The climate-related disclosures proposed by the U.S. Securities and Exchange Commission (SEC) have garnered lots of headlines. And for good reason. As proposed, the rules would apply to the financial statement and narrative sections in the registration statements and annual reports for substantially all public companies.

In a nutshell, the proposed rules would require the following:

• Climate-related Risks: Disclose the material effects on business, strategy, and outlook. Discuss governance and risk-management.
• Greenhouse Gas (GHG) Emissions: Disclose direct (Scope 1) and indirect (Scope 2) emissions metrics. In some cases, disclose indirect emissions metrics from upstream and downstream activities (Scope 3.)
• Climate-related Expenditures: If amounts exceed a bright-line materiality threshold, disclose the financial effects of (i) climate-related events and (ii) activities to mitigate risks or achieve climate-related targets in the notes to the financial statements.
• Assurance Requirements: Climate-related expenditures in the notes to financial statements would be covered by the audit opinion. For larger companies, greenhouse gas emission metrics would eventually require a separate report from an independent third party.

With one minor exception, the same disclosures would be provided by emerging growth companies and smaller reporting companies.

This A Closer Look provides background information and discusses key elements of the proposed rules, along with feedback from investors and registrants