The Enhancement and Standardization of Climate-Related Disclosures for Investors

1 15 U.S.C. 77a et seq.
2 15 U.S.C. 78a et seq.
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 210, 229, 232, 239, and 249 [Release Nos. 33–11042; 34–94478; File No. S7–10–22] RIN 3235–AM87 The Enhancement and Standardization of Climate-Related Disclosures for Investors AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’) is proposing for public comment amendments to its rules under the Securities Act of 1933 (‘‘Securities Act’’) and Securities Exchange Act of 1934 (‘‘Exchange Act’’) that would require registrants to provide certain climate￾related information in their registration statements and annual reports. The proposed rules would require information about a registrant’s climate￾related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks. In addition, under the proposed rules, certain climate-related financial metrics would be required in a registrant’s audited financial statements. DATES: Comments should be received on or before May 20, 2022. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s internet
  comment form (https://www.sec.gov/ rules/submitcomments.htm).
• Send an email to rule-comments@
  sec.gov. Please include File Number S7– xx–xx on the subject line. Paper Comments
• Send paper comments to Vanessa
  A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number S7–10–22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission’s website (https:// www.sec.gov/rules/proposed.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s Public Reference Room. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on our website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  Elliot Staffin, Special Counsel, Office of Rulemaking, at (202) 551–3430, in the Division of Corporation Finance; or Anita H. Chan, Professional Accounting Fellow or Shehzad K. Niazi, Acting Deputy Chief Counsel, in the Office of the Chief Accountant, at (202) 551– 5300, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are proposing to add 17 CFR 210.14–01 and 14–02 (Article 14 of Regulation S–X) and 17 CFR 17 CFR 229.1500 through 1506 (subpart 1500 of Regulation S–K) under the Securities Act 1 and the Exchange Act,2 and amend 17 CFR
  239.11 (Form S–1), 17 CFR 239.18
  (Form S–11), 17 CFR 239.25 (Form S– 4), and 17 CFR 239.34 (Form F–4) under the Securities Act, and 17 CFR 249.210 (Form 10), 17 CFR 249.220f (Form 20– F), 17 CFR 249.306 (Form 6–K), 17 CFR 249.308a (Form 10–Q), and 17 CFR
  249.310 (Form 10–K) under the
  Exchange Act.
  Table of Contents
  I. Introduction
  A. Background
  B. The March 2021 Request for Public Input
  C. The Growing Investor Demand for
  Climate-Related Risk Disclosure and Related Information

1. Major Investor Climate-Related
   Initiatives
2. Third-Party Data, Voluntary Disclosure
   Frameworks, and International Disclosure Initiatives D. Development of a Climate-Related Reporting Framework
3. The Task Force on Climate-Related
   Financial Disclosure
4. The Greenhouse Gas Protocol
   E. Summary of the Proposed Rules
5. Content of the Proposed Disclosures
6. Presentation of the Proposed Disclosures
7. Attestation for Scope 1 and Scope 2
   Emissions Disclosure
8. Phase-In Periods and Accommodations
   for the Proposed Disclosures
   II. Discussion
   A. Overview of the Climate-Related Disclosure Framework
9. Proposed TCFD-Based Disclosure
   Framework
10. Location of the Climate-Related
    Disclosure
    B. Disclosure of Climate-Related Risks
11. Definitions of Climate-Related Risks and
    Climate-Related Opportunities
12. Proposed Time Horizons and the
    Materiality Determination
    C. Disclosure Regarding Climate-Related
    Impacts on Strategy, Business Model, and Outlook
13. Disclosure of Material Impacts
14. Disclosure of Carbon Offsets or
    Renewable Energy Credits if Used
15. Disclosure of a Maintained Internal
    Carbon Price
16. Disclosure of Scenario Analysis, if Used
    D. Governance Disclosure
17. Board Oversight
18. Management Oversight
    E. Risk Management Disclosure
19. Disclosure of Processes for Identifying,
    Assessing, and Managing Climate￾Related Risks
20. Transition Plan Disclosure
    F. Financial Statement Metrics
21. Overview
22. Financial Impact Metrics
23. Expenditure Metrics
24. Financial Estimates and Assumptions
25. Inclusion of Climate-Related Metrics in
    the Financial Statements
    G. GHG Emissions Metrics Disclosure
26. GHG Emissions Disclosure Requirement
27. GHG Emissions Methodology and
    Related Instructions
28. The Scope 3 Emissions Disclosure Safe
    Harbor and Other Accommodations H. Attestation of Scope 1 and Scope 2 Emissions Disclosure
29. Overview
30. GHG Emissions Attestation Provider
    Requirements
31. GHG Emissions Attestation Engagement
    and Report Requirements
32. Additional Disclosure by the Registrant
33. Disclosure of Voluntary Attestation
    I. Targets and Goals Disclosure
    J. Registrants Subject to the Climate￾Related Disclosure Rules and Affected Forms K. Structured Data Requirement
    L. Treatment for Purposes of Securities Act
    and Exchange Act
    M. Compliance Date

3See, e.g., Section 7 of the Securities Act [15 U.S.C. 77g] and Sections 12, 13, and 15 of the Exchange Act [15 U.S.C. 78l, 78m, and 78o]. 4See, e.g., Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)]. 5S&P Global, Seven ESG Trends to Watch in 2021 (Feb. 7, 2021), available at https:// www.spglobal.com/en/research-insights/featured/ seven-esg-trends-to-watch-in-2021. This study found that approximately 90% of S&P 500 companies publish sustainability reports but only 16% include any reference to ESG factors in their Commission filings.
III. General Request for Comments
IV. Economic Analysis
A. Baseline and Affected Parties

1. Affected Parties
2. Current Regulatory Framework
3. Existing State and Federal Laws
4. International Disclosure Requirements
5. Current Market Practices
   B. Broad Economic Considerations
6. Investors’ Demand for Climate
   Information
7. Impediments to Voluntary Climate￾Related Disclosures
   C. Benefits and Costs
8. Benefits
9. Costs
   D. Anticipated Effects on Efficiency, Competition, and Capital Formation
10. Efficiency
11. Competition
12. Capital Formation
    E. Other Economic Effects F. Reasonable Alternatives
13. Requirements Limited to Only Certain
    Classes of Filers
14. Require Scenario Analysis
15. Require Specific External Protocol for
    GHG Emissions Disclosure
16. Permit GHG Emissions Disclosures To
    Be ‘‘Furnished’’ Instead of ‘‘Filed’’
17. Do Not Require Scope 3 Emissions for
    Registrants With a Target or Goal Related to Scope 3
18. Exempt EGCs From Scope 3 Emissions
    Disclosure Requirements
19. Eliminate Exemption for SRCs From
    Scope 3 Reporting
20. Remove Safe Harbor for Scope 3
    Emissions Disclosures
21. Require Large Accelerated Filers and
    Accelerated Filers To Provide a Management Assessment and To Obtain an Attestation Report Covering the Effectiveness of Controls Over GHG Emissions Disclosures
22. Require Reasonable Assurance for
    Scopes 1 and 2 Emissions Disclosures From All Registrants
23. Require Limited, Not Reasonable,
    Assurance for Large Accelerated Filers and/ or Accelerated Filers and/or Other Filers
24. In Lieu of Requiring Assurance,
    Require Disclosure About Any Assurance Obtained Over GHG Emissions Disclosures
25. Permit Host Country Disclosure
    Frameworks
26. Alternative Tagging Requirements
    G. Request for Comment
    V. Paperwork Reduction Act
    A. Summary of the Collections of Information B. Summary of the Proposed Amendments’ Effects on the Collections of Information
    C. Incremental and Aggregate Burden and
    Cost Estimates for the Proposed Amendments D. Request for Comment
    VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action B. Legal Basis
    C. Small Entities Subject to the Proposed
    Rules
    D. Reporting, Recordkeeping, and Other Compliance Requirements E. Duplicative, Overlapping, or Conflicting Federal Rules F. Significant Alternatives
    VII. Small Business Regulatory Enforcement
    Fairness Act
    VIII. Statutory Authority
    I. Introduction
    We are proposing to require registrants to provide certain climate￾related information in their registration statements and annual reports, including certain information about climate-related financial risks and climate-related financial metrics in their financial statements. The disclosure of this information would provide consistent, comparable, and reliable— and therefore decision-useful— information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments. The Commission has broad authority to promulgate disclosure requirements that are ‘‘necessary or appropriate in the public interest or for the protection of investors.’’ 3 We have considered this statutory standard and determined that disclosure of information about climate￾related risks and metrics would be in the public interest and would protect investors. In making this determination, we have also considered whether the proposed disclosures ‘‘will promote efficiency, competition, and capital formation.’’ 4 We are proposing to require disclosures about climate-related risks and metrics reflecting those risks because this information can have an impact on public companies’ financial performance or position and may be material to investors in making investment or voting decisions. For this reason, many investors—including shareholders, investment advisers, and investment management companies— currently seek information about climate-related risks from companies to inform their investment decision￾making. Furthermore, many companies have begun to provide some of this information in response to investor demand and in recognition of the potential financial effects of climate￾related risks on their businesses. We are concerned that the existing disclosures of climate-related risks do not adequately protect investors. For this reason, we believe that additional disclosure requirements may be necessary or appropriate to elicit climate-related disclosures and to improve the consistency, comparability, and reliability of climate-related disclosures. With respect to their existing climate-related disclosures (to the extent registrants are already disclosing such information), registrants often provide information outside of Commission filings and provide different information, in varying degrees of completeness, and in different documents and formats—meaning that the same information may not be available to investors across different companies. This could result in increased costs to investors in obtaining useful climate-related information and impair the ability to make investment or voting decisions in line with investors’ risk preferences. Also, companies may not disclose certain information needed to understand their existing climate￾related disclosures, such as the methodologies, data sources, assumptions, and other key parameters used to assess climate-related risks. To the extent companies primarily provide this
    information separate from their financial reporting, it may be difficult for investors to determine whether a company’s financial disclosures are consistent with its climate-related disclosures.5 In addition, the information provided outside of Commission filings is not subject to the full range of liability and other investor protections that help elicit complete and accurate disclosure by public companies. Investors need information about climate-related risks—and it is squarely within the Commission’s authority to require such disclosure in the public interest and for the protection of investors—because climate-related risks have present financial consequences that investors in public

6See Financial Stability Oversight Council (‘‘FSOC’’), Report on Climate-Related Financial Risk 2021 (Oct. 2021) (‘‘2021 FSOC Report’’), available at https://home.treasury.gov/system/files/261/ FSOC-Climate-Report.pdf (detailing the myriad ways that climate-related risks pose financial threats both at the firm level and financial system level). See also Managing Climate Risk in the U.S. Financial System, Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (2020), available at https:// www.cftc.gov/sites/default/files/2020-09/9-9- 20%20Report%20of%20the%20Subcommittee%20 on%20Climate-Related%20Market%20Risk%20- %20Managing%20Climate%20Risk%20in%20the %20U.S.%20Financial%20System%20 for%20posting.pdf (‘‘CFTC Advisory Subcommittee Report’’) (stating that climate-related risks pose a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy). 7See, e.g., letters from Amalgamated Bank (June 14, 2021); and Norges Bank Investment Management (June 13, 2021). 8See, e.g., letter from Principles for Responsible Investment (PRI) (Consultation Response) (June 11, 2021). 9See, e.g., id. (stating that broadly diversified investors evaluating any individual asset for addition to a portfolio need to consider its risk and return characteristics not in isolation, but in terms of the asset’s effect on the portfolio as a whole, and providing CalPERS as an example of an asset owner holding a diversified growth-oriented portfolio that has integrated climate risk assessment into its investment process); see also letter from Amalgamated Bank (stating that the principal mitigant of investment risk is diversity of exposure and indicating that comprehensive climate disclosures help investors assess systemic risk); and Norges Bank Investment Management (stating that for sustainability information to support investment decisions, risk management processes, and ownership activities across a diversified portfolio, it must be consistent and comparable across companies and over time). 10 In 2020 alone, a record 22 separate climate￾related disasters with at least $1 billion in damages struck across the United States, surpassing the previous annual highs of 16 such events set in 2011 and 2017. See NOAA, National Center for Environmental Information, Billion Dollar Weather and Climate Disasters: Summary Stats (3rd Quarter release 2021), available at https:// www.ncdc.noaa.gov/billions/summary-stats/US/
2020. In 2021, the United States experienced 20
separate billion-dollar climate-related disasters. See NOAA, U.S. saw its 4th-warmest year on record, fueled by a record-warm December (Jan. 10, 2022), available at https://www.noaa.gov/news/us-saw-its￾4th-warmest-year-on-record-fueled-by-record-warm￾december. 11See 2021 FSOC Report, Chapter 1: From Climate-Related Physical Risks to Financial Risks; From Climate-related Transition Risks to Financial Risks. We discuss climate-related physical risks and climate-related transition risks in greater detail in
Section II.B.1.
12See 2021 FSOC Report, Chapter 1: An Emerging Consensus Framework for Climate-related Financial Risks (stating that these effects would likely propagate through the financial sector, which may experience credit and market risks associated with loss of income, defaults and changes in the values of assets, liquidity risks associated with changing demand for liquidity, and operational risks associated with disruptions to infrastructure). See also Financial Stability Board (‘‘FSB’’), The Implications of Climate Change for Financial Stability (Nov. 2020) (stating that climate-related effects may be far-reaching in their breadth and magnitude, and could affect a wide variety of firms, sectors and geographies in a highly correlated manner, indicating that the value of financial assets/liabilities could be affected either by the actual or expected economic effects of a continuation of climate-related physical risks, which could lead to a sharp fall in asset prices and increase in uncertainty, or by risks associated with a transition towards a low-carbon economy, particularly if the transition is disorderly, which could have a destabilizing effect on the global financial system). See also Basel Committee on Banking Supervision, Climate-related Risk Drivers and Their Transmission Channels (Apr. 2021), at https://www.bis.org/bcbs/publ/d517.pdf. 13See, e.g., The Editors, Don’t Drag Banks Into the Culture Wars, The Washington Post (Mar. 7,
2022) (‘‘No doubt, all companies—including those
in the financial sector—must do more to manage social and environmental risks, in particular those related to climate change. To that end, the Securities and Exchange Commission is rightly working on climate-risk disclosure rules, so investors will have the information they need to make the best possible decisions and to hold public companies accountable.’’). 14See, e.g., 2021 FSOC Report, Chapter 1: From Climate-related Physical Risks to Financial Risks. 15See, e.g., Why the automotive future is electric, McKinsey & Company (Sept. 7, 2021), at https:// www.mckinsey.com/industries/automotive-and￾assembly/our-insights/why-the-automotive-future￾is-electric (attributing the shift toward lower emissions forms of transportation, such as electric vehicles, to a combination of regulation, consumer behavior and technology); A Fifth Of World’s Largest Companies Committed To Net Zero Target, Forbes (Mar. 24, 2021), at https://www.forbes.com/ sites/dishashetty/2021/03/24/a-fifth-of-worlds￾largest-companies-committed-to-net-zero-target/ ?sh=2a72640f662f; See also, More than 1,000 companies commit to science-based emissions reductions in line with 1.5 °C climate ambition, Joint Press Release by the United Nations Global Compact and the Science Based Targets Initiative (Nov. 9, 2021), at https://finance.yahoo.com/news/ more-1-000-companies-commit-000800027.html (1,045 companies with more than $23 trillion in market capitalization are setting 1.5 °C aligned science based targets). See also, Why Engage Suppliers on GHG Emissions?, EPA Center for Corporate Climate Leadership, at https:// www.epa.gov/climateleadership/why-engage￾suppliers-ghg-emissions (‘‘As organizations commit to reduce the carbon footprints of the products and services they provide, they look to their suppliers to align their efforts with the organization’s sustainability goals’’). 16See, e.g., World Economic Forum, First Movers Coalition is tackling the climate crisis, at https:// www.weforum.org/our-impact/first-movers￾coalition-is-tackling-the-climate-crisis/#:∼:
text=The%20First%20Movers%20 Coalition%2C%20which%20was%20launched%20 at,companies%20that%20use%20steel%20to %20build%20wind%20turbines (‘‘The World Economic Forum is partnering with the US Special Presidential Envoy for Climate John Kerry and over 30 global businesses to invest in innovative green technologies so they are available for massive scale￾up by 2030 to enable net-zero emissions by 2050 at the latest.’’); COP26 made net zero a core principle for business. Here’s how leaders can act, McKinsey & Company (Nov. 12, 2021), at What COP26 means for business | McKinsey, at https:// www.mckinsey.com/business-functions/ sustainability/our-insights/cop26-made-net-zero-a￾core-principle-for-business-heres-how-leaders-can￾act (‘‘The net-zero imperative is no longer in question—it has become an organizing principle for business . . . leaders who put convincing net-zero plans in place can distinguish their companies from peers. To put that another way: the basis of competition has changed, and there is now a premium on sound net-zero planning and execution.’’); see also S&P Dow Jones Indices Launches Net Zero 2050 Climate Transition and Paris-Aligned Select Indices (Nov. 22, 2021), at https://finance.yahoo.com/news/p-dow-jones￾indices-launches-090000812.html (The index is designed to ‘‘bring greater transparency in measuring climate-related risks’’ and help market participants ‘‘achieve their goals in the path to net zero by 2050’’). companies consider in making investment and voting decisions.6 Investors have noted that climate￾related inputs have many uses in the capital allocation decision-making process including, but not limited to, insight into governance and risks management practices,7 integration into various valuation models, and credit research and assessments.8 Further, we understand investors often employ diversified strategies, and therefore do not necessarily consider risk and return of a particular security in isolation but also in terms of the security’s effect on the portfolio as a whole, which requires comparable data across registrants.9 While climate-related risks implicate broader concerns—and are subject to various other regulatory schemes—our objective is to advance the Commission’s mission to protect investors, maintain fair, orderly and efficient markets, and promote capital formation, not to address climate-related issues more generally. In particular, the impact of climate-related risks on both individual businesses and the financial system as a whole are well documented.10 For example, the Financial Stability Oversight Council’s (‘‘FSOC’s’’) Report on Climate-Related Financial Risk 2021 found that businesses, financial institutions, investors, and households may experience direct financial effects from climate-related risks, and observed that the costs would likely be broadly felt as they are passed through supply chains and to customers and as they reduce firms’ ability to service debt or produce returns for investors.11
As a result, these climate-related risks and their financial impact could negatively affect the economy as a whole and create systemic risk for the financial system.12 SEC￾reporting companies and their investors are an essential component of this system.13 Climate-related risks can affect a company’s business and its financial performance and position in a number of ways. Severe and frequent natural disasters can damage assets, disrupt operations, and increase costs.14 Transitions to lower carbon products, practices, and services, triggered by changes in regulations, consumer preferences,15 availability of financing, technology and other market forces,16

17See, e.g., Juan C.Reboredo and Luis A. Otero, Are investors aware of climate-related transition risks? Evidence from mutual fund flows, 189 Ecological Economics (Nov. 2021), available at https://www.sciencedirect.com/science/article/abs/ pii/S0921800921002068#!; and BlackRock, Climate risk and the transition to a low-carbon economy, available at https://www.blackrock.com/corporate/ literature/publication/blk-commentary-climate-risk￾and-energy-transition.pdf. 18See Antony J. Blinken, Secretary of State, The United States Officially Rejoins the Paris Agreement, Press Statement, (Feb. 19, 2021). 191 countries plus the European Union have now signed the Paris Climate Agreement. The central aim of the Paris Climate Agreement is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century to well below 2 °Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 ° degrees Celsius. See Paris Agreement (Paris, Dec. 12, 2015) (entered into force Nov. 4, 2016). Moreover, at the UN Climate Change Conference (COP 26), the United States committed to become net zero by 2050, China by 2060, and India by 2070. Further, over 100 countries formed a coalition to reduce methane emissions by 30 percent by 2030. See Environment+Energy Leader, COP26 Net Zero Commitments will Speed Energy Transition, Increase Pressure on Industries, According to Moody’s Report (Nov. 17, 2021). 19See, e.g., OCC announcement: Risk Management: Principles for Climate-Related Financial Risk Management for Large Banks; Request for Feedback | OCC (treas.gov), available at https://www.occ.treas.gov/news-issuances/ bulletins/2021/bulletin-2021-62.html; and Principles for Climate-Related Financial Risk Management for Large Banks (treas.gov) (Dec. 16, 2021), available at https://www.occ.treas.gov/news￾issuances/bulletins/2021/bulletin-2021-62a.pdf. 20See infra Section I.C.2. 21See Commission Guidance Regarding Disclosure Related to Climate Change, Release No. 33–9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8, 2010)]. We discuss the 2010 Guidance in greater detail in
Section I.A. below.
22See, e.g., supra notes 6, 10, and 12. 23See, e.g., Larry Fink, A Fundamental Reshaping of Finance, 2020 Letter to CEOs, at https:// www.blackrock.com/corporate/investor-relations/ 2020-larry-fink-ceo-letter, available at https:// www.blackrock.com/corporate/investor-relations/ 2020-larry-fink-ceo-letter (stating that climate risk is investment risk and asking the companies that BlackRock invests in to, among other matters, disclose climate-related risks in line with the recommendations of the Task Force on Climate￾related Financial Disclosures); see also Climate Action 100+, at https://www.climateaction100.org/. Climate Action 100+ is an investor-led initiative composed of 615 investors who manage $60 trillion in assets (as of Nov. 2021), who aim ‘‘to mitigate investment exposure to climate risk and secure ongoing sustainable returns for their beneficiaries.’’ See also Glasgow Financial Alliance for Net Zero (GFANZ), at https://www.gfanzero.com/, a global coalition of leading financial institutions focused on promoting the transition to a net zero global economy. Formed in Apr. 2021, its membership as of Nov. 2021 included over 450 financial firms controlling assets of over $130 trillion. Further, more than 500 investor signatories with assets under management of nearly $100 trillion are signatories to the CDP climate risk disclosure program, https://cdn.cdp.net/cdp-production/ comfy/cms/files/files/000/004/697/original/2021_ CDP_Capital_Markets_Brochure_General.pdf. We discuss the growing investor demand for climate￾related information in greater detail in Section I.C below. 24See Acting Chair Allison Herren Lee Public Statement, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021), available at https://www.sec.gov/news/public-statement/lee￾climate-change-disclosures. See also, e.g., Concept Release: Business and Financial Disclosure Required by Regulation S–K, Release No. 33–10064 (Apr. 16, 2016), [83 FR 23915 (Apr. 22, 2016)] and related comments, available at https://www.sec.gov/ rules/concept/conceptarchive/ conceptarch2016.shtml. 25See infra Section II.M. 26See Section II.G.3. 27See id. 28See Securities Act Section 27A [15 U.S.C. 77z– 2] and Exchange Act Section 21E [15 U.S.C. 78u– 5]. We discuss the application of the existing forward-looking statement safe harbors to the proposed climate-related disclosures primarily in Sections II.C.3–4, II.E, II.G.1, and II.I. can lead to changes in a company’s business model.17 Governments around the world have made public commitments to transition to a lower carbon economy, and efforts towards meeting those greenhouse gas (‘‘GHG’’) reduction goals have financial effects that may materially impact registrants.18 In addition, banking regulators have recently launched initiatives to incorporate climate risk in their supervision of financial institutions.19 How a company assesses and plans for climate-related risks may have a significant impact on its future financial performance and
investors’ return on their investment in the company. Consistent, comparable, and reliable disclosures on the material climate￾related risks public companies face would serve both investors and capital markets. Investors would be able to use this information to make investment or voting decisions in line with their risk preferences. Capital allocation would become more efficient as investors are better able to price climate-related risks. In addition, more transparency and comparability in climate-related disclosures would foster competition. Many other jurisdictions and financial regulators around the globe have taken action or reached similar conclusions regarding the importance of climate￾related disclosures and are also moving towards the adoption of climate-related disclosure standards.20 This proposal builds on the Commission’s previous rules and guidance on climate-related disclosures, which date back to the 1970s. In 2010, in response to increasing calls by the public and shareholders for public companies to disclose information regarding how climate change may affect their business and operations, the Commission published guidance (‘‘2010 Guidance’’) for registrants on how the Commission’s existing disclosure rules may require disclosure of the impacts of climate change on a registrant’s business or financial condition.21 Since that time, as climate-related impacts have increasingly been well-documented and awareness of climate-related risks to businesses and the economy has grown,22 investors have increased their demand for more detailed information about the effects of the climate on a registrant’s business and for more information about how a registrant has addressed climate-related risks and opportunities when conducting its operations and developing its business strategy and financial plans.23 It is appropriate for us to consider such investor demand in exercising our authority and responsibility to design an effective and efficient disclosure regime under the federal securities laws. In developing these proposals, we have considered the feedback we have received to date from a wide range of commenters, including comments from investors as to the information they need to make informed investment or voting decisions, as well as concerns expressed by registrants with regard to compliance burdens and liability risk.24 While our proposals include disclosure requirements designed to foster greater consistency, comparability, and reliability of available information, they also include a number of features designed to mitigate the burdens on registrants, such as phase-in periods for the proposed climate-related disclosure requirements,25 a safe harbor for certain emissions disclosures,26 and an exemption from certain emissions reporting requirements for smaller reporting companies.27 In addition, the existing safe harbors for forward-looking statements under the Securities Act and Exchange Act would be available for aspects of the proposed
disclosures.28 Although the various requirements we are proposing are supported by overlapping rationales, we emphasize that the different aspects of the proposal serve independent, albeit complementary, objectives. In addition, we have carefully considered how to craft this proposal to best advance investor protection and the public interest, consistent with the Commission’s disclosure authority and regulatory mission, and we welcome comments on how we can further achieve that goal. A. Background The Commission first addressed the disclosure of material environmental issues in the early 1970s when it issued an interpretive release stating that registrants should consider disclosing in their SEC filings the financial impact of

29See Release No. 33–5170 (July 19, 1971) [36 FR 13989]. The Commission codified this interpretive position in its disclosure forms two years later. See Release 33–5386 (Apr. 20, 1973) [38 FR 12100] (‘‘1972 Amendments’’). 30See Interpretive Release No. 33–6130 (Sept. 27,
1979) [44 FR 56924], which includes a brief
summary of the National Environmental Policy Act of 1969 and the legal and administrative actions taken with regard to the Commission’s environmental disclosure during the 1970s. See also NRDC v. SEC, 606 F.2d 1031, 1036–42 (DC Cir.
1979) (discussing this history). More information
relating to the Commission’s efforts in this area is chronicled in Release No. 33–6315 (May 4, 1981) [46 FR 25638]. 31See Release No. 33–6383 (Mar. 3, 1982) [47 FR 11380] (‘‘1982 Release’’) (adopting 17 CFR 229.103, which requires a registrant to describe its material pending legal proceedings, other than ordinary routine litigation incidental to the business, and indicating that administrative or judicial proceedings arising under federal, state, or local law regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, shall not be deemed ‘‘ordinary routine litigation incidental to the business’’ and must be described if meeting certain conditions). The 1982 Release also moved the information called for by the 1973 Amendments to 17 CFR 229.101(c)(1)(xii), which, as part of a registrant’s business description, required the disclosure of the material effects that compliance with Federal, State and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have had upon the registrant’s capital expenditures, earnings and competitive position, as well as the disclosure of its material estimated capital expenditures for environmental control facilities. In 2020, the Commission amended 17 CFR 229.101(c)(1) to require, to the extent material to an understanding of the business taken as a whole, disclosure of the material effects that compliance with government regulations, including environmental regulations, may have upon the capital expenditures, earnings, and competitive position of the registrant and its subsidiaries. See Modernization of Regulation S–K Items 101, 103, and 105, Release No. 33–10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)] (‘‘2020 Release’’). 32See Release No. 33–9106, Section III. 33See Release No. 33–9106, Section I. 34The 2010 Guidance also applies to corresponding disclosure requirements in Form 20– F by foreign private issuers. 35Our recent amendments to Item 105 of Regulation S–K discourage the presentation of generic risks that could apply generally to any registrant or offering. The fact that climate risks are broad-based does not, in our view, cause them to be generic. For example, thousands of companies in Houston were impacted by Hurricane Harvey. However, (1) their flood risk varied and some companies may have been far more impacted than others (and would be more vulnerable to future catastrophic storms); (2) their operations were different and some may have been more disrupted as a result than others—e.g., a services business on the 10th floor of a building may have experienced just a few days of disruption while an oil refinery may have been shut down for weeks; and (3) their risk management processes may have been different—two similarly situated companies may have different continuity of operations plans or may have taken steps to mitigate those types of risks. In sum, while the
source of the risk may be common to many companies, the impact is not. 36See Acting Chair Allison Herren Lee Public Statement, Public Input Welcomed on Climate Change Disclosures. 37The comment letters are available at https:// www.sec.gov/comments/climate-disclosure/ cll12.htm. Except as otherwise noted, references to comments in this release pertain to these comments. 38See, e.g., letters from BlackRock (June 11, 2021) ($9T); Ceres (June 10, 2021) (representing Investor Network on Climate Risk and Sustainability) ($37T); Council of Institutional Investors (June 11, compliance with environmental laws.29 Throughout the 1970s, the Commission continued to explore the need for specific rules mandating disclosure of information relating to litigation and other business costs arising out of compliance with federal, state, and local laws that regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. These topics were the subject of several rulemaking efforts, extensive litigation, and public hearings, all of which resulted in the rules that now specifically address disclosure of environmental issues.30 After almost a decade of consideration, the Commission adopted rules in 1982 mandating disclosure of information relating to litigation and other business costs arising out of compliance with federal, state, and local laws that regulate the discharge of materials into the environment or otherwise relate to the protection of the environment.31 In addition to these specific disclosure requirements, the Commission’s other disclosure rules requiring, for example, information about material risks and a description of the registrant’s business, could give rise to an obligation to provide disclosure related to the effects of climate change.32 In its 2010 Guidance, the Commission observed that, in response to investor demand for climate-related information, many companies were voluntarily reporting climate-related information outside their filings with the Commission. The Commission emphasized that ‘‘registrants should be aware that some of the information they may be reporting pursuant to these mechanisms also may be required to be disclosed in filings made with the Commission pursuant to existing disclosure requirements.’’ 33 Specifically, the 2010 Guidance emphasized that climate change disclosure might, depending on the circumstances, be required in a company’s Description of Business, Risk Factors, Legal Proceedings, and Management’s Discussion and Analysis of Financial Condition and Results of Operations (‘‘MD&A’’).34 The 2010 Guidance further identified certain climate-related issues that companies may need to consider in making their disclosures, including the direct and indirect impact of climate-related legislation or regulations, international agreements, indirect consequences of business trends including changing demand for goods, and the physical impacts of climate change. The proposals set
forth in this release would augment and supplement the disclosures already required in SEC filings. Accordingly, registrants should continue to evaluate the climate-related risks they face and assess whether disclosures related to those climate￾related risks must be disclosed in their Description of Business, Risk Factors, Legal Proceedings, and MD&A as described in the 2010 Guidance. These disclosures should be based on the registrant’s specific facts and circumstances. While climate risks impact many issuers across industries, the impacts of those risks on a particular registrant and how the registrant addresses those risks are fact-specific and may vary significantly by registrant.35 The disclosures required by our existing rules should reflect these company-specific risks. B. The March 2021 Request for Public Input On March 15, 2021, Acting Chair Allison Herren Lee requested public input on climate disclosure from investors, registrants, and other market participants.36 The Acting Chair solicited input on several issues, including how the Commission could best regulate disclosure concerning climate change in order to provide more consistent, comparable, and reliable information for investors, whether the Commission should require the disclosure of certain metrics and other climate-related information, the role that existing third-party climate-related disclosure frameworks should play in the Commission’s regulation of such disclosure, and whether and how such disclosure should be subject to assurance. The Commission received approximately 600 unique letters and over 5800 form letters in response to the Acting Chair’s request for public input.37 We received letters from academics, accounting and audit firms, individuals, industry groups, investor groups, registrants, non-governmental organizations, professional climate advisors, law firms, professional investment advisors and investment management companies, standard￾setters, state government officials, and US Senators and Members of the House of Representatives. Many of these commenters, including investors with trillions of dollars of assets under management collectively,38

2021. ($4T); Investment Adviser Association (June
      11, 2021) ($25T); Investment Company Institute (June 4, 2021) ($30.8T); PIMCO (June 9, 2021) ($2T); SIFMA (June 10, 2021) ($45T); State Street Global Advisors (June 14, 2021) (3.9T); and Vanguard Group, Inc. (June 11, 2021) ($7T). 39See, e.g., letters from AllianceBernstein; Amalgamated Bank; Boston Common Asset Management (June 14, 2021); Calvert Research and Management (June 1, 2021); Ceres; the Committee on Mission Responsibility through Investment by Presbyterian Church (June 10, 2021); Katherine DiMatteo (June 1, 2021); Domini Impact Investments (June 14, 2021); Felician Sisters of North America (June 8, 2021); Friends Fiduciary (June 11, 2021); Melanie Bender (May 26, 2021); Miller/Howard Investments (June 11, 2021); Mercy Investment Services, Inc. (June 4, 2021); Parametric Portfolio Associates, LLC (June 4, 2021); San Francisco City and County Employees’ Retirement System (June 12, 2021); Seventh Generation Interfaith, Inc. (May 20, 2021); State Street Global Advisors; Sustainability Accounting Standards Board (SASB) (May 19, 2021); the Sustainability Group (June 4, 2021); and Trillium Asset Management (June 9, 2021). 40Several commenters referred to various reports by the Intergovernmental Panel on Climate Change (‘‘IPCC’’) to demonstrate that there is scientific consensus that climate change is the result of global warming caused by human-induced emissions of greenhouse gases and poses significant global risks. See, e.g., letters from Better Markets (June 14, 2021); Center for Human Rights and Environment (June 9, 2021); Commonwealth Climate and Law Initiative (June 13, 2021); Charles E. Frye (Apr. 3, 2021); Interfaith Center on Corporate Responsibility (June 14, 2021); and Mike Levin and 23 other Members of Congress (June 15, 2021). IPCC’s latest report is IPCC, AR6 Climate Change 2021: The Physical Science Basis (Aug. 7, 2021), available at https:// www.ipcc.ch/report/ar6/wg1/. 41See letter from SASB. 42See, e.g., letters from Amalgamated Bank; Bank of Finland (June 1, 2021); Blueprint Financial (June 11, 2021); Canadian Coalition of Good Governance (June 9, 2021); Center for Climate and Energy Solutions (June 12, 2021); Clean Yield Asset Management (June 11, 2021); Coalition for Inclusive Capitalism (June 14, 2021); Felician Sisters of North America; First Affirmative Financial Network (June 2, 2021); William and Flora Hewitt Foundation (June 9, 2021); Impact Investors, Inc. (June 2, 2021); Impax Asset Management (June 9, 2021); Institute of International Bankers (June 8, 2021); Investment Company Institute; Investment Consultants Sustainability Working Group (June 11, 2021); Miller/Howard Investments; Norge Bank Investment Management (June 13, 2021); Parametric Portfolio Associates; Praxis Mutual Funds and Everence Financial (June 10, 2021); PRI (Consultation Response); Salesforce.com Inc. (June 11, 2021); San Francisco City and County Employees’ Retirement System; SASB; Seventh Generation Interfaith, Inc.; S&P Global (June 11,
      2021); Trillium Asset Management; World Business Council for Development (WBCSD) (June 11, 2021); Vanguard Group, Inc.; and US Impact Investing Alliance (June 14, 2021). 43See, e.g., letters from American Enterprise Institute (June 10, 2021); CO2 Coalition (June 1, 2021); the Heritage Foundation (June 13, 2021); Steve Milloy (June 1, 2021); Berkeley T. Rulon￾Miller (Apr. 9, 2021); and the Texas Public Policy Foundation (June 11, 2021). 44See, e.g., letters from American Enterprise Institute; the Cato Institute; the Heritage Foundation; and Texas Public Policy Foundation. 45See, e.g., letters from the Institute for Free Speech (June 10, 2021); Patrick Morrisey, West Virginia Attorney General (Mar. 25, 2021); and Texas Public Policy Foundation. 46The staff of the Division of Corporation Finance has developed a sample comment letter for registrants to elicit improved disclosure on some of the deficient areas noted in their review of filings. See Climate Change Disclosure-Sample Letter, available at https://www.sec.gov/corpfin/sample￾letter-climate-change-disclosures. 47See, e.g., letter from Pricewaterhouse Coopers. 48See 17 CFR 240.13a–15 and 17 CFR 240.15d– 15. 49We note that the liability provisions of Section 10(b) and Rule 10b–5 of the Exchange Act can apply to statements made in filings with the SEC or elsewhere, such as in sustainability reports or on company websites. See, e.g., SEC v. Stinson, No. 10–3130, 2011 U.S. Dist. LEXIS 65723, 2011 WL 2462038, at 12 (E.D. Pa. June 20, 2011) (finding defendants liable under Section 10(b) when they communicated material misstatements and omissions in direct solicitations via email, a webinar, and various websites). As such, registrants should scrutinize and ensure the accuracy of such statements whether or not filed with the Continued supported implementation of climate￾related disclosure rules. A number of commenters 39 stated that mandated disclosures are necessary because climate change poses significant financial risks to registrants and their investors.40 According to one of the commenters, 68 out of 77 industries are likely to be significantly affected by climate risk.41 Many commenters criticized the current disclosure practice, in which some issuers voluntarily provide climate disclosures based on a variety of different third￾party frameworks, because it has not produced consistent, comparable, reliable information for investors and their advisors, who otherwise have difficulty obtaining that information.42 Other commenters, however, questioned whether climate change posed a risk to companies or their investors. These commenters stated their belief that the assumptions underlying the assessment of the impact of climate change were too uncertain to permit companies to ascertain the real risks to their operations and financial condition caused by climate change.43 These commenters stated that they opposed implementation of climate￾related disclosure rules, and argued that such rules would exceed
      the Commission’s statutory authority. Some of these commenters also argued that such rules are not necessary because registrants are already required to disclose material climate risks, or that such rules would be more costly than the current ‘‘private ordering’’ of climate disclosures.44 Some commenters also argued that mandated climate disclosure rules could violate First Amendment rights.45 As noted above, we have considered these comments and other feedback received from the public in formulating the current proposal. As part of its filing review process, the Commission staff also assessed the extent to which registrants currently disclose climate￾related risks in their Commission filings. Since 2010, disclosures related to climate change have generally increased, but there is considerable variation in the content, detail, and location (i.e., in reports filed with the Commission, in sustainability reports posted on registrant websites, or elsewhere) of climate-related disclosures. The staff has observed significant inconsistency in the depth and specificity of disclosures by registrants across industries and within the same industry. The staff has found significantly more extensive information in registrants’ sustainability reports and other locations such as their websites as compared with their reports filed with the Commission. In addition, the disclosures in registrants’ Forms 10–K frequently contain general, boilerplate discussions that provide limited information as to the registrants’ assessment of their climate-related risks or their impact on the companies’ business.46 We are also mindful of the benefits to investors of requiring climate-related information in SEC filings. Providing more extensive climate-related disclosure in sustainability reports, while excluding such relevant information from Forms 10–K, may make it difficult for investors to analyze and compare how climate-related risks and impacts affect registrants’ businesses and consolidated financial statements. The inclusion of climate￾related disclosures in SEC filings should increase the consistency, comparability, and reliability of climate-related information for investors. The placement of climate-related information in different locations can make it difficult for investors to find comparable climate-related disclosures, whereas inclusion in a registrant’s Form 10–K or registration statement should make it easier for investors to find and compare this information.47 Further, information that is filed with the Commission in Exchange Act periodic reports is subject to disclosure controls and procedures (‘‘DCP’’), which help to ensure that a registrant maintains appropriate processes for collecting and communicating the necessary information by which to formulate the climate-related disclosures.48 Moreover, information filed as part of a registrant’s Form 10–K carries certain additional potential liability, which itself can cause registrants to prepare and review
      information filed in the Form 10–K more carefully than information presented outside SEC filings.49

Commission. In addition, information filed in a Form 10–K is subject to Section 18 of the Exchange Act. Further, information filed in an annual report on Form 10–K (and other current and periodic reports) can be incorporated by reference in certain Securities Act registration statements, such as those filed on Form S–3, and thereby become subject to the liability provisions of the Securities Act. See Securities Act Section 11 (15 U.S.C. 77k) and
Section 12 (15 U.S.C. 77l). See infra Section II.C.3–
4, II.E, II.G.1, and II.I regarding the application to forward-looking climate disclosures of the safe harbor for forward-looking statements that was added to the Securities Act and Exchange Act pursuant to the Private Securities Litigation Reform Act of 1995. 50See supra note 42 and accompanying text. 51See letters from Jill E. Fisch and 18 other law professor signatories (June 11, 2021) (referencing Sections 7, 10, and 19(a) of the Securities Act; and Sections 3(b), 12, 13, 14, 15(d), and 23(a) of the Exchange Act); and Natural Resources Defense Council (June 11, 2021). 52See letters from Eni SpA (June 12, 2021); Jill. E. Fisch et al; Natural Resources Defense Council; SASB; and Value Balancing Alliance (June 28, 2021); see also infra Section IV. 53See, e.g., letter from SASB (stating that through the ‘‘multiple voluntary disclosure frameworks (i.e., the ‘‘alphabet soup’’ decried by companies) . . . and numerous direct requests to companies for information through surveys, the current private ordering-led system has increased the burden on companies—and investors—while still leaving many companies uncertain as to whether they are, in practice, providing the decision-useful information required by investors.’’); see also letters from Americans for Financial Reform Education Fund and Public Citizen (June 14, 2021) (stating that ‘‘the proliferation of differing frameworks has increased compliance complexities and costs for companies’’); Eni SpA (stating that the fragmentation of data fostered by the proliferation of reporting frameworks has multiplied the efforts of companies in satisfying all their requirements); and BSR (June 11, 2021) (providing that ‘‘a fragmented environment is limiting the impact of reporting and creating undue confusion and cost on the part of reporters.’’). 54Providing a more standardized framework for climate-related disclosures would be consistent with the Recommendation from the Investor-as￾Owner Subcommittee of the SEC Investor Advisory Committee Relating to ESG Disclosure (May 14,
2020) (‘‘IAC Recommendation’’), available at
https://www.sec.gov/spotlight/investor-advisory￾committee-2012/recommendation-of-the-investor￾as-owner-subcommittee-on-esg-disclosure.pdf. The term ‘‘ESG’’ refers to environmental, social, and governance matters, of which climate-related disclosures is a part. The IAC Recommendation focused on the inadequacies of ESG disclosures broadly, and not just on those involving climate. The IAC Recommendation stated that, to the extent that SEC reporting obligations would require a single standard of material, decision-useful ESG information, as relevant to each issuer, and based upon data that issuers already use to make their business decisions, such an approach would level the playing field between well-financed large issuers and capital constrained small issuers. 55See supra note 23. 56There is some overlap in the signatories to the listed initiatives. 57See United Nations Climate Change, 631 Institutional Investors Managing More than USD 37 Trillion in Assets Urge Governments to Step up Climate Ambition (Dec. 9, 2019), available at https://unfccc.int/news/631-institutional-investors￾managing-more-than-usd-37-trillion-in-assets-urge￾governments-to-step-up. 58See The Investor Agenda, 2021 Global Investor Statement to Governments on the Climate Crisis (Oct. 27, 2021), available at https:// theinvestoragenda.org/wp-content/uploads/2021/ 09/2021-Global-Investor-Statement-to￾Governments-on-the-Climate-Crisis.pdf. 59PRI was created by a UN-sponsored small group of large global investors in 2006. A stated core goal of the PRI is to help investors protect their portfolios from climate-related risks and to take advantage of climate-related opportunities associated with a shift to a low-carbon global economy. See PRI, Climate Change, available at https://www.unpri.org/climate-change. 60See PRI, CEO quarterly update: Celebrating 4000 signatories and supporting the evolution of PRI (July 13, 2021), available at https:// www.unpri.org/pri-blog/ceo-quarterly-update￾celebrating-4000-signatories-and-supporting-the￾evolution-of-ri/8033.article. Having considered the public feedback and the staff’s experience with climate-related disclosures, we believe that the current disclosure system is not eliciting consistent, comparable, and reliable information that enables investors both to assess accurately the potential impacts of climate-related risks on the nature of a registrant’s business and to gauge how a registrant’s board and management are assessing and addressing those impacts.50 The Commission has broad authority to promulgate disclosure rules that are in the public interest or for the protection of investors and that promote efficiency, competition, and capital formation.51 In light of the present and growing significance of climate-related risks to registrants and the inadequacies of current climate disclosures, we are proposing to revise our rules to include climate-related disclosure items and metrics to elicit investment decision￾useful information that is
necessary or appropriate to protect investors. We also believe that enhanced climate disclosure requirements could increase confidence in the capital markets and help promote efficient valuation of securities and capital formation by requiring more consistent, comparable, and reliable disclosure about climate￾related risks, including how those risks are likely to impact a registrant’s business operations and financial performance.52 The proposed requirements may also result in benefits to registrants, given existing costs to registrants that have resulted from the inconsistent market response to investor demand for climate-related information.53 In this regard our proposal would provide registrants with a more standardized framework to communicate their assessments of climate-related risks as well as the measures they are taking to address those risks.54 At the same time, we are open to exploring ways in which registrants could be afforded flexibility in making the necessary disclosures while still providing appropriate consistency and comparability, and are seeking comment in that regard.
C. The Growing Investor Demand for
Climate-Related Risk Disclosure and Related Information

1. Major Investor Climate-Related
   Initiatives
   As the Commission recognized in 2010 and earlier, there has been significant investor demand for information about how climate conditions may impact their investments. That demand has been increasing in recent years. Several major institutional investors, which collectively have trillions of dollars in investments under management, have demanded climate-related information from the companies in which they invest because of their assessment of climate change as a risk to their portfolios, and to investments generally, and also to satisfy investor interest in investments that are considered ‘‘sustainable.’’ As a result, these investors have sought to include and consider climate risk as part of their investment selection process.55 These institutional investors have formed investor initiatives to collectively urge companies to provide better information about the impact that climate change has had or is likely to have on their businesses, and to urge governments and companies to take steps to reduce investors’ exposure to climate risks. Among these initiatives:56

• In 2019, more than 630 investors
  collectively managing more than $37 trillion signed the Global Investor Statement to Governments on Climate Change urging governments to require climate-related financial reporting; 57
• This investor initiative continued as
  the Investor Agenda’s 2021 Global Investor Statement to Governments on the Climate Crisis, which was signed by 733 global institutional investors, including some of the largest investors, with more than US $52 trillion in assets under management in the aggregate. This Statement called for governments to implement a number of measures, including mandating climate risk disclosure.58
• The UN Principles for Responsible
  Investment (‘‘PRI’’) 59 has acquired over 4,000 signatories who, as of July 13, 2021, have, in the aggregate, assets under management exceeding $120 trillion as of July 13, 2021; 60
• The Net Zero Asset Managers
  Initiative, which was formed by an international group of asset managers, has 128 signatories that collectively

61See Net Zero Asset Managers Initiative, Net Zero Asset Managers initiative announces 41 new signatories, with sector seeing ‘net zero tipping point’ (July 6, 2021), available at https:// www.netzeroassetmanagers.org/net-zero-asset￾managers-initiative-announces-41-new-signatories￾with-sector-seeing-net-zero-tipping-point. 62See Climate Action 100+, About Climate Action 100+, available at https://www.climate action100.org/about/ (indicating that the initiative is engaging companies on strengthening climate￾related financial disclosures). 63See GFANZ, About Us, available at https:// www.gfanzero.com/about/. Another organization, the CDP, provides a means for investors to request that companies provide climate-related disclosures through the CDP. In 2021, over 590 investors with $110 trillion in assets under management requested that thousands of companies disclose climate related information to them through the CDP. See CDP, Request Environmental Information, available at https://www.cdp.net/en/investor/request￾environmental-information#d52d69887a88f63 e15931b5db2cbe80d. 64We discuss the TCFD in greater detail in
Section I.D.1 below.
65See Climate Action 100+, About Climate Action 100+. Further, commenters noted their fiduciary obligations to consider climate-related risks. See, e.g., letters from PRI (Consultation Response); and California Public Employee Retirement System (CalPERS) (June 12, 2021). 66According to one publication, two-thirds of S&P 500 companies had set a carbon reduction target by the end of 2020. See Jean Eaglesham, Climate Promises by Businesses Face New Scrutiny, The Wall Street Journal (Nov. 5, 2021). 67See Global Survey Shows Race to Decarbonization is on: Johnson Controls finds Delivering Growth and Competitive Advantage are Main Drivers for Companies to Commit to Net Zero (Dec. 1, 2021), available at https://ih.advfn.com/ stock-market/NYSE/johnson-controls-JCI/stock￾news/86696470/global-survey-shows-race-to￾decarbonization-is-on#:∼:
text=Global%20Survey%20Shows%20Race%20to %20Decarbonization%20is%20 on%3A,December%2001%202021%20- %2007%3A01AM%20PR%20 Newswire%20%28US%29; and COP26 made net zero a core principle for business. Here’s how leaders can act, McKinsey (Nov. 12, 2021), available at https://www.mckinsey.com/business-functions/ sustainability/our-insights/cop26-made-net-zero-a￾core-principle-for-business-heres-how-leaders-can￾act. 68See, e.g., letters from Ceres; Investor Adviser Association (June 11, 2021); SIFMA Asset Management Group (June 10, 2021); Trillium Asset Management; and T. Rowe Price (June 11, 2021); see also letters from Boston University Impact Measurement and Allocation Program (June 7, 2021); CDP (June 11, 2021); Christopher Lish (June 12, 2021); and Pricewaterhouse Coopers (June 10, 2021). 69See supra note 42. 70See IAC Recommendation. The IAC Recommendation noted that more than 125 third￾party ESG data providers, including ESG ratings firms, have emerged to try to meet the informational demands of investors. According to the IAC Recommendation, these data providers are limited in their ability collectively to provide investors with comparable and consistent information as they use different information sources and different— frequently opaque—methodologies to conduct their analyses, which compromises the usefulness and reliability of the information. This current heterogeneity in practices and disparate demands from investors and ratings firms places a significant burden on companies asked to provide this information in a variety of formats. The IAC Recommendation further observed that many companies feel compelled to respond to the multiple surveys of ESG rating firms because ignoring them or refusing to respond can lead to a low rating, which can adversely affect stock price and access to capital. While the proposed rules would not necessarily eliminate third-party questionnaires, they would help to provide standardized information to all investors and might reduce the need to obtain the information obtained through questionnaires. 71See GRI, About GRI, available at https:// www.globalreporting.org/about-gri/. 72See CDP, About Us, available at https:// www.cdp.net/en/info/about-us. In 2018, CDP revised its questionnaire to companies so that it aligns with the TCFD recommended framework. See letter from CDP. 73See CDSB, About the Climate Disclosure Standards Board, available at https://www.cdsb.net/ our-story. 74See Value Reporting Foundation, Understanding the Value Reporting Foundation, available at https://www.valuereporting foundation.org/. 75See TCFD, About, available at https://www.fsb￾tcfd.org/about/. 76For example, according to the CDP, over 3,000 companies have provided climate-related disclosures through the CDP’s platform by responding to the CDP’s questionnaires that are aligned with the TCFD’s disclosure recommendations. See letter from CDP. The TCFD Continued manage $43 trillion in assets as of July 2021; 61

• The Climate Action 100+, an
  investor-led initiative, now comprises 617 global investors that together have more than $60 trillion in assets under management; 62 and
• The Glasgow Financial Alliance for
  Net Zero (‘‘GFANZ’’), a coalition of over 450 financial firms from 45 countries, responsible for assets of over $130 trillion, that are committed to achieving net-zero emissions by 2050, reaching 2030 interim targets, covering all emission scopes and providing transparent climate-related reporting.63 Each of these investor initiatives has emphasized the need for improved disclosure by companies regarding climate-related impacts. Each of these initiatives has advocated for mandatory climate risk disclosure requirements aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (‘‘TCFD’’) 64 so that disclosures are consistent, comparable, and reliable. The investor signatories of Climate Action 100+ emphasized that obtaining better disclosure of climate-related risks and companies’ strategies to address their exposure to those risks is consistent with the exercise of their fiduciary duties to their respective clients.65 At the same time, many companies have made commitments with respect to climate change, such as commitments to reduce greenhouse gas emissions or become ‘‘net zero’’ by a particular date.66 Companies may make these commitments to attract investors, to appeal to customers that prioritize sustainability, or to reduce their exposure to risks posed by an expected transition to a lower carbon economy.67 In response to these commitments, investors have demanded more detailed information about climate-related targets and companies’ plans to achieve them in order to assess the credibility of those commitments and compare companies based on those commitments.68 These initiatives demonstrate that investors are using information about climate risks now as part of their investment selection process and are seeking more informative disclosures about those risks. As an increasing number of investors incorporate this information, in particular GHG emissions, into their investment selection or voting decisions, this may in turn create transition risks for companies that are seeking to raise capital.

2. Third-Party Data, Voluntary
   Disclosure Frameworks, and International Disclosure Initiatives Despite increasing investor demand for information about climate-related risks and strategies, many investors maintain that they cannot obtain the consistent, comparable, and material information that they need to properly inform their investment or voting decisions.69 In 2020, the Commission’s Investor Advisory Committee (‘‘IAC’’) noted the fragmentation of information that has resulted from a rise in third￾party data providers that have emerged to try to meet the informational demands of investors.70 The IAC recommended that the Commission take action to ensure investors have the material, comparable, consistent information about climate and other ESG matters that they need to make investment and voting decisions. In addition, a diverse group of third parties has developed climate-related reporting frameworks seeking to meet investors’ informational demands. These include the Global Reporting Initiative (‘‘GRI’’),71 CDP (formerly the Carbon Disclosure Project),72 Climate Disclosure Standards Board (‘‘CDSB’’),73 Value Reporting Foundation (formed through a merger of the Sustainability Accounting Standards Board (‘‘SASB’’) and the International Integrated Reporting Council (‘‘IIRC’’)),74 and the TCFD.75 To some extent, the development of these disparate frameworks has led to an increase in the number of companies that are providing some climate-related disclosures.76 However, because they

has similarly reported growth in the number of companies and countries supporting its climate￾related disclosure recommendations. See TCFD, 2021 Status Report (Oct. 2021), available at https:// assets.bbhub.io/company/sites/60/2021/07/2021- TCFD-Status-Report.pdf (stating that, as of Oct. 6, 2021, the TCFD had over 2,600 supporters globally, including 1,069 financial institutions responsible for assets of US $194 trillion). 77See supra note 42. 78 Dr. Rodney Irwin, Alan McGill, Enhancing the Credibility of Non-Financial Information, the Investor Perspective, WBCSD and PwC (Oct. 2018). 79 Yale Initiative on Sustainable Finance, Toward Enhanced Sustainability Disclosure: Identifying Obstacles to Broader and More Actionable ESG Reporting (Sept. 2020), available at https:// pages.fiscalnote.com/rs/109-ILL-989/images/ YISF%20ESG%20Reporting%20White%20Paper. pdf. 80See, e.g., TCFD, 2021 Status Report (indicating that there is a need to improve companies’ climate￾related disclosures, particularly regarding governance and risk management, to better align with the TCFD’s recommendations). 81See CDP, ANALYSIS OF CA100+ COMPANY DATA (2020), available at https://cdn.cdp.net/cdp￾production/cms/reports/documents/000/005/312/ original/Analysis_of_CA100__Data_for_CDP_ Investor_Signatories_v5.pdf?1596046258. 82See KPMG, The Time Has Come-The KPMG Survey of Sustainability Reporting 2020 (Dec. 2020), available at https://assets.kpmg/content/dam/kpmg/ xx/pdf/2020/11/the-time-has-come.pdf. 83See TCFD 2020 Status Report (Sept. 2020), available at https://assets.bbhub.io/company/sites/ 60/2020/09/2020-TCFD_Status-Report.pdf. 84See Ernst & Young, How can climate change disclosures protect reputation and value?-The 2019 EY Global Climate Risk Disclosure Barometer (Apr. 2020), available at https://www.ey.com/en_us/ climate-change-sustainability-services/how-can￾climate-change-disclosures-protect-reputation-and￾value. 85For example, the TCFD report found that the average level of disclosure across the TCFD’s 11 disclosure categories was 40% for the energy sector, 30% for the materials and building sector, 18% for the consumer goods sector and 13% for the technology sector. The level of disclosure varied among categories with only 4% or reporting companies disclosing the resilience of their strategies in North America and 50% reporting their risks and opportunities (the category with the highest level of disclosure). The Ernst & Young report found many companies in industries considered to have high exposure to climate-related risks lack high quality climate disclosures. The Ernst & Young report graded the average quality of the disclosures at 27 out of 100. 86See, e.g., The SEC’s Time to Act, Center for American Progress (Feb. 19, 2021) (‘‘[T]here is a lack of standardization of the data, assumptions, and methodologies companies use to meet the standards, with much of this information being opaque. Clearly, the current path of climate disclosure will not provide the
transparency that an increasing number of investors are seeking and, indeed, a properly functioning market requires— consistency of disclosures across time, comparability of disclosures across companies, and reliability of the information that is disclosed.’’) See, also, Andy Green and Andrew Schwartz, Corporate Long-Termism, Transparency, and the Public Interest (Oct. 2, 2018) (‘‘[C]orporate disclosure available today is insufficient, not comparable, and unreliable’’); and Managing Climate Risk in the U.S. Financial System, Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (2020) (‘‘Large companies are increasingly disclosing some climate-related information, but significant variations remain in the information disclosed by each company, making it difficult for investors and others to understand exposure and manage climate risks.’’). 87The IFRS Foundation refers to the International Financial Reporting Standards Foundation, which was established to develop a single set of ‘‘high￾quality,’’ enforceable, and globally accepted accounting standards. See IFRS—Who we are, available at https://www.ifrs.org/about-us/who-we￾are/. The IFRS Foundation was formed in 2010 and succeeded the International Accounting Standards Foundation, which was formed in 2001. 88 IFRS Foundation, IFRS Foundation Trustees’ Feedback Statement on the Consultation Paper on Sustainability Reporting (Apr. 2021), available at https://www.ifrs.org/content/dam/ifrs/project/ sustainability-reporting/sustainability-consultation￾paper-feedback-statement.pdf. 89 IOSCO refers to the International Organization of Securities Commissions, of which the Commission is a member. 90 IOSCO, Report on Sustainability-related Issuer Disclosures, Final Report (June 2021) available at https://www.iosco.org/library/pubdocs/pdf/ IOSCOPD678.pdf. are voluntary, companies that choose to disclose under these frameworks may provide partial disclosures or they may choose not to participate every year. In addition, the form and content of the disclosures may vary significantly from company to company, or from period to period for the same company. The situation resulting from these multiple voluntary frameworks has failed to produce the consistent, comparable, and reliable information that investors need.77 Instead, the proliferation of third-party reporting frameworks has contributed to reporting fragmentation, which can hinder investors’ ability to understand and compare registrants’ climate-related disclosures. An analysis conducted by the World Business Council for Sustainable Development found that investors had difficulty using existing sustainability disclosures because they lack consistency and comparability.78 In addition, a 2020 study by the Yale Initiative on Sustainable Finance found that the proliferation of reporting frameworks may have made reporting more difficult for issuers.79 Moreover, given the voluntary
nature of these third-party frameworks, there may not be sufficient incentives or external disciplines to ensure that companies are providing complete and robust disclosure under those frameworks.80 The staff has reviewed more than a dozen studies of climate-related disclosures conducted by third parties, such as the CDP,81 KPMG,82 TCFD 83, and Ernst & Young,84 which assessed the adherence of the climate-related disclosures to various third-party frameworks, such as the TCFD. These studies have reinforced the staff’s observations from their review of filings that there is significant variation across companies and industries with regard to the content of current climate disclosures.85 Further, much of this climate-related information, particularly GHG emissions and targets, appears outside of Commission filings, in sustainability reports, and on corporate websites. Other analyses of current climate reporting have found a lack of transparency and standardization with regard to the methodologies companies apply in disclosing climate-related information.86 The increased fragmentation of climate reporting resulting from the proliferation of third-party reporting frameworks has motivated a number of recent international efforts to obtain more consistent, comparable, and reliable climate-related information for investors. For example:

• A consultation paper published by
  the IFRS Foundation 87 Trustees in 2020 noted the broad range of voluntary sustainability reporting frameworks that have increased complexity and cost to preparers without improving the quality of the information available to investors; 88
• Based on the response to the IFRS
  Foundation consultation paper, the IFRS Foundation took steps toward the establishment of an International Sustainability Standards Board (‘‘ISSB’’) operating within the existing governance structure of the IFRS Foundation;
• In 2021, following two roundtables
  hosted by its Sustainable Finance Task Force, IOSCO 89 issued a report that concluded that companies’ current sustainability disclosures do not meet investors’ needs, and the proliferation of voluntary disclosure frameworks has led to inconsistency in application of the frameworks and, in some cases ‘‘cherry picking’’ of information that might not present an accurate picture of companies’ risks.90
• A Technical Experts’ Group of
  IOSCO worked with a Technical Readiness Working Group of the IFRS Foundation to assess and fine-tune a prototype climate-related financial disclosure standard (‘‘Prototype’’) drafted by an alliance of prominent sustainability reporting organizations and designed as a potential model for

91See CDP, CDSB, GRI, IIRC and SASB, Reporting on enterprise value Illustrated with a prototype climate-related financial disclosure standard (Dec. 2020), available at https:// 29kjwb3armds2g3gi4lq2sx1-wpengine.netdna￾ssl.com/wp-content/uploads/Reporting-on￾enterprise-value_climate-prototype_Dec20.pdf; and IFRS Foundation, IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of prototype disclosure requirements, available at https://www.ifrs.org/news-and-events/news/2021/ 11/ifrs-foundation-announces-issb-consolidation￾with-cdsb-vrf-publication-of-prototypes/. 92See IFRS Foundation, IFRS Foundation announces International Sustainability Standards Board, consolidation with CDSB and VRF, and publication of prototype disclosure requirements (Nov. 3, 2021), available at https://www.ifrs.org/ news-and-events/news/2021/11/ifrs-foundation￾announces-issb-consolidation-with-cdsb-vrf￾publication-of-prototypes/. At the same time, the IFRS Foundation announced the planned consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation into the ISSB during 2022. The ISSB is expected to develop reporting standards using the Prototype as a starting point and engaging in rigorous due process under the oversight of the IFRS Foundation Trustees’ Due Process Oversight Committee. 93 Id. 94Proposal for a 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 (Apr. 2021), available at https://eur-lex.europa.eu/ legal-content/EN/TXT/?uri=CELEX:52021PC0189. In proposing revised corporate sustainability reporting requirements, the EU explained that there exists a widening gap between the sustainability information, including climate-related data, companies report and the needs of the intended users of that information, which may mean that investors are unable to take sufficient account of climate-related risks in their investment decisions. 95See IOSCO, Report on Sustainability-related Issuer Disclosures, Final Report (June 2021) (noting progress in several jurisdictions, including Hong Kong, India, Japan, New Zealand and the United Kingdom, to incorporate TCFD’s disclosure recommendations into their legal and regulatory frameworks). 96A number of registrants recommended basing the Commission’s climate-related disclosure rules on the TCFD framework. See, e.g., letters from Adobe; Alphabet Inc. et al.; BNP Paribas (June 11, 2021); bp; Chevron (June 11, 2021; ConocoPhilips; and Walmart. Similarly, numerous investors and investor groups recommended the TCFD framework. See letters from Alberta Investment Management Corporation; BlackRock; CalPERS; CALSTRS (June 4, 2021); Impact Investors, Inc.; and San Francisco Employees Retirement System. See also infra Section II.A.1 for further discussion of the many commenters that
recommended basing the Commission’s climate-related disclosure rules on the TCFD framework. 97See, e.g., letter from Natural Resources Defense Council (stating that most companies providing climate-related information do so using the three￾part (scope) framework developed by the GHG Protocol and noting other organizations, such as the CDP, that use the GHG Protocol’s framework and methodology); see also GHG Protocol, Companies and Organizations, available at https:// ghgprotocol.org/companies-and-organizations (stating that 92% of companies responding to the CDP in 2016 used the GHG Protocol’s standards and guidance). 98See infra Section II.A.1 and notes 145 through 149. 99See TCFD, 2020 Status Report (Oct. 2020). The Group of 20 (‘‘G20’’) is a group of finance ministers and central bank governors from 19 countries, including the United States, plus the European Union, which was formed in 1999 to promote global economic growth, international trade, and regulation of financial markets. According to the G20, its members represent more than 80% of world GDP, 75% of international trade, and 60% of the world population. See G20, About the G20, available at https://g20.org/about-the-g20/. 100See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017), available at https://assets.bbhub.io/ company/sites/60/2020/10/FINAL-2017-TCFD￾Report-11052018.pdf. 101See, e.g., Climate Action 100+, The Three Asks, available at https:// www.climateaction100.org/approach/the-three￾asks/ (requiring participating investors to ask the companies with which they engage to provide enhanced corporate disclosure in line with the TCFD’s recommendations; and CDP, How CDP is aligned to the TCFD, available at https:// www.cdp.net/en/guidance/how-cdp-is-aligned-to￾the-tcfd (explaining how the CDP has aligned its questionnaires to elicit disclosures aligned with the TCFD’s recommendations). 102See TCFD, TCFD_Booklet_FNL_Digital_March￾2020.pdf (bbhub.io) (Mar. 2021), available at Continued standards that an ISSB might eventually develop; 91

• In November 2021, the IFRS
  Foundation announced the formation of the ISSB.92 The ISSB is expected to engage in standard setting to build on the Prototype, including developing climate-specific disclosure standards based on the recommendations of the TCFD.93
• Several jurisdictions, including the
  European Union,94 are developing or revising their mandatory climate-related disclosure regimes to provide investors with more consistent, useful climate￾related financial information, including associated assurance requirements and data tagging to facilitate the use of the information.95 These international developments show an increasing global recognition of the need to improve companies’ climate-related disclosures, which the proposed rules would help address, as well as the convergence of investors and issuers around the TCFD as a useful framework for communicating information about climate-related risks that companies may face. D. Development of a Climate-Related Reporting Framework In recent years, two significant developments have occurred that support and inform the Commission’s proposed climate-related reporting rules. The first involves the TCFD, which has developed a climate-related reporting framework that has become widely accepted by both registrants and investors.96 The second involves the Greenhouse Gas Protocol (‘‘GHG Protocol’’), which has become a leading accounting and reporting standard for greenhouse gas emissions.97 Both the TCFD and the GHG Protocol have developed concepts and a vocabulary that are commonly used by companies when providing climate-related disclosures in their sustainability or related reports. As discussed in greater detail below, the Commission’s proposed rules incorporate some of these concepts and vocabulary, which by now are familiar to many registrants and investors.

1. The Task Force on Climate-Related
   Financial Disclosure
   Our proposed climate-related disclosure framework is modeled in part on the TCFD’s recommendations. A goal of the proposed rules is to elicit climate￾related disclosures that are consistent, comparable, and reliable while also attempting to limit the compliance burden associated with these disclosures. The TCFD framework has been widely accepted by issuers, investors, and other market participants, and, accordingly, we believe that proposing rules based on the TCFD framework may facilitate achieving this balance between eliciting better disclosure and limiting compliance costs.98 In April 2015, the Group of 20 Finance Ministers directed the Financial Stability Board (‘‘FSB’’) to evaluate ways in which the financial sector could address climate-related concerns.99 The FSB concluded that better information was needed to facilitate informed investment decisions and to help investors and other market participants to better understand and take into account climate-related risks. The FSB established the TCFD, an industry-led task force charged with promoting better-informed investment, credit, and insurance underwriting decisions.100 Since then, the framework for climate￾related disclosures developed by the TCFD has been refined and garnered global support as a reliable framework for climate-related financial reporting.101 In 2017, the TCFD published disclosure recommendations that provide a framework by which to evaluate material climate-related risks and opportunities through an assessment of their projected short-, medium-, and long-term financial impacts on a registrant. The TCFD framework establishes eleven disclosure topics related to four core themes that provide a structure for the assessment, management, and disclosure of climate￾related financial risks: Governance, strategy, risk management, and metrics and targets.102

https://assets.bbhub.io/company/sites/60/2020/10/ TCFD_Booklet_FNL_Digital_March-2020.pdf. 103According to the TCFD, ‘‘[for] companies, support is a commitment to work toward their own implementation of the TCFD recommendations.’’ https://www.fsb-tcfd.org/support-tcfd/ 104See TCFD, 2021 Status Report. A recent survey by Moody’s of over 3,800 companies worldwide indicated that the global average disclosure rate of companies that reported across all 11 TCFD’s recommendations increased to 22% in 2021 from 16% in 2020. See Moody’s State of TCFD Disclosures 2021, available at https://assets.website￾files.com/5df9172583d7eec04960799a/ 616d36184f3e6431a424b9df_BX9303_MESG_ State%20of%20TCFD%20Disclosures%202021.pdf. In addition, according to a recent report by the Governance & Accountability Institute, Inc., 70% of companies in the Russell 1000 Index published sustainability reports in 2020, and of those reporters, 30% mentioned or aligned their disclosures with the TCFD framework, and 40% responded to the CDP questionnaires, which are aligned with the TCFD. See Governance & Accountability Institute, Sustainability Reporting in Focus, 2021, available at https://www.ga￾institute.com/fileadmin/ga_institute/images/ FlashReports/2021/Russell-1000/G_A-Russell￾Report-2021-Final.pdf?vgo_ee= NK5m02JiOOHgDiUUST7fBRwUnRnlmwiuCIJkd9 A7F3A%3D. We discuss the findings of this report, and other similar findings, in greater detail in
Section IV.A.5.c below.
105See TCFD, 2021 Status Report.
106See id.
107See Climate-related Disclosures Prototype, Developed by the Technical Readiness Working Group, chaired by the IFRS Foundation, to provide recommendations to the International Sustainability Standards Board for consideration (Nov. 2021). 108HM Treasury, G7 Finance Ministers and Central Bank Governors Communique—Policy Paper (June 2021), available at https://www.gov.uk/ government/publications/g7-finance-ministers￾meeting-june-2021-communique/g7-finance￾ministers-and-central-bank-governors-communique (stating their support of mandatory climate-related financial disclosures based on the TCFD framework because of investors’ need for high quality, reliable, comparable climate-risk data). 109See, e.g., letters from Calvert Research and Management (June 1, 2021); Ceres et al (June 10, 2021); NY State Comptroller (June 8, 2021); and SASB (May 19, 2021). 110See infra Section II.G.1 and note 412. 111See, e.g., letters from Apple, Inc. (June 11, 2021); bp (June 11, 2021); Carbon Tracker Initiative (June 14, 2021); Consumer Federation of America (June 14, 2021); ERM CVS (June 11, 2021); Ethic Inc. (June 11, 2021); First Affirmative Financial Network; Regenerative Crisis Response Committee; MSCI, Inc. (June 12, 2021); Natural Resources Defense Council; New York State Society of Certified Public Accountants(June 11, 2021); Paradice Investment Management (June 11, 2021); Stray Dog Capital (June 15, 2021); and Huw Thomas (June 16, 2021). 112See, e.g., letters from ERM CVS; and Natural Resources Defense Council; see also Greenhouse Gas Protocol, About Us | Greenhouse Gas Protocol, available at https://ghgprotocol.org/about-us. 113See, e.g., EPA Center for Corporate Climate Leadership, Scope 1 and Scope 2 Inventory Guidance, at https://www.epa.gov/ climateleadership/scope-1-and-scope-2-inventory￾guidance. 114See Greenhouse Gas Protocol, About Us | Greenhouse Gas Protocol (ghgprotocol.org), available at https://ghgprotocol.org/about-us. 115See id. The Kyoto Protocol, adopted in 1997, implemented the United Nations Framework Convention on Climate Change by obtaining commitments from industrialized countries to reduce emissions of the seven identified gasses according to agreed targets. See United Nations Climate Change, What is the Kyoto Protocol?, available at https://unfccc.int/kyoto_protocol. The EPA includes these seven greenhouse gases in its greenhouse gas reporting program. See, e.g., EPA, GHGRP Emissions by GHG, available at https:// www.epa.gov/ghgreporting/ghgrp-emissions-ghg. 116See World Business Council for Sustainable Development and World Resources Institute, The Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard REVISED EDITION, available at https://ghgprotocol.org/corporate￾standard. 117 Id. Support for the TCFD’s recommendations by companies and other reporting frameworks has grown steadily since the TCFD’s formation.103 As of October 2021 more than 2,600 organizations globally, with a total market capitalization of $25
trillion have expressed support for the TCFD.104 Further, 1,069 financial institutions, managing assets of $194 trillion, also support the TCFD.105 In recognition of the widespread adoption by companies of TCFD reporting, a number of countries, including the United Kingdom, New Zealand, and Switzerland, and the European Union that have proposed mandatory climate￾risk disclosure requirements have indicated an intention to base disclosure requirements on the TCFD framework.106 Further, the TCFD’s recommendations have been adopted by, and incorporated into, other voluntary climate disclosure frameworks such as the CDP, GRI, CDSB, and SASB frameworks. The TCFD also forms the framework for the Prototype that the IFRS Foundation provided to the ISSB as a potential starting point for its standard setting initiative.107 The G7 Finance Ministers and Central Bank Governors have also endorsed the TCFD.108 As a result, although the reporting landscape is crowded with voluntary standards that seek different information in different formats, the TCFD framework has been widely endorsed by U.S. companies and regulators and standard-setters around the world.
2. The Greenhouse Gas Protocol
Quantitative greenhouse gas (‘‘GHG’’) emissions data can enable investors to assess a registrant’s exposure to climate￾related risks, including regulatory, technological, and market risks driven by a transition to a lower-GHG intensive economy.109 This data also could help investors to assess the progress of registrants with public commitments to reduce GHG emissions, which would be important in assessing potential future capital outlays that might be required to meet such commitments. For these reasons, many investors and other commenters recommended that we require disclosure of a registrant’s GHG emissions.110 Many commenters also recommended that we base any GHG emissions disclosure requirement on the GHG Protocol.111 These commenters indicated that the GHG Protocol has become the most widely-used global greenhouse gas accounting standard.112 For example, the Environmental Protection Agency (‘‘EPA’’) Center for Corporate Climate Leadership references the GHG Protocol’s standards and guidance as resources for companies that seek to calculate their GHG emissions.113 The GHG Protocol was created through a partnership between the World Resources Institute and the World Business Council for Sustainable Development, which agreed in 1997 to collaborate with businesses and NGOs to create a standardized GHG accounting methodology.114 The GHG Protocol has been updated periodically since its original publication and has been broadly incorporated into sustainability reporting frameworks, including the TCFD, Value Reporting Foundation, GRI, CDP, CDSB, and the IFRS Foundation’s Prototype. The GHG Protocol’s Corporate Accounting and Reporting Standard provides uniform methods to measure and report the seven greenhouse gasses covered by the Kyoto Protocol—carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride.115 The GHG Protocol introduced the concept of ‘‘scopes’’ of emissions to help delineate those emissions that are directly attributable to the reporting entity and those that are indirectly attributable to the company’s activities.116 Under the GHG Protocol, Scope 1 emissions are direct GHG emissions that occur from sources owned or controlled by the company. These might include emissions from company-owned or controlled machinery or vehicles, or methane emissions from petroleum operations. Scope 2 emissions are those emissions primarily resulting from the generation of electricity purchased and consumed by the company.117 Because these emissions derive from the activities of another party (the power provider), they are considered indirect emissions. Scope 3 emissions are all other indirect emissions not accounted for in Scope 2 emissions. These emissions are a consequence of the company’s activities but are generated from sources that are neither owned nor controlled by the

118The Scope 3 emissions standard was developed over a three-year period with participation by businesses, government agencies, academics, and NGOs to help companies understand and manage their climate-related risks and opportunities in their upstream and downstream value chains. See Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Supplement to the GHG Protocol Corporate Accounting and Reporting Standard (Sept. 2011), available at https://ghgprotocol.org/sites/default/files/ standards/Corporate-Value-Chain-Accounting￾Reporing-Standard_041613_2.pdf. This standard identified eight upstream and seven downstream emission categories that can give rise to Scope 3 emissions. The GHG Protocol is developing additional guidance that may impact Scope 3 emissions related to land use and land sector activities. See Greenhouse Gas Protocol, Update on Greenhouse Gas Protocol Carbon Removals and Land Sector Initiative (July 8, 2021), available at https://ghgprotocol.org/blog/update-greenhouse￾gas-protocol-carbon-removals-and-land-sector￾initiative. 119See Section II.G.1, below, for a more extensive discussion of Scope 3 categories and emissions. 120See id. 121See infra Sections II.B through E and II.G through I. 122See 17 CFR 240.12b–2 (defining ‘‘accelerated filer’’ as an issuer after it first meets the following conditions as of the end of its fiscal year: (i) The issuer had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter; (ii) the issuer has been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve calendar months; (iii) the issuer has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act; and (iv) the issuer is not eligible to use the requirements for SRCs under the SRC revenue test). 123See 17 CFR 240.12b–2 (defining ‘‘large accelerated filer’’ as an issuer after it first meets the following conditions as of the end of its fiscal year:
(i) The issuer had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter; (ii) the issuer has been subject to the requirements of
Section 13(a) or 15(d) of the Exchange Act for a
period of at least twelve calendar months; (iii) the issuer has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act; and (iv) the issuer is not eligible to use the requirements for SRCs under the SRC revenue test). 124See infra Section II.H. 125See infra Section II.F. 126See infra Sections II.F.2 and 3. 127See infra Section II.D. 128See infra Sections II.B and C. 129See infra Section II.C. 130See infra Section II.E. 131See infra Sections II.F.2 and 3. 132See infra Sections II.F.4. 133See infra Section II.G.1. 134See infra Section II.I. 135As defined by Commission rules, a foreign private issuer is any foreign issuer other than a foreign government except an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter:
More than 50% of the outstanding voting securities of such issuer are directly or indirectly owned of record by residents of the United States; and either the majority of its executive officers or directors are United States citizens or residents, more than 50% of the assets of the issuer are located in the United States, or the business of the issuer is administered principally in the United States. See 17 CFR
230.405 and 17 CFR 240.3b–4.
136See infra Section II.A.2. company.118 These might include emissions associated with the production and transportation of goods a registrant purchases from third parties, employee commuting or business travel, and the processing or use of the registrant’s products by third parties.119 We have based our proposed GHG emissions disclosure requirement primarily on the GHG Protocol’s concept of scopes and related methodology.120 By basing this requirement on an established GHG emissions reporting framework, we believe the compliance burden would be mitigated, especially for those registrants that are already disclosing or estimating their GHG emissions pursuant to the GHG Protocol. E. Summary of the Proposed Rules We are proposing to add a new subpart to Regulation S–K, 17 CFR 229.1500–1507 (‘‘Subpart 1500 of Regulation S–K’’) that would require a registrant to disclose certain climate￾related information, including information about its climate-related risks that are reasonably likely to have material impacts on its business or consolidated financial statements, and GHG emissions metrics that could help investors assess those risks.121 A registrant may also include disclosure about its climate-related opportunities. The proposed new subpart to Regulation S–K would include an attestation requirement for accelerated filers 122 and large accelerated filers 123 regarding certain proposed GHG emissions metrics disclosures.124 We are also proposing to add a new
article to Regulation S–X, 17 CFR
210.14–01 and 02 (‘‘Article 14 of Regulation S–X’’) that would require certain climate-related financial statement metrics and related disclosure to be included in a note to a registrant’s audited financial statements.125 The proposed financial statement metrics would consist of disaggregated climate￾related impacts on existing financial statement line items. As part of the registrant’s financial statements, the financial statement metrics would be subject to audit by an independent registered public accounting firm, and come within the scope of the registrant’s internal control over financial reporting (‘‘ICFR’’).126

1. Content of the Proposed Disclosures
   The proposed climate-related disclosure framework is modeled in part on the TCFD’s recommendations, and also draws upon the GHG Protocol. In particular, the proposed rules would require a registrant to disclose information about:

• The oversight and governance of
  climate-related risks by the registrant’s board and management; 127
• How any climate-related risks
  identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; 128
• How any identified climate-related
  risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; 129
• The registrant’s processes for
  identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes; 130
• The impact of climate-related
  events (severe weather events and other natural conditions as well as physical risks identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items of a registrant’s consolidated financial statements and related expenditures,131 and disclosure of financial estimates and assumptions impacted by such climate-related events and transition activities.132
• Scopes 1 and 2 GHG emissions
  metrics, separately disclosed, expressed:
  Æ Both by disaggregated constituent greenhouse gases and in the aggregate, and Æ In absolute and intensity terms; 133
• Scope 3 GHG emissions and
  intensity, if material, or if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions; and
• The registrant’s climate-related
  targets or goals, and transition plan, if any.134 When responding to any of the proposed rules’ provisions concerning governance, strategy, and risk management, a registrant may also disclose information concerning any identified climate-related opportunities.

2. Presentation of the Proposed
   Disclosures
   The proposed rules would require a registrant (both domestic and foreign private issuers): 135

• To provide the climate-related
  disclosure in its registration statements and Exchange Act annual reports; 136

137See id.
138See infra Section II.F.
139See infra Section II.K.
140See infra Section II.L.
141See infra Section II.H.
142See infra Section II.H.1 (providing further details on the proposed timing of the minimum attestation requirements). 143See infra Section II.G.3. The Commission’s rules define a smaller reporting company to mean an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that: (1) Had a public float of less than $250 million; or (2) had annual revenues of less than $100 million and either: (i) No public float; or (ii) a public float of less than $700 million. See 17 CFR 229.10(f)(1), 230.405, and 17 CFR 240.12b–2. 144See infra Section II.M. 145See, e.g., letters from Alphabet Inc., Amazon.com Inc., Autodesk, Inc., eBay Inc., Facebook, Inc., Intel Corporation, and Salesforce.com, Inc. (June 11, 2021) (‘‘Alphabet Inc. et al.); the Aluminum Association (June 11, 2021); Amalgamated Bank; Apple, Inc.; Bank of Finland; BNP Paribas; Boston Common Asset Management; Ceres and other signatories representing NGOs, academics, and investors (Ceres et al.) (June 11, 2021); Certified B Corporations (June 11, 2021); Chevron; Clean Yield Asset Management; Climate Advisers (June 13, 2021); Climate Governance Initiative (June 12, 2021); Committee on Financial and Capital Markets (Keidenren) (June 13, 2021); Commonwealth Climate and Law Initiative; Crowe LLP (June 11, 2021); E2 (June 14, 2021); ERM CVS; Eumedion (June 11, 2021); Fossil Fuel Divest Harvard (June 14, 2021); Impact Investors, Inc.; Impax Asset Management; Information Technology Industry Council (June 11, 2021); Institutional Limited Partners Association (June 11, 2021); Japanese Bankers Association (June 11, 2021); Keramida (June 11, 2021); Carolyn Kohoot (June 11, 2021); Legal and General Investment Management America (June 11, 2021); Christopher Lish (June 12, 2021); Manifest Climate (June 13, 2021); Mercy Investment Services, Inc.; Miller/Howard Investments; Mirova US LLC (June 14, 2021); M.J. Bradley & Associates, on behalf of Energy Strategy Coalition (June 13, 2021); Morningstar, Inc. (June 9, 2021); MSCI, Inc.; Natural Resources Defense Council (June 11, 2021); Persefoni (June 14, 2021); PRI; S&P Global; Maria Stoica (June 11, 2021); Trillium Asset Management; United Nations Environment Programme (UNEP) (June 9, 2021); Walmart, Inc. (June 11, 2021); and World Business Council for Development (June 11, 2021) (WBCSD). 146See, e.g., letters from Adobe Inc. (June 11, 2021); Alberta Investment Management Corporation (June 11, 2021); AllianceBernstein; American Chemistry Council (June 11, 2021); American Society of Adaptation Professionals (June 11, 2021); Baillie Gifford (June 11, 2021); Bank Policy Institute (June 9, 2021); BlackRock; Bloomberg, LP (June 3, 2021); bp; BSR (June 11, 2021); Canadian Bankers Association (June 11, 2021); Canadian Coalition of Good Governance; Capital Group (June 11, 2021); Catavento Consultancy (Apr. 30, 2021); Center for Climate and Energy Solutions; Confluence
Philanthropy (June 14, 2021); ConocoPhilips, Inc.

• To provide the Regulation S–K
  mandated climate-related disclosure in a separate, appropriately captioned
  section of its registration statement or
  annual report, or alternatively to incorporate that information in the separate, appropriately captioned
  section by reference from another
  section, such as Risk Factors,
  Description of Business, or Management’s Discussion and Analysis (‘‘MD&A’’); 137
• To provide the Regulation S–X
  mandated climate-related financial statement metrics and related disclosure in a note to the registrant’s audited financial statements; 138
• To electronically tag both narrative
  and quantitative climate-related disclosures in Inline XBRL; 139 and
• To file rather than furnish the
  climate-related disclosure.140

3. Attestation for Scope 1 and Scope 2
   Emissions Disclosure
   The proposed rules would require an accelerated filer or a large accelerated filer to include, in the relevant filing, an attestation report covering, at a minimum, the disclosure of its Scope 1 and Scope 2 emissions and to provide certain related disclosures about the service provider.141 As proposed, both accelerated filers and large accelerated filers would have time to transition to the minimum attestation requirements. The proposed transition periods would provide existing accelerated filers and large accelerated filers one fiscal year to transition to providing limited assurance and two additional fiscal years to transition to providing reasonable assurance, starting with the respective compliance dates for Scopes 1 and 2 disclosure described below.142 The proposed rules would provide minimum attestation report requirements, minimum standards for acceptable attestation frameworks, and would require an attestation service provider to meet certain minimum qualifications. The proposed rules would not require an attestation service provider to be a registered public accounting firm.
4. Phase-In Periods and
   Accommodations for the Proposed Disclosures The proposed rules would include:

• A phase-in for all registrants, with
  the compliance date dependent on the registrant’s filer status;
• An additional phase-in period for
  Scope 3 emissions disclosure;
• A safe harbor for Scope 3 emissions
  disclosure;
• An exemption from the Scope 3
  emissions disclosure requirement for a registrant meeting the definition of a smaller reporting company (‘‘SRC’’); 143 and
• A provision permitting a registrant,
  if actual reported data is not reasonably available, to use a reasonable estimate of its GHG emissions for its fourth fiscal quarter, together with actual, determined GHG emissions data for the first three fiscal quarters, as long as the registrant promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter. The proposed rules would be phased in for all registrants, with the compliance date dependent upon the status of the registrant as a large accelerated filer, accelerated or non￾accelerated filer, or SRC, and the content of the item of disclosure. For example, assuming that the effective date of the proposed rules occurs in December 2022 and that the registrant has a December 31st fiscal year-end, the compliance date for the proposed disclosures in annual reports, other than the Scope 3 disclosure, would be:
• For large accelerated filers, fiscal
  year 2023 (filed in 2024);
• For accelerated and non-accelerated
  filers, fiscal year 2024 (filed in 2025); and
• For SRCs, fiscal year 2025 (filed in
  2026).144
  Registrants subject to the proposed Scope 3 disclosure requirements would have one additional year to comply with those disclosure requirements. We welcome feedback and encourage interested parties to submit comments on any or all aspects of the proposed rules. When commenting, it would be most helpful if you include the reasoning behind your position or recommendation.
  II. Discussion
  A. Overview of the Climate-Related Disclosure Framework

1. Proposed TCFD-Based Disclosure
   Framework
   We have modeled the proposed disclosure rules in part on the TCFD disclosure framework. Building on the TCFD framework should enable companies to leverage the framework with which many investors and issuers are already familiar, which should help to mitigate both the compliance burden for issuers and any burdens faced by investors in analyzing and comparing the new proposed disclosures. Many commenters that supported climate disclosure rules recommended that we consider the TCFD framework in developing those rules. Numerous commenters stated that the Commission should base its climate-related disclosure rules on the TCFD framework either as a standalone framework,145 or in conjunction with industry-specific metrics drawn from the SASB146 or

(June 11, 2021); CPP Investments (June 11, 2021); Enbridge, Inc. (June 11, 2021); Energy Workforce and Technology Council (June 11, 2021); Entelligent, Inc. (June 14, 2021); Ethic Inc.; Emmanuelle Haack (Apr. 27, 2021); Harvard Management Company (June 11, 2021); Hermes Equity Ownership Services Limited (June 14, 2021); Douglas Hileman Consulting (June 7, 2021); HP, Inc. (June 14, 2021); Virginia Harper Ho (June 12, 2021); IHS Markit (June 13, 2021); Institute of International Bankers; Institute of International Finance (June 13, 2021); Institute of Management Accountants (June 12, 2021); Invesco (June 10, 2021); Investment Company Institute; Investment Consultants Sustainability Working Group (June 11, 2021); Richard Love (May 20, 2021); Manulife Investment Management (June 11, 2021); NEI Investments (June 11, 2021); Neuberger Berman (June 11, 2021); New York State Society of Certified Public Accountants; Nordea Asset Management (June 11, 2021); Norges Bank Investment Management (June 13, 2021); NY State Comptroller; Paradice Investment Management (June 11, 2021); Parametric Portfolio Associates; PayPal Holdings, Inc. (June 12, 2021); PGIM (June 13, 2021); Reinsurance Association of America (June 9, 2021); Salesforce.com (June 11, 2021); San Francisco Employees Retirement System (June 12, 2021); State Street Global Advisors; Summit Strategy Group (June 11, 2021); Teachers Insurance and Annuity Association of America (June 11, 2021); T Rowe Price (June 11, 2021); Value Reporting Foundation (June 11, 2021); Wellington Management Co. (June 11, 2021); and Westpath Benefits and Assessments (June 11, 2021). 147See, e.g., letters from Gabrielle F. Preiser (Mar. 31, 2021) and Worldbenchmarking Alliance (June 11, 2021) (recommending the Global Reporting Initiative (GRI) standards); letter from Mathew Roling and Samantha Tirakian (June 11, 2021) (recommending the CDSB standards); and Pricewaterhouse Coopers and Grant Thornton (June 11, 2021) (recommending the Sustainability Standards Board (SSB) standards once the SSB is established by the IFRS Foundation and others as a global standard-setter and once it promulgates standards). 148See, e.g., letters from Adobe; Alphabet Inc. et al.; BNP Paribas; bp; Chevron; ConocoPhilips; and Walmart. 149See, e.g., letters from Alberta Investment Management Corporation; BlackRock; CalPERS; CALSTRS; Impact Investors, Inc.; and San Francisco Employees Retirement System. 150See, e.g., letters from BNP Paribas; Deutsche Bank (June 11, 2021); and Institute of International Bankers. 151See, e.g., letters from AllianceBernstein; CALSTRS; Investment Company Institute; and NY State Comptroller. 152See supra note 95 and accompanying text. 153See, e.g., letters from BNP Paribas; bp; and Chevron. 154Proponents of the TCFD framework include academics (see, e.g., letters from Jill Fisch et al., J. Robert Gibson (May 26, 2021), and Gina-Gail S Fletcher (June 14, 2021)); accounting and audit firms (see, e.g., letters from AICPA (June
11, 2021), Center for Audit Quality (‘‘CAQ’’) (June 11, 2021), and KPMG LLP (June 12, 2021)); foreign firms (see, e.g., letters from Bank of Finland, BNP Paribas, bp, and Deutsche Bank); industry groups (see, e.g., letters from American Chemistry Council, Association of American Railroads (June 11, 2021), and Information Technology Industry Council (June 11, 2021)); investor groups (see, e.g., letters from CalPERS; CALSTRS; and San Francisco Employees Retirement System); individuals (see, e.g., letters from Emmanuelle Haack, Christopher Lish, and Maria Stoica); issuers (see, e.g., letters from Adobe, Alphabet Inc. et al., Apple, and Chevron); NGOs (see, e.g., letters from Ceres et al., Climate Governance Initiative, Natural Resources Defense Council, and UNEP); professional climate advisors (see, e.g., letters from Catavento Consultancy, Douglas Hileman Consulting, ERM CVS, and Ethic Inc.); and professional investment advisors/ investment management companies (see, e.g., letters from AllianceBernstein, Impact Investors, Miller/ Howard Investments, and Neuberger Berman). 155See proposed 17 CFR 229.1501. 156See proposed 17 CFR 229.1502. 157See proposed 17 CFR 229.1503. 158See proposed 17 CFR 229.1504. 159See proposed 17 CFR 229.1506. 160See proposed 17 CFR 210.14–01 and 14–02. 161See proposed 17 CFR 210.14–02(c) and (d). 162See proposed 17 CFR 210.14–02(e) and (f). 163See proposed 17 CFR 210.14–02(g) and (h). 164See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017), Section B.3 (Financial Impacts). 165See TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), Section F (Financial Impacts), available at https://assets.bbhub.io/ company/sites/60/2021/07/2021-Metrics_Targets_ Guidance-1.pdf. For avoidance of doubt, disclosure of climate-related opportunities is optional, not required, under our proposal. 166See, e.g., letters from AllianceBernstein; American Society of Adaptation Professionals; Seema Arora (June 22, 2021); Associated General Contractors of America (June 11, 2021); Baillie Gifford; CalPERS; Cardano Risk Management Ltd. (Apr. 19, 2021); Center for American Progress; Ceres et al.; Eni SpA; Jill Fisch (June 3, 2021); George S. Georgiev (June 22, 2021); Hannon Armstrong (June 15, 2021); Henry Schein, Inc.; Hermes Equity Ownership Services Limited; Virginia Harper Ho; Institute for Governance and Sustainable Development (June 9, 2021); Institute for Market Transformation (June 12, 2021); Interfaith Center on Corporate Responsibility; International Corporate Governance Network (June 11, 2021); Japanese Bankers Association; Morrison & Foerster LLP; National Investor Relations Institute (June 11, 2021); Natural Resources Defense Council; Newmont Corporation (June 13, 2021); New York Continued other third-party frameworks.147 A broad range of commenters, including both issuers 148 and investors,149 supported basing new climate-related disclosure rules on the TCFD framework. Commenters
provided several reasons for their support of the TCFD framework. First, commenters indicated that, because of the widespread adoption of the framework, issuers and investors have experience making and using TCFD disclosures. As a result, according to commenters, aligning SEC rules with the TCFD could reduce the burden on issuers and increase the consistency and comparability of climate disclosures.150 Second, commenters stated that the information that the TCFD disclosures elicit is useful for investors to understand companies’ exposure to and management of climate￾related risks.151 Third, various jurisdictions around the world have announced their intention to align their domestic disclosure rules with the TCFD.152 Commenters stated that by aligning with the TCFD framework, the Commission could potentially facilitate higher levels of consistency and comparability of disclosures globally.153 The consistency and breadth of these comments comport with our understanding that the TCFD framework has been widely accepted by issuers, investors, and other market participants and reinforce our view that the framework would provide an appropriate foundation for the proposed amendments.154 Basing the Commission’s climate-related disclosure rules on a globally recognized framework should help elicit climate￾related disclosures that are consistent, comparable, and reliable while also limiting the compliance burden for registrants that are already providing climate-related disclosures based on this framework. Similar to the TCFD framework, the proposed climate-related provisions under Regulation S–K would require disclosure of a registrant’s: Governance of climate-related risks; 155 any material climate-related impacts on its strategy, business model, and outlook; 156 climate-related risk management; 157 GHG emissions metrics; 158 and climate￾related targets and goals, if any.159 The proposed climate-related provisions under Regulation S–X would require a registrant to disclose in a note to its financial statements certain disaggregated climate-related financial statement metrics that are mainly derived from existing financial statement line items.160 The proposed rules would require disclosure falling under the following three categories of information: Financial impact metrics; 161 expenditure metrics; 162 and financial estimates and assumptions.163 Similar to the TCFD’s recommendation regarding financial impacts, the proposed financial statement metrics have the objective of increasing transparency about how climate-related risks impact a registrant’s financial statements.164 The TCFD framework identifies two broad categories of actual and potential financial impacts driven by climate-related risks and opportunities: Financial performance (income statement focused) and financial position (balance sheet focused), and includes suggested metrics such as the amount of capital expenditure deployed toward climate￾related risks and opportunities, which is similar
to our proposed financial statement metrics.165
2. Location of the Climate-Related
Disclosure
Many commenters stated that the Commission should amend Regulation S–K or Regulation S–X to include climate-related disclosure requirements.166 Other commenters

State Society of Certified Public Accountants; NY State Comptroller; PayPal Holdings, Inc.; PRI (Consultation Response); PricewaterhouseCoopers LLP; Maria Stoica; Sunrise Bay Area (June 14, 2021); Teachers Insurance and Annuity Association of America; Vert Asset Management LLC (June 14, 2021); WBCSD; and Wespath Benefits and Investments (June 11, 2021). 167See letters from Bank Policy Institute; Andrew Behar (As You Sow) (June 14, 2021); Entelligent Inc. (June 14, 2021); Impax Asset Management; Information Technology Industry Council; Majedie Asset Management (May 25, 2021); David Marriage (June 15, 2021); and XBRL US (June 15, 2021). 168See infra Section II.J for a discussion of the registrants and forms to which the proposed rules would apply. 169See 17 CFR 230.411; 17 CFR 240.12b–23; and the applicable forms. 170A registrant that elects to incorporate by reference any of the metrics or narrative disclosure that is subject to XBRL tagging must comply with the electronic tagging requirement in the section of the registration statement or report where the metrics or narrative disclosure appears in full. We discuss the XBRL tagging requirement in Section II.K. 171See, e.g., letters from Acadian Asset Management LLC (June 14, 2021); Actual Systems, Inc. (June 11, 2021); Baillie Gifford; Biotechnology Innovation Organization; CDP; ClientEarth US (June 14, 2021); FAIRR Initiative (June 15, 2021); Jill Fisch (June 3, 2021); Hermes Equity Ownership Services Limited; International Corporate Governance Network; Japanese Bankers Association; Majedie Asset Management; Morningstar, Inc.; NEI Investments; NY State Comptroller; Paradice Investment Management; Pre￾Distribution Initiative (June 14, 2021); PricewaterhouseCoopers LLP; Matthew Roling and Samantha Tirakian (June 11, 2021); Terra Alpha Investments; Vert Asset Management; and WBCSD. 172See, e.g., letters from Pricewaterhouse Coopers Ltd.; Vert Asset Management; and WBCSD. 173See, e.g., letters from Canadian Coalition for Good Governance; Clean Production Action and Environmental Health Network (June 11, 2021); Decatur Capital Management; Dimensional Fund Advisors (June 11, 2021); Environmental Industry Group (June 9, 2021); Institute for Governance and Sustainable Development; PRI (Consultation Response); Kenya Rothstein (May 3, 2021); and Maria Stoica. But see letter from Sarah Ladin (June 14, 2021) (doubting that a ‘‘sustainability discussion and analysis’’ requirement would achieve the desired results and stating that it would be difficult to enforce); and David Marriage (indicating that a discussion and analysis requirement for climate￾related data would make the data difficult for the market to absorb). recommended that the Commission adopt a new stand-alone regulation for climate-related disclosure.167 We are proposing to include the climate-related disclosure rules in Regulation S–K and Regulation S–X because the required disclosure is fundamental to investors’ understanding the nature of a
registrant’s business and its operating prospects and financial performance, and therefore, should be presented together with other disclosure about the registrant’s business and its financial condition. Specifically, we are proposing to require a registrant to include climate￾related disclosure in Securities Act or Exchange Act registration statements and Exchange Act annual reports in a separately captioned ‘‘Climate-Related Disclosure’’ section and in the financial statements.168 Requiring climate-related disclosure to be presented in this manner would facilitate review of the climate-related disclosure by investors alongside other relevant company financial and non-financial information. A registrant would be able to incorporate by reference disclosure from other parts of the registration statement or annual report (e.g., Risk Factors, MD&A, or the financial statements) or, in most cases, from other filed or submitted reports into the Climate￾Related Disclosure item if it is responsive to the topics specified in Items 1500–1506 of Regulation S–K and if the registrant satisfies the incorporation by reference requirements under the Commission’s rules and forms.169 Allowing incorporation by reference for the Regulation S–K climate-related disclosure would be consistent with the treatment of other types of business disclosure under our rules and would provide some flexibility for registrants while reducing redundancy in disclosure.170 Many commenters stated that the Commission should require registrants to discuss and analyze their quantitative climate data in a manner similar to that required for MD&A.171 These commenters stressed the importance of placing climate-related metrics in the context of other company financial and non-financial information to enable investors to see how those metrics intersect with business operations and industrial processes.172 Other commenters supported a requirement to discuss and analyze the climate-related metrics, but stated that such discussion should be part of the existing MD&A disclosures.173 We agree with the commenters supporting a narrative discussion and analysis of the climate￾related metrics as means to present these disclosures in context and explain how they relate to the registrant’s strategy and management of its climate￾related risks. In this way, such a discussion will serve a similar function to the MD&A but will focus on climate￾related risk specifically. Our proposed approach, which requires the climate￾related disclosure to be included in a specific section but allows registrants to incorporate from disclosure elsewhere (consistent with applicable incorporation by reference requirements), provides some flexibility to the proposed climate-related disclosure scheme while ensuring the disclosure is consistent and comparable across registrants. Request for Comment

1. Should we add a new subpart to
   Regulation S–K and a new article to Regulation S–X that would require a registrant to disclose certain climate￾related information, as proposed? Would including the climate-related disclosure in Regulation S–K and Regulation S–X facilitate the presentation of climate information as
   part of a registrant’s regular business
   reporting? Should we instead place the climate-related disclosure requirements in a new regulation or report? Are there certain proposed provisions, such as GHG emissions disclosure requirements, that would be more appropriate under Regulation S–X than Regulation S–K?
2. If adopted, how will investors
   utilize the disclosures contemplated in this release to assess climate-related risks? How will investors use the information to assess the physical effects and related financial impacts from climate-related events? How will investors use the information to assess risks associated with a transition to a lower carbon economy?
3. Should we model the Commission’s
   climate-related disclosure framework in
   part on the framework recommended by
   the TCFD, as proposed? Would alignment with the TCFD help elicit climate-related disclosures that are consistent, comparable, and reliable for investors? Would alignment with the TCFD framework help mitigate the reporting burden for issuers and facilitate understanding of climate￾related information by investors because the framework is widely used by companies in the United States and around the world? Are there aspects of the TCFD framework that we should not adopt? Should we instead adopt rules that are based on a different third-party framework? If so, which framework? Should we base the rules on something other than an existing third-party framework?
4. Do our current reporting
   requirements yield adequate and sufficient information regarding climate￾related risks to allow investors to make informed decisions? In lieu of, or in addition to the proposed amendments, should we provide updated guidance on how our existing rules may elicit better disclosure about climate-related risks?
5. Should we require a registrant to
   present the climate-related disclosure in an appropriately captioned, separate
   part of the registration statement or
   annual report, as proposed? Should this disclosure instead be presented as part of the registrant’s MD&A?
6. Should we permit a registrant to
   incorporate by reference some of the

174See supra note 40.
175The 2020 CFTC Advisory Subcommittee Report found that climate change currently impacts or is expected to affect every part of the U.S. economy, including agriculture, real estate, infrastructure, and the financial sectors. See infra note 361. 176A National Climate Taskforce created by the president established commitments to reduce economy-wide net greenhouse gas emissions by 50– 52% by 2030 as compared to 2005 levels, and to reach net zero emissions by 2050. See The White House, FACT SHEET: President Biden Sets 2030 Greenhouse Gas Pollution Reduction Target Aimed at Creating Good-Paying Union Jobs and Securing U.S. Leadership on Clean Energy Technologies (Apr. 22, 2021). An Executive Order also directs the Federal government to achieve net-zero emissions from overall Federal operations by 2050, and a 65% emissions reduction by 2030. See The White House, FACT SHEET: President Biden Signs Executive Order Catalyzing America’s Clean Energy Economy Through Federal Sustainability (Dec. 8, 2021), at https://www.whitehouse.gov/briefing-room/ statements-releases/2021/12/08/fact-sheet￾president-biden-signs-executive-order-catalyzing￾americas-clean-energy-economy-through-federal￾sustainability/. A growing number of governments and companies have made net zero commitments or announced similar carbon-reduction goals or targets. See United Nations Climate Change, Commitments to Net Zero Double in Less Than a Year (Sept. 21, 2020), available at https:// unfccc.int/news/commitments-to-net-zero-double￾in-less-than-a-year. 177See proposed 17 CFR 229.1502(a). 178See id. 179See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures,
Appendix 5.
180See proposed 17 CFR 229.1500(c). The reference to ‘negative’ impact is intended to refer to the actual or potential impact on the registrant’s consolidated financial statements, business operations, or value chains as a whole, rather than the mathematical impacts on a specific financial statement line item. See infra Section II.F.2 (discussing the proposed financial impact metrics, which focus on the line items in a registrant’s consolidated financial statements). 181See proposed 17 CFR 229.1500(t). 182See id. 183See, e.g., infra Section II.G.1. 184See proposed 17 CFR 229.1500(c)(1). 185See proposed 17 CFR 229.1500(c)(2). climate-related disclosure from other parts of the registration statement or annual report, as proposed? Should we permit a registrant to incorporate by reference climate-related disclosure that appears in a sustainability report if the registrant includes the incorporated by referenced disclosure as an exhibit to the registration statement or annual report? Are there some climate-related disclosure items, such as GHG emissions data, that we should not permit a registrant to incorporate by reference? Would requiring a registrant to include all of the proposed climate￾related disclosures in a separate, appropriately captioned section, while precluding a registrant from incorporating by reference some or all of the climate-related disclosures, promote comparability and ease of use of the climate-related information for investors?
7. Should we permit a registrant to
provide certain of the proposed climate￾related disclosures in Commission filings other than the annual report or registration statement? For example, should we permit a registrant to provide information about board and management oversight of climate-related risks in its proxy statement? B. Disclosure of Climate-Related Risks As many commenters have noted when seeking more detailed climate￾related disclosures,174 climate events and contingencies can pose financial risks to issuers across industrial sectors.175 Physical risks may include harm to businesses and their assets arising from acute climate-related disasters such as wildfires, hurricanes, tornadoes, floods, and heatwaves. Companies and their investors may also face chronic risks and more gradual impacts from long-term temperature increases, drought, and sea level rise. In addition to the physical risks associated with the climate, issuers and investors may also face risks associated with a potential transition to a less carbon intensive economy. These risks may arise from potential adoption of climate-related regulatory policies including those that may be necessary to achieve the national climate goals that may be or have been adopted in the United States and other countries; 176 climate-related litigation; changing consumer, investor, and employee behavior and choices; changing demands of business partners; long-term shifts in market prices; technological challenges and opportunities, and other transitional impacts. Disclosure about a registrant’s exposure to transition risks, as well as how the registrant is assessing and managing those risks, would help investors assess and plan for how the registrant would be financially impacted by a transition to a lower-carbon economy.

1. Definitions of Climate-Related Risks
   and Climate-Related Opportunities A central focus of the Commission’s proposed rules is the identification and disclosure of a registrant’s material climate-related risks. The proposed rules would require a registrant to disclose any climate-related risks reasonably likely to have a material impact on the registrant’s business or consolidated financial statements.177 A registrant may also disclose, as applicable, the actual and potential impacts of any climate-related opportunities it is pursuing.178 The proposed definitions are substantially similar to the TCFD’s definitions of climate-related risks and climate-related opportunities.179 We have based our definitions on the TCFD’s definitions because they provide a common terminology that allows registrants to disclose climate-related risks and opportunities in a consistent and comparable way. Grounding our definitions in a framework that is already widely accepted also could help limit the burden on issuers to identify and describe climate-related risks and improve the comparability and usefulness of the disclosures for investors. As proposed, ‘‘climate-related risks’’ means the actual or potential negative impacts of climate-related conditions and events on a registrant’s consolidated financial statements, business operations, or value chains, as a whole.180 ‘‘Value chain’’ would mean the upstream and downstream activities related to a registrant’s operations.181 Under the proposed definition, upstream activities include activities by a party other than the registrant that relate to the initial stages of a registrant’s production of a good or service (e.g., materials sourcing, materials processing, and supplier activities). Downstream activities would be defined to include activities by a party other than the registrant that relate to processing materials into a finished product and delivering it or providing a service to the end user (e.g., transportation and distribution, processing of sold products, use of sold products, end of life treatment of sold products, and investments).182 We have proposed including a registrant’s value chain within the definition of climate￾related risks to capture the full extent of a registrant’s potential exposure to climate-related risks, which can extend beyond its own operations to those of its suppliers, distributors, and others engaged in upstream or downstream activities.183 Climate-related conditions and events can present risks related to the physical impacts of the climate (‘‘physical risks’’) and risks related to a potential transition to a lower carbon economy (‘‘transition risks’’). As proposed, ‘‘physical risks’’ is defined to include both acute and chronic risks to a registrant’s business operations or the operations of those with whom it does business.184 ‘‘Acute risks’’ is defined as event-driven risks related to shorter-term extreme weather events, such as hurricanes, floods, and tornadoes.185 ‘‘Chronic risks’’ is defined as those risks that the
   business may face as a result of longer term weather

186See proposed 17 CFR 229.1500(c)(3). The physical risks described are examples, but registrants may be exposed to many other types of physical risks from climate change depending on their specific facts and circumstances. As such, any reference to certain types of risks should be considered as non-exhaustive examples. 187The IPCC’s Sixth Assessment Report noted drought, heatwaves, hurricanes, and heavy precipitation. See IPCC, Climate Change 2021, The Physical Science Basis Summary for Policymakers. 188See proposed 17 CFR 229.1500(c)(4). 189See proposed 17 CFR 229.1502(a)(1)(ii). 190See proposed 17 CFR 229.1502(a)(1). 191See, e.g., proposed 17 CFR 229.1502(b)(1) and 229.1503(c)(1) and (2). 192See proposed 17 CFR 229.1502(a)(1)(i). In some instances, chronic risks might give rise to acute risks. For example, drought (a chronic risk) that increases acute risks, such as wildfires, or increased temperatures (a chronic risk) that increases acute risks, such as severe storms. In such instances, a registrant should provide a clear and consistent description of the nature of the risk and how it may affect a related risk. 193See id. 194See proposed 17 CFR 229.1500(k). 195See letter from Wellington Management Co. 196See letters from Action Center on Race and Economy (June 14, 2021); Americans for Financial Reform Education Fund; Confluence Philanthropy; Domini Impact Investments; William and Flora Hewlett Foundation; Public Citizen; and Revolving Door Project. 197See proposed 17 CFR 229.1502(a)(1)(i)(A). 198See proposed 1502(a)(1)(i)(B). 199Registrants in these industry sectors could be particularly susceptible to water-stress risks because operations in these sectors require large amounts of water. See TCFD, Implementing the Recommendations of the Task Force on Climate￾Related Financial Disclosures, Section E (Oct. 2021), available at https://assets.bbhub.io/ company/sites/60/2021/07/2021/TCFD/ Implementing_Guidance.pdf (discussing the listed events and other risks). 200See proposed 17 CFR 229.1502(a)(1)(i)(B). patterns and related effects, such as sustained higher temperatures, sea level rise, drought, and increased wildfires, as well as related effects such as decreased arability of farmland, decreased habitability of land, and decreased availability of fresh water.186 Many of these physical risks have already impacted and may continue to impact registrants across a wide range of economic sectors.187 The proposed rules would define transition risks to mean the actual or potential negative impacts on a registrant’s consolidated financial statements, business operations, or value chains attributable to regulatory, technological, and market changes to address the mitigation of, or adaptation to, climate-related risks.188 Transition risks would include, but are not limited to, increased costs attributable to climate-related changes in law or policy, reduced market demand for carbon￾intensive products leading to decreased sales, prices, or profits for such
products, the devaluation or abandonment of assets, risk of legal liability and litigation defense costs, competitive pressures associated with the adoption of new technologies, reputational impacts (including those stemming from a registrant’s customers or business counterparties) that might trigger changes to market behavior, changes in consumer preferences or behavior, or changes in a registrant’s behavior. A registrant that has significant operations in a jurisdiction that has made a GHG emissions reduction commitment would likely be exposed to transition risks related to the implementation of the commitment.189 The proposed rules would require a registrant to specify whether an identified climate-related risk is a physical or transition risk so that investors can better understand the nature of the risk 190 and the registrant’s actions or plan to mitigate or adapt to the risk.191 If a physical risk, the proposed rules would require a registrant to describe the nature of the risk, including whether it may be categorized as an acute or chronic risk.192 The proposed rules would require a registrant to include in its description of an identified physical risk the location of the properties, processes, or operations subject to the physical risk.193 The proposed location disclosure would only be required for a physical risk that a registrant has determined has had or is likely to have a material impact on its business or consolidated financial statements. In such instances, a registrant would be required to provide the ZIP code for the location or, if the location is in a jurisdiction that does not use ZIP codes, a similar subnational postal zone or geographic location.194 Because physical risks can be concentrated in particular geographic areas, the proposed disclosure would allow investors to better assess the risk exposure of one or more registrants with properties or operations in a particular area. One commenter cited location information as a key component of how it, as an investor, assesses the climate risk facing a company, particularly for companies with fixed assets that may be disproportionately exposed to climate￾related physical risks.195 Several other commenters recommended that we require the disclosure of certain climate data to be disaggregated by location using a point source’s zip code for risk assessment.196 Disclosing the zip codes of its identified material climate-related risks, rather than a broader location designation, could help investors more accurately assess a registrant’s specific risk exposure. Some registrants might be exposed to water-related acute physical risks, such as flooding, which could impair a registrant’s operations or devalue its property. If flooding presents a material physical risk, the proposed rules would require a registrant to disclose the percentage of buildings, plants, or properties (square meters or acres) that are located in flood hazard areas in addition to their location.197 This
information could help investors evaluate the magnitude of a registrant’s exposure to flooding, which, for example, could cause a registrant in the real estate sector to lose revenues from the rental or sale of coastal property or incur higher costs or a diminished ability to obtain property insurance, or a manufacturing registrant to incur increased expenses due to the need to replace water-damaged equipment or move an entire plant. Additional disclosure would be required if a material risk concerns the location of assets in regions of high or extremely high water stress.198 For example, some registrants might be impacted by water-related chronic physical risks, such as increased temperatures and changes in weather patterns that result in water scarcity. Registrants that are heavily reliant on water for their operations, such as registrants in the energy sector, materials and buildings sector, or agriculture sector,199 could face regulatory restrictions on water use, increased expenses related to the acquisition and purchase of alternative sources of water, or curtailment of its operations due to a reduced water supply that diminishes its earning capacity. If the location of assets in regions of high or extremely high water stress presents a material risk, the proposed rules would require a registrant to disclose the amount of assets (e.g., book value and as a percentage of total assets) located in such regions in addition to their location. The registrant would also be required to disclose the percentage of its total water usage from water withdrawn in those regions.200 These disclosures could help investors understand the magnitude of a registrant’s material water-stress risks with a degree of specificity that might not be elicited under our current risk factor disclosure standards. Any increased temperatures could also materially impact a registrant in other ways. For example, a registrant in the construction industry might be required to disclose the physical risk of increased heat waves that affect the

201See, e.g., How Seasonal Temperature Changes Affect the Construction Industry (constructconnect.com) (Aug. 15, 2018), available at https://www.constructconnect.com/blog/seasonal￾temperature-changes-affect-construction-industry. 202See, e.g., The Impact of Wildfires on Business is Enormous ⎢ Are You Ready? (alertmedia.com) (Aug. 27, 2020), available at https:// www.alertmedia.com/blog/the-impact-of-wildfires￾on-business/. 203See, e.g., Climate change and the coming coastal real estate crash—Curbed (Oct. 16, 2018), available at https://archive.curbed.com/2018/10/16/ 17981244/real-estate-climate-change-infrastructure. 204See proposed 17 CFR 229.1502(a)(1)(ii). 205See proposed 17 CFR 229.1500(b). The reference to ‘positive’ impact is intended to refer to the actual or potential impact on the registrant’s consolidated financial statements, business operations, or value chains as a whole, rather than the mathematical impacts on a specific financial statement line item. See infra Section II.F.2 (discussing the proposed financial impact metrics, which focus on the line items in a registrant’s consolidated financial statements). 206Some commenters expressed concern about potential anti-competitive effects of the Commission’s possible climate disclosure rules. See, e.g., letters from Association of General Contractors of America (June 11, 2021); and Healthy Markets Association (June 14, 2021). 207See proposed Item 1502(a) of Regulation S–K. 208See, e.g., letters from Boston Common Asset Management; Christian Brothers Investment Services (June 11, 2021); Clean Yield Asset Management; and Miller/Howard Investments; see also American Institute of CPAs (AICPA) (June 11, 2021). 209See 17 CFR 240.12b–2 (definition of ‘‘material’’). See also Basic Inc. v. Levinson, 485 U.S. 224, 231, 232, and 240 (1988) (holding that information is material if there is a substantial likelihood that a reasonable investor would consider the information important in deciding how to vote or make an investment decision; and quoting TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449 (1977) to further explain that an omitted fact is material if there is ‘‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.’’). 210See Release No. 33–10064, Business and Financial Disclosure Required by Regulation S–K (Apr. 13, 2016), [81 FR 23915 (Apr. 22, 2016)] (discussing materiality in the context of, among other matters, restating financial statements). See also Staff Accounting Bulletin No. 99 (Aug. 12, 1999), available at https://www.sec.gov/interps/ account/sab99.htm (emphasizing that a registrant or an auditor may not substitute a percentage threshold for a materiality determination that is required by applicable accounting principles). Staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing
the Commission’s official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws. 211See Basic, Inc. v. Levinson, 485 U.S. 224, 238 (1988). When considering the materiality of different climate-related risks, a registrant might, for example, determine that certain transition risks and chronic physical risks are material when balancing their likelihood and impact. It also might determine that certain acute physical risks are material even if they are less likely to occur if the magnitude of their impact would be high. ability of its personnel to safely work outdoors, which could result in a cessation or delay of operations, and a reduction in its current or future earnings.201 A registrant operating in wildfire-prone areas could be exposed to potential disruption of operations, destruction of property, and relocation of personnel in the event of heat￾induced wildfires.202 A registrant in the real estate sector might similarly be required to disclose the likelihood that sea levels could rise faster than expected and reduce the value of its coastal properties.203 The proposed rules would require a registrant to describe the nature of transition risks, including whether they relate to regulatory, technological, market (including changing consumer, business counterparty, and investor preferences), liability, reputational, or other transition-related factors, and how those factors impact the registrant.204 For example, an automobile manufacturer might describe how market factors, such as changing consumer and investor preferences for low-emission vehicles, have impacted or will likely impact its production choices, operational capabilities, and future expenditures. An energy producer might describe how regulatory and reputational factors have impacted or are likely to impact its operational activities, reserve valuations, and investments in renewable energy. An industrial manufacturer might describe how investments in innovative technologies, such as carbon capture and storage, have impacted or are likely to impact its consolidated financial statements, such as by increasing its capital expenditures. Climate related conditions and any transition to a lower carbon economy may also present opportunities for companies and investors. The proposed rules would define ‘‘climate-related opportunities’’ to mean the actual or potential positive impacts of climate￾related conditions and events on a registrant’s consolidated financial statements, business operations, or value chains, as a whole.205 Efforts to mitigate or adapt to the effects of climate-related conditions and events can produce opportunities, such as cost savings associated with the increased use of renewable energy, increased resource efficiency, the development of new products, services, and methods, access to new markets caused by the
transition to a lower carbon economy, and increased resilience along a registrant’s supply or distribution network related to potential climate￾related regulatory or market constraints. A registrant, at its option, may disclose information about any climate-related opportunities it may be pursuing when responding to the proposed disclosure requirements concerning governance, strategy, and risk management in connection with climate-related risks. We are proposing to treat this disclosure as optional to allay any anti-competitive concerns that might arise from a requirement to disclose a particular business opportunity.206 By defining ‘‘climate-related opportunities,’’ the proposed rules would promote consistency when such opportunities are disclosed, even if such disclosure is not required.
2. Proposed Time Horizons and the
Materiality Determination The proposed rules would require a registrant to disclose whether any climate-related risk is reasonably likely to have a material impact on a registrant, including its business or consolidated financial statements, which may manifest over the short, medium, and long term.207 Several commenters made a similar recommendation, stating that disclosure of climate-related risks and impacts across short, medium, and long-term time horizons is necessary to fully understand a registrant’s susceptibility to material climate-related risks.208 As proposed, a registrant would be required to describe how it defines short-, medium-, and long-term time horizons, including how it takes into account or reassesses the expected useful life of the registrant’s assets and the time horizons for the registrant’s planning processes and goals. We have not proposed a specific range of years to define short-, medium-, and long-term time horizons in order to allow flexibility for a registrant to select the time horizons that are most appropriate to its particular circumstances. As defined by the Commission and consistent with Supreme Court precedent, a matter is material if there is a substantial likelihood that a reasonable investor would consider it important when determining whether to buy or sell securities or how to vote.209 As the Commission has previously indicated, the materiality determination is largely fact specific and one that requires both quantitative and qualitative considerations.210 Moreover, as the Supreme Court has articulated, the materiality determination with regard to potential future events requires an assessment of both the probability of the event occurring and its potential magnitude, or significance to the registrant.211

212See 17 CFR 229.303(a).
213See Release No. 33–10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information (Nov. 19, 2020), [86 FR 2080, 2089 (Jan. 11, 2021)]. 214See, e.g., Daoping Wang, Dabo Guan, Shupeng Zhu, et al., Economic footprint of California wildfires in 2018, Nature Sustainability (Dec. 2020) (stating that the frequency and size of wildfires in the western United States has been increasing for several decades, driven by decreases in precipitation and related changes in the moisture in vegetation, which, together with land use and fire management practices, has dramatically increased wildfire risks, culminating in a series of enormously damaging fires in California in 2017, 2018 and 2020); Andrew Freedman, California wildfires prompt new warnings amid record heat, erratic winds, the Washington Post (Oct. 1, 2020) (reporting that the ‘‘Glass Fire’’ forced about 80,000 to evacuate from Napa and Sonoma Counties and took a heavy toll on the wine industry). 215See Shelby Vittek, California Farmers Struggle to Secure Wildfire Insurance Coverage, Modern Farmer (Aug. 2, 2021), available at https:// modernfarmer.com/2021/08/california-farmers￾struggle-to-secure-wildfire-insurance-coverage/ 216See, e.g., letters from AIR Worldwide (June 11, 2021); Coastal Risk Consulting (May 3, 2021); CoreLogic (June 12, 2021); Datamaran (June 14, 2021); Dynamhex, Inc. (June 15, 2021); EC-Map (June 12, 2021); FutureProof Technologies, Inc. (June 7, 2021); and right.based on science GmbH (June 12, 2021). 217See, e.g., infra Sections II.C.4 and II.I. 218Pub. Law 104–67, 109 Stat. 737. 219See Securities Act Section 27A and Exchange Act Section 21E. The statutory safe harbors by their terms do not apply to forward-looking statements included in financial statements prepared in accordance with generally accepted accounting principles (‘‘GAAP’’). The statutory safe harbors also would not apply to forward-looking statements made: (i) In connection with an initial public offering; a tender offer; an offering by, or relating to the operations of, a partnership, limited liability company, or a direct participation investment program, an offering of securities by a blank check company; a roll-up transaction; or a going private transaction; or (ii) by an issuer of penny stock. See
Section 27A(b) of the Securities Act and Section
21E(b) of the Exchange Act. Also, the statutory safe harbors do not, absent a rule, regulation, or Commission order, apply to forward-looking statements by certain ‘‘bad actor’’ issuers under
Section 27A(b)(1)(A) of the Securities Act and
Section 21E(b)(1)(A) of the Exchange Act.
The materiality determination that a registrant would be required to make regarding climate-related risks under the proposed rules is similar to what is required when preparing the MD&A
section in a registration statement or
annual report. The Commission’s rules require a registrant to disclose material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition.212 As the Commission has stated, MD&A should include descriptions and amounts of matters that have had a material impact on reported operations as well as matters that are reasonably likely to have a material impact on future operations.213 The proposed rule serves to emphasize that, when assessing the materiality of a particular risk, management should consider its magnitude and probability over the short, medium, and long term. In the context of climate, the magnitude and probability of such risks vary and can be significant over such time periods. For example, wildfires in California, which recently have become more frequent and more intense, may be a material risk for wineries, farmers, and other property owners.214 Some insurance companies have withdrawn from certain wildfire prone areas after concluding the risk is no longer insurable.215 For many investors, the availability of insurance and the potential exposure to damage, loss, and legal liability from wildfires may be a determining factor in their investment decision-making. Moreover, registrants must bear in mind that the materiality determination is made with regard to the information that a reasonable investor considers important to an investment or voting decision. To help ensure that management considers the dynamic nature of climate-related risks, we are proposing to require a registrant to discuss its assessment of the materiality of climate￾related risks over the short, medium, and long term. We recognize that determining the likely future impacts on a registrant’s business may be difficult for some registrants. Commenters have noted that the science of climate modelling has progressed in recent years and enabled the development of various software tools and that climate consulting firms are available to assist registrants in making this determination.216 We also note that, under our existing rules, registrants long have had to disclose forward-looking information, including pursuant to MD&A requirements. To the extent that the proposed climate-related disclosures constitute forward-looking statements, as discussed below,217 the forward￾looking statement safe harbors pursuant to the Private Securities Litigation Reform Act (‘‘PSLRA’’) 218 would apply, assuming the conditions specified in those safe harbor provisions are met.219 We note, however, that there are important limitations to the PSLRA safe harbor. For example, we are proposing that climate-related disclosures would be required in registration statements, including those for initial public offerings, and forward-looking statements made in connection with an initial public offering are excluded from the protections afforded by the PSLRA.
In addition, the PSLRA does not limit the Commission’s ability to bring enforcement actions. Request for Comment
8. Should we require a registrant to
disclose any climate-related risks that are reasonably likely to have a material impact on the registrant, including on its business or consolidated financial statements, which may manifest over the short, medium, and long term, as proposed? If so, should we specify a particular time period, or minimum or maximum range of years, for ‘‘short,’’ ‘‘medium,’’ and ‘‘long term?’’ For example, should we define short term as 1 year, 1–3 years, or 1–5 years? Should we define medium term as 5–10 years, 5–15 years, or 5–20 years? Should we define long-term as 10–20 years, 20–30 years, or 30–50 years? Are there other possible years or ranges of years that we should consider as the definitions of short, medium, and long term? What, if any, are the benefits to leaving those terms undefined? What, if any, are the concerns to leaving those terms undefined? Would the proposed provision requiring a registrant to specify what it means by the short, medium, and long term mitigate any such concerns?
9. Should we define ‘‘climate-related
risks’’ to mean the actual or potential negative impacts of climate-related conditions and events on a registrant’s consolidated financial statements, business operations, or value chains, as proposed? Should we define climate￾related risks to include both physical and transition risks, as proposed? Should we define physical risks to include both acute and chronic risks and define each of those risks, as proposed? Should we define transition risks, as proposed? Are there any aspects of the definitions of climate￾related risks, physical risks, acute risks, chronic risks, and transition risks that we should revise? Are there other distinctions among types of climate￾related risks that we should use in our definitions? Are there any risks that we should add to the definition of transition risk? How should we address risks that may involve both physical and transition risks?
10. We define transition risks to
include legal liability, litigation, or reputational risks. Should we provide more examples about these types of risks? Should we require more specific disclosures about how a registrant assesses and manages material legal liability, litigation, or reputational risks that may arise from a registrant’s business operations, climate mitigation efforts, or transition activities?

220See proposed 17 CFR 229.1502(b).
221See, e.g., letters from CALSTRS; Cardano Risk Management Ltd.; Climate Risk Disclosure Lab (June 14, 2021); and Colorado PERA (June 11, 2021). 222See TCFD, 2021 Status Report, Section B (Oct.
2021) (stating that, based on a review of reports of
1,651 public companies from 2018–2020, while 38– 52% of companies surveyed described climate￾related risks and opportunities during 2018–2020, only 26–39% disclosed the impacts of those risks and opportunities during this period).
11. Some chronic risks might give rise
to acute risks, e.g., drought (a chronic risk) that increases acute risks, such as wildfires, or increased temperatures (a chronic risk) that increases acute risks, such as severe storms. Should we require a registrant to discuss how the acute and chronic risks they face may affect one another?
12. For the location of its business
operations, properties or processes subject to an identified material physical risk, should we require a registrant to provide the ZIP code of the location or, if located in a jurisdiction that does not use ZIP codes, a similar subnational postal zone or geographic location, as proposed? Is there another location identifier that we should use for all registrants, such as the county, province, municipality or other subnational jurisdiction? Would requiring granular location information, such as ZIP codes, present concerns about competitive harm or the physical security of assets? If so, how can we mitigate those concerns? Are there exceptions or exemptions to a granular location disclosure requirement that we should consider?
13. If a registrant determines that the
flooding of its buildings, plants, or properties is a material risk, should we require it to disclose the percentage of those assets that are in flood hazard areas in addition to their location, as proposed? Would such disclosure help investors evaluate the registrant’s exposure to physical risks related to floods? Should we require this disclosure from all registrants, including those that do not currently consider exposure to flooding to be a material physical risk? Should we require this disclosure from all registrants operating in certain industrial sectors and, if so, which sectors? Should we define ‘‘flood hazard area’’ or provide examples of such areas? If we should define the term, should we define it similar to a related definition by the Federal Emergency Management Agency (‘‘FEMA’’) as an area having flood, mudflow or flood-related erosion hazards, as depicted on a flood hazard boundary map or a flood insurance rate map? Should we require a registrant to disclose how it has defined ‘‘flood hazard area’’ or whether it has used particular maps or software tools when determining whether its buildings, plants, or properties are located in flood hazard areas? Should we recommend that certain maps be used to promote comparability? Should we require disclosure of whether a registrant’s assets are located in zones that are subject to other physical risks, such as in locations subject to wildfire risk?
14. If a material risk concerns the
location of assets in regions of high or extremely high water stress, should we require a registrant to quantify the assets (e.g., book value and as a percentage of total assets) in those regions in addition to their location, as proposed? Should we also require such a registrant to disclose the percentage of its total water usage from water withdrawn in high or extremely high water stressed regions, as proposed? If so, should we include a definition of a ‘‘high water stressed region’’ similar to the definition provided by the World Resource Institute as a region where 40–80 percent of the water available to agricultural, domestic, and industrial users is withdrawn annually? Should we similarly define an ‘‘extremely high water stressed area’’ as a region where more than 80 percent of the water available to agricultural, domestic, and industrial users is withdrawn annually? Are there other definitions of high or extremely high water stressed areas we should use for purposes of this disclosure? Would these items of information help investors assess a registrant’s exposure to climate-related risks impacting water availability? Should we require the disclosure of these items of information from all registrants, including those that do not currently consider having assets in high water-stressed areas a material physical risk? Should we require these disclosures from all registrants operating in certain industrial sectors and, if so, which sectors?
15. Are there other specific metrics
that would provide investors with a better understanding of the physical and transition risks facing registrants? How would investors benefit from the disclosure of any additional metrics that would not necessarily be disclosed or disclosed in a consistent manner by the proposed climate risk disclosures? What, if any, additional burdens would registrants face if they were required to disclose additional climate risk metrics?
16. Are there other areas that should
be included as examples in the definitions of acute or chronic risks? If so, for each example, please explain how the particular climate-related risk could materially impact a registrant’s operations or financial condition.
17. Should we include the negative
impacts on a registrant’s value chain in the definition of climate-related risks, as proposed? Should we define ‘‘value chain’’ to mean the upstream and downstream activities related to a registrant’s operations, as proposed? Are there any upstream or downstream activities included in the proposed definition of value chain that we should exclude or revise? Are there any upstream or downstream activities that we should add to the definition of value chain? Are there any upstream or downstream activities currently proposed that should not be included?
18. Should we define climate-related
opportunities as proposed? Should we permit a registrant, at its option, to disclose information about any climate￾related opportunities that it is pursuing, such as the actual or potential impacts of those opportunities on the registrant, including its business or consolidated financial statements, as proposed? Should we specifically require a registrant to provide disclosure about any climate-related opportunities that have materially impacted or are reasonably likely to impact materially the registrant, including its business or consolidated financial statements? Is there a risk that the disclosure of climate-related opportunities could be misleading and lead to ‘‘greenwashing’’? If so, how should this risk be addressed?
C. Disclosure Regarding Climate-Related
Impacts on Strategy, Business Model, and Outlook

1. Disclosure of Material Impacts
   Once a registrant has described the climate-related risks reasonably likely to have a material impact on the registrant’s business or consolidated financial statements as manifested over the short, medium, and long term as required by proposed Item 1502(a), proposed Item 1502(b) would require the registrant to describe the actual and potential impacts of those risks on its strategy, business model, and outlook.220 Several commenters stated that many registrants have included largely boilerplate discussions about climate-related risks and failed to provide a meaningful analysis of the impacts of those risks on their businesses.221 The TCFD’s most recent assessment of public companies’ voluntary climate reports also noted that a minority of companies disclosed the impacts of climate-related risks and opportunities on their businesses in alignment with the TCFD framework.222 Because information about how climate￾related risks have impacted or are likely to impact a registrant’s strategy,

223See proposed 17 CFR 229.1502(b)(1). 224See proposed 17 CFR 229.1502(b)(2). 225See proposed 17 CFR 229.1502(c). 226See infra Sections II.C.3 and 4, II.E, II.G.1, and II.I regarding the application to forward-looking climate disclosures of the PSLRA safe harbor for forward-looking statements. 227See id. 228See infra Sections II.F and II.G for a discussion of the proposed metrics and targets. 229See supra Section I.D.2 and infra Section II.G for a discussion of Scopes 1 and 2 emissions. 230See proposed 17 CFR 229.1502(d). To the extent that the proposed narrative discussion is provided in its MD&A, a registrant could incorporate by reference that part of the MD&A into the Climate-Related Disclosure section of the registration statement or report. See supra Section II.A.2. 231See infra Section II.F. 232See supra note 171. business model, and outlook can be important for purposes of making an investment or voting decision about the registrant, we are proposing the provisions below to elicit robust and company-specific disclosure on this topic. As proposed, a registrant would be required to disclose impacts on its:

• Business operations, including the
  types and locations of its operations;
• Products or services;
• Suppliers and other parties in its
  value chain;
• Activities to mitigate or adapt to
  climate-related risks, including adoption of new technologies or processes;
• Expenditure for research and
  development; and
• Any other significant changes or
  impacts.223
  A registrant would also be required to disclose the time horizon for each described impact (i.e., as manifested in the short, medium, or long term, as defined by the registrant when determining its material climate-related risks).224 The proposed rules would require a registrant to discuss how it has considered the identified impacts as
  part of its business strategy, financial
  planning, and capital allocation.225 A registrant would be required to provide both current and forward-looking disclosures 226 that facilitate an understanding of whether the implications of the identified climate￾related risks have been integrated into the registrant’s business model or strategy, including how resources are being used to mitigate climate-related risks.227 The discussion must also include how any of the metrics referenced in proposed Rule 14–02 of Regulation S–X and Item 1504 of Regulation S–K or any of the targets referenced in proposed Item 1506 relate to the registrant’s business model or business strategy.228 For example, a registrant that operates in a jurisdiction that has imposed or is likely to impose limits on GHG emissions in support of the Paris Agreement might set a long-term target of net zero GHG emissions from its operations in 2050, a medium-term target of reducing its emissions by 30 percent by 2030, and a short-term target of maintaining its emissions at its 2020 rate through 2023. This registrant could face material transition risks due to the estimated costs of the operational changes expected to be implemented to achieve these targets. The registrant would be required to disclose these transition risks and their impacts on its strategy, business model, and outlook. Some of the described impacts would likely be common across industries and may involve reducing a registrant’s Scopes 1 and 2 GHG emissions 229 and incurring increased expenses in the short term related to, for example, acquiring new technology to curb its operational emissions and increasing the amount of electricity purchased from renewable sources. Other described impacts of material transition risks, however, would likely vary by industry. For example, an oil company might determine that a likely change in demand for fossil fuel-based products would require it to modify its business model or alter its product mix to emphasize advanced diesel gas and biofuels in order to maintain or increase its earning capacity, thereby requiring disclosure under the proposed rules. An electric utilities company might disclose an increase in the amount of electricity generated from less carbon-intensive sources, such as wind turbines, nuclear, hydroelectric, or solar power to meet current or likely regulatory constraints. A registrant would also be required to disclose the material impacts of physical risks on its strategy, business model, and outlook. For example, an agricultural producer or distributor might disclose the likely impacts of drought on its own product mix or that of its suppliers, including increased expenses for additional water or due to the procurement of alternative product sources. Similarly, a mining company that operates in areas susceptible to extreme rise in temperatures might disclose the likely impacts that this temperature rise has on its workforce and on its production schedule, including a reduction in output and future earning
  capacity. A real estate company that owns coastal property might disclose the likely impacts of rising sea levels on such property, including the potential diminution in value of, and a potential change in its strategy and outlook regarding, such properties. The proposed rules would require a registrant to provide a narrative discussion of whether and how any of its identified climate-related risks described in response to proposed Item 1502(a) have affected or are reasonably likely to affect the registrant’s consolidated financial statements.230 The discussion should include any of the financial statement metrics disclosed pursuant to proposed Regulation S–X Rule 14–02.231 As previously noted, many commenters recommended that we require registrants to discuss and analyze their quantitative climate data in a manner similar to that required for MD&A.232 Proposed 17 CFR 229.1502(d) (Item 1502(d) of Regulation S–K) is intended to provide climate-related disclosure that is similar to MD&A, although, as previously noted, a registrant may provide such disclosure as part of its MD&A. For example, an automobile manufacturer might discuss an increase in operating costs or capital expenditures due to the need to revamp its assembly lines to build lower emission vehicles to comply with new regulatory guidelines or to meet changing consumer demand. An oil company might discuss a change in the valuation of its proven reserves because of an anticipated reduced demand for fossil fuels. A freight company might discuss impairment charges or early write-offs for older equipment it might need to replace due to anticipated changes in regulation or policy favoring lower emissions equipment. While a registrant may currently have an obligation to make some of these disclosures pursuant to Regulation S–X, the disclosed impacts in the financial statements may not be in disaggregated form and may lack explanation. Proposed Item 1502(d) would require the disclosure in the form of a narrative analysis akin to MD&A that would be more easily accessible for investors. Moreover, it is likely that any disclosed impacts in the financial statements would be assessed for the fiscal years presented in the financial statements with a focus on near short￾term impacts. Because proposed Item 1502 would require a registrant to identify material climate-related impacts that may manifest in the short, medium, and long term, a registrant’s narrative discussion of the likely climate-related impacts on its consolidated financial statements

233See infra Section II.E for proposed disclosure requirements regarding the use of a transition plan. 234See proposed 17 CFR 229.1502(c). 235See proposed 17 CFR 229.1500(a). 236See proposed 17 CFR 229.1500(n). See, e.g., EPA, Offsets and RECs: What’s the Difference?, available at https://www.epa.gov/sites/default/files/ 2018-03/documents/gpp_guide_recs_offsets.pdf. 237A company may purchase carbon offsets to address its direct and indirect GHG emissions (i.e., its Scopes 1, 2, and 3 emissions) by verifying global emissions reductions at additional, external projects. The reduction in GHG emissions from one place (‘‘offset project’’) can be used to ‘‘offset’’ the emissions taking place somewhere else (at the company’s operations). See, e.g., EPA, Offsets and RECs: What’s the Difference?, available at https:// www.epa.gov/sites/default/files/2018-03/ documents/gpp_guide_recs_offsets.pdf. In contrast, a company may purchase a REC in renewable electricity markets solely to address its indirect GHG emissions associated with purchased electricity (i.e., Scope 2 emissions) by verifying the use of zero- or low-emissions renewable sources of electricity. Each REC provides its owner exclusive rights to the attributes of one megawatt-hour of renewable electricity whether that renewable electricity has been installed on the company’s facilities or produced elsewhere. See id. 238Science Based Targets Initiative (‘‘SBTi’’) is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), which defines and promotes best practice in emissions reductions and net-zero targets in line with climate science. SBTi provides technical assistance and its expertise to companies who voluntarily set science￾based targets in line with the latest climate science. See SBTi, Who We Are/What We Do, available at https://sciencebasedtargets.org/about-us#who-we￾are. The SBTi does not permit offsets to be counted toward a company’s emission reduction targets to meet its science-based targets but does permit offsets by companies that wish to finance additional emission reductions beyond their science-based targets. See SBTi Criteria and Recommendations (Apr. 2020), available at https:// sciencebasedtargets.org/resources/legacy/2019/03/ SBTi-criteria.pdf. 239See proposed 17 CFR 229.1500(j). 240See infra Section II.G for a discussion of our proposal to use CO2e as a unit of measurement in the proposed requirements. 241See infra Section II.G.2 for a discussion of the proposed requirements for determining the GHG emission organizational boundary. 242See proposed 17 CFR 229.1502(e)(1). should cover more than just short-term impacts. For example, if a registrant has a transition plan 233 that includes the development of lower carbon products and processes, that registrant might disclose that it expects to incur higher initial capital costs to implement its strategy, but anticipates increased revenues or reduced
expenses over the longer term. An automobile manufacturer that transitions from the production of internal combustion engine vehicles to the production of electric vehicles might disclose that it expects to incur costs in the short term to change its manufacturing processes, but over the longer term, it expects to realize increased sales, protect its market share against transition risks, including reputational risks, and potentially avoid regulatory fines or other costs as consumer and regulatory demands change.
2. Disclosure of Carbon Offsets or
Renewable Energy Credits if Used If, as part of its net emissions reduction strategy, a registrant uses carbon offsets or renewable energy credits or certificates (‘‘RECs’’), the proposed rules would require it to disclose the role that carbon offsets or RECs play in the registrant’s climate￾related business strategy.234 Under the proposed rules, carbon offsets represent an emissions reduction or removal of greenhouse gases in a manner calculated and traced for the purpose of offsetting an entity’s GHG emissions.235 We are proposing to define a REC, consistent with the EPA’s commonly used definition, to mean a credit or certificate representing each purchased megawatt￾hour (1 MWh or 1000 kilowatt-hours) of renewable electricity generated and delivered to a registrant’s power grid.236 While both carbon offsets and RECs represent commonly used GHG emissions mitigation options for companies, they are used for somewhat different purposes.237 Some registrants might plan to use carbon offsets or RECs as their primary means of meeting their GHG reduction goals, including those formulated in response to government law or policy or customer or investor demands. Other registrants, including those that set Science Based Targets pursuant to the Science Based Targets Initiative,238 might develop strategies to reduce their emissions to the extent possible through operational changes—such as modifications to their product offerings or the development of solar or other renewable energy sources. They then might plan to use carbon offsets or RECs to offset the remainder of their emissions that they cannot reduce through operational changes or to meet their GHG reduction goals while they transition to lower carbon operations. Understanding the role that carbon offsets or RECs play in a registrant’s climate-related business strategy can help investors gain useful information about the registrant’s strategy, including the potential risks and financial impacts. A registrant that relies on carbon offsets or RECs to meet its goals might incur lower expenses in the short term but could expect to continue to incur the expense of purchasing offsets or RECs over the long term. It also could bear the risk of increased costs of offsets or RECs if increased demand for offsets or RECs creates scarcity and higher costs to acquire them over time. Alternatively, the value of an offset may decrease substantially and suddenly if, for example, the offset represents protected forest land that burns in a wildfire and no longer represents a reduction in GHG emissions. In that case, the registrant may need to write off the offset and purchase a replacement. In other cases, increased demand for, or scarcity of, offsets and RECs may benefit a registrant that produces or generates offsets or RECs to the extent their prices increase. Accordingly, under the proposed rules, a registrant that purchases offsets or RECs to meet its goals as it makes the transition to lower carbon products would
need to reflect this additional set of short and long-term costs and risks in its Item 1502 disclosure, including the risk that the availability or value of offsets or RECs might be curtailed by regulation or changes in the market.
3. Disclosure of a Maintained Internal
Carbon Price
Some registrants may use an internal carbon price when assessing climate￾related factors. Under the proposed definition, an internal carbon price is an estimated cost of carbon emissions used internally within an organization.239 Internal carbon pricing may be used by a registrant, among other purposes, as a planning tool to help identify climate￾related risks and opportunities, as an incentive to drive energy efficiencies to reduce costs, to quantify the potential costs the company would incur should a carbon price be put into effect, and to guide capital investment decisions. If a registrant uses an internal carbon price, the proposed rules would require it to disclose:

• The price in units of the registrant’s
  reporting currency per metric ton of carbon dioxide equivalent (‘‘CO2e’’); 240
• The total price, including how the
  total price is estimated to change over time, if applicable;
• The boundaries for measurement of
  overall CO2e on which the total price is based (if different from the GHG emission organizational boundary required pursuant to 17 CFR 229.1504(e)(2); 241 and
• The rationale for selecting the
  internal carbon price applied.242 These proposed items of disclosure would help investors understand the rationale and underlying assumptions for a registrant’s internal carbon price and help them assess whether the registrant’s use of an internal carbon price as a planning tool is reasonable and effective. A registrant would also be required to describe how it uses its disclosed internal carbon price to evaluate and

243See proposed 17 CFR 229.1502(e)(2). 244See proposed 17 CFR 229.1502(e)(3). 245See infra Section II.C.4 for the proposed disclosure required if a registrant uses scenario analysis. 246See, e.g., letters from Rob Bonta, California Attorney General, on behalf of several state attorney generals (June 14, 2021); Catavento; Center for Climate and Energy Solutions; Ceres; Climate Risk Disclosure Lab; Hermes Equity Ownership Services Limited; Majedie Asset Management; Managed Funds Association; Norges Bank Investment Management; Open Source Climate; PRI (Consultation Response); Regenerative Crisis Response Committee; Total Energies (June 13, 2021); and Trillium Asset Management. But see Edison Electric Institute (stating that a ‘‘‘robust carbon market’ does not exist today’’ and disclosures based on that market would be ‘‘fraught with risk’’). 247Letter from Ceres. 248Letter from PRI. 249See Edison Electric Institute. 250We also note, based on current voluntary reporting, an increasing trend among public companies to use internal carbon pricing. See CDP, Putting a Price on Carbon (2021), available at https://cdn.cdp.net/cdp-production/cms/reports/ documents/000/005/651/original/CDP_Global_ Carbon_Price_report_2021.pdf?1618938446. 251See proposed 17 CFR229.1502(f). 252See, e.g., the definition of ‘‘scenario analysis’’ in TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures. 253See proposed 17 CFR 229.1500(o). 254See, e.g., letters from AllianceBernstein; Americans for Financial Reform Education Fund; R. Ted Atwood (June 23, 2021); BlackRock; Bloomberg, LP; Boston Common Asset Management; Cardano Risk Management Ltd.; Certified B Corporations; Climate Governance Initiative; Climate Risk Disclosure Law and Policy Lab (June 14, 2021); Consumer Federation of America; CPP Investments; E2; ERM CVS; FAIRR Initiative; Forum for Sustainable and Responsible Investment (June 11, 2021); Friends of the Earth et al.; George Georgiev; Global Equity Strategy (June 14, 2021); Impax Asset Management; Invesco; Christopher Lish; NY State Comptroller; PRI (Consultation Response); Revolving Door Project; RMI; Trillium Asset Management; UNEP; and Sens. Elizabeth Warren and Rep. Sean Casten (June 11, 2021). 255See letter from Bloomberg. manage climate-related risks.243 If a registrant uses more than one internal carbon price, the proposed rules would require it to provide disclosures for each internal carbon price, and to disclose its reasons for using different prices.244 For example, a registrant might disclose that it uses different internal carbon prices when considering different climate￾related scenarios to help it develop an appropriate business strategy over the short-, medium-, and long-term.245 Commenters that addressed the topic of carbon price generally supported requiring its disclosure in some form, such as: (i) Establishing a broad-based carbon price; (ii) requiring companies to maintain and disclose an internal carbon price; (iii)
requiring disclosure of any internal carbon price already used by a company; or (iv) requiring disclosure of carbon prices used in the context of scenario analysis.246 One commenter referred to disclosure of a company’s use of internal carbon pricing as one of several ‘‘foundational climate disclosures’’ that should be required in any Commission rule.247 Another commenter also underscored the importance of this information, stating that ‘‘the thorough quantification of climate risk has been hampered by the lack of carbon pricing.’’ 248 We agree with commenters that supported the disclosure of carbon pricing as a key data point for evaluating how a registrant is planning for and managing climate-related risks. However, the proposed rules would not require registrants to maintain an internal carbon price or to mandate a particular carbon pricing methodology. We are aware that many registrants may not currently track this information and recognize that a robust carbon market on which to base such a price may not exist in many contexts.249 Accordingly, the proposed disclosures would be required only if the registrant otherwise maintains an internal carbon price. For similar reasons, we have not proposed requiring a specific methodology for setting an internal carbon price. Registrants may choose to use an internal carbon price when quantifying, analyzing, and assessing the financial impacts of climate-related risks and climate-related opportunities. For example, an internal carbon price helps monetize emissions by converting emissions data from CO2e into a value in the registrant’s reporting currency. A registrant may determine that monetization is useful when assessing the costs and benefits of its possible climate-related strategies, as it effectively puts a price on the emission impacts. Disclosure of an internal carbon price, when used by a registrant, would provide investors with material information regarding how the registrant developed a particular business strategy to mitigate or adapt to identified climate-related risks and would help quantify for investors at least part of the transition risks faced by a registrant. We believe that this proposed disclosure requirement would help investors assess whether a registrant’s internal carbon pricing practice is reasonable and whether its overall evaluation and planning regarding climate-related factors is sound.250 A registrant’s disclosure of any internal carbon price necessarily would include assumptions about future events. The carbon price applied should not be viewed as a promise or guarantee with regard to the future costs to the registrant of GHG emissions. Moreover, to the extent that certain information regarding a registrant’s internal carbon pricing would constitute forward￾looking statements, the PSLRA safe harbors would apply to such statements, assuming all other statutory requirements for those safe harbors are satisfied.
4. Disclosure of Scenario Analysis, if
Used
We are proposing to require a registrant to describe the resilience of its business strategy in light of potential future changes in climate-related risks. A registrant also would be required to describe any analytical tools, such as scenario analysis, that the registrant uses to assess the impact of climate￾related risks on its business and consolidated financial statements, or to support the resilience of its strategy and business model in light of foreseeable climate-related risks.251 Scenario analysis is a process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty.252 The proposed definition of scenario analysis both states that (i) when applied to climate-related assessments, scenario analysis is a tool used to consider how, under various possible future climate scenarios, climate-related risks may impact a registrant’s operations, business strategy, and consolidated financial statements over time; and that (ii) registrants might use scenario analysis to test the resilience of their strategies under future climate scenarios, including scenarios that assume different global temperature increases, such as, for example, 3 °C, 2 °C, and 1.5 °C above pre-industrial levels.253 Many commenters recommended that we require a registrant to conduct scenario analysis and disclose the results of such analysis.254 One commenter stated that scenario analysis was useful because it allows companies to test their business strategy against a spectrum of hypothetical future climate scenarios and develop a better informed view of implications for their enterprise value and value chains. The same commenter further indicated that disclosure of the scenarios used by a company was necessary to inform investors about the reliability, reasonableness, and resiliency of the company’s plans to address climate￾related risks and opportunities.255 Another commenter stated that the Commission should require disclosure of a registrant’s climate scenario analysis by no later than 2025, and recommended that companies engage in scenario analysis involving a base case, worse case, better case, and ‘‘Black

256See letter from Climate Governance Initiative. 257See id. 258See letter from Ceres. The CDP similarly reported that, although 54% of the 9,600+ companies that responded to their questionnaires in 2020 reported engaging in scenario analysis, 14% of the companies only considered one scenario with many others considering only slight variations of one scenario. See CDP, 3 common pitfalls of using scenario analysis—and how to avoid them (Mar. 10, 2021), available at https://www.cdp.net/en/articles/ companies/3-common-pitfalls-companies-make￾when-using-scenario-analysis-and-how-to-avoid￾them. 259See TCFD, 2021 Status Report, Section B (indicating that, during 2018–2020, only 5–13% of the surveyed companies disclosed the resilience of their strategies using scenario analysis). 260See letter from J. Robert Gibson. 261See letter from NEI Investments. 262See letter from Information Technology Industry Council. 263See letter from Dimensional Fund Advisors. 264See letter from bp. 265See letter from Nareit (June 11, 2021). 266See proposed 17 CFR 229.1502(f). One commenter recommended requiring the disclosure of the results of scenario analysis if a registrant has engaged in such analysis. See letter from E3G. 267See TCFD, Technical Supplement, The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (June 2017), available at https://assets.bbhub.io/company/sites/60/2020/09/ 2020-TCFD_Guidance-Scenario-Analysis￾Guidance.pdf. 268The TCFD has summarized a number of publicly available scenario analysis models, with particular emphasis on the transition scenarios developed by the IEA and the physical risk scenarios developed by the IPCC. See id. at
Appendix 1: IEA and IPCC Climate Scenarios.
269See NGFS, Scenarios Portal, available at https://www.ngfs.net/ngfs-scenarios-portal/. Swan’’ scenarios related to possible climate transition pathways.256 Alternatively, the commenter suggested that a company take into account three scenarios: A smooth economic transition to +1.5 °C, which would form the basis of the company’s net-zero strategy; a disorderly and, therefore, more costly and disruptive transition to +1.5 °C; and a higher temperature scenario outcome of +3 °C of warming, which would be associated with extreme physical effects and unprecedented economic costs and disruption. This commenter further stated that robust disclosure of a company’s scenario analysis was necessary so that investors can understand how longer-term ‘‘climate drivers’’ have been incorporated into its corporate strategy and financial disclosures.257 Another commenter expressed the view that, although many companies purport to use scenario analysis in the climate context, their reporting regarding such use has been generally deficient. That commenter stated that the assumptions underlying the selected scenarios often are undisclosed and that the analysis tends to be limited and not usefully comparable.258 The TCFD’s most recent assessment of public companies’ voluntary climate reporting similarly found that only a small percentage of the surveyed companies disclosed the resilience of their strategies using scenario analysis as recommended by the TCFD.259 Some commenters recommended providing certain accommodations in connection with a scenario analysis requirement, such as creating a safe harbor for scenario analysis disclosure 260 or permitting scenario analysis to be furnished in a separate report that would not be subject to the same liability as Commission filings.261 Other commenters stated that they opposed a scenario analysis requirement because of the lack of a common methodology for scenario analysis; 262 a belief that the underlying methodology would be too difficult for investors to understand; 263 the need for further development of scenario analysis as a discipline; 264 or a belief that the focus of climate-related disclosure should be on historical data, and not on forward￾looking information.265 We agree with those commenters who stated that information concerning scenario analysis could help investors evaluate the resilience of the registrant’s business strategy in the face of various climate scenarios that could impose potentially different climate-related risks. We are not, however, proposing to mandate that registrants conduct scenario analysis. We recognize that not every registrant conducts scenario analysis and that, in certain instances, it may be costly or difficult for some registrants to conduct such scenario analysis. Instead, the proposed rules would require that if a registrant uses scenario analysis or any analytical tools to assess the impact of climate-related risks on its business and consolidated financial statements, and to
support the resilience of its strategy and business model, the registrant must disclose certain information about such analysis.266 We believe this approach strikes an appropriate balance between the various positions expressed by commenters by requiring registrants to share any scenario analysis that they are otherwise conducting for their business operations while avoiding imposing a potentially difficult or burdensome requirement on those registrants that have not yet undertaken to conduct such analysis. If a registrant uses scenario analysis, the proposed amendments would require disclosure of the scenarios considered (e.g., an increase of no greater than 3°, 2°, or 1.5 °C above pre￾industrial levels), including parameters, assumptions, and analytical choices, and the projected principal financial impacts on the registrant’s business strategy under each scenario. The disclosure should include both quantitative and qualitative information. Disclosure of the parameters, assumptions, and analytical choices involved in the described scenarios would help investors better understand the various considered scenarios and help them evaluate whether the registrant has a plan to manage the climate-related risks posed by each scenario. Because a registrant’s scenario analysis disclosure would necessarily include predictions and other forward￾looking statements based on assumptions concerning future events, we believe that the PSLRA forward￾looking safe harbors would apply to much of the disclosure concerning scenario analysis provided the other statutory conditions for application of the safe harbor are met. We note that there are a number of publicly-available climate-related scenarios that could form the basis of a registrant’s scenario analysis. The TCFD has categorized these scenarios as transition scenarios and physical climate scenarios.267 If a registrant uses scenario analysis to assess the resilience of its business strategy to climate-related risks, investors may benefit from the use of scientifically based, widely accepted scenarios, such as those developed by the IPCC, International Energy Agency (‘‘IEA’’),268 or Network of Central Banks and Supervisors for Greening the Financial System (‘‘NGFS’’).269 Investors may also benefit by the use of more than one climate scenario, including one that assumes a disorderly transition (i.e., one that assumes that climate policies are delayed or divergent across countries and industrial sectors, resulting in higher transition risks to companies). These could enhance the reliability and usefulness of the scenario analysis for investors. Request for Comment
19. Should we require a registrant to
describe the actual and potential impacts of its material climate-related risks on its strategy, business model, and outlook, as proposed? Should we require a registrant to disclose impacts from climate-related risks on, or any resulting significant changes made to, its business operations, including the types and locations of its operations, as proposed?
20. Should we require a registrant to
disclose climate-related impacts on, or

any resulting significant changes made to, its products or services, supply chain or value chain, activities to mitigate or adapt to climate-related risks, including adoption of new technologies or processes, expenditure for research and development, and any other significant changes or impacts, as proposed? Are there any other aspects of a registrant’s business operations, strategy, or business model that we should specify as being subject to this disclosure requirement to the extent they may be impacted by climate-related factors?
21. Should we require a registrant to
specify the time horizon applied when assessing its climate-related impacts (i.e., in the short, medium, or long term), as proposed?
22. Should we require a registrant to
discuss whether and how it considers any of the described impacts as part of its business strategy, financial planning, and capital allocation, as proposed? Should we require a registrant to provide both current and forward￾looking disclosures to facilitate an understanding of whether the implications of the identified climate￾related risks have been integrated into the registrant’s business model or strategy, as proposed? Would any of the proposed disclosures present competitive concerns for registrants? If so, how can we mitigate such concerns?
23. Should we require the disclosures
to include how the registrant is using resources to mitigate climate-related risks, as proposed? Should the required discussion also include how any of the metrics or targets referenced in the proposed climate-related disclosure subpart of Regulation S–K or Article 14 of Regulation S–X relate to the registrant’s business model or business strategy, as proposed? Should we require additional disclosures if a registrant leverages climate-related financing instruments, such as green bonds or other forms of ‘‘sustainable finance’’ such as ‘‘sustainability-linked bonds,’’ ‘‘transition bonds,’’ or other financial instruments linked to climate change as part of its strategy to address climate-related risks and opportunities? For example, should we require disclosure of the climate-related projects that the registrant plans to use the green bond proceeds to fund? Should we require disclosure of key performance metrics tied to such financing instruments?
24. If a registrant has used carbon
offsets or RECs, should we require the registrant to disclose the role that the offsets or RECs play in its overall strategy to reduce its net carbon emissions, as proposed? Should the proposed definitions of carbon offsets and RECs be clarified or expanded in any way? Are there specific considerations about the use of carbon offsets or RECs that we should require to be disclosed in a registrant’s discussion regarding how climate￾related factors have impacted its strategy, business model, and outlook?
25. Should we require a registrant to
provide a narrative discussion of whether and how any of its identified climate-related risks have affected or are reasonably likely to affect its consolidated financial statements, as proposed? Should the discussion include any of the financial statement metrics in proposed 17 CFR 210.14–02 (14–02 of Regulation S–X) that demonstrate that the identified climate￾related risks have had a material impact on reported operations, as proposed? Should the discussion include a tabular representation of such metrics?
26. Should we require registrants to
disclose information about an internal carbon price if they maintain one, as proposed? If so, should we require that the registrant disclose:

• The price in units of the registrant’s
  reporting currency per metric ton of CO2e;
• The total price;
• The boundaries for measurement of
  overall CO2e on which the total price is based if different from the GHG emission organizational boundary required pursuant to 17 CFR 210.14– 03(d)(4); and
• The rationale for selecting the
  internal or shadow carbon price applied, as proposed? Should we also require registrants to describe the methodology used to calculate its internal carbon price?

27. Should we also require a registrant
    to disclose how it uses the described internal carbon price to evaluate and manage climate-related risks, as proposed? Should we further require a registrant that uses more than one internal carbon price to provide the above disclosures for each internal carbon price, and disclose its reasons for using different prices, as proposed? Are there other aspects regarding the use of an internal carbon price that we should require to be disclosed? Would disclosure regarding any internal carbon price maintained by a registrant elicit important or material information for investors? Would requiring the disclosure of the registrant’s use of an internal carbon price raise competitive harm concerns that would act as a disincentive from the use of an internal carbon price? If so, should the Commission provide an accommodation that would mitigate those concerns? For example, are there exceptions or exemptions to an internal carbon price disclosure requirement that we should consider?
28. To the extent that disclosure that
    incorporates or is based on an internal carbon price constitutes forward-looking information, the PSLRA safe harbors would apply. Should we adopt a separate safe harbor for internal carbon price disclosure? If so, what disclosures should such a safe harbor cover and what should the conditions be for such a safe harbor?
29. Should we require all registrants
    to disclose an internal carbon price and prescribe a methodology for determining that price? If so, what corresponding disclosure requirements should we include in connection with such mandated carbon price? What methodology, if any, should we prescribe for calculating a mandatory internal or shadow carbon price? Would a different metric better elicit disclosure that would monetize emissions?
30. Should we require a registrant to
    disclose analytical tools, such as scenario analysis, that it uses to assess the impact of climate-related risks on its business and consolidated financial statements, and to support the resilience of its strategy and business model, as proposed? What other analytical tools do registrants use for these purposes, and should we require disclosure of these other tools? Are there other situations in which some registrants should be required to conduct and provide disclosure of scenario analysis? Alternatively, should we require all registrants to provide scenario analysis disclosure? If a registrant does provide scenario analysis disclosure, should we require it to follow certain publicly available scenario models, such as those published by the IPCC, the IEA, or NGFS and, if so, which scenarios? Should we require a registrant providing scenario analysis disclosure to include the scenarios considered (e.g., an increase of global temperature of no greater than 3°, 2°, or 1.5 °C above pre￾industrial levels), the parameters, assumptions, and analytical choices, and the projected principal financial impacts on the registrant’s business strategy under each scenario, as proposed? Are there any other aspects of scenario analysis that we should require registrants to disclose? For example, should we require a registrant using scenario analysis to consider a scenario that assumes a disorderly transition? Is there a need for us to provide additional guidance regarding scenario analysis? Are there any aspects of scenario analysis in our proposed required disclosure that we should exclude? Should we also require a registrant that

270See proposed 17 CFR 229.1501.
271See, e.g., letters from Americans for Financial Reform Education Fund; Baillie Gifford; Andrew Behar; Bloomberg, LP; Canadian Coalition for Good Governance; Cardano Risk Management Ltd.; CDP NA (June 11, 2021); Center for American Progress; CAQ; Ceres et al.; Climate Disclosure Standards Board (June 14, 2021); Climate Governance Initiative; Climate Risk Disclosure Lab; Eni SpA; ERM CVS; Friends of the Earth, Amazon Watch, and Rainforest Action Network (June 11, 2021); Regenerative Crisis Response Committee; Hermes Equity Ownership Limited; William and Flora Hewlett Foundation (June 9, 2021); Impax Asset Management; Institute of Internal Auditors (May 23, 2021); Institutional Shareholder Services (June 14, 2021); Interfaith Center on Corporate Responsibility; International Corporate Governance Network; Morningstar, Inc.; International Organization for Standardization (June 11, 2021); Natural Resources Defense Council; NEI Investments; NY City Comptroller (June 14, 2021); NY State Comptroller; NY State Department of Financial Services (June 14, 2021); Oregon State Treasury (June 4, 2021); PRI (Consultation Response); Pricewaterhouse Coopers; Revolving Door Project (June 11, 2021); George Serafeim (June 9, 2021); Maria Stoica; TotalEnergies (June 13, 2021); Value Balancing Alliance; WBCSD; and World Benchmarking Alliance. 272See, e.g., letters from Baillie Gifford; Bloomberg, LP; Ceres et al.; Climate Disclosure Standards Board; Climate Governance Initiative; Climate Risk Disclosure Lab; Eni SpA; William and Flora Hewlett Foundation; Impax Asset Management; Institute for Governance and Sustainable Development; International Corporate Governance Network; Richard Love; Morningstar, Inc.; Natural Resources Defense Council; NEI Investments; NY State Comptroller; Maria Stoica; TotalEnergies; and WBCSD. But see letter from Amanda Rose (stating that federalizing aspects of corporate governance could inhibit the ability of states to compete for corporate charters). 273See, e.g., letters from Bloomberg, LP; and Natural Resources Defense Council. 274See TCFD, 2021 Status Report (Oct. 2021) (finding that 9% of surveyed companies provided TCFD-recommended board disclosure in 2018, which increased to 25% in 2020; and 9% provided TCFD-recommended management disclosure in 2018, which increased to 18% in 2020). 275See, e.g., 17 CFR 229.401 and 229.407. 276See proposed 17 CFR 229.1501(a)(1)(i). 277See proposed 17 CFR 229.1501(a)(1)(ii). 278See proposed 17 CFR 229.1501(a)(1)(iii). 279See, e.g., letters from Bloomberg, LP; NY State Comptroller; and Vanguard Group, Inc. 280See proposed 17 CFR 229.1501(a)(1)(iv). does not use scenario analysis to disclose that it has not used this analytical tool? Should we also require a registrant to disclose its reasons for not using scenario analysis? Will requiring disclosure of scenario analysis if and when a registrant performs scenario analysis discourage registrants from conducting scenario analysis? If so, and to the extent
scenario analysis is a useful tool for building strategic resilience, how could our regulations prevent such consequences?
31. Would the PSLRA forward￾looking statement safe harbors provide
adequate protection for the proposed scenario analysis disclosure? Should we instead adopt a separate safe harbor for scenario analysis disclosure? If so, what disclosures should such a safe harbor cover that would not be covered by the PSLRA safe harbors and what should the conditions be for such a safe harbor?
32. Should we adopt a provision
similar to 17 CFR 229.305(d) that would apply the PSLRA forward-looking statement safe harbor to forward-looking statements made in response to specified climate-related disclosure items, such as proposed Item 1502 and Item 1505 (concerning targets and goals) of Regulation S–K? If so, which proposed items should we specifically include in the safe harbor?
33. As proposed, a registrant may
provide disclosure regarding any climate-related opportunities when responding to any of the provisions under proposed 17 CFR 229.1502 (Item 1502). Should we require disclosure of climate-related opportunities under any or all of the proposed Item 1502 provisions? D. Governance Disclosure Similar to the TCFD framework, the proposed rules would require a registrant to disclose, as applicable, certain information concerning the board’s oversight of climate-related risks, and management’s role in assessing and managing those risks.270 Many commenters asserted that climate￾related issues should be subject to the same level of board oversight as other financially material matters.271 Most of these commenters supported robust disclosure of a board’s and management’s governance of climate￾related risks and opportunities, consistent with the TCFD framework.272 Our proposed disclosure requirements are based on specific recommendations of the TCFD. We agree with commenters that a comprehensive understanding of a board’s oversight, and management’s governance, of climate-related risks is necessary to aid investors in evaluating the extent to which a registrant is adequately addressing the material climate-related risks it faces, and whether those risks could reasonably affect the value of their investment.273 We also note that, despite the importance of governance disclosure, according to the TCFD, only a small percentage of issuers that voluntarily provided climate-related information presented governance disclosure aligned with the TCFD’s recommendations.274 While the proposed rules are intended to provide investors with additional insight into a board’s and management’s governance of climate-related risks, they are similar to the Commission’s existing rules under Regulation S–K that call for disclosure about corporate governance in that they are intended to provide investors with relevant information about a registrant’s board, management, and principal committees.275

1. Board Oversight
   The proposed rules would require a registrant to disclose a number of board governance items, as applicable. The first item would require a registrant to identify any board members or board committees responsible for the oversight of climate-related risks.276 The responsible board committee might be an existing committee, such as the audit committee or risk committee, or a separate committee established to focus on climate-related risks. The next proposed item would require disclosure of whether any member of a registrant’s board of directors has expertise in climate-related risks, with disclosure required in sufficient detail to fully describe the nature of the expertise.277 Another proposed item would require a description of the processes and frequency by which the board or board committee discusses climate-related risks.278 The registrant would have to disclose how the board is informed about climate-related risks, and how frequently the board considers such risks. These proposed disclosure items could provide investors with insight into how a registrant’s board considers climate-related risks and any relevant qualifications of board members.279 The proposed rule also would require disclosure about whether and how the board or board committee considers climate-related risks as part of its business strategy, risk management, and financial oversight.280 This disclosure could enable an investor to understand whether and how the board or board committee considers climate-related risks when reviewing and guiding business strategy and major plans of action, when setting and monitoring implementation of risk management policies and performance objectives, when reviewing and approving annual budgets, and when overseeing major expenditures, acquisitions, and divestitures. In this way, the proposed disclosure requirement could help investors assess the degree to which a board’s consideration of climate-related risks has been integrated into a registrant’s strategic business and financial planning and its overall level of preparation to maintain its shareholder value. Finally, the proposed rule would require disclosure about whether and how the board sets climate-related targets or goals and how it oversees

281See proposed 17 CFR 229.1501(a)(1)(v). 282See proposed 17 CFR 229.1501(b)(1)(i). 283See proposed 17 CFR 229.1501(b)(1)(ii). 284See proposed 17 CFR 229.1501(b)(1)(iii). 285See, e.g., letters from Baillie Gifford; Andrew Behar; CDP; Climate Governance Initiative; E3G (June 14, 2021); Interfaith Center on Corporate Responsibility; Majedie Asset Management; NEI Investments; NY State Comptroller; PRI (Consultation Response); RMI (June 11, 2021); Maria Stoica; and Value Balancing Alliance. 286See letter from Richard Love. 287See letter from Western Energy Alliance (June 12, 2021). 288See 17 CFR 229.402(b) (requiring disclosure of all material elements of a registrant’s executive compensation, including the objectives of the registrant’s compensation programs and what each compensation program is designed to reward). Further, the Commission recently decided to reopen the comment period on rules to implement section 953(a) of the Dodd-Frank Act, which requires disclosure of the relationship between executive compensation and the performance of the issuer. See Release No. 34–94074, Reopening of Comment Period for Pay Versus Performance (Jan. 27, 2021). progress against those targets or goals, including the establishment of any interim targets or goals.281 Such a target might be, for example, to achieve net￾zero carbon emissions for all or a large percentage of its operations by 2050 or to reduce the carbon intensity of its products by a certain percentage by 2030 in order to mitigate transition risk. This proposed requirement would help investors evaluate whether and how a board is preparing to mitigate or adapt to any material transition risks, and whether it is providing oversight for the registrant’s potential transition to a lower carbon economy. If applicable, a registrant can elect also to discuss the board’s oversight of climate-related opportunities.
2. Management Oversight
Similar to the proposed required disclosures on board oversight, the proposed rules would require a registrant to disclose a number of items, as applicable, about management’s role in assessing and managing any climate￾related risks. For example, a registrant would be required to disclose, as applicable, whether certain management positions or committees are responsible for assessing and managing climate￾related risks and, if so, to identify such positions or committees and disclose the relevant expertise of the position holders or members in such detail as necessary to fully describe the nature of the expertise.282 This proposed requirement would give investors additional information to assess the extent to which management addresses climate-related risks, which could help them to make better informed investment or voting decisions. Similar to the proposed board oversight provision described above, another proposed item would require disclosure about the processes by which the responsible managers or management committees are informed about and monitor climate-related risks.283 Such a discussion might include, for example, whether there are specific positions or committees responsible for monitoring and assessing specific climate-related risks, the extent to which management relies on in-house staff with the relevant expertise to evaluate climate-related risks and implement related plans of action, and the extent to which management relies on third-party climate consultants for these same purposes. The final proposed management governance item would require disclosure about whether the responsible positions or committees report to the board or board committee on climate-related risks and how frequently this occurs.284 These proposed disclosure items could help investors evaluate whether management has adequately implemented processes to identify, assess, and manage climate￾related risks. If applicable, a registrant may elect also to describe management’s role in assessing and managing climate￾related opportunities. Several commenters recommended that we require a registrant to disclose whether it has connected a portion of its executive remuneration with the achievement of climate-related targets or goals.285 Other commenters expressed the view that such a requirement is unnecessary, because a registrant could implement other measures to motivate progress towards climate-related targets 286 or connect executive remuneration with climate-related achievements as a discretionary matter for the registrant.287 We are not proposing a compensation-related disclosure requirement at this time, because we believe that our existing rules requiring a compensation discussion and analysis should already provide a framework for disclosure of any connection between executive remuneration and achieving progress in addressing climate-related risks.288 Request for Comment
34. Should we require a registrant to
describe, as applicable, the board’s oversight of climate-related risks, as proposed? Should the required disclosure include whether any board member has expertise in climate-related risks and, if so, a description of the nature of the expertise, as proposed? Should we also require a registrant to identify the board members or board committee responsible for the oversight of climate-related risks, as proposed? Do our current rules, which require a registrant to provide the business experience of its board members, elicit adequate disclosure about a board member’s or executive officer’s expertise relevant to the oversight of climate-related risks?
35. Should we require a registrant to
disclose the processes and frequency by which the board or board committee discusses climate-related risks, as proposed?
36. Should we require a registrant to
disclose whether and how the board or board committee considers climate￾related risks as part of its business strategy, risk management, and financial oversight, as proposed? Would the proposed disclosure raise competitive harm concerns? If so, how could we address those concerns while requiring additional information for investors about how a registrant’s board oversees climate-related risks?
37. Should we require a registrant to
disclose whether and how the board sets climate-related targets or goals, as proposed? Should the required disclosure include how the board oversees progress against those targets or goals, including whether it establishes any interim targets or goals, as proposed? Would the proposed disclosure raise competitive harm concerns? If so, how could we address those concerns while requiring additional information for investors about how a registrant’s board oversees the setting of any climate-related targets or goals?
38. Should we require a registrant to
describe, as applicable, management’s role in assessing and managing climate￾related risks, as proposed? Should the required disclosure include whether certain management positions or committees are responsible for assessing and managing climate-related risks and, if so, the identity of such positions or committees, and the relevant expertise of the position holders or members in such detail as necessary to fully describe the nature of the expertise, as proposed? Should we require a registrant to identify the executive officer(s) occupying such position(s)? Or do our current rules, which require a registrant to provide the business experience of its executive officers, elicit adequate disclosure about management’s expertise relevant to the oversight of climate-related risks?
39. Should we require a registrant to
describe the processes by which the management positions or committees responsible for climate-related risks are

289See proposed 17 CFR 229.1503(a).
290Risk factor disclosure has been part of the Commission’s Securities Act disclosure requirements since prior to and from adoption of its integrated disclosure system. See Release No. 33– 6383, Adoption of Integrated Disclosure System (Mar. 3, 1982). The Commission added risk factor disclosure to its Exchange Act registration and annual reporting requirements in 2005. See Release No. 33–8591, Securities Offering Reform (July 19,
2005) [70 FR 44722 (Aug. 3, 2005)].
291See, e.g., letters from Rob Bonta, California Attorney General et al.; Boston Common Asset Management; Carbon Tracker Initiative; Confluence Philanthropy; Hermes Equity Ownership Services Ltd.; The Institute for Policy Integrity (‘‘Policy Integrity’’) at New York University School of Law, Environmental Defense Fund (‘‘EDF’’), the Initiative on Climate Risk and Resilience Law (‘‘ICRRL’’), and Professors Madison Condon, Jim Rossi, and Michael Vandenbergh (June 14, 2021) (‘‘Institute for Policy Integrity, Environmental Defense Fund, Initiative on Climate Risk & Resilience Law’’); and Total Energies. 292See TCFD, 2021 Status Report, Section B (indicating that, during 2018–2020, 16–30% of surveyed public companies disclosed their climate risk identification and assessment processes, 14– 29% disclosed their risk management processes, and 10–27% disclosed whether their climate risk management processes were integrated into their overall risk management). 293See proposed 17 CFR 229.1503(a)(1). 294See proposed 17 CFR 229.1503(a)(2). 295To the extent loss of insurance coverage or increases in premiums is reasonably likely to have a material impact on the registrant, the registrant would be required to disclose that risk pursuant to proposed Item 1502(a). 296See proposed 17 CFR 229.1503(b). 297See id. 298See, e.g., letters from As You Sow; BlackRock; Clean Yield Asset Management; Climate Advisers; Climate Governance Initiative; Fiends of the Earth et al.; Institute for Governance and Sustainable Development; Miller/Howard Investments; Trillium Asset Management; and World Benchmarking Alliance. 299See proposed 17 CFR 229.1500(s). 300See id. 301See proposed 17 CFR 229.1503(c)(1). informed about and monitor climate￾related risks, as proposed? Should we also require a registrant to disclose whether and how frequently such positions or committees report to the board or a committee of the board on climate-related risks, as proposed?
40. Should we specifically require a
registrant to disclose any connection between executive remuneration and the achievement of climate-related targets and goals? Is there a need for such a requirement in addition to the executive compensation disclosure required by 17 CFR 229.402(b)?
41. As proposed, a registrant may
disclose the board’s oversight of, and management’s role in assessing and managing, climate-related opportunities. Should we require a registrant to disclose these items? E. Risk Management Disclosure

1. Disclosure of Processes for
   Identifying, Assessing, and Managing Climate-Related Risks The proposed rules would require a registrant to describe any processes the registrant has for identifying, assessing, and managing climate-related risks.289 Risk disclosure is a long-standing disclosure concept under our regulations.290 Several commenters recommended that we adopt decision￾useful disclosure requirements concerning a registrant’s climate-related risk management practices.291 More granular information regarding any climate-related risk management could allow investors to better understand how a registrant identifies, evaluates, and addresses climate-related risks that may materially impact its business. Such information could also permit investors to ascertain whether a registrant has made the assessment of climate-related risks part of its regular risk management processes. Despite the importance of climate-related risk management information, only a minority of registrants currently include such information in their voluntary climate reports.292 When describing the processes for identifying and assessing climate￾related risks, the registrant would be required to disclose, as applicable:

• How it determines the relative
  significance of climate-related risks compared to other risks;
• How it considers existing or likely
  regulatory requirements or policies, such as GHG emissions limits, when identifying climate-related risks;
• How it considers shifts in customer
  or counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks; and
• How it determines the materiality of
  climate-related risks, including how it assesses the potential size and scope of any identified climate-related risk.293 When describing any processes for managing climate-related risks, a registrant would be required to disclose, as applicable:
• How it decides whether to mitigate,
  accept, or adapt to a particular risk;
• How it prioritizes addressing
  climate-related risks; and
• How it determines how to mitigate
  a high priority risk.294
  Together, these proposed disclosures would help investors evaluate whether a registrant has implemented adequate processes for identifying, assessing, and managing climate-related risks so that they may make better informed investment or voting decisions. As part of this risk management description, if a registrant uses insurance or other financial products to manage its exposure to climate-related risks, it may need to describe its use of these products.295 The proposed rules would also require a registrant to disclose whether and how climate-related risks are integrated into the registrant’s overall risk management system or processes.296 If a separate board or management committee is responsible for assessing and managing climate￾related risks, a registrant would be required to disclose how that committee interacts with the registrant’s board or management committee governing risks.297 These proposed disclosures would help investors assess whether the registrant has centralized the processes for managing climate-related risks, which may indicate to investors how the board and management may respond to such risks as they unfold.

2. Transition Plan Disclosure
   Adoption of a transition plan to mitigate or adapt to climate-related risks may be an important part of a registrant’s climate-related risk management strategy, particularly if it operates in a jurisdiction that has made commitments under the Paris Agreement to reduce its GHG emissions. Many commenters recommended that we require disclosure regarding a registrant’s transition plan, stating that such disclosure would help investors evaluate whether a registrant has an effective strategy to achieve its short-, medium-, or long-term climate-related targets or goals.298 The proposed rules would define a ‘‘transition plan’’ to mean a registrant’s strategy and implementation plan to reduce climate-related risks.299 A transition plan may include a plan to reduce its GHG emissions in line with a registrant’s commitments or commitments of jurisdictions within which it has significant operations.300 Transition plans may also be important to registrants and their shareholders to the extent transition risk arises from changes in customer or business counterparty preferences, technological change, or changes in market prices. If a registrant has adopted a transition plan, the proposed rules would require it to describe its plan, including the relevant metrics and targets used to identify and manage physical and transition risks.301 This information could help investors understand how a registrant intends to address identified climate-related risks and any transition to a lower carbon economy while managing and assessing its business operations and financial condition.

302See supra note 219.
303See proposed 17 CFR 229.1503(c)(2)(i). 304A registrant would be required to disclose the expected impact of any potential reduction on its results of operations or financial condition pursuant to proposed 17 CFR 229.1502 to the extent it believes the likely impact would be material. Such quantified disclosure may be eligible for the PSLRA safe harbors if the conditions of the safe harbors are met. 305See proposed 17 CFR 229.1503(c)(2)(ii)(A)(1). 306See proposed 17 CFR 229.1503(c)(2)(ii)(A)(2). 307See proposed 17 CFR 229.1503(c)(2)(ii)(B). 308See proposed 17 CFR 229.1503(c)(2)(ii)(C). 309See proposed 17 CFR 229.1503(c)(1). 310See proposed 17 CFR 229.1503(c)(3)(i) through (v). 311A registrant would be required to disclose the expected impact of any transition opportunity on its results of operations or financial condition, e.g., increased costs or expenditures, pursuant to proposed 17 CFR 229.1502 to the extent it believes they would be reasonably likely to have a material impact. Because transition planning inherently requires judgments and predictions about the future, forward-looking statements made as part of a registrant’s discussion of its transition plan would be eligible for the PSLRA forward￾looking statement safe harbors provided all applicable conditions are met.302 If a registrant has adopted a transition plan as part of its climate-related risk management strategy, the proposed rules would require the registrant to discuss, as applicable, how it plans to mitigate or adapt to any physical risks identified in the filing, including but not limited to those concerning exposure to sea level rise, extreme weather events, wildfires, drought, and severe heat.303 For example, a company with significant operations in areas vulnerable to sea level rise might plan to relocate its vulnerable operations as
part of any transition plan. A company
operating in areas subject to severe storms might have a transition plan that includes reinforcing its physical facilities to better withstand such weather events, or a plan to relocate those facilities. An agricultural producer that operates in areas subject to increasing water stress might discuss its plans to adjust its business strategy or operations, for example by developing or switching to drought-resistant crops, developing technologies to optimize the use of available water, or acquiring land in other areas.304 The proposed rules would also require a registrant that has adopted a transition plan as part of its climate￾related risk management strategy to discuss, as applicable, how it plans to mitigate or adapt to any identified transition risks, including the following:

• Laws, regulations, or policies that:
  Æ Restrict GHG emissions or products with high GHG footprints, including emissions caps; 305 or Æ Require the protection of high conservation value land or natural assets; 306
• Imposition of a carbon price; 307
  and
• Changing demands or preferences
  of consumers, investors, employees, and business counterparties.308 While each of these transition risks may not be applicable to each registrant and its particular transition plan, the above examples are intended to guide registrants in providing meaningful disclosure about its risk management strategies that is not generic or boilerplate. In this regard, it is important for investors to understand how a registrant plans to mitigate or adapt to any identified transition risks in its transition plan given the potential associated costs and burdens and their impact on the registrant’s business. The proposed rules would require a registrant that has adopted a transition plan as part of its climate-related management strategy to update its disclosure about its transition plan each fiscal year by describing the actions taken during the year to achieve the plan’s targets or goals.309 This is intended to provide investors with information that can help them better understand the registrant’s effectiveness in implementing any transition plan and the potential risks and costs associated with what it still needs to accomplish. A registrant that has adopted a transition plan as part of its climate￾related risk management strategy may also describe how it plans to achieve any identified climate-related opportunities, such as:
• The production of products that
  facilitate the transition to a lower carbon economy, such as low emission modes of transportation and supporting infrastructure;
• The generation or use of renewable
  power;
• The production or use of low waste,
  recycled, or other consumer products that require less carbon intensive production methods;
• The setting of conservation goals
  and targets that would help reduce GHG emissions; and
• The provision of goods or services
  related to any transition to a lower carbon economy.310 For example, an energy company might discuss how, due to actual or potential regulatory constraints, it intends to take advantage of climate￾related opportunities by increasing the amount of electricity purchased that is produced using renewable energy sources, reducing its medium and long￾range fossil fuel exploration and production, increasing the percentage of its products consisting of biofuels and other lower emissions fuels, or investing in carbon capture and storage technologies. A transportation company might discuss how, to mitigate reputational risk, it plans to realize any climate-related opportunities presented by switching its existing fleet to one composed of low- or no-emission vehicles by a certain date.311 Request for Comment

42. Should we require a registrant to
    describe its processes for identifying, assessing, and managing climate-related risks, as proposed?
43. When describing the processes for
    identifying and assessing climate￾related risks, should we require a registrant to disclose, as applicable, as proposed:

• How the registrant determines the
  relative significance of climate-related risks compared to other risks?
• How it considers existing or likely
  regulatory requirements or policies, such as emissions limits, when identifying climate-related risks?
• How it considers shifts in customer
  or counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks?
• How the registrant determines the
  materiality of climate-related risks, including how it assesses the potential size and scope of an identified climate￾related risk? Are there other items relevant to a registrant’s identification and assessment of climate-related risks that we should require it to disclose instead of or in addition to the proposed disclosure items?

44. When describing the processes for
    managing climate-related risks, should we require a registrant to disclose, as applicable, as proposed:

• How it decides whether to mitigate,
  accept, or adapt to a particular risk?
• How it prioritizes climate-related
  risks?
• How it determines to mitigate a
  high priority risk?
  Are there other items relevant to a registrant’s management of climate￾related risks that we should require it to disclose instead of or in addition to the proposed disclosure items?

45. Should we require a registrant to
    disclose whether and how the processes described in response to proposed 17 CFR 229.1503(a) are integrated into the registrant’s overall risk management system or processes, as proposed? Should we specify any particular aspect of this arrangement that a registrant

312For example, the climate-related note to the financial statements would not be required in a Form 10–Q filing. See proposed 17 CFR 210.14– 01(a). See infra note 690 and accompanying text, which discusses the applicability of the proposed rules to foreign private issuers. 313See FASB Concepts Statement No. 8, Chapter 8, par. D8 (‘‘[T]he primary purpose of notes to financial statements is to supplement or further explain the information on the face of financial statements by providing financial information relevant to existing and potential investors, lenders, and other creditors for making decisions about providing resources to an entity.’’). 314See proposed 17 CFR 210.14–02(a). Inputs and assumptions may include the estimation methodology used to disaggregate the amount of impact on the financial statements between the climate-related events and activities and other factors. Policy decisions referenced herein may include a registrant’s election to disclose the impacts from climate-related opportunities. See also infra Section II.F.2 for an example of contextual information that would be required. 315See FASB Staff Educational Paper, Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards (Mar. 2021), available at https://fasb.org/ jsp/FASB/Document_C/DocumentPage&cid=
1176176379917. See also IFRS, Effects of climate￾related matters on financial statements (Nov. 2020),
available at https://www.ifrs.org/content/dam/ifrs/ supporting-implementation/documents/effects-of￾climate-related-matters-on-financial-statements. pdf#:∼:text=IFRS%20Standards%20do%20not %20refer%explicitly%20to%20climate-related, significant%20judgements%20and %20estimates%20that%20%20has%20made. 316The Commission has broad authority to set accounting standards and principles. See, e.g., 15 U.S.C. 77s; 15 U.S.C. 7218(c); and Policy Statement:
Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter, Release No. 33–8221 Continued should disclose, such as any interaction between, and corresponding roles of, the board or any management committee responsible for assessing climate-related risks, if there is a separate and distinct committee of the board or management, and the registrant’s committee in charge, generally, of risk assessment and management?
46. If a registrant has adopted a
transition plan, should we require the registrant to describe the plan, including the relevant metrics and targets used to identify and manage physical and transition risks, as proposed? Would this proposed disclosure requirement raise any competitive harm concerns and, if so, how can we mitigate such concerns? Would any of the proposed disclosure requirements for a registrant’s transition plan act as a disincentive to the adoption of such a plan by the registrant?
47. If a registrant has adopted a
transition plan, should we require it, when describing the plan, to disclose, as applicable, how the registrant plans to mitigate or adapt to any identified physical risks, including but not limited to those concerning energy, land, or water use and management, as proposed? Are there any other aspects or considerations related to the mitigation or adaption to physical risks that we should specifically require to be disclosed in the description of a registrant’s transition plan?
48. If a registrant has adopted a
transition plan, should we require it to disclose, if applicable, how it plans to mitigate or adapt to any identified transition risks, including the following, as proposed:

• Laws, regulations, or policies that:
  Æ Restrict GHG emissions or products with high GHG footprints, including emissions caps; or Æ Require the protection of high conservation value land or natural assets?
• Imposition of a carbon price?
• Changing demands or preferences
  of consumers, investors, employees, and business counterparts? Are there any other transition risks that we should specifically identify for disclosure, if applicable, in the transition plan description? Are there any identified transition risks that we should exclude from the plan description?

49. If a registrant has adopted a
    transition plan, when describing the plan, should we permit the registrant also to discuss how it plans to achieve any identified climate-related opportunities, including, as proposed:

• The production of products that
  facilitate the transition to a lower carbon economy, such as low emission modes of transportation and supporting infrastructure?
• The generation or use of renewable
  power?
• The production or use of low waste,
  recycled, or environmentally friendly consumer products that require less carbon intensive production methods?
• The setting of conservation goals
  and targets that would help reduce GHG emissions?
• The provision of services related to
  any transition to a lower carbon economy? Should we require a registrant to discuss how it plans to achieve any of the above, or any other, climate-related opportunities when describing its transition plan?

50. If a registrant has disclosed its
    transition plan in a Commission filing, should we require it to update its transition plan disclosure each fiscal year by describing the actions taken during the year to achieve the plan’s targets or goals, as proposed? Should we require a registrant to provide such an update more frequently, and if so, how frequently? Would the proposed updating requirement act as a disincentive to the adoption of a transition plan by the registrant?
51. To the extent that disclosure about
    a registrant’s transition plan constitutes forward-looking information, the PSLRA safe harbors would apply. Should we adopt a separate safe harbor for transition plan disclosure? If so, what disclosures should such a safe harbor cover and what should the conditions be for such a safe harbor? F. Financial Statement Metrics
52. Overview
    If a registrant is required to file the disclosure required by subpart 229.1500 in a form that also requires audited financial statements,312 under our proposal it would be required to disclose in a note to its financial statements certain disaggregated climate-related financial statement metrics that are mainly derived from existing financial statement line items.313 In particular, the proposed rules would require disclosure falling under the following three categories of information:

• Financial Impact Metrics;
• Expenditure Metrics; and
• Financial Estimates and
  Assumptions.
  The proposed financial statement metrics disclosures would involve estimation uncertainties that are driven by the application of judgments and assumptions, similar to other financial statement disclosures (e.g., estimated loss contingencies, fair value measurement of certain assets, etc.). Accordingly, for each type of financial statement metric, the proposed rules would require the registrant to disclose contextual information to enable a reader to understand how it derived the metric, including a description of significant inputs and assumptions used, and if applicable, policy decisions made by the registrant to calculate the specified metrics.314 A number of existing accounting standards could elicit climate-related disclosure in the financial statements, as highlighted by the FASB in a Staff Educational Paper and by the IFRS in a similar document.315 Nevertheless, we believe the proposed rules would benefit registrants by specifying when to provide such disclosures. Furthermore, the proposed rules may increase the consistency and comparability of such disclosures by prescribing accounting principles for preparing the proposed climate-related financial statement metrics disclosures, including, among other things, provisions that would specify the basis of calculation for such metrics and their presentation.316

(Apr. 25, 2003) [68 FR 23333 (May 1, 2003)], at 23334 (‘‘While the Commission consistently has looked to the private sector in the past to set accounting standards, the securities laws, including the Sarbanes-Oxley Act, clearly provide the Commission with authority to set accounting standards for public companies and other entities that file financial statements with the Commission.’’). See also FASB Accounting Standards Codification (‘‘FASB ASC’’) Topic 105– 10–10–1 (‘‘Rules and interpretive releases of the Securities and Exchange Commission . . . are also sources of authoritative GAAP for SEC registrants.’’). 317See proposed 17 CFR 210.14–01(c)(1). 318See, e.g., 17 CFR 210.3–01(a) (‘‘There shall be filed, for the registrant and its subsidiaries consolidated, audited balance sheets as of the end of each of the two most recent fiscal years.’’). 319See proposed 17 CFR 210.14–01(c)(2). Foreign private issuers that file consolidated financial statements under home country GAAP and reconcile to U.S. GAAP, would be required to use U.S. GAAP (including the provisions of the proposed rules) as the basis for calculating and disclosing the proposed climate-related financial statement metrics. Foreign private issuers that file consolidated financial statements under IFRS as issued by the IASB, would apply IFRS and the proposed rules as the basis for calculating and disclosing the proposed climate-related financial statement metrics. For simplicity, we do not refer to the corresponding IFRS in each instance where we refer to a FASB ASC. Accordingly, references in this release to a FASB ASC should be read to also refer to the corresponding IFRS for foreign private issuers applying those standards. See also infra note 690 which discusses proposed amendments to Form 20–F. 320See also 17 CFR 210.4–01(a)(2) (discussing the application of U.S. GAAP, IFRS, and the use of other comprehensive sets of accounting principles (with reconciliation to U.S. GAAP)). 321See proposed 17 CFR 210.14–01(d). 322An 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 III of the JOBS Act, Release No. 33–10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 12, 2017)]. 323An EGC is only required to provide audited statements of comprehensive income and cash flows for each of the two fiscal years preceding the date of the most recent audited balance sheet (or such shorter period as the registrant has been in existence). See 17 CFR 210.3–02(a). A similar accommodation is provided to SRCs. See 17 CFR 210.8–02. 324See supra Section II.C. To avoid potential confusion, maintain consistency with the rest of the financial statements, and aid comparability, registrants would be required to
calculate the proposed financial statement metrics using financial information that is consistent with the scope of the rest of the registrant’s consolidated financial statements included in the filing.317 Therefore, registrants would have to include in any such calculation financial information from consolidated subsidiaries.318 For the avoidance of doubt, and to further promote consistency in the preparation of the financial statements, the proposed basis of calculation requirements would also specify that a registrant would be required to apply the same set of accounting principles that it is required to apply in preparation of the rest of its consolidated financial statements included in the filing, whenever applicable.319 Although 17 CFR 210.4– 01(a)(1) already states that financial statements filed with the Commission that are not prepared in accordance with GAAP will be presumed misleading or inaccurate unless the Commission has otherwise provided, clarifying the application of this concept in the proposed rules may be helpful, given the possible confusion that may arise between the current body of GAAP and the proposed requirements.320 The proposed rules would also require disclosure to be provided for the registrant’s most recently completed fiscal year and for the historical fiscal year(s) included in the registrant’s consolidated financial statements in the applicable filing.321 For example, a registrant that is required to include balance sheets as of the end of its two most recent fiscal years and income statements and cash flow statements at the end of its three most recent fiscal years would be required to disclose two years of the climate-related financial statement metrics that correspond to balance sheet line items and three years of the climate-related financial statement metrics that correspond to income statement or cash flow statement line items. If the registrant is an emerging growth company (‘‘EGC’’) 322 or SRC, only two years would be required.323 A registrant, however, would not need to provide a corresponding historical metric for a fiscal year preceding its current reporting fiscal year if it is eligible to take advantage of the accommodation in 17 CFR 230.409 (‘‘Rule 409’’) or 17 CFR 240.12b–21 (‘‘Rule 12b–21’’). For example, if a registrant has not previously presented such metric for such fiscal year and the historical information necessary to calculate or estimate such metric is not reasonably available to the registrant without unreasonable effort or expense, the registrant may be able to rely on Rule 409 or Rule 12b–21 to exclude a corresponding historical metric. Requiring disclosure of current and, when known or reasonably available, historical periods, should allow investors to analyze trends in the climate-related impacts on the consolidated financial statements and to better evaluate the narrative trend disclosure provided pursuant to proposed Subpart 1500 of Regulation S– K.324 Request for Comment
52. Should we require a registrant to
provide contextual information, including a description of significant inputs and assumptions used, and if applicable, policy decisions made by the registrant to calculate the specified metrics, as proposed? Should we revise the proposed requirement to provide contextual information to require specific information instead? We provide some examples of contextual information disclosure in Sections II.F.2 and II.F.3 below. Would providing additional examples or guidance assist registrants in preparing this disclosure?
53. The proposed rules would specify
the basis of calculation for the climate￾related financial statement metrics. Is it clear how to apply these accounting principles when calculating the proposed climate-related financial statement metrics, or should we provide additional guidance? Should we require a registrant to report these metrics with reference to its consolidated financial statements, as proposed? If not, how should registrants report these metrics? If we were to establish accounting principles (e.g., the basis for reporting these metrics) in a manner that differs from the principles applicable to the rest of the consolidated financial statements, would the application of those principles to the proposed metrics make climate-related disclosures less clear, helpful, or comparable for investors?
54. Should we also require such
metrics to be calculated at a reportable segment level when a registrant has more than one reportable segment (as defined by the FASB ASC Topic 280 Segment Reporting)? In addition, should we require such metrics to be presented by geographic areas that are consistent with the registrant’s reporting pursuant to FASB ASC Topic 280–10–50–41? How would investors use such information?
55. The proposed rules would require
disclosure for the registrant’s most recently completed fiscal year and for the corresponding historical fiscal years included in the registrant’s consolidated financial statements in the filing. Should disclosure of the climate-related financial statement metrics be required for the fiscal years presented in the registrant’s financial statements, as proposed? Instead, should we require the financial statement metrics to be calculated only for the most recently

325See proposed 17 CFR 229.1502(d).
326See supra Section II.B.1 (discussing the definition of ‘‘climate-related risks’’). 327See proposed 17 CFR 229.1500(c) (defining ‘‘climate related risks’’ to include ‘‘physical risks’’ and ‘‘transition risks’’). 328For example, the impact on the income statement line items for the periods presented in the financial statements in a registrant’s Form 10–K. 329See proposed 17 CFR 210.14–02(i). 330See, e.g., 2010 Guidance, 26 (‘‘Significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), [and] sea levels . . . have the potential to affect a registrant’s operations and results.’’). Temperature extremes and drought are also discussed in the 2010 Guidance. See, e.g., id. at 6– 7. 331See, e.g., Aurora A. Gutierrez et al., Wildfire response to changing daily temperature extremes in California’s Sierra Nevada, Science Advances, Vol. 7, Issue 47 (Nov. 17, 2021) (‘‘Our work supports the conclusion that considerable potential exists for an increase in fire activity as a consequence of climate warming in the absence of changes in fire and ecosystem management.’’); U.S. Geological Survey, Will global warming produce more frequent and more intense wildfires? (‘‘[R]esearchers have found strong correlations between warm summer temperatures and large fire years, so there is general consensus that fire occurrence will increase with climate change.’’), available at https:// www.usgs.gov/faqs/will-global-warming-produce￾more-frequent-and-more-intense-wildfires. 332See proposed 17 CFR 210.14–02(c). 333See 2010 Guidance, 6. 334See id. 335See, e.g., 2021 FSOC Report, Chapter 1: From Climate-related Physical Risks to Financial Risks (discussing the listed events and other risks). 336TCFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (Oct. 2021), Section A.4 Assessing Financial Impacts of Climate-Related Risks and Opportunities. 337See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), 23 (Figure C6),
Appendix 2, available at https://assets.bbhub.io/
company/sites/60/2021/07/2021-Metrics_Targets_ Guidance-1.pdf (providing examples, mostly from sustainability (or equivalent) reports, that illustrate the feasibility of some of the disclosures that would be required by the proposed rules). completed fiscal year presented in the relevant filing? Would requiring historical disclosure provide important or material information to investors, such as information allowing them to analyze trends? Are there other approaches we should consider?
56. Should information for all periods
in the consolidated financial statements be required for registrants that are filing an initial registration statement or providing climate-related financial statement metrics disclosure for historical periods prior to the effective date or compliance date of the rules? Would the existing accommodation in Rules 409 and 12b–21 be sufficient to address any potential difficulties in providing the proposed disclosures in such situations?
57. Should we provide additional
guidance as to when a registrant may exclude a historical metric for a fiscal year preceding the current fiscal year?
58. In several instances, the proposed
rules specifically point to existing GAAP and, in this release, we provide guidance with respect to the application of existing GAAP. Are there other existing GAAP requirements that we should reference? Are there instances where it would be preferable to require an approach based on TCFD guidance or some other framework, rather than requiring the application of existing GAAP?
2. Financial Impact Metrics
As discussed above, proposed Item 1502(d) of Regulation S–K would require a registrant to provide a narrative discussion of whether and how any of its identified climate-related risks have affected or are reasonably likely to affect the registrant’s consolidated financial statements.325 The term ‘‘climate-related risks’’ would be defined, in part, as the actual or potential negative impacts of climate￾related conditions and events on a registrant’s consolidated financial statements.326 ‘‘Climate-related risks’’ would also be defined to include physical risks, such as extreme weather events, and transition risks.327 To complement this proposed requirement in Regulation S–K to provide narrative disclosure about impacts on a registrant’s consolidated financial statements, we are proposing to amend Regulation S–X to require a registrant to include disaggregated information about the impact of climate-related conditions and events, and transition activities, on the consolidated financial statements included in the relevant filing,328 unless such impact is below a specified threshold. We are proposing to require disclosure of the impacts from severe weather events and other natural conditions and transition activities, which should capture a broad spectrum of these two types of climate-related risks (physical risks and transition risks). In addition, the proposed rules would require disclosure of the impacts of any climate-related risks identified pursuant to proposed Item 1502(a)— both physical risks (‘‘identified physical risks’’) and transition risks (‘‘identified transition risks’’)—on any of the financial statement metrics.329 Among the examples of severe weather events and other natural conditions that we have highlighted in the proposed rule are those that the Commission identified more than a decade ago in the 2010 Guidance as potentially affecting a registrant’s operations and results.330 In addition, although not specifically mentioned in the 2010 Guidance, we are including wildfires as an example because it is well recognized as another type of natural event that can have significant impacts on a registrant’s financial statements.331 Providing examples of severe weather events, other natural conditions, and transition activities in the proposed rule would aid in the comparability of the resulting disclosure while assisting issuers in making the disclosures. Specifically, we are proposing that impacts on any relevant line item in the registrant’s consolidated financial statements during the fiscal years presented arising from severe weather events and natural conditions, and the identified physical risks (collectively, ‘‘climate-related events’’), would trigger the proposed disclosure requirement discussed below. Specific examples of such severe weather events and natural conditions may include the following:

• Flooding;
• Drought;
• Wildfires;
• Extreme temperatures; and
• Sea level rise.332
  As discussed, above, there has been increased recognition of the current and potential effects, both positive and negative, of these events and the associated physical risks on a registrant’s business as well as its financial performance and position. For example, as mentioned above, the 2010 Guidance discusses the potential impacts on a registrant’s business and financial performance from climate￾related events, including, for example, severe weather events, that could negatively impact a registrant’s supply chain or distribution chain and lead to higher input costs or delayed product deliveries.333 The 2010 Guidance also points to credit risks for banks driven by borrowers with assets located in high risk coastal areas.334 More recently, the FSOC’s Report on Climate-Related Financial Risk 2021 discusses significant costs from the types of events included in proposed Rule 14–02(c).335 The TCFD, in a recent publication, also discusses the potential financial impacts of such climate-related events.336 Furthermore, the TCFD provides examples of disclosures already being made by some companies (including registrants) of the financial statement impact of the climate-related events discussed above in their standalone sustainability (or equivalent) reports.337 Generally, climate-related events such as severe weather events and other natural conditions, and climate-related risks more generally, are linked to negative impacts on a registrant’s financial performance and position.

338See supra Section I.C.1. 339See supra Section II.B. 340See, e.g., 2021 FSOC Report, Chapter 1, From Climate-related Transition Risks to Financial Risks. 341See id. 342See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), Appendix 2. 343See proposed 17 CFR 210.14–02(d). 344See proposed 17 CFR 210.14–02(j). 345See id. 346See proposed 17 CFR 210.14–02(b). The registrant would be required to evaluate the impact on a line-by-line basis consistent with the line items presented in its consolidated financial statements. See proposed 17 CFR 210.14–02(c) and (d). 347The Commission currently uses a 1% threshold in other contexts for disclosure of certain items within the financial statements and without. See, e.g., 17 CFR 210.5–03.1(a) (stating that if the total of sales and revenues reported under this caption includes excise taxes in an amount equal to 1% or more of such total, the amount of such excise taxes shall be shown on the face of the statement parenthetically or otherwise); 17 CFR 210.12–13 (requiring disclosure of open option contracts by management investment companies using a 1% of net asset value threshold, based on the notional amounts of the contracts); and 17 CFR 229.404(d) (requiring disclosure of transactions between a SRC and related persons in which the amount involved exceeds the lesser of $120,000 or 1% of the average of the SRC’s total assets at year￾end for the last two completed fiscal years). 348See 17 CFR 229.103(b)(2), (c)(3)(iii) and 17 CFR 229.404(a). 349Examples of such line items include revenue, cost of revenue, selling, general and administrative expenses, sale of property, plant, and equipment (in statement of cash flows), inventories, intangible assets, long-term debt, or contingent liabilities. 350See proposed 17 CFR 210.14–02(c) and (d). 351See proposed 17 CFR 210.14–02(b). 352This example illustrates a situation where the registrant has elected to include impacts from transition opportunities. There could be situations, however, where such events result in positive impacts. For example, if a registrant’s business is to conduct post-disaster cleanup and reconstruction, the occurrence of such severe weather events would generate additional revenues for the registrant. In addition to the physical risks associated with climate change, registrants and investors also face climate-related transition risks. As government leaders across the globe have made public commitments to transition to a lower carbon economy, investors have sought information about the impact such a transition may have on registrants.338 In addition to public commitments, these impacts may be prompted by regulatory, technological, market (including changing consumer, business counterparty, and investor preferences), liability, reputational, or other transition-related factors.339 For example, significant shifts in modes of production may occur in GHG intensive economic sectors, such as the transportation, electricity
generation, and heavy manufacturing sectors.340 A registrant that is engaged in transition activities may experience business losses or, conversely, may benefit from such transition activities.341 In response, some companies are already providing disclosure of the impact of transition-related activities on their financial statements and some have publicly made commitments related to this transition.342 In light of these transition risks, the proposed rules would also require a registrant to disclose the financial impact of the impact of any identified transition risks and any efforts to reduce GHG emissions or otherwise mitigate exposure to transition risks (collectively, ‘‘transition activities’’) on any relevant line items in the registrant’s consolidated financial statements during the fiscal years presented.343 A registrant may also disclose the impact of any opportunities arising from severe weather events and other natural conditions, any impact of efforts to pursue climate-related opportunities associated with transition activities, and the impact of any other climate-related opportunities, including those identified by the registrant pursuant to proposed Item 1502(a), on any of the financial statement metrics.344 If a registrant makes a policy decision to disclose the impact of a climate-related opportunity on the proposed financial statement metrics, it must do so consistently (e.g., for each fiscal year presented in the consolidated financial statements, for each financial statement line item, for all relevant opportunities identified by the registrant) and must follow the same presentation and disclosure threshold requirements applicable to the required disclosures related to financial impact metrics and expenditure metrics, as discussed below.345 The financial impact metric disclosure requirements in proposed Rules 14–02(c), (d), and (i) would require a registrant to disclose the financial impacts of severe weather events, other natural conditions, transition activities, and identified climate-related risks on the consolidated financial statements included in the relevant filing unless the aggregated impact of the severe weather events, other natural conditions, transition activities, and identified climate-related risks is less than one percent of the total line item for the relevant fiscal year.346 The proposed threshold would provide a bright-line standard for registrants and should reduce the risk of underreporting such information. The proposed quantitative threshold could also promote comparability and consistency among a registrant’s filings over time and among different registrants compared to a principles-based approach. The Commission has used similar one percent thresholds in other contexts.347 More generally, in addition to the approach in Article 5 of Regulation S–X discussed below, other rules such as 17 CFR 229.103 and 17 CFR 229.404 use quantitative disclosure thresholds to facilitate comparability, consistency, and
clarity in determining when information must be disclosed.348 A registrant would be required to determine the impacts of the severe weather events, other natural conditions, transition activities, and identified climate-related risks described above on each consolidated financial statement line item.349 Within each category (i.e., climate-related events or transition activities), impacts would, at a minimum, be required to be disclosed on an aggregated, line-by-line basis for all negative impacts and, separately, on an aggregated, line-by￾line basis for all positive impacts.350 However, for purposes of determining whether the disclosure threshold has been met, a registrant would be required to aggregate the absolute value of the positive and negative impacts on a line￾by-line basis, which we believe would better reflect the significance of the impact of the climate-related events and transition activities on a registrant’s financial performance and position.351 For example, when evaluating the line-by-line impact, a registrant may determine that its cost of revenue is impacted by Events A, B, and C, and Transition Activity D in the following manner:

• Cost of revenue was impacted
  negatively by Events A and B by $300,000, driven by increased input costs impacted by severe weather events that strained the registrant’s main supplier;
• Cost of revenue was impacted
  positively by Event C by $70,000, driven by technology that improved the registrant’s ability to manage the impact of severe heat on certain raw materials, which resulted in more efficient production; and
• Cost of revenue was impacted
  positively by Transition Activity D, which reduced production costs for certain products by $90,000 through advanced technology that improved energy efficiency during the production process.352

353The examples below, like all of the examples in this release (including examples in the text of the proposed rules), are non-exclusive and should not be interpreted as a checklist for compliance with any proposed rule. 354See proposed 17 CFR 210.14–02(c)(1) through (4). 355See proposed 17 CFR 210.14–02(d)(1) through (4). 356See, e.g., letters from Americans for Financial Reform Education Fund et al.; BlackRock; CalPERS; Ceres; Climate Accounting Project; Climate Governance Initiative; Eni SpA; Friends of the Earth, Amazon Watch and RainForest Coalition; Initiative on Climate Risk and Resilience Law; International Corporate Governance Network; Investment Company Institute; Natural Resources Defense Council; Policy Working Group; Sens. Brian Schatz and Sheldon Whitehouse (June 10, 2021); Ted Atwood; The Forum for Sustainable and Responsible Investment; The Revolving Door Project; The Washington State Investment Board; UNEP—FI; Union of Concerned Scientists; and WBCSD. 357See letter from Bloomberg. 358See, e.g., letters from the American Fuel Petrochemical Manufacturers (June 13, 2021); Environmental Bankers Association; Heritage Foundation; National Mining Association (June 11, 2021); Society for Mining, Metallurgy, & Exploration (June 13, 2021); and The Associated General Contractors of America. For purposes of determining whether the impacts from the example above would trigger the disclosure threshold requirements, the registrant would perform the analysis illustrated in the following table:
F/S line-item
F/S balance
(from consolidated financial statements) Impact of events A and B Impact of event C Impact of transition activity D Absolute value of impacts Percentage impact Cost of revenue ....................................... $10,000,000 ¥$300,000 +$70,000 +$90,000 $460,000 4.6% Although some of the impacts (e.g., impact of Event C, impact of Transition Activity D) do not individually meet the one percent threshold, the absolute value of the aggregated impacts from the events and transition activities on the line item in the above example is $460,000 and thus exceeds one percent of the corresponding line-item threshold; therefore, disclosure for that specific line item would be required. The registrant’s disclosure of such impacts may be provided, for example, as illustrated in the following table (excluding disclosure of contextual information):
Note X. Climate-related financial metrics:
F/S line-item
Total negative impact from climate-related events Total positive impact from climate-related events Total negative impact from climate-related transition activities Total positive impact from climate-related transition activities and climate-related opportunities * Cost of revenue ................................................... (Debit) $300,000 .......... (Credit) $70,000 ........... ........................ (Credit) $90,000

• As discussed earlier, a registrant may elect to include the impact of climate-related opportunities when calculating its climate-related financial
  impact metrics. This example illustrates a situation where the registrant has elected to include impacts from transition opportunities. In this example, contextual information may include disclosure such as the registrant’s election to include the impact from opportunities in its disclosure analysis and calculation, the specific events that were aggregated for purposes of determining the impact on the cost of revenue and, if applicable, a discussion of the estimation methodology used to disaggregate the amount of impact on the cost of revenue between the climate￾related events, transition activities, and other factors. To provide additional clarity, the proposed rule would include the following examples of disclosures that may be required to reflect the impact of the severe weather events and other natural conditions on each line item of the registrant’s consolidated financial statements (e.g., line items of the consolidated income statement, balance sheet, or cash flow statement): 353

• Changes to revenue or costs from
  disruptions to business operations or supply chains;
• Impairment charges and changes to
  the carrying amount of assets (such as inventory, intangibles, and property, plant and equipment) due to the assets being exposed to severe weather, flooding, drought, wildfires, extreme temperatures, and sea level rise;
• Changes to loss contingencies or
  reserves (such as environmental reserves or loan loss allowances) due to impact from severe weather events; and
• Changes to total expected insured
  losses due to flooding or wildfire patterns.354 With respect to the financial impacts of transition activities, the proposed rule would include the following examples of potential impacts:
• Changes to revenue or cost due to
  new emissions pricing or regulations resulting in the loss of a sales contract;
• Changes to operating, investing, or
  financing cash flow from changes in upstream costs, such as transportation of raw materials;
• Changes to the carrying amount of
  assets (such as intangibles and property, plant, and equipment), for example, due to a reduction of the asset’s useful life or a change in the asset’s salvage value by being exposed to transition activities; and
• Changes to interest expense driven
  by financing instruments such as climate-linked bonds issued where the interest rate increases if certain climate￾related targets are not met.355 Many commenters stated that climate￾related financial disclosure is material and should be reflected separately in the financial statements.356 For example, one commenter stated that it is critical to investors and others in assessing a company’s risk profile, estimating its risk-adjusted returns, and completing other relevant financial analyses to include information on how climate￾related risks and climate-related opportunities may affect companies’ income statements, cash flow statements, and balance sheets.357 Other commenters, however, generally expressed the view that if such disclosures are material, they would already be required by existing financial statement disclosure requirements.358 For example, some of these commenters stated that they opposed new climate-specific disclosure rules because, in their view, the traditional concept of materiality already requires the disclosure of climate-related impacts that materially

359See letters from American Fuel Petrochemical Manufacturers; Environmental Bankers Association; and The Associated General Contractors of America. 360Certain commenters, in response to FASB’s 2021 Agenda Consultation, were also supportive of more disaggregated disclosures within the financial statements. See, e.g., letters from CalPERS (Sept. 22, 2021); CFA Institute (Oct. 7, 2021); and CII (Sept. 16, 2021). Comment letters in response to FASB’s invitation to comment are available at https:// www.fasb.org/jsp/FASB/CommentLetter_C/ CommentLetterPage&cid=1218220137090&project_ id=2021-004&page_number=1. 361See, e.g., Madison Condon, Market Myopia’s Climate Bubble, 2022 Utah L. Rev. 63 (2021). See also 2020 CFTC Advisory Subcommittee Report (‘‘Climate change is expected to affect multiple sectors, geographies, and assets in the United States, sometimes simultaneously and within a relatively short timeframe. As mentioned earlier, transition and physical risks—as well as climate and non-climate-related risks—could interact with each other, amplifying shocks and stresses. This raises the prospect of spillovers that could disrupt multiple parts of the financial system simultaneously.’’). 362The analogies presented are not intended to imply that FASB ASC Topic 280, IFRS 8 or other concepts would have to be applied when accounting for and disclosing the climate-related financial statement metrics. The analogies are also not intended to imply that the determination of when disclosure may be required and how that determination is made is the same across all of these concepts. See, e.g., infra note 363 (discussing management’s evaluation under FASB ASC Topic 280 Segment Reporting and IFRS 8 Operating Segments) and the discussion below of FASB ASC Topic 606, IFRS 15, and Article 5 of Regulation S–X. 363See FASB ASC Topic 280 Segment Reporting and IFRS 8 Operating Segments (requiring segment reporting disclosures to be included in the audited financial statements). FASB ASC 280–10–10–1 states that the objective of segment reporting is to provide information about the different types of business activities in which a registrant engages and the different economic environments in which it operates to help users of financial statements: (i) Better understand the public entity’s performance; (ii) better assess its prospects for future net cash flows; and (iii) make more informed judgments about the public entity as a whole. FASB ASC Topic 280 and IFRS 8 focus on the chief operating decision maker’s view when evaluating the registrant and prescribes certain qualitative and quantitative considerations when determining what constitutes an operating segment. Similarly, the proposed rule would require an initial determination by the registrant of the relevant climate-related events and transition activities, and their impact on the registrant’s financial statements. 364See Industry and Homogenous Geographic Segment Reporting, Release No. 33–6514 (Feb. 15,
1984) [49 FR 6737–01 (Feb. 23, 1984)], at 6738.
Robust segment reporting disclosures are important as they can provide crucial transparency to investors that are reviewing financial statements. See also Gary Buesser, For the Investor: Segment Reporting, FASB OUTLOOK (Apr. 2019) (‘‘[I]nvestors normally model a company at the segment level rather than at the consolidated level. More segments and greater information about an operating segment improve an analyst’s ability to forecast a company’s revenue, margins and assets— which serves as the basis for valuing a company.’’). 365See supra note 347 for examples of the Commission’s use of a 1% threshold in other contexts. affect the issuer’s financial condition and results of operations.359 Although we agree that registrants are currently required to disclose material financial impacts on the financial statements, the proposed climate-related financial statement metrics should provide additional transparency into the impact of climate-related events on information reported in the financial statements that would be relevant to investors when making investment or voting decisions.360 Such disclosure would also provide investors with additional insights into the nature of a registrant’s business, the implementation of the registrant’s targets and goals, and material trends in climate-related impacts. Furthermore, separately stating the financial statement impacts from the climate￾related events and transition activities could improve comparability across both the registrant’s year-to-year disclosures and the disclosures of different registrants. We further note that the proposed requirement to separately disclose the financial impacts of the climate-related events and transition activities may be necessary not only because climate￾related risks may have significant impacts on individual registrants, but also because the risks presented by the climate-related events and transition activities may be correlated across different, similarly situated registrants.361 Climate-related risks present the potential for a high correlation and therefore concentration of risk within a portfolio. Separate disclosure of climate-related risks could help to provide investors with information to help them more effectively evaluate their portfolio risk. In this regard, we note that an analogous approach to disaggregated, or separately stated, disclosure has been taken in other contexts within the financial statements and elsewhere.362 For example, in segment reporting, a registrant must present within its consolidated financial statements a separate presentation of certain financial statement line items for each segment.363 The Commission has noted the importance of disaggregated disclosure in the segment reporting context, stating that it ‘‘has long been aware of the importance of meaningful segment information to reasoned investment decision-making.’’ 364 The importance of disaggregated disclosure in a registrant’s financial statements is also supported by the concepts
set forth in FASB ASC Topic 606 Revenue from Contracts with Customers and IFRS 15 Revenue from Contracts with Customers, which require, among other things, disclosure of disaggregated revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted earlier, the Commission also requires disaggregation of certain financial statement line items in Article 5 of Regulation S–X. Specifically, Article 5 requires separate disclosures of specific balance sheet and income statement line items when practicable or when certain percentage thresholds are met, depending on the nature of the information.365 Those conditions on when separate disclosure is required are analogous to the proposed condition that financial impacts result from the climate-related events and transition activities. Request for Comment
59. Should we require registrants to
disclose the financial impact metrics, as proposed? Would presenting climate￾specific financial information on a separate basis based on climate-related events (severe weather events and other natural conditions and identified physical risks) and transition activities (including identified transition risks) elicit decision-useful or material information for investors? Are there different metrics that would result in disclosure of more useful information about the impact of climate-related risks and climate-related opportunities on the registrant’s financial performance and position?
60. Would the impact from climate￾related events and transition activities
yield decision-useful information for investors? Would the climate-related events (including the examples provided) and transition activities result in impacts that are easier to quantify or disaggregate than climate-related risks more generally? Would a registrant be able to quantify and provide the proposed disclosure when the impact may be the result of a mixture of factors (e.g., a factory shutdown due to an employee strike that occurs simultaneously with a severe weather event)? If there are situations where disaggregation would not be practicable, should we require a registrant to disclose that it was unable to make the required determination and why, or to make a reasonable estimate and provide disclosure about the assumptions and information that resulted in the estimate?
61. Alternatively, should we not
require disclosure of the impacts of identified climate-related risks and only require disclosure of impacts from

366See proposed 17 CFR 210.14–02(e), (f), and (i). 367See id. These metrics are focused on expenditures (spending) incurred in each reported fiscal year(s). We therefore believe the number of periods of the expenditure metrics should correspond to the number of years of income statement or cash flow statement presented in the consolidated financial statements. 368See id. 369See proposed 17 CFR 210.14–02(j). 370See 17 CFR 210.4–01(a)(1) and (2). severe weather events and other natural conditions? Should we require a registrant to disclose the impact on its consolidated financial statements of only certain examples of severe weather events and other natural conditions? If so, should we specify which severe weather events and other natural conditions the registrant must include? Would requiring disclosure of the impact of a smaller subset of climate￾related risks be easier for a registrant to quantify without sacrificing information that would be material to investors?
62. Should impact from climate￾related opportunities be required,
instead of optional, as proposed? We are proposing to require a registrant that elects to disclose the impact of an opportunity to do so consistently (e.g., for each fiscal year presented in the consolidated financial statements, for each financial statement line item, and for all relevant opportunities identified by the registrant). Are there any other requirements that we should include to enhance consistency? Should we only require consistency between the first fiscal period in which opportunities were disclosed and subsequent periods?
63. Is it clear which climate-related
events would be covered by ‘‘severe weather events and other natural conditions’’? If not, should we provide additional guidance or examples about what events would be covered? Should we clarify that what is considered ‘‘severe weather’’ in one region may differ from another region? For example, high levels of rainfall may be considered ‘‘severe weather’’ in a typically arid region.
64. Are the proposed requirements for
calculating and presenting the financial impact metrics clear? Should the analysis be performed and disclosed in a manner other than on a line-by-line basis referring to the line items of the registrant’s consolidated financial statements?
65. We are proposing to allow a
registrant to aggregate the absolute value of negative and positive impacts of all climate-related events and, separately, transition activities on a financial statement line item. Should we instead require separate quantitative disclosure of the impact of each climate-related event or transition activity? Should we require separate disclosure of the impact of climate-related opportunities that a registrant chooses to disclose?
66. The proposed financial impact
metrics would not require disclosure if the absolute value of the total impact is less than one percent of the total line item for the relevant fiscal year. Is the proposed threshold appropriate? Should we use a different percentage threshold (e.g., three percent, five percent) or use a dollar threshold (e.g., less than or greater than $1 million)? Should we use a combination of a percentage threshold and a dollar threshold? Should we only require disclosure when the financial impact exceeds the threshold, as proposed, or should we also require a determination of whether an impact that falls below the proposed quantitative threshold would be material and should be disclosed?
67. For purposes of determining
whether the disclosure threshold has been met, should impacts on a line item from climate-related events and transition activities be permitted to offset (netting of positive and negative impacts), instead of aggregating on an absolute value basis as proposed? Should we prescribe how to analyze positive and negative impacts on a line item resulting from the same climate￾related event or the same transition activity (e.g., whether or not netting is permitted at an event or activity level)? Should we permit registrants to determine whether or not to offset as a policy decision (netting of the positive and negative impact within an event or activity) and provide relevant contextual information? Should we require the disclosure threshold to be calculated separately for the climate￾related events and transition activities, rather than requiring all of the impacts to be aggregated as proposed?
68. Instead of including a quantitative
threshold, as proposed, should we require disaggregated disclosure of any impact of climate-related risks on a particular line item of the registrant’s consolidated financial statements? Alternatively, should we just use a materiality standard?
69. Should we require a registrant to
disclose changes to the cost of capital resulting from the climate-related events? If so, should we require a registrant to disclose its weighted average cost of capital or any internal cost of capital metrics? Would such disclosure elicit decision-useful or material information for investors?
70. We have not proposed defining
the term ‘‘upstream costs’’ as used in the proposed examples for the financial impact metrics and elsewhere. Should we define that term or any others? If so, how should we define them?
71. Are the proposed examples in the
financial impact metrics helpful for understanding the types of disclosure that would be required? Should we provide different or additional examples or guidance?
3. Expenditure Metrics
The proposed expenditure metrics would refer to the positive and negative impacts associated with the same climate-related events, transition activities, and identified climate-related risks as the proposed financial impact metrics.366 As proposed, the expenditure metrics would require a registrant to separately aggregate amounts of (i) expenditure expensed and (ii) capitalized costs incurred during the fiscal years presented.367 For each of those categories, a registrant would be required to disclose separately the amount incurred during the fiscal years presented (i) toward positive and negative impacts associated with the climate-related events (i.e., severe weather events and other natural conditions and identified physical risks) and (ii) toward transition activities, specifically, to reduce GHG emissions or otherwise mitigate exposure to transition risks (including identified transition risks).368 The registrant may also choose to disclose the impact of efforts to pursue climate-related opportunities associated with transition activities.369 As discussed above, if a registrant elects to disclose the impact of an opportunity, it must do so consistently and must follow the same presentation and disclosure threshold requirements applicable to the required disclosures of expenditure metrics associated with transition risks. The amount of expenditure disclosed pursuant to the proposed metrics would be a portion, if not all, of the registrant’s total recorded expenditure (expensed or capitalized), as calculated pursuant to the accounting principles applicable to the registrant’s financial statements.370 The proposed expenditure metrics would be subject to the same disclosure threshold as the financial impact metrics, which we believe would promote comparability, consistency, and clarity in determining when information must be disclosed. For purposes of calculating the disclosure threshold for the expenditure metrics, a registrant would be permitted to separately determine the amount of expenditure expensed and the amount of expenditure capitalized; however, a registrant would be required to

371See proposed 17 CFR 210.14–02(e). 372See proposed 17 CFR 210.14–02(f). 373See, e.g., letters from Amalgamated Bank; Interfaith Center on Corporate Responsibility; and Natural Resources Defense Council. 374See, e.g., letters from Calvert; Climate Risk Disclosure Lab; and World Benchmarking Alliance. aggregate expenditure related to climate￾related events and transition activities within the categories of expenditure (i.e., amount capitalized and amount expensed). This approach should better reflect the significance of climate￾related expenditure compared to a calculation approach that would allow for a disclosure threshold to be measured at the individual event or activity level, which may result in more limited disclosures. For example, assume a registrant capitalized $200,000 of expenditure incurred related to Event D and capitalized another $100,000 of expenditure incurred related to Activity E. The registrant also expensed $25,000 of expenditure incurred related to Event F (which is an identified transition risk disclosed by the registrant). The registrant would determine whether the impacts would trigger the disclosure requirements based on the proposed thresholds, as illustrated below:
Expenditure category
Current fiscal year balances (from consolidated financial statements) * Event D Activity E Event F Percentage impact Capitalized costs (total expenditure incurred during the year that was capitalized) ................................................ $8,000,000 $200,000 $100,000 ........................ 3.85% Expense (total expenditure incurred during the year that was expensed) ................................................................. $3,000,000 ........................ ........................ $25,000 0.8%

• As expenditures capitalized and expensed are recorded in various financial statement line items, we expect the ‘‘total’’ to be used for disclo￾sure threshold calculation purposes for each category to represent the aggregated expenditures capitalized during the fiscal year and aggregated
  expenditures expensed during the fiscal year. See below for additional discussion regarding associated contextual information that may be re￾quired. Calculated based on total impact on capitalized costs from Event D ($200,000), Activity E ($100,000), and Event F ($0): $300,000/ $8,000,000. In the above example, the expenditure incurred toward Event D was $200,000 (capitalized) and the expenditure incurred toward Activity E and Event F were $100,000 (capitalized) and $25,000 (expensed). The amount of capitalized costs equaled the proposed one percent threshold, and thus the disclosure would be required for that category of expenditure. No disclosure would be required for the expenditure incurred that was expensed (related to Event F in this example), because it was below the one percent threshold. The registrant’s resulting disclosure of such expenditure (capitalized or expensed) may be provided, for example, as illustrated in the following table (excluding disclosure of contextual information):
  Note X. Climate-related financial metrics:
  Expenditure incurred for climate-related events Expenditure incurred for climate-related transition activities Capitalized costs .......................................................................................................................................... $200,000 $100,000 In this example, contextual information may include disclosure such as the specific climate-related events and transition activities that were aggregated for purposes of determining the impacts on the capitalized or expensed expenditure amounts and, if applicable, policy decisions made by a registrant to determine the amount of climate-related events or transition activities that are categorized as expenditure capitalized versus expenditure expensed or whether impact from pursuing any climate￾related opportunities are included in the analysis. Contextual information may also include a discussion of the composition of the total expenditure expensed and total expenditure capitalized, which were used to calculate whether the disclosure threshold was met, and, if applicable, a discussion of the estimation methodology used to disaggregate the amount of impact between the climate￾related events, transition activities, and other factors, including if an event or an activity impacted both capitalized and expensed costs. The proposed rules would clarify that a registrant may be required to disclose the amount of expenditure expensed or capitalized costs, as applicable, incurred for the climate-related events to increase the resilience of assets or operations, retire or shorten the estimated useful lives of impacted assets, relocate assets or operations at risk, or otherwise reduce the future impact of severe weather events and other natural conditions on business operations.371 The proposed rules would also clarify that a registrant may be required to disclose the amount of expenditure expensed or capitalized costs, as applicable, incurred for climate-related transition activities related to research and development of new technologies, purchase of assets, infrastructure, or products that are intended to reduce GHG emissions, increase energy efficiency, offset emissions (purchase of energy credits), or improve other resource efficiency.372 Several commenters recommended taking a similar approach, stating that we should require disclosure of climate￾related capital expenditure (i.e., capitalized assets),373 or both climate￾related expenses and capitalized assets.374 Consistent with these comments, and for similar reasons to those stated above with respect to the financial impact metrics, separate disclosure of total expense and total capitalized costs incurred toward the climate-related events and transition activities should provide important

375See supra Section II.C, which discusses our proposals to require the registrant to describe the actual and potential impacts of the identified climate-related risks (and climate-related opportunities if the registrant elects to do so) on its strategy, business model, and outlook. Further, such disclosure could also provide additional context to other narrative disclosures such as the discussion of risk factors required by 17 CFR 229.105. 376See proposed 17 CFR 210.14–02(g) and (i). 377See proposed 17 CFR 210.14–02(h) and (i). 378See proposed 17 CFR 210.14–02(j). information to help investors make better informed investment or voting decisions. Moreover, the financial impacts of expenditure typically appear in different places within the financial statements (e.g., in an asset line item(s) on the balance sheet or in an expense line item(s) in the income statement). The proposed approach is intended to address this dispersed presentation by requiring registrants to first identify the relevant climate-related expenditures and then compile those impacts in one location. Similar to the proposed financial impact metrics, such an approach should provide insight into, and context for understanding, the nature of a registrant’s business, including any disclosed strategy for addressing and managing the specified risks—particularly in the context of transition planning.375 Request for Comment
72. Should we require registrants to
disclose the expenditure metrics, as proposed? Would presenting the expenditure metrics separately in one location provide decision-useful information to investors? Is there a different type of metric that would result in more useful disclosure of the expense or capitalized costs incurred toward climate-related events and transition activities or toward climate￾related risks more generally?
73. Would the disclosure required by
the expenditure metrics overlap with the disclosure required by the financial impact metrics? If so, should we require the disclosure to be provided pursuant to only one of these types of metrics?
74. Should the same climate-related
events (including severe weather events and other natural conditions and identified physical risks) and transition activities (including identified transition risks) that we are proposing to use for the financial impact metrics apply to the expenditure metrics, as proposed? Alternatively, should we not require a registrant to disclose expenditure incurred towards identified climate-related risks and only require disclosure of expenditure relating to severe weather events and other natural conditions? Should we require a registrant to disclose the expenditure incurred toward only certain examples of severe weather events and other natural conditions? If so, should we specify which severe weather events and other natural conditions the registrant must include? Would requiring disclosure of the expenditure relating to a smaller subset of climate￾related risks be easier for a registrant to quantify without sacrificing information that would be material to investors?
75. Should the proposed rules instead
require a registrant to disclose the aggregate amounts of expensed and capitalized costs incurred toward any climate-related risks? Should expenditures incurred towards climate￾related opportunities be optional based on a registrant’s election to disclose such opportunities, as proposed?
76. Should we apply the same
disclosure threshold to the expenditure metrics and the financial impact metrics? Is the proposed threshold for expenditure metrics appropriate? Should we use a different percentage threshold (e.g., three percent, five percent) or use a dollar threshold (e.g., less than or greater than $1 million)? Should we use a combination of a percentage threshold and a dollar threshold? Should we only require disclosure when the amount of climate￾related expenditure exceeds the threshold, as proposed, or should we also require a determination of whether an amount of expenditure that falls below the proposed quantitative threshold would be material and should be disclosed? Should we require separate aggregation of the amount of expense and capitalized costs for purposes of the threshold, as proposed? Should we require separate aggregation of expenditure relating to the climate￾related events and transition activities, as proposed?
77. Instead of including a quantitative
threshold, as proposed, should we require disaggregated disclosure of any amount of expense and capitalized costs incurred toward the climate-related events and transition activities, during the periods presented? Alternatively, should we just use a materiality standard?
78. Are the proposed requirements for
calculating and presenting the expenditure metrics clear? Should the analysis be performed and disclosed in a different manner, other than separately based on capitalized costs and amount of expenditure expensed and separately based on the climate￾related events and transition activities? Should disclosure of expenditure incurred be required for both the amount of capitalized costs and the amount of expenditure expensed if only one of the two types of expenditure meets the disclosure threshold? Should we require separate disclosure of expenditure incurred toward each climate-related event and transition activity?
79. The proposed rule does not
specifically address expensed or capitalized costs that are partially incurred towards the climate-related events and transition activities (e.g., the expenditure relates to research and development expenses that are meant to address both the risks associated with the climate-related events and other risks). Should we prescribe a particular approach to disclosure in such situations? Should we require a registrant to provide a reasonable estimate of the amount of expense or capitalized costs incurred toward the climate-related events and transition activities and to provide disclosure about the assumptions and information that resulted in the estimate?
80. Are the proposed terms and
examples used in the expenditure metrics helpful for understanding the types of disclosures that would be required? Should we provide different or additional examples?
4. Financial Estimates and Assumptions
The proposed rules would require a registrant to disclose whether the estimates and assumptions used to produce the consolidated financial statements were impacted by exposures to risks and uncertainties associated with, or known impacts from, climate￾related events (including identified physical risks and severe weather events and other natural conditions), such as flooding, drought, wildfires, extreme temperatures, sea level rise.376 If so, the registrant would be required to provide a qualitative description of how such events have impacted the development of the estimates and assumptions used by the registrant in the preparation of such financial statements. Similar to the other proposed financial statement metrics, the proposed rules would include a provision that would require separate disclosure focused on transition activities (including identified transition risks).377 Further, if a registrant elects to disclose the impact of an opportunity on its financial estimates and assumptions, it must do so consistently and must follow the same presentation and disclosure requirements applicable to the required disclosures herein.378 If the estimates and assumptions a registrant used to produce the consolidated financial statements were

379See proposed 17 CFR 229.1506.
380See FASB Staff Educational Paper, Intersection of Environmental, Social and Governance Matters with Financial Accounting Standards (Mar. 2021), available at https://fasb.org/ jsp/FASB/Document_C/DocumentPage& cid=1176176379917. See also IFRS, Effects of climate-related matters on financial statements (Nov. 2020), available at https://www.ifrs.org/ content/dam/ifrs/supporting-implementation/ documents/effects-of-climate-related-matters-on￾financial-statements.pdf#:∼:text=IFRS %20Standards%20do%20not%20refer %explicitly%20to%20climate￾related,significant%20judgements%20and %20estimates%20that%20%20has%20made. We also remind registrants of the requirements under FASB ASC Topic 250–10–50–4 for disclosures of changes in accounting estimates, including the requirement that if a change in estimate does not have a material effect in the period of change, but is reasonably certain to have a material effect in later periods, a description of that change in estimate must be disclosed whenever the financial statements of the period of change are presented. 381See letter from Carbon Tracker (stating that some companies in the European Union and United Kingdom (several of which are registrants) are already providing this information and providing examples). 382See, e.g., letters from Carbon Tracker; Climate Accounting Project; ICCR; and Institute for Policy Integrity, Environmental Defense Fund, Initiative on Climate Risk & Resilience Law. 383See letter from Carbon Tracker. 384See letter from ICCR. impacted by risks and uncertainties associated with, or known impacts from, a potential transition to a lower carbon economy or any climate-related targets it has disclosed, the registrant would be required to provide a qualitative description of how the development of the estimates and assumptions were impacted by such a potential transition or the registrant’s disclosed climate￾related targets. Estimates and assumptions are currently required for accounting and financial reporting purposes (e.g., projected financial information used in impairment calculations, estimated loss contingencies, estimated credit risks, commodity price assumptions, etc.). The proposed disclosures could provide decision-useful information and transparency to investors about the impact of the climate-related events and transition activities, including disclosed targets and goals,379 on such estimates and assumptions. Moreover, in addition to providing insight into impacts on the registrant’s financial statements, such disclosure could allow investors to evaluate the reasonableness of the registrant’s estimates and assumptions, which are used to prepare the registrant’s financial statements. Although current accounting standards require registrants to consider how climate-related matters may intersect with and affect the financial statements, including their impact on estimates and assumptions,380 the nature of the climate-related events and transition activities discussed in the
proposed rules, which may manifest over a longer time horizon, necessitate targeted disclosure requirements to elicit decision-useful information for investors in a consistent manner. We also note that some registrants have already provided disclosure along the lines of the proposed requirements, which lends support to the feasibility of making such disclosures.381 By way of example, the proposed climate-related events and impacts relating to a transition away from greenhouse gas producing products and activities could affect a registrant’s asset values and may result in asset impairments. The effect on asset values and the resulting impairments could, in turn, affect a registrant’s assumptions when calculating depreciation expenses or asset retirement obligations associated with the retirement of tangible, long-lived assets. Providing related disclosure could help an investor understand if a registrant would be responsible for removing equipment or cleaning up hazardous materials sooner than originally planned due to a severe weather event. Similarly, a registrant’s climate-related targets and related commitments, such as a commitment to achieve net-zero emissions by 2040, may impact certain accounting estimates and assumptions. For example, if a registrant announced a commitment that would require decommissioning an asset by a target year, then the registrant’s depreciation expense should reflect alignment with that commitment. If the registrant believes it can execute a strategy that would allow it to meet the commitment and continue to operate the asset past the target date, then the proposed disclosure requirement could facilitate an investor’s understanding and own assessment of the feasibility of that strategy. Other financial statement estimates and assumptions that may require disclosure pursuant to the proposed rules may include those related to the estimated salvage value of certain assets, estimated useful life of certain assets, projected financial information used in impairment calculations, estimated loss contingencies, estimated reserves (such as environmental reserve or loan loss allowances), estimated credit risks, fair value measurement of certain assets, and commodity price assumptions. Several commenters stated that it was important to provide investors with an understanding of how climate-related events and activities are considered when a registrant develops the assumptions and estimates used to prepare its financial statements.382 In particular, one commenter stated that investors may face ‘‘substantial risk’’ if disclosure on the impact of ‘‘decarbonization’’ on the estimates and assumptions underlying asset valuations is not disclosed.383 Another commenter stated that ‘‘current corporate disclosure is not sufficient, is not readily available in existing financial disclosures, and does not allow investors to make comparable assessments of how companies are evaluating and responding to climate-related risks and
opportunities.’’ 384 Request for Comment
81. Should we require disclosure of
financial estimates and assumptions impacted by the climate-related events and transition activities (including disclosed targets), as proposed? How would investors use this information?
82. Should we instead require
disclosure of only significant or material estimates and assumptions that were impacted by the climate-related events and transition activities? Alternatively, should we require disclosure of only estimates and assumptions that were materially impacted by the climate￾related events and transition activities?
83. Should we instead require
disclosure of financial estimates and assumptions impacts by a subset of climate-related events and transition activities, such as not requiring disclosure related to identified climate￾related risks or only requiring disclosure with respect to a subset of severe weather events and natural conditions? If so, how should the subset be defined?
84. Should we instead utilize
terminology and thresholds consistent with the critical accounting estimate disclosure requirement in 17 CFR 229.303(b)(3), such as ‘‘estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant’’? If so, should we only require disclosures of whether and how the climate-related events and transition activities impacted such critical accounting estimates? Should we require only a qualitative description of how the estimates and assumptions were impacted by the climate-related events and transition activities, as proposed? Should we require quantitative disclosures as well? If so, should we require such disclosure

385See supra Section II.F.2 for additional discussion of shared characteristics that the financial statement metrics have with existing financial statement disclosures and commenters’ views. 386See proposed 17 CFR 229.1504(a). As discussed below, the proposed rules would also require a registrant to disclose its GHG emissions for the historical fiscal years included in its consolidated financial statements. 387See, e.g., infra note 432 and accompanying text. 388See, e.g., infra, note 433 and accompanying text. only if practicable or subject to another qualifier?
85. Should the disclosure of financial
estimates and assumptions impacted by climate-related opportunities be optional, as proposed?
86. For the proposed financial
statement metrics, should we require a registrant to disclose material changes in estimates, assumptions, or methodology among fiscal years and the reasons for those changes? If so, should we require the material changes disclosure to occur on a quarterly, or some other, basis? Should we require disclosure beyond a discussion of the material changes in assumptions or methodology and the reasons for those changes? Do existing required disclosures already elicit such information? What other approaches should we consider?
5. Inclusion of Climate-Related Metrics
in the Financial Statements The proposed financial statement metrics would be required in the financial statements, and therefore would be (i) included in the scope of any required audit of the financial statements in the relevant disclosure filing, (ii) subject to audit by an independent registered public accounting firm, and (iii) within the scope of the registrant’s ICFR. As discussed above, the proposed disclosures share many characteristics with other complex financial statement disclosures. The financial statement metrics present financial data that is derived from the registrant’s consolidated balance sheets, income statements, and statements of cash flows, and would be presented in a similar way to existing financial statement disclosures.385 Requiring certain climate-related information to be included in a note to the financial statements, and therefore subject to audit and within the scope of ICFR, should enhance the reliability of the proposed financial statement metrics. Request for Comment
87. We are proposing to require the
financial statement metrics to be disclosed in a note to the registrant’s audited financial statements. Should we require or permit the proposed financial statement metrics to be disclosed in a
schedule to the financial statements? If
so, should the metrics be disclosed in a
schedule to the financial statements,
similar to the schedules required under
Article 12 of Regulation S–X, which
would subject the disclosure to audit and ICFR requirements? Should we instead require the metrics to be disclosed as supplemental financial information, similar to the disclosure requirements under FASB ASC Topic 932–235–50–2 for registrants that have significant oil- and gas-producing activities? If so, should such supplemental schedule be subject to assurance or ICFR requirements?
88. Instead of requiring the financial
statement metrics to be disclosed in a note to the registrant’s audited financial statements, should we require a new financial statement for such metrics? For example, should a ‘‘consolidated climate statement’’ be created in addition to the consolidated balance sheets, statements of comprehensive income, cash flows, and other traditional financial statements? Would including the proposed metrics in a new financial statement provide more clarity to investors given that the metrics are intended to follow the structure of the existing financial statements (including the line items)? What complications or unintended consequences may arise in practice if such a climate statement is created?
89. Should we require the disclosure
to be provided outside of the financial statements? Should we require all of the disclosure to be provided in the proposed separately captioned item in the specified forms?
90. Should we require any additional
metrics or disclosure to be included in the financial statements and subject to the auditing and ICFR requirements as described above? For example, should any of the disclosures we are proposing to require outside of the financial statements (such as GHG emissions metrics) be included in the financial statements? If so, should such metrics be disclosed in a note or a schedule to the financial statements? If in a
schedule, should such schedule be
similar to the schedules required under
Article 12 of Regulation S–X and subject
to audit and ICFR requirements? Should we instead require the metrics to be disclosed as supplemental financial information in a supplemental
schedule? If so, should such
supplemental schedule be subject to assurance or ICFR requirements?
91. Under the proposed rules, PCAOB
auditing standards would be applicable to the financial statement metrics that are included in the audited financial statements, consistent with the rest of the audited financial statements. What, if any, additional guidance or revisions to such standards would be needed in order to apply PCAOB auditing standards to the proposed financial statement metrics? For example, would guidance on how to apply existing requirements, such as materiality, risk assessment, or reporting, be needed? Would revisions to the auditing standards be necessary? What additional guidance or revisions would be helpful to auditors, preparers, audit committee members, investors, and other relevant participants in the audit and financial reporting process?
92. Would it be clear that the climate￾related financial statement metrics
would be included in the scope of the audit when the registrant files financial statements prepared in accordance with IFRS as issued by the IASB? Would it be clear that the proposed rules would not alter the basis of presentation of the financial statements as referred to in an auditor’s report? Should we amend Form 20–F, other forms, or our rules to clarify the scope of the audit or the basis of presentation in this context? For example, should we amend Form 20–F to state specifically that the scope of the audit must include any notes prepared pursuant to Article 14 of Regulation S– X? What are the costs for accounting firms to provide assurance with respect to the financial statement metrics? Would those costs decrease over time? G. GHG Emissions Metrics Disclosure

1. GHG Emissions Disclosure
   Requirement a. Overview
   In addition to the other proposed climate-related disclosures, the proposed rules would require a registrant to disclose its GHG emissions for its most recently completed fiscal year.386 As institutional investors and other commenters have indicated, GHG emissions information is important to investment decisions for various reasons, including because GHG emissions data is quantifiable and comparable across industries and can be particularly useful in conducting a transition risk analysis; 387 it can be used to evaluate the progress in meeting net-zero commitments and assessing any associated risks; 388 and it may be relevant to investment or voting decisions because GHG emissions could impact the company’s access to financing, as well as its ability to reduce

389See, e.g., infra note 455 and accompanying text. 390See supra note 112 and accompanying text. 391 In addition, as discussed in Section II.G.2.d, the proposed rules would permit a registrant, if actual reported data is not reasonably available, to use a reasonable estimate of its GHG emissions for its fourth fiscal quarter, together with actual, determined GHG emissions data for the first three fiscal quarters, as long as the registrant promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter. See proposed 17 CFR 229.1504(e)(4)(i). This proposed provision should also help mitigate the GHG emissions compliance burden for registrants. 392See proposed 17 CFR 229.1500(g). 393 In Feb. 2013 the GHG Protocol amended the required greenhouse gas inventory list to align with the seven gases required by the Kyoto Protocol (consistent with the proposed definition of greenhouse gases). See GHG Protocol, Required Greenhouse Gases in Inventories: Accounting and Reporting Standard Amendment (Feb. 2013), available at https://www.ghgprotocol.org/sites/ default/files/ghgp/NF3-Amendment_052213.pdf. Nevertheless, the GHG Protocol’s Corporate Accounting and Reporting Standard, which was updated in 2015, continues to refer to only six greenhouse gases. We believe the common understanding of the GHG Protocol’s Corporate Accounting and Reporting Standard is that the earlier amendment (reflecting seven gases) applies despite the subsequent 2015 update to the standard. 394See UN Framework Convention on Climate Change (‘‘UNFCCC’’)—Reporting requirements (last visited Nov. 4, 2021), available at https:// unfccc.int/process-and-meetings/transparency-and￾reporting/reporting-and-review-under-the￾convention/greenhouse-gas-inventories-annex-i￾parties/reporting-requirements. The Kyoto Protocol is the international agreement linked to the UNFCCC. See also U.S. Energy Information Administration—Where greenhouse gases come from (last updated May 21, 2021), available at https://www.eia.gov/energyexplained/energy-and￾the-environment/where-greenhouse-gases-come￾from.php; and EPA—Overview of Greenhouse Gases (last visited Nov. 4, 2021), available at https:// www.epa.gov/ghgemissions/overview-greenhouse￾gases. 395See proposed 17 CFR 229.1500(h). 396See proposed 17 CFR 229.1500(h)(1). 397See proposed 17 CFR 229.1500(h)(2). 398Sources of emissions can include transportation, electricity production, industrial processes, commercial and residential use, agriculture, and land use changes (including deforestation). See, e.g., EPA, Sources of Greenhouse Gas Emissions, available at https:// www.epa.gov/ghgemissions/sources-greenhouse￾gas-emissions.). 399See proposed 17 CFR 229.1500(p). 400See proposed 17 CFR 229.1500(q). 401See proposed 17 CFR 229.1500(r). 402See supra note 113. The EPA requires the disclosure of direct GHG emissions primarily from large industrial sources as well as
emissions from fuel and industrial gas suppliers and CO2 injection sites in the United States. See EPA, Greenhouse Gas Reporting Program, available at https:// www.epa.gov/ghgreporting. 403See proposed 17 CFR 229.1504(b)(1). We discuss the setting of a registrant’s organizational and operational boundaries in Section II.G.2. below. 404See proposed 17 CFR 229.1504(c)(1). As discussed in greater detail below, for many companies, these emissions may be material for assessing the companies’ exposure to climate￾related risks, particularly transition risks, and their strategy to reduce their carbon footprint in the face of regulatory, policy, and market constraints. See infra Section II.G.1.b. its carbon footprint in the face of regulatory, policy, and market constraints.389 Thus, while the justifications for the proposed GHG emissions disclosures overlap in some respects with the justifications for the other proposed climate-related disclosure rules, the GHG emissions requirements are intended to address separate challenges and are supported by the particular justifications discussed in detail in the following sections. The proposed rules would establish certain requirements regarding the measurement and reporting of GHG emissions that would promote the comparability of such disclosure. We have based the proposed GHG emissions disclosure rules on the concept of scopes, which are themselves based on the concepts of direct and indirect emissions, developed by the GHG Protocol. We also have proposed definitions of Scope 1, Scope 2, and Scope 3 emissions that are substantially similar to the corresponding definitions provided by the GHG Protocol. Commenters indicated that the GHG Protocol has become the leading accounting and reporting standard for GHG emissions.390 By sharing certain basic concepts and a common vocabulary with the GHG Protocol, the proposed rules should help limit the compliance burden for those registrants that are already disclosing their GHG emissions pursuant to the GHG Protocol.391 Similarly, to the extent that registrants elect to follow GHG Protocol standards and methodologies, investors already familiar with the GHG Protocol may also benefit. The proposed rules would define ‘‘greenhouse gases’’ as carbon dioxide (‘‘CO2’’); methane (‘‘CH4’’); nitrous oxide (‘‘N2O’’); nitrogen trifluoride (‘‘NF3’’); hydrofluorocarbons (‘‘HFCs’’); perfluorocarbons (‘‘PFCs’’); and sulfur hexafluoride (‘‘SF6’’).392 The greenhouse gases included in the proposed definition reflect the gases that are currently commonly referenced by international, scientific, and regulatory authorities as having significant climate impacts. In addition to being consistent with the GHG Protocol,393 the list of constituent greenhouse gases would be consistent with the gases identified by widely used frameworks, such as the Kyoto Protocol, the UN Framework Convention on Climate Change, the U.S. Energy Information Administration, and the EPA.394 The proposed rules would
define GHG emissions to mean direct and indirect emissions of greenhouse gases.395 Pursuant to the proposed definition of GHG emissions, direct emissions are GHG emissions from sources that are owned or controlled by a registrant,396 whereas indirect emissions are GHG emissions that result from the activities of the registrant, but occur at sources not owned or controlled by the registrant.397 Similar to the GHG Protocol, the proposed rules would define: 398

• Scope 1 emissions as direct GHG
  emissions from operations that are owned or controlled by a registrant; 399
• Scope 2 emissions as indirect GHG
  emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by a registrant; 400 and
• Scope 3 emissions as all indirect
  GHG emissions not otherwise included in a registrant’s Scope 2 emissions, which occur in the upstream and downstream activities of a registrant’s value chain.401 Upstream emissions include emissions attributable to goods and services that the registrant acquires, the transportation of goods (for example, to the registrant), and employee business travel and commuting. Downstream emissions include the use of the registrant’s products, transportation of products (for example, to the registrant’s customers), end of life treatment of sold products, and investments made by the registrant. As previously noted, the EPA uses the concept of scopes, and refers to the GHG Protocol, when providing guidance to companies regarding their GHG emissions inventories.402 Because GHG emissions data compiled for the EPA’s own GHG emissions reporting program would be consistent with the GHG Protocol’s standards, and thus with the proposed rules, a registrant may use that data in partial fulfillment of its GHG emissions disclosure obligations pursuant to the proposed rules. The proposed rules would require a registrant to disclose its total Scope 1 emissions separately from its total Scope 2 emissions after calculating them from all sources that are included in the registrant’s organizational and operational boundaries.403 A registrant would also be required to disclose separately its total Scope 3 emissions for the fiscal year if those emissions are material, or if it has set a GHG emissions reduction target or goal that includes its Scope 3 emissions.404 For each of its Scopes 1, 2, and 3 emissions, the proposed rules would require a registrant to disclose the emissions both disaggregated by each constituent greenhouse gas (e.g., by carbon dioxide

405See proposed 17 CFR 229.1504(a)(1). 406For example, the White House has recently launched an initiative to reduce methane emissions in the United States. See the White House Office of Domestic Climate Policy, U.S. Methane Emissions Reductions Action Plan (Nov. 2021), available at https://www.whitehouse.gov/wp-content/uploads/ 2021/11/US-Methane-Emissions-Reduction-Action￾Plan-1.pdf. 407See id. 408The proposed rules would define global warming potential to mean a factor describing the global warming impacts of different greenhouse gases. It is a measure of how much energy will be absorbed in the atmosphere over a specified period of time as a result of the emission of one ton of a greenhouse gas, relative to the emissions of one ton of carbon dioxide (CO2). See proposed 17 CFR 229.1500(f). 409See proposed 17 CFR 229.1500(d). 410See proposed 17 CFR 229.1504(a)(2). The proposed rules would define carbon offsets to represent an emissions reduction or removal of greenhouse gases in a manner calculated and traced for the purpose of offsetting an entity’s GHG emissions. See proposed 17 CFR 229.1500(a). 411See GHG Protocol, Corporate Accounting and Reporting Standard, Chapter 9. 412See, e.g., letters from Actual Systems, Inc.; Adobe Inc.; AICPA; Curt Albright (June 13, 2021); AllianceBernstein; Alphabet et al.; Amalgamated Bank; Americans for Financial Reform Education Fund; Andrew Behar; Apple; Ted Atwood; Baillie Gifford; Bank of America Corporation; BlackRock; Bloomberg, LP; Blueprint Financial; BNP Paribas; Rob Bonta, California Attorney General et al.; Boston Common Asset Management; BSR; CalPERS; CALSTRS; Calvert Research and Management; Carbon4 Finance (June 14, 2021); Carbon180 (June 13, 2021); Carbon Tracker Initiative; Cardano Risk Management Ltd.; Carolyn Kohoot; CDP NA; Center for American Progress; Center for Climate and Energy Solutions; Center for Law and Social Policy and a New Deal for Youth (June 15, 2021); Ceres et al.; Certified B Corporations; Chevron; Christopher Lish; Clean Yield Asset Management; Climate Advisers; Climate Governance Initiative Climate Risk Disclosure Law and Policy Lab; Climate Policy Ocean Conservancy (June 14, 2021); Coalition on Material Emissions Transparency (COMET) (June 10, 2021); Confluence Philanthropy; Consumer Federation of America; Crake Asset Management (June 4, 2021); Credit Suisse (June 11, 2021); Daniel Cain; Katherine DiMatteo; Domini Impact Investments LLC; Douglas Hileman Consulting, LLC; Dow (June 4, 2021); Dynamhex Inc.; Energy Infrastructure Council (June 14, 2014); Environmental Bankers Association; E2; E3G; ERM CVS; Etsy, Inc.; FAIRR Initiative; First Affirmative Financial Network; Regenerative Crisis Response Committee; the Forum for Sustainable and Responsible Investment; Friends of the Earth, Amazon Watch, and RainForect Action Network; Generation Investment Management LLP (June 14, 2021); Georgetown Climate Center (June 14, 2021); George S. Georgiev; Emmanuelle Haack; Hannon
Armstrong; Hermes Equity Ownership Services Limited; HP, Inc.; IHS Markit; Impact Investors, Inc.; Impax Asset Management; Institute for Governance and Sustainable Development; Institute for Market Transformation; Interfaith Center on Corporate Responsibility; International Corporate Governance Network; Invesco; Investment Consultants Sustainability Working Group-U.S.; Investor Advocates for Social Justice (June 14, 2021); Janice Shade (June 22, 2021); Japanese Bankers Association; Keramida et al.; Majedie Asset Management; Manifest Climate; Mercy Investment Services, Inc.; Microsoft Corporation; Miller/ Howard Investments; Mirova US LLC; Morningstar, Inc.; MSCI Inc.; Natural Resources Defense Council; NEI Investments; Newground Social Investment (June 14, 2021); New York City Comptroller; New York State Society of Certified Public Accountants; Nia Impact Capital (June 14, 2021); Norges Bank Investment; NY State Comptroller; Oxfam America (June 13, 2021); Paradice Investment Management; PayPal Holdings, Inc.; Pension Investment Association of Canada (June 14, 2021); Michael S. Pieciak, Vermont Commissioner of Financial Regulation (June 14, 2021); PRI (Consultation Response); Private Equity Stakeholder Project (June 14, 2021); Public Citizen and 57 other signatories (June 14, 2021); Publish What you Pay (US) (June 13, 2021); Revolving Door Project; RMI; Salesforce.com, Inc.; SASB; Schroder Investment Management North America (June 14, 2021); Seventh Generation Interfaith, Inc.; State Street Global Advisors; Maria Stoica; Stray Dog Capital; Sunrise Bay Area; Sustainable Inclusive Solutions (June 13, 2021); Terra Alpha Investor Group; the organization Green America and 14,600 Individual Americans (June 14, 2021); TotalEnergies; Trillium Asset Management; Union of Concerned Scientists (June 14, 2021); Unovis Asset Management (June 11, 2021); Value Balancing Alliance; Vert Asset Management LLC; Wellington Management Co.; Wespath Benefits and Investments; William and Flora Hewlett Foundation; W.K. Associates, Inc. (June 14, 2021); World Benchmarking Alliance; and WBCSD. 413See, e.g., letters from Calvert Research and Management; Ceres et al.; NY State Comptroller; and SASB. 414See, e.g., letters from Bloomberg, LP (stating that GHG emissions are critical components of any climate-related financial disclosure scheme, and that understanding the emissions contributions of a company is an important factor for understanding how financially vulnerable they may be to shifts in regulation, technology, and markets during any transition to a lower-carbon economy); CalPers (indicating the use of GHG emissions data by asset managers to evaluate potential transition risks); and Credit Suisse (supporting mandatory disclosure of Scopes 1, 2, and 3 emissions for key industries as such information is critical for financial market participants to have a better understanding of their total climate-related exposure to the highest emitting sectors). 415See, e.g., letters
from CALSTRS (indicating the use by asset managers of third-party derived climate data, the expense and lack of consistency regarding such data, and the need for publicly available climate data so that the commenter may more efficiently and cost-effectively allocate capital to lower climate risk assets in line with its investment Continued (CO2), methane (CH4), nitrous oxide (N2O), nitrogen trifluoride (NF3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)) and in the aggregate.405 By requiring the disclosure of GHG emissions both disaggregated by the constituent greenhouse gases and in the aggregate, investors could gain decision-useful information regarding the relative risks to the registrant posed by each constituent greenhouse gas in addition to the risks posed by its total GHG emissions by scope. For example, if a government targets reduction of a specific greenhouse gas, knowing that a registrant has significant emissions of such gas would provide insight into potential impacts on the registrant’s business.406 Because measuring the constituent greenhouse gases is a necessary step in calculating a registrant’s total GHG emissions per scope, the proposed disaggregation by each constituent greenhouse gas should not create significant additional burdens. Consistent with the GHG Protocol, the proposed rules would require a registrant to express each scope of its GHG emissions in terms of carbon dioxide equivalent (‘‘CO2e’’).407 CO2e is the common unit of measurement used by the GHG Protocol to indicate the global warming potential (‘‘GWP’’) 408 of each greenhouse gas, expressed in terms of the GWP of one unit of carbon dioxide (CO2).409 Requiring a standard unit of measurement for GHG emissions, rather than different units of measurement for the different greenhouse gases, should simplify the disclosure for investors and enhance its comparability across registrants with different types of GHG emissions. For all scopes of GHG emissions, the proposed rules would require a registrant to disclose GHG emissions data in gross terms, excluding any use of purchased or generated offsets.410 Because the value of offsets can vary depending on restrictions that are or may be imposed by regulation or market conditions, disclosing GHG emissions data in this manner would allow investors to assess the full magnitude of climate-related risk posed by a registrant’s GHG emissions and the registrant’s plans for managing such risk. This proposed approach also is consistent with the approach taken by the GHG Protocol.411 Commenters generally supported requiring disclosure of a registrant’s Scope 1 and Scope 2 emissions, with many also supporting disclosure of Scope 3 emissions.412 A common reason asserted by commenters for requiring GHG emissions disclosure is that quantitative data, such as GHG emissions data, is useful for assessing a registrant’s exposure to climate-related risks and accordingly its ability to transition to a
lower carbon economy.413 Investors that are currently using GHG emissions data do so because the data provides insight into a registrant’s exposure to climate-related risks, and transition risks in particular—risks that have implications for a registrant’s financial condition and results of operations.414 An increasing number of investors have identified GHG emissions as material to their investment decision-making and are either purchasing this information from third-party providers or engaging with companies to obtain the information directly. In each situation, there is a lack of consistency, comparability, and reliability in those data that our proposal seeks to address.415

objectives); Credit Suisse (stating that the lack of consistent and reliable climate-related data has created significant challenges in the ability of financial market participants to adequately assess and compare the performance of reporting companies, as well as efficiently allocate capital towards low-carbon solutions); and Norges Bank Investment Management (indicating their reliance on companies’ climate-related data to assess their exposure to the effects of climate and how they manage climate-related risks and opportunities, and stating that the scope and quality of companies’ climate-related disclosures varies significantly and that their climate-related data is often incomplete and/or not comparable). 416See, e.g., letters from Amazon Watch and Rainforest Action Network; Dimensional; Friends of the Earth; and ICCR. 417See, e.g., letters from Ceres (‘‘In land-intensive sectors, deforestation, forest degradation, and land￾use change are important financial risks associated with climate change. In these sectors—for example food and forest management—currently Scope 3 GHG emissions are not regularly disclosed, despite comprising upwards of 90% of emissions from companies.’’); see also letters from Apple (stating that Scope 3 emissions ‘‘represent the overwhelming majority of most companies’ carbon footprint and are therefore critical to include’’); Natural Resources Defense Council; NY State Comptroller; and Teachers Insurance and Annuity Association of America. 418See, e.g., letters from Apple; bp; Carbon Tracker Initiative; Consumer Federation of America; ERM CVS; Ethic Inc.; First Affirmative Financial Network; Regenerative Crisis Response Committee; MSCI, Inc.; Natural Resources Defense Council; New York State Society of Certified Public Accountants; Paradice Investment Management; Stray Dog Capital; and Huw Thomas. 419See, e.g., letters from ERM CVS; and Natural Resources Defense Council. 420See, e.g., letters from BNP Paribas; Natural Resources Defense Council; and New York State Society of Certified Public Accountants. 421See, e.g., letters from BNP Paribas; Center for Law and Social Policy (June 15, 2021); and Dimensional Fund Advisors. See also Section IV.C below for further discussion of the practice of greenwashing. 422See, e.g., letters from Acadian Asset Management LLC; American Bankers Association; American Exploration Production Council (June 11, 2021); Seema Arora; Bank Policy Institute; Biotechnology Innovation Organization; Business Roundtable (June 11, 2021); Cisco (June 11, 2021); Conning (June 11, 2021); CPP Investments; Decatur Capital Management; Dimensional Fund Advisors; Ethic Inc.; Freeport-McMoran (June 11, 2021); Harvard Management Company; Information Technology Industry Council; Institute of International Bankers; Investment Adviser Association; Manulife Investment Management; PGIM; PIMCO; Real Estate Roundtable (June 9, 2021); Matthew Roling and Samantha Tirakian; SIFMA Asset Management Group; the Vanguard
Group, Inc.; and Walmart, Inc. 423See, e.g., letters from Teachers Insurance and Annuity Association of America (recommending requiring Scope 3 disclosure from issuers in the financial, energy, transportation, materials and buildings, and agriculture, food, and forest products sectors; and Sens. Schatz and Whitehouse (recommending requiring Scope 3 disclosure for financed emissions). 424See letter from Catavento Consultancy. 425See, e.g., letters from Uber Technologies (Apr. 27, 2021); and Americans for Financial Reform Education Fund. See also TCFD, Guidance on Metrics, Targets, and Transition Plans (stating that 47% of respondents surveyed supported disclosure of Scope 3 GHG emissions independent of a materiality assessment). 426See letters from American Petroleum Institute; Virginia Harper Ho; and David Marriage. 427See letter from American Petroleum Institute. 428See letter from Richard Love. 429See supra notes 412 and 413. 430See supra Section II.C and infra Section II.I. 431See, e.g., letters from PIMCO; State Street Global Advisors; Trillium Asset Management; and Wellington Management Co. 432See Wellington Management Co. 433See supra Section I.C.1 (discussing, in particular, Climate Action 100+ and GFANZ). Some of these commenters supported requiring disclosure of Scope 1 emissions at the individual greenhouse gas level.416 Although commenters noted an increase in the voluntary reporting of climate-related disclosure, several also stated that significant gaps remain in the disclosure, particularly regarding Scope 3 emissions, which, for certain industries, can comprise a majority of GHG emissions.417 Many commenters recommended basing any GHG emissions disclosure requirement on the GHG Protocol.418 Several of these commenters stated that the GHG Protocol’s framework for reporting GHG emissions, delineated as Scopes 1, 2, and 3 emissions, has become the globally-accepted standard used by numerous companies for reporting their GHG emissions.419 Commenters also indicated that a mandatory standard for reporting GHG emissions based on the GHG Protocol would help in producing consistent, comparable, and reliable climate-related information for investors.420 Some commenters also stated that mandating GHG emissions pursuant to a standardized approach, such as the GHG Protocol, would help mitigate instances of greenwashing.421 Some commenters indicated that the Commission should mandate disclosure of only Scopes 1 and 2 emissions.422 Other commenters suggested limiting the mandatory disclosure of Scope 3 emissions to registrants in certain industries,423 larger registrants, or when a registrant’s Scope 3 emissions comprise 40 percent of its total emissions.424 These commenters pointed to difficulties in obtaining the necessary data from third parties and methodological uncertainties as reasons for limiting or not requiring disclosure of Scope 3 emissions. Other commenters and research support a requirement for disclosure of Scope 3 emissions that
is independent of an individual company’s materiality assessment.425 A few commenters stated that the Commission should require the disclosure of only Scope 1 emissions.426 One commenter stated that this approach would be consistent with the Greenhouse Gas Reporting Program overseen by the EPA, which they stated requires the tracking of facility-level Scope 1 emissions from ‘‘large greenhouse gas emitters.’’ 427 Another commenter opposed a requirement to disclose any GHG emissions, asserting that GHG emissions do not serve as adequate indicators for the actual risks faced by a registrant.428 We agree with the many commenters that indicated that GHG emissions disclosure could provide important information for investors to help them evaluate the climate-related risks faced by registrants and to understand better how registrants are planning to mitigate or adapt to those risks.429 The proposed GHG emissions disclosures could be important to an investor’s understanding of other disclosures that would be required by the proposed rules, such as disclosure of the likely impacts of climate-related risks as well as any targets and goals disclosure.430 We propose requiring disclosure of registrants’ Scopes 1 and 2 emissions because, as several institutional investor commenters stated, investors need and many investors currently use this information to make investment or voting decisions.431 One of those commenters stated that GHG emissions information serves as the starting point for transition risk analysis because it is quantifiable and comparable across companies and industries.432 The commenter, an institutional investor, indicated that it uses GHG emissions data to rank companies within industries based on their GHG emissions intensity to better assess transition risk exposure of companies in its portfolio and make informed investment decisions. This commenter also indicated that Scopes 1 and 2 emissions information is more broadly available than Scope 3 emissions data because of the challenges of collecting the latter data. As previously mentioned, several large institutional investors and financial institutions, which collectively have trillions of dollars in assets under management, have formed initiatives and made commitments to achieve a net-zero economy by 2050, with interim targets set for 2030.433 These initiatives further support the notion that investors currently need and use GHG emissions data to make informed investment decisions. These investors and financial institutions are working to reduce the GHG emissions of companies in their portfolios or of their counterparties and need GHG emissions data to evaluate the progress made regarding their net￾zero commitments and to assess any

434See, e.g., Climate Action 100+, The Three Asks. 435See supra note 420. 436See, e.g., Kauffmann, C., C. Te´bar Less and D. Teichmann (2012), Corporate Greenhouse Gas Emission Reporting: A Stocktaking of Government Schemes, OECD Working Papers on International Investment, 2012/01, OECD Publishing, at 8, available at http://dx.doi.org/10.1787/ 5k97g3x674lq-en (‘‘For example, the use of scope 1, 2, 3 to classify emissions as defined by the GHG Protocol has become common language and practice today.’’). 437See infra Section II.G.2 (discussing the proposed treatment for determining ownership or control for the purpose of setting a registrant’s organizational boundaries when measuring its Scopes 1 and 2 emissions). 438See EPA, Direct Emissions from Stationary Combustion Sources (Dec. 2020), available at https://www.epa.gov/sites/default/files/2020-12/ documents/stationaryemissions.pdf. 439See EPA, Indirect Emissions from Purchased Electricity (Dec. 2020), available at https:// www.epa.gov/sites/default/files/2020-12/ documents/electricityemissions.pdf. 440As previously mentioned, the proposed rules would define a registrant’s value chain to mean the upstream and downstream activities related to a registrant’s operations. Upstream activities include activities that relate to the initial stages of producing a good or service (e.g., materials sourcing, materials processing, and supplier activities). Downstream activities include activities that relate to processing materials into a finished product and delivering it or providing a service to the end user (e.g., transportation and distribution, processing of sold products, use of sold products, end of life treatment of sold products, and investments). See proposed 17 CFR 229.1500(t). 441See, e.g., letter from Wellington Management Co. 442See, e.g., letter from Apple (referencing its 2021 Environmental Progress Report, available at https://www.apple.com/environment/pdf/Apple_ Environmental_Progress_Report_2021.pdf, which states that 109 suppliers across 24 countries have committed to manufacturing Apple products with 100 percent renewable energy, and indicating Apple’s development of detailed life cycle assessment models, which help the company identify its top product component contributors of carbon emissions and facilitate its providing a comprehensive account of its relevant Scope 3 emissions). associated potential asset devaluation or loan default risks.434 A company’s GHG emissions footprint also may be relevant to investment or voting decisions because it could impact the company’s access to financing or signal potential changes in its financial planning as governments, financial institutions, and other investors make demands to reduce GHG emissions. We also agree with commenters that basing the Commission’s proposed GHG emissions disclosure rules on concepts used in the GHG Protocol could help provide investors with consistent, comparable, and reliable information about a registrant’s GHG
emissions.435 In this regard, we note that several studies have found that GHG emissions data prepared pursuant to the GHG Protocol have become the most commonly referenced measurements of a company’s exposure to climate-related risks.436 However, we are not proposing to adopt all of the features of the GHG Protocol into the Commission’s proposed climate-related disclosure rules. As explained in greater detail below, in one significant respect the proposed rules differ from the approach taken by the GHG Protocol regarding the methodology that a registrant would be required to use when calculating its GHG emissions. This difference better suits the U.S. financial reporting regime and the needs of investors.437 We recognize that the methodologies pertaining to the measurement of GHG emissions, particularly Scope 3 emissions, are evolving. While we expect that many registrants would choose to follow the standards and guidance provided by the GHG Protocol when calculating their GHG emissions, the proposed rules would not require registrants to do so. Allowing for some flexibility in the choice of GHG emissions methodologies would permit registrants to adapt to new approaches, such as those pertaining to their specific industry, as they emerge. b. The Treatment of Scopes 1 and 2 Emissions Compared to Scope 3 Emissions We are proposing to require all registrants to disclose their Scopes 1 and 2 emissions. Those types of emissions result directly or indirectly from facilities owned or activities controlled by a registrant. The relevant data for calculating Scopes 1 and 2 emissions should be reasonably available to registrants, and the relevant methodologies are fairly well￾developed. Registrants with large stationary sources of emissions already report Scope 1 emissions data to the EPA, and the EPA provides detailed methodologies for a range of industries with significant Scope 1 emissions.438 The EPA also provides detailed guidance for the calculation of Scope 2 emissions, which, although classified as ‘‘indirect emissions,’’ are generated by direct activities of the registrant in using purchased energy.439 Unlike Scopes 1 and 2 emissions, Scope 3 emissions typically result from the activities of third parties in a registrant’s value chain 440 and thus collecting the appropriate data and calculating these emissions would potentially be more difficult than for Scopes 1 and 2 emissions. At the same time, in many cases Scope 3 emissions disclosure may be necessary to present investors a complete picture of the climate-related risks—particularly transition risks—that a registrant faces and how GHG emissions from sources in its value chain, which are not included in its Scopes 1 and 2 emissions, may materially impact a registrant’s business operations and associated financial performance. Scope 3 emissions can augment the information provided in Scopes 1 and 2 emissions and help to reflect the total emissions associated with a registrant’s operations,
including inputs from upstream activities, such as those of its suppliers, and outputs from downstream activities, such as those involving the distribution, use, and disposal of a registrant’s products or services.441 Scope 3 emissions are indirect, but registrants can and do take steps to limit Scope 3 emissions and the attendant risks. Although a registrant may not own or control the operational activities in its value chain that produce Scope 3 emissions, it nevertheless may influence those activities, for example, by working with its suppliers and downstream distributors to take steps to reduce those entities’ Scopes 1 and 2 emissions (and thus help reduce the registrant’s Scope 3 emissions) and any attendant risks. As such, a registrant may be able to mitigate the challenges of collecting the data required for Scope 3 disclosure.442 Such data may reveal changes in a registrant’s Scope 3 emissions over time that could be informative for investors in discerning how the registrant is managing transition risks. For example, a registrant could seek to reduce the potential impacts on its business of its upstream emissions by choosing to purchase from more GHG emission￾efficient suppliers or by working with existing suppliers to reduce emissions. A registrant could also seek to reduce the potential impacts on its business of downstream emissions by producing products that are more energy efficient or involve less GHG emissions when consumers use them, or by contracting with distributors that use shorter transportation routes. Being able to compare Scope 3 emissions over time could thus be a valuable tool for investors in tracking a registrant’s progress in mitigating transition and other climate-related risks. To balance the importance of Scope 3 emissions with the potential relative difficulty in data collection and measurement, the proposed rules would require disclosure of Scope 3 emissions only if those emissions are material, or if the registrant has set a GHG emissions reduction target or goal that includes its

443See proposed 17 CFR 229.1504(c)(1). As explained below, we are also proposing a safe harbor for Scope 3 disclosures. See infra Section II.G.3. 444See infra note 461 and accompanying text. 445See supra note 209. 446TSC Industries, Inc. v Northway, 426 U.S. at 448. 447See, e.g., letters from Apple; and WK Associates. 448See, e.g., letter from Wellington Management Co. 449See Eric Rosenbaum, Climate experts are worried about the toughest carbon emissions for companies to capture (Aug. 18, 2021) (‘‘Scope 3 carbon emissions, or those not part of operations or under direct control, represent the majority of the carbon footprint for most companies, in some cases as high as 85% to 95%’’), available at https:// www.cnbc.com/2021/08/18/apple-amazon-exxon￾and-the-toughest-carbon-emissions-to￾capture.html#:∼:text=Scope%203%20carbon%20 emissions%2C%20or,as%2085%25%to%2095%25. See also MSCI, Emissions: Seeing the Full Picture (Sept. 17, 2020) (‘‘For some companies and industries, Scope 3 emissions dominate the overall carbon footprint. For example, the Scope 3 emissions of the integrated oil and gas industry . . . are more than six times the level of its Scope 1 and 2 emissions.’’), available at https://www.msci.com/ www/blog-posts/scope-3-carbon-emissions-seeing/ 02092372761; letter from WK Associates, Inc. (June 14, 2021) (stating that Scope 3 emissions account for approximately 70–90% of lifecycle emissions from oil products and 60–85% of those from natural gas, according to the International Energy Agency). 450See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), Appendix 1,
Figure A1–1 (Importance of Scope 3 GHG Emissions
in Certain Sectors) (showing that, for the automobiles and components sector, the majority of GHG emissions result from downstream product use), available at https://assets.bbhub.io/company/ sites/60/2021/07/2021-Metrics_Targets_Guidance￾1.pdf. 451See, e.g., Coral Davenport, E.P.A. Announces Tightest-Ever Auto Pollution Rules, N.Y. Times, Dec. 20, 2021, available at https:// www.nytimes.com/2021/12/20/climate/tailpipe￾rules-climate-biden.html?searchResultPosition=25 (reporting that the EPA announced strengthened limits on pollution from automobile tailpipes). In addition, more than a dozen states have adopted low emission vehicle standards. See California Air Resources Board, States that have Adopted California’s Vehicle Standards under Section 177 of the Federal Clean Air Act, available at https:// ww2.arb.ca.gov/resources/documents/states-have￾adopted-californias-vehicle-standards-under￾section-177-federal. 452See, e.g., Catherine Lucey and Andrew Duehren, Biden Touts Build Back Better in Meeting With CEOs, Wall Street Journal, Jan. 26, 2022, available at https://www.wsj.com/articles/biden￾touts-build-back-better-in-meeting-with-ceos￾11643227677?mod=Searchresults_pos1&page= (reporting efforts to obtain Federal tax incentives to promote the use of electric and hydrogen-power vehicles). 453See Jack Ewing, Sales of Electric Vehicles Surpass Diesel in Europe, a First, N.Y. Times, Jan. 17, 2022 (stating that sales of battery-powered cars soared in Europe, the United States, and China in 2021), available at https://www.nytimes.com/2022/ 01/17/business/electric-vehicles￾europe.html?searchResultPosition=1. 454See, e.g., Tom Krisher and Aamer Madhani, US automakers pledge huge increase in electric vehicles, AP News, Aug. 5, 2021, available at https://apnews.com/article/technology-joe-biden￾business-environment-and-nature-economy￾88fe6ca8e333f3d00f6d2e98c6652cea (reporting that General Motors aspires to sell only electric passenger vehicles by 2035 and Ford and Stellantis (formerly Fiat Chrysler) each expect that 40% of global sales to be electric vehicles by 2030); see also https://www.caranddriver.com/news/g35562831/ev￾plans-automakers-timeline/; and Jim Motavalli, Every Automaker’s EV Plans Through 2035 And Beyond, Forbes, Oct. 4, 2021, available at https:// www.forbes.com/wheels/news/automaker-ev-plans/. 455See supra Section I.C.1. Scope 3 emissions.443 As explained in greater detail below, this latter proposed disclosure requirement could assist investors in tracking the progress of the registrant toward reaching the target or goal so that investors can better understand potential associated costs.444 Consistent with the Commission’s definition of ‘‘material’’ and Supreme Court precedent, a registrant would be required to disclose its Scope 3 emissions if there is a substantial likelihood that a reasonable investor would consider them important when making an investment or voting decision.445 In articulating this materiality standard, the Supreme
Court recognized that ‘‘[d]oubts as to the critical nature’’ of the relevant information ‘‘will be commonplace.’’ But ‘‘particularly in view of the prophylactic purpose’’ of the securities laws,’’ and ‘‘the fact that the content’’ of the disclosure ‘‘is within management’s control, it is appropriate that these doubts be resolved in favor of those the statute is designed to protect,’’ namely investors.446 When recommending that the Commission require the disclosure of Scope 3 emissions, some commenters indicated that Scope 3 emissions represent the relatively large source of overall GHG emissions for many companies.447 Given their relative magnitude, we agree that, for many registrants, Scope 3 emissions may be material to help investors assess the registrants’ exposure to climate-related risks, particularly transition risks,448 and whether they have developed a strategy to reduce their carbon footprint in the face of regulatory, policy, and market constraints.449 Scope 3 emissions information may be material in a number of situations to help investors gain a more complete picture of the transition risks to which a registrant may be exposed. In certain industries, a transition to lower￾emission products or processes may already be underway, triggered by existing laws or regulations, changes in weather, policy initiatives, a shift in consumer preferences, technological changes, or other market forces, such that financial risks are reasonably foreseeable for registrants in those industries based on the emissions in their value chain. For example, some registrants may need to allocate capital to invest in lower emissions equipment. Investors thus need and use information about the full GHG emissions footprint and intensity of a registrant to determine and compare how exposed a registrant is to the financial risks associated with any transition to lower￾emission products. For example, in the automobile industry, the vast majority of car manufacturers’ GHG emissions footprint comes from tailpipe emissions of cars driven by customers, as compared to the emissions from manufacturing the cars.450 There is already a transition underway to reduce tailpipe emissions through the adoption of stricter fuel efficiency regulations 451 and by governmental initiatives that encourage the manufacture and demand for electric vehicles.452 Demand for electric vehicles is increasing in the United States and globally,453 and leading automobile manufacturers have announced plans to increase the manufacture of electric vehicles, with many setting commitments to manufacture all-electric fleets or achieve net-zero emissions.454 This transition raises financial risks for automobile manufacturers, which can be gauged, in
part, by their Scope 3 emissions.
Investors can use Scope 3 emissions data concerning a car manufacturer’s suppliers and the use of its sold products to assess whether a particular manufacturer is taking steps to mitigate or adapt to the risks posed by a transition to lower emission vehicles. Changes in requirements by financial institutions and institutional investors can present similar financial risks for companies. As many financial institutions and investors begin to set their own GHG emissions reduction goals, they may consider the total GHG emissions footprint of companies that they finance or invest in to build portfolios to meet their goals.455 Financial institutions and investors may focus on Scopes 1 and 2 emissions for companies in some industries, particularly for industries in which Scopes 1 and 2 represent the majority of companies’ total GHG emissions footprint. For other industries, however, Scope 3 emissions represent a relatively significant portion of companies’ total GHG footprint, and therefore may reflect a more complete picture of companies’ exposure to transition risks than Scopes 1 and 2 emissions alone. For oil and gas product manufacturers, for example, Scope 3 emissions are likely to be material and thus necessary to an

456See, e.g., letter from Uber Technologies; see also TCFD, Guidance on Metrics, Targets, and Transition Plans, at note 40, citing SBTi, SBTi Criteria and Recommendations (Oct. 2021), available at https://sciencebasedtargets.org/ resources/files/SBTi-criteria.pdf. 457TSC Industries v. Northway, 426 U.S. at 449. 458See, e.g., letters from Confluence Philanthropy; Forum for Sustainable and Responsible Investment; Mirova US LLC; NY City Comptroller; and Wellington Management Co. 459See id. 460For example, registrants that choose to mitigate climate-related risks by undertaking research and development activities to source inputs involving less GHG emissions might incur expenses in the short-term but could achieve potential long-term cost savings by implementing more energy-efficient production processes and avoiding potential penalties imposed by regulation. 461See proposed 17 CFR 229.1504(c)(1). understanding of a registrant’s climate￾related risks. When assessing the materiality of Scope 3 emissions, registrants should consider whether Scope 3 emissions make up a relatively significant portion of their overall GHG emissions. While we are not proposing a quantitative threshold for determining materiality, we note that some companies rely on, or support reliance on, a quantitative threshold such as 40 percent when assessing the materiality of Scope 3 emissions.456 However, even when Scope 3 emissions do not represent a relatively significant portion of overall GHG emissions, a quantitative analysis alone would not suffice for purposes of determining whether Scope 3 emissions are material. Consistent with the concept of materiality in the securities laws, this determination would ultimately need to take into account the total mix of information available to investors, including an assessment of qualitative factors. Accordingly, Scope 3 emissions may make up a relatively small portion of a registrant’s overall GHG emissions but still be material where Scope 3 represents a significant risk, is subject to significant regulatory focus, or ‘‘if there is a substantial likelihood that a reasonable [investor] would consider it important.’’ 457 Moreover, if a materiality analysis requires a determination of future impacts, i.e., a transition risk yet to be realized, then both the probability of an event occurring and its magnitude should be considered. Even if the probability of an adverse consequence is relatively low, if the magnitude of loss or liability is high, then the information in question may still be material. If a registrant determines that its Scope 3 emissions are not material, and therefore not subject to disclosure, it may be useful to investors to understand the basis for that determination. Further, if a registrant determines that certain categories of Scope 3 emissions are material, registrants should consider disclosing why other categories are not material. If, however, Scope 3 emissions are material, then understanding the extent of a
registrant’s exposure to Scope 3 emissions, and the choices it makes regarding them, would be important for investors when making investment or voting decisions. Several commenters stated that disclosure of a registrant’s Scope 3 emissions is essential to making an informed investment decision because Scope 3 emissions can indicate a registrant’s exposure to climate-related transition risks.458 For example, if policy changes lead to mandatory emissions reductions or carbon pricing, a registrant with high Scope 3 emissions could experience higher costs in sourcing key inputs. Similarly, if consumer preferences change to favor products that are less carbon intensive, a registrant could see a significant change in demand for its products. Registrants that do not account for these risks, or make suboptimal choices regarding them, could become less profitable in the future than registrants that acknowledge these risks and successfully mitigate them.459 Thus, Scope 3 emissions disclosure could help convey to investors the potential financial risks facing a company related to any transition to a lower carbon economy. With Scope 3 information disclosed, investors would be able to assess, in conjunction with reported financial information, how GHG emissions impact the registrant’s operations as well as its overall business strategy so that they can make more informed investment or voting decisions.460 Disclosure of Scope 3 emissions could also highlight instances where a registrant attempts to reduce its total Scopes 1 and 2 emissions by outsourcing carbon intensive activities. For example, a registrant could contract out certain high-emissions production activities so that its own Scope 1 or 2 emissions are lower than a similar company that has retained direct ownership and control over more of its production activities. Thus, Scope 3 emissions reporting could provide greater transparency and help preclude any efforts by registrants to obscure for investors the full magnitude of the climate-related risks associated with their GHG emissions. The proposed rules would also require a registrant to disclose its Scope 3 emissions if it has set a GHG emissions reduction target or goal that includes Scope 3 emissions.461 This disclosure requirement would enable investors to understand the scale and scope of actions the registrant may need to take to fulfill its commitment to reduce its Scope 3 emissions and the potential financial impact of that commitment on the registrant. It would also enable an investor to assess the registrant’s strategy for meeting its Scope 3 emissions target or goal and its progress towards that target or goal, which may affect the registrant’s business. Scope 3 emissions disclosures would help investors to understand and assess the registrant’s strategy. For example, Scope 3 emissions disclosures would allow an investor to better understand how feasible it would be for the registrant to achieve its targets through its current strategy,
to track the registrant’s progress over time, and to understand changes the registrant may make to its strategy, targets, or goals. Scope 3 emissions disclosures would thus be important to evaluating the financial effects of the registrant’s target or goal. In addition, this disclosure could help prevent instances of greenwashing or other misleading claims concerning the potential impact of Scope 3 emissions on a registrant’s business because investors, and the market would have access to a quantifiable, trackable metric. A registrant’s Scope 3 emissions disclosure, together with the proposed financial statement metrics, would also enable an investor to assess the efficiency and efficacy of the registrant’s actions to achieve its target or goal (e.g., by comparing the registrant’s expenditures or other investments in lower carbon transition activities from year to year with any corresponding reduction in its Scope 3 emissions). If a registrant has a relatively ambitious Scope 3 emissions target, but discloses little investment in transition activities in its financial statements and little or no reduction in Scope 3 emissions from year to year, these disclosures could indicate to investors that the registrant may need to make a large expenditure or significant change to its business operations as it gets closer to its target date, or risk missing its target. Both potential outcomes could have financial ramifications for the registrant and, accordingly, investors. The proposed disclosure requirement should also give investors the ability to evaluate whether a registrant’s target or goal and its plan for achieving that target or goal could have an adverse impact on the registrant. For example, an investor might conclude that the financial costs of a registrant’s plan would outweigh any benefits to the

462See WBCSD and World Resources Institute, Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Sept. 2011). 463See proposed 17 CFR 229.1500(r). 464See id. The ‘‘investments’’ category would capture what are commonly referred to as ‘‘financed emissions.’’ 465See proposed 17 CFR 229.1504(c)(1). 466Activity data refers to a quantitative measure of a level of activity that results in GHG emissions. Depending on the activity, such data could be expressed, for example, as: Liters of fuel consumed; kilowatt-hours of electricity consumed; kilograms of material consumed; kilometers of distance traveled; hours of time operated; square meters of area occupied; kilograms of waste generated; kilograms of product sold; or quantity of money spent. See GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Chapter 7. 467See proposed 17 CFR 229.1504(c)(2). business, and factor that into how the registrant’s securities fit into the investor’s own investment portfolio given the investor’s risk tolerance and other investment goals. Thus, the objective of this disclosure is not to drive targets, goals, plans, or conduct, but to provide investors with the tools to assess the implications of any targets, goals, or plans on the registrant in making investment or voting decisions. This disclosure requirement could also enable investors to better compare firms. For example, two registrants may have the same total GHG emissions and have made the same commitments to reduce total GHG emissions from Scopes 1, 2, and 3 emissions combined. However, if the registrants have different proportions of emissions from Scope 1 and 2 versus Scope 3, investors might determine that there would be different costs and effects for these registrants from their disclosed plans to reduce their overall emissions. Scope 3 emissions disclosures could also enable investors to better compare registrants’ plans to achieve their Scope 3 emissions targets or goals. For example, registrants in the retail industry may have a relatively large portion of their Scope 3 emissions derived from customer travel to the registrant’s stores and shipping products or goods to customers or stores. If a registrant in this industry has set Scope 3 emissions targets or goals, in order to meet those targets or goals it may choose to relocate its stores to be closer to public transportation. Another similarly situated registrant may elect to switch to using electric vehicles for shipping. A third similarly situated registrant might elect to take neither action, but instead assume Scope 3 emissions reductions based on customers’ change in behavior. Investors could assess the likelihood of each of these three registrants meeting their Scope 3 emissions target or goal— as well as the likely financial and operational impact—which could depend on the amount and type of their Scope 3 emissions. Investors could also compare the potential impacts of these plans on
the three different registrants. Without disclosures of the amount and type of Scope 3 emissions, investors would face difficulty assessing the likely impacts of a target or goal that includes Scope 3 emissions on registrants and comparing the relative impacts across registrants. If required to disclose Scope 3 emissions, a registrant would be required to identify the categories of upstream and downstream activities that have been included in the calculation of its Scope 3 emissions. Consistent with the GHG Protocol,462 the proposed rules identify several categories of activities that can give rise to Scope 3 emissions. Upstream activities from which Scope 3 emissions might result include:

• A registrant’s purchased goods and
  services;
• A registrant’s capital goods;
• A registrant’s fuel and energy
  related activities not included in Scope 1 or Scope 2 emissions;
• Transportation and distribution of
  purchased goods, raw materials, and other inputs;
• Waste generated in a registrant’s
  operations;
• Business travel by a registrant’s
  employees;
• Employee commuting by a
  registrant’s employees; and
• A registrant’s leased assets related
  principally to purchased or acquired goods or services.463 Downstream activities from which Scope 3 emissions might result include:
• Transportation and distribution of a
  registrant’s sold products, goods or other outputs;
• Processing by a third party of a
  registrant’s sold products;
• Use by a third party of a registrant’s
  sold products;
• End-of-life treatment by a third
  party of a registrant’s sold products;
• A registrant’s leased assets related
  principally to the sale or disposition of goods or services;
• A registrant’s franchises; and
• Investments by a registrant.464
  The list of upstream and downstream activities set forth in proposed Item 1500(r) is non-exclusive. If any upstream or downstream activities were significant to the registrant when calculating its Scope 3 emissions, the proposed rules would require it to identify such categories and separately disclose Scope 3 emissions data for each of those categories together with a total of all Scope 3 emissions.465 For example, an energy company that produces oil and gas products may find that a significant category of activity resulting in Scope 3 emissions relates to the end use of its sold products. A manufacturer might find that a significant category of activities resulting in Scope 3 emissions relate to the emissions of its suppliers in the production of purchased goods or services, the processing of its sold products, or by the fuel consumed by its third-party transporters and distributors of those goods and services and of its sold products. In some cases, the category in which an emissions source belongs may be unclear, or the source might fit within more than one category. In those cases, registrants would need to use their best judgment as to the description of the emissions source and provide sufficient transparency as to the reasoning and methodology to facilitate investor understanding of the emissions category and source. If required to disclose Scope 3 emissions, a registrant would also be required to describe the data sources used to calculate those emissions, including the use of any of the following:
• Emissions reported by parties in the
  registrant’s value chain, and whether such reports were verified by the registrant or a third party, or unverified;
• Data concerning specific
  activities,466 as reported by parties in the registrant’s value chain; and
• Data derived from economic
  studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data.467 This information is intended to assist investors in assessing the reliability and accuracy of the registrant’s Scope 3 emissions disclosure. For example, an investor might find emissions data related to the downstream transportation and distribution of a registrant’s sold products more reliable if based on specific distances traveled by the registrant’s transportation and distribution partners and company￾specific emissions factors rather than estimates of distances traveled based on industry-average data and using national average emission factors. Although we recognize that a registrant may sometimes need to use industry￾and national-average data when calculating its Scope 3 emissions, information about the data sources for its Scope 3 emissions would help

468See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), Appendix 1. 469See, e.g., GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard. 470See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), Appendix 1; and letters from Apple; NY City Comptroller; and Wellington Investment Co. 471See, e.g., letter from Catavento Consultancy (stating that Scope 3 emissions disclosure should be mandatory for larger companies and for those in which Scope 3 emissions account for more than 40% of total emissions). investors better understand the risk exposure posed by the registrant’s value chain in comparison with other registrants and make more informed investment decisions. We acknowledge that a registrant’s material Scope 3 emissions is a relatively new type of metric, based largely on third-party data, that we have not previously required. We are proposing the disclosure of this metric because we believe capital markets have begun to assign financial value to this type of metric, such that it can be material information for investors about financial risks facing a company. Scope 3 emissions disclosure is an integral
part of both the TCFD 468 framework and
the GHG Protocol,469 which are widely accepted. It also has been widely recognized that, for some companies, disclosure of just Scopes 1 and 2 emissions could convey an incomplete, and potentially misleading, picture.470 We have attempted to calibrate our proposal to balance investors’ demand for this information with the current limitations of the Scope 3 emissions data. We also recognize, as discussed below, that the reporting of Scope 3 emissions may present more challenges than the reporting of Scopes 1 and 2 emissions. But in light of the fact that a GHG emissions reporting regime may be incomplete without the reporting of Scope 3 emissions, we are proposing to include them, with an appropriate transition period and safe harbor, at the outset. Although we have not proposed to exclude specific upstream or downstream activities from the scope of the proposed Scope 3 disclosure requirement, we have limited the proposed disclosure requirement to those value chain emissions that overall are material. We also have not proposed a bright-line quantitative threshold for the materiality determination as suggested by some commenters 471 because whether Scope 3 emissions are material would depend on the particular facts and circumstances, making it difficult to establish a ‘‘one size fits all’’ standard. Request for Comment
93. How would investors use GHG
emissions disclosures to inform their investment and voting decisions? How would such disclosures provide insight into a registrant’s financial condition, changes in financial condition, and results of operations? How would such disclosures help investors evaluate an issuer’s climate risk-related exposure? Would such disclosures enable investors to better assess physical risks associated with climate-related events, transition risks, or both types of risks?
94. Should we require a registrant to
disclose its GHG emissions both in the aggregate, per scope, and on a disaggregated basis for each type of greenhouse gas that is included in the Commission’s proposed definition of ‘‘greenhouse gases,’’ as proposed? Should we instead require that a registrant disclose on a disaggregated basis only certain greenhouse gases, such as methane (CH4) or hydrofluorocarbons (HFCs), or only those greenhouse gases that are the most significant to the registrant? Should we require disaggregated disclosure of one or more constituent greenhouse gases only if a registrant is obligated to separately report the individual gases pursuant to another reporting regime, such as the EPA’s greenhouse gas reporting regime or any foreign reporting regime? If so, should we specify the reporting regime that would trigger this disclosure?
95. We have proposed defining
‘‘greenhouse gases’’ as a list of specific gases that aligns with the GHG Protocol and the list used by the EPA and other organizations. Should other gases be included in the definition? Should we expand the definition to include any other gases to the extent scientific data establishes a similar impact on climate change with reasonable certainty? Should we require a different standard to be met for other greenhouse gases to be included in the definition?
96. Should we require a registrant to
express its emissions data in CO2e, as proposed? If not, is there another common unit of measurement that we should use? Is it important to designate a common unit of measurement for GHG emissions data, as proposed, or should we permit registrants to select and disclose their own unit of measurement?
97. Should we require a registrant to
disclose its total Scope 1 emissions and total Scope 2 emissions separately for its most recently completed fiscal year, as proposed? Are there other approaches that we should consider?
98. Should we require a registrant to
disclose its Scope 3 emissions for the fiscal year if material, as proposed? Should we instead require the disclosure of Scope 3 emissions for all registrants, regardless of materiality? Should we use a quantitative threshold, such as a percentage of total GHG emissions (e.g., 25%, 40%, 50%) to require the disclosure of Scope 3 emissions? If so, is there any data supporting the use of a particular percentage threshold? Should we require registrants in particular industries, for which Scope 3 emissions are a high percentage of total GHG emissions, to disclose Scope 3 emissions?
99. Should we require a registrant that
has made a GHG emissions reduction commitment that includes Scope 3 emissions to disclose its Scope 3 emissions, as proposed? Should we instead require registrants that have made any GHG emissions reduction commitments, even if those commitments do not extend to Scope 3, to disclose their Scope 3 emissions? Should we only require Scope 3 emissions disclosure if a registrant has made a GHG emissions reduction commitment that includes Scope 3 emissions?
100. Should Scope 3 emissions
disclosure be voluntary? Should we require Scope 3 emissions disclosure in stages, e.g., requiring qualitative disclosure of a registrant’s significant categories of upstream and downstream activities that generate Scope 3 emissions upon effectiveness of the proposed rules, and requiring quantitative disclosure of a registrant’s Scope 3 emissions at a later date? If so, when should we require quantitative disclosure of a registrant’s Scope 3 emissions?
101. Should we require a registrant to
exclude any use of purchased or generated offsets when disclosing its Scope 1, Scope 2, and Scope 3 emissions, as proposed? Should we require a registrant to disclose both a total amount with, and a total amount without, the use of offsets for each scope of emissions?
102. Should we require a registrant to
disclose its Scope 3 emissions for each separate significant category of upstream and downstream emissions as well as a total amount of Scope 3 emissions for the fiscal year, as proposed? Should we only require the disclosure of the total amount of Scope 3 emissions for the fiscal year? Should we require the separate disclosure of Scope 3 emissions only for certain categories of emissions and, if so, for which categories?
103. Should the proposed rules
include a different standard for

472See proposed 17 CFR 229.1504(d)(1). 473See proposed 17 CFR 229.1504(d)(2). The proposed safe harbor for Scope 3 emissions disclosure would apply to this proposed GHG intensity metric for Scope 3 emissions. See infra
Section II.C.3.
474See proposed 17 CFR 229.1500(i). We derived this proposed definition from the GHG Protocol. See GHG Protocol, A Corporate Accounting and Reporting Standard, Chapter 9. 475See proposed 17 CFR 229.1504(d)(1). requiring identification of the categories of upstream and downstream emissions, such as if those categories of emissions are significant to total GHG emissions or total Scope 3 emissions? Are there any other categories of, or ways to categorize, upstream or downstream emissions that a registrant should consider as a source of Scope 3 emissions? For example, should we require a registrant to disclose Scope 3 emissions only for categories of upstream or downstream activities over which it has influence or indirect control, or for which it can quantify emissions with reasonable reliability? Are there any proposed categories of upstream or downstream emissions that we should exclude as sources of Scope 3 emissions?
104. Should we, as proposed, allow a
registrant to provide their own categories of upstream or downstream activities? Are there additional categories, other than the examples we have identified, that may be significant to a registrant’s Scope 3 emissions and that should be listed in the proposed rule? Are there any categories that we should preclude, e.g., because of lack of accepted methodologies or availability of data? Would it be useful to allow registrants to add categories that are particularly significant to them or their industry, such as Scope 3 emissions from land use change, which is not currently included in the Greenhouse Gas Protocol’s Scope 3 categories? Should we specifically add an upstream emissions disclosure category for land use?
105. Should we require the
calculation of a registrant’s Scope 1, Scope 2, and/or Scope 3 emissions to be as of its fiscal year end, as proposed? Should we instead allow a registrant to provide its GHG emissions disclosures according to a different timeline than the timeline for its Exchange Act annual report? If so, what should that timeline be? For example, should we allow a registrant to calculate its Scope 1, Scope 2, and/or Scope 3 emissions for a 12- month period ending on the latest practicable date in its fiscal year that is no earlier than three months or, alternatively, six months prior to the end of its fiscal year? Would allowing for an earlier calculation date alleviate burdens on a registrant without compromising the value of the disclosure? Should we allow such an earlier calculation date only for a registrant’s Scope 3 emissions? Would the fiscal year end calculations required for a registrant to determine if Scope 3 emissions are material eliminate the benefits of an earlier calculation date? Should we instead require a registrant to provide its GHG emissions disclosures for its most recently completed fiscal year one, two, or three months after the due date for its Exchange Act annual report in an amendment to that report?
106. Should we require a registrant
that is required to disclose its Scope 3 emissions to describe the data sources used to calculate the Scope 3 emissions, as proposed? Should we require the proposed description to include the use of: (i) Emissions reported by parties in the registrant’s value chain, and whether such reports were verified or unverified; (ii) data concerning specific activities, as reported by parties in the registrant’s value chain; and (iii) data derived from economic studies, published databases, government statistics, industry associations, or other third-party sources outside of a registrant’s value chain, including industry averages of emissions, activities, or economic data, as proposed? Are there other sources of data for Scope 3 emissions the use of which we should specifically require to be disclosed? For purposes of our disclosure requirement, should we exclude or prohibit the use of any of the proposed specified data sources when calculating Scope 3 emissions and, if so, which ones?
107. Should we require a registrant to
provide location data for its disclosed sources of Scope 1, Scope 2, and Scope 3 emissions if feasible? If so, should the feasibility of providing location data depend on whether it is known or reasonably available pursuant to the Commission’s existing rules (Securities Act Rule 409 and Exchange Act Rule 12b–21)? Would requiring location data, to the extent feasible, assist investors in understanding climate-related risks, and in particular, likely physical risks, associated with a registrant’s emissions’ sources? Would a requirement to disclose such location data be duplicative of any of the other disclosure requirements that we are proposing?
108. If we require a registrant to
provide location data for its GHG emissions, how should that data be presented? Should the emissions data be grouped by zip code separately for each scope? Should the disclosure be presented in a cartographic data display, such as what is commonly known as a ‘‘heat map’’? If we require a registrant to provide location data for its GHG emissions, should we also require additional disclosure about the source of the emissions?
c. GHG Intensity
In addition to requiring the disclosure of its GHG emissions in gross terms, the proposed rules would also require a registrant to disclose the sum of its Scopes 1 and 2 emissions in terms of GHG intensity.472 If required to disclose Scope 3 emissions, a registrant would also be required to separately disclose its Scope 3 emissions in terms of GHG intensity.473 GHG intensity disclosure should provide context to a registrant’s emissions in relation to its business scale (e.g., emissions per economic output). For example, car manufacturer A may generate more emissions in terms of CO2e than car manufacturer B; however, when analyzing an intensity metric (emissions per unit of production), it becomes apparent that car manufacturer A actually has a lower emission rate per car produced than car manufacturer B, which indicates a registrant’s emission efficiency. Because emission efficiency can be a potential indicator of the likelihood of the registrant being impacted by transition risks, such GHG intensity disclosure could provide decision-useful information to investors. In addition, the proposed GHG intensity disclosure would provide a standardized method for presenting such measure of efficiency across registrants, which should facilitate comparability of the registrant’s emissions efficiency over time. The proposed rules would define ‘‘GHG intensity’’ (or ‘‘carbon intensity’’) to mean a ratio that expresses the impact of GHG emissions per unit of economic value (e.g., metric tons of CO2e per unit of total revenues, using the registrant’s reporting currency) or per unit of production (e.g., metric tons of CO2e per unit of product produced).474 For purposes of standardizing the disclosure and facilitating its comparability, we are proposing to require the disclosure of GHG intensity in terms of metric tons of CO2e per unit of total revenue and per unit of production for the fiscal year.475 Total revenue is one of the most commonly used and understood financial metrics when investors analyze a registrant’s financial results and applies to most registrants (depending on the nature and maturity of the business) and therefore would be a good common denominator for the

476See proposed 17 CFR 229.1504(d)(3). 477See proposed 17 CFR 229.1504(d)(4). 478See proposed 17 CFR 229.1504(e)(1) and infra
Section II.G.2 for the proposed disclosure
requirements pertaining to GHG emissions methodology. 479See proposed 17 CFR 229.1504(a). 480See supra Section II.C for a discussion of proposed 17 CFR 229.1502. 481Alternatively, if a registrant has no revenue, and it decides to calculate GHG intensity using total assets, we believe it would be appropriate for that registrant to provide its GHG intensity for the same number of years as are required on its balance sheets (i.e., two years if not a SRC). intensity calculation. The selected unit of production should be relevant to the registrant’s industry to facilitate investor comparison of the GHG intensity of companies within an industry without regard to registrant size. Investors may find such a comparison to be useful to making informed investment decisions to the extent that a registrant within a particular industry that has a lower GHG intensity relative to its peers that face fewer climate-related risks. If the registrant has no revenue for a fiscal year, it would be required to calculate its GHG intensity with another financial measure (e.g., total assets), with an explanation of why the particular measure was used. Similarly, if the registrant does not have a unit of production, it would be required to calculate its GHG intensity with another measure of economic output, depending on the nature of its business (e.g., data processing capacity, volume of products sold, or number of occupied rooms) with an explanation of why the particular measure was used.476 A registrant could also voluntarily disclose other additional measures of GHG intensity, including non-financial measures such as economic output, provided it includes an explanation of the reasons why those particular GHG intensity measures were used and why the registrant believes such measures provide useful information to investors.477 In all cases, the registrant would be required to disclose the methodology and other information required pursuant to the proposed GHG emissions metrics instructions.478 Request for Comment
109. Should we require a registrant to
disclose the intensity of its GHG emissions for the fiscal year, with separate calculations for (i) the sum of Scope 1 and Scope 2 emissions and, if applicable (ii) its Scope 3 emissions (separately from Scopes 1 and 2), as proposed? Should we define GHG intensity, as proposed? Is there a different definition we should use for this purpose?
110. Should we require the disclosed
GHG intensity to be expressed in terms of metric tons of CO2e per unit of total revenue, as proposed? Should we require a different financial measure of GHG intensity and, if so, which measure? For example, should GHG intensity be expressed in terms of metric tons of CO2e per unit of total assets?
111. Should we require the disclosed
GHG intensity to be expressed in terms of metric tons of CO2e per unit of production, as proposed? Would such a requirement facilitate the comparability of the disclosure? Should we require a different economic output measure of GHG intensity and, if so, which measure? For example, should GHG intensity be expressed in terms of metric tons of CO2e per number of employees? Should we require the GHG intensity to be expressed per unit of production relevant to the registrant’s business (rather than its industry)? Is further guidance needed on how to comply with the proposed requirement? Would requiring GHG intensity to be expressed in terms of metrics tons of CO2e per unit of production require disclosure of commercially sensitive or competitively harmful information?
112. Should we require a registrant
with no revenue or unit of production for a fiscal year to disclose its GHG intensity based on, respectively, another financial measure or measure of economic output, as proposed? Should we require such a registrant to use a particular financial measure, such as total assets, or a particular measure of economic output, such as total number of employees? For registrants who may have minimal revenue, would the proposed calculation result in intensity disclosure that is confusing or not material? Should additional guidance be provided with respect to such instances?
113. Should we permit a registrant to
disclose other measures of GHG intensity, in addition to the required measures, as long as the registrant explains why it uses the particular measure of GHG intensity and discloses the corresponding calculation methodology used, as proposed? d. GHG Emissions Data for Historical Periods The proposed rules would require disclosure to be provided for the registrant’s most recently completed fiscal year and for the historical fiscal years included in the registrant’s consolidated financial statements in the applicable filing, to the extent such historical GHG emissions data is reasonably available.479 Requiring historical GHG emissions data, to the extent available, would provide useful information for investors by enabling investors to track over time the registrant’s exposure to climate-related impacts represented by the yearly emissions data, and to assess how it is managing the climate-related risks associated with those impacts. Requiring GHG emissions disclosure for current and, when reasonably available, historical periods should enable investors to analyze trends in the impacts of material climate-related risks and to evaluate the narrative disclosure provided pursuant to proposed Item
1502.480 Historical GHG emissions data
also could be particularly useful when a registrant has announced a target or goal for reducing GHG emissions by a certain date by helping investors assess its progress in meeting that target or goal and the related impacts on the registrant. Linking the required number of years of historical GHG emissions data to the historical periods required in the consolidated financial statements should benefit investors by requiring emissions data that is consistent with the financial statement metrics in the filing. This should help investors connect GHG emissions with the financial performance of a registrant in the same period, including the proposed financial statement metrics. Moreover, although we are not proposing to require the GHG emissions data to be included in the registrant’s consolidated financial statements, we nevertheless believe that the GHG emissions data is relevant to, and would be read in conjunction with, information included in the consolidated financial statements. Just as data about a registrant’s revenues and expenses on its income statement reflect its activities in financial terms for a given year, a registrant’s emissions data reflect its carbon footprint activities for that year. For this reason, we have proposed requiring a registrant to provide its GHG emissions data for the same number of years as it is required to provide data on its income statement and cash flow statement, to the extent such emissions data is reasonably available. For example, a registrant that is required to include income statements and cash flow statements at the end of its three most recent fiscal years would be required to disclose three years of its Scope 1, Scope 2 and, if material to the registrant or if it has set a GHG emissions target or goal that includes its Scope 3 emissions, its Scope 3 emissions, expressed both in absolute terms and in terms of intensity.481 If the registrant is a SRC,

482We are proposing to exempt SRCs from Scope 3 disclosures. See infra Section II.G.3. 483See Securities Act Rule 409 and Exchange Act Rule 12b–21. 484See proposed 17 CFR 229.1504(e)(1). 485See id. 486See proposed 17 CFR 229.1500(m). 487See proposed 17 CFR 229.1500(l). 488See proposed 17 CFR 229.1504(b)(1). 489See GHG Protocol, Corporate Accounting and Reporting Standard, Chapter 3. 490See proposed 17 CFR 229.1500(m). 491See supra note 111. 492Under the GHG Protocol’s equity share approach, a company accounts for GHG emissions from operations according to its share of equity in the operation. Under the GHG Protocol’s control approach, a company accounts for 100% of the GHG emissions from operations over which it has control. A company can choose to define control either in financial or operational terms. See GHG Protocol, Corporate Accounting and Reporting Standard, Chapter 3. 493See proposed 17 CFR 229.1504(e)(2). 494Foreign private issuers that file consolidated financial statements under IFRS as issued by the IASB would apply IFRS under the proposed rules as the basis for setting its organizational boundaries for the purpose of providing the proposed GHG emissions disclosure. 495 Issuers that are permitted to, and do, apply IFRS issued by the International Accounting Standards Board would apply the IASB’s equivalent standards. See, e.g., IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and International Accounting Standards (‘‘IAS’’) 28 Investments in Associates and Joint Ventures. See supra note 319, which states that foreign private issuers that file consolidated financial statements under home country GAAP and reconcile to U.S. GAAP, would be required to use U.S. GAAP as the basis for calculating and disclosing the proposed climate-related financial statement metrics. The same requirement would apply for the purpose of determining the proposed GHG emissions metrics. 496See proposed 17 CFR 229.1504(e)(2). only two years of Scopes 1 and 2 emissions metrics would be required.482 A registrant, however, would not otherwise be required to provide a corresponding GHG emissions metric for a fiscal year preceding its current reporting fiscal year if, for example, it was not required to and has not previously presented such metric for such fiscal year and the historical information necessary to calculate or estimate such metric is not reasonably available to the registrant without unreasonable effort or expense.483 Request for Comment
114. Should we require GHG
emissions disclosure for the registrant’s most recently completed fiscal year and for the appropriate, corresponding historical fiscal years included in the registrant’s consolidated financial statements in the filing, to the extent such historical GHG emissions data is reasonably available, as proposed? Should we instead only require GHG emissions metrics for the most recently completed fiscal year presented in the relevant filing? Would requiring historical GHG emissions metrics provide important or material information to investors, such as information allowing them to analyze trends?
2. GHG Emissions Methodology and
Related Instructions
The proposed rules would require a registrant to describe the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions metrics.484 As proposed, the description of the registrant’s methodology must include the registrant’s organizational boundaries, operational boundaries, calculation approach, and any calculation tools used to calculate the registrant’s GHG emissions.485 Organizational boundaries would be defined to mean the boundaries that determine the operations owned or controlled by a registrant for the purpose of calculating its GHG emissions.486 Operational boundaries would be defined to mean the boundaries that determine the direct and indirect emissions associated with the business operations owned or controlled by a registrant.487 This information should help investors understand the scope of a registrant’s operations included in its GHG emissions metrics and how those metrics were measured. With this information, investors could more knowledgeably compare a registrant’s GHG emissions metrics with the GHG emissions metrics of other registrants and make more informed investment decisions. a. The Setting and Disclosure of Organizational Boundaries The proposed rules would require a registrant to disclose its Scope 1 emissions and its Scope 2 emissions separately after calculating them from all sources that are included in the registrant’s organizational and operational boundaries.488 An initial step for many registrants may be to set their organizational boundaries.489 Those boundaries determine the business operations owned or controlled by a registrant to be included in the calculation of its GHG emissions.490 Because both Scope 1 and Scope 2 emissions relate to the operations owned or controlled by a registrant, setting a registrant’s organizational boundaries is an important part of determining its Scopes 1 and 2 emissions. Several commenters stated that the GHG Protocol’s standards and guidance would provide an appropriate framework for reporting GHG emissions if the Commission required disclosure of GHG emissions.491 A company following the GHG Protocol would base its organizational boundaries on either an equity share approach or a control approach.492 Our proposed approach, however, would require a registrant to set the organizational boundaries for its GHG emissions disclosure using the same scope of entities, operations, assets, and other holdings within its business organization as those included in, and based upon the same set of accounting principles applicable to, its consolidated financial statements.493 For similar reasons to those noted above regarding the proposed time periods required for GHG emissions disclosure, we propose requiring the scope of consolidation and reporting to be consistent for financial data and GHG emissions data. This would be accomplished by applying existing GAAP.494 Requiring a consistent approach should help avoid potential investor confusion about the
reporting scope used in determining a registrant’s GHG emissions and the reporting scope used for the financial statement metrics, which are included in the financial statements. Applying existing GAAP could help limit the compliance burden for registrants as they would be able to use familiar concepts from financial reporting when preparing their required GHG emissions disclosures. Requiring registrants to follow the scope of reporting used in their financial statements should also enhance comparability across registrants when compared with the multiple options available under the GHG Protocol. Thus, as proposed, the scope of reporting for a registrant’s GHG emissions metrics would be consistent with the scope of reporting for the proposed financial statement metrics and other financial data included in its consolidated financial statements in order to provide investors a consistent view of the registrant’s business across its financial and GHG emissions disclosures. For example, a registrant that prepares its financial statements pursuant to U.S. GAAP would apply relevant guidance from U.S. GAAP (e.g., FASB ASC Topic 810 Consolidation and FASB ASC Topic 323 Investments— Equity Method and Joint Ventures) when determining which entities would be subject to consolidation or which investments qualify for equity method accounting or proportionate consolidation.495 Therefore, under the proposed rules a registrant would be required to include all of the emissions from an entity that it consolidates.496 For an equity method investee or an

497See id. 498See id. 499See proposed 17 CFR 229.1504(b)(2). 500See proposed 17 CFR 229.1500(m) (defining organizational boundaries as the boundaries that determine the operations owned or controlled by a registrant) and 17 CFR 229.1504(b)(1) (requiring the disclosure of Scopes 1 and 2 emissions separately after calculating them from all sources included in a registrant’s organizational and operational boundaries). 501See proposed 17 CFR 229.1504(e)(2). 502See proposed 17 CFR 229.1504(e)(3). 503See id. 504See id. 505See proposed Item 1504(e)(1). 506This non-exclusive list of possible emissions sources is based on categories of emissions sources provided in the GHG Protocol. See GHG Protocol, Corporate Accounting and Reporting Standard,
Chapter 6.
507See id.
508See proposed 17 CFR 229.1504(e)(1). 509See id. 510See, e.g., GHG Protocol, Corporate Accounting and Reporting Standard, Chapter 6. operation that is proportionally consolidated, the registrant would be required to include its share of emissions based on its percentage ownership of such investee or operation.497 For a registrant that applies the equity method to an investee, the percentage of ownership interest used to record its share of earnings or losses in the investee must be the same for measuring its share of GHG emissions by the equity method investee.498 The proposed rules would permit a registrant to exclude emissions from investments that are not consolidated, are not proportionately consolidated, or that do not qualify for the equity method of accounting in the registrant’s consolidated financial statements.499 For example, a registrant might own or control several plants but have only a minority ownership in another plant over which it has no control. For the plants that are owned or controlled by the registrant, all of those plants’ direct and indirect emissions should be included in its Scopes 1 and 2 emissions disclosure (regardless of ownership percentage that resulted in consolidation for financial statement purposes).500 If the registrant’s proportional interest in the latter plant is reflected in its consolidated financial statements (e.g., the investment qualifies for the equity method or a proportionate consolidation approach), when calculating its Scopes 1 and 2 emissions the registrant should include such proportional share (based on ownership interest) of that plant’s emissions in the total of each of its Scopes 1 and 2 emissions.501 A related provision under the proposed rules would require a registrant to use the same organizational boundaries when calculating its Scope 1 emissions and Scope 2 emissions 502 since both sets of emissions relate to operations that a registrant owns or controls. If required to disclose its Scope 3 emissions, a registrant would also be required to apply the same organizational boundaries used when determining its Scopes 1 and 2 emissions as an initial step in identifying the sources of indirect emissions from activities in its value chain over which it lacks ownership and control and which must be included in the calculation of its Scope 3 emissions.503 Requiring a registrant to use the same organizational boundaries when calculating its Scopes 1, 2 and 3 emissions should help limit investor confusion over those operations or activities over which it has ownership or control (sources of its Scopes 1 and 2 emissions) and those activities in its value chain over which it lacks ownership or control (sources of its Scope 3 emissions). The proposed provision also would provide that, once a registrant has determined its organizational (and operational) boundaries, it must consistently use those boundaries when calculating its GHG emissions.504 This proposed provision should help investors track
and compare a registrant’s GHG emissions over time. b. The Setting and Disclosure of Operational Boundaries When describing the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions metrics, a registrant is required to describe its operational boundaries.505 This would involve identifying emissions sources within its plants, offices, and other operational facilities that fall within its organizational boundaries, and then categorizing the emissions as either direct or indirect emissions. For example, a registrant might have direct emissions from one or more of the following sources that it owns or controls:

• Stationary equipment (from the
  combustion of fuels in boilers, furnaces, burners, turbines, heaters, and incinerators);
• Transportation (from the
  combustion of fuels in automobiles, trucks, buses, trains, airplanes, boats, ships, and other vessels);
• Manufacturing processes (from
  physical or chemical processes, such as CO2 from the calcination process in cement manufacturing or from catalytic cracking in petrochemical processing, and PFC emissions from aluminum smelting); and
• Fugitive emission sources
  (equipment leaks from joints, seals, packing, gaskets, coal piles, wastewater treatment, pits, cooling towers, and gas processing facilities, and other unintentional releases).506 Most registrants would likely have emission sources from stationary equipment and transportation devices. Registrants in certain industrial sectors, such as cement, aluminum, and other manufacturers, or oil and gas production and refining, are likely also to produce emissions from physical or chemical processes. Some registrants would likely have emissions from all four types of sources, particularly if they have their own power generation or waste treatment facilities.507 The proposed rules would require a registrant to include its approach to categorizing its emissions and emissions sources when describing its methodology to determine its operational boundaries.508 A registrant could use the above non-exclusive list of emissions sources or other categories of emissions sources as long as it describes how it determined the emissions to include as direct emissions, for the purpose of calculating its Scope 1 emissions, and indirect emissions, for the purpose of calculating its Scope 2 emissions.509 For most registrants, purchased electricity would likely constitute a large percentage of their Scope 2 emissions. Although Scope 2 emissions are generated from a source external to a registrant, the electricity (or steam, heat, or cooling) is consumed by the registrant’s operations that it owns or controls.
  c. The Selection and Disclosure of a
  GHG Emissions Calculation Approach, Including Emission Factors In addition to setting its organizational and operational boundaries, a registrant would need to select a GHG emissions calculation approach. While the direct measurement of GHG emissions from a source by monitoring concentration and flow rate is likely to yield the most accurate calculations, due to the expense of the direct monitoring of emissions, an acceptable and common method for calculating emissions involves the application of published emission factors to the total amount of purchased fuel consumed by a particular source.510 The proposed rules would define ‘‘emission factor’’ as a multiplication factor allowing actual GHG emissions to be calculated from available activity data or, if no activity data is available, economic data, to

511See proposed 17 CFR 229.1500(e).
512See id.
513See id.
514See, e.g., Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Supplement to the GHG Protocol Corporate Accounting and Reporting Standard,
Chapter 1 (describing the ‘‘spend-based method’’ for
calculating emissions from purchased goods or services). 515See EPA, Emission Factors for Greenhouse Gas Inventories (Apr. 2021), available at https:// www.epa.gov/sites/default/files/2021-04/ documents/emission-factors_apr2021.pdf. 516See, e.g., The Greenhouse Gas Protocol, GHG Emission Calculation Tool (Mar. 2021), available at https://ghgprotocol.org/calculation-tools. 517See proposed 17 CFR 229.1504(e)(1). 518See, e.g., GHG Protocol, Corporate Accounting and Reporting Standard, Chapter 6 (providing an overview of calculation tools by type of source (e.g., for stationary combustion, mobile combustion, and air conditioning and refrigeration use) and by sector (e.g., for aluminum production, iron and steel production, cement manufacturing, and pulp and paper production), which are available on the GHG Protocol website at https://ghgprotocol.org/. The EPA also has published a Simplified GHG Emissions Calculator that is designed as a simplified calculation tool to help small businesses and low emitter organizations estimate and inventory their annual GHG emissions. See EPA, Simplified GHG Emissions Calculator (2021), available at https://www.epa.gov/climateleadership/ simplified-ghg-emissions-calculator. 519As noted earlier, a registrant that is required to report its direct emissions to the EPA may be able to use the EPA-provided data, together with data for any direct emissions not reported to the EPA, to help fulfill the Commission’s proposed Scope 1 emission disclosure requirement. 520See World Resources Institute, GHG Protocol Scope 2 Guidance (2015), Chapter 4, available at https://ghgprotocol.org/sites/default/files/ standards/Scope%202%20Guidance_Final_ Sept26.pdf. 521See id. 522We note that, pursuant to the GHG Protocol, and as referenced by the EPA, a company that determines its Scope 2 emissions using a market￾based approach would also calculate those emissions using the location-based method to provide a more complete picture of the company’s Scope 2 emissions. See World Resources Institute, GHG Protocol Scope 2 Guidance, Chapter 7; and EPA Center for Corporate Climate Leadership, Scope 1 and Scope 2 Inventory Guidance. 523See, e.g., EPA, Emission Factors for Greenhouse Gas Inventories, Table 6, which provides emission factors for regional electrical grids. 524See, e.g., EPA, Emission Factors for Greenhouse Gas Inventories, Table 7, which provides emission factors for steam and heat. 525See proposed 17 CFR 229.1504(e)(1). derive absolute GHG emissions.511 Emission factors are ratios that typically relate GHG emissions to a proxy measure of activity at an emissions source. Examples of activity data reflected in emission factors include kilowatt-hours of electricity used, quantity of fuel used, output of a process, hours of operation of equipment, distance travelled, and floor area of a building.512 If no activity data is available, a registrant may use an emission factor based on economic data.513 For example, when calculating Scope 3
emissions from purchased goods or services, a registrant could determine the economic value of the goods or services purchased and multiply it by an industry average emission factor (expressed as average emissions per monetary value of goods or services).514 The EPA has published a set of emission factors based on the particular type of source (e.g., stationary combustion, mobile combustion, refrigerants, and electrical grid, among others) and type of fuel consumed (e.g., natural gas, coal or coke, crude oil, and kerosene, among many others).515 The GHG Protocol’s own set of GHG emission calculation tools are based in
part on the EPA’s emission factors.516
Whatever set of emission factors a registrant chooses to use, it must identify the emission factors and its source.517 After a registrant has selected a calculation approach (i.e., direct measurement or application of emissions factors), the registrant would determine what data must be collected and how to conduct the relevant calculations, including whether to use any publicly-available calculation tools. In this regard, we note that there are a number of publicly-available calculation tools a registrant may elect to utilize in determining its GHG emissions.518 Finally, a registrant would gather and report GHG emissions up to the corporate level. For example, when determining its Scope 1 emissions for a particular plant, a registrant might add up the amount of natural gas consumed by furnaces and other stationary equipment during its most recently completed fiscal year and then apply the CO2 emission factor for natural gas to that total amount to derive the amount of GHG emissions expressed in CO2e. The registrant would repeat this process for each type of fuel consumed and for each type of source. If a registrant owns a fleet of trucks, it might total the amount of diesel fuel or other type of gasoline consumed for the fiscal year and apply the appropriate CO2 emission factor for that vehicle and type of fuel. A registrant that uses refrigerants also might apply the appropriate emission factor for the particular type of refrigerant to the total amount of that refrigerant used during the fiscal year. As part of the roll-up process for a registrant with multiple entities and emission sources, once it has determined the amount of CO2e for each type of direct emissions source and for each facility within its organizational and operational boundaries, the registrant would then add them together to derive the total amount of Scope 1 emissions for the fiscal year.519 A registrant would undergo a similar process when calculating its Scope 2 emissions for its most recently completed fiscal year. There are two common methods for calculating Scope 2 emissions for purchased electricity:
The market-based method and the location-based method.520 Pursuant to the market-based method, a registrant would calculate its Scope 2 emissions based on emission factors and other data provided by the generator of electricity from which the registrant has contracted to purchase the electricity and which are included in the contractual instruments. Pursuant to the location￾based method, a registrant would calculate its Scope 2 emissions based on average energy generation emission factors for grids located in defined geographic locations, including local, subnational, or national boundaries.521 A registrant could use either of these methods, both methods, a combination, or another method as long as it identifies the method used and its source.522 For example, if using the location-based method, the registrant would apply an appropriate emission factor for the electricity grid in its region to the total amount of electricity purchased from that grid during its fiscal year.523 The registrant would then calculate the amount of CO2e from purchased steam/heat, if any, by applying the appropriate emission factor for that type of energy source to the total amount consumed.524 The registrant would report the sum of its CO2e from purchased electricity and steam/heat as its total Scope 2 emissions for the fiscal year. As noted above, in all instances a registrant would be required to describe its methodology, including its organizational and operational boundaries, calculation approach (including any emission factors used and the source of the emission factors), and any calculation tools used to calculate the GHG emissions.525 Requiring a registrant to describe its methodology for determining its GHG emissions should provide investors with important information to assist them in evaluating the registrant’s GHG emissions disclosure as part of its overall business and financial disclosure. Such disclosure should enable investors to evaluate the reasonableness and accuracy of the emission disclosures, and should promote consistency and comparability over time. For example, an investor

526See PCAF, Global GHG Accounting & Reporting Standard for the Financial Industry (2020), available at https:// carbonaccountingfinancials.com/files/downloads/ PCAF-Global-GHG-Standard.pdf. 527See id. See also GHG Protocol Press Release, New Standard Developed to Help Financial Industry Measure and Report Emissions (Mar. 2021), available at https://ghgprotocol.org/blog/ new-standard-developed-help-financial-industry￾measure-and-report-emissions. 528While the guidance provided by the PCAF Standard for each asset class differs in certain respects, the PCAF Standard applies a common set of principles across the various asset classes. A key principle is that the GHG emissions from a client’s activities financed by loans or investments attributable to the reporting financial institution should be allocated to that institution based on its proportional share of lending or investment in the borrower or investee through the application of an ‘‘attribution factor.’’ See PCAF, Global GHG Accounting & Reporting Standard for the Financial Industry (2020), Sections 4.2 and 5. 529See proposed 17 CFR 229.1504(e)(4). 530See, e.g., letters from Cisco; Dow; Energy Infrastructure Council; National Mining Association; Newmont Corporation; and United Airlines Holdings, Inc. 531See proposed 17 CFR 229.1504(e)(4)(i). One commenter made a similar recommendation when stating that a registrant should be required to follow the same timeline for disclosure of its GHG emissions as for its Exchange Act annual reporting obligations. See letter from Pricewaterhouse Coopers. 532See supra note 530. 533See proposed 17 CFR 229.1504(e)(5). 534See id. 535See proposed 17 CFR 229.1504(e)(6). 536See proposed 17 CFR 229.1504(e)(7). would be able to evaluate both if the registrant’s selection of an emission factor is reasonable given the registrant’s industry sector and whether changes in reported emissions reflect changes in actual emissions in accordance with its strategy or simply a change in calculation methodology. Like registrants in other sectors, registrants in the financial sector would be required to disclose their Scope 3 emissions if those emissions are material and to describe the methodology used to calculate those emissions. A financial registrant’s Scope 3 emissions disclosures would likely include the emissions from companies that the registrant provides debt or equity financing to (‘‘financed emissions’’). While financial registrants may use any appropriate methodology to calculate its Scope 3 emissions, the Partnership for Carbon Accounting Financials’ Global GHG Accounting & Reporting Standard (the ‘‘PCAF Standard’’) provides one methodology that complements the GHG Protocol and assists financial institutions in calculating their financed emissions.526 The PCAF Standard was developed to work with the calculation of Scope 3 emissions for the ‘‘investment’’ category of downstream emissions and was endorsed by the drafters of the GHG Protocol.527 The PCAF Standard covers
six asset classes: Listed equity and corporate bonds; business loans and unlisted equity; project finance; commercial real estate; mortgages; and motor vehicle loans.528 At this time, we are not proposing to require a particular methodology for the financial sector in order to provide a financial sector registrant the flexibility to choose the methodology that best suits its particular portfolio and financing activities. We believe the proposed requirement to disclose the methodology used (e.g., the PCAF Standard or another standard) would provide sufficient information to an investor. d. Additional Rules Related to Methodology Disclosure We are proposing additional rules related to the methodology for calculating GHG emissions. Some of these rules would apply generally to the determination of GHG emissions while some would apply specifically to the calculation of Scope 3 emissions. For example, one proposed rule would provide that a registrant may use reasonable estimates when disclosing its GHG emissions as long as it also describes the assumptions underlying, and its reasons for using, the estimates.529 While we encourage registrants to provide as accurate a measurement of its GHG emissions as is reasonably possible, we recognize that, in many instances, direct measurement of GHG emissions at the source, which would provide the most accurate measurement, may not be possible. Several commenters indicated that a registrant may find it difficult to complete its GHG emissions calculations for its most recently completed fiscal year in time to meet its disclosure obligations for that year’s Exchange Act annual report.530 The proposed rules would permit a registrant to use a reasonable estimate of its GHG emissions for its fourth fiscal quarter if no actual reported data is reasonably available, together with actual, determined GHG emissions data for its first three fiscal quarters when disclosing its GHG emissions for its most recently completed fiscal year, as long as the registrant promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter.531 We believe that this proposed provision would help address the concerns of commenters about the timely completion of both the work required to disclose a registrant’s GHG emissions as of its fiscal year-end and to meet its other Exchange Act annual reporting obligations.532 Another proposed provision would require a registrant to disclose, to the extent material and as applicable, any use of third-party data when calculating its GHG emissions, regardless of the particular scope of emissions.533 While this proposed provision would be most relevant to the disclosure of Scope 3 emissions, where the use of third-party data is common, it would apply in other instances when third-party data is material to the GHG emissions determination, such as when determining Scope 2 emissions using contractual,
supplier-provided emission factors for purchased electricity. When disclosing the use of third-party data, a registrant would be required to identify the source of the data and the process the registrant undertook to obtain and assess such data.534 This information would help investors better understand the basis for, and assess the reasonableness of, the GHG emissions determinations and, accordingly, evaluate the GHG disclosures as part of a registrant’s business and financial information. One proposed provision would require a registrant to disclose any material change to the methodology or assumptions underlying its GHG emissions disclosure from the previous fiscal year.535 For example, if a registrant uses a different set of emission factors, or develops a more direct method of measuring GHG emissions, which results in a material change to the GHG emissions produced from the previous year under (or assuming) the same organizational and operational boundaries, it would be required to report that change. This should help investors more knowledgeably compare the emissions data from year to year and better understand the nature and significance of a material change in emissions (i.e., was the change primarily due to an implementation of strategy or a change in methodology). Another proposed provision would require a registrant to disclose, to the extent material and as applicable, any gaps in the data required to calculate its GHG emissions.536 This proposed provision would be particularly relevant to a registrant’s Scope 3 emissions. While a registrant’s GHG emissions disclosure should provide investors with a reasonably complete understanding of the registrant’s GHG emissions in each scope of emissions, as previously noted, we recognize that a

537See id.
538See proposed 17 CFR 229.1504(e)(8). 539See Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Supplement to the GHG Protocol Corporate Accounting and Reporting Standard,
Chapter 6.
540See proposed 17 CFR 229.1504(e)(9). 541See proposed 17 CFR 229.1504(e)(4)(ii). registrant may encounter data gaps, particularly when calculating its Scope 3 emissions. The proposed provision would require the registrant to disclose the data gaps and discuss whether it used proxy data or another method to address such gaps. A registrant would also be required to discuss how its accounting for any data gaps has affected the accuracy or completeness of its GHG emissions disclosure.537 This information should help investors understand certain underlying uncertainties and limitations, and evaluate the corresponding reliability, of a registrant’s GHG emissions disclosure, particularly for its Scope 3 emissions, as
part of their assessment of the
registrant’s business and financial information. One proposed provision would provide that, when determining whether its Scope 3 emissions are material, and when disclosing those emissions, in addition to emissions from activities in its value chain, a registrant must include GHG emissions from outsourced activities that it previously conducted as
part of its own operations, as reflected
in the financial statements for the periods covered in the filing.538 This proposed approach, which is consistent with the GHG Protocol,539 would help ensure that investors receive a complete picture of a registrant’s carbon footprint by precluding the registrant from excluding emissions from activities that are typically conducted as part of operations over which it has ownership or control but that are outsourced in order to reduce its Scopes 1 or 2 emissions. Another proposed provision would provide that, if a registrant is required to disclose Scope 3 emissions, and if there was any significant overlap in the categories of activities producing the Scope 3 emissions, the registrant must describe the overlap, how it accounted for the overlap, and its disclosed total Scope 3 emissions.540 For example, a mining registrant may mine and process iron ore for conversion into steel products. Because the processing of iron ore and steelmaking both require the use of coal, GHG emissions would arise both from the downstream activities involving the processing of sold products and the use of sold products (i.e., the use of iron ore in the production of steel). If the registrant has allocated GHG emissions to both categories (i.e., processing of sold products and use of sold products), it would be required to describe the overlap in emissions between the two categories of downstream activities, how it accounted for the overlap, and the effect on its disclosed total Scope 3 emissions. For example, if the total reported Scope 3 emissions involved some double-counting because of the overlap, a registrant would be required to report this effect. This information could help investors better understand the true extent of a registrant’s disclosed Scope 3 emissions and, thus, the climate-related risks faced by the registrant. Finally, a proposed provision would provide that a registrant may present its estimated Scope 3 emissions in terms of a range as long as it discloses its reasons for using the range and the underlying assumptions.541 This proposed provision reflects our understanding that, because a registrant may encounter more difficulties obtaining all of the data required for determining its Scope 3 emissions compared to determining its Scopes 1 and 2 emissions, presenting its Scope 3 emissions in terms of a range may be a reasonable means of estimating these emissions when faced with such gaps in the data. Request for Comment
115. Should we require a registrant to
disclose the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions metrics, as proposed? Should we require a registrant to use a particular methodology for determining its GHG emission metrics? If so, should the required methodology be pursuant to the GHG Protocol’s Corporate Accounting and Reporting Standard and related standards and guidance? Is there another methodology that we should require a registrant to follow when determining its GHG emissions? Should we base our climate disclosure rules on certain concepts developed by the GHG Protocol without requiring a registrant to follow the GHG Protocol in all respects, as proposed? Would this provide flexibility for registrants to choose certain methods and approaches in connection with GHG emissions determination that meet the particular circumstances of their industry or business or that emerge along with developments in GHG emissions methodology as long as they are transparent about the methods and underlying assumptions used? Are there adjustments that should be made to the proposed methodology disclosure requirements that would provide flexibility for registrants while providing sufficient comparability for investors?
116. Should we require a registrant to
disclose the organizational boundaries used to calculate its GHG emissions, as proposed? Should we require a registrant to determine its organizational boundaries using the same scope of entities, operations, assets, and other holdings within its business organization as that used in its consolidated financial statements, as proposed? Would prescribing this method of determining organizational boundaries avoid potential investor confusion about the reporting scope used in determining a registrant’s GHG emissions and the reporting scope used for the financial statement metrics, which are included in the financial statements? Would prescribing this method of determining organizational boundaries result in more robust guidance for registrants and enhanced comparability for investors? If, as proposed, the organizational boundaries must be consistent with the scope of the registrant’s consolidated financial statements, would requiring separate disclosure of the organizational boundaries be redundant or otherwise unnecessary?
117. Except for calculating Scope 3
emissions, the proposed rules would not require a registrant to disclose the emissions from investments that are not consolidated, proportionately consolidated, or that do not qualify for the equity method of accounting. Should we require such disclosures for Scopes 1 and 2 emissions, and if so, how?
118. Could situations arise where it is
impracticable for a registrant to align the scope of its organizational boundaries for GHG emission data with the scope of the consolidation for the rest of its financial statements? If so, should we allow a registrant to take a different approach to determining the organizational boundaries of its GHG emissions and provide related disclosure, including an estimation of the resulting difference in emissions disclosure (in addition to disclosure about methodology and other matters that would be required by the proposed GHG emissions disclosure rules)?
119. Alternatively, should we require
registrants to use the organizational boundary approaches recommended by the GHG Protocol (e.g., financial control, operational control, or equity share)? Do those approaches provide a clear enough framework for complying with the proposed rules? Would such an

approach cause confusion when analyzing information in the context of the consolidated financial statements or diminish comparability? If we permit a registrant to choose one of the three organizational boundary approaches recommended by the GHG Protocol, should we require a reconciliation with the scope of the rest of the registrant’s financial reporting to make the disclosure more comparable?
120. Should we require a registrant to
disclose its operational boundaries, as proposed? Should we require a registrant to discuss its approach towards the categorization of emissions (e.g., as direct or indirect emissions) and emissions sources (e.g., stationary or mobile) when describing its operational boundaries, as proposed?
121. The proposed operational
boundaries disclosure is based largely on concepts developed by the GHG Protocol. Would requiring a registrant to determine its organizational boundaries pursuant to the GAAP applicable to the financial statement metrics included in the financial statements but its operational boundaries largely pursuant to concepts developed by the GHG Protocol cause confusion? Should we require a registrant to apply the GAAP applicable to its financial statements when determining whether it ‘‘controls’’ a particular source pursuant to the definition of Scope 1 emissions, or particular operations pursuant to the definition of Scope 2 emissions, as proposed? If not, how should ‘‘control’’ be determined and would applying a definition of control that differs from applicable GAAP result in confusion for investors?
122. Should we require a registrant to
use the same organizational boundaries when calculating its Scopes 1 and 2 emissions, as proposed? Are there any circumstances when a registrant’s organizational boundaries for determining its Scope 2 emissions should differ from those required for determining its Scope 1 emissions? Should we also require a registrant to apply the same organizational boundaries used when determining its Scopes 1 and 2 emissions as an initial step in identifying the sources of indirect emissions from activities in its value chain over which it lacks ownership and control and which must be included in the calculation of its Scope 3 emissions, as proposed? Are there any circumstances where using a different organizational boundary for purposes of Scope 3 emissions disclosure would be appropriate?
123. Should we require a registrant to
be consistent in its use of its organizational and operational boundaries once it has set those boundaries, as proposed? Would the proposed requirement help investors to track and compare the registrant’s GHG emissions over time?
124. Should we require a registrant to
disclose the methodology for calculating the GHG emissions, including any emission factors used and the source of the emission factors, as proposed? Should we require a registrant to use a particular set of emission factors, such as those provided by the EPA or the GHG Protocol?
125. Should we permit a registrant to
use reasonable estimates when disclosing its GHG emissions as long as it also describes the assumptions underlying, and its reasons for using, the estimates, as proposed? Should we permit the use of estimates for only certain GHG emissions, such as Scope 3 emissions? Should we permit a registrant to use a reasonable estimate of its GHG emissions for its fourth fiscal quarter if no actual reported data is reasonably available, together with actual, determined GHG emissions data for its first three fiscal quarters when disclosing its GHG emissions for its most recently completed fiscal year, as long as the registrant promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter, as proposed? If so, should we require a registrant to report any such material difference in its next Form 10– Q if domestic, or in a Form 6–K, if a foreign private issuer? Should we permit a domestic registrant to report any such material difference in a Form 8–K if such form is filed (rather than furnished) with the Commission? Should any such reasonable estimate be subject to conditions to help ensure accuracy and comparability? If so, what conditions should apply?
126. Should we require a registrant to
disclose, to the extent material, any use of third-party data when calculating its GHG emissions, regardless of the particular scope of emissions, as proposed? Should we require the disclosure of the use of third-party data only for certain GHG emissions, such as Scope 3 emissions? Should we require the disclosure of the use of third-party data for Scope 3 emissions, regardless of its materiality to the determination of those emissions? If a registrant discloses the use of third-party data, should it also be required to identify the source of such data and the process the registrant undertook to obtain and assess the data, as proposed?
127. Should we require a registrant to
disclose any material change to the methodology or assumptions underlying its GHG emissions disclosure from the previous year, as proposed? If so, should we require a registrant to restate its GHG emissions data for the previous year, or for the number of years for which GHG emissions data has been provided in the filing, using the changed methodology or assumptions? If a registrant’s organizational or operational boundaries, in addition to methodology or assumptions, change, to what extent should we require such disclosures of the material change, restatements or reconciliations? In these cases, should we require a registrant to apply certain accounting standards or principles, such as FASB ASC Topic 250, as guidance regarding when retrospective disclosure should be required?
128. Should we require a registrant to
disclose, to the extent material, any gaps in the data required to calculate its GHG emissions, as proposed? Should we require the disclosure of data gaps only for certain GHG emissions, such as Scope 3 emissions? If a registrant discloses any data gaps encountered when calculating its Scope 3 emissions or other type of GHG emissions, should it be required to discuss whether it used proxy data or another method to address such gaps, and how its management of any data gaps has affected the accuracy or completeness of its GHG emissions disclosure, as proposed? Are there other disclosure requirements or conditions we should adopt to help investors obtain a reasonably complete understanding of a registrant’s exposure to the GHG emissions sourced by each scope of emissions?
129. When determining the
materiality of its Scope 3 emissions, or when disclosing those emissions, should a registrant be required to include GHG emissions from outsourced activities that it previously conducted as
part of its own operations, as reflected
in the financial statements for the periods covered in the filing, in addition to emissions from activities in its value chain, as proposed? Would this requirement help ensure that investors receive a complete picture of a registrant’s carbon footprint by precluding the registrant from excluding emissions from activities that are typically conducted as part of operations over which it has ownership or control but that are outsourced in order to reduce its Scopes 1 or 2 emissions? Should a requirement to include outsourced activities be subject to certain conditions or exceptions and, if so, what conditions or exceptions?
130. Should we require a registrant
that must disclose its Scope 3 emissions to discuss whether there was any

542See, e.g., letter from Dimensional Fund Advisors; see also supra note 422. 543While there may be less challenging approaches, such as using industry averages or proxies for activity data (such as economic data), the result may be less accurate and could obscure the impact of choices that companies may make to reduce their Scope 3 emissions. For example, if a company uses industry averages to calculate Scope 3 emissions from shipping its products, it may have difficulty communicating to investors how its selection of a shipping company that runs on lower emissions fuel or picks more efficient routes has lowered its Scope 3 emissions. 544See, e.g., Apple, Environmental Social Governance Report (2021), available at https:// s2.q4cdn.com/470004039/files/doc_downloads/ 2021/08/2021_Apple_ESG_Report.pdf (stating that Apple works with its suppliers to help address Apple’s environmental commitments, such as becoming carbon neutral by 2030 across its entire product footprint). 545See, e.g., PCAF, The Global GHG Accounting and Reporting Standard for the Financial Industry. In addition, the American Petroleum Institute has developed an overview of Scope 3 methodologies to inform oil and gas companies about Scope 3 estimation approaches. See API and IPIECA, Estimating petroleum industry value chain (Scope
3) greenhouse gas emissions, available at https://
www.api.org/∼/media/Files/EHS/climate-change/ Scope-3-emissions-reporting-guidance-2016.pdf. Finally, an initiative launched by food and beverage companies, Danone and Mars, together with the Science Based Targets Initiative, aims to provide Scope 3 guidance to companies in difference industries, starting with the food and beverage industry. See SB, Serious About Scope 3:
Pioneering Companies Embracing Complexity, Reaping the Benefits, available at https:// sustainablebrands.com/read/supply-chain/serious￾about-scope-3-pioneering-companies-embracing￾complexity-reaping-the-benefits. 546See 17 CFR 229.1504(f). 547See proposed 17 CFR 229.1504(c)(3). 548See infra Section II.M. 549See, e.g., letters from ACCO Brands Corp.; American Bankers Association; American Petroleum Institute; American Property Casualty Insurance Association; Associated General Contractors of America; Bank of America Corporation; Biotechnology Innovation Organization; ConocoPhillips; Delta Airlines, Inc. (June 16, 2021); Deutsches Bank AG; Dow; Enbridge Inc.; Energy Infrastructure Council; Etsy, Inc.; Freeport-McMoran; KPMG LLP; Managed Funds Association; Nacco Industries; National Investor Relations Institute; National Ocean Industries Association; Neuberger Berman; NIRI Los Angeles; Oshkosh Corporation; Salesforce.com; SASB; SIFMA (June 10, 2021); Society for Corporate Governance; United Airlines Holdings, Inc. (June 11, 2021); and Wachtell Rosen Lipton & Katz. 550See, e.g., letters from Business Council for Sustainable Energy; Dimensional Fund Advisors; and Independent Community Bankers of America. 551See, e.g., letters from AICPA; BlackRock; Center for Climate and Energy Solutions; Crowe LLP; Energy Strategy Coalition; Institute of Management Accountants; Japanese Bankers Association; Nareit; National Mining Association; and Newmont Corporation. 552See, e.g., letters from Dimensional Fund Advisors; and International Capital Markets Association (June 15, 2021). significant overlap in the categories of activities that produced the Scope 3 emissions? If so, should a registrant be required to describe any overlap, how it accounted for the overlap, and its effect on the total Scope 3 emissions, as proposed? Would this requirement help investors assess the accuracy and reliability of the Scope 3 emissions disclosure?
131. Should we permit a registrant to
present its Scope 3 emissions in terms of a range as long as it discloses its reasons for using the range and the underlying assumptions, as proposed? Should we place limits or other parameters regarding the use of a range and, if so, what should those limits or parameters be? For example, should we require a range to be no larger than a certain size? What other conditions or guidance should we provide to help ensure that a range, if used, is not overly broad and is otherwise reasonable?
132. Should we require a registrant to
follow a certain set of published standards for calculating Scope 3 emissions that have been developed for a registrant’s industry or that are otherwise broadly accepted? For example, should we require a registrant in the financial industry to follow PCAF’s Global GHG Accounting & Reporting Standard for the Financial Industry when calculating its financed emissions within the ‘‘Investments’’ category of Scope 3 emissions? Are there other industry-specific standards that we should require for Scope 3 emissions disclosure? Should we require a registrant to follow the GHG Protocol’s Corporate Value Chain (Scope
3) Accounting and Reporting Standard if
an industry-specific standard is not available for Scope 3 emissions disclosure? If we should require the use of a third-party standard for Scope 3 emissions reporting, or any other scope of emissions, how should we implement this requirement?
3. The Scope 3 Emissions Disclosure
Safe Harbor and Other Accommodations We recognize that the calculation and disclosure of Scope 3 emissions may pose difficulties compared to Scopes 1 and 2 emissions, which has caused concern for some commenters.542 It may be difficult to obtain activity data from suppliers and other third parties in a registrant’s value chain, or to verify the accuracy of that information. It may also be necessary to rely heavily on estimates and assumptions to generate Scope 3 emissions data. For example, registrants may need to rely on assumptions about how customers will use their products in order to calculate Scope 3 emissions from the use of sold products. Depending on the size and complexity of a company and its value chain, the task of calculating Scope 3 emissions could be challenging.543 We expect that some of these challenges may recede over time. For example, as more companies make their Scope 1 and 2 emissions data publicly available, these data can serve as the input for other companies’ Scope 3 calculations. In addition, large companies that are voluntarily disclosing Scope 3 emissions information currently are also working with suppliers to increase access to emissions data and improve its reliability,544 which could have positive spillover effects for other companies that use the same suppliers. Furthermore, within certain industries, there is work underway to improve methodologies and share best practices to make Scope 3 calculations less burdensome and more reliable.545 Notwithstanding these anticipated developments, calculating and disclosing Scope 3 emissions could represent a challenge for certain registrants, in particular those that do not currently report such information on a voluntary basis. To balance concerns about reporting Scope 3 emissions with the need for decision-useful emissions disclosure, we are proposing the following accommodations for Scope 3 emissions disclosure:

• A safe harbor for Scope 3 emissions
  disclosure from certain forms of liability under the Federal securities laws; 546
• An exemption for smaller reporting
  companies (‘‘SRCs’’) from the Scope 3 emissions disclosure provision; 547 and
• A delayed compliance date for
  Scope 3 emissions disclosure.548 We are proposing a safe harbor for Scope 3 emissions disclosure to alleviate concerns that registrants may have about liability for information that would be derived largely from third parties in a registrant’s value chain. Many commenters recommended that the Commission adopt a safe harbor for climate-related disclosures.549 These commenters asserted that a safe harbor would encourage registrants to provide meaningful, quantitative metrics and analysis. Other commenters focused their recommendation for a safe harbor on certain types of climate-related disclosures, such as those pertaining to scenario analysis, third-party derived data (such as Scope 3 emissions),550 or forward-looking statements generally.551 With respect to Scope 3 emissions specifically, commenters recommended that the Commission provide a safe harbor due to the reliance on estimates and data needed for Scope 3 emissions reporting that are outside of the registrant’s control.552 While we are not proposing a broad safe harbor for all climate-related disclosures, many of which are similar

553See proposed 17 CFR 229.1504(f)(1). 554See proposed 17 CFR 229.1504(f)(2). 555See proposed 17 CFR 229.1504(f)(3). This definition is based on the definition of fraudulent statement in 17 CFR 230.175. 556See, e.g., letters from Elisha Doerr (May 24, 2021); Freedomworks Foundation (June 14, 2021); Roger Hawkins (May 24, 2021); and Jonathan Skee (May 26, 2021). 557See, e.g., letters from American Bankers Association (June 11, 2021); Biotechnology Innovation Organization (June 15, 2021); BNP Paribas; Cardano Risk Management Ltd.; Catavento Consultancy; Chamber of Commerce (June 11, 2021); Credit Roundtable (June 11, 2021); Douglas Hileman Consulting; Environmental Bankers Association (June 9, 2021); Grant Thornton; Virginia Harper Ho; Manulife Investment Management; Mirova US; Morrison & Foerster; NEI Investments (June 11, 2021); New York State Society of Certified Public Accountants; PIMCO; and SIFMA. 558See proposed 17 CFR 229.1504(c)(3). We also are proposing a later compliance date for SRCs. See infra Section II.M. 559See 17 CFR 230.409 and 17 CFR 240.12b–21. 560See id. We expect, however, that a registrant that requires emissions data from another registrant in its value chain would be able to obtain that data without unreasonable effort or expense because of the increased availability of Scopes 1 and 2 emissions data for registrants following the effectiveness of the proposed rules. to other business and financial information required by Commission rules, we are proposing a targeted safe harbor for Scope 3 emissions data in light of the unique challenges associated with this information. The proposed safe harbor would provide that disclosure of Scope 3 emissions by or on behalf of the registrant would be deemed not to be a fraudulent statement unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.553 The safe harbor would extend to any statement regarding Scope 3 emissions that is disclosed pursuant to proposed subpart 1500 of Regulation S–K and made in a document filed with the Commission.554 For purposes of the proposed safe harbor, the term ‘‘fraudulent statement’’ would be defined to mean a statement that is an untrue statement of material fact, a statement false or misleading with respect to any material fact, an omission to state a material fact necessary to make a statement not misleading, or that constitutes the employment of a manipulative, deceptive, or fraudulent device, contrivance, scheme, transaction, act, practice, course of business, or an artifice to defraud as those terms are used in the Securities Act or the Exchange Act or the rules or regulations promulgated thereunder.555 The proposed safe harbor is intended to mitigate potential liability concerns associated with providing emissions disclosure based on third-party information by making clear that registrants would only be liable for such disclosure if it was made without a reasonable basis or
was disclosed other than in good faith. It also may encourage more robust Scope 3 emissions information, to the extent registrants feel reassured about relying on actual third-party data as opposed to national or industry averages for their emissions estimates. Several commenters expressed concern that the Commission would impose a ‘‘one size fits all’’ approach, which could disproportionately impact smaller registrants, when adopting climate-related disclosure rules.556 Several commenters recommended that the Commission phase-in or scale down the climate-related disclosure requirements for smaller registrants.557 Although 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.558 We believe that exempting SRCs from the proposed Scope 3 emissions disclosure requirement would be appropriate in light of the proportionately higher costs they could incur, compared to non￾SRCs, to engage in the data gathering, verification, and other actions associated with Scope 3 emissions reporting, many of which may have fixed cost components. To further ease the burden of complying with the proposed Scope 3 disclosure requirement, we are also proposing a delayed compliance date for this requirement. As explained in greater detail below, all registrants, regardless of their size, would have an additional year to comply initially with the Scope 3 disclosure requirement beyond the compliance date for the other proposed rules. Moreover, because a registrant’s Scope 3 emissions consist of the Scopes 1 and 2 emissions of its suppliers, distributors, and other third parties in the registrant’s value chain, to the extent those parties become subject to the proposed rules, the increased availability of Scopes 1 and 2 emissions data following the rules’ effectiveness should help ease the burden of complying with the Scope 3 emissions disclosure requirement. Finally, we note that Securities Act Rule 409 and Exchange Act Rule 12b– 21, which provide accommodations for information that is unknown and not reasonably available, would be available for the proposed Scope 3 emissions disclosures.559 These rules allow for the conditional omission of required information when such information is unknown and not reasonably available to the registrant, either because obtaining the information would involve unreasonable effort or expense, or because the information rests peculiarly within the knowledge of another person not affiliated with the registrant.560 Request for Comment
133. Should we provide a safe harbor
for Scope 3 emissions disclosure, as proposed? Is the scope of the proposed safe harbor clear and appropriate? For example, should the safe harbor apply to any registrant that provides Scope 3 disclosure pursuant to the proposed rules, as proposed? Should we limit the use of the safe harbor to certain classes of registrants or to registrants meeting certain conditions and, if so, which classes or conditions? For example, should we require the use of a particular methodology for calculating and reporting Scope 3 emissions, such as the PCAF Standard if the registrant is a financial institution, or the GHG Protocol Scope 3 Accounting and Reporting Standard for other types of registrants? Should we clarify the scope of persons covered by the language ‘‘by or on behalf of a registrant’’ by including language about outside reviewers retained by the registrant or others? Should we define a ‘‘fraudulent statement,’’ as proposed? Is the level of diligence required for the proposed safe harbor (i.e., that the statement was made or reaffirmed with a reasonable basis and disclosed in good faith) the appropriate standard? Should the safe harbor apply to other climate-related disclosures, such as Scopes 1 and 2 emissions disclosures, any targets and goals disclosures in response to proposed Item 1505 (discussed below), or the financial statement metrics disclosures required pursuant to Proposed Article 14 of Regulation S–X? Should the safe harbor apply indefinitely, or should we include a sunset provision that would eliminate the safe harbor some number of years, (e.g., five years) after the effective date or applicable compliance date of the rules? Should the safe harbor sunset after certain conditions are satisfied? If so, what types of conditions should we consider? What other approaches should we consider?
134. Should we provide an exemption
from Scope 3 emissions disclosure for SRCs, as proposed? Should the exemption not apply to a SRC that has set a target or goal or otherwise made a commitment to reduce its Scope 3 emissions? Are there other classes of registrants we should exempt from the

561See proposed 17 CFR 229.1505(a). In order to attest to the Scopes 1 and 2 emissions disclosure, we believe a GHG emissions attestation provider would need to include in its evaluation relevant contextual information. In particular, the attestation provider would be required to evaluate the registrant’s compliance with (i) proposed Item 1504(a), which includes presentation requirements (e.g., disaggregation by each constituent greenhouse gas), (ii) the calculation instructions included in proposed Item 1504(b), and (iii) the disclosure requirements in proposed Item 1504(e) regarding methodology, organizational boundary, and operational boundary. See infra Section II.H.3 for further discussion of the criteria against which the Scopes 1 and 2 emissions disclosure are measured or evaluated. 562See proposed 17 CFR 229.1505(d). 563See proposed 17 CFR 229.1505(a)(1). 564Reasonable assurance is equivalent to the level of assurance provided in an audit of a registrant’s consolidated financial statements included in a Form 10–K. Limited assurance is equivalent to the level of assurance (commonly referred to as a ‘‘review’’) provided over a registrant’s interim financial statements included in a Form 10–Q. 565We refer to ‘‘assurance’’ broadly when describing the level and scope of assurance to which climate-related disclosures should be subject. Our proposed approach to assurance has been guided by ‘‘attestation’’ standards published by organizations including the PCAOB, AICPA, and the International Auditing and Assurance Standards Board (‘‘IAASB’’). Such attestation standards apply to engagements other than audit and review of historical financial statements and have been widely used in the current voluntary ESG and GHG assurance market for a number of years. 566See proposed 17 CFR 229.1505(a)(2). If the accelerated filer or large accelerated filer was required to obtain reasonable assurance over its Scope 1 and Scope 2 emissions disclosures and the attestation provider chose to follow, for example, the AICPA attestation standards, the accelerated filer or large accelerated filer could voluntarily obtain limited assurance over its GHG intensity metric or Scope 3 emissions disclosures, and the attestation provider would be required to follow the AICPA’s attestation standard for providing limited assurance. 567See, e.g., letters from AICPA; Americans for Financial Reform Education Fund et al; Andrew Behar; Baillie Gifford; Carbon Tracker Initiative; Cardano Risk Management Ltd.; CDP; Center for American Progress; Center for Audit Quality; Ceres et al.; Climate Disclosure Standards Board; Climate Governance Initiative; Emmanuelle Haack; Eni SpA; ERM CVS (recommending limited assurance); George Serafeim; Regenerative Crisis Response Committee; Friends of the Earth, Amazon Watch, and Rainforest Action Network; Hermes Equity Ownership Limited; Impax Asset Management; Institutional Shareholder Services; Interfaith Center on Corporate Responsibility
(recommending reasonable assurance); International Corporate Governance Institute; International Organization for Standardization; Morningstar, Inc.; Natural Resources Defense Council; NY City Comptroller; NY State Comptroller; Oxfam America; PRI ; Pricewaterhouse Coopers; Revolving Door Project; TotalEnergies (recommending limited assurance); Value Balancing Alliance; WBCSD; William and Flora Hewlett Foundation; and World Benchmarking Alliance. Scope 3 emissions disclosure requirement? For example, should we exempt EGCs, foreign private issuers, or a registrant that is filing or has filed a registration statement for its initial public offering during its most recently completed fiscal year from the Scope 3 disclosure requirement? Instead of an exemption, should we provide a longer phase in for the Scope 3 disclosure requirements for SRCs than for other registrants? H. Attestation of Scope 1 and Scope 2 Emissions Disclosure

1. Overview
   The proposed rules would require a registrant, including a foreign private issuer, that is an accelerated filer or large accelerated filer to include in the relevant filing an attestation report covering the disclosure of its Scope 1 and Scope 2 emissions 561 and to provide certain related disclosures about the service provider.562 As proposed, the attestation engagement must, at a minimum, be at the following assurance level for the indicated fiscal year for the required GHG emissions disclosure:563 Limited assurance Reasonable assurance Fiscal Years 2 and 3 after Scopes 1 and 2 emissions disclo￾sure compliance date. Fiscal Years 4 and beyond after Scopes 1 and 2 emissions disclo￾sure compliance date. To provide additional clarity, the following table illustrates the application of the transition periods assuming that the proposed rules will be adopted with an effective date in December 2022 and that the accelerated filer or large accelerated filer has a December 31st fiscal year-end:
   Filer type Scopes 1 and 2 GHG disclosure compliance date * Limited assurance Reasonable assurance Accelerated Filer ............................ Fiscal year 2024 (filed in 2025) .... Fiscal year 2025 (filed in 2026) .... Fiscal year 2027 (filed in 2028). Large Accelerated Filer .................. Fiscal year 2023 (filed in 2024) .... Fiscal year 2024 (filed in 2025) .... Fiscal year 2026 (filed in 2027). *See infra Section II.M for a discussion of the proposed disclosure compliance dates for Scopes 1 and 2 GHG emissions disclosure. If the ac￾celerated filer or the large accelerated filer has a non-calendar-year fiscal year-end date that results in its 2024 or 2023 fiscal year, respectively, commencing before the compliance dates of the rules, it would not be required to comply with proposed GHG emissions disclosure requirements until the following fiscal year (as discussed below in Section II.M). Accordingly, for such filers, the time period for compliance with the cor￾responding attestation requirements under proposed Item 1505 would be one year later than illustrated above. During the transition period when limited assurance is required, the proposed rules would permit an accelerated filer or a large accelerated filer, at its option, to obtain reasonable assurance of its Scope 1 and 2 emissions disclosure.564 For example, an accelerated filer or a large accelerated filer may choose to obtain reasonable assurance such that its GHG emissions disclosure receives the same level of assurance as its financial statements.565 At its option, an accelerated filer or a large accelerated filer would be able to obtain any level of assurance over its climate-related disclosures that are not required to be assured pursuant to proposed Item 1505(a). For example, an accelerated filer or a large accelerated filer could voluntarily include an attestation report at the limited assurance level for its GHG intensity metrics or its Scope 3 emissions disclosure. To avoid potential confusion, however, the voluntary assurance obtained by such filer would be required to follow the requirements of proposed Item 1505(b)–(d), including using the same attestation standard as the required assurance over Scope 1 and Scope 2.566 For filings made by accelerated filers and large accelerated filers after the compliance date for the GHG emissions disclosure requirements but before proposed Item 1505(a) requires limited assurance, the filer would only be required to provide the disclosure called for by proposed Item 1505(e). As discussed below in Section II.H.5, a registrant that is not an accelerated filer or a large accelerated filer that obtains voluntary assurance would be required to comply only with proposed Item 1505(e). Many commenters recommended that we require climate-related disclosures to be subject to some level of assurance to enhance the reliability of the disclosures.567 Commenters noted that companies are increasingly seeking some type of third-party assurance or

568See letter from CAQ; see also CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021), available at https://www.thecaq.org/sp-500-and-esg-reporting/ (stating that more than half of S&P 500 companies had some form of assurance or verification over ESG metrics, including GHG emissions metrics). 569See, e.g., letters from Credit Suisse; ERM CVS; PayPal Holdings, Inc.; TotalEnergies; and Walmart. 570See letter from Energy Infrastructure Council; see also CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021). 571See letter from PayPal Holdings, Inc. 572See letter from CAQ. 573See letter from Credit Suisse. 574See, e.g., letters from Ceres et al.; and Interfaith Center on Corporate Responsibility. 575See, e.g., letters from American Petroleum Institute; Investment Company Institute; and National Association of Manufacturers. 576See, e.g., letters from American Petroleum Institute; and Investment Company Institute. We agree that registrants should develop their DCP to include their GHG emissions disclosures. When the proposed GHG emissions disclosures are included in Form 10–K and Form 20–F annual reports, our rules governing DCP would apply to those disclosures. See 17 CFR 240.13a–15 and 240.15d– 15. 577See 17 CFR 229.1302 (requiring a registrant’s disclosure of exploration results, mineral resources, or mineral reserves to be based on and accurately reflect information and supporting documentation prepared by a qualified person, which, pursuant to 17 CFR 229.1300, is defined to mean a mineral industry professional with at least five years of relevant experience in the type of mineralization and type of deposit under consideration who meets certain additional criteria); and 17 CFR 229.1202(a)(7) (requiring a registrant to disclose the qualifications of the technical person primarily responsible for overseeing the preparation of the oil and gas reserves estimates or reserves audit). 578See PCAOB AS 2710 Other Information in Documents Containing Audited Financial Statements (requiring an auditor to read the other information (included in an annual report with the audited financial statements) and consider whether such information, or the manner of its presentation, is materially inconsistent with information, or the manner of its presentation, appearing in the financial statements). For example, disclosure pursuant to 17 CFR 229.303 (Item 303 of Regulation S–K—MD&A) is derived in part from the same books and records that are subject to ICFR and used to generate a registrant’s audited financial statements and accompanying notes (e.g., the liquidity and capital resources disclosures are anchored to the audited cash flows information disclosed in the financial statements). 579Although GHG emission disclosure would generally not be directly derived from the same books and records that are used to generate a registrant’s audited financial statements and accompanying notes and that are subject to ICFR, GHG emission disclosure, as proposed, would be required to use the same
organizational and operational boundaries as the registrant’s financial statement disclosures. See proposed 17 CFR 229.1504(e)(2). 580See Modernization of Property Disclosures for Mining Registrants, Release No. 33–10570 (Oct. 31, 2018), [83 FR 66344 (Dec. 26, 2018)]. verification over ESG and climate￾related disclosures. For example, according to one commenter, 80 percent of S&P 100 companies currently subject certain items of their ESG information, including climate-related disclosures such as greenhouse gas emissions, to some type of third-party assurance or verification.568 Several commenters recommended that we require climate￾related disclosures to be subject to limited assurance,569 which provides a lower level of assurance than reasonable assurance, but is less costly, and is the most common form of assurance provided for ESG, including climate￾related disclosures, in the current voluntary reporting landscape.570 One commenter recommended that, at a minimum, we require a registrant to obtain a limited assurance report for its Scopes 1 and 2 emissions disclosure while encouraging optional verification for other ESG metrics.571 Another commenter indicated that a limited assurance requirement for climate￾related disclosures would be similar to the EU’s Corporate Sustainability Reporting Directive proposal that, if adopted, would initially require companies in the European Union to obtain limited assurance on reported sustainability information with an option to move towards reasonable assurance in the future.572 One commenter stated the view that, while the professional capacity of audit firms might, at this point, be insufficient to provide reasonable assurance of ESG data, it supported a mandatory limited assurance requirement for climate risk reporting.573 Other commenters recommended that we require climate￾related disclosures to be audited at the reasonable assurance level.574 Some commenters, however, opposed any third-party assurance requirement for climate-related disclosures because of the significant cost that these commenters asserted it could impose on public companies, and because, in their view, application of assurance standards to data that is different from traditional financial reporting disclosures, such as GHG emissions, would be a relatively new and evolving field.575 Some of these commenters indicated that, as a first step, registrants should develop their internal controls and disclosure controls and procedures (‘‘DCP’’) to include climate-related disclosures, and defer mandated third-party assurance requirements to a later time.576 We recognize that requiring GHG emissions disclosure in Commission filings should enhance the consistency, comparability, and reliability of such disclosures due to the application of DCP and the proposed inclusion of certain prescriptive elements that may help improve standardization of GHG emissions calculations. Nevertheless, the evolving and unique nature of GHG emissions reporting
involves and, in some cases, warrants varying methodologies, differing assumptions, and a substantial amount of estimation. Certain aspects of GHG emissions disclosure also involve reliance on third-party data. As such, requiring a third party’s attestation over these disclosures would provide investors with an additional degree of reliability regarding not only the figures that are disclosed, but also the key assumptions, methodologies, and data sources the registrant used to arrive at those figures. In other contexts, such as mineral resources and oil and gas reserves, the Commission has recognized the value that third parties with specialized expertise in audit and engineering can bring to company disclosures of physical resources or risks.577 Our rules typically do not require registrants to obtain assurance over disclosure provided outside of the financial statements, including quantitative disclosure. We believe, however, that there are important distinctions between existing quantitative disclosure required to be provided outside of the financial statements and the proposed GHG emissions disclosure. In contrast to GHG emissions disclosure, quantitative disclosure outside of the financial statements typically is derived, at least in part, from the same books and records that are used to generate a registrant’s audited financial statements and accompanying notes and that are subject to ICFR. Accordingly, such quantitative disclosure has been subject to audit procedures as part of the audit of the financial statements in the same filing. Further, the auditor’s read and consider obligation requires an evaluation of this quantitative information based on the information obtained through the audit of the financial statements.578 Unlike other quantitative information that is provided outside of the financial statements, GHG emissions disclosure would generally not be developed from information that is included in the registrant’s books and records and, therefore, would not be subjected to audit procedures.579 In addition, although not an assurance engagement, we have adopted rules requiring an expert to review and provide conclusions on other specialized, quantitative data that is provided outside of the financial statements.580 Accordingly, to enhance its reliability, we believe it is appropriate to require that GHG emissions disclosure be subject to third-party attestation. For similar reasons, we also considered proposing to require that management assess and disclose the effectiveness of controls over GHG

581See Qualifications of Accountants, Release No. 33–10876 (Oct. 16, 2020) [85 FR 80508 (Dec. 11, 2020)], at 80508. See also Statement of Paul Munter, Acting Chief Accountant, The Importance of High Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors (Oct. 26, 2021), available at https://www.sec.gov/news/statement/ munter-audit-2021/10/26. 582See, e.g., Carol Callaway Dee, et al., Client Stock Market Reaction to PCAOB Sanctions against a Big Four Auditor, 28 Contemp. Acct. Res. 263 (Spring 2011) (‘‘Audits are valued by investors because they assure the reliability of and reduce the uncertainty associated with financial statements.’’); Center for Audit Quality, 2019 Main Street Investor Survey (‘‘[I]nvestors continue to register high degrees of confidence in the ability of public company auditors to fulfill their investor-protection roles. Eighty-three percent of US retail investors view auditors as effective in their investor￾protection role within the US capital markets, up from 81% in 2018); and CFA Institute, CFA Institute Member Survey Report—Audit Value, Quality, and Priorities (2018). 583See infra note 604 for a discussion of the key differences between limited and reasonable assurance engagements. 584See, e.g., Ryan J. Casey, et al., Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States, 34 Auditing: A Journal of Practice and Theory 97, 122 (Feb. 2015) (finding that corporate social responsibility (‘‘CSR’’) assurance results in lower cost-of-capital along with lower analyst forecast errors and dispersion, and that financial analysts find related CSR reports to be more credible when independently assured). See also infra note 592 for statistics illustrating that limited assurance is more commonly obtained voluntarily in the current market than reasonable assurance over ESG-related information. 585See, e.g., letter from Institute for Policy Integrity, Environmental Defense Fund, Initiative on Climate Risk & Resilience Law (‘‘Voluntary frameworks typically lack independent auditing requirements, which is one reason many investors perceive current disclosures to be unreliable or uneven.’’). See also EVORA Global and SIERA, Investor Survey 2021: Part 2 ESG Data Challenge (2021), 7, available at https://evoraglobal.com/wp￾content/uploads/2021/12/ESG-Data-Challenge￾Investor-Survey-Part-2.pdf (‘‘Investors are integrating ESG across the investment lifecycle, for the purposes of strategy, reporting, peer benchmarking, etc., however the majority (86%) are not sure of their ESG data quality. About 52% of the investors consider that their ESG data is partially investment-grade.’’); State Street Global Advisors, The ESG Data Challenge (Mar. 2019), available at https://www.ssga.com/investment￾topics/environmental-social-governance/2019/03/ esg-data-challenge.pdf. 586See CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021). 587See KPMG,
The KPMG Survey of Sustainability Reporting 2020, available at https:// home.kpmg/xx/en/home/insights/2020/11/the-time￾has-come-survey-of-sustainability-reporting.html. 588 International Federation of Accountants, The State of Play in Sustainability Assurance (June 23, 2021), available at https://www.ifac.org/knowledge￾gateway/contributing-global-economy/discussion/ state-play-sustainability-assurance; Lawrence Heim, International Federation of Accountants, IFAC: Poor ESG Assurance an ‘‘Emerging Financial Stability Risk’’ (July 1, 2021), available at https:// practicalesg.com/2021/07/ifac-poor-esg-assurance￾an-emerging-financial-stability-risk/. 589 IOSCO, Report on Sustainability-related Issuer Disclosures (June 2021). emissions disclosure (apart from the existing requirements with respect to the assessment and effectiveness of DCP). More specifically, in addition to the requirement to assess such controls, we considered whether to require management to include a statement in their annual report regarding their responsibility for the design and evaluation of controls over GHG emissions disclosures, as well as to disclose their conclusion regarding the effectiveness of such controls. We also considered proposing to require a GHG emissions attestation provider’s attestation of the effectiveness of controls over GHG emissions disclosure in addition to the proposed attestation over the Scopes 1 and 2 GHG emissions disclosure. Although both such requirements could further enhance the reliability of the related Scopes 1 and 2 GHG emissions disclosure, we are not currently proposing them at this time. We are, however, continuing to consider these alternatives, including: (i) the need to develop guidance for management on conducting such an assessment and (ii) whether appropriate attestation standards exist. Accordingly, we request comment on these and related issues below. The Commission has long recognized the important role played by an independent audit in contributing to the reliability of financial reporting.581 Relatedly, studies suggest that investors have greater confidence in information that has been assured, particularly when it is assured at the reasonable assurance level.582 Although a limited assurance engagement provides a lower level of assurance than a reasonable assurance engagement,583 studies of ESG-related assurance, which is typically provided at a limited assurance level, have found benefits such as credibility enhancement, lower cost of equity capital, and lower analyst forecast errors and dispersion.584 Therefore, proposing to require Scope 1 and Scope 2 emissions disclosure by accelerated filers and large accelerated filers be subject to limited assurance initially, with an eventual scaling up to reasonable assurance, could potentially improve both the actual reliability of disclosure and investor confidence in such disclosure.585 Increasing investor demand for consistent, comparable, and reliable climate-related financial
information appears to have led a growing number of companies to voluntarily obtain third-party assurance over their climate￾related disclosures both within the U.S. and globally. For example, according to one study, 53% of the S&P 500 companies had some form of assurance or verification over climate-related metrics, along with other metrics.586 Another survey of sustainability reporting trends from 5,200 companies across 52 countries (including the United States) stated that, of the top 100 companies (by revenue), 80% have reporting on ESG (including climate), with up to 61% of those companies also obtaining assurance.587 The prevalence of major companies obtaining assurance in connection with their voluntary sustainability reports suggests that both the companies and their investors are focused on the reliability of such disclosures. Although many registrants have voluntarily obtained some level of assurance for their climate-related disclosures, current voluntary ESG assurance practices have been varied with respect to the levels of assurance provided (e.g., limited versus reasonable), the assurance standards used, the types of service providers, and the scope of disclosures covered by the assurance. This fragmentation has diminished the comparability of the assurance provided and may require investors to become familiar with many different assurance standards and the varying benefits of different levels of assurance. The consequences of such fragmentation has also been highlighted by certain international organizations,588 including IOSCO, which stated that the ‘‘perceived lack of clarity and consistency around the purpose and scope of [voluntary] assurance . . . potentially lead[s] to market confusion, including misleading investors and exacerbating the expectations gap.’’ 589 For example, investors may see that a service provider has produced an assurance report for a registrant’s GHG emissions disclosure and have an expectation that such assurance will enhance the reliability of that disclosure without always understanding the service provider’s qualifications for producing the report, what level of assurance (e.g., limited versus reasonable) is being provided, what scope of assurance (e.g., the disclosures covered by the assurance) is being provided with respect to the registrant’s GHG emissions disclosure, and the methodologies and procedures that the attestation provider used. While some experienced assurance providers may be proficient in applying attestation standards to GHG emissions disclosures, other assurance providers may lack GHG emissions expertise. Similarly, some service providers providing assurance may have expertise in GHG emissions but have minimal assurance experience. Moreover, some service providers may use standards that are

590See infra Section II.H.3.
591See, e.g., CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021) (pointing to the use of assurance methodologies developed by individual service providers, which in some cases were based on IAASB International Standard on Assurance Engagements (ISAE) 3000 with modifications). 592See, e.g., CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021) (providing statistics on limited assurance versus reasonable assurance obtained voluntarily in the current market (e.g., at least 26 of 31 companies that obtained assurance from public company auditors obtained limited assurance; at least 174 of 235 companies that obtained assurance or verification from other service providers (non-public company auditors) obtained limited assurance)). For similar information on the S&P 100, see CAQ, S&P 100 and ESG Reporting (Apr. 29, 2021), available at https:// www.thecaq.org/sp-100-and-esg-reporting/. Based on an analysis by Commission staff on Mar. 3, 2022, a substantial number of the S&P 500 companies (460+) are large accelerated filers and therefore would be subject to the proposed assurance requirements. 593See infra note 955 in Section IV.C of the Economic Analysis for further discussion on proportionate costs between different types of filers. 594See infra note 604 for a discussion of the key differences between limited and reasonable assurance engagements. 595By limiting the assurance requirements to accelerated filers and large accelerated filers, a new registrant would not be required to provide assurance until it has been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve calendar months and it has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act. See 17 CFR 240.12b–2. Therefore, no registrant would be required to provide assurance covering its GHG emissions disclosure during an initial public offering. However, any registrant that voluntarily includes an attestation report for GHG emissions disclosure would be required to comply with proposed Item 1505(e). developed by accreditation bodies with notice and public comment and other robust due process procedures 590 for standard setting, while other service providers may use privately developed ‘‘verification’’ standards.591 To improve accuracy, comparability, and consistency with respect to the proposed GHG emissions disclosure, we are proposing to require a minimum level of attestation services for accelerated filers and large accelerated filers including: (1) Limited assurance for Scopes 1 and 2 emissions disclosure that scales up to reasonable assurance after a specified transition period; (2) minimum qualifications and independence requirements for the attestation service provider; and (3) minimum requirements for the accompanying attestation report. These proposed requirements would be minimum standards that the GHG emissions attestation provider engaged by accelerated filers and large accelerated filers must meet, but, as
mentioned above, would not prevent a registrant from obtaining a heightened level of assurance over its climate￾related disclosures (prior to the transition to reasonable assurance) or to obtain assurance over climate-related disclosures other than Scope 1 and Scope 2 emissions. By specifying minimum standards for the attestation provided with respect to GHG emissions disclosure by accelerated filers and large accelerated filers, the proposed rules should improve accuracy and consistency in the reporting of this information, while also providing investors with an enhanced level of reliability against which to evaluate the disclosure. In addition to the proposed minimum standards for attestation services, the proposed additional disclosure requirements for registrants, described below, should further assist investors in understanding the qualifications and suitability of the GHG emissions attestation provider selected by the registrant, particularly in light of the broad spectrum of attestation providers that would be permitted to provide attestation services under the proposed rules. Although we are proposing certain minimum standards for attestation services, this proposal does not aim to create or adopt a specific attestation standard for assuring GHG emissions, just as this proposal does not define a single methodology for calculating GHG emissions. This is because both the reporting and attestation landscapes are currently evolving and it would be premature to adopt one approach and potentially curtail future innovations in these two areas. The evolving nature of GHG emissions calculations and attestation standards could suggest that it may also be premature to require assurance. We are soliciting comment on the feasibility of our proposal and will consider any public feedback received, but we have preliminarily determined that the phased-in approach that we are proposing, along with an extended period for disclosure compliance for accelerated filers, balances the benefits of third-party review with the costs of seeking assurance in this evolving space. The proposed minimum standards for attestation services and the proposed additional disclosure requirements would not eliminate fragmentation with respect to assurance or obviate the need for investors to assess and compare multiple attestation standards. Nevertheless, we believe some flexibility in our approach is warranted at this time given the unique and evolving nature of third-party assurance for climate-related disclosures. We believe the proposed minimum standards and additional disclosure requirements would enable investors to better understand the assurance that has been provided. We are cognizant of the fact that the calculation and disclosure of GHG emissions would be new for many registrants, as would be the application of assurance standards to GHG emissions disclosure. For these reasons and the reasons discussed in greater detail below, we are proposing to require assurance (1)
only for accelerated filers and large accelerated filers, (2) only with respect to Scope 1 and Scope 2 emissions, and (3) with an initial transition period for limited assurance and a subsequent transition period for reasonable assurance. Although we have considered the challenges that mandatory assurance of GHG emissions disclosure could present, accelerated filers and large accelerated filers should have the necessary resources to devote to complying with such requirements over the proposed implementation timetable. For the many large accelerated filers that are already voluntarily obtaining some form of assurance over their GHG emissions, any cost increases associated with complying with the proposed rules would be mitigated.592 Furthermore, larger issuers generally bear proportionately lower compliance costs than smaller issuers due to the fixed cost components of such compliance.593 The proposed transition periods would also provide existing accelerated filers and large accelerated filers one fiscal year to transition to limited assurance 594 and two additional fiscal years to transition to reasonable assurance.595 For existing accelerated filers, this transition period would be in addition to the one additional year they will have to comply with the Scopes 1 and 2 emission disclosure requirements (compared to large accelerated filers). As such, these filers would have significant time to develop processes to support their GHG emissions disclosure requirements and the relevant DCP, as well as to adjust to the incremental costs and efforts associated with escalating levels of assurance. During this transition period, GHG emissions attestation providers would also have time to prepare themselves for providing such services in connection with Commission filings. In addition to the challenges posed by the newness of calculating and disclosing GHG emissions, we believe that only requiring assurance over Scope 1 and Scope 2 emissions would be appropriate because the emissions result directly or indirectly from

596For specific examples, see, e.g., Etsy, Inc. FY 2021 Form 10–K, available at https:// s22.q4cdn.com/941741262/files/doc_financials/ 2021/q4/ETSY-12.31.2021-10K.pdf (external third￾party attestation report available at https:// s22.q4cdn.com/941741262/files/doc_financials/ 2021/q4/PwC/Limited-Assurance-Report-Assertion￾Etsy-FY21_2.24.22_final-signed_final.pdf); Johnson Controls International plc 2021 Sustainability Report, available at https:// www.johnsoncontrols.com/2021sustainability (external third-party verification report available at https://www.johnsoncontrols.com/-/media/jci/ corporate-sustainability/reporting-and-policies/gri/ 2020/ghg-jci-fy-2020-verification-statement.pdf); Norfolk Southern Corporation 2021 GHG Emissions Report, available at http://www.nscorp.com/ content/dam/nscorp/get-to-know-ns/about-ns/ environment/2020-GHG-Emissions-Report.pdf; Koninklijke Philips NV (Royal Philips) Annual Report 2021, at 269, available at https:// www.results.philips.com/publications/ar21/ downloads/pdf/en/Philips/ English.pdf?v=20220225104533; Starbucks Coffee Company FY 2020 GHG emissions inventory assurance report, at 2, available at https:// stories.starbucks.com/uploads/2021/04/StaFY20/ Third-Party-Independent-Verification-and￾Assurance-Reports.pdf; and Vornado Realty Trust FY 2020 ESG report, available at https:// books.vno.com/books/idpn/#p=1. See also supra note 592 for S&P 100 and S&P 500 related statistics. 597See supra Section II.G.3 for further discussion of the unique challenges presented by the disclosure of Scope 3 emissions. 598See, e.g., AICPA’s Statement on Standards for Attestation Engagements (SSAE) No.22, AT–C
Section 210.
599See infra Section II.H.3 for further discussion of the attestation report requirements, including the difference between a conclusion and an opinion. 600See, e.g., AICPA SSAE No. 21, AT–C Sections 205 and 206. 601Under commonly used attestation standards, both a reasonable assurance engagement and a limited assurance engagement have the same requirement that the subject matter (e.g., Scope 1 and Scope 2 emissions) of the engagement be appropriate as a precondition for providing assurance. Thus, if the subject matter is appropriate for a limited assurance engagement, it is also appropriate for a reasonable assurance engagement. See AICPA SSAE No. 18 (Apr. 2016); and IAASB ISAE 3000 (Revised) (Dec. 2013). 602For example, some registrants have voluntarily sought reasonable assurance over certain information, including Scopes 1, 2, and 3 emissions, for which others have voluntarily sought limited assurance. See, e.g., Apple, Inc. Environmental Progress Report (Mar. 2021), at 88– 90, available at https://www.apple.com/ environment/pdf/Apple_Environmental_Progress_ Report_2021.pdf; United Parcel Service, Inc. (UPS) FY 2020 GRI Content Index, at 72, available at https://about.ups.com/content/dam/upsstories/ assets/reporting/sustainability-2021/2020_UPS_ GRI_Content_Index_081921v2.pdf; and Guess?, Inc. FY2020–2021 Sustainability Report, at 91, available at https://static1.squarespace.com/static/ 609c10ed49db5202181d673f/t/ 6faf8af82418f5da4778f6f/1627060411937/ GUESS+FY20-21+Sustainability+Report.pdf. 603See supra note 592 (providing statistics on limited assurance obtained voluntarily in the current market). 604The scope of work in a limited assurance engagement is substantially less than a reasonable assurance engagement. The primary difference between the two levels of assurance relates to the nature, timing, and extent of procedures required to obtain sufficient, appropriate evidence to support the limited assurance conclusion or reasonable assurance opinion. Limited assurance engagements primarily include procedures such as inquiries and analytical procedures and do not necessarily include a consideration of whether internal controls have been effectively designed, whereas reasonable assurance engagements require the assurance service provider to consider and obtain an understanding of internal controls. More extensive testing procedures beyond inquiries and analytical procedures, including recalculation and verification of data inputs, are also required in reasonable assurance engagements, such as inspecting source documents that support transactions selected on a sample basis. Driven by these differences, the cost of limited assurance is generally lower than that of reasonable assurance. 605See letters from CAQ and Energy Infrastructure Council; supra note 592 (providing statistics on voluntary assurance obtained by S&P 100 and S&P 500 companies). facilities owned or activities controlled by a registrant, which makes it relatively more
accessible and easier to subject to the registrant’s DCP compared to Scope 3 data. Further, as discussed earlier, many registrants already voluntarily seek assurance over their GHG emissions disclosure (predominately Scope 1 and Scope 2 disclosures),596 which further supports the feasibility and readiness of Scope 1 and Scope 2 emissions disclosure for mandatory assurance. In contrast, we are not proposing to require assurance of Scope 3 emissions disclosure at this time because the preparation of such disclosure presents unique challenges.597 Depending on the size and complexity of a company and its value chain, the task of calculating Scope 3 emissions could be relatively more burdensome and expensive than calculating Scope 1 and Scope 2 emissions. In particular, it may be difficult to obtain activity data from suppliers, customers, and other third parties in a registrant’s value chain, or to verify the accuracy of that information compared to disclosures of Scope 1 and Scope 2 emissions data, which are more readily available to a registrant. We are proposing to require accelerated filers and large accelerated filers to obtain limited assurance, with an eventual scaling up to reasonable assurance. The objective of a limited assurance engagement is for the service provider to express a conclusion about whether it is aware of any material modifications that should be made to the subject matter (e.g., the Scopes 1 and 2 emissions disclosure) in order for it to be fairly stated or in accordance with the relevant criteria (e.g., the methodology and other disclosure requirements specified in proposed 17 CFR 229.1504 (Item 1504 of Regulation S–K).598 In such engagements, the conclusion is expressed in the form of negative assurance regarding whether any material misstatements have been identified.599 In contrast, the objective of a reasonable assurance engagement, which is the same level of assurance provided in an audit of a registrant’s consolidated financial statements, is to express an opinion on whether the subject matter is in accordance with the relevant criteria, in all material respects. A reasonable assurance opinion provides positive assurance that the subject matter is free from material misstatement.600 Reasonable assurance is feasible whenever limited assurance can be provided on a subject,601 and as noted above the voluntary attestation obtained by some registrants has been at the reasonable assurance level.602 We understand, however, that a limited assurance engagement is less extensive and is currently the level of assurance most commonly provided 603 in the voluntary assurance market for climate￾related disclosure.604 Therefore, prior to the transition to reasonable assurance, the additional compliance efforts required to comply with the proposed assurance requirement should be limited for the many registrants that— according to commenters and others— are already obtaining limited assurance for their climate-related disclosures.605
Furthermore, although reasonable assurance provides a significantly higher level of assurance than limited assurance, we believe limited assurance would benefit investors during the initial transition period by enhancing the reliability of a registrant’s Scopes 1 and 2 emissions disclosure, in light of the benefits that assurance provides, as discussed above. Moreover, under the proposed rules, accelerated filers and large accelerated filers would not be prevented from obtaining reasonable assurance for their climate disclosures earlier than required. After the transition to mandatory reasonable assurance, investors would have the benefits of a higher level of assurance with smaller incremental costs to accelerated filers and large accelerated filers than moving directly to a reasonable assurance requirement. Request for Comment
135. Should we require accelerated
filers and large accelerated filers to obtain an attestation report covering their Scope 1 and Scope 2 emissions disclosure, as proposed? Should we require accelerated filers and large accelerated filers to obtain an attestation report covering other aspects of their climate-related disclosures beyond Scope 1 and 2 emissions? For example, should we also require the attestation of GHG intensity metrics, or of Scope 3

606See 17 CFR 230.405 (defining ‘‘well-known seasoned issuer’’). 607See, e.g., 17 CFR 240.12b–2. emissions, if disclosed? Conversely, should we require accelerated filers and large accelerated filers to obtain assurance covering only Scope 1 emissions disclosure? Should any voluntary assurance obtained by these filers after limited assurance is required be required to follow the same attestation requirements of Item 1505(b)–(d), as proposed?
136. If we required accelerated filers
and large accelerated filers to obtain an attestation report covering Scope 3 emissions disclosure, should the requirement be phased-in over time? If so, what time frame? Should we require all Scope 3 emissions disclosure to be subject to assurance or only certain categories of Scope 3 emissions? Would it be possible for accelerated filers and large accelerated filers to obtain an attestation report covering the process or methodology for calculating Scope 3 emissions rather than obtaining an attestation report covering the calculations of Scope 3 emissions? Alternatively, is there another form of verification over Scope 3 disclosure that would be more appropriate than obtaining an attestation report?
137. Should the attestation
requirement be limited to accelerated filers and large accelerated filers, as proposed? Alternatively, should the attestation requirement be limited to a subset of accelerated filers and large accelerated filers? If so, what conditions should apply? Should the attestation requirement only apply to well-known seasoned issuers?606 Should the attestation requirement also apply to other types of registrants? Should we create a new test for determining whether the attestation requirements apply to a registrant that would take into account the resources of the registrant and also apply to initial public offerings? For example, should we create a test similar to the SRC definition,607 which includes a separate determination for initial registration statements, but using higher public float and annual revenue amounts?
138. Instead of requiring only
accelerated filers and large accelerated filers to include an attestation report for Scope 1 and Scope 2 emissions, should the proposed attestation requirements also apply to registrants other than accelerated filers and large accelerated filers? If so, should the requirement apply only after a specified transition period? Should such registrants be required to provide assurance at the same level as accelerated filers and large accelerated filers and over the same scope of GHG emissions disclosure, or should we impose lesser requirements (e.g., only limited assurance and/or assurance over Scope 1 emissions disclosure only)?
139. Should we require accelerated
filers and large accelerated filers to initially include attestation reports reflecting attestation engagements at a limited assurance level, eventually increasing to a reasonable assurance level, as proposed? What level of assurance should apply to the proposed GHG emissions disclosure, if any, and when should that level apply? Should we provide a one fiscal year transition period between the GHG emissions disclosure compliance date and when limited assurance would be required for accelerated filers and large accelerated filers, as proposed? Should we provide an additional two fiscal year transition period between when limited assurance is first required and when reasonable assurance is required for accelerated filers and large accelerated filers, as proposed?
140. Should we provide the same
transition periods (from the Scopes 1 and 2 emissions disclosure compliance date) for accelerated filers and large accelerated filers, as proposed? Instead, should different transition periods apply to accelerated filers and large accelerated filers? Should we provide transition periods with different lengths than those proposed? Should we require the attestation to be at a reasonable assurance level without having a transition period where only limited assurance is required? Should we instead impose assurance requirements to coincide with reporting compliance periods?
141. Under prevailing attestation
standards, ‘‘limited assurance’’ and ‘‘reasonable assurance’’ are defined terms that we believe are generally understood in the marketplace, both by those seeking and those engaged to provide such assurance. As a result, we have not proposed definitions of those terms. Should we define ‘‘limited assurance’’ and ‘‘reasonable assurance’’ and, if so, how should we define them? Would providing definitions in this context cause confusion in other attestation engagements not covered by the proposed rules? Are the differences between these types of attestation engagements sufficiently clear without providing definitions?
142. As proposed, there would be no
requirement for a registrant to either provide a separate assessment and disclosure of the effectiveness of controls over GHG emissions disclosure by management or obtain an attestation report from a GHG emissions attestation provider specifically covering the effectiveness of controls over GHG emissions disclosure. Should we require accelerated filers and large accelerated filers to provide a separate management assessment and disclosure of the effectiveness of controls over GHG emissions disclosure (separate from the existing requirements with respect to the assessment and effectiveness of DCP)? Should we require management to provide a statement in their annual report on their responsibility for the design and evaluation of controls over GHG emissions disclosure and to disclose their conclusion regarding the effectiveness of such controls? Instead of, or in addition to, such management assessment and statement, should we require the registrant to obtain an attestation report from a GHG emissions attestation provider that covers the effectiveness of such GHG emissions controls as of the date when the accelerated filer or large accelerated filer is required to comply with the reasonable assurance requirement under proposed Item 1505(a)? If so:
(i) Would it be confusing to apply either such requirement in light of the existing DCP requirements that would apply to the proposed GHG emissions disclosure? (ii) Would a separate management assessment and statement on the effectiveness of controls over GHG emissions provide meaningful disclosure to investors beyond the existing requirement for DCP? (iii) Should we specify that the separate management assessment and statement must be provided by the accelerated filer’s or large accelerated filer’s principal executive and principal financial officers, or persons performing similar functions? Should we clarify which members of the accelerated filer or large accelerated filer’s management should be involved in performing the underlying assessment? (iv) What controls framework(s) would the effectiveness of the registrant’s controls over GHG emissions disclosure be evaluated against, if any? (v) For the GHG emissions attestation provider, what requirements should be applied to such GHG emissions disclosure controls attestation requirement? For example, what attestation standards should apply? Should other service provider(s) in addition to or in lieu of the GHG emissions attestation provider be permitted to provide such attestation over the effectiveness of the GHG controls? (vi) Should we limit such a requirement to accelerated filers and

608See proposed 17 CFR 229.1505(b).
609See proposed 17 CFR 229.1505(b)(1). 610 ‘‘Affiliates,’’ for purposes of proposed 17 CFR
229.1505 has the meaning provided in 17 CFR
210.2–01, except references to ‘‘audit’’ are deemed to be references to the attestation services provided pursuant to this section. See proposed 17 CFR 229.1505(b)(2)(iii). 611See proposed 17 CFR 229.1505(b)(2) and 229.1505(b)(2)(iv) (defining the term ‘‘attestation and professional engagement period’’). large accelerated filers only or should it apply to other registrants as well? (vii) What would be the potential benefits and costs of either approach? (viii) Should we require a certification on the design and evaluation of controls over GHG emissions disclosures by officers serving in the principal executive and principal financial officer roles or persons performing similar functions for an accelerated filer or large accelerated filer? Would a certification requirement have any additional benefits or impose any additional costs when compared to a requirement for management to assess and disclose in a statement in the annual report the effectiveness of controls over GHG emissions?
143. We considered whether to
require registrants to include the GHG emissions metrics in the notes or a separate schedule to their financial statements, by amending Regulation S– X instead of Regulation S–K. (i) Would there be benefits to including this information in a registrant’s financial statements? For example, would requiring the GHG emissions disclosure to be included in the financial statements improve the consistency, comparability, reliability, and decision-usefulness of the information for investors? Would it facilitate the integration of GHG metrics and targets into the registrant’s financial analysis? Would such placement cause registrants to incur significantly more expense in obtaining an audit of the disclosure? If so, please quantify those additional expenses where possible. (ii) Should we require a registrant to include the GHG emissions disclosure in its audited financial statements so that the disclosure would be subject to the existing requirements for an independent audit and ICFR? If so, we seek comment on the following aspects of this alternative:
(a) If GHG emissions disclosure is subject to ICFR, or an internal control framework similar to ICFR, would GHG emissions disclosure be more reliable compared to what is currently proposed? What are the benefits or costs? (b) Should the GHG emissions disclosure be included in a note to the registrant’s financial statements (e.g., in the note where the proposed financial statement metrics as discussed above in
Section II.F would be included) or in a
schedule, or somewhere else? If the
GHG emissions disclosure was required in the financial statements, should it be subject to a reasonable assurance audit like the other information in the financial statements? If in a schedule, should the GHG emissions disclosure be disclosed in a schedule similar to those required under Article 12 of Regulation S–X, which would subject the disclosure to audit and ICFR requirements? Should we instead require the metrics to be disclosed as supplemental financial information, similar to the disclosure requirements under FASB ASC Topic 932–235–50–2 for registrants that have significant oil￾and gas-producing activities? If so, should such supplemental schedule be subject to ICFR requirements? Instead of requiring the GHG emissions disclosure to be included in a note to the registrant’s audited financial statements, should we require a new financial statement for such metrics? (c) PCAOB auditing standards apply to the audit of a registrant’s financial statements. If GHG emissions disclosure is included in a supplemental schedule to the financial statements, should we allow other auditing standards to be applied? If so, which ones? What, if any, additional guidance or revisions to such standards would be needed in order to apply them to the audit of GHG emissions disclosure? (d) What are the costs and benefits of employing registered public accounting firms to perform audits of GHG emissions disclosure and related attestation of internal controls? Are there potential cost savings in employing registered public accountants that currently perform audits of financial statements and attestation of ICFR to review GHG emissions disclosure and any related internal controls? If we require GHG emissions disclosure to be presented in the financial statements, should we permit entities other than registered public accounting firms to provide assurance of this information, as proposed for the current attestation requirements under Regulation S–K? If not limited to registered public accounting firms, who should be permitted to provide assurance of GHG emissions disclosure? Should we permit environmental consultants, engineering firms, or other types of specialists to provide assurance? What are the costs and benefits of such approach? Would the reliability of the audits and therefore the information disclosed be affected if assurance providers other than registered public accounting firms are permitted to conduct these audits? Please provide supporting data where possible. If we should allow for assurance providers that are not registered public accounting firms, what qualifications and oversight should they have, and what requirements should we impose on them? Should we direct the PCAOB to develop a separate registration process for service providers that are not otherwise registered? What expertise, independence and quality control standards should apply? (e) What would be the other potential benefits and costs of such an approach?
2. GHG Emissions Attestation Provider
Requirements
The proposed rules would require the GHG emissions attestation report required by proposed Item 1505(a) for accelerated filers and large accelerated filers to be prepared and signed by a GHG emissions attestation provider.608 The proposed rules would define a GHG emissions attestation provider to mean a person or a firm that has all of the following characteristics:

• Is an expert in GHG emissions by
  virtue of having significant experience in measuring, analyzing, reporting, or attesting to GHG emissions. Significant experience means having sufficient competence and capabilities necessary to:
  o perform engagements in accordance with professional standards and applicable legal and regulatory requirements; and o enable the service provider to issue reports that are appropriate under the circumstances.609
• Is independent with respect to the
  registrant, and any of its affiliates,610 for whom it is providing the attestation report, during the attestation and professional engagement period.611 The proposed expertise requirement is intended to help ensure that the service provider preparing the attestation report has sufficient competence and capabilities necessary to execute the attestation engagement. In this regard, if the service provider is a firm, we would expect that it have policies and procedures designed to provide it with reasonable assurance that the personnel selected to conduct the GHG emissions attestation engagement have significant experience with respect to both attestation engagements and GHG disclosure. This would mean that the service provider has the qualifications necessary for fulfillment of the responsibilities that it would be called on to assume, including the appropriate engagement of

612 Independent auditors and accountants are already required to comply with similar quality control and management standards when providing audit and attest services under the PCAOB, AICPA, or IAASB standards. See, e.g., PCAOB, Quality Control (QC) Standards Section 20 System of Quality Control for a CPA Firm’s Accounting and Auditing Practice and Section 40 The Personnel Management Element of a Firm’s System of Quality Control—Competencies Required by a Practitioner￾in-Charge of an Attest Engagement, available at https://pcaobus.org/oversight/standards/qc￾standards; AICPA, QC Section 10, A Firm’s System of Quality Control, available at https://us.aicpa.org/ content/dam/aicpa/research/standards/ auditattest//qc-00010.pdf; and IAASB, International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, available at https://www.ifac.org/system/files/ publications/files/IAASB-Quality-Management￾ISQM-1-Quality-Management-for-Firms.pdf. 613We have adopted similar expertise requirements in the past to determine eligibility to prepare a mining technical report. Although also relating to technical, specialized disclosures, the mining technical report requirements differ in that such an engagement is not an assurance engagement. See Modernization of Property Disclosures for Mining Registrants, Release No. 33– 10570 (Oct. 31, 2018), [83 FR 66344 (Dec. 26, 2018)]. 614See Mark Defond & Jieying Zhang, A Review of Archival Auditing Research, 58 J. Acct. & Econ., 275 (2014); Qualifications of Accountants, Release No. 33–10876 (Oct. 16, 2020) [85 FR 80508 (Dec. 11, 2020)], at 80508 (‘‘The Commission has long recognized that an audit by an objective, impartial, and skilled professional contributes to both investor protection and investor confidence’’). See also Statement of Paul Munter, Acting Chief Accountant, The Importance of High Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors (Oct. 26, 2021). 615See 17 CFR 210.2–01(b). 616See proposed 17 CFR 229.1505(b)(2)(i). 617See proposed 17 CFR 229.1505(b)(2)(iv). 618See proposed 17 CFR 229.1505(b)(2)(ii)(A). 619See proposed 17 CFR 229.1505(b)(2)(ii)(B). 620See 17 CFR 210.2–01. For the avoidance of doubt, we note that if the independent accountant who audits the registrant’s consolidated financial statements is also engaged to perform the GHG emissions attestation for the same filing, the fees associated with the GHG emissions attestation engagement would be considered ‘‘Audit-Related Fees’’ for purposes of Item 9(e) of 17 CFR 240.14a￾101, Item 14 of Form 10–K, Item 16C of Form 20– F, or any similar requirements. 621 15 U.S.C. 77g. 622See 17 CFR 230.436. 623See 17 CFR 229.601(b)(23). specialists, if needed.612 The proposed expertise requirement would apply to the person or the firm signing the GHG emissions attestation report.613 The
second proposed requirement is modeled on the Commission’s qualifications for accountants under 17 CFR 210.2–01 (Rule 2–01 of Regulation S–X), which are designed to ensure that auditors are independent of their audit clients. Similar to how assurance provided by independent public accountants improves the reliability of financial statements and disclosures and is a critical component of our capital markets, assurance of GHG emissions disclosure by independent service providers should also improve the reliability of such disclosure. Academic studies demonstrate that assurance provided by an independent auditor reduces the risk that an entity provides materially inaccurate information to external parties, including investors, by facilitating the dissemination of transparent and reliable financial information.614 We expect that GHG emissions disclosure would similarly benefit if assured by an independent service provider. Moreover, the potential conflicts of interest, or even the appearance of such conflicts of interest, between the GHG emissions attestation provider and the registrant could raise doubts for investors about whether they can rely on the attestation service and its report. Similar to Rule 2–01 of Regulation S– X,615 the proposed rules would provide that a GHG emissions attestation provider is not independent if during the attestation and professional engagement period such attestation provider is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that such attestation provider is not, capable of exercising objective and impartial judgment on all issues encompassed within the attestation provider’s engagement.616 The proposed definition for the attestation and professional engagement period, which is modeled on Rule 2–01 of Regulation S–X, includes both (1) the period covered by the attestation report and (2) the period of the engagement to attest to the registrant’s GHG emissions or to prepare a report filed with the Commission (the ‘‘professional engagement period’’). Under the proposed rules, the professional engagement period would begin when the GHG attestation service provider either signs an initial engagement letter (or other agreement to attest to a registrant’s GHG emissions) or begins attest procedures, whichever is earlier.617 The proposed rules would further state that, in determining whether a GHG emissions attestation provider is independent, the Commission will consider:

• Whether a relationship or the
  provision of a service creates a mutual or conflicting interest between the attestation provider and the registrant (or any of its affiliates), places the attestation provider in the position of attesting to such attestation provider’s own work, results in the attestation provider acting as management or an employee of the registrant (or any of its affiliates), or places the attestation provider in a position of being an advocate for the registrant (or any of its affiliates); 618 and
• all relevant circumstances,
  including all financial or other relationships between the attestation provider and the registrant (or any of its affiliates), and not just those relating to reports filed with the Commission.619 These proposed provisions are modeled on the factors used by the Commission in determining whether an accountant is independent.620 Similar to Rule 2–01 of Regulation S–X, the proposed provisions should help protect investors by requiring the GHG emissions attestation provider to be independent both in fact and appearance from the registrant, including its affiliates. Because the GHG emissions attestation provider would be a person whose profession gives authority to the statements made in the attestation report and who is named as having provided an attestation report that is
  part of the registration statement, the
  registrant would be required to obtain and include the written consent of the GHG emissions attestation provider pursuant to Securities Act Section 7,621 the corresponding rule requiring the written consents of such experts,622 and the Regulation S–K provision requiring the attachment of the written consent of an expert to a Securities Act registration statement or an Exchange Act report that incorporates by reference a written expert report attached to a previously filed Securities Act registration statement.623 The GHG emissions attestation provider would also be subject to liability under the federal securities laws for the attestation conclusion or, when applicable, opinion provided. Such liability should encourage the attestation service provider to exercise due diligence with respect to its obligations under a limited or reasonable assurance engagement. Request for Comment

144. Should we require a registrant to
     obtain a GHG emissions attestation report that is provided by a GHG emissions attestation provider that meets specified requirements, as proposed? Should one of the requirements be that the attestation provider is an expert in GHG emissions, with significant experience in measuring, analyzing, reporting, or attesting to GHG emissions, as proposed? Should we specify that significant experience means having sufficient competence and capabilities

necessary to: (a) Perform engagements in accordance with professional standards and applicable legal and regulatory requirements and (b) enable the service provider to issue reports that are appropriate under the circumstances, as proposed? Should we instead require that the GHG emissions attestation provider have a specified number of years of the requisite type of experience, such as 1, 3, 5, or more years? Should we specify that a GHG emissions attestation provider meets the expertise requirements if it is a member in good standing of a specified accreditation body that provides oversight to service providers that apply attestation standards? If so, which accreditation body or bodies should we consider (e.g., AICPA)? Are there any other requirements for the attestation provider that we should specify? Instead, should we require a GHG emissions attestation provider to be a PCAOB-registered audit firm?
145. Is additional guidance needed
with respect to the proposed expertise requirement? Should we instead include prescriptive requirements related to the qualifications and characteristics of an expert under the proposed rules? For example, should we include a provision that requires a GHG emissions attestation provider that is a firm to have established policies and procedures designed to provide it with reasonable assurance that the personnel selected to provide the GHG attestation service have the qualifications necessary for fulfillment of the responsibilities that the GHG emissions attestation provider will be called on to assume, including the appropriate engagement of specialists, if needed?
146. Should we require the GHG
emissions attestation provider to be independent with respect to the registrant, and any of its affiliates, for whom it is providing the attestation report, as proposed? Should we specify that a GHG emissions attestation provider is not independent if such attestation provider is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that such attestation provider is not, capable of exercising objective and impartial judgment on all issues encompassed within the attestation provider’s engagement, as proposed? The proposed provision is based on a similar provision regarding the qualification of an accountant to be an independent auditor under Rule 2– 01 of Regulation S–X. Is Rule 2–01 an appropriate model for determining the independence of a GHG emissions attestation provider? Is being independent from a registrant and its affiliates an appropriate qualification for a GHG emissions attestation provider?
147. Should we specify that the
factors the Commission would consider in determining whether a GHG emissions attestation provider is independent include whether a relationship or the provision of a service creates a mutual or conflicting interest between the attestation provider and the registrant, including its affiliates, places the attestation provider in the position of attesting to such attestation provider’s own work, results in the attestation provider acting as management or an employee of the registrant, including its affiliates, or places the attestation provider in a position of being an advocate for the registrant and its affiliates, as proposed? Should we specify that the Commission also will consider all relevant circumstances, including all financial and other relationships between the attestation provider and the registrant, including its affiliates, and not just those relating to reports filed with the Commission, as proposed?
148. Should we adopt all of the
proposed factors for determining the independence of a GHG emissions attestation provider, or are there factors we should omit? Are there any additional factors that we should specify that the Commission will consider when determining the independence of a GHG emissions attestation provider? For example, should we include any non-exclusive specifications of circumstances that would be inconsistent with the independence requirements, similar to those provided in 17 CFR 210.2–01(c) (Rule 2–01(c) of Regulation S–X)?
149. Should the definition of
‘‘affiliates’’ be modeled on Rule 2–01, as proposed, or should we use a different definition? Would defining the term differently than proposed cause confusion because the rest of the proposed independence requirement is modeled on Rule 2–01? Many accountants are likely familiar with the proposed definition given their required compliance with Rule 2–01, would non￾accountants understand how to comply with and apply this concept?
150. Should the term ‘‘attestation and
professional engagement period’’ be defined in the proposed manner? If not, how should ‘‘attestation and professional engagement period’’ be defined? Alternatively, should the Commission specify a different time period during which an attestation provider must meet the proposed independence requirements?
151. Should we include disclosure
requirements when there is a change in, or disagreement with, the registrant’s GHG emissions attestation provider that are similar to the disclosure requirements in Item 4.01 of Form 8–K and 17 CFR 229.304 (Item 304 of Regulation S–K)?
152. Accountants are already required
to comply with the relevant quality control and management standards when providing audit and attest services under the PCAOB, AICPA, or IAASB standards. These quality control and management standards would apply to accountants providing GHG attestation services pursuant to those standards as well. Should we require the GHG emissions attestation provider to comply with additional minimum quality control requirements (e.g., acceptance and continuance of engagements, engagement performance, professional code of conduct, and ethical requirements) to provide greater consistency over the quality of service provided by GHG emissions attestation providers who do not (or cannot) use the PCAOB, AICPA, or IAASB attestation standards? If so, what should the minimum requirements be?
153. As proposed, the GHG emissions
attestation provider would be a person whose profession gives authority to statements made in the attestation report and who is named as having provided an attestation report that is
part of the registration statement, and
therefore the registrant would be required to obtain and include the written consent of the GHG emissions provider pursuant to Securities Act
Section 7 and related Commission rules.
This would subject the GHG emissions attestation provider to potential liability under Section 11 of the Securities Act. Would the possibility of Section 11 liability deter qualified persons from serving as GHG emissions attestation providers? Should we include a provision similar to 17 CFR 230.436(c), or amend that rule, to provide that a report on GHG emissions at the limited assurance level by a GHG emissions attestation provider that has reviewed such information is not considered part of a registration statement prepared or certified by a person whose profession gives authority to a statement made by him or a report prepared or certified by such person within the meaning of
Section 7 and 11 of the Act?
3. GHG Emissions Attestation
Engagement and Report Requirements The proposed rules would require the attestation report required by proposed Item 1505(a) for accelerated filers and large accelerated filers to be included in the separately-captioned ‘‘Climate￾Related Disclosure’’ section in the

624See proposed 17 CFR 229.1505(a)(2) and (c). 625See 17 CFR 240.13a–15(c) and 240.15d–15(c) (stating that the ‘‘framework on which management’s evaluation of the issuer’s internal control over financial reporting is based must be a suitable, recognized control framework that is established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment’’). 626See PCAOB AT Section 101, Attest Engagements, available at https://pcaobus.org/ oversight/standards/attestation-standards/details/ AT101. 627See AICPA SSAE No. 18 (general attestation standard), available at https://us.aicpa.org/content/ dam/aicpa/research/standards/auditattest/ downloadabledocuments/ssae-no-18.pdf; SSAE No. 22, Review Engagements (limited assurance standard, effective for reports dated on or after June 15, 2022), available at https://us.aicpa.org/content/ dam/aicpa/research/standards/auditattest/ downloadabledocuments/ssae-22.pdf; and SSAE No. 21, Direct Examination Engagements (reasonable assurance standard, effective for reports dated on or after June 15, 2022 and will amend SSAE No. 18), available at https://us.aicpa.org/ content/dam/aicpa/research/standards/auditattest/ downloadabledocuments/ssae-21.pdf. 628See IAASB ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information, available at https://www.ifac.org/system/files/publications/files/ ISAE%203000%20Revised%20-%20for %20IAASB.pdf. See also IAASB ISAE 3410, Assurance Engagements on Greenhouse Gas Statements, available at https://www.ifac.org/ system/files/publications/files/Basis%20for %20Conclusions%20-%20ISAE%203410%20 Assurance%20Engagements%20on %20Greenhouse%20Gas%20Statements-final_ 0.pdf. 629See, e.g., AICPA SSAE No. 22, AT–C § 210.A16. 630See 15 U.S.C. 7262(b) (requiring a registered public accounting firm that prepares or issues an audit report for certain issuers to attest to, and report on, the assessment made by the management of the issuer with respect to internal controls). 631See proposed 17 CFR 229.1505(c). 632See proposed 17 CFR 229.1505(c)(1) through (13). relevant filing and provided pursuant to standards that are publicly available at no cost and are established by a body or group that has followed due process procedures, including the broad distribution of the framework for public comment.624 The requirement that the standards be established by a body or group that has followed due process procedures would be similar to the requirements for determining a suitable, recognized control framework for use in management’s evaluation of an issuer’s ICFR.625 In both cases, a specific framework is not prescribed but minimum requirements for what constitutes a suitable framework are provided. This approach would help to ensure that the standards upon which the attestation engagement and report are based are the result of a transparent, public, and reasoned process. This requirement should
also help to protect investors who may rely on the attestation report by limiting the standards to those that have been sufficiently developed. Rather than prescribe a particular attestation standard, the proposed approach recognizes that more than one suitable attestation standard exists and that others may develop in the future. In our view, the attestation standards, for example, of the PCAOB,626 AICPA,627 and IAASB628 would meet this due process requirement. In addition, all of these attestation standards are publicly available at no cost to investors who desire to review them. We believe that open access is an important consideration when determining the suitability of attestation standards for application to GHG emissions disclosure because it would enable investors to evaluate the report against the requirements of the selected attestation standard. By highlighting these standards, we do not mean to imply that other standards currently used in voluntary reporting would not be suitable for use under the proposed rules. Our proposal intends to set minimum standards while acknowledging the current voluntary practices of registrants. As noted below, we seek comment on whether other standards currently used in the voluntary climate-related assurance market or that are otherwise under development would meet the proposed due process requirement and also be suitable for application to GHG emissions under the Commission’s proposed rules. The proposed rules would not include any requirement for a registrant to obtain an attestation report covering the effectiveness of internal control over GHG emissions disclosure, and therefore such a report would not be required even when the GHG emissions attestation engagement is performed at a reasonable assurance level. Given the current evolving state of GHG emissions reporting and assurance, we believe that existing DCP obligations, and the proposed requirement that accelerated filers and large accelerated filers initially obtain at least limited assurance of such disclosure, are appropriate first steps toward enhancing the reliability of GHG emissions disclosure. We also note that, under prevailing attestation standards for limited assurance engagements, the testing of and attestation over internal controls are not required.629 With respect to the eventual reasonable assurance engagements, while there are requirements under prevailing attestation standards to consider and obtain an understanding of internal controls, there is no required attestation of the effectiveness of internal controls such as that included in Section 404(b) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act).630 We recognize that the attestation standards that a GHG emissions attestation provider may use would have specific requirements for the form and content of attestation reports. The proposed rules would require a GHG emissions attestation provider to follow the specific requirements regarding form and content of the reports
set forth by the attestation standard (or standards) used by such attestation provider.631 Nevertheless, in order to provide some standardization and comparability of GHG emissions attestation reports, the proposed rules would impose minimum requirements for the GHG emissions attestation report.632 In particular, such minimum report requirements would provide investors with consistent and comparable information about the GHG emissions attestation engagement and report obtained by the registrant when the engagement is conducted by a GHG emissions attestation provider using an attestation standard that may be less widely used or that has less robust report requirements than more prevalent standards. The proposed minimum attestation engagement and report requirements are primarily derived from the AICPA’s attestation standards (e.g., SSAE No. 18), which are commonly used by accountants who currently provide GHG attestation engagement services as well as other non-GHG-related attestation engagement services, and are largely similar to the report requirements under PCAOB AT–101 and IAASB ISAE 3410. Many of the following proposed minimum attestation report requirements are also elements of an accountant’s report when attesting to internal control over financial reporting, of an accountant’s report on audited financial statements (which is conducted at a reasonable assurance level), or of a review report on interim financial statements (which is conducted at a limited assurance level). We explain below each of the proposed minimum components of a GHG emissions attestation report. These are all common elements of current assurance reports and are also similar to elements of other expert reports and legal opinions provided in Commission filings and other transactions. As proposed, the GHG emissions attestation report would be required to include an identification or description of the subject matter or assertion on which the attestation provider is

633See proposed 17 CFR 229.1505(c)(1). 634See, e.g., AICPA SSAE No. 22, AT–C § 210.45(c); AICPA SSAE No. 21, AT–C § 205.63(c). 635See proposed 17 CFR 229.1505(c)(1). 636As previously mentioned, we are soliciting comment regarding whether the GHG emissions should be reported as of fiscal year-end or some other 12-month period. See supra Section II.G.1. 637See proposed 17 CFR 229.1505(c)(2). 638See, e.g., AICPA SSAE No. 18, AT–C § 105.A16 and .A42; AICPA SSAE No. 21, AT–C § 105.A16 and .A44. In addition to relevance and completeness, the characteristics of suitable criteria under ISAE 3000.A23 include reliability, neutrality and understandability. Despite the differences in the characteristics listed, the underlying concepts and objectives are consistent. 639See proposed 17 CFR 229.1505(c)(3). 640See proposed 17 CFR 229.1505(c)(4). 641See proposed 17 CFR 229.1505(a)(2). 642See proposed 17 CFR 229.1505(c)(5). 643See, e.g., PCAOB AS 3101, par. 9(a). 644See proposed 17 CFR 229.1505(c)(6). reporting.633 For example, the attestation report would identify the subject matter as Scope 1 and Scope 2 emissions disclosure. If a registrant voluntarily sought attestation of additional items of disclosure, such as GHG intensity metrics or Scope 3 emissions, the attestation provider would be required to identify those additional items as well in the attestation report. If a registrant has made an assertion about the measurement or evaluation of the subject matter to the attestation provider,634 the attestation report must include such assertion. For example, the attestation report might refer to the registrant’s assertion that the Scope 1 and Scope 2 emissions disclosure included within the filing has been presented in accordance with Item 1504 of Regulation S–K. These proposed minimum requirements would elicit information that is fundamental to understanding the attestation report and would clarify the scope of the attestation report when the scope does not align with the scope of the registrant’s GHG emissions disclosure (e.g., when Scope 3 emissions disclosure is included in the filing but not covered by the attestation report). The proposed rules would also require the GHG emissions attestation report to include the point in time or period of time to which the measurement or evaluation of the subject matter or assertion relates.635 Therefore, the attestation provider would be required to identify the time period to which the Scopes 1 and 2 emissions disclosure (or other additional disclosure) relates, which would be the registrant’s most recently completed fiscal year or some other 12- month period if permitted under the applicable climate-related disclosure rules 636 as well as any relevant historical period disclosure included within the filing. This proposed requirement seeks to avoid any confusion investors may have about which period or periods of the climate￾related disclosures included within the filing are subject to the attestation. The proposed
rules would also require the attestation report to identify the criteria against which the subject matter was measured or evaluated.637 For an attestation report solely covering Scopes 1 and 2 emissions disclosure, the identified criteria would include the requirements in proposed Item 1504 of Regulation S–K and, in particular, Item 1504(a), which includes presentation requirements such as disaggregation by each constituent greenhouse gas. The identified criteria would also include Item 1504(b) and the applicable instructions in Item 1504(e) regarding methodology, organizational boundary, and operational boundary. In other words, this minimum requirement would require an attestation provider to refer to the requirements with which the registrant must comply when making the disclosure that is subject to the attestation. Without the frame of reference provided by the identified criteria, the conclusion or opinion included in the report may be open to individual interpretation and misunderstanding by investors. Prevailing attestation standards require the criteria against which the subject matter is measured or evaluated to be ‘‘suitable.’’ In the context of the proposed rules, suitable criteria would, when followed, result in reasonably consistent measurement or evaluation of the registrant’s disclosure that is within the scope of the engagement. Characteristics of suitable criteria include relevance, objectivity, measurability, and completeness.638 We believe that proposed Item 1504 of Regulation S–K would satisfy the suitable criteria requirements of the prevailing attestation standards because the proposed requirements set forth relevant, objective standards that call for measurable and complete disclosure of GHG emissions that would allow for a consistent evaluation of the registrant’s disclosure. The GHG emissions attestation report would further be required to include a statement that identifies the level of assurance provided and describes the nature of the attestation engagement.639 For example, under the proposed rule, an attestation report providing limited assurance would need to include not only a statement that limited assurance is the provided level of assurance, but also would need to describe the scope of work performed in a limited assurance engagement, which typically would indicate that the procedures performed vary in nature, timing, and extent compared to a reasonable assurance engagement. This proposed minimum requirement would help investors understand the level of assurance provided. The proposed rules would require the attestation report to include a statement that identifies the attestation standard (or standards) used.640 As previously discussed, the standard used must be publicly available at no cost and have been established by a body or group that has followed due process procedures, including the broad distribution of the framework for public comment.641 This minimum report requirement would allow investors to easily
identify the attestation standard that the engagement is executed against, which is particularly important because the proposed rules do not prescribe a particular attestation standard. Understanding the attestation standard used would allow investors to better understand the attestation performed by evaluating the report against the attestation standard’s requirements and would facilitate comparability across the attestation reports of different registrants. The attestation report would also be required to include a statement that describes the registrant’s responsibility to report on the subject matter or assertion being reported on in order to make it clear to investors who is ultimately responsible for the disclosure.642 At a minimum, this proposed provision would require a statement that the registrant is responsible for the subject matter, or its assertion on the subject matter. This proposed requirement, like all of the minimum requirements, has corollaries outside of the GHG emissions context. For example, an independent auditor’s audit report on a registrant’s financial statements is required to include a statement that the registrant’s management is responsible for the financial statements that are being audited.643 The proposed rules would further require the attestation report to include a statement that describes the attestation provider’s responsibilities in connection with the preparation of the attestation report.644 This is consistent with existing requirements in reports such as those issued by the independent auditor on the audited financial statements or a review report on the interim financial statements. For example, with respect to

645See, e.g., AICPA SSAE No.22, AT–C sec. 210.45(f). 646See, e.g., AICPA SSAE No. 21, AT–C sec. 205.63(f) and sec. 206.12(e)(ii). 647See proposed 17 CFR 229.1505(c)(7). 648See supra Section II.H.2. 649See proposed 17 CFR 229.1505(c)(8). 650See proposed 17 CFR 229.1505(c)(9). 651See proposed 17 CFR 229.1505(c)(10). 652See, e.g., AICPA SSAE No. 22, AT–C sec. 210.45(l). 653See, e.g., AICPA SSAE No. 21 AT–C sec. 205.63(k) and sec. 206.12(j). 654See proposed 17 CFR 229.1505(c)(11). 655See proposed 17 CFR 229.1505(c)(12). 656See proposed 17 CFR 229.1505(c)(13). a limited assurance engagement, under prevailing attestation standards, the report would typically include a statement that the attestation provider’s responsibilities include expressing a conclusion on the subject matter or the assertion based on the attestation provider’s review.645 Similarly, for a reasonable assurance engagement, the report would typically include a statement that the attestation provider’s responsibilities include expressing an opinion on the subject matter or assertion, based on the attestation provider’s examination.646 The proposed rules would also require the attestation report to include a statement that the attestation provider is independent, as required by proposed 17 CFR 229.1505(a).647 Because independence from the registrant, including its affiliates, would be a necessary qualification for the GHG emissions attestation provider,648 the attestation report would be required to include the attestation provider’s confirmation of his or her compliance with the proposed independence requirement. The proposed rules would further require the attestation report, for a limited assurance engagement, to include a description of the work performed as a basis for the attestation provider’s conclusion.649 This proposed provision is intended to enhance the transparency of the GHG emissions attestation report for investors by eliciting disclosure about the procedures undertaken by the attestation provider in its limited assurance engagement, such as inquiries and analytical procedures. This information would allow investors to assess and understand the extent of procedures performed to support the conclusion reached by the attestation provider, which could also facilitate an investor’s comparison of different attestation reports provided under the same or different attestation standards. The GHG emissions attestation report would also be required to include a statement that describes any significant inherent limitations associated with the measurement or evaluation of the subject matter (at a minimum, Scopes 1 and 2 emissions) against the criteria (i.e., the applicable requirements in proposed Item 1504).650 Such a statement is a common characteristic of attestation reports, including the independent auditor’s report on internal control over financial reporting. This proposed provision is intended to elicit disclosure about the estimation uncertainties inherent in the
quantification of GHG emissions, driven by reasons such as the state of the science, methodology, and assumptions used in the measurement and reporting processes. For example, an attestation provider might include in its report a statement about measurement uncertainty resulting from accuracy and precision of GHG emission conversion factors. The proposed rules would require the GHG emissions attestation report to include the attestation provider’s conclusion or opinion, as applicable, based on the attestation standard(s) used.651 For a limited assurance engagement, under prevailing attestation standards, the conclusion would typically state whether the provider is aware of any material modifications that should be made to the subject matter in order for the disclosure to be in accordance with (or based on) the requirements specified in Item 1504, or for the registrant’s assertion about such subject matter to be fairly stated.652 For a reasonable assurance engagement, the attestation provider would typically provide an opinion on whether the subject matter is in accordance with (or based on) the requirements specified in Item 1504 in all material respects, or that the registrant’s assertion about its subject matter is fairly stated, in all material respects.653 Finally, the proposed rules would require the GHG emissions attestation report to include the signature of the attestation provider (whether by an individual or a person signing on behalf of the attestation provider’s firm),654 the city and state where the attestation report has been issued,655 and the date of the report.656 These are all common elements of current assurance and expert reports, and each of these proposed provisions would help to identify and confirm the validity of the GHG emissions attestation provider. Request for Comment
154. Should we require the attestation
engagement and related attestation report to be provided pursuant to standards that are publicly available at no cost and are established by a body or group that has followed due process procedures, including the broad distribution of the framework for public comment, as proposed? Is the requirement of ‘‘due process procedures, including the broad distribution of the framework for public comment’’ sufficiently clear? Would the attestation standards of the PCAOB, AICPA, and IAASB meet this due process requirement? Are there other standards currently used in the voluntary climate-related assurance market or otherwise in development that would meet the due process and publicly availability requirements? For example, would verification standards commonly used by non-accountants currently, such as ISO 14064–3 and the AccountAbility’s AA1000 Series of Standards, meet the proposed requirements? Are there standards currently used in the voluntary climate￾related assurance market or otherwise under development that would be appropriate for use under the Commission’s climate-related disclosure rules although they may not strictly meet the proposed public comment requirement? If so, please explain whether those standards have other characteristics that would serve to protect investors?
155. Should we require that the
attestation standards used be publicly available at no cost to investors, as proposed? Should we permit the use of attestation standards, even if not publicly available at no cost, provided that registrants provide access to those standards at the request of their investors?
156. Should we require the GHG
emissions attestation report to meet certain minimum requirements in addition to any form and content requirements set forth by the attestation standard or standards used by the GHG emissions attestation provider, as proposed? Should we instead require that the attestation report solely meet whatever requirements are established by the attestation standard or standards used?
157. Should we adopt each of the
proposed minimum requirements? Are there any proposed requirements that we should omit or add to the proposed list of minimum GHG emissions attestation report requirements?
158. Regarding the proposed
provision requiring the identification of the criteria against which the subject matter was measured or evaluated, would reference to proposed Item 1504(a), Item 1504(b), and Item 1504(e)’s instructions concerning the

657See proposed 17 CFR 229.1505(d).
658See id.
659See supra Section II.H.2.
660 If an accelerated filer or a large accelerated filer voluntarily obtains assurance beyond what would be required by proposed Item 1505(a) and uses a different service provider for such assurance, it would also be required to provide the information required by proposed Item 1505(d) for such service provider. 661See proposed 17 CFR 229.1505(d)(1). 662See proposed 17 CFR 229.1505(d)(2). 663See proposed 17 CFR 229.1505(d)(3). 664For example, the AICPA imposes a minimum five-year documentation retention program for an audit. See AU–C 230.17. Although document retention is less prescriptive for attestation engagements, many attestation providers adhere to the five-year period in practice. presentation, methodology, including underlying assumptions, and organizational and operational boundaries applicable to the determination of Scopes 1 and 2 emissions meet the ‘‘suitable criteria’’ requirement under prevailing attestation standards (e.g., AICPA SSAE No. 18, AT–C 105.A16)?
159. If we require or permit a
registrant to use the GHG Protocol as the methodology for determining GHG emissions, would the provisions of the GHG Protocol qualify as ‘‘suitable criteria’’ against which the Scope 1 and Scope 2 emissions disclosure should be evaluated?
4. Additional Disclosure by the
Registrant
In addition to the minimum attestation report requirements described above, which reflect the contents of attestation reports under prevailing attestation standards, we are proposing to require disclosure by the registrant of certain additional matters related to the attestation of a registrant’s GHG emissions.657 These disclosures are not typically included in an attestation report, and would not be included in the GHG emissions attestation report under the proposed rules. Instead, the registrant would be required to provide these disclosures in the separately captioned ‘‘Climate￾Related Disclosure’’ section, where the GHG emissions disclosure would be provided pursuant to the proposed rules.658 These proposed additional disclosures should assist investors in evaluating the qualifications of the GHG emissions attestation provider selected by the registrant, particularly in light of the broad spectrum of attestation providers that would be permitted to provide an attestation report under the proposed rules.659 We considered requiring the proposed disclosures to be provided in the attestation report but are not proposing to do so because we are concerned such an approach may create confusion by conflicting with prevalent attestation standards. Furthermore, in light of the variety of attestation service providers the registrant is permitted to engage, requiring the registrant to provide such disclosures may allow the registrant to better provide its investors with relevant information about the qualifications of the service provider that the registrant engaged for the GHG emissions attestation. With respect to the Scope 1 and Scope 2 emissions attestation required pursuant to proposed Item 1505(a) for accelerated filers and large accelerated filers,660 the registrant would be required to disclose in the filing, based on relevant information obtained from any GHG emissions attestation provider:

• Whether the attestation provider
  has a license from any licensing or accreditation body to provide assurance, and if so, the identity of the licensing or accreditation body, and whether the attestation provider is a member in good standing of that licensing or accreditation body; 661
• Whether the GHG emissions
  attestation engagement is subject to any oversight inspection program, and if so, which program (or programs); 662 and
• Whether the attestation provider is
  subject to record-keeping requirements with respect to the work performed for the GHG emissions attestation engagement and, if so, identify the record-keeping requirements and the duration of those requirements.663 The first two above items of disclosure would help investors better understand the qualifications of the GHG emissions attestation provider, which in turn could help them assess the reliability of the attestation results. An example of a license from a licensing or accreditation body to provide assurance would be a Certified Public Accountant license issued by a state board of accountancy (e.g., the California Board of Accountancy), while an example of oversight programs would include the AICPA peer review program, among others. The proposed disclosure requirement about any record-keeping requirements to which the attestation provider is subject would help enhance the transparency of the attestation process by providing investors with information about the business practices of the attestation provider that has been retained by the registrant.664 Request for Comment

160. Should we require certain items
     of disclosure related to the attestation of a registrant’s GHG emissions to be provided by the registrant in its filing that includes the attestation report (where the GHG emissions and other climate-related disclosures are presented), based on relevant information obtained from the GHG emissions attestation provider, as proposed? Should these additional items of disclosure instead be included in the attestation report?
161. Should we require the registrant
     to disclose whether the attestation provider has a license from any licensing or accreditation body to provide assurance, and if so, the identity of the licensing or accreditation body, and whether the attestation provider is a member in good standing of that licensing or accreditation body, as proposed? In lieu of disclosure, should we require a GHG emissions attestation provider to be licensed to provide assurance by specified licensing or accreditation bodies? If so, which licensing or accreditation bodies should we specify?
162. Should we require a registrant to
     disclose whether the GHG emissions attestation engagement is subject to any oversight inspection program, and if so, which program (or programs), as proposed? Should we instead require the registrant to disclose whether the attestation engagement is subject to certain specified oversight programs? If so, which oversight programs should we specify?
163. Should we require a registrant to
     disclose whether the attestation provider is subject to record-keeping requirements with respect to the work performed for the GHG emissions attestation engagement and, if so, identify the record-keeping requirements and duration of those requirements, as proposed? In lieu of disclosure, should we specify that the record-keeping requirements of a GHG emissions attestation provider must be of a certain minimum duration, such as three, five, or seven years, or some other period? Should we specify that the record-keeping requirements must include certain reasonable procedures and, if so, what procedures?
164. Disclosure of Voluntary Attestation
     Because GHG emissions reporting and assurance landscapes are both relatively new and evolving as described earlier, at this time, we are proposing to require a registrant, other than a large accelerated filer or an accelerated filer that is 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

665See proposed 17 CFR 229.1505(e)(1). 666See proposed 17 CFR 229.1505(e)(2). 667See proposed 17 CFR 229.1505(e)(3). 668See proposed 17 CFR 229.1505(e)(4). 669See proposed 17 CFR 229.1505(e)(5). 670See proposed 17 CFR 229.1505(e)(6). 671See, e.g., letters from BNP Paribas; Eni SpA; ERM CVS; and Walmart. See also CAQ, S&P 500 and ESG Reporting. 672See proposed 17 CFR 229.1506(a)(1). 673For 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. 674See, 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. the filing the following information if the registrant’s GHG emissions disclosures were subject to third-party attestation or verification:
(i) Identify the provider of such assurance or verification; 665 (ii) Describe the assurance or verification standard used; 666 (iii) Describe the level and scope of assurance or verification provided; 667 (iv) Briefly describe the results of the assurance or verification; 668 (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; 669 and (vi) Disclose any oversight inspection program to which the service provider is subject (e.g., the AICPA’s peer review program).670 Taken together, these proposed disclosure items should help investors understand the nature and reliability of the attestation or verification provided and help them assess whether the voluntary assurance or verification has enhanced the reliability of the GHG emissions disclosure. We are limiting the proposed assurance disclosure requirement to a registrant’s GHG emissions disclosure because registrants are more likely to obtain assurance voluntarily for this disclosure item than for other climate-related disclosures.671 The proposed approach should mitigate the compliance burden of the proposed GHG emissions disclosure rules, taking into consideration the proportionate compliance costs that may impact accelerated and large accelerated filers versus other types of filers, while providing transparency for investors about the level and reliability of the assurance or verification, if any, provided on the GHG emissions disclosures. 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. 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

675See supra note 66 (referencing The Wall Street Journal (Nov. 5, 2021)). 676See, 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). 677See proposed 17 CFR 229.1506(b)(1) through (6). 678See proposed 17 CFR 229.1506(b)(3). 679See proposed 17 CFR 229.1506(b)(4). 680See proposed 17 CFR 229.1506(b)(5). 681See proposed 17 CFR 229.1506(b)(6). 682See proposed 17 CFR 229.1506(b)(6). 683See proposed 17 CFR 229.1502. 684See proposed 17 CFR 229.1506(c). 685See id. 686See proposed 17 CFR 229.1506(d). 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. 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 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. 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. 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 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. 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

687See, e.g., letter from Dimensional Fund Advisors. 688 15 U.S.C. 78m(a). 689 15 U.S.C. 78o(d). offset could also help to mitigate instances of greenwashing.687 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