DEPARTMENTS • DRILLING AHEAD
SEC proposes sweeping rules on
climate-related risk disclosures
BY LINDA HSIEH, EDITOR & PUBLISHER
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6 We knew it was coming, but now it’s really
on our doorstep : The US Securities and
Exchange Commission (SEC) has finally
announced its proposal to require com-
panies to include climate-related disclo-
sures as part of their audited financial
statements. The required information also
would include disclosure of a company’s
greenhouse gas (GHG) emissions .
In a statement, SEC Chair Gary Gensler
said he believes the proposal would pro-
vide investors with “consistent, compa-
rable and decision-useful information for
making their investment decisions, and it
would provide consistent and clear report-
ing obligations for issuers.” The goal, he
said, is to ensure that climate-related risks
are disclosed more efficiently and effec-
tively to meet investor demand .
The proposed changes would require a
registrant to disclose information about:
• The registrant’s governance of climate-
related risks and relevant risk manage-
ment processes;
• How any climate-related risks identified
by the registrant have had or are likely
to have a material impact on its business
and consolidated financial statements ;
• How any identified climate-related risks
have affected or are likely to affect the
registrant’s strategy, business model
and outlook; and
• The impact of climate-related events
and transition activities on the line
items of a registrant’s consolidated
financial statements .
For registrants that have publicly set
climate-related targets or goals, the pro-
posed amendments also would require
certain disclosures .
Further, the proposed rules would
require a registrant to disclose informa-
tion about its direct GHG emissions (Scope
1) and indirect emissions from purchased
electricity or other forms of energy (Scope
2). In addition, a registrant would be
required to disclose GHG emissions from
upstream and downstream activities in its
value chain (Scope 3) .
The SEC asserts that the proposed dis-
closures are similar to those that many
companies already provide based on dis-
closure frameworks like the Task Force on
Climate-Related Financial Disclosures and
the Greenhouse Gas Protocol .
What now?
The SEC’s 500+ page proposal is already
widely deemed to be not only far-reaching
but also prescriptive . Obviously, it will
require time for companies and industry
groups like API and IADC to fully review
and assess the changes being proposed
before they can understand how compa-
nies and industries will be impacted. On
the other hand, it’s not hard to see the
potential for unintended, negative con-
sequences when a federal agency tries to
implement such large-scale changes.
“We are concerned that the Commission’s
sweeping proposal could require non-
material disclosures and create confusion
for investors and capital markets,” API
said in a statement issued on 21 March.
“As the Commission pursues a final rule,
we encourage them to collaborate with
our industry and build on private-sec-
tor efforts that are already under way to
improve consistency and comparability of
climate-related reporting.”
The proposal is open for public com-
ment through 21 May (or longer as indus-
try groups like IADC request extensions),
and it’s expected that there will be a flood
of comments and perhaps even legal chal-
lenges . While the proposal will likely
undergo a multitude of changes before a
final rule is in place, and even though it
may be years before there’s an effective
date for requiring the disclosures, the time
to pay attention is now. DC
M AY/J U N E 202 2 • D R I L L I N G C O N T R AC T O R
Scan me to view a Fact
Sheet for the SEC’s
proposed rule.
bit.ly/3vr9k4H