Environmental Alert
(By Kevin Garber, Ben Clapp and Joe Yeager)
In an overhaul of reporting requirements 10 years in the making, the Securities and Exchange Commission on March 21, 2022 proposed far-reaching and controversial climate-related disclosure obligations for publicly-traded companies as part of the Biden administration’s emphasis on climate change. The SEC is proposing to force companies to formally disclose their exposure to and management of climate-related risks that are reasonably likely to have a material effect on their business, operations and financial condition. SEC’s goal is to provide investors with “consistent, comparable, and decision-useful information for making their investment decisions.” If finalized, the rule would require publicly-traded companies to provide climate-related financial references as notes to their audited financial statements and disclose their direct Scope 1 greenhouse gas emissions and their indirect Scope 2 GHG emissions. They also may have to disclose their upstream and downstream Scope 3 GHG emissions if they are material to the business or if they have established a GHG emissions target. Reporting obligations would begin in 2024 for large accelerated filers and be phased in for all covered companies by 2026.
Overview of the Proposed Rule
The proposed rule would add a new subpart to Regulation S-K of the SEC’s regulations (17 CFR Part 229) that would require a registrant to disclose climate-related risk information in its registration statements and periodic reports, such as on annual Form 10-K submissions and quarterly Form 10-Q reports. The proposed rule draws heavily from existing disclosure frameworks including the Task Force on Climate-Related Financial Disclosures (regarding climate-related reporting) and the Greenhouse Gas Protocol (regarding accounting standards). Key areas for disclosure include:
- the oversight and governance of climate-related risks by the registrant’s board and management;
While long term goals of lowering greenhouse gas emissions and employing sustainable energy sources have gained momentum across all industries, Chevron Corp., through its New Energies division, has stated it has shorter term goals as well – it says its planned growth in renewable fuels, hydrogen and carbon capture is expected to enable about 30 million tones of annual CO2 equivalent emission reductions by 2028. Technology adoption, policy and consumer behavior will drive energy choices, says a top sustainability executive, as companies focus on carbon management along the path to net zero. All three factor into whether one form of energy or another is sought to supply demand created by income and population growth, according to Bruce Niemeyer, vice president of strategy and sustainability for Chevron Corp. “Keeping supply and demand balanced through the transition is important so the transition works for all and doesn’t become a negative event for those most vulnerable,” Niemeyer said earlier this month during UT Energy Week. He added, “We’re going to need many forms of energy, which means we need to work on reducing the carbon intensity of all of them.” Chevron is among the many companies working to lower its emissions amid a heightened focus on global warming and future energy supplies. Like the smartphone, technologies with features that meet consumers’ needs or low-cost technologies will gain market share, he said, noting consumer preference is a strong factor. Take, for example, the automotive sector. EVs are expected to play a key role in the energy transition, giving their lower emissions, compared to vehicles with internal combustion engines. However, “last year, our best estimate is there were 6.6 million electric vehicles sold. At the same time, there were 35 million SUVs. 