U.S. regulator proposes new mandatory climate-related disclosure requirements – is the UK next?

The U.S. Securities and Exchange Commission (SEC) announced proposals on 21 March that would dramatically change climate-related disclosure requirements for all SEC-listed companies in the US, including in relation to greenhouse gas emissions.  How long will it be before similar proposals are announced in the UK?

The SEC notes that “disclosure of this information would provide consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments”.

If adopted, the proposals would be the SEC’s first mandatory disclosure standards and would require enhanced disclosure, including:

• disclosure and verification of Scope 1 and 2 emissions from 2024,
• disclosure of Scope 3 emissions where they are “material” or part of climate targets from 2025, and
• disclosure of emissions reduction plans

A reminder of what each scope entails is set out at the end of this blog.

Due to the challenges of reporting on Scope 3 emissions, the proposals include “a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies”. However, as companies have the discretion to determine the materiality of their Scope 3 emissions, it remains to be seen whether this proposal will be sufficient to mandate disclosure of Scope 3 emissions or whether the SEC will need to strengthen this requirement.

The SEC’s proposed disclosure framework is based on the Task Force on Climate-Related Financial Disclosure (TCFD). This is timely given that the UK’s requirement for TCFD-aligned disclosure comes into effect from 6 April this year, but, unlike the SEC proposals which would capture all SEC listed companies, the UK rules will only capture around 1,300 of the largest UK-registered companies and financial institutions. By providing a single set of standards for climate-related disclosure, the UK government is aiming to increase transparency, reduce greenwashing and enable organisations to understand, prioritise and mitigate the risks of climate change.

At Mills & Reeve, we know that emissions reduction and net zero are key priorities for many of our clients. With that in mind we have produced a thought leadership piece with Professor Sean Smith of Edinburgh University, Building Towards Net Zero: What is it and how do we get there? To access the report, please click here.

Emissions Scopes:

• Scope 1: Direct greenhouse gas emissions (emissions from sources that are owned or controlled by an organisation, e.g. emissions from combustion boilers, furnaces, company vehicles, etc);
• Scope 2: Indirect greenhouse gas emissions (emissions from the generation of purchased electricity consumed by an organisation. Purchased electricity is electricity that is purchased or otherwise brought into an organisation with the emissions physically occurring at the facility where electricity is generated);
• Scope 3: Other indirect greenhouse gas emissions (all other indirect emissions, produced as a consequence of the activities of an organisation but occurring from sources not owned or controlled by them, e.g. supply chain emissions or business travel where staff use their own vehicles).