The US Securities and Exchange Commission proposes new rules on climate-related disclosures

On 21 March 2022, the US Securities and Exchange Commission ("SEC") published Proposed Rules that, if enacted, will require certain companies to make climate-related disclosures in their registration statements and annual reports. The Proposed Rules are open to public comment until at least 20 May 2022.

The SEC has broad authority to issue rules requiring US publicly traded companies to disclose significant financial and other information so that investors can make informed investments decisions. The Proposed Rules reflect the SEC's view that climate risks can be significant, and that companies should therefore be providing investors with more information about climate-related risks pursuant to a uniform framework.

The Proposed Rules impact not only US issuers, but they extend to foreign private issuers. Thus, the Proposed Rules, if enacted, will impact certain Turkish companies.

The Proposed Rules define climate-related risks quite broadly. Specifically, those risks include the actual or potential negative impacts of climate-related conditions and events on a registrant's consolidated financial statements, business operations, or value chains (upstream and downstream activities related to a registrant's operations), as a whole.

Some of the Proposed Rules' more significant disclosure requirements are:

• The impact of any identified climate-related risks, on the business and consolidated financial statements.
• If the company has adopted a transition plan, the internal targets or metrics used in the plan.
• The processes and methods concerning the board's oversight of climate-related risks, and management's role in assessing and managing those risks.
• The processes for identifying, assessing, and managing climate-related risks.
• The financial impacts of climate-related events and risks, as well transition activities, on the consolidated financial statements.
• Scope 1¹ and Scope 2² greenhouse gas (GHG) emissions both in the aggregate and disaggregated by each GHG. For accelerated filers, the companies would need to include an attestation report.
• Scope 3³ GHG emissions if those emissions are material, or the company has set a GHG emissions reduction goal that includes its Scope 3 emissions.

Disclosures required by the Proposed Rules would need to be set forth in registration statements and annual reports under a separate section named, "Climate-Related Disclosure." In addition, the climate-related financial statement metrics and related disclosures would need to be included in the audited financial statements.

Companies would have to begin making the Proposed Rules' climate-related disclosures, including Scope 1 and Scope 2 GHG emissions metrics, for the first full fiscal year following the Proposed Rules becoming effective. Recognizing that the reporting of Scope 3 emissions can be particularly challenging, the Proposed Rules provide an additional one-year phase-in for companies subject to those requirements, although there would be an exemption for smaller companies.

The Proposed Rules contain several rather burdensome requirements. As a result, companies will need to implement and carefully monitor, test, and periodically enhance their compliance framework, including their disclosure controls, with respect to the assessment of climate-related risks. This includes ensuring that individuals performing relevant functions have sufficient expertise and the company has deployed effective technology.