transparency for investors about the level and reliability of the
assurance or verification, if any, provided on the GHG emissions
disclosures.
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    \671\ See, e.g., letters from BNP Paribas; Eni SpA; ERM CVS; and
Walmart. See also CAQ, S&P 500 and ESG Reporting.
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Request for Comment
    164. Should we require a registrant that is not required to include
a GHG emissions attestation report pursuant to proposed Item 1505(a) to
disclose within the separately captioned ``Climate-Related Disclosure''
section in the filing the following information, if the registrant's
GHG emissions disclosure was subject to third-party attestation or
verification, as proposed:
    (i) Identify the provider of such assurance or verification;
    (ii) Disclose the assurance or verification standard used;
    (iii) Describe the level and scope of assurance or verification
provided;
    (iv) Briefly describe the results of the assurance or verification;
    (v) Disclose whether the third-party service provider has any other
business relationships with or has provided any other professional
services to the registrant that may lead to an impairment of the
service provider's independence with respect to the registrant; and
    (vi) Disclose any oversight inspection program to which the service
provider is subject (e.g., the AICPA's peer review program), each as
proposed?
    Are there other disclosure items that we should require if a
registrant has obtained voluntary assurance or verification of the
climate-related disclosures? Are there any of the proposed disclosure
items that we should omit? Should we specify parameters or include
guidance on when the services provided by a third-party would be
considered ``assurance'' or ``verification'' and thus require
disclosure pursuant to the proposed rules? Should a registrant be
required to furnish a copy of or provide a link to the assurance or
verification report so that it is readily accessible by an investor?
    165. Instead of requiring a registrant to disclose whether the
third-party service provider has any other business relationships with
or has provided any other professional services to the registrant that
may lead to an impairment of the service provider's independence with
respect to the registrant as proposed, should we require the third-
party service provider to be independent, according to the standard
proposed under Item 1505(b) for accelerated filers and large
accelerated filers that are required to include a GHG emissions
attestation report pursuant to proposed Item 1505(a)? If not, should we
provide guidance as to what constitutes an impairment of a service
provider's independence with respect to the registrant? Would this
result in decision-useful information to an investor? Should we instead
require a registrant to disclose whether the third-party service
provider would be considered independent under some other independence
requirement?
    166. As proposed, a registrant would be required to disclose any
oversight inspection program to which the service provider is subject,
such as the PCAOB's inspection program or the AICPA's peer review
program. Are there other oversight programs that we should provide as
examples? Would such disclosure provide decision-useful information to
an investor? Is it clear what ``any oversight inspection program''
would include?
    167. As proposed, a registrant would not be required to disclose
the voluntary assurance or verification fees associated with the GHG
disclosures. Should we require GHG disclosure assurance or verification
fees to be disclosed? Would such disclosure be decision-useful to
investors making voting or investment decisions?

I. Targets and Goals Disclosure

    If a registrant has set any climate-related targets or goals, then
the proposed rules would require the registrant to provide certain
information about those targets or goals.\672\ Those goals or targets
might, for example, relate to the reduction of GHG emissions, or
address energy usage,\673\ water usage, conservation or ecosystem
restoration. A registrant might also set goals with regard to revenues
from low-carbon products in line with anticipated regulatory
requirements, market constraints, or other goals established by a
climate-related treaty, law, regulation, policy, or organization. The
proposed disclosure requirements could help investors better understand
the scope of a registrant's climate-related targets or goals, including
those related to GHG emissions, and assist in assessing progress
towards achieving those targets or goals.
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    \672\ See proposed 17 CFR 229.1506(a)(1).
    \673\ For example, numerous companies have pledged to achieve
100% of the electricity used in their global operations from
renewable sources by 2050. See RE100, What are the requirements to
become a RE100 member?, available at https://www.there100.org/technical-guidance.
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    Many commenters recommended that we require registrants to provide
detailed information about their climate-related targets and goals,
including action plans and timelines for achieving such targets as GHG
emissions reductions and performance data measured against those
targets.\674\ This information could be important for investors in
light of the fact that, according to one publication, two-thirds of S&P
500 companies had set a carbon

reduction target by the end of 2020.\675\ Despite the numerous
commitments to reduce GHG emissions, according to several sources, many
companies do not provide their investors with sufficient information to
understand how the companies intend to achieve those commitments or the
progress made regarding them.\676\ The proposed disclosure requirements
are intended to elicit enhanced information about climate-related
targets and goals so that investors can better evaluate these points.
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    \674\ See, e.g., letters from Americans for Financial Reform
Education Fund and Public Citizen; Center for Law and Social Policy;
Domini Impact Investments; Dynamhex, Inc.; FAIRR Initiative;
Generation Investment Management; Hannon Armstrong; HP, Inc.;
Interfaith Center on Corporate Responsibility; NYC Office of
Comptroller; Pre-Distribution Initiative; Regenerative Crisis
Response Committee; and WK Associates.
    \675\ See supra note 66 (referencing The Wall Street Journal
(Nov. 5, 2021)).
    \676\ See, e.g., Jocelyn Timperley, The Guardian, The truth
behind corporate climate pledges (July 26, 2021); Peter Eavis and
Clifford Krauss, The New York Times, What's Really Behind Corporate
Promises on Climate Change? (May 12, 2021); and Alice C. Hill and
Jennifer Nash, The Hill, The truth behind companies' `net zero'
climate commitments (Apr. 9, 2021).
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    If a registrant has set climate-related targets or goals, the
proposed rules would require it to disclose them, including, as
applicable, a description of:
     The scope of activities and emissions included in the
target;
     The unit of measurement, including whether the target is
absolute or intensity based;
     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;
     The defined baseline time period and baseline emissions
against which progress will be tracked with a consistent base year set
for multiple targets;
     Any interim targets set by the registrant; and
     How the registrant intends to meet its climate-related
targets or goals.\677\
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    \677\ See proposed 17 CFR 229.1506(b)(1) through (6).
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    This information would help investors understand a registrant's
particular target or goal and a particular timeline for that target or
goal, how the target or goal is to be measured, and how progress
against the target or goal is to be tracked. For example, a registrant
might disclose that it plans to cut its Scopes 1 and 2 emissions by 50
percent by 2030.\678\ The registrant might also disclose a target to
reduce its Scope 3 emissions by 50 percent by 2035. In addition, the
registrant might also set a goal of achieving net zero greenhouse gas
emissions across its operations by 2050, in keeping with the goals of
the Paris Agreement.
---------------------------------------------------------------------------

    \678\ See proposed 17 CFR 229.1506(b)(3).
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    Under the proposed rules, the registrant would be required to
disclose the baseline year for multiple targets.\679\ Requiring
disclosure of defined baseline time periods and baseline emissions
against which progress will be tracked, with a consistent base year for
multiple targets, could help investors compare the progress made
towards each target. The registrant would also be required to disclose
the unit of measurement, including whether the target is expressed in
absolute terms or is intensity-based. If the registrant has set
intervening targets (e.g., reducing its Scope 3 emissions by 35 percent
by 2030), the registrant would be required to disclose these
targets.\680\ Each of the proposed disclosure requirements is intended
to provide investors with additional insight into the scope and
specifics of a registrant's climate-related targets or goals.
---------------------------------------------------------------------------

    \679\ See proposed 17 CFR 229.1506(b)(4).
    \680\ See proposed 17 CFR 229.1506(b)(5).
---------------------------------------------------------------------------

    The proposed rules would further require a registrant to discuss
how it intends to meet its climate-related targets or goals.\681\ This
information should enable investors to better understand the potential
impacts on a registrant associated with pursuing 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.\682\ For a registrant operating in a water-stressed area, with
the goal of reducing its freshwater needs, the discussion could include
a strategy to increase the water efficiency of its operations, such as
by recycling wastewater or, if in agriculture, engaging in
bioengineering techniques to make crops more resilient and less water
dependent. Information about how a registrant intends to achieve its
climate-related target or goal could provide investors with a better
understanding of the potential costs to mitigate a potential climate-
related risk, such as a manufacturer's reduction of GHG emissions
through implementation of a relatively high cost solution such as
carbon capture and storage technology.\683\
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    \681\ See proposed 17 CFR 229.1506(b)(6).
    \682\ See proposed 17 CFR 229.1506(b)(6).
    \683\ See proposed 17 CFR 229.1502.
---------------------------------------------------------------------------

    The proposed rules would also require a registrant to disclose
relevant data to indicate whether it is making progress toward
achieving the target or goal and how such progress has been
achieved.\684\ A registrant would be required to update this disclosure
each fiscal year by describing the actions taken during the year to
achieve its targets or goals.\685\ This proposed disclosure could help
investors assess how well a registrant is managing its identified
climate-related risks.
---------------------------------------------------------------------------

    \684\ See proposed 17 CFR 229.1506(c).
    \685\ See id.
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    Some companies might establish climate-related goals or targets
without yet knowing how they will achieve those goals. They might plan
to develop their strategies over time, particularly as new technologies
become available that might facilitate their achievement of their
goals. The fact that a company has set a goal or target does not mean
that it has a specific plan for how it will achieve those goals. What
is important is that investors be informed of a registrant's plans and
progress wherever it is in the process of developing and implementing
its plan.
    If the registrant has used carbon offsets or RECs in its plan to
achieve climate-related targets or goals, it would be required to
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.\686\ For example,
a carbon offset might pertain to an underlying project to reduce GHG
emissions, increase the storage of carbon, or enhance GHG removals from
the atmosphere. Information regarding the source, value, underlying
projects, and authentication of the offsets or RECs could help
investors assess the offsets or RECs and the effectiveness of the
registrant's plan to achieve its climate-related targets or goals. Such
information could also help investors understand changes in the use or
viability of the carbon offsets or RECs as part of achieving a
registrant's climate-related targets or goals that are caused by
changes in regulation or markets. A reasonable investor could well
assess differently the effectiveness and value to a registrant of the
use of carbon offsets where the underlying projects resulted in
authenticated reductions in GHG emissions compared to the use of
offsets where the underlying projects resulted in the avoidance, but
not the reduction, in GHG emissions or otherwise lacked verification.
As some commenters have indicated, mandated detailed disclosure about
the nature of a purchased carbon

offset could also help to mitigate instances of greenwashing.\687\
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    \686\ See proposed 17 CFR 229.1506(d).
    \687\ See, e.g., letter from Dimensional Fund Advisors.
---------------------------------------------------------------------------

    Proposed 17 CFR 229.1505(a)(2) (Item 1505(a)(2)) would state that a
registrant may provide the disclosures required by the section when
discussing climate-related impacts on its strategy, business model, and
outlook (in response to proposed Item 1502) or when discussing its
transition plan as part of its risk management disclosure (in response
to proposed Item 1503). If so, it need not repeat the disclosure in
response to the proposed targets and goals section but should cross-
refer to the section where the information has been provided.
    A registrant's disclosure of its climate-related targets or goals
should not be construed to be promises or guarantees. To the extent
that information regarding a registrant's climate-related targets or
goals would constitute forward-looking statements, which we would
expect, for example, with respect to how a registrant intends to
achieve its climate-related targets or goals and expected progress
regarding those targets and goals, the PSLRA safe harbors would apply
to such statements, assuming all other statutory requirements for those
safe harbors are satisfied.
Request for Comment
    168. Should we require a registrant to disclose whether it has set
any targets related to the reduction of GHG emissions, as proposed?
Should we also require a registrant to disclose whether it has set any
other climate-related target or goal, e.g., regarding energy usage,
water usage, conservation or ecosystem restoration, or revenues from
low-carbon products, in line with anticipated regulatory requirements,
market constraints, or other goals, as proposed? Are there any other
climate-related targets or goals that we should specify and, if so,
which targets or goals? Is it clear when disclosure under this proposed
item would be triggered, or do we need to provide additional guidance?
Would our proposal discourage registrants from setting such targets or
goals?
    169. Should we require a registrant, when disclosing its targets or
goals, to disclose:
     The scope of activities and emissions included in the
target;
     The unit of measurement, including whether the target is
absolute or intensity based;
     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, or
organization;
     The defined baseline time period and baseline emissions
against which progress will be tracked with a consistent base year set
for multiple targets;
     Any intervening targets set by the registrant; and
     How it intends to meet its targets or goals, each as
proposed?
    Are there any other items of information about a registrant's
climate-related targets or goals that we should require to be
disclosed, in addition to or instead of these proposed items? Are there
any proposed items regarding such targets or goals that we should
exclude from the required disclosure? If a registrant has set multiple
targets or goals, should it be permitted to establish different base
years for those targets or goals?
    170. Should we require a registrant to discuss how it intends to
meet its climate-related targets or goals, as proposed? Should we
provide examples of potential items of discussion about a target or
goal regarding GHG emissions reduction, such as a strategy to increase
energy efficiency, a transition to lower carbon products, purchasing
carbon offsets or RECs, or engaging in carbon removal and carbon
storage, as proposed? Should we provide additional examples of items of
discussion about climate-related targets or goals and, if so, what
items should we add? Should we remove any of the proposed examples of
items of discussion?
    171. Should we require a registrant, when disclosing its targets or
goals, to disclose any data that indicates whether the registrant is
making progress towards meeting the target and how such progress has
been achieved, as proposed?
    172. Should we require that the disclosure be provided in any
particular format, such as charts? Would certain formats help investors
and others better assess these disclosures in the context of assessing
the registrant's business and financial condition? What additional or
other requirements would help in this regard?
    173. If a registrant has used carbon offsets or RECs, should we
require the registrant to 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, the nature
and location of the underlying projects, any registries or other
authentication of the offsets or RECs, and the cost of the offsets or
RECs, as proposed? Are there other items of information about carbon
offsets or RECs that we should specifically require to be disclosed
when a registrant describes its targets or goals and the related use of
offsets or RECs? Are there proposed items of information that we should
exclude from the required disclosure about offsets and RECs?
    174. Should we apply the PSLRA statutory safe harbors as they
currently exist to forward-looking statements involving climate-related
targets and goals, or other climate-related forward-looking
information? Should we instead create a separate safe harbor for
forward-looking climate-related information, including targets and
goals? Should we adopt an exception to the PSLRA statutory safe harbors
that would extend the safe harbors to climate-related forward-looking
disclosures made in an initial public offering registration statement?

J. Registrants Subject to the Climate-Related Disclosure Rules and
Affected Forms

    The proposed climate-related disclosure rules would apply to a
registrant with Exchange Act reporting obligations pursuant to Exchange
Act Section 13(a) \688\ or Section 15(d) \689\ and
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    \688\ 15 U.S.C. 78m(a).
    \689\ 15 U.S.C. 78o(d).

---------------------------------------------------------------------------

    companies filing a Securities Act or Exchange Act registration
statement. Specifically, we are proposing to require a registrant to
include climate-related disclosure in Securities Act or Exchange Act
registration statements (Securities Act Forms S-1, F-1, S-3, F-3, S-4,
F-4, and S-11, and Exchange Act Forms 10 and 20-F) \690\ and Exchange
Act annual reports (Forms 10-K and 20-F), including the proposed
financial statement metrics.\691\ Similar to the treatment of other
important business and financial information, the proposed rules would
also require registrants to disclose any material change to the
climate-related disclosure provided in a registration statement or
annual report in its Form 10-Q (or, in certain circumstances, Form 6-K
for a registrant that is a foreign private issuer that does not report
on domestic forms).\692\
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    \690\ Form 20-F is the Exchange Act form used by a foreign
private issuer for its annual report or to register a class of
securities under Section 12 of the Exchange Act. The proposed rules
would amend Part I of Form 20-F to require a foreign private issuer
to provide the climate-related disclosures pursuant to the proposed
rules either when registering a class of securities under the
Exchange Act or when filing its Exchange Act annual report. A
foreign private issuer would also be required to comply with the
proposed rules when filing a Securities Act registration statement
on Form F-1. Because Form F-1 requires a registrant to include the
disclosures required by Part I of Form 20-F, the proposed amendment
to Form 20-F would render unnecessary a formal amendment to Form F-
1. We are similarly not formally amending Forms S-3 and F-3 because
the climate-related disclosure would be included in a registrant's
Form 10-K or 20-F annual report that is incorporated by reference
into those Securities Act registration statements.
    \691\ See Form 20-F, General Instruction B(d) (stating that
Regulation S-X applies to the presentation of financial information
in the form). Although Item 17 and 18 of Form 20-F, and the forms
that refer to Form 20-F (including Forms F-1 and F-3) permit a
foreign private issuer to file financial statements prepared in
accordance with IFRS as issued by the IASB, the proposed Article 14
disclosure would nevertheless be required (similar to disclosure
required by Article 12 of Regulation S-X). See Acceptance from
Foreign Private Issuers of Financial Statements Prepared in
Accordance with International Financial Reporting Standards Without
Reconciliation to U.S. GAAP, Rel. No. 33-8879 (Dec. 21, 2007) [73 FR
986 (Jan. 4, 2008)], 999, n.136 (stating that ``Regulation S-X will
continue to apply to the filings of all foreign private issuers,
including those who file financial statements prepared using IFRS as
issued by the IASB,'' but providing that such issuers ``will comply
with IASB requirements for form and content within the financial
statements, rather than with the specific presentation and
disclosure provisions in Articles 4, 5, 6, 7, 9, and 10 of
Regulation S-X'').
    \692\ Form 6-K is the form furnished by a foreign private issuer
with an Exchange Act reporting obligation if the issuer: (i) Makes
or is required to make the information public pursuant to the law of
the jurisdiction of its domicile or in which it is incorporated or
organized, or (ii) files or is required to file the information with
a stock exchange on which its securities are traded and which was
made public by that exchange, or (iii) distributes or is required to
distribute the information to its security holders. See General
Instruction B to Form 6-K. That instruction currently list certain
types of information that are required to be furnished pursuant to
subparagraphs (i), (ii), and (iii), above. While we are proposing to
amend Form 6-K to add climate-related disclosure to the list of the
types of information to be provided on Form 6-K, a foreign private
issuer would not be required to provide the climate-related
disclosure if such disclosure is not required to be furnished
pursuant to subparagraphs (i), (ii), or (iii) of General Instruction
B.
---------------------------------------------------------------------------

    The proposed rules would amend Form 20-F and the Securities Act
forms that a foreign private issuer may use to register the offer and
sale of securities under the Securities Act to require the same
climate-related disclosures as proposed for a domestic registrant.\693\
Because climate-related risks potentially impact both domestic and
foreign private issuers, regardless of the registrant's jurisdiction of
origin or organization, requiring that foreign private issuers provide
this disclosure would be important to achieving our goal of more
consistent, reliable, and comparable information across registrants.
Moreover, we note that Form 20-F imposes substantially similar
disclosure requirements as those required for Form 10-K filers on
matters, such as risk factors and MD&A, that are similar and relevant
to the proposed climate-related disclosures.\694\
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    \693\ See proposed Item 3.E to Form 20-F.
    \694\ For similar reasons, we believe that requiring the
proposed climate disclosures on Forms F-1, F-3, and F-4 is
appropriate because those forms either require the disclosure
pursuant to certain parts of Form 20-F (Forms F-1 and F-4) and
certain items, such as risk factors, under Regulation S-K, or permit
the incorporation by reference of Form 20-F (Forms F-3 and F-4) and
therefore require disclosure similar to the domestic forms.
---------------------------------------------------------------------------

    We are not proposing generally to exempt SRCs, EGCs,\695\ or
registrants that are foreign private issuers from the entire scope of
the proposed climate-related disclosure rules because we agree with
commenters who stated that, because of their broad impact across
industries and jurisdictions, climate-related risks may pose a
significant risk to the operations and financial condition of domestic
and foreign issuers, both large and small.\696\ While we are not
proposing to exempt SRCs from the full scope of the proposed climate-
related disclosure rules, we are proposing to exempt SRCs from the
proposed Scope 3 emissions disclosure requirement.\697\ We also are
proposing to provide a longer transition period for SRCs to comply with
the proposed rules than we are proposing for other registrants.\698\
The proposed accommodations for Scope 3 emissions disclosures could
mitigate the proposed rules' compliance burden for smaller registrants
that, when compared to larger registrants with more resources, may be
less able to afford the fixed costs associated with the reporting of
GHG emissions. In addition, the extended compliance period would give
SRCs additional time to allocate the resources necessary to compile and
prepare their climate-related disclosures.
---------------------------------------------------------------------------

    \695\ An emerging growth company (``EGC'') is a registrant that
had total annual gross revenues of less than $1.07 billion during
its most recently completed fiscal year and has not met the
specified conditions for no longer being considered an EGC. See 17
CFR 230.405; 17 CFR 240.12b-2; 15 U.S.C. 77b(a)(19); 15 U.S.C.
78c(a)(80); and Inflation Adjustments and Other Technical Amendments
under Titles I and II of the JOBS Act, Release No. 33-10332 (Mar.
31, 2017) [82 FR 17545 (Apr. 12, 2017)].
    \696\ See, e.g., letters from Rob Bonta, California Attorney
General et al.; Ceres et al.; and Natural Resources Defense Council.
    \697\ See proposed 17 CFR 229.1504(c)(3). In this regard we note
that participants in the Commission-hosted 2021 Small Business Forum
recommended that the Commission provide exemptions or scaled
requirements for small and medium-sized companies in connection with
any new ESG disclosure requirements adopted by the Commission. See
Report on the 40th Annual Small Business Forum (May 2021), available
at https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf. See also Office of the
Advocate for Small Business Capital Formation, Annual Report for
Fiscal Year 2021 (supporting ``efforts to continue tailoring the
disclosure and reporting framework to the complexity and size of
operations of companies, either by scaling obligations or delaying
compliance for the smallest of the public companies, particularly as
it pertains to potential new or expanded disclosure requirements'').
    \698\ See infra Section II.M.
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Request for Comment
    175. Should the proposed climate-related disclosures be required in
Exchange Act reports and registration statements, as proposed? Should
we exempt SRCs from all of the proposed climate-related disclosure
rules instead of exempting them solely from Scope 3 emissions
disclosure requirements, as proposed? Should we exempt SRCs from
certain other proposed climate-related disclosure requirements and, if
so, which requirements? For example, in addition to the proposed
exemption from Scope 3 emissions disclosure, should we exempt SRCs from
the proposed requirement to disclose Scopes 1 and 2 emissions? Are
there certain types of other registrants, such as EGCs or business
development companies (``BDCs''),\699\ that should be excluded from all
or some of the proposed climate-related disclosure rules?
---------------------------------------------------------------------------

    \699\ A BDC is a closed-end investment company that has a class
of its equity securities registered under, or has filed a
registration statement pursuant to, Section 12 of the Exchange Act,
and elects to be regulated as a business development company. See
Section 54 of the Investment Company Act, 15 U.S.C. 80a-53. Like
other Section 12 registrants, BDCs are required to file Exchange Act
annual reports.
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    176. Should we require foreign private issuers that report on Form
20-

F to provide the same climate-related disclosures as Form 10-K filers,
as proposed? Should we require climate-related disclosures in the
registration statements available for foreign private issuers, as
proposed? If not, how should the climate-related disclosures provided
by foreign private issuer registrants differ from the disclosures
provided by domestic registrants?
    177. Should we require a registrant to disclose any material
changes to the climate-related disclosure provided in its registration
statement or annual report in its Form 10-Q or Form 6-K, as proposed?
Are there any changes that should be required to be reported on Form 8-
K?
    178. Should we require the climate-related disclosure in the forms
specified above? Is the application of the proposed rules to the forms
sufficiently clear, or should we include additional clarifying
amendments? For example, would the application of proposed Article 14
to Forms 20-F, F-1 and F-3 be sufficiently clear when a registrant
prepares its financial statements pursuant to IFRS as issued by the
International Accounting Standards Board (``IASB'') without
reconciliation to U.S. generally accepted accounting principles (``U.S.
GAAP''), or should we add a related instruction to those forms?
    179. Are there certain registration statements or annual reports
that should be excluded from the scope of the proposed climate-related
disclosure rules? For example, should we exclude Securities Act
registration statements filed in connection with a registrant's initial
public offering? Would such an accommodation help address concerns
about the burdens of transitioning to public company status? We have
not proposed to require climate-related disclosures in registration
statements on Form S-8 or annual reports on Form 11-K. Should we
require such disclosures?
    180. Should we require climate-related disclosure in Forms S-4 and
F-4, as proposed? Should we provide transitional relief for recently
acquired companies? For example, should we provide that a registrant
would not be required to provide the proposed climate-related
disclosures for a company that is a target of a proposed acquisition
under Form S-4 or F-4 until the fiscal year following the year of the
acquisition if the target company is not an Exchange Act reporting
company and is not the subject of foreign climate-related disclosure
requirements that are substantially similar to the Commission's
proposed requirements? Should such transitional relief in this instance
be for a longer period than one year and, if so, for how long should
such transitional relief extend?
    181. We have not proposed to amend Form 40-F, the Exchange Act form
used by a Canadian issuer eligible to report under the
Multijurisdictional Disclosure System (``MJDS'') to register securities
or to file its annual report under the Exchange Act, to include the
proposed climate-related disclosure requirements. Should we require a
Form 40-F issuer to comply with the Commission's proposed climate-
related disclosure requirements? Should we permit a MJDS issuer to
comply with Canadian climate-related disclosure requirements instead of
the proposed rules if they meet certain conditions or provide certain
additional disclosures and, if so, which conditions or disclosures?
    182. The proposed rules would not apply to asset-backed issuers.
The Commission and staff are continuing to evaluate climate-related
disclosures with respect to asset-backed securities. Should we require
asset-backed issuers to provide some or all of the disclosures under
proposed Subpart 1500 of Regulation S-K? If so, which of the proposed
disclosures should apply to asset-backed issuers? Are other types of
climate disclosure better suited to asset-backed issuers? How can
climate disclosure best be tailored to various asset classes?
    183. Should we adopt an alternative reporting provision that would
permit a registrant that is a foreign private issuer and subject to the
climate-related disclosure requirements of an alternative reporting
regime that has been deemed by the Commission to be substantially
similar to the requirements of proposed Subpart 1500 of Regulation S-K
and Article 14 of Regulation S-X to satisfy its disclosure obligations
under those provisions by complying with the reporting requirements of
the alternative reporting regime (``alternative reporting provision'')?
If so, should we require the submission of an application for
recognition of an alternative reporting regime as having substantially
similar requirements for purposes of alternative reporting regarding
climate-related disclosures? Should we permit companies, governments,
industry groups, or climate-related associations to file such an
application? Should we require the applicant to follow certain
procedures, such as those set forth in 17 CFR 240.0-13?
    184. If we adopt an alternative reporting provision, should we
specify certain minimum standards that the alternative reporting regime
must meet in order to be recognized and, if so, what standards? For
example, should we specify that an alternative reporting regime must
require the disclosure of a foreign private issuer's Scopes 1 and 2
emissions and related targets, the proposed financial statement
metrics, as well as disclosures pursuant to the TCFD's recommendations
regarding governance, strategy, and risk management disclosure? Should
we specify that the alternative reporting regime must require the
disclosure of Scope 3 emissions and, if so, should we deem the
alternative reporting regime to be substantially similar even if its
Scope 3 emissions requirements become effective after the Commission's
phase in period for Scope 3 emissions disclosure requirements? Should
we specify that the alternative reporting regime must require the
disclosure of scenario analysis if a registrant uses scenario analysis
in formulating its strategy regarding climate-related risks? Are there
certain climate-related disclosure requirements that have been adopted
or are in the process of being adopted in other jurisdictions that we
should consider to be substantially similar to the Commission's rules
for purposes of an alternative reporting provision? If so, which
requirements should we consider?
    185. If we adopt an alternative reporting provision, should it be a
mutual recognition system, so that, as a condition of our recognition
of a particular jurisdiction as an alternative reporting regime, that
jurisdiction must recognize the Commission's climate-related disclosure
rules as an alternative reporting system that a registrant dual-listed
in the United States and the other jurisdiction may use to fulfill the
foreign jurisdiction's climate-related disclosure rules?
    186. If we adopt an alternative reporting provision, should we
require a registrant filing the alternative climate-related disclosure
to make certain changes that we deem necessary as a condition to
alternative reporting? For example, should we require a registrant to
comply with XBRL tagging requirements as a condition to filing
alternative climate-related disclosure? Are there other specific
conditions that we should impose on disclosure under an alternative
climate reporting provision?
    187. If we adopt an alternative reporting provision, should we
require a registrant using that system to:
     State in the filing that it is relying on this alternative
reporting provision;
     Identify the alternative reporting regime for which the
climate-related disclosure was prepared;

     Identify the exhibit number of the filing where the
alternative disclosure can be found; and
     File a fair and accurate English translation of the
alternative climate-related disclosure if in a foreign language?
    Would these requirements enhance the accessibility of the
alternative disclosures? Are there other requirements that we should
impose to enhance the transparency of the alternative climate-related
disclosure?
    188. If we adopt an alternative reporting provision, should we
permit a registrant to follow the submission deadline of the approved
alternative reporting regime even if that deadline differs from the
deadline for reporting under our rules? If so, what conditions, if any,
should apply to permit the use of such alternative deadline? For
example, should the registrant be required to provide adequate notice,
before the due date of the Commission filing in which the alternative
disclosure is required to be included? Should such notice indicate the
registrant's intent to file the alternative disclosure using the
alternative jurisdiction's deadline? If so, what would constitute
adequate notice? For example, should the deadline for filing the notice
be three, five, or ten business days before the Commission filing
deadline? Should we permit a registrant to provide such notice through
an appropriate submission to the Commission's EDGAR system? Should we
permit a registrant to indicate in its Form 20-F or other report that
it will file the alternative disclosure at a later date if permitted to
do so by the alternative reporting regime? In that case, should we
permit the registrant to file the alternative disclosure on a Form 6-K
or 8-K? Should we instead require a registrant to submit the notice via
a form that we would create for such purpose? Should there be any
consequences if a registrant fails to file a timely notice or fails to
file the alternative disclosure by the alternative regime's due date?
For example, should we preclude such a registrant from relying on the
alternative reporting provision for the following fiscal year?
    189. An International Sustainability Standards Board (ISSB) has
recently been created, which is expected to issue global sustainability
standards, including climate-related disclosure standards.\700\ If we
adopt an alternative reporting provision, should that provision be
structured to encompass reports made pursuant to criteria developed by
a global sustainability standards body, such as the ISSB? If so, should
such alternative reporting be limited to foreign private issuers, or
should we extend this option to all registrants? What conditions, if
any, should we place on a registrant's use of alternative reporting
provisions based on the ISSB or a similar body?
---------------------------------------------------------------------------

    \700\ See supra note 92.
---------------------------------------------------------------------------

K. Structured Data Requirement

    The proposed rules would require a registrant to tag the proposed
climate-related disclosures in a structured, machine-readable data
language.\701\ Specifically, the proposed rules would require a
registrant to tag climate-related disclosures in Inline eXtensible
Business Reporting Language (``Inline XBRL'') in accordance with 17 CFR
232.405 (Rule 405 of Regulation S-T) and the EDGAR Filer Manual. The
proposed requirements would include block text tagging and detail
tagging of narrative and quantitative disclosures provided pursuant to
Subpart 1500 of Regulation S-K and Article 14 of Regulation S-X.\702\
---------------------------------------------------------------------------

    \701\ See proposed 17 CFR 229.1507.
    \702\ For the proposed Subpart 1500 disclosures, this tagging
requirement would be implemented by including a cross-reference to
Rule 405 of Regulation S-T in proposed Item 1507 of Regulation S-K,
and by revising Rule 405(b) of Regulation S-T to include the
proposed climate-related disclosures required by Subpart 1500 of
Regulation S-K. The proposed Article 14 of Regulation S-X
disclosures would be subject to existing requirements in Rule 405(b)
to tag information in financial statements (including footnotes).
Pursuant to Rule 301 of Regulation S-T the EDGAR Filer Manual is
incorporated by reference into the Commission's rules. In
conjunction with the EDGAR Filer Manual, Regulation S-T governs the
electronic submission of documents filed with the Commission. Rule
405 of Regulation S-T specifically governs the scope and manner of
disclosure tagging requirements for operating companies and
investment companies, including the requirement in Rule 405(a)(3) to
use Inline XBRL as the specific structured data language to use for
tagging the disclosures.
---------------------------------------------------------------------------

    In 2009, the Commission adopted rules requiring operating companies
to submit the information from the financial statements (including
footnotes and schedules thereto) included in certain registration
statements and periodic and current reports in a structured, machine-
readable data language using eXtensible Business Reporting Language
(``XBRL'').\703\ In 2018, the Commission adopted modifications to these
requirements by requiring issuers to use Inline XBRL, which is both
machine-readable and human-readable, to reduce the time and effort
associated with preparing XBRL filings and improve the quality and
usability of XBRL data for investors.\704\ In 2020, the Commission
adopted Inline XBRL requirements for business development companies
that will be effective no later than February 2023.\705\
---------------------------------------------------------------------------

    \703\ Interactive Data to Improve Financial Reporting, Release
No. 33-9002 (Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)] (``2009
Financial Statement Information Adopting Release'') (requiring
submission of an Interactive Data File to the Commission in exhibits
to such reports); see also Release No. 33-9002A (Apr. 1, 2009) [74
FR 15666 (Apr. 7, 2009)].
    \704\ Inline XBRL Filing of Tagged Data, Release No. 33-10514
(June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 2018)]. Inline XBRL
allows filers to embed XBRL data directly into an HTML document,
eliminating the need to tag a copy of the information in a separate
XBRL exhibit. Id. at 40851.
    \705\ Securities Offering Reform for Closed-End Investment
Companies, Release No. 33-10771 (Apr. 8, 2020) [85 FR 33290 (June 1,
2020) at 33318].
---------------------------------------------------------------------------

    Requiring Inline XBRL tagging of the proposed climate-related
disclosures would benefit investors by making the disclosures more
readily available and easily accessible to investors, market
participants, and other users for aggregation, comparison, filtering,
and other analysis, as compared to requiring a non-machine readable
data language such as ASCII or HTML. This would enable automated
extraction and analysis of climate-related disclosures, allowing
investors and other market participants to more efficiently perform
large-scale analysis and comparison of climate-related disclosures
across companies and time periods. At the same time, we do not expect
the incremental compliance burden associated with tagging the
additional information to be unduly burdensome, because issuers subject
to the proposed requirements are or in the near future will be subject
to similar Inline XBRL requirements in other Commission filings.\706\
---------------------------------------------------------------------------

    \706\ See supra notes 704 and 705. Inline XBRL requirements for
business development companies will take effect beginning Aug. 1,
2022 (for seasoned issuers) and Feb. 1, 2023 (for all other
issuers). See id. If the proposed Inline XBRL requirements are
adopted in the interim, they will not apply to business development
companies prior to the aforementioned effectiveness dates.
---------------------------------------------------------------------------

Request for Comment
    190. Should we require registrants to tag the climate-related
disclosures, including block text tagging and detail tagging of
narrative and quantitative disclosures required by Subpart 1500 of
Regulation S-K and Article 14 of Regulation S-X in Inline XBRL, as
proposed? Should we permit custom tags for the climate-related
disclosures?
    191. Should we modify the scope of the proposed climate-related
disclosures required to be tagged? For example, should we only require
tagging of the quantitative climate-related metrics?
    192. Are there any third-party taxonomies the Commission should

look to in connection with the proposed tagging requirements?
    193. Should we require issuers to use a different structured data
language to tag climate-related disclosures? If so, what structured
data language should we require? Should we leave the structured data
language undefined?

L. Treatment for Purposes of Securities Act and Exchange Act

    We are proposing to treat the proposed required climate-related
disclosures as ``filed'' and therefore subject to potential liability
under Exchange Act Section 18,\707\ except for disclosures furnished on
Form 6-K. The proposed filed climate-related disclosures would also be
subject to potential Section 11 liability \708\ if included in or
incorporated by reference into a Securities Act registration statement.
This treatment would apply both to the disclosures in response to
proposed subpart 1500 of Regulation S-K and to proposed Article 14 of
Regulation S-X.
---------------------------------------------------------------------------

    \707\ 15 U.S.C. 78r.
    \708\ 15 U.S.C. 77k.
---------------------------------------------------------------------------

    Form 6-K disclosures would not be treated as ``filed'' because the
form, by its own terms, states that ``information and documents
furnished in this report shall not be deemed to be ``filed'' for the
purposes of Section 18 of the Act or otherwise subject to the
liabilities of that section.'' \709\ The treatment of disclosures on
Form 6-K as furnished is a long-standing part of our foreign private
issuer disclosure system.\710\
---------------------------------------------------------------------------

    \709\ Form 6-K, General Instruction B.
    \710\ See Release No. 34-8069 (Apr. 28, 1967), [32 FR 7853 (May
30, 1967)]. Form 6-K's treatment as furnished for purposes of
Section 18 has existed since the Commission adopted the form.
---------------------------------------------------------------------------

    Commenters expressed differing views on whether we should treat
Commission-mandated climate-related disclosures as filed or furnished.
Many commenters recommended that we treat such climate-related
disclosures as filed.\711\ Some of these commenters stated that we
should treat climate-related disclosures like financial disclosures and
require them to be filed together with the rest of the Commission
filing.\712\ Other commenters indicated that the treatment of climate-
related disclosures as filed would help ensure that investors have
confidence in the accuracy and completeness of such disclosures because
of the liability associated with filed documents.\713\
---------------------------------------------------------------------------

    \711\ See, e.g., letters from Baillie Gifford; Rob Bonta,
California Attorney General et al.; Calvert Research and Management;
Carolyn Kohoot; Center for American Progress; Ceres et al.;
Certified B Corporations; Clean Yield Asset Management; Climate Risk
Disclosure Lab; Consumer Federation of America; Environmental
Bankers Association; Friends of the Earth, Amazon Watch, and
Rainforest Action Network; Garcia Hamilton & Associates (June 11,
2021); Grant Thornton; Sarah Ladin; Miller/Howard Investments;
Natural Resources Defense Council; New York State Society of
Certified Public Accountants; Nia Impact Capital; Teachers Insurance
and Annuity Association of America; ValueEdge Advisors (July 5,
2021); and Vert Asset Management.
    \712\ See, e.g., letters from Rob Bonta, California Attorney
General et al.; Calvert Research and Management; and Ceres et al.
    \713\ See, e.g., letters from Consumer Federation of America;
and Natural Resources Defense Council.
---------------------------------------------------------------------------

    Other commenters recommended that we treat climate-related
disclosures as furnished.\714\ Some of these commenters stated that the
Commission's treatment of such disclosures as filed could act as a
disincentive to providing ``broader'' disclosure and would incentivize
some issuers ``to disclose in the manner most limited to meet the
specific requirement and avoid more robust explanation.'' \715\ Other
commenters stated that the treatment of climate-related disclosures as
furnished would be appropriate because, in their view, much of that
disclosure is based on projections and aspirational statements ill-
suited to the application of a stricter liability standard.\716\
---------------------------------------------------------------------------

    \714\ See, e.g., letters from American Petroleum Institute;
Associated General Contractors of America; Bank Policy Institute;
Business Roundtable; Chamber of Commerce; Chevron; Cisco;
ConocoPhilips; Dell Technologies; Dow; FedEx Corporation (June 11,
2021); Investment Company Institute; NACCO Industries, Inc. (June
11, 2021); KPMG, LLP; National Association of Manufacturers;
National Investor Relations Institute; National Mining Association;
Society for Corporate Governance; and United Airlines Holdings, Inc.
    \715\ Letter from American Petroleum Institute; see also letters
from Chamber of Commerce; and National Association of Manufacturers.
    \716\ See, e.g., letters from National Mining Association; and
United Airlines Holdings.
---------------------------------------------------------------------------

    We agree with those commenters who indicated that the treatment of
climate-related disclosures as filed could help promote the accuracy
and reliability of such disclosures for the benefit of investors.\717\
In this regard, we believe these disclosures should be subject to the
same liability as other important business or financial information
that the registrant includes in its registration statements and
periodic reports. While we acknowledge commenters who stated that the
methodology underlying climate data continues to evolve,\718\ we intend
to provide registrants with an ample transition period to prepare to
provide such disclosure.\719\ Further, much of the disclosure proposed
to be required reflects discussion of a company's own climate risk
assessment and strategy, which is not dependent on external sources of
information. In addition, we have provided guidance and proposed rules
on the applicability of safe harbors to certain disclosures under the
proposed rules. For these reasons, we believe it would be appropriate
for the proposed disclosures to be filed rather than furnished, except
with respect to the proposed disclosure we are requiring on Form 6-K.
---------------------------------------------------------------------------

    \717\ See supra note 713.
    \718\ See, e.g., letter from National Association of
Manufacturers.
    \719\ See infra Section II.M.
---------------------------------------------------------------------------

Request for Comment
    194. Should we treat the climate-related disclosures required by
proposed subpart 1500 of Regulation S-K and proposed Article 14 of
Regulation S-X as filed for purposes of potential liability under the
Securities Act and Exchange Act, except for the climate disclosures on
Form 6-K, as proposed? Should we instead treat the climate-related
disclosures required by both proposed subpart 1500 of Regulation S-K
and proposed Article 14 of Regulation S-X as furnished? Are there
reasons why the proposed climate-related disclosures should not be
subject to Section 18 liability?
    195. Should we only treat the climate-related disclosures required
by proposed subpart 1500 of Regulation S-K as filed? Should we only
treat the climate-related disclosures required by proposed Article 14
of Regulation S-X as filed? Is there some other subset of climate-
related disclosures that should be treated as furnished rather than
filed? For example, should we only treat as filed disclosures related
to a registrant's Scopes 1 and 2 emissions, and treat a registrant's
Scope 3 emissions as furnished?
    196. Should we treat the climate disclosures on Form 6-K as filed?

M. Compliance Date

    We recognize that many registrants may require time to establish
the necessary systems, controls, and procedures to comply with the
proposed climate-related disclosure requirements. In addition, some
commenters recommended that the Commission not adopt a ``one size fits
all'' approach when promulgating climate-related disclosure rules
because such an approach would disproportionately impact smaller
registrants.\720\ In order to provide registrants, especially smaller
registrants, with additional time to prepare for the proposed climate-
related disclosures, we are proposing phased-in dates for complying
with proposed subpart 1500 of Regulation S-K and Article 14 of
Regulation S-X, which would provide additional time for certain smaller
registrants. The table

below summarizes the proposed phase-ins for the compliance date.
---------------------------------------------------------------------------

    \720\ See supra note 556.
---------------------------------------------------------------------------

The table assumes, for illustrative purposes, that the proposed rules
will be adopted with an effective date in December 2022, and that the
registrant has a December 31st fiscal year-end.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
           Registrant type                        Disclosure compliance date             Financial statement
                                                                                metrics audit
                                                                                compliance date
----------------------------------------------------------------------------------------------------------------
                                       All proposed             GHG emissions metrics:
                                        disclosures, including   Scope 3 and associated
                                        GHG emissions metrics:   intensity metric.
                                        Scope 1, Scope 2, and
                                        associated intensity
                                        metric, but excluding
                                        Scope 3.
----------------------------------------------------------------------------------------------------------------
Large Accelerated Filer..............  Fiscal year 2023 (filed  Fiscal year 2024 (filed  Same as disclosure
                                        in 2024).                in 2025).                compliance date.
Accelerated Filer and Non-Accelerated  Fiscal year 2024 (filed  Fiscal year 2025 (filed
 Filer.                                 in 2025).                in 2026).
SRC..................................  Fiscal year 2025 (filed  Exempted...............
                                        in 2026).
----------------------------------------------------------------------------------------------------------------

    The proposed compliance dates in the table above would apply to
both annual reports and registration statements. For example, if a non-
accelerated filer with a December 31st fiscal year-end filed a
registration statement that was not required to include audited
financial statements for fiscal year 2024 (e.g., the registration
statement was filed in 2023 or 2024), it would not be required to
comply with the proposed climate disclosure rules in that registration
statement.
    A registrant with a different fiscal year-end date that results in
its fiscal year 2023 commencing before the effective date of the rules
would not be required to comply with subpart 1500 of Regulation S-K and
Article 14 of Regulation S-X until the following fiscal year. For
example, a large accelerated filer with a March 31st fiscal year-end
date would not be required to comply with the proposed climate
disclosure rules until its Form 10-K for fiscal year 2024, filed in
June, 2024. This would provide large accelerated filers, who would have
the earliest compliance date of all categories of filers, with what we
believe is a reasonable amount of time to comply with the rules.
    We believe that initially applying the disclosure requirements to
the more limited pool of large accelerated filers would be appropriate,
because many large accelerated filers are already collecting and
disclosing climate-related information, have already devoted resources
to these efforts, and have some levels of controls and processes in
place for such disclosure.\721\ In comparison, registrants that are not
large accelerated filers may need more time to develop the systems,
controls, and processes necessary to comply with the proposed rules,
and may face proportionately higher costs. Accordingly, we propose to
provide them additional time to comply.
---------------------------------------------------------------------------

    \721\ See, e.g., letters from Adobe; Apple; BNP Paribas; bp;
Chevron; Eni SpA; and Walmart.
---------------------------------------------------------------------------

    We also recognize that obtaining the data necessary to calculate a
registrant's Scope 3 emissions might prove challenging since much of
the data is likely to be under the control of third parties. In order
to provide sufficient time for registrants to make the necessary
arrangements to begin gathering and assessing such data, we are
proposing an additional one-year phase-in period for the Scope 3
emissions disclosure requirements. As previously mentioned, we also are
proposing an exemption for SRCs from the proposed Scope 3 emissions
disclosure provision.\722\
---------------------------------------------------------------------------

    \722\ See supra Section II.G.3.
---------------------------------------------------------------------------

    The proposed mandatory compliance periods are intended to provide
registrants with ample time to prepare to provide the proposed
disclosures. Registrants would, however, be able to provide the
disclosures at any time after the effective date of the rules.
Request for Comment
    197. Should we provide different compliance dates for large
accelerated filers, accelerated filers, non-accelerated filers, or
SRCs, as proposed? Should any of the proposed compliance dates in the
table above be earlier or later? Should any of the compliance dates be
earlier so that, for example, a registrant would be required to comply
with the Commission's climate-related disclosure rules for the fiscal
year in which the rules become effective?
    198. Should we provide a compliance date for the proposed Scope 3
emissions disclosure requirements that is one year later than for the
other disclosure requirements, as proposed? Should the compliance dates
for the Scope 3 emissions disclosure requirements be earlier or later?
Should the compliance date for the Scope 3 emissions disclosure
requirements depend upon whether the registrant is a large accelerated
filer, accelerated filer, or non-accelerated filer?
    199. Should we provide different compliance dates for registrants
that do not have a December 31st fiscal year-end?
    200. Should we include rules or guidance addressing less common
situations, such as, but not limited to, reverse mergers,
recapitalizations, other acquisition transactions, or if a registrant's
SRC (or EGC) status changes as a result of such situations?
    201. Are there other phase-ins or exemptions regarding any or all
of the proposed rules that we should provide?

III. General Request for Comments

    We request and encourage any interested person to submit comments
on any aspect of the proposed amendments, other matters that might have
an impact on the proposed amendments, and any suggestions for
additional changes. With respect to any comments, we note that they are
of greatest assistance to our rulemaking initiative if accompanied by
supporting data and analysis of the issues addressed in those comments
and by alternatives to our proposals where appropriate.

IV. Economic Analysis

    We are mindful of the economic effects that may result from the
proposed rules, including the benefits, costs, and the effects on
efficiency, competition, and capital formation.\723\

This section analyzes the expected economic effects of the proposed
rules relative to the current baseline, which consists of the
regulatory framework of disclosure requirements in existence today, the
current disclosure practices of registrants, and the use of such
disclosures by investors and other market participants.
---------------------------------------------------------------------------

    \723\ Section 2(b) of the Securities Act, 15 U.S.C. 77b(b), and
Section 3(f) of the Exchange Act, 17 U.S.C. 78c(f), require the
Commission, when engaging in rulemaking where it is required to
consider or determine whether an action is necessary or appropriate
in the public interest, to consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition, and capital formation. Further, Section 23(a)(2) of the
Exchange Act, 17 U.S.C. 78w(a)(2), requires the Commission, when
making rules under the Exchange Act, to consider the impact that the
rules would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    We anticipate the proposed rules will give rise to several benefits
by strengthening investor protection, improving market efficiency, and
facilitating capital formation. The primary benefit is that investors
would have access to more consistent, comparable, and reliable
disclosures with respect to registrants' climate-related risks, which
is expected to enable investors to make more informed investment or
voting decisions.\724\ By providing access to this information through
SEC filings for all public issuers, this enhanced disclosure could
mitigate the challenges that investors currently confront in assessing
the nature and extent of the climate-related risks faced by registrants
and their impact on registrants' business operations and financial
condition. In this way, the proposed rules may reduce information
asymmetry both among investors, which can reduce adverse selection
problems and improve stock liquidity,\725\ and between investors and
firms, which can reduce investors' uncertainty about estimated future
cash flows, thus lowering the risk premium they demand and therefore
registrant's cost of capital. The proposed rules could also mitigate
certain agency problems between the firm's shareholders and management,
thus strengthening investor protection.\726\ Further, by enabling
climate-related information to be more fully incorporated into asset
prices, the proposed rules would allow climate-related risks to be
borne by those who are most willing and able to bear them, thereby
strengthening financial system resilience. Taken together, the proposed
rules are expected to contribute to the efficient allocation of
capital, capital formation, competition, and the maintenance of fair
and orderly markets.\727\
---------------------------------------------------------------------------

    \724\ See infra Section IV.C.1.
    \725\ Id.
    \726\ Id.
    \727\ See infra Section IV.D.
---------------------------------------------------------------------------

    We are also mindful of the costs that would be imposed by the
proposed rules. Registrants would face increased compliance burdens in
meeting the new disclosure requirements. In some cases, these
additional compliance burdens could be significant while in others
relatively small if companies already provide information similar to
that required by our rules. Other potential costs include increased
litigation risk and the potential disclosure of proprietary information
about firms' operations and/or production processes.\728\
---------------------------------------------------------------------------

    \728\ See infra Section IV.C.2
---------------------------------------------------------------------------

A. Baseline and Affected Parties

    This section describes the current regulatory and economic
landscape with respect to climate-related disclosures. It discusses the
parties likely to be affected by the proposed rules, current trends in
registrants' voluntary reporting on climate risks, related assurance
practices, and existing mandatory disclosure rules under state and
other Federal laws. These factors form the baseline against which we
estimate the likely economic effects of the proposed rules.
1. Affected Parties
    The proposed disclosure requirements would apply to Forms S-1, F-1,
S-3, F-3, S-4, F-4, S-11, 6-K, 10, 10-Q, 10-K, and 20-F. Thus, the
parties that are likely affected by the proposed rules include
registrants subject to the disclosure requirements imposed by these
forms, as well as investors and other market participants that use the
information in these filings (e.g. financial analysts, investment
advisors, asset managers, etc.).
    The proposed rules may affect both domestic registrants and foreign
private issuers (FPIs).\729\ We estimate that during calendar year
2020, excluding registered investment companies, there were
approximately 6,220 registrants that filed on domestic forms \730\ and
approximately 740 FPIs that filed on Forms 20-F. Among the registrants
that filed on domestic forms, approximately 31 percent were large
accelerated filers, 11 percent were accelerated filers, and 58 percent
were non-accelerated filers. In addition, we estimate that
approximately 50 percent of these domestic registrants were smaller
reporting companies (SRCs) and 22 percent were emerging growth
companies (EGCs).
---------------------------------------------------------------------------

    \729\ FPIs refer to the subset of all FPIs that file annual
reports on Form 20-F, excluding MJDS filers using form 40-F.The
number of domestic registrants and FPIs affected by the final
amendments is estimated as the number of unique companies,
identified by Central Index Key (CIK), that filed a Form 10-K, Form
20-F, or an amendment thereto, or both a Form 10-Q and a Form S-1,
S-3, S-4, or S-11 with the Commission during calendar year 2020,
excluding asset-backed securities issuers. For purposes of this
economic analysis, these estimates do not include registrants that
only filed a Securities Act registration statement during calendar
year 2020, or only filed a Form 10-Q not preceded by a Securities
Act registration statement (in order to avoid including entities
such as certain co-issuers of debt securities). We believe that most
registrants that have filed a Securities Act registration statement
or a Form 10-Q not preceded by a Securities Act registration
statement, other than such co-issuers, would be captured by this
estimate. The estimates for the percentages of SRCs, EGCs,
accelerated filers, large accelerated filers, and non-accelerated
filers are based on data obtained by Commission staff using a
computer program that analyzes SEC filings, with supplemental data
from Ives Group Audit Analytics and manual review of filings by
staff.
    \730\ This number includes approximately 20 FPIs that filed on
domestic forms in 2020 and approximately 90 BDCs.
---------------------------------------------------------------------------

2. Current Regulatory Framework
    A number of the Commission's existing disclosure requirements may
elicit disclosure about climate-related risks; however, many of these
requirements are principles-based in nature and thus the nature and
extent of the information provided depends to an extent on the judgment
of management. As discussed above, in 2010, the Commission published
interpretive guidance on existing disclosure requirements as they
pertain to business or legal developments related to climate
change.\731\ The 2010 Guidance emphasized that if climate-related
factors have a material impact on a firm's financial condition,
disclosure may be required under current Item 101 (Description of
Business), Item 103 (Legal Proceedings), Item 105 (Risk Factors), or
Item 303 (MD&A) of Regulation S-K. While these provisions may elicit
some useful climate-related disclosure, these provisions have not
resulted in the consistent and comparable information about climate-
related risks that many investors have stated that they need in order
to make informed investment or voting decisions.\732\
---------------------------------------------------------------------------

    \731\ See Commission Guidance Regarding Disclosure Related to
Climate Change, Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290 (Feb,
8, 2010)] (``2010 Climate Change Guidance''), available at https://www.sec.gov/rules/interp/2010/33-9106.pdf (The guidance did not
create new legal requirements nor modify existing ones. Instead, it
highlighted climate-related topics that registrants should consider
in seeking to meet their existing disclosure obligations (e.g., the
impact of legislation, regulation, international accords, indirect
consequences, physical risks, etc.) and in what section they should
be discussed (e.g., risk factors, MD&A, etc.)). See also discussion
in Section I.A.
    \732\ See Section I.B.
---------------------------------------------------------------------------

3. Existing State and Federal Laws
    There are also state and other Federal laws that require certain
climate-related disclosures or reporting. For instance,

there are requirements for mandatory climate risk disclosure within the
insurance industry. As of 2021, 14 states \733\ and the District of
Columbia require any domestic insurers that write more than $100
million in annual net written premium \734\ to disclose their climate-
related risk assessment and strategy via the NAIC Climate Risk
Disclosure Survey.\735\ Survey question topics include climate risk
governance, climate risk management, modeling and analytics,
stakeholder engagement, and greenhouse gas management. In fiscal year
2020, there were 66 publicly traded insurance companies that may be
required to provide disclosure pursuant to these state law provisions
and that also would be subject to the proposed rules.
---------------------------------------------------------------------------

    \733\ The 14 states are California, Connecticut, Delaware,
Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York,
Oregon, Pennsylvania, Rhode Island, Vermont, and Washington.
    \734\ Net written premium is defined as the premiums written by
an insurance company, minus premiums paid to reinsurance companies,
plus any reinsurance assumed.
    \735\ See NAIC, Assessments of and Insights from NAIC Climate
Risk Disclosure Data (Nov. 2020), available at https://content.naic.org/article/news_release_naic_assesses_provides_insight_insurer_climate_risk_disclosure_survey_data.htm.
---------------------------------------------------------------------------

    There also exist Federal- and state-level reporting requirements
related to greenhouse gas (GHG) emissions. Federal GHG reporting
requirements consist of the U.S. Environmental Protection Agency's
(EPA) 2009 Mandatory Reporting of Greenhouse Gases Rule.\736\ This rule
requires large direct emitters and suppliers of fossil fuels to report
their emissions to the EPA.\737\ Specifically, the rule requires each
facility that directly emits more than 25,000 metric tons of
CO2e per year to report these direct emissions.
Additionally, facilities that supply certain products that would result
in over 25,000 metric tons of CO2e if those products were
released, combusted, or oxidized must similarly report these
``supplied'' emissions.\738\ The resulting emissions data are then made
public through their website.
---------------------------------------------------------------------------

    \736\ See 40 CFR part 98 (2022); see also EPA, EPA Fact Sheet:
Greenhouse Gases Reporting Program Implementation (2013), available
at https://www.epa.gov/sites/default/files/2014-09/documents/ghgrp-overview-factsheet.pdf.
    \737\ According to the EPA, ``direct emitters'' are facilities
that combust fuels or otherwise put GHGs into the atmosphere
directly from their facility. An example of this is a power plant
that burns coal or natural gas and emits carbon dioxide directly
into the atmosphere. The EPA estimates that the GHGRP data reported
by direct emitters covers about half of total U.S. emissions.
``Suppliers'' are those entities that supply products into the
economy which if combusted, released or oxidized emit greenhouse
gases into the atmosphere. These fuels and industrial gases are not
emitted from the supplier facility but instead distributed
throughout the country and used. An example of this is gasoline,
which is sold in the U.S. and primarily burned in cars throughout
the country. The majority of GHG emissions associated with the
transportation, residential and commercial sectors are accounted for
by these suppliers.
    \738\ The EPA's emissions data does not include emissions from
agriculture, land use, or direct emissions from sources that have
annual emissions of less than 25,000 metric tons of CO2e.
---------------------------------------------------------------------------

    Due to the nature of the EPA's reporting requirements, their
emissions data does not allow a clean disaggregation across the
different scopes of emissions for a given registrant. The EPA requires
reporting of facility-level direct emissions, which can contribute to a
registrant's Scope 1 emissions (but can typically be considered a
subset, to the extent that the registrant has other non-reporting
facilities), and facility-level supplied emissions, which can
contribute to a registrant's Scope 3 emissions (but can also be very
different from it).\739\ Gases required to be reported by the EPA
include all those referenced by the GHG Protocol and included within
the proposed definition of ``greenhouse gases.'' \740\ The EPA
estimates that the required reporting under their rule covers 85-90% of
all GHG emissions from over 8,000 facilities in the United States.\741\
---------------------------------------------------------------------------

    \739\ On this latest point, in particular, facility-level
supplied emissions cannot necessarily be characterized as a portion
of the registrant's Scope 3 emission as the boundaries of the entity
required to report under the EPA reporting regime (the facility) are
different from the boundaries of the entity required to report under
our proposed rules (the registrant).
    \740\ The EPA requires emissions reporting only for domestic
facilities, while the proposed rule would not be limited to U.S.
facilities and includes indirect emissions. The EPA also requires
some gases (e.g. fluorinated ethers, perfluoropolyether) that are
considered optional under the GHG Protocol and that are not included
within the proposed definition of ``greenhouse gases.''
    \741\ See supra note 736.
---------------------------------------------------------------------------

    In addition, at least 17 states have specific GHG emissions
reporting requirements.\742\ States' rules vary with respect to
reporting thresholds and emissions calculation methodologies, but most
tend to focus on direct emissions (i.e., Scope 1), with certain
exceptions. For example, New York requires the reporting of direct
emissions from any owner or operator of a facility that directly emits
or has the potential to emit 100 tons per year or more of GHGs, and
100,000 tons per year or more of carbon dioxide equivalent
(CO2e).\743\ Colorado excludes oil and gas that is exported
out of state, but includes both imported and exported electricity when
calculating the state's emissions inventory.\744\ California requires
annual reporting of GHG emissions by industrial sources that emit more
than 10,000 metric tons of CO2e, transportation and natural
gas fuel suppliers, and electricity importers.\745\ As a result of
these federal and state-level emissions reporting requirements, some
registrants affected by the proposed rules may already have in place
certain processes and systems to measure and disclose their emissions.
---------------------------------------------------------------------------

    \742\ See NCSL, Greenhouse Gas Emissions Reduction Targets and
Market-Based Policies (2021), available at https://www.ncsl.org/research/energy/greenhouse-gas-emissions-reduction-targets-and-market-based-policies.aspx. The 17 states with GHG reporting
requirements are Hawaii, Washington, Oregon, California, Nevada,
Colorado, Minnesota, Iowa, Virginia, Pennsylvania, New York, New
Jersey, Maryland, Connecticut, Massachusetts, Vermont, and Maine.
    \743\ See Air Compliance and Emissions (ACE) Reporting,
available at https://www.dec.ny.gov/chemical/54266.html.
    \744\ See M. Sakas, Colorado Greenhouse Gas Producers Are Now
Required To Report Emissions Data To The State, Colorado Public
Radio News (2020), available at https://www.cpr.org/2020/05/22/colorado-greenhouse-gas-producers-are-now-required-to-report-emissions-data-to-the-state.
    \745\ See Cal. Air Res. Bd., Mandatory Greenhouse Gas Reporting
2020 Emissions Year Frequently Asked Questions (Nov. 4, 2021),
available at https://www.arb.ca.gov/cc/reporting/ghg-rep/reported-data/2020mrrfaqs.pdf?_ga=2.110314373.182173320.1638196601-1516874544.1627053872.
---------------------------------------------------------------------------

4. International Disclosure Requirements
    Issuers with operations abroad may also be subject to those
jurisdictions' disclosure requirements. Many jurisdictions' current
and/or proposed requirements are based on the TCFD's framework for
climate-related financial reporting.\746\ In 2015, the Financial
Stability Board (FSB) established the TCFD, an industry-led task force
charged with developing a framework for assessing and disclosing
climate-related financial risk. In 2017, the TCFD published disclosure
recommendations that provide a framework to evaluate climate-related
risks and opportunities through an assessment of their projected short-
, medium-, and long-term financial impact on an issuer. The framework
establishes eleven disclosure topics related to four pillars that
reflect how companies operate: Governance, strategy, risk management,
and metrics and targets.\747\ The TCFD forms the framework for the
recently published climate prototype standard that the IFRS Foundation
is considering as a potential model for standards by the IFRS
Foundation's International Sustainability Standards Board (ISSB). As of
September 2021, the TCFD

reported that eight jurisdictions have implemented formal TCFD-aligned
disclosure requirements for domestic issuers: Brazil, the European
Union, Hong Kong, Japan, New Zealand, Singapore, Switzerland, and the
United Kingdom.\748\ In these jurisdictions, disclosures are already
being provided by in-scope issuers or are expected to start between
2022 and 2025. Plans to expand the scope of current requirements have
also been announced in several countries, including the United
Kingdom,\749\ the European Union,\750\ and Japan.\751\ In addition,
several other jurisdictions have proposed TCFD-aligned disclosure
requirements, issued policies or guidance in line with the TCFD
recommendations, or otherwise indicated support for the TCFD
recommendations, including Australia, Canada,\752\ Denmark, France,
Ireland, Italy, Malaysia, Norway, Russia and South Korea.\753\ Insofar
as issuers have operations abroad, they would already be subject to
these mandatory disclosure requirements, policies and guidance.
---------------------------------------------------------------------------

    \746\ See Section I.D.
    \747\ See TCFD, Overview (Mar. 2021)
(``TCFD_Booklet_FNL_Digital_March-2020''), available at https://assets.bbhub.io/company/sites/60/2020/10/TCFD_Booklet_FNL_Digital_March-2020.pdf.
    \748\ See TCFD, 2021 Status Report (Oct. 2021), available at
https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Status_Report.pdf.
    \749\ For example, the United Kingdom's Financial Conduct
Authority (FCA) issued a policy statement in 2021 expanding its
TCFD-aligned disclosure requirements to standard issuers and
formally incorporating references to the TCFD's Oct. 2021 guidance
on metrics, targets and transition plans and updated implementation
annex. This policy will apply for accounting periods beginning on or
after Jan. 1, 2022. The FCA requirements are currently on a comply-
or-explain basis; the FCA has announced that it plans to consult on
making these requirements mandatory alongside future proposals
adapting the rules to any future ISSB climate standard, once issued.
See FCA, PS21/23: Enhancing Climate-Related Disclosures by Standard
Listed Companies (Dec. 2021), available at https://www.fca.org.uk/publication/policy/ps21-23.pdf. In addition, the United Kingdom has
adopted TCFD-aligned disclosure requirements for asset managers and
certain asset owners, effective Jan. 1, 2022, with certain phase-
ins. See FCA, PS21/24: Enhancing Climate-Related Disclosures by
Asset Managers, Life Insurers and FCA-Regulated Pension Providers
(Dec. 2021), available at https://www.fca.org.uk/publication/policy/ps21-24.pdf.
    \750\ In the European Union, the European Commission (EC)
adopted a proposal for a Corporate Sustainability Reporting
Directive (CSRD), which would revise existing company reporting
rules and aim to provide more comparable and consistent information
to investors. The CSRD proposal enlarges the scope of the reporting
requirements and would cover nearly 50,000 companies in the European
Union. The CSRD proposal acknowledges the importance of the IFRS'
efforts to establish the ISSB and seeks compatibility with the TCFD
recommendations, along with other international frameworks. The EC
aims to have the new CSRD reporting requirements in place for
reporting year 2023. See Proposal for Directive of the European
Parliament and of the Council amending Directive 2013/34/EU,
Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No
537/2014, as regards corporate sustainability reporting, COM (2021)
189 final (Apr. 21, 2021), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC018. Additionally, the EC is
progressing work on reporting standards for meeting the proposed
CSRD requirement. The European Financial Reporting Advisory Group
(``EFRAG'') published a climate standard prototype in Sept. 2021
that is based on the TCFD framework. See EFRAG, Climate Standard
Working Paper, (Sept. 8, 2021), available at https://www.efrag.org/News/Project-527/EFRAG-PTF-ESRS-welcomes-Climate-standard-prototype-working-paper?AspxAutoDetectCookieSupport=1.
    \751\ Japan's Financial Services Agency (FSA) is planning to
make it mandatory for large companies to make climate-related
disclosures aligned with the TCFD framework from as early as Apr.
2022. In addition, climate disclosures have been part of Japan's
corporate governance code since June 2021; however, the code is not
legally binding and the disclosures were introduced on a `comply-or-
explain' basis. In Apr. 2022, the Tokyo Stock Exchange (TSE) will be
replacing its First and Second sections, the ``Mothers'' market for
startups and the tech-focused JASDAQ, with three new segments:
Prime, Standard and Growth. According to Nikkei, companies listed on
the Prime market will be required to comply with disclosure
requirements aligned with the TCFD recommendations starting in Apr.
2022. See Japan's FSA to Mandate Climate Disclosures from Apr. 2022,
(Oct. 2021), available at https://www.esginvestor.net/japans-fsa-to-mandate-climate-disclosures-from-april-2022/.
    \752\ The Canadian Securities Administrators (CSA) is
considering proposed climate-related disclosure requirements largely
consistent with the TCFD recommendations, with a few exceptions. The
proposed requirements would elicit disclosure by issuers related to
the four pillars of the TCFD recommendations (Governance, Strategy,
Risk management, and Metrics and targets). The CSA anticipates that
the proposed requirements would come into force in 2022 and would be
phased in over one and three year periods. See Consultation:
Climate-Related Disclosure Update and CSA and Request for Comment,
available at https://www.osc.ca/sites/default/files/2021-10/csa_20211018_51-107_disclosure-update.pdf.
    \753\ See TCFD 2021 Status Report, available at https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Status_Report.pdf.
---------------------------------------------------------------------------

5. Current Market Practices
a. Climate-Related Disclosures in SEC Filings
    The Commission's staff reviewed 6,644 annual reports (Forms 10-K,
40-F, and 20-F) submitted from June 27, 2019 until December 31, 2020 to
determine how many contain any of the following keywords: ``climate
change'', ``climate risk'', or ``global warming''. The presence of any
of the keywords in any part of the annual report is indicative of some
form of climate-related disclosure.\754\ Table 1 (presented as a graph
in Figure 1) shows that 33% of all annual reports contain some
disclosure related to climate change, with a greater proportion coming
from foreign registrants (the corresponding percentages for Forms 20-F
and 40-F are 39% and 73%, respectively). Table 2 (presented as a graph
in Figure 2) provides a breakdown by accelerated filer status. Among
large accelerated filers, 49% of filings discussed climate change,
while the figures for accelerated filers and non-accelerated filers are
29% and 17%, respectively. Table 3 (presented as a graph in Figure 3),
which provides a breakdown by industry groups, shows that the
industries with the highest percentage of annual reports containing
climate-related disclosure include maritime transportation, electric
services, oil and gas, steel manufacturing, and rail transportation,
among others.
---------------------------------------------------------------------------

    \754\ One limitation of using this keyword search is that it is
unable to discern the extent or quality of climate-related
disclosures, nor can it determine specific sub-topics within
climate-related disclosures. For these reasons, the analysis was
supplemented by natural language processing (NLP) analysis, as
described later in this section.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P

                           Table 1--Filings With Climate-Related Keywords by Form Type
----------------------------------------------------------------------------------------------------------------
                              Form                                  Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
10-K............................................................           1,785           5,791              31
20-F............................................................             286             729              39
40-F............................................................              91             124              73
                                                                 -----------------------------------------------
    Total.......................................................           2,162           6,644              33
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec.
  31, 2020. For each form type, the table indicates how many contain any of the climate-related keywords, which
  include ``climate change,'' ``climate risk,'' and ``global warming.''

[GRAPHIC] [TIFF OMITTED] TP11AP22.014

                   Table 2--Filings With Climate-Related Keywords by Accelerated Filer Status
----------------------------------------------------------------------------------------------------------------
                          Filer status                              Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
LAF.............................................................           1,117           2,280              49
AF..............................................................             371           1,290              29
NAF.............................................................             465           2,754              17
Other...........................................................             209             320              65
                                                                 -----------------------------------------------
    Total.......................................................           2,162           6,644              33
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec.
  31, 2020. Filer status consists of large accelerated filers (LAF), accelerated filers (AF), and non-
  accelerated filers (NAF). For each filer status, the table indicates how many contain any of the climate-
  related keywords, which include ``climate change,'' ``climate risk,'' and ``global warming.''

  [GRAPHIC] [TIFF OMITTED] TP11AP22.015

                           Table 3--Filings With Climate-Related Keywords by Industry
----------------------------------------------------------------------------------------------------------------
                            Industry                                Has keyword     All filings       Percent
----------------------------------------------------------------------------------------------------------------
Maritime Transportation.........................................              64              68              94
Electric Services...............................................             154             171              90
Oil and Gas.....................................................             169             202              84
Steel Manufacturing.............................................              14              17              82
Rail Transportation.............................................               8              10              80
Paper and Forest Products.......................................              20              28              71
Insurance.......................................................              46              66              70
Passenger Air and Air Freight...................................              23              34              68
Trucking Services...............................................              14              22              64
Mining..........................................................             109             198              55
Beverages, Packaged Foods and Meats.............................              56             109              51
Construction Materials..........................................              54             118              46
Automotive......................................................              11              26              42
Real Estate Management and Development..........................             274             661              41
Capital Goods...................................................              41             110              37
Technology Hardware & Equipment.................................              61             177              34
Agriculture.....................................................              11              32              34
Textiles and Apparel............................................              12              36              33
Not in Peer Group...............................................             478           1,431              33
Consumer Retailing..............................................             138             558              25
Banking.........................................................             158             754              21
Chemicals.......................................................             131             922              14
Interactive Media and Services..................................             116             894              13
                                                                 -----------------------------------------------
    Total.......................................................           2,162           6,644              33
----------------------------------------------------------------------------------------------------------------
This table presents the analysis of annual filings submitted to the Commission between June 27, 2019, and Dec.
  31, 2020. For each industry, the table indicates how many contain any of the climate-related keywords, which
  include ``climate change,'' ``climate risk,'' and ``global warming.''

[GRAPHIC] [TIFF OMITTED] TP11AP22.016

    Using the same sample of annual reports, additional analysis was
conducted by Commission's staff using natural language processing
(NLP), which can provide insight on the semantic meaning of individual
sentences within registrants' climate-related disclosures and classify
them into topics (i.e. clusters).\755\ The NLP analysis suggests that
climate-related disclosures can be broadly organized into four topics:
Business impact, emissions, international climate accords, and physical
risks. The analysis finds significant heterogeneity, both within the
quantity and content, of climate-related disclosures across industries,
as shown in Figures 4 and 5. Figure 4 presents the intensity of
disclosure for domestic filings. The intensity refers to sentences per
firm, which is calculated by taking the aggregate number of sentences
in an industry and dividing it by the total number of firms within the
industry (including those that do not discuss climate change at all).
Thus, the intensity represents a more comparable estimate across
industries.
---------------------------------------------------------------------------

    \755\ The specific NLP method used in this analysis is word
embedding, which utilizes Google's publicly available, pre-trained
word vectors that are then applied to the text of climate-related
disclosures within regulatory filings. While this NLP analysis can
be used to identify the general topic and the extent of disclosures,
it is limited in its ability to discern the quality or decision-
usefulness of disclosures from investors' perspective.
---------------------------------------------------------------------------

    Figure 4 shows that firms in the following industries have the most
ample climate-related discussion, on average: Electric services, oil
and gas, steel manufacturing, passenger air and air freight, and
maritime transportation. The majority of the discussion is on business
impact, followed by emissions, international climate accords, and
physical risks. Figure 5 presents the corresponding information for
foreign filings (Forms 40-F and 20-F). Overall, the analysis indicates
that the majority of the disclosure is focused on transition risks,
with comparatively fewer mentions of physical risk.

[GRAPHIC] [TIFF OMITTED] TP11AP22.017

[GRAPHIC] [TIFF OMITTED] TP11AP22.018

BILLING CODE 8011-01-C
    The staff's findings are consistent with academic studies that have
looked at the extent of climate-related disclosures by SEC registrants.
Bolstad et al. (2020) systematically reviewed Form 10-K filings from
Russell 3000 firms over the last 12 years and found that the majority
of climate-related disclosure is focused on transition risks as opposed
to physical risks.\756\ They further report that while 35% of Russell
3000 firms provided climate-related information in 2009, this figure
grew to 60% in 2020,\757\ representing a significant increase. They
also found that the extent of disclosure for a given report has
increased. In 2009, firms mentioned climate risks 8.4 times on average
in their Form 10-K. This figure grew to 19.1 times in 2020.
---------------------------------------------------------------------------

    \756\ See P. Bolstad, S. Frank, E. Gesick, and D. Victor, Flying
Blind: What Do Investors Really Know About Climate Change Risks in
the U.S. Equity and Municipal Debt Markets, Hutchins Center Working
Paper 67 (2020).
    \757\ Id. The methodology uses a series of keywords to determine
whether a company provides climate-related disclosures. Some
keywords may occur in non-climate contexts, with the authors noting
that the statistics are biased.

---------------------------------------------------------------------------

b. Additional Trends in Climate-Related Disclosures
    While Commission staff reviewed certain firms' sustainability
reports for climate-related disclosures, they did not conduct a
systematic review of a large, representative sample of sustainability
reports. However, as discussed below, a number of industry and advocacy
groups have examined the scope of voluntary ESG reporting, including
climate-related disclosures and their findings could be relevant to an
assessment of the proposed rules' impact.
    The U.S. Chamber of Commerce's Center for Capital Markets
Competitiveness (CCMC), in collaboration with several other
organizations, conducted a survey (``CCMC Survey'') on a sample of U.S.
public companies--436 companies across 17 industries that range from
small to large in terms of market capitalization.\758\ According to the
survey, over half of the companies (52%) are currently publishing a
corporate social responsibility (CSR), sustainability, ESG or similar
report whose content commonly includes information regarding climate-
related risks. The most frequently discussed topics there are energy
(74%), emissions (70%), environmental policy (69%), water (59%),
climate mitigation strategy (57%), and supplier environmental policies
(35%). Among the registrants that report climate-related information to
the public, the majority disclose such information via external reports
or company websites rather than regulatory filings. Similar to the
Commission staff review, the CCMC Survey finds that about a third (34%)
of the respondents disclose climate change, greenhouse gas emissions,
or energy sourcing in their SEC filings information on risks. Among
these firms, 82% disclose such information in Risk Factors, 26% in the
MD&A, 19% in the Description of Business, and 4% in Legal Proceedings.
---------------------------------------------------------------------------

    \758\ See Climate Change & ESG Reporting from the Public Company
Perspective (2021), available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2021/08/CCMC_ESG_Report_v4.pdf.
---------------------------------------------------------------------------

    The Governance & Accountability Institute \759\ (``G&A'') analyzed
sustainability reports by the companies belonging to the Russell 1000
Index and found that in 2020, 70% published sustainability reports--up
from 65% in 2019 and 60% in 2018.\760\
---------------------------------------------------------------------------

    \759\ Governance & Accountability Institute Inc. (``G&A, Inc.'')
is a consulting and research organization providing services to
publicly traded and privately owned companies to help enhance their
public environmental, social and governance (ESG) and sustainability
profiles.
    \760\ See G & A Inc., Sustainability Reporting in Focus (2021),
available at https://www.ga-institute.com/research/ga-research-collection/sustainability-reporting-trends/2021-sustainability-reporting-in-focus.html.
---------------------------------------------------------------------------

    Other sources confirm that, at least within samples of larger
firms, a sizeable portion already measure and disclose their emissions,
though not necessarily through their regulatory filings. The CDP \761\
reports that out of the 524 U.S. companies in their Climate High Impact
Sample,\762\ 402 disclosed through the CDP system in 2021, up from 379
in 2020, and 364 in 2019. Out of the sample of reviewed companies,
22.1% (89 out of 402 companies) reported Scope 3 emissions in 2021.
This reflects an increase from the previous two years, during which 18%
(67 out of 379 companies) reported such information in 2020, and 17%
(62 out of 364 companies) in 2019.\763\ One commenter stated that there
is significant variation in disclosure rates of GHG emissions across
various industries.\764\ The commenter, using a sample of the 1,100
U.S. companies included within the Sustainalytics dataset, reports that
the disclosure rate of material Scopes 1, 2, and 3 emissions is
59.5%.\765\ Furthermore, the International Platform on Sustainable
Finance found that among the U.S. listed firms present in the Refinitiv
dataset, 10.8% disclosed Scope 1 emissions in 2019, representing 55.4%
of U.S. market capitalization.\766\ To the extent that registrants'
current climate-related disclosures overlap with the proposed rules,
registrants may face lower incremental compliance costs, as discussed
in further detail below.\767\
---------------------------------------------------------------------------

    \761\ CDP operates a global disclosure system that enables
companies, cities, states and regions to measure and manage their
environmental risks, opportunities and impacts. Despite not being a
framework like GRI, SASB and TCFD, CDP's questionnaires gather both
qualitative and quantitative information from across governance,
strategy, risk, impact and performance. To aid comparability and
ensure comprehensiveness, CDP includes sector-specific questions and
data points. In 2018, CDP aligned its climate change questionnaire
with the TCFD.
    \762\ The CDP Climate High Impact sample identifies companies
deemed high impact based on two main considerations--market cap and
GHG emissions.
    \763\ See Letter from CDP North America (Dec. 13, 2021).
    \764\ See Letter from Aron Szapiro, Head of Policy Research,
Morningstar (June 9, 2021).
    \765\ Id. The comment letter does not disaggregate the
disclosure rate across the different scopes of emissions.
    \766\ See State and Trends of ESG Disclosure Policy Measures
Across IPSF Jurisdictions, Brazil, and the US, International
Platform on Sustainable Finance (2021) (The disclosure rates are
calculated using data from Refinitiv), available at https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/211104-ipsf-esg-disclosure-report_en.pdf.
    \767\ See Section IV.C.2.3.
---------------------------------------------------------------------------

c. Use of Third-Party Frameworks
    Some companies follow existing third-party reporting frameworks
when developing climate-related disclosures for SEC filings or to be
included in CSR, sustainability, ESG, or similar reports. For instance,
the CCMC Survey finds that 59% of respondents follow one or more such
frameworks. Among these respondents, 44% use the SASB,\768\ 31% use the
GRI,\769\ 29% use the TCFD,\770\ and 24% use the CDP.\771\ Similar
statistics on the usage of different reporting frameworks are also
provided by other studies. The G&A report \772\ finds that 53% of the
Russel 1000 reporters either mention or align with SASB,\773\ 52%
utilized GRI reporting standards,\774\ 30% either

mention or align with TCFD recommendations,\775\ and 40% responded to
the CDP Climate Change questionnaire. The law firm White & Case also
conducted an in-depth review of website sustainability disclosures by
80 small- and mid-cap firms across five different industries and found
comparable numbers.\776\
---------------------------------------------------------------------------

    \768\ The SASB standards are designed for communication by
companies to investors about how sustainability issues impact long-
term enterprise value. SASB standards guide the disclosure of
financially material sustainability information by companies to
their investors. SASB standards, which are available for 77
industries, identify the subset of ESG issues most relevant to
financial performance in each industry. The SASB standards can be
both complementary with the core elements of the TCFD
recommendations, as well as used by organizations to operationalize
them. See https://www.sasb.org/about/sasb-and-other-esg-frameworks/.
    \769\ The GRI standards outline both how and what to report
regarding the material economic, social and environmental impacts of
an organization on sustainable development. For 33 potentially
material sustainability topics, the GRI standards contain disclosure
requirements. Three series of GRI standards support the reporting
process: The GRI Topic Standards, each dedicated to a particular
topic and listing disclosures relevant to that topic; the GRI Sector
Standards, which are applicable to specific sectors; and the GRI
Universal Standards, which apply to all organizations. The GRI
Standards can be used in sustainability reports, as well as in
annual or integrated reports that are oriented at a broad range of
stakeholders. See https://www.globalreporting.org/standards/.
    \770\ The TCFD recommended disclosures cover four core elements:
Governance, Strategy, Risk Management and Metrics and Targets. Each
element has two or three specific disclosures (as shown in Table 4)
to be made in the organization's mainstream report (i.e. annual
financial filings). These are meant to generate comparable,
consistent and reliable information on climate-related risks. The
TCFD provides both general, and in some cases, sector-specific
guidance for each disclosure, while simultaneously framing the
context for disclosure, and offering suggestions on what and how to
disclose in the mainstream report. See https://www.fsb-tcfd.org/recommendations/.
    \771\ See supra note 761.
    \772\ See supra note 760.
    \773\ Of the Russell 1000 reporting companies, 39% indicate that
they are in alignment with SASB standards, while the other 14%
simply mention the standards.
    \774\ Of those reporters utilizing the GRI standards, G&A finds
that a small portion (5%) utilizes the ``Comprehensive'' level of
reporting, the majority (64%) chose to report in accordance with the
``Core'' option, while the remaining portion (31%) utilizes ``GRI-
Referenced'' reports, which are not fully in accordance with the GRI
standards. GRI-Referenced reports contain the GRI Content Index and
reference certain disclosures.
    \775\ Of the Russell 1000 reporting companies, 17% indicate that
they are in alignment with the TCFD recommendations, while the other
13% simply mention the recommendations.
    \776\ See White & Case and the Society for Corporate Governance:
A Survey and In-Depth Review of Sustainability Disclosures by Small-
and Mid-Cap Companies, available at https://www.whitecase.com/publications/article/survey-and-depth-review-sustainability-disclosures-small-and-mid-cap-companies (Among the firms reviewed,
41 firms (51%) provided some form of voluntary sustainability
disclosure on their websites. Further, only nine of those 41 firms
indicated the reporting standards with which they aligned their
reporting, with the majority of the nine companies not following any
one set of standards completely. Additionally, six firms followed
the GRI, while three firms stated that they follow both the TCFD and
SASB).
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    While these various frameworks are distinct, they overlap in their
alignment with the TCFD. In particular, the CDP questionnaire fully
incorporates the TCFD framework and thus exhibits full alignment.\777\
The Corporate Reporting Dialogue \778\ also provides a detailed
assessment of the various frameworks' degrees of alignment with each
TCFD disclosure item, ranging from maximum to minimum alignment as
follows: Full, Reasonable, Moderate, Very Limited, and None. They
report that the GRI exhibits ``Reasonable'' alignment, while the SASB
generally exhibits ``Moderate'' or ``Reasonable'' alignment with the
majority of the TCFD disclosure items. Thus, companies that report
following the CDP, SASB, or GRI frameworks are, to varying degrees,
already producing disclosures that are in line with parts of the TCFD.
However, because each framework takes different approaches (e.g.
intended audience, reporting channel) and because certain differences
exist in the scope and definitions of certain elements, investors may
find it difficult to compare disclosures under each framework. Table 4
reports the rate of disclosure for each TCFD disclosure element for a
sample of 659 U.S. companies in 2020/21.
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    \777\ See How CDP is Aligned to the TCFD (2018), available at
https://www.cdp.net/en/guidance/how-cdp-is-aligned-to-the-tcfd.
    \778\ The Corporate Reporting Dialogue is a platform, convened
by the Value Reporting Foundation, to promote greater coherence,
consistency and comparability between corporate reporting
frameworks, standards and related requirement. See Driving Alignment
in Climate-related Reporting, Corporate Reporting Dialogue (2019),
available at https://www.integratedreporting.org/wp-content/uploads/2019/09/CRD_BAP_Report_2019.pdf.

    Table 4--Disclosure Rate of TCFD Elements Among U.S. Firms \779\
------------------------------------------------------------------------
                                                              Rate of
                 TCFD disclosure element                  disclosure (%)
------------------------------------------------------------------------
Governance:
    (a) Describe the board's oversight of climate-                    17
     related risks and opportunities....................
    (b) Describe management's role in assessing and                   10
     managing climate-related risks and opportunities...
Strategy:
    (a) Describe the climate-related risks and                        45
     opportunities the organization has identified over
     the short, medium, and long term...................
    (b) Describe the impact of climate-related risks and              34
     opportunities on the organization's businesses,
     strategy, and financial planning...................
    (c) Describe the resilience of the organization's                  5
     strategy, taking into consideration different
     climate-related scenarios, including a 2 [deg]C or
     lower scenario.....................................
Risk Management:
    (a) Describe the organization's processes for                     15
     identifying and assessing climate-related risks....
    (b) Describe the organization's processes for                     17
     managing climate-related risks.....................
    (c) Describe how processes for identifying,                       16
     assessing, and managing climate-related risks are
     integrated into the organization's overall risk
     management.........................................
Metrics and Targets:
    (a) Describe the metrics used by the organization to              21
     assess climate-related risks and opportunities in
     line with its strategy and risk management process.
    (b) Disclose Scope 1, Scope 2, and, if appropriate,               19
     Scope 3 greenhouse gas (GHG) emissions, and the
     related risks......................................
    (c) Describe the targets used by the organization to              25
     manage climate-related risks and opportunities and
     performance against targets........................
------------------------------------------------------------------------

d. Climate-Related Targets, Goals, and Transition Plan Disclosures
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    \779\ See Moody's Analytics, TCFD-Aligned Reporting by Major
U.S. and European Corporations, (2022), available at https://www.moodysanalytics.com/articles/pa/2022/tcfd_aligned_reporting_by_major_us_and_european_corporations. To
arrive at these statistics, Moody's conducted an artificial
intelligence (AI) based review of all public filings, including
financial filings, annual reports, integrated reports,
sustainability reports, and other publicly available reports that
were associated with companies' annual reporting on sustainability.
Non-public disclosures, such as CDP reports, were not included in
the analysis.
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    Carbon reduction targets or goals have become an increasing focus
for both companies and countries.\780\ For example, 191 countries,
including the United States and European Union, have signed the Paris
Climate Agreement. The agreement aims to strengthen the global response
to the threat of climate change by keeping a rise in global
temperatures to well below 2 [deg]Celsius above pre-industrial levels
this century, as well as pursue efforts to limit the temperature
increase even further to 1.5[deg] degrees Celsius.\781\ As of 2020,
according to one source, about two-thirds of S&P 500 companies have
established a target for carbon emissions--a number that has nearly
doubled over the past decade.\782\ Approximately one-fifth of these
companies have science-based targets in-line with a 1.5 degree Celsius
limit

on global warming.\783\ In addition, a growing number of companies or
organizations have signed on to the Climate Pledge, which indicates a
commitment to achieve net-zero emissions by 2040.\784\ The trend in
companies disclosing other climate-related targets (e.g. water usage)
has also been increasing over time.\785\
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    \780\ See Commitments to Net Zero Double in Less Than a Year,
United Nations Climate Change (Sept. 21, 2020), available at https://unfccc.int/news/commitments-to-net-zero-double-in-less-than-a-year.
    \781\ See Section I.
    \782\ See, e.g., J. Eaglesham, Climate Promises by Businesses
Face New Scrutiny, The Wall Street Journal (2021), available at
www.wsj.com/articles/climate-promises-by-businesses-face-new-scrutiny-11636104600.
    \783\ See memorandum, dated Nov. 30, 2021, concerning staff
meeting with representatives of Persefoni. This statistic is
compiled by Persefoni using information from the Science Based
Targets Initiative. This and the other staff memoranda referenced
below are available at https://www.sec.gov/comments/s7-10-22/s71022.htm.
    \784\ As of Jan. 25, 2022, The Climate Pledge has acquired 217
signatories. See The Climate Pledge, available at https://www.theclimatepledge.com/us/en/Signatories.
    \785\ For example, the percentage of both global and U.S.
companies with water reduction targets grew by 4% in 2019 on a year-
over-year basis. This represented 28% of major global companies
(i.e. those listed on the S&P Global 1200 index) and 27% of major
(i.e. those listed in the S&P 500 index)) U.S. companies publicly
disclosing these targets. See State of Green Business 2021,
available at https://www.spglobal.com/marketintelligence/en/news-insights/research/state-of-green-business-2021.
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    Despite the increasing prevalence in stated targets and goals,
monitoring which firms are taking steps to implement them is difficult
given the lack of required recurring standardized metrics for progress.
Absent such a monitoring device, investors have insufficient
information to gauge the credibility of the targets. Moreover, without
knowing the specific strategy that registrants intend on adopting in
pursuit of their targets, investors are unable to determine how the
targets will impact the company's financial position (e.g., a company
that plans to only purchase offsets may face different risks and costs
over time than a company that invests in renewable energy or carbon
capture technology).\786\
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    \786\ See S. Lu, The Green Bonding Hypothesis: How do Green
Bonds Enhance the Credibility of Environmental Commitments? (2021),
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3898909.
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    Consistent with this need for an oversight or monitoring mechanism,
research suggests that the prevalence of ``green bonds'' and positive
cumulative abnormal stock returns surrounding their announcements may
arise, at least in part, because they help signal credible value-
enhancing targets in the absence of mandatory standardized public
disclosures.\787\ These findings suggest a demand for such an oversight
or monitoring mechanism for targets and goals among investors that
would facilitate their understanding of registrants' stated climate-
related targets and progress and the impact on the registrant's
business.
---------------------------------------------------------------------------

    \787\ See C. Flammer, Corporate Green Bonds, Journal of
Financial Economics, 499-516 (2021). (Green bonds may only be a
partial solution to achieving credible targets given that they have
implications beyond commitment.)
---------------------------------------------------------------------------

e. Third-Party Assurance of Climate-Related Disclosures
    Among the companies that provide climate-related disclosures, a
considerable portion include some form of third-party assurance for
these disclosures. The G&A study \788\ finds that 35% of Russell 1000
index firms, which are virtually all large accelerated filers, obtained
third-party assurance for their sustainability reports in 2020, up from
24% in the year prior. The rate of assurance is concentrated among the
larger half of the sample firms (i.e., the S&P 500 firms). Among the
firms that obtained assurance, however, only 3% obtained assurance for
the entire report. The remaining firms were evenly split between
obtaining assurance on specified sections only and GHG emissions only.
Regarding the level of assurance, the overwhelming majority (90%)
obtained limited assurance while only 7% obtained reasonable assurance.
Regarding service providers, 14% of firms received assurance from an
accounting firm, 31% from small consultancy/boutique firms, and 55%
from engineering firms. Because these statistics are limited to Russell
1000 firms, corresponding figures for the full sample of U.S.
registrants may be lower to the extent that the practice of obtaining
third-party assurance is concentrated in large firms.\789\
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    \788\ See supra note 760.
    \789\ Other studies also report evidence of third-party
assurance among smaller samples of companies analyzed. For example,
according to a recent study by the International Federation of
Accountants, in 2019, 99 out of the 100 largest U.S. firms by market
capitalization provided some form of sustainability disclosure,
which may contain climate-related information among other
sustainability-related topics. Seventy of those firms obtained some
level of third-party assurance, with the vast majority being
``limited assurance'' according to the study. Of the 70 firms that
obtained assurance, the study reports that 54 obtained ``limited
assurance,'' eight obtained ``reasonable assurance,'' five obtained
``moderate assurance,'' and three did not disclose any assurance. Of
the 81 unique assurance reports examined in the study, nine were
found to be issued by an auditing firm, while 72 were issued by
another service provider. See International Federation of
Accountants (``IFAC''), The State of Play in Sustainability
Assurance (2021), available at https://www.ifac.org/knowledge-gateway/contributing-global-economy/publications/state-play-sustainability-assurance. Among the sample of 436 companies included
in the CCMC Survey, 28% disclosed that they engaged a third party to
provide some form of assurance regarding their climate-related
disclosure (the frequency of these disclosures was 52% among the 436
companies in the sample). See supra note 758.
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B. Broad Economic Considerations

1. Investors' Demand for Climate Information
    Investors have expressed a need for information on climate-related
risks as they relate to companies' operations and financial
condition.\790\ The results of multiple recent surveys indicate that
climate risks are among the most important priorities for a broad set
of large asset managers.\791\ PWC reported in their Annual Global CEO
Survey that in 2016, only 39% of asset and wealth management CEOs
reported that they were concerned about the threats posed by physical
risks brought about climate change, whereas this figure increased to
70% in 2021.\792\
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    \790\ See 2021 Global Investor Statement to Governments on the
Climate Crisis (2021) (this statement has been signed by 733
investors collectively managing over US$52 trillion in assets),
available at https://theinvestoragenda.org/wp-content/uploads/2021/09/2021-Global-Investor-Statement-to-Governments-on-the-Climate-Crisis.pdf; See also Alexander Karsner, Testimony Before the House
Financial Services Subcommittee on National Security, International
Development and Monetary Policy (Sept. 11, 2019), available at
https://financialservices.house.gov/uploadedfiles/hhrg-116-ba10-wstate-karsnera-20190911.pdf. A recent report examined how climate
change could affect 22 different sectors of the U.S. economy and
found that if global temperatures rose 2.8 [deg]C from pre-
industrial levels by 2100, climate change could cost $396 billion
each year. If temperatures increased by 4.5 [deg]C, the yearly costs
would reach $520 billion. See Jeremy Martinich and Allison Crimmins,
Climate Damages and Adaptation Potential Across Diverse Sectors of
the United States, Nature Climate Change 9, 397-404 (2019);
available at https://www.nature.com/articles/s41558-019-0444-6.