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Sandy Winer | Clarkson | Kirwan | Pearson | Slack | Tomasi | Vedvig | response to increasing demand by the investment community over the last dozen years, the Securities and Exchange Commission (SEC) has published guidance calling for greater disclosure by public companies of the risks and costs of climate change on their businesses. The SEC’s efforts to promote greater transparency on corporate environmental impact culminated on March 21, 2022, with the promulgation of a proposed rule setting forth a sweeping array of new requirements for detailed disclosure of those risks and costs, with particular attention to greenhouse gas (GHG) emissions. If adopted, the rule would impose on publicly-held manufacturers significant obligations not only to make these disclosures but also to establish an extensive system of disclosure and accounting controls needed to ensure the periodic capture, assessment, and dissemination of a company’s exposure to climate-related risk and impact on the environment.

Appropriate maintenance of any such system would require rigorous assessment of the adequacy of design and operating effectiveness of those controls. The SEC has announced a very small window (no more than 60 days) in which to receive comments to this rule proposal. The Commission is under considerable pressure from investors and Congress to take action as promptly as possible. While the rule proposal is simply that - a proposal - manufacturers should expect much of the proposed package to become part of the agency’s mandatory disclosure regime.

Highlights of the Proposed Rule on Corporate Environmental Impact Accordingly, manufacturing companies will likely need to consider and quantify the impact of environmental factors on both the upstream and downstream aspects of their business and the metrics by which to measure and report that impact. The proposed rule requires a public company to make more robust disclosures in its periodic reports filed with the SEC regarding its exposure to climate-related risks and its impact on the environment, focusing primarily on emission of greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride). The proposed rule describes climate-related risks as both material physical risks (the risks posed by the impact of climate change such as climate-imposed damage or disruption to the operation of the business) or transition risks (the risks posed by transitioning to a lower-carbon economy and the attendant policy, reputation, legal, technological, and market-driven efforts to mitigate climate change).Climate-related risk disclosures in registration statements under the Securities Act of 1933, as amended (the ’33 Act) and in annual reports under the Securities Exchange Act of 1934, as amended (the ’34 Act).The proposed rule, which draws significantly from the guidance provided by the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol (GHG Protocol), requires:

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