SEC Publishes Spring Rulemaking Agenda

On June 22, 2022, the Office of Information and Regulatory Affairs released the U.S Government’s “Spring 2022 Unified Agenda of Regulatory and Deregulatory Actions,” which includes the SEC’s spring agenda.  The SEC’s agenda includes climate change and cybersecurity in the Final Rule stage and human capital resources disclosures in the Proposed Rule stage.

As always, your thoughts and comments are welcome!

The SEC’s Proposed Climate-Related Disclosures: Post Seven – Scope 3 Greenhouse Gas Emissions Disclosures

In the first post in this series, we overviewed the three main areas addressed in the SEC’s Proposed Rule for climate-related disclosures:

  • Governance, strategy, risk and related disclosures outside the financial statements
  • Greenhouse gas emission disclosures and attestation requirements
  • Financial statement disclosures

As you may have heard and can read about in this Press Release, the comment period for this proposal ended June 17, 2022.

Subsequent posts in this series have addressed proposed disclosures for:

This post explores proposed disclosures for Scope 3 greenhouse gas emissions.  The next post will focus on greenhouse gas intensity and methodology disclosures.  As a reminder, these disclosures would be required for all companies in their annual reports on Forms 10-K and 20-F, with updates on Forms 10-Q and 6-K.  Smaller reporting companies would not be subject to the Scope 3 disclosure requirements. 

A Starting Note

Much of approach in the proposed rule is based on the Greenhouse Gas Protocol (GHG Protocol).  The GHG Protocol is designed to provide “comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions.”  You can learn about the protocol and get information about available tools to build a reliable GHG inventory at the GHG Protocol website.

General Disclosure Requirements

As a reminder from our last post, the overall disclosure requirement specifies what must be disclosed and for which periods.   The proposed rule would require that companies disclose their GHG emissions, as defined in proposed S-K Item 1500(h).

Proposed S-K Item 1500(h) provides this definition of GHG emissions:

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.

Direct and indirect GHG emissions would be disclosed using the definitions of Scopes 1, 2, and 3 emissions which are included in S-K 1500 and are based on the definitions in the GHG Protocol.  The disclosures would also be required to be disaggregated by type of greenhouse gas and in the aggregate in terms of CO2e.  (Our previous post discusses the requirement for Scopes 1 and 2 emissions.)

The various types of greenhouse gases are specified in proposed S-K Item 1500(g):

Greenhouse gases (“GHG”) means carbon dioxide (CO2), methane (“CH4”), nitrous oxide (“N2O”), nitrogen trifluoride (“NF3”), hydrofluorocarbons (“HFCs”), perfluorocarbons (“PFCs”), and sulfur hexafluoride (“SF6”)

In addition, disclosures of Scopes 1, 2, and 3 emissions would exclude the impact of any purchased or generated offsets.

The periods specified in the proposed rule are the most recently completed fiscal year, and “to the extent such historical GHG emissions data is reasonably available,” for earlier years included in its consolidated financial statements.

Scope 3 Emissions

The Proposed Rule would require companies to disclose total Scope 3 emissions if they are material or if the company has set “a GHG emissions reduction target or goal that includes its Scope 3 emissions.”  This amount would be disclosed separately from Scopes 1 and 2 emissions.

Disclosure would include categories of upstream or downstream activities.  Additionally, if any categories of Scope 3 emissions are significant, Scope 3 emissions data would be presented separately for such categories.

Disclosure would also include the data sources used to calculate the registrant’s Scope 3 emissions, including the use of any of the following:

Emissions reported by entities in the company’s “value chain” and whether such information is verified or unverified;

Information about specific activities reported by entities in the company’s value chain; and

Information “derived from economic studies, published databases, government statistics, industry associations, or other third-party sources.”

Smaller reporting companies would not be required to disclose Scope 3 emissions.

Summary

The complexity and related costs of identifying and estimating Scope 3 emissions are likely to be the subject of comments in the SEC’s rulemaking process.  Our next post will explore the proposed intensity and methodology disclosures for greenhouse gas emission.

As always, your thoughts and comments are welcome!

________________________________________________________________________

For reference, here is proposed S-K Item 1504:

(Item 1504) GHG emissions metrics.

(a) General. Disclose a registrant’s GHG emissions, as defined in § 229.1500(h), for its most recently completed fiscal year, and for the historical fiscal years included in its consolidated financial statements in the filing, to the extent such historical GHG emissions data is reasonably available.

(1) For each required disclosure of a registrant’s Scopes 1, 2, and 3 emissions, disclose the emissions both disaggregated by each constituent greenhouse gas, as specified in § 229.1500(g), and in the aggregate, expressed in terms of CO2e.

(2) When disclosing a registrant’s Scopes 1, 2, and 3 emissions, exclude the impact of any purchased or generated offsets.

(b) Scopes 1 and 2 emissions.

(1) Disclose the registrant’s total Scope 1 emissions and total Scope 2 emissions separately after calculating them from all sources that are included in the registrant’s organizational and operational boundaries.

(2) When calculating emissions pursuant to paragraph (b)(1) of this section, a registrant may exclude emissions from investments that are not consolidated, are not proportionately consolidated, or that do not qualify for the equity method of accounting in the registrant’s consolidated financial statements.

(c) Scope 3 emissions.

(1) Disclose the registrant’s total Scope 3 emissions if material. A registrant must also disclose its Scope 3 emissions if it has set a GHG emissions reduction target or goal that includes its Scope 3 emissions. Disclosure of a registrant’s Scope 3 emissions must be separate from disclosure of its Scopes 1 and 2 emissions. If required to disclose Scope 3 emissions, identify the categories of upstream or downstream activities that have been included in the calculation of the Scope 3 emissions. If any category of Scope 3 emissions is significant to the registrant, identify all such categories and provide Scope 3 emissions data separately for them, together with the registrant’s total Scope 3 emissions.

(2) If required to disclose Scope 3 emissions, describe the data sources used to calculate the registrant’s Scope 3 emissions, including the use of any of the following:

(i) Emissions reported by parties in the registrant’s value chain, and whether such reports were verified by the registrant or a third party, or unverified;

(ii) Data concerning specific activities, as reported by parties in the registrant’s value chain; and

(iii) Data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data.

(3) A smaller reporting company, as defined by §§ 229.10(f)(1), 230.405, and 240.12b-2 of this chapter, is exempt from, and need not comply with, the disclosure requirements of this paragraph (c).

(d) GHG intensity.

(1) Using the sum of Scope 1 and 2 emissions, disclose GHG intensity in terms of metric tons of CO2e per unit of total revenue (using the registrant’s reporting currency) and per unit of production relevant to the registrant’s industry for each fiscal year included in the consolidated financial statements. Disclose the basis for the unit of production used.

(2) If Scope 3 emissions are otherwise disclosed, separately disclose GHG intensity using Scope 3 emissions only.

(3) If a registrant has no revenue or unit of production for a fiscal year, it must disclose another financial measure of GHG intensity or another measure of GHG intensity per unit of economic output, as applicable, with an explanation of why the particular measure was used.

(4) A registrant may also disclose other measures of GHG intensity, in addition to metric tons of CO2e per unit of total revenue (using the registrant’s reporting currency) and per unit of production, if it includes an explanation of why a particular measure was used and why the registrant believes such measure provides useful information to investors.

(e) Methodology and related instructions.

(1) A registrant must describe the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions. The description of the registrant’s methodology must include the registrant’s organizational boundaries, operational boundaries (including any approach to categorization of emissions and emissions sources), calculation approach (including any emission factors used and the source of the emission factors), and any calculation tools used to calculate the GHG emissions. A registrant’s description of its approach to categorization of emissions and emissions sources should explain how it determined the emissions to include as direct emissions, for the purpose of calculating its Scope 1 emissions, and indirect emissions, for the purpose of calculating its Scope 2 emissions.

(2) The organizational boundary and any determination of whether a registrant owns or controls a particular source for GHG emissions must be consistent with the 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, the registrant’s consolidated financial statements.

(3) A registrant must use the same organizational boundaries when calculating its Scope 1 emissions and Scope 2 emissions. If required to disclose Scope 3 emissions, a registrant must also apply the same organizational boundaries used when determining its Scopes 1 and 2 emissions as an initial step in identifying the sources of indirect emissions from activities in its value chain over which it lacks ownership and control and which must be included in the calculation of its Scope 3 emissions. Once a registrant has determined its organizational and operational boundaries, a registrant must be consistent in its use of those boundaries when calculating its GHG emissions.

(4) 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.

(i) When disclosing its GHG emissions for its most recently completed fiscal year, if actual reported data is not reasonably available, a registrant may use a reasonable estimate of its GHG emissions for its fourth fiscal quarter, together with actual, determined GHG emissions data for the first three fiscal quarters, 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.

(ii) In addition to the use of reasonable estimates, a registrant may present its estimated Scope 3 emissions in terms of a range as long as it discloses its reasons for using the range and the underlying assumptions.

(5) A registrant must disclose, to the extent material and as applicable, any use of third-party data when calculating its GHG emissions, regardless of the particular scope of emissions. When disclosing the use of third-party data, it must identify the source of such data and the process the registrant undertook to obtain and assess such data.

(6) A registrant must disclose any material change to the methodology or assumptions underlying its GHG emissions disclosure from the previous fiscal year.

(7) A registrant must disclose, to the extent material and as applicable, any gaps in the data required to calculate its GHG emissions. A registrant’s GHG emissions disclosure should provide investors with a reasonably complete understanding of the registrant’s GHG emissions in each scope of emissions. If a registrant discloses any data gaps encountered when calculating its GHG emissions, it must also discuss whether it used proxy data or another method to address such gaps, and how its accounting for any data gaps has affected the accuracy or completeness of its GHG emissions disclosure.

(8) When determining whether its Scope 3 emissions are material, and when disclosing those emissions, in addition to emissions from activities in its value chain, a registrant must include GHG emissions from outsourced activities that it previously conducted as part of its own operations, as reflected in the financial statements for the periods covered in the filing.

(9) If required to disclose Scope 3 emissions, when calculating those emissions, if there was any significant overlap in the categories of activities producing the Scope 3 emissions, a registrant must describe the overlap, how it accounted for the overlap, and the effect on its disclosed total Scope 3 emissions.

(f) Liability for Scope 3 emissions disclosures.

(1) A statement within the coverage of paragraph (f)(2) of this section that is made by or on behalf of a registrant is deemed not to be a fraudulent statement (as defined in paragraph (f)(3) of this section), unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.

(2) This paragraph (f) applies to any statement regarding Scope 3 emissions that is disclosed pursuant to §§ 229.1500 through 229.1506 and made in a document filed with the Commission.

(3) For the purpose of this paragraph (f), the term fraudulent statement shall 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 of 1933 or the Securities Exchange Act of 1934 or the rules or regulations promulgated thereunder.

Brinks Hijacked on “Pre-taliation” Whistleblower Claims

Thanks to Gary Brown of Nelson Mullins for this post!

On June 22, 2022, the SEC announced a settled enforcement case against The Brink’s Company.  The case is based on provisions in Brink’s employee confidentiality agreements that all new employees were required to sign that prohibited disclosing confidential information without prior written approval from the company.  The prohibition was expansive enough to include bringing financial data and other internal records to regulators, which is exactly the sort of information one is likely to include in a whistleblower complaint. The allegations set forth in the SEC’s Order pointed out that despite its knowledge that the SEC was stepping up enforcement in this area, in 2015, the legal team for Brink’s rank and file employees actually made its confidentiality agreements even more restrictive.  These 2015 additions included provisions for liquidated damages ($75,000) and payment of legal fees for any employee.

This case is the latest in a series focused on the whistleblower protection provisions in the Dodd-Frank Act, and specifically Rule 21F-17, which states in part:

(a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.

Brink’s confidentiality agreements did not include an exception for disclosing information to the SEC via its whistleblower program.  As discussed in the SEC’s Order, Brinks will pay a $400,000 civil penalty and must take steps to notify employees that they may provide confidential information to the SEC (and other government agencies) despite the terms of their confidentiality agreements.

Earlier cases that send this same message include:

Pre-taliation clauses are one of the great unforced errors in corporate compliance. You are accountable even if you don’t enforce the agreement – inclusion of the offending language is enough to violate the rule.  So – do a keyword search in your policy manual and form agreements, find any offending examples, and then press the DELETE key. That’s your remediation.

As always, your thoughts and comments are welcome!

The SEC’s Proposed Climate-Related Disclosures: Post Six – Scopes 1 and 2 Greenhouse Gas Emissions Disclosures

In the first post in this series, we overviewed the three main areas addressed in the SEC’s Proposed Rule for climate-related disclosures:

  • Governance, strategy, risk and related disclosures outside the financial statements
  • Greenhouse gas emission disclosures and attestation requirements
  • Financial statement disclosures

 As you may have heard and can read about in this Press Release, the comment period for this proposal ended June 17, 2022.

Subsequent posts in this series have addressed proposed disclosures for:

This post explores proposed disclosures for Scopes 1 and 2 greenhouse gas emissions.  The next post will focus on Scope 3 disclosures and the post after that on intensity and methodology disclosures.  As a reminder, these disclosures would be required for all companies in their annual reports on Forms 10-K and 20-F, with updates on Forms 10-Q and 6-K.  Smaller reporting companies would not be subject to the Scope 3 disclosure requirements.  The disclosures about Scopes 1 and 2 greenhouse gas emissions fall into the following categories:

  • General disclosure requirements
  • Scopes 1 and 2 emissions

A Starting Note

Much of approach in the proposed rule is based on the Greenhouse Gas Protocol (GHG Protocol).  The GHG Protocol is designed to provide “comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions.”  You can learn about the protocol and get information about available tools to build a reliable GHG inventory at the GHG Protocol website.

General Disclosure Requirements

The overall disclosure requirement specifies what must be disclosed and for which periods.   The proposed rule would require that companies disclose their GHG emissions, as defined in proposed S-K Item 1500(h).

Proposed S-K Item 1500(h) provides this definition of GHG emissions:

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.

Direct and indirect GHG emissions would be disclosed using the definitions of Scopes 1 and 2 emissions which are included in S-K 1500 and are based on the definitions in the GHG Protocol.  The disclosures would also be required to be disaggregated by type of greenhouse gas and in the aggregate in terms of CO2e.

The various types of greenhouse gases are specified in proposed S-K Item 1500(g):

Greenhouse gases (“GHG”) means carbon dioxide (CO2), methane (“CH4”), nitrous oxide (“N2O”), nitrogen trifluoride (“NF3”), hydrofluorocarbons (“HFCs”), perfluorocarbons (“PFCs”), and sulfur hexafluoride (“SF6”)

In addition, disclosures of Scopes 1, and 2 emissions would exclude the impact of any purchased or generated offsets.

The periods specified in the proposed rule are the most recently completed fiscal year, and “to the extent such historical GHG emissions data is reasonably available,” for earlier years included in its consolidated financial statements.

Scopes 1 and 2 Emissions

Companies would be required to separately disclose Scope 1 and Scope 2 emissions.  To calculate these amounts a company must first determine its organizational and operational boundaries.

 The definitions of organizational and operational boundaries are in proposed S-K Item 1500:

Operational boundaries means the boundaries that determine the direct and indirect emissions associated with 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

Each company would develop an appropriate methodology and the required information and estimates to determine Scope 1 and Scope 2 emissions.  Information about process and estimates must also be disclosed, as discussed in a later post.

When calculating Scope 1 and Scope 2 emissions a company may exclude emissions from investments that are not consolidated, are not consolidated using proportionate consolidation or that do not scope into equity method accounting.

Summary

The complexity and related costs, along with the measurement challenges in estimating GHG emissions are likely to be the subject of comments in the SEC’s rulemaking process.  Our next post will explore the proposed disclosures for Scope 3 greenhouse gas emissions.

As always, your thoughts and comments are welcome!

For reference, here is proposed S-K Item 1504:

(Item 1504) GHG emissions metrics.

(a) General. Disclose a registrant’s GHG emissions, as defined in § 229.1500(h), for its most recently completed fiscal year, and for the historical fiscal years included in its consolidated financial statements in the filing, to the extent such historical GHG emissions data is reasonably available.

(1) For each required disclosure of a registrant’s Scopes 1, 2, and 3 emissions, disclose the emissions both disaggregated by each constituent greenhouse gas, as specified in § 229.1500(g), and in the aggregate, expressed in terms of CO2e.

(2) When disclosing a registrant’s Scopes 1, 2, and 3 emissions, exclude the impact of any purchased or generated offsets.

(b) Scopes 1 and 2 emissions.

(1) Disclose the registrant’s total Scope 1 emissions and total Scope 2 emissions separately after calculating them from all sources that are included in the registrant’s organizational and operational boundaries.

(2) When calculating emissions pursuant to paragraph (b)(1) of this section, a registrant may exclude emissions from investments that are not consolidated, are not proportionately consolidated, or that do not qualify for the equity method of accounting in the registrant’s consolidated financial statements.

(c) Scope 3 emissions.

(1) Disclose the registrant’s total Scope 3 emissions if material. A registrant must also disclose its Scope 3 emissions if it has set a GHG emissions reduction target or goal that includes its Scope 3 emissions. Disclosure of a registrant’s Scope 3 emissions must be separate from disclosure of its Scopes 1 and 2 emissions. If required to disclose Scope 3 emissions, identify the categories of upstream or downstream activities that have been included in the calculation of the Scope 3 emissions. If any category of Scope 3 emissions is significant to the registrant, identify all such categories and provide Scope 3 emissions data separately for them, together with the registrant’s total Scope 3 emissions.

(2) If required to disclose Scope 3 emissions, describe the data sources used to calculate the registrant’s Scope 3 emissions, including the use of any of the following:

(i) Emissions reported by parties in the registrant’s value chain, and whether such reports were verified by the registrant or a third party, or unverified;

(ii) Data concerning specific activities, as reported by parties in the registrant’s value chain; and

(iii) Data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data.

(3) A smaller reporting company, as defined by §§ 229.10(f)(1), 230.405, and 240.12b-2 of this chapter, is exempt from, and need not comply with, the disclosure requirements of this paragraph (c).

(d) GHG intensity.

(1) Using the sum of Scope 1 and 2 emissions, disclose GHG intensity in terms of metric tons of CO2e per unit of total revenue (using the registrant’s reporting currency) and per unit of production relevant to the registrant’s industry for each fiscal year included in the consolidated financial statements. Disclose the basis for the unit of production used.

(2) If Scope 3 emissions are otherwise disclosed, separately disclose GHG intensity using Scope 3 emissions only.

(3) If a registrant has no revenue or unit of production for a fiscal year, it must disclose another financial measure of GHG intensity or another measure of GHG intensity per unit of economic output, as applicable, with an explanation of why the particular measure was used.

(4) A registrant may also disclose other measures of GHG intensity, in addition to metric tons of CO2e per unit of total revenue (using the registrant’s reporting currency) and per unit of production, if it includes an explanation of why a particular measure was used and why the registrant believes such measure provides useful information to investors.

(e) Methodology and related instructions.

(1) A registrant must describe the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions. The description of the registrant’s methodology must include the registrant’s organizational boundaries, operational boundaries (including any approach to categorization of emissions and emissions sources), calculation approach (including any emission factors used and the source of the emission factors), and any calculation tools used to calculate the GHG emissions. A registrant’s description of its approach to categorization of emissions and emissions sources should explain how it determined the emissions to include as direct emissions, for the purpose of calculating its Scope 1 emissions, and indirect emissions, for the purpose of calculating its Scope 2 emissions.

(2) The organizational boundary and any determination of whether a registrant owns or controls a particular source for GHG emissions must be consistent with the 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, the registrant’s consolidated financial statements.

(3) A registrant must use the same organizational boundaries when calculating its Scope 1 emissions and Scope 2 emissions. If required to disclose Scope 3 emissions, a registrant must also apply the same organizational boundaries used when determining its Scopes 1 and 2 emissions as an initial step in identifying the sources of indirect emissions from activities in its value chain over which it lacks ownership and control and which must be included in the calculation of its Scope 3 emissions. Once a registrant has determined its organizational and operational boundaries, a registrant must be consistent in its use of those boundaries when calculating its GHG emissions.

(4) 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.

(i) When disclosing its GHG emissions for its most recently completed fiscal year, if actual reported data is not reasonably available, a registrant may use a reasonable estimate of its GHG emissions for its fourth fiscal quarter, together with actual, determined GHG emissions data for the first three fiscal quarters, 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.

(ii) In addition to the use of reasonable estimates, a registrant may present its estimated Scope 3 emissions in terms of a range as long as it discloses its reasons for using the range and the underlying assumptions.

(5) A registrant must disclose, to the extent material and as applicable, any use of third-party data when calculating its GHG emissions, regardless of the particular scope of emissions. When disclosing the use of third-party data, it must identify the source of such data and the process the registrant undertook to obtain and assess such data.

(6) A registrant must disclose any material change to the methodology or assumptions underlying its GHG emissions disclosure from the previous fiscal year.

(7) A registrant must disclose, to the extent material and as applicable, any gaps in the data required to calculate its GHG emissions. A registrant’s GHG emissions disclosure should provide investors with a reasonably complete understanding of the registrant’s GHG emissions in each scope of emissions. If a registrant discloses any data gaps encountered when calculating its GHG emissions, it must also discuss whether it used proxy data or another method to address such gaps, and how its accounting for any data gaps has affected the accuracy or completeness of its GHG emissions disclosure.

(8) When determining whether its Scope 3 emissions are material, and when disclosing those emissions, in addition to emissions from activities in its value chain, a registrant must include GHG emissions from outsourced activities that it previously conducted as part of its own operations, as reflected in the financial statements for the periods covered in the filing.

(9) If required to disclose Scope 3 emissions, when calculating those emissions, if there was any significant overlap in the categories of activities producing the Scope 3 emissions, a registrant must describe the overlap, how it accounted for the overlap, and the effect on its disclosed total Scope 3 emissions.

(f) Liability for Scope 3 emissions disclosures.

(1) A statement within the coverage of paragraph (f)(2) of this section that is made by or on behalf of a registrant is deemed not to be a fraudulent statement (as defined in paragraph (f)(3) of this section), unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.

(2) This paragraph (f) applies to any statement regarding Scope 3 emissions that is disclosed pursuant to §§ 229.1500 through 229.1506 and made in a document filed with the Commission.

(3) For the purpose of this paragraph (f), the term fraudulent statement shall 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 of 1933 or the Securities Exchange Act of 1934 or the rules or regulations promulgated thereunder.

SEC Publishes Spring Rulemaking Agenda

On June 22, 2022, the Office of Information and Regulatory Affairs released the U.S Government’s “Spring 2022 Unified Agenda of Regulatory and Deregulatory Actions,” which includes the SEC’s spring agenda.  The SEC’s agenda includes climate change and cybersecurity in the Final Rule stage and human capital resources disclosures in the Proposed Rule stage.

As always, your thoughts and comments are welcome!

SEC Institute Workshop Instructor Opportunities

SEC Institute, a division of PLI, is searching for qualified Workshop Instructors.  Here are the details and follow-up information.

SEC Institute

Workshop Instructor Opportunities

Please contact Robin Goldstein, Director & Sr. Program Attorney, SEC Institute, at rgoldstein@pli.edu 

 Workshop Instructors

SECI is always looking for dynamic speakers to join our team of Workshop Instructors.  Workshop Instructors lead Workshops on various SEC reporting and accounting topics relevant to SEC reporting professionals.

Workshops are led in an interactive style and are designed to make the learning experience participant focused.  Because of the highly technical and complex material in the Workshops, Instructors must use a variety of teaching and discussion techniques to actively engage participants in the learning process and help them accomplish their learning objectives.  Instructors are encouraged to research the companies of our registered participants to identify relevant topics and provide targeted examples designed to encourage participant discussion and questions.

Workshop Topics

SEC Institute offers Workshops in the following practice areas:

  • SEC reporting – Forms 10-K, 10-Q, and 8-K, the proxy statement, Section 16, and MD&A
  • Forms 20-F and 6-K for foreign private issuers
  • Accounting for business combinations
  • Other relevant and timely SEC reporting and accounting topics

Workshop Instructors must have in-depth expertise in one or more of the above-referenced areas.

Requisite Experience and Qualifications

Technical Background

Workshop Instructors must be CPAs with 10 years of demonstrated expertise and possess in-depth, technical understanding of the content, as well as current knowledge of recent developments in SEC reporting and accounting issues most relevant to SEC reporting professionals. Candidates must have prior relevant work experience; such experience may come via public accounting or industry.

Teaching and Communication Skills

Candidates must have prior teaching experience and demonstrated success documented by classroom evaluations or other similar feedback tools.

Honorariums

SECI offers honorariums for teaching SECI Workshops.  A Workshop honorarium will be paid to the Instructor after a Workshop is conducted and such payment encompasses all advance preparation, planning, coordination, and time involved leading up to conducting the Workshop.

Workshop Instructor will also be reimbursed for reasonable hotel, travel, and meal expenses in accordance with PLI’s reimbursement policy in the event the Workshop Instructor is asked to travel to a PLI Conference Center to teach a Workshop.

This nature of this opportunity will be that of an independent contractor, not an employee of PLI.

About SEC Institute (SECI)

Founded in 1983, SEC Institute‘s mission is to provide the most up-to-date SEC reporting, compliance and accounting education through innovative Workshops and programs. SECI is committed to helping public companies, auditors and attorneys stay ever current in meeting the filing and financial reporting requirements of the U.S. Securities and Exchange Commission.

About Practising Law Institute (PLI)

Practising Law Institute is a nonprofit learning organization dedicated to keeping attorneys and other professionals at the forefront of knowledge and expertise. PLI is chartered by the Regents of the University of the State of New York, and was founded in 1933 by Harold P. Seligson. PLI provides the highest quality, accredited, continuing legal and professional education programs in a variety of formats. This content is delivered by more than 4,000 volunteer faculty, including prominent lawyers, judges, investment bankers, accountants, corporate counsel, and U.S. and international government regulators. PLI publishes a comprehensive library of treatises, course handbooks, answer books and journals, also available through the PLI PLUS online platform. The essence of PLI’s mission is its commitment to the pro bono community.

Interested Applicants
Interested applicants are to submit a biography and resume to rgoldstein@pli.edu for consideration.  Please indicate which practice area(s) you are most interested in instructing.  Only qualified applicants will be contacted.

Practising Law Institute (PLI) is an equal employment opportunity (EEO) employer committed to workplace diversity. All qualified applicants will receive consideration for employment without regard to race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, military and veteran status, sexual orientation, or any other factor protected by federal, state or local law.

SEC Finalizes Rules to Require Electronic Filing of Annual Reports to Shareholders and Other Documents

On June 2, 2022, the SEC adopted a Final Rule that requires companies to electronically file a number of documents currently filed on paper.  Included in the group of forms that will now be filed electronically are:

  • The annual report to shareholders required by the proxy rules,
  • Certain Rule 144 filings, and
  • Form 11-K, which will also require XBRL tagging.

You can read more details for all the forms that will be required to be filed electronically in this Press Release and the accompanying Fact Sheet.

The phase in requirements include:

  • For the annual report to shareholders, six months after the effective date of the amendments;
  • For Form 144, six months after the date of publication of the final Rule in the Federal Register; and
  • For Form 11-K, including application of XBRL, three years after the effective date of the applicable amendments

The rule will be effective 30 days after Federal Register publication.

As always, your thoughts and comments are welcome!

Acting Chief Accountant Addresses Auditor Independence and Ethical Cultures in Audit Firms

On June 8, 2022, Acting Chief Accountant Paul Munter issued a Statement titled “The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession.”

The Statement:

  • Reviews the principles in the SEC’s auditor independence framework,
  • Summarizes OCA’s approach to independence questions,
  • Lists recurring issues in independence consultations, and
  • Discusses the importance of an ethical culture to accounting firms.

The auditor independence framework section begins with a review of the foundational principles in S-X Rule 2.01:

The Commission will not recognize an accountant as independent, with respect to an audit client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant’s engagement. In determining whether an accountant is independent, the Commission will consider all relevant circumstances, including all relationships between the accountant and the audit client, and not just those relating to reports filed with the Commission.

The discussion emphasizes that a simple “checklist compliance exercise” with the detailed requirements in Regulation S-X will not assure that an auditor is independent.  All “relevant circumstances” must be considered when assessing independence.

The discussion of OCA’s approach to independence questions briefly reviews the staff’s process and emphasizes several considerations, including:

  • Consultations should include all information relevant to an independence determination, and
  • Companies and their auditors should not place undue reliance on previous independence consultations as circumstances, legal or regulatory requirements may be different.

The discussion of recurring issues in independence consultations begins with a discussion of concerns by the OCA staff that they are observing “loosening attitudes” about the general independence standards.  It also focuses on the “checklist mentality,” non-audit services, including providing non-audit services to affiliates, and risks in alternative practice structures.

The concluding section about ethical culture issues begins with this statement:

“It is of paramount importance that public accounting firms foster a culture of ethical behavior with respect to all aspects of their professional responsibilities, including auditor independence.”

Included are discussions of how firms should be willing to forgo engagements that are “close-to-the-line” for independence and the importance of quality control systems.

As always, your thoughts and comments are welcome!

The SEC’s Proposed Climate-Related Disclosures: Post Five – Targets, Goals and Interactive Data

In the first post in this series, we overviewed the three main areas addressed in the SEC’s Proposed Rule for climate-related disclosures:

  • Governance, strategy, risk and related disclosures outside the financial statements
  • Greenhouse gas emission disclosures and attestation requirements
  • Financial statement disclosures

As you may have heard and can read about in this Press Release, on May 9, 2022, the SEC extended the comment period for this proposal to June 17, 2022.

Subsequent posts in this series have addressed proposed disclosures for:

This post explores the proposed disclosures surrounding climate-related targets and the requirement to provide all the proposed non-financial statement disclosures in an interactive data format.  As a reminder, these disclosures would be required for all companies in their annual reports on Forms 10-K and 20-F, with updates on Forms 10-Q and 6-K.

The disclosures about targets fall into the following categories:

  • Climate-related targets
  • Progress towards climate-related targets
  • Use of carbon offsets or renewable energy credits (RECs)

Climate-Related Targets

 The proposed rule would require disclosure if a company has set any targets or goals for the reduction of GHG emissions, or any other climate-related targets or goals.  Examples in the proposed rule include:

  • Energy usage
  • Water usage
  • Conservation or ecosystem restoration
  • Revenues from low-carbon products

 Additionally, targets or goals could be related to:

  • Actual or anticipated regulatory requirements
  • Market constraints
  • Other goals established by a climate-related treaty, law, regulation, policy, or organization.

Because targets or goals could be related to strategy or risk management activities, companies could provide these disclosures along with those topics.

Proposed disclosures for climate-related targets or goals are:

  • Activities and emissions included in the target;
  • Relevant units of measurement;
  • Whether the target is absolute or intensity based;
  • Time horizons by which the target is intended to be achieved;
  • Whether time horizons are consistent with 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 (The base year must be consistent if a company has multiple targets);
  • Interim targets; and
  • How the company intends to meet its climate-related targets or goals.

Progress Towards Climate-Related Targets

Companies would be required to disclose information about whether they are making progress toward meeting a target or goal.  In addition, disclosure would include how progress has been achieved. This disclosure would be updated each year with disclosure of actions take each year.

Use of Carbon Offsets or RECs

If a company uses carbon offsets or RECs to achieve climate-related targets or goals, disclosure would include:

  • Amounts of carbon reduction represented by theoffsets
  • Amounts of generated renewable energy represented by the RECs
  • Sources of theoffsets or RECs
  • Descriptions and locations of the underlying projects, any registries or otherauthentication of the offsets or RECs
  • Cost of the offsets or RECs

Interactive Data

Proposed S-K Item 1507 would require that all non-financial statement climate-related disclosures be presented in an interactive data file.

Summary

 The proposed detailed descriptions of targets and goals and progress towards meeting them present complex decisions about how and in fact whether to adopt targets and goals.  This and other issues are likely to be the subject of comments in the SEC’s rulemaking process.  Our next post will explore the disclosures in proposed S-K Item 1504 about greenhouse gas emission disclosures.

As always, your thoughts and comments are welcome!

For reference, here are proposed S-K Items 1506 and 1507:

Item 1506 – Targets and goals

(a)(1) A registrant must provide disclosure pursuant to this section if it has set any targets or goals related to the reduction of GHG emissions, or any other climate-related target or goal (e.g., regarding energy usage, water usage, conservation or ecosystem restoration, or revenues from low-carbon products) such as actual or anticipated regulatory requirements, market constraints, or other goals established by a climate-related treaty, law, regulation, policy, or organization.

 (2) A registrant may provide the disclosure required by this section as part of its disclosure in response to § 229.1502 or § 229.1503.

(b) If the registrant has set climate-related targets or goals, disclose the targets or goals, including, as applicable, a description of:

(1) The scope of activities and emissions included in the target;

(2) The unit of measurement, including whether the target is absolute or intensity based;

(3) 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;

(4) The defined baseline time period and baseline emissions against which progress will be tracked with a consistent base year set for multiple targets;

(5) Any interim targets set by the registrant; and

(6) How the registrant intends to meet its climate-related targets or goals. For example, 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.

(c) Disclose relevant data to indicate whether the registrant is making progress toward meeting the target or goal and how 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.

(d) If carbon offsets or RECs have been used as part of a registrant’s plan to achieve climate-related targets or goals, 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.

Item 1507 – Interactive data requirement.

Provide the disclosure required by this Subpart 1500 in an Interactive Data File as required by § 232.405 of this chapter (Rule 405 of Regulation S-T) in accordance with the EDGAR Filer Manual.

The SEC’s Proposed Climate-Related Disclosures: Post Four – Risk Management

In the first post in this series, we overviewed the three main areas addressed in the SEC’s Proposed Rule for climate-related disclosures:

  • Governance, strategy, risk and related disclosures outside the financial statements
  • Greenhouse gas emission disclosures and attestation requirements
  • Financial statement disclosures

As you may have heard and can read about in this Press Release, on May 9, 2022, the SEC extended the comment period for this proposal to June 17, 2022.

The second post in this series explored proposed governance disclosures.  The third post focused on disclosures about risks, strategy, business model and outlook.  This fourth post addresses proposed disclosures for risk management processes.  This information would be required for all companies in their annual reports on Forms 10-K and 20-F, with updates on Forms 10-Q and 6-K. These disclosures fall into the following categories:

  • Climate-related risk management processes
  • Integration of climate-related risk into overall risk management processes
  • Transition plan risk management disclosures

Climate-Related Risk Management Processes

The proposed rule would require disclosure about any processes for “identifying, assessing, and managing climate-related risks.”  Disclosure about climate-related opportunities could also be included here.  Required details in the proposed rule include information about how a company:

  • 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, including how it assesses the potential scope and impact of an identified climate-related risk.

Disclosures related to individual risks would include information about how a company decides whether to mitigate, accept, or adapt to a particular risk.  In addition, disclosures would be made about how a company prioritizes whether to address climate-related risks and determines how to mitigate any high priority risks.

Integration of Climate-Related Risk into Overall Risk Management Processes

Companies would be required to disclose whether climate-related risk management processes are integrated into their overall risk management process.  If climate-related risks are included in a company’s overall risk management process, disclosure would include details of this integration.  Additionally, if a separate board or management committee performs risk assessment and management of climate-related risks, disclosure would include how that committee interacts with the company’s board or management committee overseeing risk management in general.

Transition Plan Risk Management Disclosures

For companies that have adopted a transition plan as part of their climate-related risk management strategy, disclosures would include a description of the plan, including details such as any metrics and targets related to physical and transition risks.  Companies would be required to update this disclosure each fiscal year by “describing the actions taken during the year to achieve the plan’s targets or goals.”

Summary

The detailed descriptions of how climate risk is managed and how the related process is or is not integrated into a company’s overall risk management process requires a level of detail not seen in many SEC disclosure requirements.  This and other issues are likely to be the subject of comments in the SEC’s rulemaking process.  Our next post will explore the disclosures in proposed S-K Item 1506 about climate-related targets and goals.

As always, your thoughts and comments are welcome!

For reference, here is proposed S-K Item 1503:

Risk management.

(a) Describe any processes the registrant has for identifying, assessing, and managing climate-related risks. If applicable, a registrant may also describe any processes for identifying, assessing, and managing climate-related opportunities when responding to any of the provisions in this section.

(1) When describing any processes for identifying and assessing climate-related risks, disclose, as applicable, how the registrant:

(i) Determines the relative significance of climate-related risks compared to other risks;

(ii) Considers existing or likely regulatory requirements or policies, such as GHG emissions limits, when identifying climate-related risks;

(iii) Considers shifts in customer or counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks; and

(iv) Determines the materiality of climate-related risks, including how it assesses the potential scope and impact of an identified climate-related risk, such as the risks identified in response to § 229.1502.

(2) When describing any processes for managing climate-related risks, disclose, as applicable, how the registrant:

(i) Decides whether to mitigate, accept, or adapt to a particular risk;

(ii) Prioritizes whether to address climate-related risks; and

(iii) Determines how to mitigate any high priority risks.

(b) Disclose whether and how any processes described in response to paragraph (a) of this section are integrated into the registrant’s overall risk management system or processes. If a separate board or management committee is responsible for assessing and managing climate-elated risks, a registrant should disclose how that committee interacts with the registrant’s board or management committee governing risks.

(c)(1) If the registrant has adopted a transition plan as part of its climate-related risk management strategy, describe the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks. To allow for an understanding of the registrant’s progress to meet the plan’s targets or goals over time, a registrant must update its disclosure about the transition plan each fiscal year by describing the actions taken during the year to achieve the plan’s targets or goals.

(2) If the registrant has adopted a transition plan, discuss, as applicable:

(i) 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;

(ii) How the registrant plans to mitigate or adapt to any identified transition risks, including the following:

(A) Laws, regulations, or policies that:

(1) Restrict GHG emissions or products with high GHG footprints, including emissions caps; or

(2) Require the protection of high conservation value land or natural assets;

(B) Imposition of a carbon price; and

(C) Changing demands or preferences of consumers, investors, employees, and business counterparties.

(3) If applicable, a registrant that has adopted a transition plan as part of its climate-related risk management strategy may also describe how it plans to achieve any identified climate-related opportunities, such as:

(i) The production of products that may facilitate the transition to a lower carbon economy, such as low emission modes of transportation and supporting infrastructure;

(ii) The generation or use of renewable power;

(iii) The production or use of low waste, recycled, or other consumer products that require less carbon intensive production methods;

(iv) The setting of conservation goals and targets that would help reduce GHG emissions; and

(v) The provision of services related to any transition to a lower carbon economy.