------------

    \3128\ See Jeong-Bon Kim, et al., supra note 2586; B. Downar, et 
al., supra note 2776; S. Tomar, Greenhouse Gas Disclosure and 
Emissions Benchmarking, SMU Cox Sch. of Bus. Rsch. Paper No. 19-17 
(2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3448904 (retrieved from SSRN Elsevier 
database); V. Jouvenot & P. Krueger, supra note 2775.
    \3129\ At the same time, we recognize that a registrant may 
optimize for both climate risks and productivity, as these factors 
are not necessarily mutually exclusive.
    \3130\ See Lucas Mahieux, Haresh Sapra & Gaoqing Zhang, Climate-
Related Disclosures: What Are the Economic Trade-Offs? (Dec. 1, 
2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4507526 (retrieved from SSRN Elsevier 
database).
---------------------------------------------------------------------------

    Some commenters asserted that the compliance costs of the rules 
might cause some registrants to reduce their voluntary oversight of 
climate-related risks. For example, according to one commenter, 
devoting ``resources to meeting the requirements of any final rules the 
Commission adopts . . . will detract from other climate-related 
reporting efforts.'' \3131\ This commenter also asserted that the 
proposed requirement to ``disclose internal information, such as 
internal carbon pricing, scenario planning, and related information if 
a company has an emission reduction target, could discourage companies 
from setting such targets.'' \3132\ We recognize that some companies 
may pursue such avoidance strategies in response to the final rules. 
Other companies, however, may find the existence of disclosure 
requirements around climate-related targets and goals to be beneficial 
for signaling credible value-enhancing commitments to investors and 
hence may be motivated to engage in setting targets.\3133\ More 
reliable and standardized disclosures about climate-related targets and 
goals will facilitate investors' understanding of the impact of those 
targets and goals, and hence could affect registrants' incentives for 
making such commitments, but the magnitude and direction of any such 
effects would depend upon registrants' decisions and investors' 
assessments about the value of those commitments rather than stemming 
directly from the final rules.
---------------------------------------------------------------------------

    \3131\ See letter from API.
    \3132\ Id.
    \3133\ Disclosures filed with the Commission are subject to 
greater liability and thus may be viewed as more credible than 
similar disclosures provided via other avenues (e.g., company 
sustainability reports). In addition, the final rules will require 
disclosure of details or specifics that some registrants may 
otherwise not provide in the absence of the final rules.
---------------------------------------------------------------------------

E. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    The final rules should have positive effects on market efficiency. 
As discussed above, the final rules should improve the informativeness 
and reliability of climate-related risks and financial disclosures. As 
a result of the disclosures required by the final rules, investors and 
other market participants should better understand the climate-related 
risks that registrants are facing, their potential impact (e.g., on 
future cash flows), and registrants' ability to respond to and manage 
such risks. Investors and other market participants should thereby 
better evaluate registrants and make more informed investment and 
voting decisions. As a result, the required disclosures should reduce 
information asymmetry and mispricing in the market, improving market 
efficiency. More efficient prices should improve capital formation by 
increasing overall public trust in markets, leading to greater investor 
participation and market liquidity.\3134\
---------------------------------------------------------------------------

    \3134\ See Grewal, et al., supra note 2653; M.E. Barth, et al., 
Textual Dimensions of Non-Financial Information, Stock Price 
Informativeness, and Proprietary Costs: Evidence from Integrated 
Reports, (July 27, 2023), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3857927; see also D.S. Dhaliwal et al., 
Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: 
The Initiation of Corporate Social Responsibility Reporting, 86 
Acct. Rev. 59 (2011); S. Kleimeier & M. Viehs, Carbon Disclosure, 
Emission Levels, and the Cost of Debt, (Jan. 7, 2018), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2719665 
(retrieved from SSRN Elsevier database); E.M. Matsumura, et al., 
Climate Risk Materiality and Firm Risk, supra note 2744. But see I. 
Goldstein & L. Yang, Good Disclosure, Bad Disclosure, 131 J. of Fin. 
Econ. 118 (2019).
---------------------------------------------------------------------------

    Currently, investors may seek information on registrant's climate-
related risks from various sources, including those outside of 
Commission filings. For example, the necessary information may only be 
available from company websites or from third-party service providers 
that collect information and offer their analysis for a fee. Once 
investors locate relevant disclosures, they may need to spend time 
organizing and compiling information in ways that facilitate 
comparisons across companies. Because the final rules will make the 
required disclosures available from a consistent source (i.e., 
Commission filings) and because the disclosures will be standardized 
and tagged, we expect the final rules to improve efficiency by reducing 
the costs associated with compiling and organizing information on 
climate-related risks and oversight.\3135\
---------------------------------------------------------------------------

    \3135\ One commenter stated that ``[t]he Commission offers no 
support for the view that a rule aimed at consistency should be a 
stand-alone goal that will promote competition, efficiency, and 
capital formation.'' See Overdahl exhibit to letter from Chamber. To 
the extent that the commenter is asserting that the consistency 
achieved by the final rules does not promote or is somehow at odds 
with competition, efficiency, and capital formation, we disagree for 
the reasons outlined in this paragraph. Moreover, the Commission 
considers benefits and costs of the final rules in addition to the 
economic effects associated with efficiency, competition, and 
capital formation. See SEC Guidance on Economic Analysis (2012), 
supra note 2574.
---------------------------------------------------------------------------

    We expect the climate-related disclosures mandated by the final 
rules

[[Page 21889]]

will cause differential asset price and financing cost responses across 
companies and settings, as investors are more easily able to factor 
this information into their valuation decisions. These expected 
improvements in market efficiency are broadly consistent with empirical 
research. For example, one academic study finds evidence that, among 
companies that voluntarily report emissions via the CDP questionnaire, 
those with higher emissions (relative to their size and industry peers) 
pay higher loan spreads.\3136\ Another study examined more than 16,000 
companies from 2016 through 2020 and found that investors were actively 
and directly pricing some transition risk into valuations, an action 
that resulted in a negative correlation between companies' 
CO2 emissions and their price-to-earnings ratio.\3137\
---------------------------------------------------------------------------

    \3136\ See S. Kleimeier & M. Viehs, supra note 3134.
    \3137\ See Lazard Climate Center, Inaugural Research Findings of 
the Lazard Climate Center (Dec. 2021), available at https://www.lazard.com/research-insights/inaugural-research-findings-of-the-lazard-climate-center/; see also https://lazard.com/media/ge5oromo/lazard-climate-center-presentation-december-2021.pdf (presentation). 
The Lazard presentation notes, however, that the effects vary 
significantly across different types of GHG emissions, market 
capitalization, and sectors. Large capitalization companies (>$50 
billion) experience greater valuation discounts, while larger 
emitters, such as energy companies, showed the most consistently 
negative correlation. On average, a 10% decrease in a large U.S. 
energy company's emissions corresponded with a 3.9% increase in its 
price-to-earnings ratio.
---------------------------------------------------------------------------

    Empirical research has also documented evidence of current market 
inefficiencies with respect to climate-related risks. For example, one 
study found that stock prices of food processing and agricultural 
companies may exhibit mispricing with respect to drought 
exposure.\3138\ The study documented that drought-exposed companies 
report reduced future profitability, indicating that drought exposure 
is a financial risk.\3139\ In an efficient market, this risk should 
result in trading activity that decreases the current stock price and 
increases the expected return (to compensate investors for bearing this 
risk). The study, however, found that drought-exposed companies deliver 
lower future returns relative to companies with less exposure, 
suggesting that the market initially under-reacts to drought 
exposure.\3140\ In other words, the market fails to sufficiently 
incorporate the risk of drought exposure into the current stock price, 
resulting in investors holding mispriced assets and bearing risk for 
which they are not appropriately compensated. Consistent with this 
finding, survey responses from institutional investors indicated that 
such investors believed that equity valuations do not fully reflect 
climate-related risks.\3141\ The final rules may help address these 
market inefficiencies by eliciting more consistent and reliable 
information about climate-related risks so that those risks can be 
better incorporated into asset prices.
---------------------------------------------------------------------------

    \3138\ See H. Hong, et al., supra note 2739.
    \3139\ See id.
    \3140\ See id.
    \3141\ See Krueger, et al., supra note 2790.
---------------------------------------------------------------------------

    We also expect the final rules to increase efficiency by improving 
comparability of climate-related disclosures and requiring them to be 
filed in a machine-readable data language (i.e., Inline XBRL).\3142\ As 
discussed in section IV.C.2.i, efficiency gains from standardized 
reporting practices can provide market-wide cost savings to registrants 
in the long-term, to the extent that they reduce duplicative effort in 
registrants' production and acquisition of information (e.g., certain 
data or third-party services related to preparing the required 
disclosures, including the reporting of emissions data, may become 
cheaper in the long run as heightened demand spurs competition, 
innovation, and economies of scale). Finally, more standardized 
reporting should also reduce investors' costs of acquiring and 
processing climate-related information by facilitating investors' 
analysis of a registrant's disclosure and assessing its management of 
climate-related risks against those of its competitors.
---------------------------------------------------------------------------

    \3142\ See letters from Impact Capital Managers (indicating that 
the Inline XBRL requirement will contribute toward the goal of 
eliciting more consistent, comparable, and reliable disclosure); and 
Climate Advisers (stating that tagging the new disclosures in Inline 
XBRL should, by allowing the disclosed information to be more 
readily incorporated into investors' analyses, promote the 
efficiency of the U.S. capital markets).
---------------------------------------------------------------------------

    The inclusion of climate-related information in Commission filings 
using a machine-readable data language (i.e., Inline XBRL), rather than 
external reports or company websites, should also make it easier for 
investors to find and compare this information. In that regard, XBRL 
requirements have been observed to reduce the informational advantages 
of informed traders and lead to lower cost of capital and higher stock 
liquidity for filers that provide tagged disclosures.\3143\
---------------------------------------------------------------------------

    \3143\ See, e.g., N. Bhattacharya, Y.J. Cho & J.B. Kim, Leveling 
the Playing Field Between Large and Small Institutions: Evidence 
from the SEC's XBRL Mandate, 93 Acct. Rev. 51 (2018); B. Li, Z. Liu, 
W. Qiang & B. Zhang, The Impact of XBRL Adoption on Local Bias: 
Evidence from Mandated U.S. Filers, 39 J. of Acct. and Pub. Policy 
(2020); W. Sassi, H. Ben Othman & K. Hussainey, The Impact of 
Mandatory Adoption of XBRL on Firm's Stock Liquidity: A Cross-
Country Study, 19 J. of Fin. Rep. and Acct. 299 (2021); C. Ra & H. 
Lee, XBRL Adoption, Information Asymmetry, Cost of Capital, and 
Reporting Lags, 10 iBusiness 93 (2018); S.C. Lai, Y.S. Lin, Y.H. Lin 
& H.W. Huang, XBRL Adoption and Cost of Debt, Int'l. J. of Acct. & 
Info. Mgmt. (2015); Cong et al., supra note 2948.
---------------------------------------------------------------------------

    We acknowledge commenters who stated that proposed amendments could 
decrease efficiency by reducing the incentives for reporting companies 
to develop business strategies, transition plans, or goals, because the 
amendments would require disclosure of these strategies, plans or 
goals.\3144\ According to these commenters, the benefits of developing 
these elements could be outweighed by the direct and indirect costs of 
disclosing them. While this may occur in some circumstances, the 
efficiency loss is expected to be relatively low as the required 
disclosures are not highly granular. Thus, in many cases, we believe 
the benefits of developing business strategies, transition plans or 
goals will exceed the costs of such disclosure. But we recognize that, 
more generally, the final rules may divert some resources away from 
what their best use would otherwise be. As explained above, by removing 
some of the more prescriptive elements of the proposed rules that could 
require disclosure of a registrant's competitively sensitive 
information, the final rules mitigate this concern.
---------------------------------------------------------------------------

    \3144\ See, e.g., letter from Cato Inst.; Overdahl exhibit to 
letter from Chamber; and Motor & Equipment Manufacturers 
Association.
---------------------------------------------------------------------------

    Some commenters raised the more general concern that final rules 
could divert managers' attention from other types of risks that may be 
more urgent or important to investors.\3145\ However, we expect this 
channel will be somewhat limited. First, the final rules will elicit 
more disclosures from those registrants for which climate-related risks 
have materially impacted or are reasonably likely to have material 
impacts on the registrants' financials or business strategy. Therefore, 
the final rules are unlikely to demand significant managerial attention 
in settings in which such attention is not warranted. Second, managers 
and directors have strong incentives to maximize the market value of 
the company (as reflected in the stock price). As a result, there is 
limited upside to selecting policies that prioritize climate over other 
concerns that investors view as more important determinants of company 
value.
---------------------------------------------------------------------------

    \3145\ See, e.g., letters from Chamber; Southside Bancshares; 
and BIO.

---------------------------------------------------------------------------

[[Page 21890]]

2. Competition
    Overall, we expect that by standardizing reporting practices, the 
final rules would level the playing field among firms, making it easier 
for investors to assess the climate-related risks of a registrant 
against those of its competitors. The effects of peer benchmarking can 
contribute to increased competition for companies in search for capital 
both across and within industries, whereby registrants can be more 
easily assessed and compared by investors against alternative options.
    Some commenters raised concerns that the proposed rules would have 
increased competition among registrants for hiring individuals with 
climate-related expertise and/or GHG emissions attestation 
providers.\3146\ These commenters asserted that the proposed rules 
could increase the costs of hiring key personnel with relevant 
experience, which could restrain a registrant's ability to produce 
climate disclosures and institute climate-related strategies.\3147\ 
While the final rules do not completely eliminate concerns about the 
costs of hiring or engaging those with climate-related expertise, we 
have made several changes to mitigate these costs. With respect to GHG 
emissions assurance, for example, the final rules will permit assurance 
providers to use the ISO 14064-3 attestation standard, which should 
limit the circumstances in which registrants need to seek out different 
attestation engagements. In addition, the extended phase in periods for 
compliance with the GHG emissions disclosure and assurance requirements 
will provide additional time for registrants to seek out, and the 
markets to respond to increased demand for, climate-related 
professional services.
---------------------------------------------------------------------------

    \3146\ See, e.g., discussions in sections II.E.2.b and II.I.5.b.
    \3147\ See, e.g., letter from Can. Bankers.
---------------------------------------------------------------------------

    Some commenters stated that the proposed amendments would harm the 
competitive position of Commission registrants relative to their peers 
who do not face such disclosure requirements.\3148\ In particular, 
these commenters stated that Commission registrants would face direct 
costs of compliance, and indirect costs such as the risk of disclosure 
of proprietary business information, while other companies would not 
face these costs.\3149\ Relative to the proposed rules, the final rules 
take a number of steps to reduce the costs of complying with the final 
rules.\3150\ For example, we have eliminated the requirement to 
disclose Scope 3 emissions, we have significantly narrowed the 
Regulation S-X requirements, and the final rules for subpart 1500 of 
Regulation S-K include additional materiality qualifiers and less 
prescriptive disclosure requirements. Moreover, as discussed above, a 
number of these changes from the proposal will serve to limit the 
circumstances in which disclosure of potentially competitive business 
information will be required.
---------------------------------------------------------------------------

    \3148\ See letters from API; Matthew Winden; and Southside 
Bancshares, Inc.
    \3149\ Id.
    \3150\ See section IV.C.2.
---------------------------------------------------------------------------

    Similarly, one commenter noted that public companies could be 
placed at a competitive disadvantage when bidding to acquire a private 
target company because they would need to screen prospective targets 
for their ability to produce the disclosures required by the proposed 
rules.\3151\ Any such competitive disadvantage will be mitigated under 
the final rules, as compared to the proposed rules, because we no 
longer are applying disclosure requirements to a private company that 
is a party to a business combination transaction, as defined by 
Securities Act Rule 165(f), involving securities offerings registered 
on Form S-4 or F-4.
---------------------------------------------------------------------------

    \3151\ Letter from Shearman Sterling. See also supra 2461 and 
accompanying text.
---------------------------------------------------------------------------

    Commenters also raised concerns about disproportionate effects for 
smaller companies, as discussed above in section IV.C.3.c. Any costs 
that disproportionately impact smaller companies--such as those that do 
not scale with the size of the registrant--may limit the ability of 
smaller registrants to compete with larger registrants. As discussed 
above, the final rules do not require SRCs and EGCs to provide GHG 
emissions disclosures and provide SRCs and EGCs with longer phase in 
periods to delay implementation costs. This delay may effectively lower 
implementation costs for SRCs and EGCs to the extent that, by the time 
they are required to report, SRCs and EGCs can look to the disclosure 
practices developed by other registrants to assist them in preparing 
their own disclosures.
3. Capital Formation
    More consistent, comparable, and reliable disclosures could lead to 
capital market benefits in the form of improved liquidity and lower 
costs of capital.\3152\ These benefits would stem from reductions in 
information asymmetries brought about by the required disclosure of 
climate-related information.\3153\ The reduction in information 
asymmetry between managers and investors could allow investors to 
better estimate future cash flows, which could reduce investors' 
uncertainty, thus lowering the costs of capital.\3154\ In addition, 
less information asymmetry among investors could mitigate adverse 
selection problems by reducing the informational advantage of investors 
that have sufficient resources to become more informed about a 
registrant's exposure to and management of climate-related risks.\3155\ 
This is likely to improve stock liquidity (i.e., narrower bid-ask 
spreads), which could attract more investors and reduce the cost of 
capital overall.\3156\
---------------------------------------------------------------------------

    \3152\ See D.W. Diamond & R.E. Verrecchia, Disclosure, 
Liquidity, and the Cost of Capital, 46 J. Fin. 1325 (1991) (finding 
that revealing public information to reduce information asymmetry 
can reduce a company's cost of capital through increased liquidity); 
see also C. Leuz & R.E. Verrecchia, The Economic Consequences of 
Increased Disclosure, 38 J. Acct. Res. 91 (2000). Several studies 
provide both theoretical and empirical evidence of the link between 
information asymmetry and cost of capital. See, e.g., T.E. Copeland 
& D. Galai, Information Effects on the Bid-Ask Spread, 38 J. Fin. 
1457 (1983) (proposing a theory of information effects on the bid-
ask spread); Easley et al., supra note 2753 (showing that 
differences in the composition of information between public and 
private information affect the cost of capital, with investors 
demanding a higher return to hold stocks with greater private 
information.).
    \3153\ See, e.g., Christensen et al. (2021), at 1147 (noting 
``[A] primary benefit of corporate disclosure is to mitigate 
information asymmetries between the firm and its investors as well 
as among investors . . . [T]he general takeaway from this large 
literature is that more and better disclosure can lead to tangible 
capital-market benefits in the form of improved liquidity, lower 
cost of capital, higher asset prices (or firm value), and 
potentially better corporate decisions . . . To the extent that 
mandatory CSR reporting and CSR standards improve the information 
available to investors, the same theories and many of the prior 
findings should apply when considering the economic effects of the 
mandate or standard.'').
    \3154\ See Diamond et al., supra note 3152; Lambert, et al., 
Accounting Information, supra note 2753; Christopher Armstrong, John 
Core, Daniel Taylor & Robert Verrecchia, When Does Information 
Asymmetry Affect the Cost of Capital?, 49 J. of Acct. Rsch. 1 
(2011). We note that these articles also detail limited theoretical 
circumstances under which more reliable disclosures could lead to a 
higher cost of capital, such as in the case where improved 
disclosure is sufficient to reduce incentives for market making.
    \3155\ See Verrecchia, et al., supra note 2748.
    \3156\ One commenter asserted that this first channel does not 
apply to corporate disclosures, as it pertains only to bid-ask 
spreads set by market makers concerned with trading against parties 
with more information about order flow. See Overdahl exhibit to 
letter from Chamber. We disagree. Market makers concerned about 
trading against more informed parties will set larger bid-ask 
spreads regardless of the reason for the asymmetric information. In 
this setting, corporate disclosures of material climate-related 
information would reduce information asymmetries between market 
makers and other traders who have, for example, learned about a 
company's climate related risks through proprietary research. See 
letters from Calvert (``Calvert purchases third party vendor data to 
support our ability to assess companies on their ESG factors and 
that provide specific data related to climate change, where 
available. Often vendor information is estimated when a company has 
not disclosed information on its climate-related risks. Sometimes 
the estimates are made across industries, based on what other more 
proactive peers have disclosed.''); Boston Trust Walden (reporting: 
``our analysts examine quantitative and qualitative climate-related 
corporate disclosure to enhance our understanding of the existing 
and potential financial outcomes associated, ranging from risks 
(e.g., losing the license to operate) to opportunities (e.g., 
generating new sources of revenue)''). We also note that corporate 
disclosures of material climate-related information reduce 
information asymmetries between affiliated investors and other 
investors. See also Glosten et al., supra note 2748, for evidence 
that informed traders may take advantage of ``private information or 
superior analysis'' when making investment decisions). This 
commenter also asserted that the Commission must consider the 
potential efficiency losses that may result from investors no longer 
having the same incentives to invest in this type of proprietary 
research. We disagree with the commenter that there would be an 
efficiency loss. The primary benefit of proprietary research is more 
accurate prices. If disclosures obviate the need for proprietary 
research by achieving price discovery in the absence of that 
research, there is not an efficiency loss from the lack of research. 
This commenter also argues that voluntary disclosure regimes should 
enable corporate issuers to lower their cost of capital by reducing 
information asymmetry. See supra note 3154. We discuss shortcomings 
related to a voluntary disclosure regime in this context in section 
IV.B.2, and we cite to academic evidence in supra notes 2748 and 
3153 that mandatory reporting that improves the information 
available to investors can lead to tangible capital market benefits.

---------------------------------------------------------------------------

[[Page 21891]]

    There are two additional channels through which the disclosures 
could impact cost of capital. The first arises because some investors 
may have preferences to invest with companies that are more or less 
exposed to climate-related risks about which the final rules will 
elicit disclosure. To the extent the disclosures provide more complete 
and reliable information about a registrant's material climate-risks 
and how such risks are being managed, shifts in investor demand for the 
registrant's securities could increase or decrease (depending on 
investor preferences and how they factor this information into their 
investment decision-making).\3157\ The second results from the fact 
that some aspects of climate risk may not be diversifiable and 
therefore could command a risk premium. Academic research suggests that 
investors demand a higher return to hold assets that are more exposed 
to non-diversifiable climate-related risk (including both transition 
and physical risks).\3158\ If the disclosures cause investors to update 
their expectations of a registrant's exposure to this type of risk, the 
cost of capital could adjust accordingly.
---------------------------------------------------------------------------

    \3157\ See Yang, supra note 2827; Avramov, Cheng, Lioui & 
Tarelli, Sustainable Investing with ESG Rating Uncertainty, 145 J. 
of Fin. Econ. (Oct. 2022); L. Pastor, R. Stambaugh & L. Taylor, 
Sustainable Investing in Equilibrium, 142 J. Fin. Econ. 550 (2021); 
P. Bolton & M. Kacperczyk, supra note 2744; Li et al., supra note 
2657.
    \3158\ See, e.g., Bolton et al., supra note 3157 (finding that 
investors demand compensation for exposure to carbon emissions 
risk); Acharya et al., supra note 2905 (finding higher expected 
returns for exposure to physical risks); Huynh & Xia (2021).
---------------------------------------------------------------------------

    More generally, if compliance costs with the final rules are 
sufficiently high, this could influence the marginal company's decision 
to exit public markets or refrain from going public in the first place 
to avoid having to comply with the disclosure requirements. This 
concern was echoed by a number of commenters.\3159\ Companies may 
choose this strategy if they believe the potential compliance costs 
from the final rules outweigh the benefits of being a registered public 
company including, for example, a more liquid market for the company's 
securities and the associated reduction in cost of capital. Uptake of 
this avoidance strategy may widen the transparency gap between public 
and private companies, negatively affecting capital markets' 
information efficiency, and potentially reducing the size of the public 
markets.\3160\ However, we note that this avoidance strategy will come 
with significant disadvantages. For example, any companies deterred 
from registration because of the final rules would face more limited 
access to the capital markets, implying higher financing costs and 
debt-ratios.\3161\ On balance, we believe the benefits of being a 
public registered company are sufficiently strong such that it is 
unlikely many companies will choose to avoid becoming or continuing as 
a public registered company as a result of the final rules. In this 
regard, we note that the final rules include a number of changes from 
the proposal intended to mitigate the compliance burden on registrants 
and lessen disproportionate impacts on smaller and emerging growth 
firms.
---------------------------------------------------------------------------

    \3159\ See letters from Elaine Henry; API; Cunningham et al.; 
Matthew Winden; Southside Bancshares Inc.; David Burton; AEPC; CCMR; 
Chamber; Petrol. OK; and AGs of Cal. et al.
    \3160\ See Overdahl exhibit to letter from Chamber.
    \3161\ See Omer Brav, Access to Capital, Capital Structure, and 
the Funding of the Firm, 64 J. of Fin. 263 (2009); Anthony Saunders 
& Sascha Steffen, The Costs of Being Private: Evidence from the Loan 
Market, 24 Rev. of Fin. Stud. 4091 (2011); E.P. Gilj & J.P Taillard, 
Do Private Firms Invest Differently than Public Firms? Taking Cues 
from the Natural Gas Industry, 71 J. of Fin. 1733 (2016).
---------------------------------------------------------------------------

F. Reasonable Alternatives

1. Adopt a More (or Less) Principles-Based Approach to Regulation S-K 
Disclosures
    Many commenters recommended a more principles-based approach 
(either overall or with respect to specific provisions) that would 
permit registrants to determine the type of climate-related information 
to disclose based on what they deem to be appropriate.\3162\ Such an 
approach might reduce reporting costs because registrants would be 
required to report only information that they determine to be 
appropriate given their unique circumstances. To the extent that the 
more prescriptive elements of the final rules result in disclosure that 
is less useful for investors, a principles-based approach could benefit 
investors by reducing the incidence of less material or even 
boilerplate disclosure.\3163\ A principles-based approach would also 
reduce the risk that the disclosure requirements could lead registrants 
to change their risk management strategies in ways that are less than 
optimal for the sake of achieving what they perceive to be more 
favorable climate-related disclosure.
---------------------------------------------------------------------------

    \3162\ See, e.g., letters from Beller, et al. and Microsoft; 
Sullivan Cromwell; Airlines for America; BOA; Business Roundtable; 
Soc. Corp. Gov; and Overdahl exhibit to letter from Chamber.
    \3163\ Similarly, one commenter described ``(1) the ability of a 
principles-based approach to evolve in order to keep pace with 
emerging issues; and (2) the flexibility of a principles-based 
approach to correct deficiencies or excesses in disclosure without 
the need for the Commission to continuously add to or update the 
underlying disclosure rules as new issues arise.'' Overdahl exhibit 
to letter from Chamber. We acknowledge that a principles-based 
approach can present these benefits and that prescriptive rules may 
need updates.
---------------------------------------------------------------------------

    On the other hand, a more principles-based approach would not fully 
achieve many of the intended benefits of the rules, which are focused 
on enhancing the consistency and comparability of existing voluntary 
disclosure arrangements. In addition, a principles-based approach could 
increase shareholder confusion because the choice of climate metrics 
and other details (e.g., time horizon) may vary significantly across 
registrants. Also, a principles-based approach may allow registrants to 
selectively choose the measures or time horizon that result in the most 
favorable disclosures. In the final rules, we elected to include 
prescriptive disclosure requirements (with certain modifications to 
address commenter concerns) to avoid such cherry-picking of information 
and to ensure that investors are provided with more consistent and 
comparable information about climate-related risks.
    We similarly considered whether the final rules should be more 
prescriptive. This would generally improve investors' ability to 
compare disclosures across registrants since disclosures would be less 
tailored to each registrant's specific

[[Page 21892]]

circumstances. A more prescriptive approach would also reduce the risk 
of boilerplate disclosures. However, we decided against this approach 
in light of commenters' concerns about the costs of compliance with the 
proposed rules, as well as the importance of allowing registrants the 
flexibility to provide investors with the most useful and relevant 
disclosures. Accordingly, in response to commenters, the final rules 
include additional materiality qualifiers and take a less prescriptive 
approach in a number of areas, which should help to mitigate some of 
the concerns expressed with respect to the proposed rules while 
continuing to elicit more decision-useful information for investors 
about climate-related risks.
2. Different Approaches to Assurance Over GHG Emissions Disclosures
    We considered several alternative approaches to assurance over GHG 
emissions disclosure. For example, the Commission could not require 
that any GHG emissions disclosure be subject to assurance. 
Alternatively, the Commission could require reasonable assurance of all 
GHG emissions disclosures rather than only for LAFs. The Commission 
could also prescribe more restrictive requirements for attestation 
standards and assurance providers. Inherent in these choices is a 
tradeoff between compliance costs and the reliability of the 
disclosures. For example, while requiring reasonable assurance for all 
GHG emissions would have likely resulted in more reliable disclosures, 
it would have imposed considerable costs on registrants, based on 
feedback from commenters about the costs of obtaining reasonable 
assurance.\3164\
---------------------------------------------------------------------------

    \3164\ See, e.g., letter from Salesforce (estimating that 
obtaining reasonable assurance rather than limited assurance over 
their emissions disclosures would increase their expected costs by 
$1-$3 million).
---------------------------------------------------------------------------

    We also considered taking a less prescriptive approach to the 
independence requirements for assurance providers in the final rules. 
For example, we considered not adopting a requirement for the GHG 
emissions assurance provider to be independent with respect to the 
registrant and any of its affiliates and/or instead requiring 
disclosure about any potentially independence-impairing 
relationship.\3165\ This approach would help to mitigate concerns 
commenters raised about a potential shortage of qualified GHG emissions 
assurance providers increasing the costs for registrants \3166\ and 
potential burdens on registrants related to the need to assess the 
independence of assurance providers.\3167\ However, not imposing an 
independence requirement or only requiring disclosure about potential 
conflicts would not provide the same confidence to investors that the 
attestation provider will perform the engagement in an objective and 
impartial manner. This in turn would diminish one of the key benefits 
of requiring assurance over GHG emissions disclosures, which is to 
improve the reliability of such disclosures.
---------------------------------------------------------------------------

    \3165\ See 17 CFR 229.1506(b)(2).
    \3166\ See, e.g., letters from AEPC; Climate Risk Consortia; and 
Soc. Corp. Gov.
    \3167\ See, e.g., letter from Soc. Corp. Gov.
---------------------------------------------------------------------------

    We acknowledge that the independence requirement in the final rules 
may result in some registrants that are already obtaining assurance 
voluntarily needing to retain a new GHG emissions assurance provider 
that meets the independence requirement or may make it more difficult 
for a registrant that has not obtained GHG assurance before to find an 
available provider. These costs are mitigated by the modifications in 
the final rules that provide registrants subject to the assurance 
requirement with a multi-year phase in period before they are required 
to obtain an attestation report. The phase in period will give 
registrants time to find a provider that meets the independence 
requirement or provide existing service providers time to unwind any 
existing conflicts in order to meet the independence requirement. It 
will also give non-accountant attestation providers time to familiarize 
themselves with the independence requirement and adapt their business 
practices accordingly.
3. Different Thresholds for Financial Statement Disclosures
    We considered alternative criteria for disclosure under the 
amendments to Regulation S-X, such as using a more principles-based 
materiality approach. In general, materiality thresholds can help 
ensure that the disclosure elicited is most likely to factor into an 
investor's decision or voting decisions. While materiality is used as 
the threshold for disclosures in certain contexts, we believe that 
registrants will benefit from the certainty associated with a set of 
bright line quantitative thresholds. In doing so, investors will have 
disclosures that are more consistent across registrants due to the 
predictable application of quantitative thresholds. As discussed above, 
we have significantly modified the scope of the proposed disclosures 
and threshold and have included de minimis exceptions to focus the 
requirements on providing material disclosure to investors. However, we 
decided not to eliminate the bright-line thresholds entirely and move 
to a more principles-based disclosure standard because the quantitative 
disclosure threshold provides registrants with greater clarity in 
implementing the rules, reduces the risk of underreporting, and 
increases consistency and comparability. This approach is consistent 
with the feedback we received from some commenters that expressed 
concerns about the risks of underreporting in the context of the 
financial statements, as evidenced by the limited climate-related 
disclosure under current accounting standards despite increasing demand 
by investors for such disclosure.
    We considered not including de minimis disclosure thresholds. A de 
minimis threshold is more likely to be triggered for smaller 
registrants; so, not including a de minimis threshold would have 
resulted in similar rates of disclosure from both large and small 
companies. However, this approach would have been more likely to elicit 
disclosures that are not decision-useful to investors. In particular, 
for some registrants, shareholders' equity and income or losses before 
taxes may not scale meaningfully with the magnitude of the registrant's 
operations, for example, if the registrant is highly leveraged or was 
not very profitable (or very unprofitable) during the period. Including 
de minimis thresholds will avoid triggering overly granular disclosure 
in such anomalous situations.
    Following feedback from commenters, we also considered limiting the 
new Regulation S-X disclosures to registrants in certain sectors. While 
restricting disclosure to specific sectors would limit the costs of 
disclosure, it would result in a lack of information about other 
sectors, which can be affected by severe weather events or other 
natural conditions. By specifying disclosures for certain sectors, the 
Commission would also risk making a determination about which sectors 
to include and exclude that may become obsolete in the future if 
conditions change. For sectors that are not generally affected by 
severe weather events or other natural conditions, the costs associated 
with these disclosures are likely to be moot.
4. Permit Disclosures To Be Furnished Rather Than Filed
    We considered the possibility of permitting some or all of the 
required disclosures to be furnished rather than

[[Page 21893]]

filed. Although some commenters expressed a desire for furnished 
disclosures, stating that it would lower the legal liability for 
registrants who are required to provide climate-related disclosures 
under the final rules,\3168\ furnished disclosures may also limit the 
benefit for investors who rely on complete and accurate information 
from registrants about their climate-related risks and their efforts to 
address these risks.\3169\ By contrast, requiring registrants to file, 
rather than furnish, the climate-related disclosures provided pursuant 
to the final rules will give investors the ability to bring suit if 
registrants fail to comply with the new disclosure requirements, for 
instance under Exchange Act section 18.\3170\ This will improve the 
avenues of redress available to investors in the case of false or 
misleading statements with respect to material facts and, in turn, 
provide benefits to investors to the extent they rely on the 
disclosures required under the final rules to make investment or voting 
decisions. Further, treating these disclosures as filed will help 
promote their accuracy and consistency to the extent registrants seek 
to avoid liability (under, for example, section 18) by taking 
additional care to ensure that disclosures are accurate. We believe, 
therefore, that information about climate-related risks should be 
subject to the same liability as other important business or financial 
information that the registrant includes in its registration statements 
and periodic reports.
---------------------------------------------------------------------------

    \3168\ See, e.g., letter from CCMR; see also section II.K.2.
    \3169\ See discussion in II.K.3.
    \3170\ Climate-related disclosures provided pursuant to the 
final rules also will be subject to section 11 liability if included 
in, or incorporated by reference into, a Securities Act registration 
statement.
---------------------------------------------------------------------------

    We acknowledge that requiring these disclosures to be filed may 
increase registrants' litigation risks (and, therefore, their costs of 
complying with the final rules) relative to an alternative approach 
that would allow registrants to furnish the disclosures. The 
modifications we have made to the proposed rules, however, should help 
to mitigate those concerns. These modifications include: limiting the 
scope of the GHG emissions disclosure requirement; \3171\ revising 
several provisions regarding the impacts of climate-related risks on 
strategy, targets and goals, and financial statement effects so that 
registrants will be required to provide the disclosures only in certain 
circumstances, such as when material to the registrant; \3172\ and 
adopting a provision stating that disclosures (other than historic 
facts) provided pursuant to certain of the new subpart 1500 provisions 
of Regulation S-K constitute ``forward-looking statements'' for the 
purposes of the PSLRA safe harbors.\3173\ We also are providing 
registrants with a phase in period based on filer status to give them 
additional time to prepare to provide the climate-related disclosures, 
which will constrain registrants resources less over the short run, 
which could effectively lower implementation costs.\3174\
---------------------------------------------------------------------------

    \3171\ See supra section II.H.3.
    \3172\ See supra sections II.D.3, II.G.3, and II.H.3.
    \3173\ See supra section II.J.3.
    \3174\ See supra section II.O.3.
---------------------------------------------------------------------------

    Finally, regardless of whether the information is filed or 
furnished, registrants may be subject to potential liability under 
Securities Act section 17(a), Exchange Act section 10(b), and/or Rule 
10b-5, as applicable, for false or misleading material statements in 
the information disclosed pursuant to the final rules.
5. Exempt SRCs/EGCs
    We considered completely exempting SRCs and EGCs from the final 
rules. While such a broad exemption would avoid burdening newly public 
and/or smaller registrants with the costs of the final rules, which 
include some fixed costs that would disproportionately affect smaller 
registrants, such an alternative would leave significant gaps in the 
information set on climate-related risks faced by registrants, thereby 
significantly detracting from comparability and other informational 
benefits of the final rules. We have, however, made a number of changes 
from the proposal, such as generally reducing the prescriptiveness of 
the proposed rules, which should help to mitigate the compliance burden 
for all registrants, including SRCs and EGCs. We are also providing 
phase in periods based on filer status, which will provide registrants 
that are SRCs or EGCs with additional time to prepare to make 
disclosure under the final rules.
    For emissions-related disclosures, there exists a similar trade-off 
between costs and benefits of exempting SRCs and EGCs. However, based 
in part on the analysis performed by Commission staff, which indicated 
extremely low rates of disclosure for SRCs and EGCs, we have exempted 
SRCs and EGCs from the requirement to disclose GHG emissions data given 
the significant compliance burden that such disclosure could impose on 
smaller registrants.\3175\
---------------------------------------------------------------------------

    \3175\ See section II.L.3 and supra note 946 and accompanying 
text.
---------------------------------------------------------------------------

6. Permit Registrants To Rely on Home-Country Disclosure Frameworks/
Substituted Compliance
    In light of the fact that several other jurisdictions have adopted 
or are currently pursuing climate-related disclosure frameworks, some 
commenters suggested that that the Commission consider allowing 
registrants to comply with the proposed rules by using disclosures 
provided in these other jurisdictions.\3176\ While this substituted 
compliance approach has the potential to reduce costs to the extent 
that there are overlapping disclosure requirements, we have determined, 
at this time, that it is premature to allow for substituted compliance 
with the final rules, given the current status of such requirements in 
other jurisdictions. Accordingly, the Commission intends to observe how 
reporting under international climate-related reporting requirements 
and practices develop before making any determination whether such an 
approach would result in consistent, reliable, and comparable 
information for investors. As noted above,\3177\ the Commission may 
consider such accommodations in the future depending on developments in 
the international climate reporting practices and our experience with 
disclosures under the final rules.\3178\
---------------------------------------------------------------------------

    \3176\ See letters from AllianceBernstein; Davis Polk; 
Linklaters L; PGIM; PwC; and SAP SE.
    \3177\ See supra section II.L.3.
    \3178\ See, e.g., section IV.A. discussing the domestic and 
international disclosure requirements that are still being developed 
and finalized at this time.
---------------------------------------------------------------------------

    Similarly, some commenters suggested that, in lieu of the proposed 
GHG emissions disclosure requirements, we should require registrants to 
submit GHG emissions data that they publicly report under other 
regulatory regimes, such as the GHGRP.\3179\ Under such an approach, 
registrants would not need to track and report GHG emissions data that 
they are not already collecting for other regulatory purposes, and thus 
registrants would not incur certain direct compliance costs associated 
with disclosing this information under the final rules (although they 
would assume new securities law liability for including the information 
in Commission filings). However, as discussed in detail in section 
IV.C.2.e, reporting under other regulatory regimes, such as the GHGRP, 
serves different purposes than disclosure under the Federal securities 
laws, and the information reported is not always presented in ways that 
are decision-

[[Page 21894]]

useful for investors. Accordingly, we have decided not to adopt such an 
alternative.
---------------------------------------------------------------------------

    \3179\ See letter from Grundfest; Memorandum of Meeting with 
Grundfest and Wilson (June 28, 2023).
---------------------------------------------------------------------------

7. Alternative Tagging Requirements
    With respect to Inline XBRL tagging, we considered changing the 
scope of disclosures required to be tagged, for example by removing the 
tagging requirements for climate-related disclosures for all or a 
subset of registrants (such as SRCs). As another example, we considered 
requiring only a subset of proposed climate-related disclosures, such 
as the quantitative climate-related disclosures, to be tagged in Inline 
XBRL. Narrowing the scope of climate-related disclosures to be tagged 
could have provided some incremental cost savings for registrants 
compared to the final rules, because incrementally less time would have 
been required to select and review the particular tags to apply to the 
climate-related disclosures.
    However, we believe any such incremental cost savings would have 
been low because all affected registrants are required to tag certain 
of their disclosures (including both quantitative and qualitative 
disclosures) in Inline XBRL.\3180\ Moreover, narrowing the scope of 
tagging requirements would have diminished the extent of informational 
benefits that would accrue to investors by reducing the volume of 
climate-related information that would become less costly to process 
and easier to compare across time and registrants. For example, an 
alternative whereby only quantitative climate-related disclosures would 
be tagged would have inhibited investors from efficiently extracting or 
searching climate-related disclosures about registrants' governance; 
strategy, business model, and outlook; risk management; and targets and 
goals, thus creating the need to manually run searches for these 
disclosures through entire documents. Such an alternative would also 
have inhibited the automatic comparison and redlining of these 
disclosures against prior periods, and the performance of targeted 
machine learning assessments (tonality, sentiment, risk words, etc.) of 
specific narrative climate-related disclosures outside the financial 
statements rather than the entire unstructured document.
---------------------------------------------------------------------------

    \3180\ See supra section IV.c.2.ix.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules and forms that will be affected by 
the final rules contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\3181\ The Commission published a notice requesting comment 
on changes to these collections of information in the Proposing Release 
and submitted these requirements to the Office of Management and Budget 
(``OMB'') for review in accordance with the PRA.\3182\ The hours and 
costs associated with preparing and filing the forms and reports 
constitute reporting and cost burdens imposed by each collection of 
information.\3183\ An agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information requirement 
unless it displays a currently valid OMB control number. Compliance 
with the information collections is mandatory. Responses to the 
information collections are not kept confidential and there is no 
mandatory retention period for the information disclosed. The titles 
for the affected collections of information are:
---------------------------------------------------------------------------

    \3181\ 44 U.S.C. 3501 et seq.
    \3182\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \3183\ The paperwork burdens for Regulation S-X, Regulation S-K, 
Regulation C, and Regulation S-T are imposed through the forms, 
schedules, and reports that are subject to the requirements in these 
regulations and are reflected in the analysis of those documents.
---------------------------------------------------------------------------

     Form S-1 (OMB Control No. 3235-0065);
     Form F-1 (OMB Control No. 3235-0258);
     Form S-4 (OMB Control No. 3235-0324);
     Form F-4 (OMB Control No. 3235-0325);
     Form S-11 (OMB Control No. 3235-0067);
     Form 10 (OMB Control No. 3235-0064);
     Form 20-F (OMB Control No. 3235-0288); and
     Form 10-K (OMB Control No. 3235-0063).
    The final rules will require registrants filing Securities Act 
registration statements on Forms S-1, F-1, S-4, F-4, and S-11 to 
include the climate-related disclosures required under subpart 1500 of 
Regulation S-K and Article 14 of Regulation S-X. The final rules will 
further require registrants filing Exchange Act annual reports on Forms 
10-K and 20-F and Exchange Act registration statements on Forms 10 and 
20-F to include the climate-related disclosures required under subpart 
1500 of Regulation S-K and Article 14 of Regulation S-X. Registrants 
may include the climate-related disclosures required under subpart 1500 
in a part of the registration statement or annual report that is 
separately captioned as Climate-Related Disclosure or in another 
appropriate section, such as Risk Factors, MD&A, or Description of 
Business. Registrants will be required to include the climate-related 
disclosures required under Article 14 in a note to the financial 
statements.
    In addition, if a registrant is an LAF or AF that is not an SRC or 
EGC, the final rules may require the registrant to disclose its Scope 1 
and/or Scope 2 emissions. Such registrant will also be required to file 
an attestation report in connection with its Scope 1 and/or Scope 2 
emissions disclosure. For purposes of Exchange Act reporting on 
domestic forms, although a U.S. registrant may incorporate by reference 
such disclosure from its Form 10-Q for the second fiscal quarter in the 
fiscal year immediately following the year to which the GHG emissions 
metrics disclosure relates, we have attributed the paperwork burden 
associated with the GHG emissions disclosure requirement and the 
related attestation report to the Form 10-K annual report. This is 
because the GHG emissions disclosure and related attestation report are 
requirements of, and relate to the same fiscal year-end as, the Form 
10-K.
    A description of the final rules including the need for the 
climate-related information and its intended use, as well as a 
description of the likely respondents, can be found in section II 
above, and a discussion of the economic effects of the final rules can 
be found in section IV above.

B. Current Inventory Update To Reflect $600 per Hour Rather Than $400 
per Hour Outside Professional Costs Rate

    At the outset, we note that the current OMB inventory for the 
above-referenced collections of information reflect an average hourly 
rate of $400 per burden hour borne by outside professionals. Similarly, 
in the Proposing Release, the Commission used an estimated cost of $400 
per hour, recognizing that the costs of retaining outside professionals 
may vary depending on the nature of the professional services.\3184\ 
The Commission recently determined to increase the estimated costs of 
such hourly rate to $600 per hour \3185\ to adjust the estimate for 
inflation from Aug. 2006.\3186\ In order to more accurately present the 
burden changes

[[Page 21895]]

as a result of the final rules in the context of the current burden 
inventory, we are presenting updated numbers for the current inventory 
for professional cost burden for each of the affected collections of 
information to reflect the updated $600 per hour rate where it has not 
yet been reflected in the current burden inventory last approved by 
OMB. This update is solely derived from the change in the hourly rate; 
it is not a new burden imposed by the final rules. The updated cost 
estimates using the $600 per hour rate are set out in the following PRA 
Table 1: \3187\
---------------------------------------------------------------------------

    \3184\ See Proposing Release, section V.C.
    \3185\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $600 per hour.
    \3186\ See Listing Standards for Recovery of Erroneously Awarded 
Compensation, Rel. No. 33-11126 (Oct. 26, 2022) [87 FR 73076 (Nov. 
28, 2022)].
    \3187\ The table uses the percentage estimates we typically use 
for the burden allocation for each response. See infra PRA Table 2.

               PRA Table 1--Change in PRA Burden Due to Updated Outside Professional Cost Estimate
----------------------------------------------------------------------------------------------------------------
                                                  Current inventory   Updated professional
           Collection of information             professional  cost    cost burden  (@600/    Increased burden
                                                 burden  (@$400/hr.)          hr.)              due to update
                                                                 (A)                   (B)         (C) = (B)-(A)
----------------------------------------------------------------------------------------------------------------
Form S-1......................................          $174,015,643          $261,023,465           $87,007,822
Form F-1......................................            32,130,375            48,195,563            16,065,188
Form S-4......................................           675,605,379         1,013,408,069           337,802,690
Form F-4......................................            17,013,425            25,520,138             8,506,713
Form S-11.....................................            14,790,168            22,185,252             7,395,084
Form 10.......................................            12,851,488            19,277,232             6,425,744
Form 20-F.....................................           576,533,425           864,800,138           288,266,713
Form 10-K.....................................         1,835,594,519         2,753,391,779           917,797,260
----------------------------------------------------------------------------------------------------------------

C. Summary of Comment Letters

    In the Proposing Release, the Commission requested comment on the 
PRA burden hour and cost estimates and the analysis used to derive the 
estimates.\3188\ While a number of parties commented on the potential 
costs of the proposed rules, only a few commenters mentioned the PRA 
analysis.\3189\ One commenter stated that it opposed the rule proposal 
in part because, in its view, it would ``more than doubl[e] the total 
paper-work compliance costs to public corporations.'' \3190\ Two 
commenters stated that the Commission had underestimated the compliance 
burden and costs of the proposed rules.\3191\ One of the commenters 
stated that ``besides failing to monetize the internal compliance 
burden hours, the PRA Table ignores: 1. litigation costs; 2. cost not 
easily and directly allocable to filling out the forms listed in [the 
PRA Table]; 3. costs imposed on non-issuers; and 4. [t]he cost to 
investors, issuers and workers caused by adverse economic effects of 
the rule.'' \3192\
---------------------------------------------------------------------------

    \3188\ See Proposing Release at section V.D.
    \3189\ See letters from D. Burton, Heritage Fdn; Institute for 
Energy Research (June 17, 2022) (``IER''); and Gregory Lau (June 16, 
2022) (``G. Lau'').
    \3190\ See letter from IER.
    \3191\ See letters from D. Burton, Heritage Fdn.; and G. Lau.
    \3192\ D. Burton, Heritage Fdn.
---------------------------------------------------------------------------

    While we acknowledge the commenters' concerns about costs of the 
proposal, for the reasons discussed in section II and elsewhere 
throughout this release, we believe the information required by the 
final rules is necessary and appropriate in the public interest and for 
the protection of investors. Further, a discussion of the economic 
effects of the final rules, including consideration of comments that 
expressed concern about the expected costs associated with the proposed 
rules, can be found in section IV above. With regard to the calculation 
of paperwork burdens, we note that both the Proposing Release's PRA 
analysis and our PRA analysis of the final rules estimate the 
incremental burden of each new or revised disclosure requirement 
individually and fully comport with the requirements of the PRA. We 
further note that the costs that one commenter stated we had not 
included are not costs that are required to be considered or typically 
included in a PRA analysis.\3193\ Further, our estimates reflect the 
modifications to the proposed rules that we are adopting in response to 
commenter concerns, including streamlining some of the proposed rule's 
elements to address concerns regarding the level of detail required and 
the anticipated costs of compliance.
---------------------------------------------------------------------------

    \3193\ See id.
---------------------------------------------------------------------------

D. Sources of Cost Estimates

    We based the paperwork burden of the proposed rules in part on the 
BEIS impact assessment for the UK climate disclosure rules as well as 
the input from commenters to a request for public input.\3194\ Our 
estimates of the paperwork burden associated with the final rules are 
based on the direct cost estimates discussed in the Economic 
Analysis.\3195\ As discussed above in more detail in section IV.C.3.b, 
those direct cost estimates are based primarily on two cost estimates 
for similar UK climate disclosure rules (i.e., the 2021 BEIS impact 
assessment and the 2021 FCA cost-benefit analysis) \3196\ and on cost 
estimates provided by several commenters.\3197\ While we believe that 
the direct cost estimates provide a reasonable means of determining the 
estimated collection of information burden associated with the final 
rules, they likely represent an upper bound of the paperwork burden of 
the final rules as they reflect a conservative approach (i.e., erring 
on the side of overstating costs rather than understating them) to 
estimate approximate compliance costs for the final rules.
---------------------------------------------------------------------------

    \3194\ See Proposing Release, section V.B.
    \3195\ See supra section IV.C.3.
    \3196\ See FCA, Enhancing climate-related disclosures by 
standard listed companies and seeking views on ESG topics in capital 
markets, CP21-18 (June 2021), available at https://www.fca.org.uk/publication/consultation/cp21-18.pdf; and BEIS Final Stage Impact 
Assessment.
    \3197\ See supra section IV.C.3.b.
---------------------------------------------------------------------------

E. Incremental and Aggregate Burden and Cost Estimates of the Final 
Rules

    Below we estimate the incremental and aggregate increase in 
paperwork burden resulting from the final rules. These estimates 
represent an average multi-year burden for all issuers, both large and 
small. While we typically calculate a three-year average for PRA 
purposes, because one of the amendment's requirements will not be 
phased in until the ninth year of initially providing the disclosures 
required by the amendments,\3198\ we have estimated a nine-year average 
PRA

[[Page 21896]]

burden. In deriving our estimates, we recognize that the burdens will 
likely vary among individual registrants based on a number of factors, 
including the nature of their business, the size and complexity of 
their operations, and whether they are subject to similar climate-
related disclosure requirements in other jurisdictions or already 
preparing similar disclosures on a voluntary basis. For purposes of the 
PRA, the burden is to be allocated between internal burden hours and 
outside professional costs.
---------------------------------------------------------------------------

    \3198\ See supra sections II.I and O (regarding the requirement 
for LAFs to obtain a reasonable assurance attestation report in 
fiscal 2033 when the initial compliance date for most other 
disclosures required by LAFs is in fiscal year 2026).
---------------------------------------------------------------------------

    PRA Table 2 below sets forth the percentage estimates we typically 
use for the burden allocation for each affected collection of 
information.

     PRA Table 2--Standard Estimated Burden Allocation for Specified
                       Collections of Information
------------------------------------------------------------------------
                                                           Outside
     Collection of information       Internal  (%)   professionals  (%)
------------------------------------------------------------------------
Forms S-1, F-1, S-4, F-4, S-11,                 25                    75
 10, and 20-F.....................
Form 10-K.........................              75                    25
------------------------------------------------------------------------

1. Calculation of the Paperwork Burden Estimates of the Final Rules
    When estimating the paperwork burden of the proposed rules, we 
considered the effects of three sets of climate-related information 
that would be required to be filed on the Commission's forms under 
those rules: climate-related disclosures regarding governance, 
strategy, and risk management; GHG emissions metrics and targets; and 
financial statement metrics. When estimating the paperwork burden of 
the final rules, we have modified the sets of information considered to 
reflect changes made from the proposed rules. First, we have separated 
disclosures related to targets from disclosures related to metrics. 
Second, we have replaced ``financial statement metrics'' with 
``financial statement disclosures.'' This modification reflects the 
fact that the final rules do not use the term ``metrics'' to describe 
the amendments to Regulation S-X because it is more accurate to 
characterize the disclosures as financial statement effects.\3199\
---------------------------------------------------------------------------

    \3199\ See supra note 1705.
---------------------------------------------------------------------------

    The estimated burden hours and costs of the final rules are 
generally lower than the estimated burden hours and costs of the 
proposed rules. This is due to changes from the proposed rules that we 
are adopting in the final rules. For example, the final rules include 
materiality qualifiers and other revisions in the disclosure categories 
regarding governance, risk management, and strategy, including 
transition plans, scenario analysis, targets and goals, and GHG 
emissions metrics. In addition, we have revised the average salary rate 
from that used for the proposed PRA estimates to convert some of 
commenters' cost estimates into burden hours, consistent with existing 
OMB guidance.\3200\
---------------------------------------------------------------------------

    \3200\ The PRA estimates for the proposed rules used an hourly 
rate that was based on an average annual salary of a climate 
specialist, according to Glassdoor, but which did not reflect 
additional labor costs. See Proposing Release, section V.B. We have 
based the PRA estimates for the Regulation S-K subpart 1500 
disclosure requirements on average salary rates according to SIFMA 
Management and Professional Salaries Data, which the staff has 
updated to account for inflation through September 2023 and which 
includes overall costs and overhead associated with the reported 
professional and management positions. The SIFMA data provides a 
more realistic cost basis for determining the PRA burdens associated 
with the final rules because of this additional information, and is 
consistent with OMB guidance that, when determining burden hours, 
``all wages need to be fully-loaded, meaning they reflect the full 
cost of labor.'' OMB, A Guide to the Paperwork Reduction Act, 
available at https://pra.digital.gov/burden/. In addition, unlike 
the PRA estimates for the proposed rules, which were based solely on 
the average annual salary of a climate specialist, we have based the 
PRA burden hour estimates of the subpart 1500 rules on the median 
salary rates of in-house legal counsel and systems analyst/database 
administrators, whom we believe in conjunction with each other will 
most likely perform the work underlying the disclosures of 
governance, strategy, risk management, targets and goals, and Scope 
1 and 2 GHG emissions metrics. We therefore have taken the average 
of the median salary rates for SIFMA-listed attorney positions 
(Attorney and Assistant General Counsel, which average $525/hr.) and 
SIFMA-listed system analyst/database administrator positions 
(Systems Analyst, Sr. Systems Analyst, and Sr. Database 
Administrator, which average $356/hr.) calculated as follows: $525/
hr. + $356/hr. = $881/hr. $881/2 = $441/hr.
---------------------------------------------------------------------------

    The following PRA Table 3 shows the estimated number of total 
burden hours resulting from the final rules based on the initial and 
ongoing cost estimates for the above-described sets of information as 
discussed in section IV above. To derive the estimated total number of 
burden hours, we first applied the appropriate percentage estimate from 
PRA Table 2 to allocate the portion of the cost estimate for each set 
of information pertaining to the internal burden and the portion 
pertaining to external professional costs. We then converted the costs 
to internal burden hours using a conversion rate of $441/hr. for 
governance, strategy, and risk management, scenario analysis, Scopes 1 
and 2 emissions, targets and goals, and financial statement 
disclosures.\3201\ We similarly converted external professional costs 
into burden hours using a conversion rate of $600/hr. We then added 
internal and external burden hours to obtain the total number of 
estimated burden hours for each set of information. All numbers have 
been rounded to the nearest whole number.
---------------------------------------------------------------------------

    \3201\ Id.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P

[[Page 21897]]

[GRAPHIC] [TIFF OMITTED] TR28MR24.004

    The next three tables summarize the paperwork burden effects for 
three groups of registrants: (1) LAFs; (2) AFs that are not SRCs or 
EGCs (``non-exempt AFs'') and (3) SRCs, EGCs, and NAFs. The first two 
tables summarize,

[[Page 21898]]

respectively, the estimated internal burden hour (PRA Table 4A) and 
external professional cost effects (PRA Table 4B) of the final rules. 
Both tables show the phase in for the Scopes 1 and 2 emissions 
disclosure requirements. Both LAFs and non-exempt AFs are subject to 
the requirement to disclose their Scopes 1 and 2 emissions if material. 
LAFs must comply with the GHG emissions disclosure requirement 
beginning with their second fiscal year of compliance with the final 
rules, while non-exempt AFs must comply beginning with their third 
fiscal year of compliance.\3202\
---------------------------------------------------------------------------

    \3202\ The final rules provide a phase in for another set of 
information--the material expenditures disclosure requirement, which 
will be provided pursuant to either Item 1502, as part of a 
registrant's strategy disclosure, or Item 1504 of Regulation S-K, as 
part of a registrant's targets and goals disclosure. All three 
groups of registrants must comply with the material expenditures 
disclosure requirement in the fiscal year immediately following the 
fiscal year of their initial compliance date for the final rules 
based on their filer status. As explained in section IV.C.3, we have 
assumed that costs for the material expenditures disclosure have 
been included in the cost estimates considered for strategy or 
targets and goals disclosures. See supra note 3060 and accompanying 
text. Because the material expenditures disclosure will comprise 
only part of a registrant's strategy or targets and goals disclosure 
and because most of the disclosure requirements pursuant to Item 
1502 and Item 1504 are not subject to a phase in, the tables below 
do not account for the material expenditures phase in.
---------------------------------------------------------------------------

    The tables span the first nine years of compliance in order to 
cover the first year of the paperwork burden associated with the 
requirement to obtain a reasonable assurance attestation report, which 
LAFs must comply with in their ninth year of compliance. For 
comparability purposes, we have also estimated the paperwork burden 
effects for non-exempt AFs and SRCs, EGCs, and NAFs over a nine-year 
span, and have taken a nine-year average for each of the three groups 
of registrants.\3203\
---------------------------------------------------------------------------

    \3203\ In each table, all numbers have been rounded to the 
nearest whole number.
---------------------------------------------------------------------------

    After a three-year phased in compliance period of reporting their 
GHG emissions, both LAFs and non-exempt AFs will be required to obtain 
an attestation report to verify their GHG emissions disclosure. While 
LAFs will initially be required to obtain an attestation report at the 
limited assurance level, after a four-year transition period, they will 
be required to obtain an attestation report at the reasonable assurance 
level. We estimate that a reasonable assurance attestation report will 
be more costly than a limited assurance report. PRA Table 4C summarizes 
the paperwork burden effects estimated to result from the attestation 
report requirement for these two groups of registrants over a nine-year 
span.\3204\
---------------------------------------------------------------------------

    \3204\ See supra section IV.C.3.b.iii for further discussion of 
these attestation report estimates.

---------------------------------------------------------------------------

[[Page 21899]]

[GRAPHIC] [TIFF OMITTED] TR28MR24.005


[[Page 21900]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.006


[[Page 21901]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.007


[[Page 21902]]


2. Estimated Number of Affected Respondents
    We estimate that the final rules will change the paperwork burden 
per response for each affected collection of information. However, we 
do not believe that the above-described paperwork burdens will affect 
all the filers for each collection of information. Because the final 
rules include materiality qualifiers and otherwise will not require 
disclosure in all instances from all registrants, but rather depend on 
the registrant's particular facts and circumstances, we estimate that 
only a certain percentage of filers of each form will be required to 
provide the climate-related disclosures. We have based the estimated 
percentages on third-party surveys of current climate-related 
disclosure practices, commenters' estimates of companies likely to 
disclose climate-related risks and metrics, and staff estimates of 
current climate-related disclosure practices.\3205\
---------------------------------------------------------------------------

    \3205\ In particular, we have considered the percentages of 
surveyed companies, both issuers with larger market capitalization 
and all other registrants, providing climate-related disclosures as 
reported by the TCFD in TCFD, 2022 Status Report (Oct. 2022). That 
report included climate-related data from companies with a market 
capitalization ranging from greater than $12.2 billion to less than 
$3.4 billion. In addition, we have considered aspects of the third-
party surveys discussed in section IV, such as the 2021 S&P Global 
Corporate Sustainability Assessment and estimates of climate-related 
risk and metrics reporting provided by commenters, such as Amer. for 
Fin. Reform and Public Citizen (Oct. 26, 2023). That commenter 
included climate-related data pertaining to Fortune 1000 companies 
with individual annual revenues over $2 billion. However, none of 
the estimates considered included companies that directly matched 
the registrants that will be affected by the final rules. Therefore, 
the estimated percentages of LAFs, AFs, and all other registrants 
affected by the final rules, as provided in the table below, may 
underestimate or overestimate the actual number of affected 
respondents.
---------------------------------------------------------------------------

    The following PRA Table 5 provides the percentage of filers for 
each collection of information that we estimate will be affected by the 
final rules.

[[Page 21903]]

[GRAPHIC] [TIFF OMITTED] TR28MR24.008


[[Page 21904]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.009


[[Page 21905]]


3. Summary of the Estimated Burden Hour and Cost Increases Resulting 
From the Final Rules
    The following two tables provide:
     The calculation of the incremental and aggregate change in 
burden hour and professional cost estimates of current responses 
resulting from the final rules (PRA Table 6); and
     The program change and total requested change in paperwork 
burden for the final rules (PRA Table 7).

[[Page 21906]]

[GRAPHIC] [TIFF OMITTED] TR28MR24.010


[[Page 21907]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.011


[[Page 21908]]


[GRAPHIC] [TIFF OMITTED] TR28MR24.012


[[Page 21909]]


BILLING CODE8011-01-C

VI. Final Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') requires the Commission, 
in promulgating rules under section 553 of the Administrative Procedure 
Act,\3206\ to consider the impact of those rules on small entities. We 
have prepared this Final Regulatory Flexibility Analysis (``FRFA'') in 
accordance with section 604 of the RFA.\3207\ An Initial Regulatory 
Flexibility Analysis (`` IRFA'') was prepared in accordance with the 
RFA and was included in the Proposing Release.\3208\
---------------------------------------------------------------------------

    \3206\ 5 U.S.C. 553.
    \3207\ 5 U.S.C. 604.
    \3208\ Proposing Release at section VI.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Amendments

    The final amendments add a new subpart 1500 to Regulation S-K and a 
new Article 14 to Regulation S-X, which will require registrants to 
provide certain climate-related disclosures in their Securities Act and 
Exchange Act registration statements and Exchange Act reports. These 
requirements will elicit more complete and useful information about the 
impacts of climate-related risks on registrants to improve the 
consistency, comparability, and reliability of climate-related 
information for investors. As required by the RFA, this FRFA describes 
the impact of the final amendments on small entities. The need for, and 
objectives of, the final rules are described in sections I and II 
above. We discuss the economic impact and potential alternatives to the 
amendments in section IV, and the estimated compliance costs and 
burdens of the amendments for purposes of the PRA in section V.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, the Commission requested comment on any 
aspect of the IRFA, and particularly on the number of small entities 
that would be affected by the proposed amendments, the existence or 
nature of the potential impact of the proposed amendments on small 
entities discussed in the analysis, how the proposed amendments could 
further lower the burden on small entities, and how to quantify the 
impact of the proposed amendments.
    We received one comment letter on the IRFA from the U.S. Small 
Business Administration's Office of Advocacy (``Advocacy'').\3209\ 
Advocacy's letter expressed concern that ``the IRFA does not adequately 
describe the regulated small entities and potential impacts on those 
entities.'' \3210\ In the Proposing Release, the Commission estimated 
that the proposed amendments would apply to 1,004 registrants that may 
be considered small entities.\3211\ Advocacy's comment letter stated 
that this estimate did ``not provide additional information, such as 
the North American Industry Classification System (``NAICS'') 
classifications of the affected entities'' and did not ``break down the 
affected entities into smaller size groups (e.g., based on total 
assets).'' \3212\
---------------------------------------------------------------------------

    \3209\ See letter from U.S. Small Business Administration Office 
of Advocacy (June 17, 2022) (``Advocacy''). Some commenters, while 
not specifically addressing the IRFA, did address the impact of the 
proposed rules on SRCs. See letters from Soc. Corp. Gov. (Nov. 11, 
2022); BIO; FFAC; CCR; HDA; ICI; Jones Day; NACCO; NAHB; Rho Impact; 
CBD; Grant Eisenhofer; ICBA; and Williams Cos.
    \3210\ See letter from Advocacy.
    \3211\ Proposing Release at 16617.
    \3212\ See letter from Advocacy.
---------------------------------------------------------------------------

    The comment letter from Advocacy also addressed the discussion of 
alternatives within the IRFA and the Commission's explanation of why it 
did not ultimately propose such alternatives. Advocacy also stated that 
``[t]he RFA requires that an IRFA provide significant, feasible 
alternatives that accomplish an agency's objectives,'' and stated that 
the IRFA did not satisfy this requirement because it listed ``broad 
categories of potential alternatives to the proposed rules but [did] 
not analyze specific alternatives that w[ere] considered by the SEC'' 
and because it did not ``contain a description of any additional 
regulatory alternatives which accomplish the SEC's stated objectives 
and which would further minimize the significant economic impact of the 
proposal on small entities.'' \3213\ Finally, Advocacy stated that the 
Commission had not ``considered the impacts of the proposal to 
indirectly regulated small entities'' as a result of the proposed 
requirement for Scope 3 emissions data from certain registrants.\3214\ 
Advocacy stated that ``[m]any of these upstream and downstream parties 
will be small, privately-owned companies that do not have public 
reporting requirements,'' and as result such ``small businesses are 
unsure what information they would be expected to provide to public 
companies, how to collect the necessary information, and whether their 
businesses would be able to absorb the associated costs.'' \3215\
---------------------------------------------------------------------------

    \3213\ See id.
    \3214\ See id.
    \3215\ See id.
---------------------------------------------------------------------------

1. Estimate of Affected Small Entities and Impact to Those Entities
    With respect to the adequacy of the Proposing Release's estimate of 
affected small entities, the RFA requires ``a description of and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply.'' \3216\ Advocacy's published guidance 
recommends agencies use NAICS classifications to help in ``identifying 
the industry, governmental and nonprofit sectors they intend to 
regulate.'' \3217\ Here, given that the rulemaking applies to and 
impacts all public company registrants, regardless of industry or 
sector, we do not believe that further breakout of such registrants by 
industry classification is necessary or would otherwise be helpful to 
such entities in understanding the impact of the proposed or final 
rules. In this case, small entities in certain industries and sectors 
are not necessarily more affected than others, as climate-related risks 
may exist across all industries and sectors, and may or may not exist 
for a particular registrant irrespective of the industry 
classification.\3218\ For the same reasons, we are not breaking down 
the affected entities into smaller size groups (e.g., based on total 
assets), as recommended by Advocacy. Given the nature of the final 
rules, we believe that our estimate below of the number of small 
entities to which the final rules will apply adequately describes and 
estimates the small entities that will be affected.\3219\
---------------------------------------------------------------------------

    \3216\ 5 U.S.C. 603(b)(3).
    \3217\ U.S. Small Business Administration Office of Advocacy, A 
Guide for Government Agencies: How to Comply with the Regulatory 
Flexibility Act (Aug. 2017), at 18, available at https://www.sba.gov/sites/default/files/advocacy/How-to-Comply-with-the-RFA-WEB.pdf.
    \3218\ A breakout would be relevant where, for example, the 
Commission finds that small entities generally would not be affected 
by a rule but small entities in a particular industry would be 
affected.
    \3219\ See infra section VI.C.
---------------------------------------------------------------------------

    We disagree with the statement in Advocacy's comment letter that 
``SEC expects that the costs associated with the proposed amendments to 
be similar for large and small entities.'' The Commission explained in 
the IRFA that the proposed amendments would apply to small entities to 
the same extent as other entities, irrespective of size, and that 
therefore, the Commission expected that ``the nature of any benefits 
and costs associated with the proposed amendments to be similar for 
large and

[[Page 21910]]

small entities'' (emphasis added).\3220\ The analysis with respect to 
the nature of the costs (and benefits) of the proposed rules detailed 
in the Economic Analysis of the Proposing Release was referenced in the 
IRFA to help small entities understand such impacts, not to imply that 
small entities face the same proportional costs as large entities. 
Indeed, the Commission went on to state in both the IRFA and the 
Economic Analysis of the Proposing Release that costs ``can vary 
significantly depending on firm characteristics, such as firm size, 
industry, business model, the complexity of the firm's corporate 
structure, starting level of internal expertise, etc.'' \3221\
---------------------------------------------------------------------------

    \3220\ Proposing Release at section VI.D.
    \3221\ Id. at 21441.
---------------------------------------------------------------------------

    The Commission solicited comments on the proposal's potential 
effect on small entities, and specifically acknowledged that their 
varied characteristics, including ``the nature and conduct of their 
businesses make[s] it difficult to project the economic impact on small 
entities with precision.'' \3222\ We note that the proposal, while not 
exempting small entities from the full scope of the proposed 
amendments, did exempt SRCs, which would generally include all 
estimated small entities that would be subject to the proposed rules, 
from the proposed Scope 3 emissions disclosure requirements and from 
the proposed GHG attestation requirements. Under the proposal, SRCs 
also were afforded a longer transition period to comply with the 
proposed rules than other registrants.
---------------------------------------------------------------------------

    \3222\ Id. at 21463.
---------------------------------------------------------------------------

    We nonetheless recognize the concerns raised by Advocacy and others 
regarding the costs to small entities subject to the proposed rules, as 
well as the concerns about the indirect impact to small entities not 
subject to the proposed rules. We discuss the economic effects, 
including costs, of the final rules across all entities in section IV 
above. We recognize that, to the extent the costs of the final rules 
are generally fixed across entities, they would be proportionally more 
costly for smaller companies. However, as discussed both above and 
below, to help mitigate that relatively greater burden to smaller 
companies and to respond to commenter concerns, we have made a number 
of changes in the final rules to ease these burdens, including 
providing SRCs, EGCs and NAFs with the longest phase in periods for 
compliance as well as excluding them entirely from some of the 
requirements, such as the GHG emissions disclosure and related 
assurance requirements. Additionally, certain changes from the 
proposal, including streamlining the requirements, making them less 
prescriptive and adding materiality qualifiers, will reduce the overall 
burden of the final rules for all registrants, including small 
entities. Accordingly, we believe that both this FRFA and our prior 
IRFA adequately describe and analyze the relative impact of costs to 
small entities.
2. Consideration of Alternatives
    The IRFA's discussion of significant alternatives, and our 
discussion of alternatives below, satisfy the RFA. The relevant RFA 
requirement provides that an IRFA ``shall also contain a description of 
any significant alternatives to the proposed rule which accomplish the 
stated objectives of applicable statutes and which minimize any 
significant economic impact of the proposed rule on small entities.'' 
\3223\ In the Proposing Release, the Commission discussed each of the 
types of significant alternatives noted in section 603 of the RFA and 
concluded that none of these alternatives would accomplish the stated 
objectives of the rulemaking while minimizing any significant impact on 
small entities. In addition, section IV.F of the Proposing Release 
discussed reasonable alternatives to the proposed rules and their 
economic impacts. Similarly, in addition to the discussion in section 
VI.E below, in section IV.F of this release we also discuss reasonable 
alternatives of the final rules and their economic impacts.
---------------------------------------------------------------------------

    \3223\ 5 U.S.C. 603(c) (emphasis added).
---------------------------------------------------------------------------

    While not commenting on the alternatives raised in the IRFA 
specifically, several commenters asked the Commission to provide 
further exemptions not only for SRCs as proposed, but also for other 
small businesses without reporting obligations that may have faced 
upstream or downstream reporting obligations under the proposed 
rules.\3224\ One of these commenters stated that while ``appreciat[ive] 
that the Commission proposes to exempt small companies from a portion 
of the reporting requirements (Scope 3)'' small companies in the 
biotechnology industry ``will be disproportionately affected by the 
proposed rule while providing limited benefit to investors.'' \3225\ 
This commenter also asserted that the proposed exemptions would not 
provide relief to smaller companies that ``have no product revenues but 
often fall outside of the scope of smaller reporting companies due to 
existing public float threshold.'' \3226\ Failure to consider these 
companies, it argued, could lead to ``diminishing incentives'' to go 
public and potentially duplicative regulation.\3227\ Another commenter 
reiterated this concern, stating that Scope 3 emission requirements 
extend beyond registrants to privately owned entities, specifically 
those without the resources to comply with the proposed 
disclosures.\3228\
---------------------------------------------------------------------------

    \3224\ See SBCFAC Recommendation; Small Business Forum 
Recommendation (2023); and letters from OOIDA; NAHB; and NACS.
    \3225\ Letter from BIO. However, some commenters disputed this 
characterization. See letter from Amer. for Fin. Reform, Sunrise 
Project et al., (stating that ``[o]ffering a wholesale exemption is 
unsupported by the extensive research, discussed throughout these 
comments, showing that climate-related financial risks are widely 
dispersed throughout the economy and not limited to large 
registrants. In addition, given their smaller size, SRCs are likely 
to have significantly less costs in assessing and disclosing Scope 3 
emissions than large registrants.'').
    \3226\ See letter from BIO.
    \3227\ See id.
    \3228\ See letter from Independent Community Banks of North 
Dakota (July 14, 2022).
---------------------------------------------------------------------------

    Advocacy stated it was concerned about the potential upstream and 
downstream effects of Scope 3 emissions disclosure requirements on non-
regulated small businesses.\3229\ Several commenters raised similar 
concerns.\3230\ While small businesses without reporting requirements 
were not obligated under the proposed rules to provide this 
information, several commenters expressed concerns that companies with 
reporting obligations would compel the collection of this information 
as a condition of doing business with these businesses.\3231\
---------------------------------------------------------------------------

    \3229\ See letter from Advocacy.
    \3230\ See letter from AFPA (``The SEC should carefully consider 
that the potential burdens of the proposal are not limited to public 
companies subject to SEC regulation, as private companies, including 
innumerable small businesses, also are expected to face inquiries 
from many SEC-regulated customers as a result of the rules.'').
    \3231\ See letter from Venture Dairy Cooperative (``Although 
this proposed rule is likely well intended as a step to both measure 
and monitor climate related information on publicly traded companies 
on Wall Street, this extension of reporting on Scope 3 emissions 
will inevitably filter down the supply chain to our nation's family 
farms who grow and raise the food we eat.''). See also letters from 
IDFA and PDMPA.
---------------------------------------------------------------------------

    The Commission also received comments that explicitly opposed a 
wholesale exemption for smaller companies, pointing to the need for 
greater transparency about climate-related risks irrespective of a 
registrant's size.\3232\ Some of these commenters

[[Page 21911]]

explained their opposition to a wholesale exemption by stating that 
smaller companies may face disproportionately greater climate-related 
risks, and asserted that the additional proposed phase in period was 
adequate to ensure smaller companies had time to comply with the 
proposed rules.\3233\
---------------------------------------------------------------------------

    \3232\ See letters from Anthesis Bailard; CalSTRS CBD; Change 
Finance; ClientEarth; Defenders Wildlife; Essex Invest. Mgmt.; IASJ 
IEN; FFAC; Grant Eisenhofer; NCF; OMERA PWHC LLP; Prentiss; S. 
Lloyd; Sweep; Terra Alpha; UNCA; and WAP.
    \3233\ See letter from ICI (``In addition, we support the 
Commission not proposing generally to exempt SRCs or EGCs from the 
entire scope of the proposed climate-related disclosure rules 
because climate-related risks may pose a significant risk to the 
operations and financial condition of smaller companies. At the same 
time, providing them with more time than other companies to comply 
with any new requirements could mitigate the Proposal's compliance 
burden for smaller companies by giving them additional time to 
allocate the resources necessary to compile and prepare climate-
related disclosures.'').
---------------------------------------------------------------------------

    Another commenter stated that, with respect to the proposal to 
require disclosure about the climate expertise of board members, small 
companies' ``operations and limited resources do not naturally lend 
themselves to requiring discrete board expertise for every risk, 
including climate-related risk.'' \3234\ This commenter also stated 
that requiring the disclosure of board expertise for a smaller company 
could lead to the selection of board members without other requisite 
skills.
---------------------------------------------------------------------------

    \3234\ See letter from NRP.
---------------------------------------------------------------------------

    The Commission considered the comments on the Proposing Release, 
including those addressing the impact of the proposed reporting 
obligations on small entities. The final rules address several concerns 
raised by Advocacy and other commenters and modify the proposal in ways 
that will significantly reduce costs to smaller reporting companies, 
including small entities that meet the definition of SRCs, EGCs, and 
NAFs. For example, SRCs, EGCs and NAFs are not subject to the 
requirement to disclose Scope 1 and 2 emissions, as discussed above. 
Additionally, the Commission is not adopting the proposal to require 
disclosure of Scope 3 emissions for any entities. This will address any 
concerns about the possible impacts of the proposed Scope 3 
requirements on small entities, including private companies, in a 
reporting company's value chain. Additionally, as a result of 
eliminating the reference to negative climate-related impacts on a 
registrant's value chain from the proposed definition of climate-
related risks, the final rules further limit the burdens of climate 
risk assessment on parties in a registrant's value chain that might 
have occurred under the rule proposal.
    We agree with commenters that stated that smaller companies should 
not be fully exempted from the final rules because they could face 
material climate risks about which investors need information to make 
informed voting and investment decisions.\3235\ As with other sized 
entities, many of the changes we have made to streamline the rules and 
provide additional flexibility to registrants to tailor their 
disclosures based on their particular facts and circumstances will 
similarly benefit smaller companies. For example, the changes made to 
the governance and risk management sections are less prescriptive and 
more principles-based, which will allow smaller companies to avoid 
disclosure requirements that are not compatible with their business. 
Additionally, as discussed in section II.O, we are providing SRCs, 
EGCs, and NAFs with significant additional time to comply with the 
final rules, with the earliest disclosures being required no sooner 
than the filings that are required to include financial information for 
fiscal year 2027.
---------------------------------------------------------------------------

    \3235\ See, e.g., supra notes 2410-2413.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Amendments

    The final rules apply to registrants that are small entities. The 
RFA defines ``small entity'' to mean ``small business,'' ``small 
organization,'' or ``small governmental jurisdiction.'' \3236\ For 
purposes of the RFA, under our rules, a registrant, other than an 
investment company, is a ``small business'' or ``small organization'' 
if it had total assets of $5 million or less on the last day of its 
most recent fiscal year and is engaged or proposing to engage in an 
offering of securities that does not exceed $5 million.\3237\ An 
investment company, including a business development company,\3238\ is 
considered to be a ``small business'' if it, together with other 
investment companies in the same group of related investment companies, 
has net assets of $50 million or less as of the end of its most recent 
fiscal year.\3239\ We estimate that, as of December 31, 2022, there 
were approximately 800 issuers and 10 business development companies 
that may be considered small entities that would be subject to the 
final amendments.
---------------------------------------------------------------------------

    \3236\ 5 U.S.C. 601(6).
    \3237\ See 17 CFR 240.0-10(a).
    \3238\ Business development companies are a category of closed-
end investment company that are not registered under the Investment 
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53 through 64].
    \3239\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    As noted above, requirements to disclose material GHG emissions 
information and obtain assurance over that information will not apply 
to SRCs, EGCs, or NAFs in response to concerns raised by commenters. 
For the remainder of the requirements, we continue to expect that the 
nature of any benefits and costs associated with the amendments to be 
similar for large and small entities, and so we refer to the discussion 
of the amendments' economic effects on all affected parties, including 
small entities, in section IV above. Also consistent with the 
discussion in sections II and IV above, we acknowledge that, to the 
extent that a smaller entity would be required to provide disclosure 
under the final rules, it may face costs that are proportionally 
greater as it may be less able to bear such costs relative to larger 
entities.\3240\ The costs of preparing the disclosure would be a 
primary contributing factor given that compliance with certain 
provisions of the final amendments may require the use of professional 
skills, including legal, accounting, and technical skills. We also 
anticipate that the economic benefits and costs likely could vary 
widely among small entities based on a number of factors, such as the 
nature and conduct of their businesses, including whether and how they 
managed any material climate-related risks, which makes it difficult to 
project the economic impact on small entities with precision. To the 
extent that the disclosure requirements have a greater effect on 
smaller registrants relative to large registrants, they could result in 
adverse effects on competition.
---------------------------------------------------------------------------

    \3240\ We note that some commenters stated that SRCs may have 
proportionately lower expenses. See letter from Amer. for Fin. 
Reform, Sunrise Project et al.
---------------------------------------------------------------------------

E. Agency Action To Minimize Effect on Small Entities

    The RFA directs us to consider alternatives that would accomplish 
our stated objectives, while minimizing any significant adverse impact 
on small entities. Accordingly, we considered the following 
alternatives:
    1. Exempting small entities from all or part of the requirements;
    2. Establishing different compliance or reporting requirements that 
consider the resources available to small entities;
    3. Using performance rather than design standards; and
    4. Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities.

[[Page 21912]]

    The rules are intended to allow investors to make more informed 
investment and voting decisions about the impact of climate-related 
risks on registrants' business and financial condition. As explained in 
section I.A. above, current requirements are not yielding consistent 
and comparable disclosure sufficient to meet investors' needs. The 
disclosure that does exist is scattered in various parts of 
registrants' filings and public disclosures and provided at different 
intervals, making it difficult for investors to locate, analyze, and 
compare across registrants.
    Given the current disclosure landscape, exempting small entities 
entirely from the rules or otherwise clarifying, consolidating, or 
simplifying compliance and reporting requirements under the rules for 
small entities would frustrate the rulemaking's goal of providing 
investors with more consistent, comparable and timely disclosure about 
climate-related risks across all registrants. However, as discussed in 
section II above, we have consolidated and simplified the disclosure 
requirements for all entities, which should ease small entities' 
compliance as well. Further, as some commenters noted, smaller 
companies may face equal or greater climate-related risk than larger 
companies, making the disclosures important for investors in these 
companies.\3241\ However, we have determined to require the disclosure 
of Scope 1 and Scope 2 GHG emissions only in certain circumstances from 
the largest filers, thereby excluding smaller companies from these 
provisions. We believe that this strikes an appropriate balance between 
the needs of investors in smaller companies, including small entities, 
to understand the likely impacts of material climate-related risks and 
the costs associated with compliance.
---------------------------------------------------------------------------

    \3241\ See supra note 3233.
---------------------------------------------------------------------------

    We also believe the rulemaking's stated objectives can be achieved 
by providing smaller companies with additional time to comply. 
Therefore, smaller companies, including small entities that are SRCs, 
EGCs and NAFs, will be provided with more than two years from the 
effective date of the final rules before compliance is required; 
specifically, these entities must begin to comply in filings that are 
required to include financial information for fiscal year 2027. These 
changes will benefit small entities and other small companies, both by 
giving them an extended compliance period to establish disclosure 
controls and procedures and by allowing them to observe and learn from 
best practices as they develop among larger registrants.
    Similarly, the final rules incorporate a combination of performance 
and design standards with respect to all affected registrants, 
including small entities, in order to balance the objectives and 
compliance burdens of the final rules. While the final rules use design 
standards to promote uniform compliance requirements for all 
registrants and to address the disclosure concerns underlying the 
amendments, which apply to entities of all sizes, they also incorporate 
elements of performance standards to give registrants sufficient 
flexibility to craft meaningful disclosure that is tailored to their 
particular facts and circumstances. For example, the final rules 
require a registrant to describe the actual and potential material 
impacts of any material climate-related risk on the registrant's 
strategy, business model, and outlook. The rules also provide a non-
exhaustive list of examples of disclosure items that a registrant 
should include, if applicable, in providing responsive disclosure 
rather than specifying more prescriptive set of disclosures, as in the 
proposal.

Statutory Authority

    The amendments contained in this release are being adopted under 
the authority set forth in sections 7, 10, 19(a), and 28 of the 
Securities Act, as amended, and sections 3(b), 12, 13, 15, 23(a), and 
36 of the Exchange Act, as amended.

List of Subjects in 17 CFR Parts 210, 229, 230, 232, 239, and 249

    Accountants; Accounting; Administrative practice and procedure, 
Reporting and recordkeeping requirements, Securities.

Text of Amendments

    For the reasons set out in the preamble, the Commission is adopting 
amendments to title 17, chapter II of the Code of Federal Regulations 
as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a20, 80a-29, 80a-30, 
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), 
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.


0
2. Amend Sec.  210.8-01 by revising paragraph (b) to read as follows:


Sec.  210.8-01  General requirements for Article 8.

* * * * *
    (b) Smaller reporting companies electing to prepare their financial 
statements with the form and content required in Article 8 need not 
apply the other form and content requirements in 17 CFR part 210 
(Regulation S-X) with the exception of the following:
    (1) The report and qualifications of the independent accountant 
shall comply with the requirements of Sec. Sec.  210.2-01 through 
210.2-07 (Article 2); and
    (2) The description of accounting policies shall comply with Sec.  
210.4-08(n); and
    (3) Smaller reporting companies engaged in oil and gas producing 
activities shall follow the financial accounting and reporting 
standards specified in Sec.  210.4-10 with respect to such activities; 
and
    (4) Sections 210.14-01 and 210.14-02 (Article 14).
* * * * *

0
3. Add an undesignated center heading and Sec. Sec.  210.14-01 and 
210.14-02 to read as follows:

Article 14 Disclosure of Severe Weather Events and Other Information


Sec.  210.14-01  Instructions related to disclosure of severe weather 
events and other information.

    (a) General. A registrant must include disclosure pursuant to Sec.  
210.14-02 in any filing that is required to include disclosure pursuant 
to subpart 229.1500 of this chapter and that also requires the 
registrant to include its audited financial statements. The disclosure 
pursuant to Sec.  210.14-02 must be included in a note to the financial 
statements included in such filing.
    (b) Definitions. The definitions in Sec.  229.1500 of this chapter 
(Item 1500 of Regulation S-K) apply to Sec. Sec.  210.14-01 and 210.14-
02 (Article 14) except where otherwise indicated.
    (c) Basis of calculation. When calculating the financial statement 
effects in this Article 14, except where otherwise indicated, a 
registrant must:
    (1) Use financial information that is consistent with the scope of 
its consolidated financial statements included in the filing; and
    (2) Apply the same accounting principles that it is required to 
apply in

[[Page 21913]]

the preparation of its consolidated financial statements included in 
the filing.
    (d) Periods to be disclosed. Disclosure must be provided for the 
registrant's most recently completed fiscal year, and to the extent 
previously disclosed or required to be disclosed, for the historical 
fiscal year(s), for which audited consolidated financial statements are 
included in the filing.


Sec.  210.14-02  Disclosures related to severe weather events and other 
information.

    (a) Contextual information. Provide contextual information, 
describing how each specified financial statement effect disclosed 
under Sec.  210.14-02(b) through (h) was derived, including a 
description of significant inputs and assumptions used, significant 
judgments made, other information that is important to understand the 
financial statement effect and, if applicable, policy decisions made by 
the registrant to calculate the specified disclosures.
    (b) Disclosure thresholds. (1) Disclosure of the aggregate amount 
of expenditures expensed as incurred and losses pursuant to paragraph 
(c) of this section is required if the aggregate amount of expenditures 
expensed as incurred and losses equals or exceeds one percent of the 
absolute value of income or loss before income tax expense or benefit 
for the relevant fiscal year. Such disclosure is not required, however, 
if the aggregate amount of expenditures expensed as incurred and losses 
is less than $100,000 for the relevant fiscal year.
    (2) Disclosure of the aggregate amount of capitalized costs and 
charges incurred pursuant to paragraph (d) of this section is required 
if the aggregate amount of the absolute value of capitalized costs and 
charges equals or exceeds one percent of the absolute value of 
stockholders' equity or deficit at the end of the relevant fiscal year. 
Such disclosure is not required, however, if the aggregate amount of 
the absolute value of capitalized costs and charges is less than 
$500,000 for the relevant fiscal year.
    (c) Expenditures expensed as incurred and losses resulting from 
severe weather events and other natural conditions. Disclose the 
aggregate amount of expenditures expensed as incurred and losses, 
excluding recoveries, incurred during the fiscal year as a result of 
severe weather events and other natural conditions, such as hurricanes, 
tornadoes, flooding, drought, wildfires, extreme temperatures, and sea 
level rise. For example, a registrant may be required to disclose the 
amount of expense or loss, as applicable, to restore operations, 
relocate assets or operations affected by the event or other natural 
condition, retire affected assets, repair affected assets, recognize 
impairment loss on affected assets, or otherwise respond to the effect 
that severe weather events and other natural conditions had on business 
operations. Disclosure pursuant to this paragraph must separately 
identify where the expenditures expensed as incurred and losses are 
presented in the income statement.
    (d) Capitalized costs and charges resulting from severe weather 
events and other natural conditions. Disclose the aggregate amount of 
capitalized costs and charges, excluding recoveries, incurred during 
the fiscal year as a result of severe weather events and other natural 
conditions, such as hurricanes, tornadoes, flooding, drought, 
wildfires, extreme temperatures, and sea level rise. For example, a 
registrant may be required to disclose the amount of capitalized costs 
or charges, as applicable, to restore operations, retire affected 
assets, replace or repair affected assets, recognize an impairment 
charge for affected assets, or otherwise respond to the effect that 
severe weather events and other natural conditions had on business 
operations. Disclosure pursuant to this paragraph must separately 
identify where the capitalized costs and charges are presented in the 
balance sheet.
    (e) Carbon offsets and RECs. (1) If carbon offsets or RECs have 
been used as a material component of a registrant's plans to achieve 
its disclosed climate-related targets or goals, disclose the aggregate 
amount of carbon offsets and RECs expensed, the aggregate amount of 
capitalized carbon offsets and RECs recognized, and the aggregate 
amount of losses incurred on the capitalized carbon offsets and RECs, 
during the fiscal year. In addition, disclose the beginning and ending 
balances of the capitalized carbon offsets and RECs for the fiscal 
year. Disclosure pursuant to this paragraph must separately identify 
where the expenditures expensed, capitalized costs, and losses are 
presented in the income statement and the balance sheet.
    (2) If a registrant is required to provide disclosure pursuant to 
paragraph (e)(1) of this section, then a registrant must state its 
accounting policy for carbon offsets and RECs as part of the contextual 
information required by paragraph (a) of this section.
    (f) Recoveries. If a registrant is required to provide disclosure 
pursuant to paragraphs (c) or (d) of this section, then as part of the 
contextual information required by paragraph (a) of this section, a 
registrant must state separately the aggregate amount of any recoveries 
recognized during the fiscal year as a result of severe weather events 
and other natural conditions for which capitalized costs, expenditures 
expensed, charges, or losses are disclosed pursuant to paragraphs (c) 
or (d) of this section. Disclosure pursuant to this paragraph must 
separately identify where the recoveries are presented in the income 
statement and the balance sheet.
    (g) Attribution. For purposes of providing disclosure pursuant to 
paragraphs (c), (d), and (f) of this section, a capitalized cost, 
expenditure expensed, charge, loss, or recovery results from a severe 
weather event or other natural condition when the event or condition is 
a significant contributing factor in incurring the capitalized cost, 
expenditure expensed, charge, loss, or recovery. If an event or 
condition is a significant contributing factor in incurring a cost, 
expenditure, charge, loss, or recovery, then the entire amount of such 
cost, expenditure, charge, loss, or recovery must be included in the 
disclosure pursuant to paragraphs (c), (d), and (f) of this section.
    (h) Financial estimates and assumptions materially impacted by 
severe weather events and other natural conditions or disclosed targets 
or transition plans. Disclose whether the estimates and assumptions the 
registrant used to produce the consolidated financial statements were 
materially impacted by exposures to risks and uncertainties associated 
with, or known impacts from, severe weather events and other natural 
conditions, such as hurricanes, tornadoes, flooding, drought, 
wildfires, extreme temperatures, and sea level rise, or any climate-
related targets or transition plans disclosed by the registrant. If 
yes, provide a qualitative description of how the development of such 
estimates and assumptions were impacted by such events, conditions, 
targets, or transition plans.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
4. The authority citation for part 229 continues to read as follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78

[[Page 21914]]

mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a37, 80a-
38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), 
Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 
112-106, 126 Stat. 310 (2012).


0
5. Amend Sec.  229.601 by:
0
a. In the exhibit table in paragraph (a), revising entry 27; and
0
b. Adding paragraph (b)(27).
    The revision and addition read as follows:


Sec.  229.601  (Item 601) Exhibits.

    (a) * * *

                                                                      Exhibit Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Securities Act forms                                          Exchange Act forms
                              --------------------------------------------------------------------------------------------------------------------------
                                                               S-4                                  F-4
                                S-1    S-3    SF-1    SF-3     \1\    S-8    S-11    F-1    F-3     \1\    10  8-K \2\   10-D    10-Q    10-K    ABS-EE
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                      * * * * * * *
(27) Letter re GHG emissions       X      X  ......  ......       X  .....       X      X      X       X  ...  .......  ......       X       X  ........
 attestation provider........
 
                                                                      * * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ An exhibit need not be provided about a company if: (1) With respect to such company an election has been made under Form S-4 or F-4 to provide
  information about such company at a level prescribed by Form S-3 or F-3; and (2) the form, the level of which has been elected under Form S-4 or F-4,
  would not require such company to provide such exhibit if it were registering a primary offering.
\2\ A Form 8-K exhibit is required only if relevant to the subject matter reported on the Form 8-K report. For example, if the Form 8-K pertains to the
  departure of a director, only the exhibit described in paragraph (b)(17) of this section need be filed. A required exhibit may be incorporated by
  reference from a previous filing.

* * * * *
    (b) * * *
    (27) Letter re GHG emissions attestation report. A letter, where 
applicable, from the attestation provider that acknowledges awareness 
of the use in a registration statement of a GHG emissions attestation 
report that pursuant to 17 CFR 230.436(i)(1) (Rule 436(i)(1)) under the 
Securities Act is not considered a part of a registration statement 
prepared or certified by a person within the meaning of sections 7 and 
11 of the Securities Act. Such letter may be filed with the 
registration statement, an amendment thereto, or a report on Form 10-K 
(Sec.  249.310), Form 10-Q (Sec.  249.308a), or Form 20-F (Sec.  
249.220f), which is incorporated by reference into the registration 
statement.
* * * * *

0
6. Add subpart 229.1500, consisting of Sec. Sec.  229.1500 through 
229.1508, to read as follows:
Subpart 229.1500--Climate-Related Disclosure
Sec.
229.1500 (Item 1500) Definitions.
229.1501 (Item 1501) Governance.
229.1502 (Item 1502) Strategy.
229.1503 (Item 1503) Risk management.
229.1504 (Item 1504) Targets and goals.
229.1505 (Item 1505) GHG emissions metrics.
229.1506 (Item 1506) Attestation of Scope 1 and Scope 2 emissions 
disclosure.
229.1507 (Item 1507) Safe harbor for certain climate-related 
disclosures.
229.1508 (Item 1508) Interactive data requirement.

Subpart 229.1500--Climate-Related Disclosure


Sec.  229.1500  (Item 1500) Definitions.

    As used in this subpart, these terms have the following meanings:
    Carbon offsets represents an emissions reduction, removal, or 
avoidance of greenhouse gases (``GHG'') in a manner calculated and 
traced for the purpose of offsetting an entity's GHG emissions.
    Climate-related risks means the actual or potential negative 
impacts of climate-related conditions and events on a registrant's 
business, results of operations, or financial condition. Climate-
related risks include the following:
    (1) Physical risks include both acute risks and chronic risks to 
the registrant's business operations.
    (2) Acute risks are event-driven and may relate to shorter term 
severe weather events, such as hurricanes, floods, tornadoes, and 
wildfires, among other events.
    (3) Chronic risks relate to longer term weather patterns, such as 
sustained higher temperatures, sea level rise, and drought, as well as 
related effects such as decreased arability of farmland, decreased 
habitability of land, and decreased availability of fresh water.
    (4) Transition risks are the actual or potential negative impacts 
on a registrant's business, results of operations, or financial 
condition attributable to regulatory, technological, and market changes 
to address the mitigation of, or adaptation to, climate-related risks, 
including such non-exclusive examples as increased costs attributable 
to changes in law or policy, reduced market demand for carbon-intensive 
products leading to decreased prices or profits for such products, the 
devaluation or abandonment of assets, risk of legal liability and 
litigation defense costs, competitive pressures associated with the 
adoption of new technologies, and reputational impacts (including those 
stemming from a registrant's customers or business counterparties) that 
might trigger changes to market behavior, consumer preferences or 
behavior, and registrant behavior.
    Carbon dioxide equivalent or CO2e means the common unit of 
measurement to indicate the global warming potential (``GWP'') of each 
greenhouse gas, expressed in terms of the GWP of one unit of carbon 
dioxide.
    Emission factor means a multiplication factor allowing actual GHG 
emissions to be calculated from available activity data or, if no 
activity data are available, economic data, to derive absolute GHG 
emissions. Examples of activity data include kilowatt-hours of 
electricity used, quantity of fuel used, output of a process, hours of 
operation of equipment, distance travelled, and floor area of a 
building.
    GHG or Greenhouse gases means carbon dioxide (CO2), 
methane (CH4), nitrous oxide (N2O), nitrogen 
trifluoride (NF3), hydrofluorocarbons (HFCs), 
perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
    GHG emissions means direct and indirect emissions of greenhouse 
gases expressed in metric tons of carbon dioxide equivalent 
(CO2e), of which:
    (1) Direct emissions are GHG emissions from sources that are owned 
or controlled by a registrant.
    (2) Indirect emissions are GHG emissions that result from the 
activities of the registrant but occur at sources not owned or 
controlled by the registrant.
    Internal carbon price means an estimated cost of carbon emissions 
used internally within an organization.
    Operational boundaries means the boundaries that determine the 
direct and indirect emissions associated with

[[Page 21915]]

the business operations owned or controlled by a registrant.
    Organizational boundaries means the boundaries that determine the 
operations owned or controlled by a registrant for the purpose of 
calculating its GHG emissions.
    Renewable energy credit or certificate or REC means a credit or 
certificate representing each megawatt-hour (1 MWh or 1,000 kilowatt-
hours) of renewable electricity generated and delivered to a power 
grid.
    Scenario analysis means a process for identifying and assessing a 
potential range of outcomes of various possible future climate 
scenarios, and how climate-related risks may impact a registrant's 
business strategy, results of operations, or financial condition over 
time.
    Scope 1 emissions are direct GHG emissions from operations that are 
owned or controlled by a registrant.
    Scope 2 emissions are indirect GHG emissions from the generation of 
purchased or acquired electricity, steam, heat, or cooling that is 
consumed by operations owned or controlled by a registrant.
    Transition plan means a registrant's strategy and implementation 
plan to reduce climate-related risks, which may include a plan to 
reduce its GHG emissions in line with its own commitments or 
commitments of jurisdictions within which it has significant 
operations.


Sec.  229.1501  (Item 1501) Governance.

    (a) Describe the board of directors' oversight of climate-related 
risks. If applicable, identify any board committee or subcommittee 
responsible for the oversight of climate-related risks and describe the 
processes by which the board or such committee or subcommittee is 
informed about such risks. If there is a climate-related target or goal 
disclosed pursuant to Sec.  229.1504 or transition plan disclosed 
pursuant to Sec.  229.1502(e)(1), describe whether and how the board of 
directors oversees progress against the target or goal or transition 
plan.
    (b) Describe management's role in assessing and managing the 
registrant's material climate-related risks. In providing such 
disclosure, a registrant should address, as applicable, the following 
non-exclusive list of disclosure items:
    (1) Whether and which management positions or committees are 
responsible for assessing and managing climate-related risks and the 
relevant expertise of such position holders or committee members in 
such detail as necessary to fully describe the nature of the expertise;
    (2) The processes by which such positions or committees assess and 
manage climate-related risks; and
    (3) Whether such positions or committees report information about 
such risks to the board of directors or a committee or subcommittee of 
the board of directors.
    Instruction 1 to Item 1501: In the case of a foreign private issuer 
with a two-tier board of directors, for purposes of paragraph (a) of 
this section, the term ``board of directors'' means the supervisory or 
non-management board. In the case of a foreign private issuer meeting 
the requirements of Sec.  240.10A-3(c)(3) of this chapter, for purposes 
of paragraph (a) of this section, the term ``board of directors'' means 
the issuer's board of auditors (or similar body) or statutory auditors, 
as applicable.
    Instruction 2 to Item 1501: Relevant expertise of management in 
paragraph (b)(1) of this section may include, for example: Prior work 
experience in climate-related matters; any relevant degrees or 
certifications; any knowledge, skills, or other background in climate-
related matters.


Sec.  229.1502  (Item 1502) Strategy.

    (a) Describe any climate-related risks that have materially 
impacted or are reasonably likely to have a material impact on the 
registrant, including on its strategy, results of operations, or 
financial condition. In describing these material risks, a registrant 
must describe whether such risks are reasonably likely to manifest in 
the short-term (i.e., the next 12 months) and separately in the long-
term (i.e., beyond the next 12 months). A registrant must disclose 
whether the risk is a physical or transition risk, providing 
information necessary to an understanding of the nature of the risk 
presented and the extent of the registrant's exposure to the risk, 
including the following non-exclusive list of disclosures, as 
applicable:
    (1) If a physical risk, whether it may be categorized as an acute 
or chronic risk, and the geographic location and nature of the 
properties, processes, or operations subject to the physical risk.
    (2) If a transition risk, whether it relates to regulatory, 
technological, market (including changing consumer, business 
counterparty, and investor preferences), or other transition-related 
factors, and how those factors impact the registrant. A registrant that 
has significant operations in a jurisdiction that has made a GHG 
emissions reduction commitment should consider whether it may be 
exposed to a material transition risk related to the implementation of 
the commitment.
    (b) Describe the actual and potential material impacts of any 
climate-related risk identified in response to paragraph (a) of this 
section on the registrant's strategy, business model, and outlook, 
including, as applicable, any material impacts on the following non-
exclusive list of items:
    (1) Business operations, including the types and locations of its 
operations;
    (2) Products or services;
    (3) Suppliers, purchasers, or counterparties to material contracts, 
to the extent known or reasonably available;
    (4) Activities to mitigate or adapt to climate-related risks, 
including adoption of new technologies or processes; and
    (5) Expenditure for research and development.
    (c) Discuss whether and how the registrant considers any impacts 
described in response to paragraph (b) of this section as part of its 
strategy, financial planning, and capital allocation, including, as 
applicable:
    (1) Whether the impacts of the climate-related risks described in 
response to paragraph (b) have been integrated into the registrant's 
business model or strategy, including whether and how resources are 
being used to mitigate climate-related risks; and
    (2) How any of the targets referenced in Sec.  229.1504 or 
transition plans referenced in paragraph (e) of this section relate to 
the registrant's business model or strategy.
    (d)(1) Discuss how any climate-related risks described in response 
to paragraph (a) of this section have materially impacted or are 
reasonably likely to materially impact the registrant's business, 
results of operations, or financial condition.
    (2) Describe quantitatively and qualitatively the material 
expenditures incurred and material impacts on financial estimates and 
assumptions that, in management's assessment, directly result from 
activities disclosed under paragraph (b)(4) of this section.
    (e)(1) If a registrant has adopted a transition plan to manage a 
material transition risk, describe the plan. To allow for an 
understanding of the registrant's progress under the plan over time, a 
registrant must update its annual report disclosure about the 
transition plan each fiscal year by describing any actions taken during 
the year under the plan, including how such actions have impacted the 
registrant's business, results of operations, or financial condition.

[[Page 21916]]

    (2) Include quantitative and qualitative disclosure of material 
expenditures incurred and material impacts on financial estimates and 
assumptions as a direct result of the transition plan disclosed under 
paragraph (e)(1) of this section.
    (f) If a registrant uses scenario analysis to assess the impact of 
climate-related risks on its business, results of operations, or 
financial condition, and if, based on the results of such scenario 
analysis, the registrant determines that a climate-related risk is 
reasonably likely to have a material impact on its business, results of 
operations, or financial condition, the registrant must describe each 
such scenario including a brief description of the parameters, 
assumptions, and analytical choices used, as well as the expected 
material impacts, including financial impacts, on the registrant under 
each such scenario.
    (g)(1) If a registrant's use of an internal carbon price is 
material to how it evaluates and manages a climate-related risk 
identified in response to paragraph (a) of this section, disclose in 
units of the registrant's reporting currency:
    (i) The price per metric ton of CO2e; and
    (ii) The total price, including how the total price is estimated to 
change over the time periods referenced in paragraph (a) of this 
section, as applicable.
    (2) If a registrant uses more than one internal carbon price to 
evaluate and manage a material climate-related risk, it must provide 
the disclosures required by this section for each internal carbon price 
and disclose its reasons for using different prices.
    (3) If the scope of entities and operations involved in the use of 
an internal carbon price described pursuant to this section is 
materially different from the organizational boundaries used for the 
purpose of calculating a registrant's GHG emissions pursuant to Sec.  
229.1505, briefly describe this difference.


Sec.  229.1503  (Item 1503) Risk management.

    (a) Describe any processes the registrant has for identifying, 
assessing, and managing material climate-related risks. In providing 
such disclosure, registrants should address, as applicable, the 
following non-exclusive list of disclosure items regarding how the 
registrant:
    (1) Identifies whether it has incurred or is reasonably likely to 
incur a material physical or transition risk;
    (2) Decides whether to mitigate, accept, or adapt to the particular 
risk; and
    (3) Prioritizes whether to address the climate-related risk.
    (b) If managing a material climate-related risk, the registrant 
must disclose whether and how any processes described in response to 
paragraph (a) of this section have been integrated into the 
registrant's overall risk management system or processes.


Sec.  229.1504  (Item 1504) Targets and goals.

    (a) A registrant must disclose any climate-related target or goal 
if such target or goal has materially affected or is reasonably likely 
to materially affect the registrant's business, results of operations, 
or financial condition. A registrant may provide the disclosure 
required by this section as part of its disclosure in response to 
Sec. Sec.  229.1502 or 229.1503.
    (b) In providing disclosure required by paragraph (a) of this 
section, a registrant must provide any additional information or 
explanation necessary to an understanding of the material impact or 
reasonably likely material impact of the target or goal, including, as 
applicable, but not limited to, a description of:
    (1) The scope of activities included in the target;
    (2) The unit of measurement;
    (3) The defined time horizon by which the target is intended to be 
achieved, and whether the time horizon is based on one or more goals 
established by a climate-related treaty, law, regulation, policy, or 
organization;
    (4) If the registrant has established a baseline for the target or 
goal, the defined baseline time period and the means by which progress 
will be tracked; and
    (5) A qualitative description of how the registrant intends to meet 
its climate-related targets or goals.
    (c) Disclose any progress made toward meeting the target or goal 
and how any such progress has been achieved. A registrant must update 
this disclosure each fiscal year by describing the actions taken during 
the year to achieve its targets or goals.
    (1) Include a discussion of any material impacts to the 
registrant's business, results of operations, or financial condition as 
a direct result of the target or goal or the actions taken to make 
progress toward meeting the target or goal.
    (2) Include quantitative and qualitative disclosure of any material 
expenditures and material impacts on financial estimates and 
assumptions as a direct result of the target or goal or the actions 
taken to make progress toward meeting the target or goal.
    (d) If carbon offsets or RECs have been used as a material 
component of a registrant's plan to achieve climate-related targets or 
goals, separately disclose the amount of carbon avoidance, reduction or 
removal represented by the offsets or the amount of generated renewable 
energy represented by the RECs, the nature and source of the offsets or 
RECs, a description and location of the underlying projects, any 
registries or other authentication of the offsets or RECs, and the cost 
of the offsets or RECs.


Sec.  229.1505  (Item 1505) GHG emissions metrics.

    (a)(1) A registrant that is a large accelerated filer or an 
accelerated filer, each as defined in Sec.  240.12b-2 of this chapter, 
must disclose its Scope 1 emissions and/or its Scope 2 emissions, if 
such emissions are material, for its most recently completed fiscal 
year and, to the extent previously disclosed in a Commission filing, 
for the historical fiscal year(s) included in the consolidated 
financial statements in the filing.
    (2) For any GHG emissions required to be disclosed pursuant to 
paragraph (a)(1) of this section:
    (i) Disclose the registrant's Scope 1 emissions and/or Scope 2 
emissions separately, each expressed in the aggregate, in terms of 
CO2e. In addition, if any constituent gas of the disclosed 
emissions is individually material, disclose such constituent gas 
disaggregated from the other gases.
    (ii) Disclose the registrant's Scope 1 emissions and/or Scope 2 
emissions in gross terms by excluding the impact of any purchased or 
generated offsets.
    (3)(i) A smaller reporting company, as defined by Sec. Sec.  
229.10(f)(1), 230.405, and 240.12b-2 of this chapter, and an emerging 
growth company, as defined by Sec. Sec.  230.405 and 240.12b-2 of this 
chapter, are exempt from, and need not comply with, the disclosure 
requirements of this section.
    (ii) A registrant is not required to include GHG emissions from a 
manure management system when disclosing its overall Scopes 1 and 2 
emissions pursuant to paragraph (a)(1) of this section so long as 
implementation of such a provision is subject to restrictions on 
appropriated funds or otherwise prohibited under federal law.
    (b)(1) Describe the methodology, significant inputs, and 
significant assumptions used to calculate the registrant's GHG 
emissions disclosed pursuant to this section. This description must 
include:

[[Page 21917]]

    (i) The organizational boundaries used when calculating the 
registrant's disclosed GHG emissions, including the method used to 
determine those boundaries. If the organizational boundaries materially 
differ from the scope of entities and operations included in the 
registrant's consolidated financial statements, provide a brief 
explanation of this difference in sufficient detail for a reasonable 
investor to understand;
    (ii) A brief discussion of, in sufficient detail for a reasonable 
investor to understand, the operational boundaries used, including the 
approach to categorization of emissions and emissions sources; and
    (iii) A brief description of, in sufficient detail for a reasonable 
investor to understand, the protocol or standard used to report the GHG 
emissions, including the calculation approach, the type and source of 
any emission factors used, and any calculation tools used to calculate 
the GHG emissions.
    (2) A registrant may use reasonable estimates when disclosing its 
GHG emissions as long as it also describes the underlying assumptions, 
and its reasons for using, the estimates.
    (c)(1) Any GHG emissions metrics required to be disclosed pursuant 
to this section in a registrant's annual report on Form 10-K filed with 
the Commission may be incorporated by reference from the registrant's 
Form 10-Q for the second fiscal quarter in the fiscal year immediately 
following the year to which the GHG emissions metrics disclosure 
relates, or may be included in an amended annual report on Form 10-K no 
later than the due date for such Form 10-Q. If the registrant is a 
foreign private issuer, as defined in Sec. Sec.  230.405 and 240.3b-
4(c) of this chapter, such information may be disclosed in an amendment 
to its annual report on Form 20-F (Sec.  249.220f of this chapter), 
which shall be due no later than 225 days after the end of the fiscal 
year to which the GHG emissions metrics disclosure relates. In either 
case, the registrant must include an express statement in its annual 
report indicating its intention to incorporate by reference this 
information from either a quarterly report on Form 10-Q or amend its 
annual report on Form 10-K or Form 20-F to provide this information by 
the due date specified by this section.
    (2) In the case of a registration statement filed under the 
Securities Act of 1933 [15 U.S.C. 77a et seq.] or filed on Form 10 
(Sec.  249.210 of this chapter) or Form 20-F (Sec.  249.220f of this 
chapter) under the Securities Exchange Act of 1934 [15 U.S.C. 78a et 
seq.], any GHG emissions metrics required to be disclosed pursuant to 
paragraph (a) of this section must be provided as of the most recently 
completed fiscal year that is at least 225 days prior to the date of 
effectiveness of the registration statement.


Sec.  229.1506  (Item 1506) Attestation of Scope 1 and Scope 2 
emissions disclosure.

    (a) Attestation. (1) A registrant that is required to provide Scope 
1 and/or Scope 2 emissions disclosure pursuant to Sec.  229.1505 must 
include an attestation report covering such disclosure in the relevant 
filing, subject to the following provisions:
    (i) For filings made by an accelerated filer beginning the third 
fiscal year after the compliance date for Sec.  229.1505 and 
thereafter, the attestation engagement must, at a minimum, be at a 
limited assurance level and cover the registrant's Scope 1 and/or Scope 
2 emissions disclosure;
    (ii) For filings made by a large accelerated filer beginning the 
third fiscal year after the compliance date for Sec.  229.1505, the 
attestation engagement must, at a minimum, be at a limited assurance 
level and cover the registrant's Scope 1 and/or Scope 2 emissions 
disclosure; and
    (iii) For filings made by a large accelerated filer beginning the 
seventh fiscal year after the compliance date for Sec.  229.1505 and 
thereafter, the attestation engagement must be at a reasonable 
assurance level and cover the registrant's Scope 1 and/or Scope 2 
emissions disclosure.
    (2) Any attestation report required under this section must be 
provided pursuant to standards that are:
    (i) Publicly available at no cost or that are widely used for GHG 
emissions assurance; and
    (ii) Established by a body or group that has followed due process 
procedures, including the broad distribution of the framework for 
public comment.
    (3) A registrant that is required to provide Scope 1 and/or Scope 2 
emissions disclosure pursuant to Sec.  229.1505 that obtains voluntary 
assurance over its GHG emissions disclosure prior to the first required 
fiscal year for assurance must comply with paragraph (e) of this 
section. Voluntary assurance obtained by such registrant after the 
first required fiscal year that is in addition to any required 
assurance must follow the requirements of paragraphs (b) through (d) of 
this section and must use the same attestation standard as the required 
assurance over Scope 1 and/or Scope 2 emissions disclosure.
    (b) GHG emissions attestation provider. The GHG emissions 
attestation report required by paragraph (a) of this section must be 
prepared and signed by a GHG emissions attestation provider. A GHG 
emissions attestation provider means a person or a firm that has all of 
the following characteristics:
    (1) Is an expert in GHG emissions by virtue of having significant 
experience in measuring, analyzing, reporting, or attesting to GHG 
emissions. Significant experience means having sufficient competence 
and capabilities necessary to:
    (i) Perform engagements in accordance with attestation standards 
and applicable legal and regulatory requirements; and
    (ii) Enable the service provider to issue reports that are 
appropriate under the circumstances.
    (2) Is independent with respect to the registrant, and any of its 
affiliates, for whom it is providing the attestation report, during the 
attestation and professional engagement period.
    (i) A GHG emissions attestation provider is not independent if such 
attestation provider is not, or a reasonable investor with knowledge of 
all relevant facts and circumstances would conclude that such 
attestation provider is not, capable of exercising objective and 
impartial judgment on all issues encompassed within the attestation 
provider's engagement.
    (ii) In determining whether a GHG emissions attestation provider is 
independent, the Commission will consider:
    (A) Whether a relationship or the provision of a service creates a 
mutual or conflicting interest between the attestation provider and the 
registrant (or any of its affiliates), places the attestation provider 
in the position of attesting to such attestation provider's own work, 
results in the attestation provider acting as management or an employee 
of the registrant (or any of its affiliates), or places the attestation 
provider in a position of being an advocate for the registrant (or any 
of its affiliates); and
    (B) All relevant circumstances, including all financial or other 
relationships between the attestation provider and the registrant (or 
any of its affiliates), and not just those relating to reports filed 
with the Commission.
    (iii) The term ``affiliate'' as used in this section has the 
meaning provided in Sec.  210.2-01 of this chapter, except that 
references to ``audit'' are deemed to be references to the attestation 
services provided pursuant to this section.

[[Page 21918]]

    (iv) The term ``attestation and professional engagement period'' as 
used in this section means both:
    (A) The period covered by the attestation report; and
    (B) The period of the engagement to attest to the registrant's GHG 
emissions or to prepare a report filed with the Commission (``the 
professional engagement period''). The professional engagement period 
begins when the GHG attestation service provider either signs an 
initial engagement letter (or other agreement to attest to a 
registrant's GHG emissions) or begins attest procedures, whichever is 
earlier.
    (c) Attestation report requirements. The form and content of the 
attestation report must follow the requirements set forth by the 
attestation standard (or standards) used by the GHG emissions 
attestation provider.
    (d) Additional disclosure by the registrant. In addition to 
including the GHG emissions attestation report required by paragraph 
(a) of this section, a large accelerated filer and an accelerated filer 
must disclose, alongside the GHG emissions disclosure to which the 
attestation report relates, after requesting relevant information from 
any GHG emissions attestation provider as necessary:
    (1) Whether the GHG emissions attestation provider is subject to 
any oversight inspection program, and if so, which program (or 
programs), and whether the GHG emissions attestation engagement is 
included within the scope of authority of such oversight inspection 
program.
    (2)(i) Whether any GHG emissions attestation provider that was 
previously engaged to provide attestation over the registrant's GHG 
emissions disclosure pursuant to paragraph (a) of this section for the 
fiscal year period covered by the attestation report resigned (or 
indicated that it declined to stand for re-appointment after the 
completion of the attestation engagement) or was dismissed. If so,
    (A) State whether the former GHG emissions attestation provider 
resigned, declined to stand for re-appointment, or was dismissed and 
the date thereof; and
    (B) State whether during the performance of the attestation 
engagement for the fiscal year period covered by the attestation report 
there were any disagreements with the former GHG emissions attestation 
provider on any matter of measurement or disclosure of GHG emissions or 
attestation scope of procedures. Also,
    (1) Describe each such disagreement; and
    (2) State whether the registrant has authorized the former GHG 
emissions attestation provider to respond fully to the inquiries of the 
successor GHG emissions attestation provider concerning the subject 
matter of each such disagreement.
    (ii) The term ``disagreements'' as used in this section shall be 
interpreted broadly, to include any difference of opinion concerning 
any matter of measurement or disclosure of GHG emissions or attestation 
scope or procedures that (if not resolved to the satisfaction of the 
former GHG emissions attestation provider) would have caused it to make 
reference to the subject matter of the disagreement in connection with 
its report. It is not necessary for there to have been an argument to 
have had a disagreement, merely a difference of opinion. For purposes 
of this section, however, the term disagreements does not include 
initial differences of opinion based on incomplete facts or preliminary 
information that were later resolved to the former GHG emissions 
attestation provider's satisfaction by, and providing the registrant 
and the GHG emissions attestation provider do not continue to have a 
difference of opinion upon, obtaining additional relevant facts or 
information. The disagreements required to be reported in response to 
this section include both those resolved to the former GHG emissions 
attestation provider's satisfaction and those not resolved to the 
former provider's satisfaction. Disagreements contemplated by this 
section are those that occur at the decision-making level, i.e., 
between personnel of the registrant responsible for presentation of its 
GHG emissions disclosure and personnel of the GHG emissions attestation 
provider responsible for rendering its report.
    (iii) In determining whether any disagreement has occurred, an oral 
communication from the engagement partner or another person responsible 
for rendering the GHG emissions attestation provider's opinion or 
conclusion (or their designee) will generally suffice as a statement of 
a disagreement at the ``decision-making level'' within the GHG 
emissions attestation provider and require disclosure under this 
section.
    (e) Disclosure of voluntary assurance. A registrant that is not 
required to include a GHG emissions attestation report pursuant to 
paragraph (a) of this section must disclose in the filing the following 
information if the registrant's GHG emissions disclosure in the filing 
were subject to third-party assurance:
    (1) Identification of the service provider of such assurance;
    (2) Description of the assurance standard used;
    (3) Description of the level and scope of assurance services 
provided;
    (4) Brief description of the results of the assurance services;
    (5) Whether the service provider has any material business 
relationships with or has provided any material professional services 
to the registrant; and
    (6) Whether the service provider is subject to any oversight 
inspection program, and if so, which program (or programs) and whether 
the assurance services over GHG emissions are included within the scope 
of authority of such oversight inspection program.
    (f) Location of disclosure. A registrant must include the 
attestation report and disclosure required by this section in the 
filing that contains the GHG emissions disclosure to which the report 
and disclosure relate. If, in accordance with the requirements in Sec.  
229.1505, a registrant elects to incorporate by reference its GHG 
emissions disclosure from its Form 10-Q (Sec.  249.308a of this 
chapter) for the second fiscal quarter in the fiscal year immediately 
following the year to which the GHG emissions disclosure relates or to 
provide this information in an amended annual report on Form 10-K 
(Sec.  249.310 of this chapter) or 20-F (Sec.  249.220f of this 
chapter), then the registrant must include an express statement in its 
annual report indicating its intention to incorporate by reference the 
attestation report from either a quarterly report on Form 10-Q or amend 
its annual report on Form 10-K or Form 20-F to provide the attestation 
report by the due date specified in Sec.  229.1505.
    Instruction 1 to Item 1506: A registrant that obtains assurance 
from an attestation provider at the limited assurance level should 
refer to Sec.  229.601(b)(27) and paragraph 18 of Form 20-F's 
Instructions as to Exhibits.


Sec.  229.1507  (Item 1507) Safe harbor for certain climate-related 
disclosures.

    (a)(1) The safe harbors for forward-looking statements in section 
27A of the Securities Act of 1933 (15 U.S.C. 77z-2) and section 21E of 
the Securities Exchange Act of 1934 (15 U.S.C. 78u-5) (``statutory safe 
harbors'') apply as provided in this section to information provided 
pursuant to Sec. Sec.  229.1502(e), 229.1502(f), 229.1502(g), and 
229.1504.
    (2) The safe harbor provided by this section applies to a forward-
looking statement specified in the statutory safe harbors:
    (i) Made in connection with an offering of securities by a blank 
check company, as specified in 15 U.S.C. 77z-2(b)(1)(B) and 15 U.S.C. 
78u-5(b)(1)(B);

[[Page 21919]]

    (ii) Made with respect to the business or operations of an issuer 
of penny stock, as specified in 15 U.S.C. 77z-2(b)(1)(C) and 15 U.S.C. 
78u-5(b)(1)(C);
    (iii) Made in connection with a rollup transaction, as specified in 
15 U.S.C. 77z-2(b)(1)(D) and 15 U.S.C. 78u-5(b)(1)(D);
    (iv) Made in connection with an initial public offering, as 
specified in 15 U.S.C. 77z-2(b)(2)(D) and 15 U.S.C. 78u-5(b)(2)(D); and
    (v) Made in connection with an offering by, or relating to the 
operations of, a partnership, limited liability company, or a direct 
participation investment program, as specified in 15 U.S.C. 77z-
2(b)(2)(E) and 15 U.S.C. 78u-5(b)(2)(E).
    (3) Notwithstanding 15 U.S.C. 77z-2(a)(1) and 15 U.S.C. 78-u(a)(1), 
the safe harbor provided by this section will apply where an issuer 
that, at the time that the statement is made, is not subject to the 
reporting requirements of section 13(a) or section 15(d) of the 
Securities Exchange Act of 1934.
    (b) For purposes of paragraph (a) of this section, all information 
required by Sec. Sec.  229.1502(e), 229.1502(f), 229.1502(g), and 
229.1504 is considered a forward-looking statement for purposes of the 
statutory safe harbors, except for historical facts, including, as non-
exclusive examples, terms related to carbon offsets or RECs described 
pursuant to Sec.  229.1504 and statements in response to Sec. Sec.  
229.1502(e) or 229.1504 about material expenditures actually incurred.


Sec.  229.1508  (Item 1508) Interactive data requirement.

    Provide the disclosure required by this subpart 1500 in an 
Interactive Data File as required by Sec.  232.405 of this chapter 
(Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual 
(see Sec.  232.301 of this chapter).

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
7. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
* * * * *

0
8. Amend Sec.  230.436 by adding paragraph (i) to read as follows:


Sec.  230.436  Consents required in special cases.

* * * * *
    (i) Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, the following shall not be considered part of the 
registration statement prepared or certified by a person within the 
meaning of sections 7 and 11 of the Act:
    (1) A report by an attestation provider covering Scope 1, Scope 2, 
and/or Scope 3 GHG emissions at a limited assurance level; and
    (2) Any description of assurance regarding a registrant's GHG 
emissions disclosure provided in accordance with Sec.  229.1506(e) of 
this chapter.

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
9. The general authority citation for part 232 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-6a, 80b-10, 80b-11, 7201 
et seq.; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

0
10. Amend Sec.  232.405 by adding paragraphs (b)(4)(vi) and (vii) to 
read as follows:


Sec.  232.405  Interactive Data File submissions.

* * * * *
    (b) * * *
    (4) * * *
    (vi) [Reserved]
    (vii) The climate-related information required by Sec. Sec.  
229.1500 through 229.1507 of this chapter (subpart 1500 of Regulation 
S-K).
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
11. The general authority citation for part 239 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 
80a-29, 80a-30, 80a-37, and sec. 71003 and sec. 84001, Pub. L. 114-
94, 129 Stat. 1321, unless otherwise noted.
* * * * *

0
12. Amend Form S-1 (referenced in Sec.  239.11) by adding Item 11(o) to 
Part I.

    Note: Form S-1 is attached as Appendix A to this document. Form 
S-1 will not appear in the Code of Federal Regulations.


0
13. Amend Form S-3 (referenced in Sec.  239.13) by adding Item 12(e) to 
Part I.

    Note: Form S-3 is attached as Appendix B to this document. Form 
S-3 will not appear in the Code of Federal Regulations.


0
14. Amend Form S-11 (referenced in Sec.  239.18) by replacing Item 9 to 
Part I.

    Note: Form S-11 is attached as Appendix C to this document. Form 
S-11 will not appear in the Code of Federal Regulations.


0
15. Amend Form S-4 (referenced in Sec.  239.25) by adding General 
Instructions B.3 and C.3.

    Note: Form S-4 is attached as Appendix D to this document. Form 
S-4 will not appear in the Code of Federal Regulations.


0
16. Amend Form F-3 (referenced in Sec.  239.33) by adding paragraph (g) 
to Item 6 to Part I.

    Note: Form F-3 is attached as Appendix E to this document. Form 
F-3 will not appear in the Code of Federal Regulations.


0
17. Amend Form F-4 (referenced in Sec.  239.34) by adding General 
Instructions B.3 and C.3.

    Note: Form F-4 is attached as Appendix F to this document. Form 
F-4 will not appear in the Code of Federal Regulations.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
18. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107 
Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94, 
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 
1063 (2020), unless otherwise noted.
* * * * *
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745, 
and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063.
* * * * *
    Section 249.308a is also issued under secs. 3(a) and 302, Pub. 
L. 107-204, 116 Stat. 745.
* * * * *
    Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 
406 and 407, Pub. L. 107-204, 116 Stat. 745.
* * * * *

0
19. Amend Form 10 (referenced in Sec.  249.210) by adding Item 3.A 
(``Climate-Related Disclosure'').

    Note: Form 10 is attached as Appendix G to this document. Form 
10 will not appear in the Code of Federal Regulations.


0
20. Amend Form 20-F (referenced in Sec.  249.220f) by:
0
a. Adding Item 3.E (``Climate-related disclosure''); and
0
b. Revising the Instructions as to Exhibits.


[[Page 21920]]


    Note: Form 20-F is attached as Appendix H to this document. Form 
20-F will not appear in the Code of Federal Regulations.


0
21. Amend Form 10-Q (referenced in Sec.  249.308a) by adding Item 1.B 
(``Climate-Related disclosure'') to Part II (``Other Information'').

    Note: Form 10-Q is attached as Appendix I to this document. Form 
10-Q will not appear in the Code of Federal Regulations.


0
22. Amend Form 10-K (referenced in Sec.  249.310) by:
0
a. Revising paragraph (1)(g) of General Instruction J (``Use of this 
Form by Asset-backed Issuers''); and
0
b. Adding Item 6 (``Climate-Related Disclosure'') to Part II.

    Note: Form 10-K is attached as Appendix J to this document. Form 
10-K will not appear in the Code of Federal Regulations.


    By the Commission.

    Dated: March 6, 2024.
Vanessa A. Countryman,
Secretary.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A--Form S-1

FORM S-1

* * * * *

Part I--Information Required in Prospectus

* * * * *
    Item 11. Information with Respect to the Registrant.
* * * * *
    (o) Information required by subpart 1500 of Regulation S-K (17 
CFR 229.1500 through 229.1507), in a part of the registration 
statement that is separately captioned as Climate-Related 
Disclosure. A registrant may include disclosure that is responsive 
to the topics specified in Items 1500 through 1507 of Regulation S-K 
in other parts of the registration statement (e.g., Risk Factors, 
Business, or Management's Discussion and Analysis), in which case it 
should consider whether cross-referencing the other disclosures in 
the separately captioned section would enhance the presentation of 
the climate-related disclosures for investors.
* * * * *

Appendix B--Form S-3

FORM S-3

* * * * *

Part I--Information Required in Prospectus

* * * * *
    Item 12. Incorporation of Certain Information by Reference.
* * * * *
    (e) If a registrant is required to disclose its Scope 1 
emissions and/or its Scope 2 emissions pursuant to 17 CFR 
229.1505(a), the GHG emissions metrics disclosure that would be 
incorporated by reference must be as of the most recently completed 
fiscal year that is at least 225 days prior to the date of 
effectiveness of the registration statement. Accordingly, if a 
registrant has filed its annual report on Form 10-K for the most 
recently completed fiscal year and, in reliance on 17 CFR 
229.1505(c)(1) has not yet filed its Form 10-Q for the second fiscal 
quarter containing the disclosure required by 17 CFR 229.1505(a), it 
must incorporate by reference its GHG emissions metrics disclosure 
for the fiscal year that is immediately prior to its most recently 
completed fiscal year.
* * * * *

Appendix C--Form S-11

FORM S-11

* * * * *

Part I--Information Required in Prospectus

* * * * *
    Item 9. Climate-related disclosure. Provide the information 
required by subpart 1500 of Regulation S-K (17 CFR 229.1500 through 
229.1507), in a part of the registration statement that is 
separately captioned as Climate-Related Disclosure. A registrant may 
include disclosure that is responsive to the topics specified in 
Items 1500 through 1507 of Regulation S-K in other parts of the 
registration statement (e.g., Risk Factors, Business, or 
Management's Discussion and Analysis), in which case it should 
consider whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors.
* * * * *

Appendix D--Form S-4

FORM S-4

* * * * *

General Instructions

* * * * *

B. Information With Respect to the Registrant

* * * * *
    3. If the registrant is subject to the reporting requirements of 
Section 13(a) or 15(d) of the Exchange Act, then, in addition to the 
information otherwise required to be provided by this Form, the 
information required by subpart 1500 of Regulation S-K (17 CFR 
229.1500 through 229.1507) must be provided with respect to the 
registrant, in a part of the registration statement that is 
separately captioned as Climate-Related Disclosure. A registrant may 
include disclosure that is responsive to the topics specified in 
Items 1500 through 1507 of Regulation S-K in other parts of the 
registration statement (e.g., Risk Factors, Business, or 
Management's Discussion and Analysis), in which case it should 
consider whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors. A registrant may 
incorporate by reference the information required by Items 1500 
through 1507 of Regulation S-K to the extent it is permitted to 
incorporate by reference the other information required by this Form 
and by the same means provided by this Form.
* * * * *

C. Information With Respect to the Company Being Acquired

* * * * *
    3. If the company being acquired is subject to the reporting 
requirements of Section 13(a) or 15(d) of the Exchange Act, then, in 
addition to the information otherwise required to be provided by 
this Form, the information required by subpart 1500 of Regulation S-
K (17 CFR 229.1500 through 229.1507) must be provided with respect 
to the company being acquired, in a part of the registration 
statement that is separately captioned as Climate-Related 
Disclosure. Disclosure with respect to the company being acquired 
that is responsive to the topics specified in Items 1500 through 
1507 of Regulation S-K may be included in other parts of the 
registration statement (e.g., Risk Factors, Business, or 
Management's Discussion and Analysis), in which case it should be 
considered whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors. The information required 
by Items 1500 through 1507 of Regulation S-K may be incorporated by 
reference to the extent the other information required by this Form 
with respect to the company being required is permitted to be 
incorporated by reference and by the same means provided by this 
Form.
* * * * *

Appendix E--Form F-3

FORM F-3

* * * * *

Part I--Information Required in the Prospectus

* * * * *
    Item 6. Incorporation of Certain Information by Reference.
* * * * *
    (g) If a registrant is required to disclose its Scope 1 
emissions and/or its Scope 2 emissions pursuant to 17 CFR 
229.1505(a), the GHG emissions metrics disclosure that would be 
incorporated by reference must be as of the most recently completed 
fiscal year that is at least 225 days prior to the date of 
effectiveness of the registration statement. Accordingly, if a 
registrant has filed its annual report on Form 20-F for the most 
recently completed fiscal year and, in reliance on 17 CFR 
229.1505(c)(1), has not yet filed an amended Form 20-F containing 
the disclosure required by 17 CFR 229.1505(a), it must incorporate 
by reference its GHG emissions metrics disclosure for the fiscal 
year that is immediately prior to its most recently completed fiscal 
year.
* * * * *

Appendix F--Form F-4

FORM F-4

* * * * *

General Instructions

* * * * *

[[Page 21921]]

B. Information With Respect to the Registrant

* * * * *
    3. If the registrant is subject to the reporting requirements of 
Section 13(a) or 15(d) of the Exchange Act, then, in addition to the 
information otherwise required to be provided by this Form, the 
information required by subpart 1500 of Regulation S-K (17 CFR 
229.1500 through 229.1507) must be provided with respect to the 
registrant, in a part of the registration statement that is 
separately captioned as Climate-Related Disclosure. A registrant may 
include disclosure that is responsive to the topics specified in 
Items 1500 through 1507 of Regulation S-K in other parts of the 
registration statement (e.g., Risk Factors, Business, or 
Management's Discussion and Analysis), in which case it should 
consider whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors. A registrant may 
incorporate by reference the information required by Items 1500 
through 1507 of Regulation S-K to the extent it is permitted to 
incorporate by reference the other information required by this Form 
and by the same means provided by this Form.

C. Information With Respect to the Company Being Acquired.

* * * * *
    3. If the company being acquired is subject to the reporting 
requirements of Section 13(a) or 15(d) of the Exchange Act, then, in 
addition to the information otherwise required to be provided by 
this Form, the information required by subpart 1500 of Regulation S-
K (17 CFR 229.1500 through 229.1507) must be provided with respect 
to the company being acquired, in a part of the registration 
statement that is separately captioned as Climate-Related 
Disclosure. Disclosure that is responsive to the topics specified in 
Items 1500 through 1507 of Regulation S-K may be included in other 
parts of the registration statement (e.g., Risk Factors, Business, 
or Management's Discussion and Analysis), in which case it should be 
considered whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors. The information required 
by Items 1500 through 1507 of Regulation S-K may be incorporated by 
reference to the extent the other information required by this Form 
with respect to the company being required is permitted to be 
incorporated by reference and by the same means provided by this 
Form.
* * * * *

Appendix G--Form 10

FORM 10

* * * * *
    Item 3.A Climate-Related Disclosure.
    Provide the information required by subpart 1500 of Regulation 
S-K (17 CFR 229.1500 through 229.1507), in a part of the 
registration statement that is separately captioned as Climate-
Related Disclosure. A registrant may include disclosure that is 
responsive to the topics specified in Items 1500 through 1507 of 
Regulation S-K in other parts of the registration statement (e.g., 
Risk Factors, Business, or Management's Discussion and Analysis), in 
which case it should consider whether cross-referencing the other 
disclosures in the separately captioned section would enhance the 
presentation of the climate-related disclosures for investors.
* * * * *

Appendix H--Form 20-F

FORM 20-F

* * * * *

Part I

* * * * *
    Item 3. Key Information
* * * * *

E. Climate-Related Disclosure

    The company must provide disclosure responsive to the topics 
specified in subpart 1500 of Regulation S-K (17 CFR 229.1500 through 
229.1507) in a part of the registration statement or annual report 
that is separately captioned as Climate-Related Disclosure. A 
registrant may include disclosure that is responsive to the topics 
specified in Items 1500 through 1507 of Regulation S-K in other 
parts of the registration statement or annual report (e.g., Risk 
Factors, Business, or Management's Discussion and Analysis), in 
which case it should consider whether cross-referencing the other 
disclosures in the separately captioned section would enhance the 
presentation of the climate-related disclosures for investors.
* * * * *

Instructions as to Exhibits

* * * * *
    18. Letter re GHG emissions attestation report. A letter, where 
applicable, from the GHG emissions attestation provider that 
acknowledges awareness of the use in a registration statement of a 
GHG emissions attestation report that pursuant to Rule 436(i)(1) (17 
CFR 230.436(i)(1)) under the Securities Act is not considered a part 
of a registration statement prepared or certified by a person within 
the meaning of sections 7 and 11 of the Securities Act. Such letter 
may be filed with the Form 20-F if the Form 20-F is incorporated by 
reference into a Securities Act registration statement.
    19 through 96 [Reserved]
* * * * *

Appendix I--Form 10 Q

FORM 10-Q

* * * * *
    Item 1B. Climate-Related Disclosure. A registrant that is 
required to disclose its Scope 1 and/or Scope 2 emissions pursuant 
to Item 1505 of Regulation S-K (17 CFR 229.1505) and elects to 
provide this disclosure in a Form 10-Q must provide this disclosure 
in its Form 10-Q for the second quarter in the fiscal year 
immediately following the fiscal year to which those GHG emissions 
relate.
* * * * *

Appendix J--Form 10-K

FORM 10-K

* * * * *

General Instructions

* * * * *

J. Use of This Form by Asset-Backed Issuers

* * * * *
    (1) * * *
    (g) Item 6, Climate-Related Disclosure;
* * * * *

Part II

* * * * *
    Item 6. Climate-Related Disclosure
    Provide the disclosure required by subpart 1500 of Regulation S-
K (17 CFR 229.1500 through 229.1507) in a part of the annual report 
that is separately captioned as Climate-Related Disclosure. A 
registrant may include disclosure that is responsive to the topics 
specified in Items 1500 through 1507 of Regulation S-K in other 
parts of the annual report (e.g., Risk Factors, Business, or 
Management's Discussion and Analysis), in which case it should 
consider whether cross-referencing the other disclosures in the 
separately captioned section would enhance the presentation of the 
climate-related disclosures for investors.
* * * * *
[FR Doc. 2024-05137 Filed 3-27-24; 8:45 am]
 BILLING CODE 8011-01-P