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