The Enhancement and Standardization of Climate-Related Disclosures for Investors

SECURITIES AND EXCHANGE
COMMISSION
17 CFR 210, 229, 230, 232, 239, and 249 [Release Nos. 33–11275; 34–99678; File No. S7–10–22] RIN 3235–AM87 The Enhancement and Standardization of Climate-Related Disclosures for Investors AGENCY: Securities and Exchange Commission. ACTION: Final rules. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’) is adopting amendments to its rules under the Securities Act of 1933 (‘‘Securities Act’’) and Securities Exchange Act of 1934 (‘‘Exchange Act’’) that will require registrants to provide certain climate￾related information in their registration statements and annual reports. The final rules will require information about a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in a registrant’s audited financial statements. DATES:
Effective date: These final rules are effective on May 28, 2024. Compliance date: See section II.O. for further information on transitioning to the final rules. FOR FURTHER INFORMATION CONTACT:
Elliot Staffin, Senior Special Counsel, and Kristin Baldwin, Special Counsel, Office of Rulemaking, at (202) 551– 3430, in the Division of Corporation Finance; or Erin Nelson, Senior Special Counsel, and Meagan Van Orden, Professional Accounting Fellow, in the Office of the Chief Accountant, at (202) 551–5300, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adopting amendments to or adding the following rules and forms:
Commission reference CFR citation (17 CFR)
Regulation S–X .................................................. Article 8–01 ......................................................
Article 14–01 ....................................................
Article 14–02 ....................................................
§ 210.8–01
§ 210.14–01
§ 210.14–02
Regulation S–K .................................................. Items 1500 through 1508 .................................
Item 601 ...........................................................
§§ 229.1500 \through 229.1508 § 229.601 Regulation S–T .................................................. Item 405 ........................................................... § 232.405
Securities Act 1 .................................................. Rule 436 ...........................................................
Form S–1 ..........................................................
Form S–3 ..........................................................
Form S–11 ........................................................
Form S–4 ..........................................................
Form F–3 ..........................................................
Form F–4 ..........................................................
§ 230.436
§ 239.11
§ 239.13
§ 239.18
§ 239.25
§ 239.33
§ 239.34
Exchange Act 2 .................................................. Form 10 ............................................................
Form 20–F ........................................................
Form 10–Q .......................................................
Form 10–K ........................................................
§ 249.210
§ 249.220f
§ 249.308a
§ 249.310
1 15 U.S.C. 77a et seq. 2 15 U.S.C. 78a et seq.
Table of Contents
I. Introduction
A. Need for Enhanced and Standardized Climate-Related Disclosures B. Summary of the Final Rules

1. Content of the Climate-Related
   Disclosures
2. Presentation and Submission of the
   Climate-Related Disclosures
3. Safe Harbor for Certain Climate-Related
   Disclosures
4. Phase in Periods
   II. Discussion
   A. Overview and Purpose of the Climate￾Related Disclosure Rules
5. Proposed Rules
6. Comments
7. Final Rules
   B. Commission Authority To Adopt Disclosure Rules
   C. Disclosure of Climate-Related Risks
8. Definitions of Climate-Related Risks and
   Climate-Related Opportunities (Items 1500 and 1502(a))
9. Time Horizons and the Materiality
   Determination (Item 1502(a)) D. Disclosure Regarding Impacts of Climate-Related Risks on Strategy, Business Model, and Outlook
10. Disclosure of Material Impacts (Item
    1502(b), (c), and (d))
11. Transition Plan Disclosure (Items 1500
    and 1502(e))
12. Disclosure of Scenario Analysis If Used
    (Items 1500 and 1502(f))
13. Disclosure of a Maintained Internal
    Carbon Price (Item 1502(g)) E. Governance Disclosure
14. Disclosure of Board Oversight (Item
    1501(a))
15. Disclosure of Management Oversight
    (Item 1501(b))
    F. Risk Management Disclosure (Item 1503)
16. Proposed Rule
17. Comments
18. Final Rule
    G. Targets and Goals Disclosure (Item 1504)
19. Proposed Rule
20. Comments
21. Final Rule
    H. GHG Emissions Disclosure (Item 1505)
22. Proposed Rule
23. Comments
24. Final Rule
    I. Attestation Over GHG Emissions
    Disclosure (Item 1506)
25. Overview
26. GHG Emissions Attestation Provider
    Requirements
27. GHG Emissions Attestation Engagement
    and Report Requirements (Item 1506(a)(2) and (c))
28. Additional Disclosure by the Registrant
    (Item 1506(d))
29. Disclosure of Voluntary Assurance (Item
    1506(e))
    J. Safe Harbor for Certain Climate-Related Disclosures (Item 1507)
30. Proposed Rules
31. Comments
32. Final Rules
    K. Financial Statement Effects (Article 14)
33. Introduction
34. Financial Impact Metrics
35. Expenditure Effects
36. Financial Estimates and Assumptions
    (Rule 14–02(h))
37. Opportunities
38. Financial Statement Disclosure
    Requirements
39. Inclusion of Disclosures in the Financial
    Statements (Rule 14–01(a))

3See infra section I.A. For purposes of this release, we use the terms ‘‘public companies,’’ ‘‘companies,’’ ‘‘registrants,’’ and ‘‘issuers’’ interchangeably and, unless explained in the text, the use of different terms in different places is not meant to connote a significant difference. 4See, e.g., Center for Capital Markets, 2021 Survey Report: Climate Change & ESG Reporting from the Public Company Perspective, available at https://www.centerforcapitalmarkets.com/wp￾content/uploads/2021/08/CCMC_ESG_Report_ v4.pdf, discussed infra in Section IV.A.5. 5See infra notes 2638–2639 and accompanying text. 6See infra notes 2675–2676 and accompanying text. 7See infra note 2666 and accompanying text. 8See infra note 2683 and accompanying text. 9See, e.g., infra sections I.A (discussing certain international initiatives) and II.A.3 (discussing the Inflation Reduction Act and recent California laws). 10See, e.g., Task Force on Climate-related Financial Disclosures, About, available at https:// www.fsb-tcfd.org/about/; CDP Worldwide (‘‘CDP’’), About us, available at https://www.cdp.net/en/info/ about-us; Sustainability Accounting Standards Board (‘‘SASB’’) Standards, About us, available at https://sasb.org/about/; and Global Reporting Initiative (‘‘GRI’’), About GRI, available at https:// www.globalreporting.org/about-gri/. See also infra notes 148–151.
L. Registrants Subject to the Climate￾Related Disclosure Rules and Affected
Forms

1. Proposed Rules
2. Comments
3. Final Rules
   M. Structured Data Requirement (Item 1508)
4. Proposed Rules
5. Comments
6. Final Rules
   N. Treatment for Purposes of the Securities Act and the Exchange Act
7. Proposed Rules
8. Comments
9. Final Rules
   O. Compliance Date
10. Proposed Rules
11. Comments
12. Final Rules
    III. Other Matters
    IV. Economic Analysis
    A. Baseline and Affected Parties
13. Affected Parties
14. Current Commission Disclosure
    Requirements
15. Existing State and Other Federal Laws
16. International Disclosure Requirements
17. Current Market Practices
    B. Broad Economic Considerations
18. Investor Demand for Additional Climate
    Information
19. Current Impediments to Climate
    Disclosures
    C. Benefits and Costs
20. General Discussion of Benefits and Costs
21. Analysis of Specific Provisions
22. Quantifiable Direct Costs on Registrants
    D. Other Economic Effects E. Effects on Efficiency, Competition, and Capital Formation
23. Efficiency
24. Competition
25. Capital Formation
    F. Reasonable Alternatives
26. Adopt a More (or Less) Principles-Based
    Approach to Regulation S–K Disclosures
27. Different Approaches to Assurance Over
    GHG Emissions Disclosures
28. Different Thresholds for Financial
    Statement Disclosures
29. Permit Disclosures To Be Furnished
    Rather ThanFiled
30. Exempt SRCs/EGCs
31. Permit Registrants To Rely on Home￾Country Disclosure Frameworks/
    Substituted Compliance
32. Alternative Tagging Requirements
    V. Paperwork Reduction Act
    A. Summary of the Collections of Information B. Current Inventory Update To Reflect $600 per Hour Rather Than $400 per Hour Outside Professional Costs Rate
    C. Summary of Comment Letters
    D. Sources of Cost Estimates E. Incremental and Aggregate Burden and Cost Estimates of the Final Rules
33. Calculation of the Paperwork Burden
    Estimates of the Final Rules
34. Estimated Number of Affected
    Respondents
35. Summary of the Estimated Burden Hour
    and Cost Increases Resulting From the Final Rules
    VI. Final Regulatory Flexibility Act Analysis
    A. Need for, and Objectives of, the Final Amendments B. Significant Issues Raised by Public Comments
36. Estimate of Affected Small Entities and
    Impact to Those Entities
37. Consideration of Alternatives
    C. Small Entities Subject to the Final
    Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities Statutory Authority
    I. Introduction
    Climate-related risks, their impacts, and a public company’s response to those risks can significantly affect the company’s financial performance and position.3 Accordingly, many investors and those acting on their behalf— including investment advisers and investment management companies— currently seek information to assess how climate-related risks affect a registrant’s business and financial condition and thus the price of the registrant’s securities. Investors also seek climate-related information to assess a registrant’s management and board oversight of climate-related risks so as to inform their investment and voting decisions. In light of these investor needs, the Commission is adopting rules to require registrants to provide certain information about climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, the registrant’s business strategy, results of operations, or financial condition; the governance and management of such risks; and the financial statement effects of severe weather events and other natural conditions in their registration statements and annual reports. This information, alongside disclosures on other risks that companies face, will assist investors in making decisions to buy, hold, sell, or vote securities in their portfolio. Many companies currently provide some information regarding climate￾related risks. For example, as discussed in more detail in section IV.A.5 below, some studies show that a third of public companies disclose information about climate-related risks, mostly outside of Commission filings,4 and nearly 40 percent of all annual reports contain some climate-related discussion.5 In addition, Commission staff analysis found that approximately 20 percent of public companies provide some information regarding their Scope 1 and 2 greenhouse gas (‘‘GHG’’) emissions, often outside of Commission filings, with the highest rate of emissions disclosures found among large accelerated filers.6 Among companies in the Russell 1000 Index, based on one analysis, these numbers are even higher, with 90 percent publicly disclosing some climate-related information 7 and almost 60 percent providing disclosures regarding their GHG emissions.8 The climate-related information that these companies currently provide, however, is inconsistent and often difficult for investors to find and/or compare across companies. As a result, investors have expressed the need for more detailed, reliable, and comparable disclosure of information regarding climate-related risks. The requirements adopted in this release meet that need by providing more complete and decision-useful information about the impacts of climate-related risks on registrants, improving the consistency, comparability, and reliability of climate￾related information for investors. As a result, investors will be able to make more informed investment and voting decisions. As discussed in more detail throughout this release,
    disclosure of certain climate-related matters is required in a number of Federal, State, and foreign jurisdictions.9 Companies currently often provide much of this information outside of Commission filings, in varying levels of detail, and in different documents and formats. Additionally, because of the importance of this information to investors, a variety of third parties have developed climate-related reporting frameworks.10 Use of reporting frameworks is also often voluntary. Companies may disclose certain information under one

11See, e.g., letters from AllianceBernstein (June 17, 2022) (‘‘AllianceBernstein’’); Attorneys General from California and 19 other states (June 17, 2022) (‘‘AGs of Cal. et al.’’); California Public Employees’ Retirement System (June 15, 2022) (‘‘CalPERS’’); California State Teachers’ Retirement System (June 17, 2022) (‘‘CalSTRS’’); Ceres (June 17, 2022) (‘‘Ceres’’); Domini Impact Investments (June 17,
2022) (‘‘Domini Impact’’); Trillium Asset
Management (Oct. 20, 2022) (‘‘Trillium’’); and Wellington Management Company (June 17, 2022) (‘‘Wellington Mgmt.’’); see also Proposing Release,
section I.B, note 42 and accompanying text; and
infra section IV.C. We discuss investors’ need for more consistent, comparable, and decision-useful disclosure about registrants’ climate-related risks in Sections I.A and II.A.3 below. 12See infra notes 202–203 and accompanying text. 13See Commission Guidance Regarding Disclosure Related to Climate Change, Release No. 33–9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8, 2010)] (‘‘2010 Guidance’’); and discussion infra notes 204– 205 and accompanying text. See also infra section II.B. 14See, e.g., letters from AllianceBernstein; Alphabet, Autodesk, Dropbox, eBay, Hewlett Packard Enterprise, HP Inc., Intel, Meta, PayPal, and Workday (June 17, 2022) (‘‘Alphabet et al.’’); Amazon (June 17, 2022); CalPERS; CalSTRS; Eni SpA (June 16, 2022) (‘‘Eni SpA’’); Pacific Investment Management Company (June 17, 2022) (‘‘PIMCO’’); PricewaterhouseCoopers (June 17,
2022) (‘‘PwC’’); and Wellington Mgmt. See also
infra note 28 (discussing the Financial Stability Oversight Council’s (‘‘FSOC’s’’) Report on Climate￾Related Financial Risk 2021). 15See The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release No. 33–11042 (Mar. 21, 2022) [87 FR 21334 (Apr. 11, 2022)] (‘‘Proposing Release’’). 16See infra Section II.A.3 for a discussion of recent foreign and state regulatory developments regarding the disclosure of climate-related risks, including the announcement by several countries of their intention to adopt laws or regulations implementing the International Sustainability Standards Board’s (‘‘ISSB’’) climate reporting standard in whole or part; and certain recent California laws requiring the disclosure of climate￾related risks and greenhouse gas emissions by certain large companies. 17Even after adoption of the final rules, the 2010 Guidance will still be relevant because it discusses existing Commission rules, such as those pertaining to a registrant’s description of its business and certain legal proceedings, which require disclosure regarding, among other things, compliance with environmental laws and regulations that are only tangentially mentioned in this rulemaking. Registrants should continue to consider the 2010 Guidance as they evaluate their disclosure obligations in their Description of Business, Risk Factors, Legal Proceedings, and Management’s Discussion and Analysis. These disclosures should be based on the registrant’s specific facts and circumstances. 18See infra section I.B. 19These comments are available at https:// www.sec.gov/comments/s7-10-22/s71022.htm. Unless otherwise noted, comments referenced in this release pertain to these comments. or more frameworks, may provide only partial disclosures, or may choose not to provide consistent information year over year. As a result, reporting is fragmented and difficult for investors to compare across companies or across reporting periods. As commenters have indicated, this lack of consistency and comparability increases costs to investors in obtaining and analyzing decision-useful information and impairs investors’ ability to make investment or voting decisions in line with their risk preferences.11 Investors have asked for this information in Commission filings, alongside other disclosures on the business, results of operations, and financial condition of a registrant and information on the other risks companies face to their business, finances, and operations. Requiring these additional disclosures in Commission filings will allow investors to evaluate together the range of risks that a company faces, the existing and potential impacts of those risks, and the way that company management assesses and addresses those risks. Providing these disclosures in Commission filings also will subject them to enhanced liability that provides important investor protections by promoting the reliability of the disclosures. The Commission has required disclosure of certain
environmental matters for the past 50 years,12 most recently issuing guidance in 2010 (‘‘2010 Guidance’’) on how existing rules may require disclosure of climate￾related risks and their impacts on a registrant’s business or financial condition.13 Since the Commission issued the 2010 Guidance, there has been growing recognition that climate￾related risks affect public companies’ business, results of operations, and financial condition.14 Our experience with the 2010 Guidance and current practices regarding disclosure of this information led us to conclude that, although many companies disclose some climate-related information, there was a need to both standardize and enhance the information available to investors about such matters and thus to propose an updated approach.15 Since the proposal, ongoing regulatory developments and market practices with respect to disclosure of climate-related risks have only underscored the need for enhanced disclosure requirements in this area.16 Although current disclosure practices elicit some useful information about climate-related risks, there remain significant deficiencies in the consistency and completeness of this information. We have therefore concluded that additional requirements are appropriate to ensure that investors have access to more complete and reliable information that will enable them to make informed investment and voting decisions.17 The rules that we are adopting respond to investors’ concerns regarding the adequacy of current disclosure practices while taking into account comments received on the proposed rules. In general terms, the final rules will elicit enhanced and more consistent and comparable disclosure about the material risks that companies face and how companies manage those risks by requiring:

• A description of any climate-related
  risks that have materially impacted or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, and financial condition, as well as the actual or potential material impacts of those same risks on its strategy, business model, and outlook;
• Specified disclosures, regarding a
  registrant’s activities, if any, to mitigate or adapt to a material climate-related risk or use of transition plans, scenario analysis or internal carbon prices to manage a material climate-related risk;
• Disclosure about any oversight by
  the registrant’s board of directors of climate-related risks and any role by management in assessing and managing material climate-related risks;
• A description of any processes the
  registrant uses to assess or manage material climate-related risks; and
• Disclosure about any targets or
  goals that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. In addition, to facilitate investors’ assessment of particular types of risk, the final rules require:
• Disclosure of Scope 1 and/or Scope
  2 emissions on a phased in basis by certain larger registrants when those emissions are material, and the filing of an attestation report covering the required disclosure of such registrants’ Scope 1 and/or Scope 2 emissions, also on a phased in basis; and
• Disclosure of the financial
  statement effects of severe weather events and other natural conditions including costs and losses. A further summary of the final rules is presented below.18 In crafting the final rules, we benefited from extensive public comments. We received over 4,500 unique comment letters on the proposed climate-related disclosure rules and over 18,000 form letters.19 Commenters included academics, accounting and audit firms, individuals, industry groups, investor groups, law firms, non￾governmental organizations, pension funds, professional climate advisors, professional investment advisers and investment management companies, registrants, standard-setters, state

20See U.S. Securities and Exchange Commission Investor Advisory Committee Recommendation Related to Climate-Related Disclosure Rule Proposals (Sept. 21, 2022), available at https:// www.sec.gov/spotlight/investor-advisory￾committee-2012/20220921-climate-related￾disclosure-recommendation.pdf ‘‘IAC Recommendation’’). Specifically, the Investor Advisory Committee recommended the following changes to the proposed rules, as discussed in more detail in section II below: (1) adding a requirement for ‘‘Management Discussion of Climate-Related Risks & Opportunities’’; (2) requiring disclosure of material facility locations; and (3) eliminating the proposed requirement around board expertise. In addition to the IAC Recommendation, in June 2022, the Investor Advisory Committee held a meeting that included a panel discussion regarding climate disclosures. See the minutes for that meeting, including the panelists that participated in the discussion, at https://www.sec.gov/spotlight/ investor-advisory-committee-2012/iac060922- minutes.pdf. The Investor Advisory Committee was established in Apr. 2012 pursuant to section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. L. 111–203, sec. 911, 124 Stat. 1376, 1822 (2010)] (‘‘Dodd-Frank Act’’) to advise and make recommendations to the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. 21An EGC is a registrant that had total annual gross revenues of less than $1.235 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 under Titles I and III of the JOBS Act, Release No. 33–11098 (Sep. 9, 2022) [87 FR 57394 (Sep. 20, 2022)]. 22An SRC is an issuer that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not an SRC 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. 17 CFR 229.10 (defining SRC and also providing how and when an issuer determines whether it qualifies as an SRC); 17 CFR 230.405 (same); 17 CFR 240.12–2 (same). 23See U.S. Securities and Exchange Commission Small Business Capital Formation Advisory Committee Recommendation Regarding the Enhancement and Standardization of Climate￾Related Disclosures for Investors (July 13, 2022), available at https://www.sec.gov/spotlight/sbcfac/ sbcfac-climate-related-disclosures￾recommendation-050622.pdf (‘‘SBCFAC Recommendation’’). In addition, the Small Business Capital Formation Advisory Committee highlights
generally in its parting perspectives letter that ‘‘exemptions, scaling, and phase-ins for new requirements where appropriate, allows smaller companies to build their businesses and balance the needs of companies and investors while promoting strong and effective U.S. public markets.’’ See Parting Perspectives Letter, U.S. Securities and Exchange Commission Small Business Capital Formation Advisory Committee (Feb. 28, 2023), available at https://www.sec.gov/files/committee￾perspectives-letter-022823.pdf. Finally, we note that participants in the Commission-hosted Small Business Forum in 2023 recommended that the Commission revise the proposed rules to exempt SRCs, non-accelerated filers, EGCs, and other midsized companies and to consider scaling and delayed compliance (‘‘Small Business Forum Recommendation (2023)’’); participants in 2022 and 2021 Small Business Forums similarly recommended the Commission provide exemptions or scaled requirements for small and medium-sized companies in connection with any new ESG disclosure requirements adopted by the Commission. See Report on the 42nd Annual Small Business Forum (April 2023), available at https:// www.sec.gov/files/2023_oasb_annual_forum_ report_508.pdf; Report on the 41st Annual Small Business Forum (April 2022), available at https:// www.sec.gov/files/2022-oasb-annual-forum￾report.pdf; and Report on the 40th Annual Small Business Forum (May 2021), available at https:// www.sec.gov/files/2021_OASB_Annual_Forum_ Report_FINAL_508.pdf. See also U.S. Securities and Exchange Commission Office of the Advocate for Small Business Capital Formation, Annual Report Fiscal Year 2023 (‘‘2023 OASB Annual Report’’), available at https://www.sec.gov/files/2023-oasb￾annual-report.pdf, at 84–85 (recommending generally that in engaging in rulemaking that affects small businesses, the Commission tailor the disclosure and reporting framework to the complexity and size of operations of companies, either by scaling obligations or delaying compliance for the smallest of the public companies). The Small Business Capital Formation Advisory Committee was established in Dec. 2016 pursuant to the Small Business Advocate Act of 2016 [Public Law 114– 284 (2016)] to advise the Commission on rules, regulations, and policies with regard to the Commission’s mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, as such rules, regulations, and policies relate to: capital raising by emerging, privately held small businesses (‘‘emerging companies’’) and publicly traded companies with less than $250,000,000 in public market capitalization (‘‘smaller public companies’’) through securities offerings, including private and limited offerings and initial and other public offerings; trading in the securities of emerging companies and smaller public companies; and public reporting and corporate governance requirements of emerging companies and smaller public companies. 24See
infra section I.B for a summary of changes from the proposed rules, including the addition of materiality qualifiers in certain rule provisions and revisions to make the final rules less prescriptive. 25See Proposing Release, section I. 26Throughout this release, we refer to investors to include retail investors, institutional investors, and other market participants (such as financial analysts, investment advisers, and portfolio Continued government officials, and U.S. Senators and Members of the House of Representatives. Many commenters generally supported the proposal to require climate-related disclosure. Others opposed the proposed rules in whole or in part. In addition, the Commission’s Investor Advisory Committee offered broad support for the proposal, with recommendations for certain modifications to the proposed rules, as discussed in more detail below.20 The Commission’s Small Business Capital Formation Advisory Committee made several recommendations, including that the Commission exempt emerging growth companies (‘‘EGCs’’) 21 and smaller reporting companies (‘‘SRCs’’) 22 from the final rules or otherwise adopt scaled climate-related disclosure requirements for EGCs and SRCs.23 We considered comments that were supportive as well as those that were critical of aspects of the proposed rules, including comments from investors as to the information they need to make informed investment or voting decisions, as well as concerns expressed by registrants, trade associations, and others with regard to compliance burdens, liability risk, and our statutory authority. After considering all comments, we are adopting final rules with modifications from the proposal to better effectuate our goals in requiring these additional disclosures while limiting the final rules’ burdens on registrants.24 As the Commission explained when proposing the climate disclosure rules,25 while climate-related issues are subject to various other regulatory schemes, our objective is limited to advancing the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation by providing disclosure to investors of information important to their investment and voting decisions. We are adopting the final rules to advance these investor protection, market efficiency and capital formation objectives, consistent with our statutory authority, and not to address climate-related issues more generally. The final rules should be read in that context. Thus, for example, in those instances where the rules reference materiality—consistent with our existing disclosure rules and market practices—materiality refers to the importance of information to investment and voting decisions about a particular company, not to the importance of the information to climate-related issues outside of those decisions. The Commission has been and remains agnostic about whether or how registrants consider or manage climate￾related risks. Investors have
expressed a need for this information on risks in valuing the securities they currently hold or are considering purchasing. While we recognize that the rules will impose burdens on registrants, we note that the degree of that burden will vary depending upon the circumstances facing individual registrants, as not every registrant will be required to provide all disclosures specified under the final rules. Moreover, as discussed further throughout the release, we believe that those burdens are justified by the informational benefits of the disclosures to investors. A. Need for Enhanced and Standardized Climate-Related Disclosures The importance of climate-related disclosures for investors has grown as investors,26 companies, and the markets

managers) that use disclosures in Commission filings as part of their analysis and to help investors. 27The Commission has a long history of requiring disclosures to investors of information about risks facing registrants. See infra notes 184–191 and accompany text for a discussion of that history. In that time, the Commission has described those risks using differently terminology, but has largely focused on the same concepts. See, e.g., 17 CFR 229.105(a) (Where appropriate, provide under the caption ‘‘Risk Factors’’ a discussion of the material factors that make an investment in the registrant or offering speculative or risky.); Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments, Release No. 33–7386 (Jan. 31, 1997) [62 FR 6044 at n.12 (Feb. 10, 1997)] (Requiring disclosure of qualitative and quantitative information about market risk for derivatives and other financial instruments; Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices, and other relevant market rate or price changes (e.g., equity prices).); Guides for Preparation and Filing of Registration Statements, Release No. 33–4666 (Feb. 7, 1964) [29 FR 2490, 2492 (Feb. 15, 1964)] (In many instances the securities to be offered are of a highly speculative nature. The speculative nature may be due to such factors as an absence of operating history of the registrant, an absence of profitable operations in recent periods, the financial position of the registrant or the nature of the business in which the registrant is engaged or proposes to engage. . . In such instances, and particularly where a lengthy prospectus cannot be avoided, there should be set forth immediately following the cover page of the prospectus a carefully organized series of short, concise paragraphs summarizing the principal factors which make the offering speculative with references to other parts of the prospectus where complete information with respect to such factors is set forth.). 28For example, FSOC’s Report on Climate￾Related Financial Risk 2021 found that investors and businesses 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. See 2021 FSOC Report, Chapter 1: From Climate-Related Physical Risks to Financial Risks; From Climate-related Transition Risks to Financial Risks. In 2023 FSOC repeated its concern that climate-related risks are an emerging and increasing threat to U.S. financial stability and stated that climate-related financial risk can
manifest as and amplify traditional risks, such as credit, market, liquidity, operational, compliance, reputational, and legal risks. See FSOC, Annual Report 2023; see also letters from AGs of Cal. et al.; Ceres; PIMCO; and Wellington Mgmt; infra note 99 and accompanying text. 29See, e.g., Greg Ritchie, Bloomberg, 90% of World’s Biggest Firms Will Have at Least One Asset Exposed to Climate Risk, Fresh Data Show (Sept. 15, 2022) (stating that over 90% of the world’s largest companies will have at least one asset financially exposed to climate risks such as wildfires or floods by the 2050s, and more than a third of those companies will see at least one asset lose 20% or more of its value as a result of climate￾related events). 30See, e.g., McKinsey & Company, How electric vehicles will shape the future (Apr. 23, 2022), available at https://www.mckinsey.com/featured￾insights/themes/how-electric-vehicles-will-shape￾the-future (predicting that by 2035, the major automotive markets will be fully electric). 31See, e.g., Amrith Ramkumar, Wall Street Journal, JPMorgan Makes One of the Biggest Bets Ever on Carbon Removal (May 23, 2023), available at https://www.wsj.com/articles/jpmorgan-makes￾one-of-the-biggest-bets-ever-on-carbon-removal￾c7d5fe63 (noting that ‘‘JPMorgan Chase has agreed to invest more than $200 million to purchase credits from several companies in the nascent [carbon removal] industry’’). 32See, e.g., BlackRock, Managing the net-zero transition (Feb. 2022), available at https:// www.blackrock.com/corporate/literature/ whitepaper/bii-managing-the-net-zero-transition￾february-2022.pdf (‘‘On top of physical climate risks, companies and asset owners must now grapple with the transition [to a net-zero economy]. Economies will be reshaped as carbon emissions are cut. The transition will involve a massive reallocation of resources. Supply and demand will shift, with mismatches along the way. Value will be created and destroyed across companies.’’). 33See United Nations, Net Zero, available at https://www.un.org/en/climatechange/net-zero￾coalition (‘‘More than 140 countries, including the biggest polluters—China, the United States, India and the European Union—have set a net-zero target. . . .’’). 34See, e.g., Press Statement, Antony J. Blinken, Secretary of State, The United States Officially Rejoins the Paris Agreement (Feb. 19, 2021), available at https://www.state.gov/the-united-states￾officially-rejoins-the-paris-agreement/. Over 190 countries have signed the Paris Climate Agreement, which aims to limit global temperature rise. 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 including the U.S. formed a coalition to reduce methane emissions by 30% by 2030. See David Worford, COP26 Net Zero Commitments will Speed Energy Transition, Increase Pressure on Industries, According to Moody’s Report, Environment+Energy Leader
(Nov. 17, 2021), available at https://www.environment energyleader.com/2021/11/cop26-net-zero￾commitments-will-speed-energy-transition-increase￾pressure-on-industries-according-to-moodys-report/ . At COP27, participating countries (which included the U.S.) reaffirmed their commitment to limit global temperature rise and agreed to provide ‘‘loss and damage’’ funding for vulnerable countries hit hard by climate disasters. See United Nations Climate Change, COP27 Reaches Breakthrough Agreement on New ‘‘Loss and Damage’’ Fund for Vulnerable Countries (Nov. 20, 2022), available at https://unfccc.int/news/cop27-reaches￾breakthrough-agreement-on-new-loss-and-damage￾fund-for-vulnerable-countries. More recently, at COP 28, participating countries (which included the U.S.) signed an agreement that includes commitments for ‘‘deep emissions cuts and scaled￾up finance.’’ See United Nations Climate Change, COP28 Agreement Signals ‘‘Beginning of the End’’ of the Fossil Fuel Era (Dec. 13, 2023), available at https://unfccc.int/news/cop28-agreement-signals￾beginning-of-the-end-of-the-fossil-fuel-era. 35See, e.g., letter from Eni SpA (‘‘[C]ompanies should discuss the reference scenario in which they are acting, providing information about any emerging trends, demands, uncertainties, commitments or events that are reasonably likely to have material impacts on the company’s future profitability and growth prospects in dependence of likely or possible evolution of the regulatory or competitive environment in response to the global need to achieve the goals of the Paris Agreement.’’); see also infra note 108 and accompanying text (citing comment letters that stated that, as governments and registrants have increasingly made pledges and enacted laws regarding a transition to a lower carbon economy, more consistent and reliable climate-related disclosure has become particularly important to help investors assess the reasonably likely financial impacts to a registrant’s business, results of operations, and financial condition in connection with such governmental pledges or laws and the related financial and operational impacts of a registrant’s progress in achieving its publicly announced, climate-related targets and goals). 36See infra section II.C for examples of Federal law and State regulation that may be sources of climate-related risk, particularly transition risk, for registrants. 37See, e.g., infra notes 99–106 and accompanying text. have recognized that climate-related risks 27 can affect a company’s business and its current and longer-term financial performance and position in numerous ways.28 Climate-related natural disasters can damage issuers’ assets, disrupt their operations, and increase their costs.29 Any widespread market-based transition to lower carbon products, practices, and services—triggered, for example, by recent or future changes in consumer preferences 30 or the availability of financing, technology, and other market forces 31—can lead to
material changes in a company’s business model or strategy and may have a material impact on a registrant’s financial condition or operations.32 In addition to these market forces, changes in law, regulation, or policy may prompt companies to transition to lower carbon products, practices, and services. For example, governments including the United States and others throughout the world have made public commitments to transition to a lower carbon economy.33 Efforts towards meeting GHG reduction goals 34 could have financial effects that materially impact registrants.35 Recently both the Federal Government and several State governments have adopted or proposed laws and regulations that incentivize companies to reduce their GHG emissions and transition to a lower carbon economy in a variety of ways.36 How a registrant assesses and plans in response to such legislative and regulatory efforts and going forward complies with such laws and regulations, may have a significant impact on its financial performance and investors’ return on their investment in the company. Further, as reflected in comments received in response to the proposed rules and as discussed throughout this release, investors seek to assess the climate-related risks that registrants face and evaluate how registrants are measuring and responding to those risks.37 Effective disclosures regarding climate-related risks can help investors better assess how registrants are measuring and responding to those

38See, e.g., letters from AllianceBernstein; BlackRock, Inc. (June 17, 2022) (‘‘BlackRock’’); CalPERS; CalSTRS; Calvert Research and Management (June 17, 2022) (‘‘Calvert’’); Decatur Capital Management (May 29, 2022); Domini Impact; Harvard Management Company (June 6,
2022) (‘‘Harvard Mgmt.’’); Impax Asset Management
(May 12, 2022) (‘‘Impax Asset Mgmt.’’); Trillium; and Wellington Mgmt. But see, e.g., letters from the U.S. Chamber of Commerce (June 16, 2022) (‘‘Chamber’’) (June 16, 2022); National Association of Manufacturers (June 6, 2022) (‘‘NAM’’) (June 6, 2022); and Society for Corporate Governance (June 17, 2022) (‘‘Soc. Corp. Gov.’’). 39See, e.g., supra notes 28–32. 40Although some commenters stated that only institutional investors have demanded that the Commission adopt climate-related disclosure requirements, see, e.g., letters from Chamber and Soc. Corp. Gov., most individual retail investors and firms advising such investors who submitted comments supported the proposed rules. See, e.g., letters from Barry Gillespie (June 8, 2022); Betterment (June 17, 2022); Helene Marsh (June 7, 2022); and Rodney Smith (June 13, 2022); see also letter from Investment Company Institute (June 17,
2022) (‘‘ICI’’) (supporting ‘‘key components of the
proposal’’ and noting that its ‘‘members, US regulated funds . . . serv[e] more than 100 million investors’’ and ‘‘clearly have a significant interest in how the nature and availability of climate-related risk information provided by public companies evolves’’ and ‘‘analyze this, and other, information in formulating their investment decisions on behalf of those millions of long-term individual investors’’). 41See Proposing Release, section I.C.1 for a discussion of some of these investor-led initiatives. Among other initiatives discussed in the Proposing Release, 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. See 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. 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 $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. See 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￾Statementto-Governments-on-the-Climate￾Crisis.pdf. But see letter from Lawrence Cunningham for Twenty Professors of Law and Finance, George Washington University (Feb. 29,
2024) (noting that some large institutional asset
managers or investors have recently withdrawn membership from certain of the investor-led initiatives described in the Proposing Release). 42See, e.g., letters from AllianceBernstein; CalPERS; CalSTRS; Domini Impact; Harvard Mgmt; Impax Asset Mgmt; Trillium; and Wellington Mgmt. 43See Proposing Release, section I.C.1. See also Dieter Holger and Pierre Bertrand, U.N. Group Recommends Stricter Rules Over Net-Zero Pledges, The Wall Street Journal (Nov. 8, 2022) (stating that roughly 800 of the world’s 2,000 largest public companies by revenue have committed to get to net zero emissions by 2050 or sooner); and United Nations, Recognizing growing urgency, global leaders call for concrete commitments for clean, affordable energy for all by 2030 and net-zero emissions by 2050 (May 26, 2021). 44See, e.g., letters from Calvert; Ceres; Investment Adviser Association (June 17, 2022) (‘‘IAA’’); and PIMCO. See also Climate Action 100+, As The 2023 Proxy Season Continues, Investors Are Calling On Climate Action 100+ Focus Companies For More Robust Climate Action (May 9, 2023) (stating that in addition to more robust corporate governance on climate, investors are calling for disclosure on key issues including greenhouse gas emissions targets, transition plans (including policies to ensure a just transition for workers and communities), and reporting on methane measurements); Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark Shows Continued Progress On Ambition Contrasted By A Lack Of Detailed Plans Of Action (Oct. 18, 2023); and Dieter Holger, Corporate Climate Plans Fall Well Short of Targets, With a Few Bright Spots, The Wall Street Journal (Feb. 13, 2023). 45As stated above, the Commission received a large number of comments on the proposal, and we considered all of those comments. Nevertheless, considering the overlapping content and themes in the comments, and for the sake of clarity, we have not cited each individual comment letter in support of or against a particular position in the discussion below. 46See 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. In Apr. 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. 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. 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. For background on the TCFD and development of its recommendations, see Proposing Release, section I.D.1. 47See TCFD, supra note 46, at
ii–iii. 48See TCFD, supra note 4646 (listing governance, strategy, risk management, and metrics and targets as core elements of the TCFD framework). 49See, e.g., 17 CFR 229.105 (Risk factors), 17 CFR
229.303 (Management’s discussion and analysis of
financial condition and results of operation), 17 CFR 229.401 (Directors, executive officers, promoters and control persons), and 17 CFR
229.407 (Corporate governance).
50As discussed below, a number of commenters recommended that the Commission incorporate the TCFD recommendations into the final rules. See infra notes 115–118 and accompanying text. 51See 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. The GHG Protocol was created through a partnership between the World Resources Institute Continued risks. Those assessments can, in turn, inform investment and voting decisions. We agree with the many commenters that stated that the current state of climate-related disclosure has resulted in inconsistent, difficult to compare, and frequently boilerplate disclosures, and has therefore proven inadequate to meet the growing needs of investors for more detailed, consistent, reliable, and comparable information about climate￾related effects on a registrant’s business and financial condition to use in making their investment and voting decisions.38 Since the Commission issued the 2010 Guidance, awareness of climate-related risks to registrants has grown.39 Retail and institutional investors 40 and investor-led initiatives 41 have increasingly expressed the need for more reliable information about the effects of climate-related risks, as well as information about how registrants have considered and addressed climate￾related risks and opportunities when conducting operations and developing business strategy and financial plans.42 At the same time, many companies have made climate-related commitments to reduce GHG emissions or become ‘‘net zero’’ by a particular date.43 In response, investors have expressed the need for more detailed information to aid their investment and voting decisions, including insight into the potential impacts on registrants associated with fulfilling such commitments.44 B. Summary of the Final Rules Having considered the comments received on the proposal, we are adopting the final amendments described in this release with modifications in response to those comments.45 Like the proposed rules, the final rules’ reporting framework has structural elements, definitions, concepts, and, in some cases, substantive requirements that are similar to those in the Task Force on Climate-related Financial Disclosure (‘‘TCFD’’), an industry-led task force charged with promoting better-informed investment, credit, and insurance underwriting decisions.46 The TCFD reporting framework was designed to elicit information to help investors better understand a registrant’s climate￾related risks to make more informed investment decisions.47 We therefore find that it is an appropriate reference point for the final rules. Indeed, the core categories of the framework, which focus on governance, risk management, strategy, and metrics,48 align with the type of information called for by existing disclosure requirements within Regulation S–K.49
Accordingly, where consistent with our objectives, the authority Congress granted, and the comments received, certain provisions in the final rules are similar to the TCFD recommendations.50 Similarly, we have used concepts developed by the GHG Protocol for aspects of the final rules, as it has become a leading reporting standard for GHG emissions.51 Because

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. See Greenhouse Gas Protocol, About Us, available at https:// ghgprotocol.org/about-us. The GHG Protocol, which is subject to updates periodically, has been broadly incorporated into various sustainability reporting frameworks, including the TCFD. 52See, e.g., infra note 2690 and accompanying text (describing a report finding that 50 percent of sustainability reports from Russell 1000 companies aligned with the TCFD recommendations). In addition, many registrants submit climate disclosures to the CDP, formerly known as the ‘‘Carbon Disclosure Project,’’ which is aligned with the TCFD framework. See CDP Worldwide (‘‘CDP’’), How CDP is aligned to the TCFD, available at https://www.cdp.net/en/guidance/how-cdp-is￾aligned-to-the-tcfd (last visited Feb. 21, 2024); CDP, How companies can take action, available at https://www.cdp.net/en/companies (noting that ‘‘23,000+ companies representing two thirds of global market capitalization disclosed through CDP in 2023’’); see also CDP, About us, available at https://www.cdp.net/en/info/about-us (‘‘CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. . . . CDP was established as the ‘Carbon Disclosure Project’ in 2000, asking companies to disclose their climate impact.’’). In addition, several international climate disclosure initiatives are based on the TCFD recommendations. See infra section II.A.3. 53See infra section II.A; and Proposing Release,
section I.D.2; see also infra note 2621 (noting that,
in the U.S. and other jurisdictions, GHG emissions quantification and reporting are generally based on the GHG Protocol). 54See infra note 2760 and accompanying text. 55Cf. infra notes 2568–2570 and accompanying text. 56See infra section II.D.1. 57See infra sections II.D.1. That non-exclusive list is comprised of the registrant’s: (1) business operations, including the types and locations of its operations, (2) products and services, (3) suppliers, purchasers, or counterparties to material contracts, to the extent known or reasonably available, (4) activities to mitigate or adapt to climate-related risks, including adoption of new technologies or processes, and (5) expenditure for research and development. 58See infra sections II.D.1. 59See infra section II.D.2. 60See infra section II.D.3. 61See infra section II.D.4. 62See infra section II.E. 63See infra section II.F. 64See infra section II.G. 65An LAF is 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 revenue test in paragraph (2) or (3)(iii)(B) of the SRC definition in Rule 12b–2. 17 CFR 240.12b–2 (defining LAF and providing how and when an issuer determines whether it qualifies as an LAF). 66An AF is 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; and (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 revenue test in paragraph (2) or (3)(iii)(B) of the SRC definition in Rule 12b–2. 17 CFR 240.12b–2 (defining AF and providing how and when an issuer determines whether it qualifies as an AF). 67See infra section II.H. The final rules define the terms ‘‘Scope 1 emissions’’ (direct GHG emissions from operations that are owned or controlled by a many registrants have elected to follow the TCFD recommendations when voluntarily providing climate-related disclosures,52 and/or have relied on the GHG Protocol when reporting their GHG emissions,53 building off these reporting frameworks will mitigate those registrants’ compliance burdens and help limit costs.54 Building off the TCFD framework and the GHG Protocol will also benefit those investors seeking to make comparisons between Commission registrants and foreign companies not registered under the Federal securities laws that make disclosures under the TCFD framework and GHG Protocol, mitigating the challenges they experience when making investment and voting decisions.55 Nevertheless, while the final rules use concepts from both TCFD and the GHG Protocol where appropriate, the rules diverge from both of those frameworks in certain respects where necessary for our markets and registrants and to achieve our specific investor protection and capital formation goals.

1. Content of the Climate-Related
   Disclosures
   The final rules will create a new subpart 1500 of Regulation S–K and
   Article 14 of Regulation S–X. In
   particular, the final rules will require a registrant to disclose information about the following items:

• Any climate-related risks identified
  by the registrant that have had or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, or financial condition in the short-term (i.e., the next 12 months) and in the long-term (i.e., beyond the next 12 months); 56
• The actual and potential material
  impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook, including, as applicable, any material impacts on a non-exclusive list of items; 57
• If, as part of its strategy, a registrant
  has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that, in management’s assessment, directly result from such mitigation or adaptation activities; 58
• If a registrant has adopted a
  transition plan to manage a material transition risk, a description of the transition plan, and updated disclosures in the subsequent years describing the actions taken during the year under the plan, including how the actions have impacted the registrant’s business, results of operations, or financial condition, and quantitative and qualitative disclosure of material expenditures incurred and material impacts on financial estimates and assumptions as a direct result of the disclosed actions; 59
• If a registrant uses scenario analysis
  and, in doing so, determines that a climate-related risk is reasonably likely to have a material impact on its business, results of operations, or financial condition, certain disclosures regarding such use of scenario analysis; 60
• If a registrant’s use of an internal
  carbon price is material to how it evaluates and manages a material climate-related risk, certain disclosures about the internal carbon price; 61
• Any oversight by the board of
  directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks; 62
• Any processes the registrant has for
  identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes; 63
• If a registrant has set a climate￾related target or goal that has materially
  affected or is reasonably likely to materially affect the registrant’s business, results of operations, or financial condition, certain disclosures about such target or goal, including material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal; 64
• If a registrant is a large accelerated
  filer (‘‘LAF’’),65 or an accelerated filer (‘‘AF’’) 66 that is not otherwise exempted, and its Scope 1 emissions and/or its Scope 2 emissions metrics are material, certain disclosure about those emissions; 67

registrant) and ‘‘Scope 2 emissions’’ (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). 68See infra section II.K. 69See infra section II.K. 70See infra section II.K. 71See infra sections II.C.1.c, II.E.1.c, and II.F.3 for discussions of how we made these disclosure requirements less prescriptive as compared to the proposed rules. 72 In addition, the existing safe harbors for forward-looking statements under the Securities Act and Exchange Act will be available for other aspects of the climate-related disclosures. See Securities Act section 27A [15 U.S.C. 77z–2], Exchange Act
section 21E [15 U.S.C. 78u–5], 17 CFR 230.175
(‘‘Securities Act Rule 175’’) and 17 CFR 240.3b–6 (‘‘Exchange Act Rule 3b–6’’). 73As 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. See infra section
II.L.3 for a discussion of certain types of registrants (both domestic and foreign private issuer) that are not subject to the final rules. 74See infra section II.N.3.

• The capitalized costs, expenditures
  expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds; 68
• The capitalized costs, expenditures
  expensed, and losses related to carbon offsets and renewable energy credits or certificates (‘‘RECs’’) if used as a material component of a registrant’s plans to achieve its disclosed climate￾related targets or goals; and 69
• If the estimates and assumptions a
  registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted.70 In addition, under the final rules, a registrant that is required to disclose Scopes 1 and/or 2 emissions and is an LAF or AF must file an attestation report in respect of those emissions subject to phased in compliance dates. An AF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions. An LAF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions, and then file an attestation report at the reasonable assurance level beginning the seventh fiscal year after the compliance date for disclosure of GHG emissions. The final rules also require a registrant that is not required to disclose its GHG emissions or to include a GHG emissions attestation report pursuant to the final rules to disclose certain information if the registrant voluntarily discloses its GHG emissions in a Commission filing and voluntarily subjects those disclosures to third-party assurance. The final rules reflect a number of modifications to the proposed rules based on the comments we received. As discussed in more detail below, we have revised the proposed rules in several respects, including by:
• Adopting a less prescriptive
  approach to certain of the final rules, including, for example, the climate￾related risk disclosure, board oversight disclosure, and risk management disclosure requirements; 71
• Qualifying the requirements to
  provide certain climate-related disclosures based on materiality, including, for example, disclosures regarding impacts of climate-related risks, use of scenario analysis, and maintained internal carbon price;
• Eliminating the proposed
  requirement to describe board members’ climate expertise;
• Eliminating the proposed
  requirement for all registrants to disclose Scope 1 and Scope 2 emissions and instead requiring such disclosure only for LAFs and AFs, on a phased in basis, and only when those emissions are material and with the option to provide the disclosure on a delayed basis;
• Exempting SRCs and EGCs from the
  Scope 1 and Scope 2 emissions disclosure requirement;
• Modifying the proposed assurance
  requirement covering Scope 1 and Scope 2 emissions for AFs and LAFs by extending the reasonable assurance phase in period for LAFs and requiring only limited assurance for AFs;
• Eliminating the proposed
  requirement to provide Scope 3 emissions disclosure (which the proposal would have required in certain circumstances);
• Removing the requirement to
  disclose the impact of severe weather events and other natural conditions and transition activities on each line item of a registrant’s consolidated financial statements;
• Focusing the required disclosure of
  financial statement effects on capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions in the notes to the financial statements;
• Requiring disclosure of material
  expenditures directly related to climate￾related activities as part of a registrant’s strategy, transition plan and/or targets and goals disclosure requirements under subpart 1500 of Regulation S–K rather than under Article 14 of Regulation S– X;
• Extending a safe harbor from
  private liability for certain disclosures, other than historic facts, pertaining to a registrant’s transition plan, scenario analysis, internal carbon pricing, and targets and goals; 72
• Eliminating the proposal to require
  a private company that is a party to a business combination transaction, as defined by Securities Act Rule 165(f), registered on Form S–4 or F–4 to provide the subpart 1500 and Article 14 disclosures;
• Eliminating the proposed
  requirement to disclose any material change to the climate-related disclosures provided in a registration statement or annual report in a Form 10–Q (or, in certain circumstances, Form 6–K for a registrant that is a foreign private issuer that does not report on domestic forms); and
• Extending certain phase in periods.

2. Presentation and Submission of the
   Climate-Related Disclosures The final rules provide that a registrant (both domestic and foreign private issuer 73) must:

• File the climate-related disclosure
  in its registration statements and Exchange Act annual reports; 74
• Include the climate-related
  disclosures required under Regulation S–K, except for any Scopes 1 and/or 2 emissions disclosures, in a separate, appropriately captioned section of its filing or in another appropriate section of the filing, such as Risk Factors, Description of Business, or Management’s Discussion and Analysis of Financial Condition and Results of Operations (‘‘MD&A’’), or, alternatively, by incorporating such disclosure by reference from another Commission filing as long as the disclosure meets the

75See infra section II.A.3.
76See, e.g., infra section II.H.3.c (noting that unlike the proposed rules, which would have exempted SRCs from the requirement to disclose Scope 3 emissions, the final rules will exempt SRCs and EGCs from any requirement to disclose its GHG emissions, including its Scopes 1 and 2 emissions). 77See infra section II.H.3.d. 78See infra section II.H.3.d. 79See infra section II.H.3.d. 80See infra section II.I. 81See infra section II.K. 82See infra section II.M.3. 83Public Law 104–67, 109 Stat. 737. 84 15 U.S.C. 77z–2. 85 15 U.S.C. 78u–5. 86See infra sections II.D and II.J.3. 87See infra section II.O. 88Although Rule 12b–2 defines the terms ‘‘accelerated filer’’ and ‘‘large accelerated filer,’’ see supra notes 65–66, it does not define the term ‘‘non￾accelerated filer.’’ If an issuer does not meet the definition of AF or LAF, it is considered a NAF. See Accelerated Filer and Large Accelerated Filer Definitions, Release No. 34–88365 (Mar. 12, 2020) [85 FR 17178, 17179 n.5 (Mar. 26, 2020)]. 89See Proposing Release, section I.B. 90See id. 91See id. 92See Proposing Release, section II.A.1. 93See supra section I.B. 94See TCFD, supra note 4646, at iv. 95See Proposing Release, section II.A.1. 96See Proposing Release, section II.A.2. electronic tagging requirements of the final rules; 75

• If required to disclose its Scopes 1
  and 2 emissions,76 provide such disclosure:
  Æ If a registrant filing on domestic forms, in its annual report on Form 10– K, in its quarterly report on Form 10– Q for the second fiscal quarter in the fiscal year immediately following the year to which the GHG emissions metrics disclosure relates incorporated by reference into its Form 10–K,or in an amendment to its Form 10–K filed no later than the due date for the Form 10– Q for its second fiscal quarter; 77 Æ If a foreign private issuer not filing on domestic forms, in its annual report on Form 20–F, or in an amendment to its annual report on Form 20–F, which shall be due no later than 225 days after the end of the fiscal year to which the GHG emissions metrics disclosure relates; 78 and Æ If filing a Securities Act or Exchange Act registration statement, as of the most recently completed fiscal year that is at least 225 days prior to the date of effectiveness of the registration statement;
• If required to disclose Scopes 1 and
  2 emissions, provide such disclosure for the registrant’s most recently completed fiscal year and, to the extent previously disclosed, for the historical fiscal year(s) included in the filing; 79
• If required to provide an attestation
  report over Scope 1 and Scope 2 emissions, provide such attestation report and any related disclosures in the filing that contains the GHG emissions disclosures to which the attestation report relates; 80
• Provide the financial statement
  disclosures required under Regulation S–X for the registrant’s most recently completed fiscal year, and to the extent previously disclosed or required to be disclosed, for the historical fiscal year(s) included in the filing, in a note to the registrant’s audited financial statements; 81 and
• Electronically tag both narrative
  and quantitative climate-related disclosures in Inline XBRL.82

3. Safe Harbor for Certain Climate￾Related Disclosures
   The final rules provide a safe harbor for climate-related disclosures pertaining to transition plans, scenario analysis, the use of an internal carbon price, and targets and goals, provided pursuant to Regulation S–K sections 229.1502(e), 229.1502(f), 229.1502(g), and 229.1504. The safe harbor provides that all information required by the specified sections, except for historical facts, is considered a forward-looking statement for purposes of the Private Securities Litigation Reform Act (‘‘PSLRA’’) 83 safe harbors for forward￾looking statements provided in section 27A of the Securities Act 84 and section 21E of the Exchange Act 85 (‘‘PSLRA safe harbors’’).86
4. Phase in Periods
   As discussed in more detail below,87 the final rules will be phased in for all registrants, with the compliance date dependent upon the status of the registrant as an LAF, an AF, a non￾accelerated filer (‘‘NAF’’),88 SRC, or EGC, and the content of the disclosure.
   II. Discussion
   A. Overview and Purpose of the Climate-Related Disclosure Rules
5. Proposed Rules
   a. Consistent, Comparable, and Reliable Disclosures for Investors The Commission proposed the climate-related disclosure rules in order to elicit more consistent, comparable, and reliable information for investors to enable them to make informed assessments of the impact of climate￾related risks on current and potential investments.89 Accordingly, the Commission proposed to amend Regulation S–K to add a new subpart 1500 that would require a registrant to disclose: any material climate-related impacts on its strategy, business model, and outlook; its governance of climate￾related risks; its climate-related risk management; GHG emissions metrics; and climate-related targets and goals, if any.90 The Commission also proposed to amend Regulation S–X to add a new
   article (Article 14), which would have
   required a registrant to disclose in a note to its financial statements certain disaggregated climate-related financial statement metrics.91 The proposed rules would have required disclosure falling under the following three categories of information: financial impact metrics; expenditure metrics; and financial estimates and assumptions. The Commission proposed the financial statement metrics requirement to increase transparency about how climate-related risks impact a registrant’s financial statements.92 Under the proposed amendments to both Regulation S–K and Regulation S– X, disclosure of climate-related opportunities would be optional. As noted above, the proposed rules were modeled on the TCFD disclosure framework.93 The TCFD framework consists of 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.94 The Commission proposed to model its climate-related disclosure rules on the TCFD framework given that many registrants and their investors are already familiar with the framework and are making disclosures voluntarily consistent with the framework. The Commission indicated that this should help to mitigate both the compliance burden for registrants and any burdens faced by investors in analyzing the new disclosures and would facilitate comparability across registrants.95 b. Proposed Location of the Disclosure In proposing to include the climate￾related disclosure rules in Regulation S– K and Regulation S–X, the Commission stated its belief that the proposed disclosure would be fundamental to investors’ understanding of 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 financial condition.96 The Commission proposed to require a registrant to include the climate-related disclosure in Securities

97See id.
98See id.
99See, e.g., letters from AllianceBernstein; Alphabet et al.; Amazon (June 17, 2022); Americans for Financial Reform Education Fund, Public Citizen, Sierra Club, Ocean Conservancy, and the Sunrise Project (June 16, 2022) (‘‘Amer. for Fin. Reform, Sunrise Project et al.’’); Bloomberg L.P. (June 22, 2022) (‘‘Bloomberg’’); CalPERS (June 15, 2022); CalSTRS (June 17, 2022); Calvert; Ceres; Harvard Mgmt.; IAA; Miller/Howard; Morningstar, Inc. (June 16, 2022) (‘‘Morningstar’’); Soros Fund; and Wellington Mgmt. 100See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; CalPERS; CalSTRS; Calvert; Ceres; Miller/Howard; Soros Fund; and Wellington Mgmt. 101See, e.g., letters from CalSTRS; Calvert; and Wellington Mgmt. 102See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; As You Sow (June 21, 2022); BlackRock; Bloomberg; Boston Common Asset Mgmt.; CalPERS; CalSTRS; Calvert; Ceres; Consumer Federation of America (June 17,
2022) (‘‘CFA’’); Franklin Templeton Investments
(June 17, 2022) (‘‘Franklin Templeton’’); Harvard Mgmt.; IAA; Miller/Howard; Morningstar; New York State Comptroller (June 3, 2022) (‘‘NY St. Comptroller’’); Principles for Responsible Investment (Consultation Response) (June 17, 2022) (‘‘PRI’’); Soros Fund; Union of Concerned Scientists (June 17, 2022) (‘‘UCS’’); US SIF (June 17, 2022); and Wellington Mgmt. 103See, e.g., letters from BlackRock; Bloomberg; Calvert; Ceres; Franklin Templeton; Miller/Howard; PRI; and US SIF. 104See, e.g., letters from Ceres; Interfaith Center on Corporate Responsibility (June 17, 2022) (‘‘ICCR’’); and Maple-Brown Abbott (May 31, 2022) (‘‘Maple-Brown’’). As the Commission stated when proposing the climate disclosure rules, there does not appear to be a universally accepted definition of ‘‘greenwashing.’’ See Proposing Release, section IV.C.1. The Commission did not define greenwashing in the Proposing Release and is not defining it now. As a general matter, others have defined greenwashing to mean the set of activities conducted by firms or funds to falsely convey to investors that their investment products or practices are aligned with environmental or other ESG principles. See Proposing Release, section IV.C.1. See also OICU–IOSCO Supervisory Practices to Address Greenwashing, (Dec 2023), available at https://www.iosco.org/library/pubdocs/pdf/ IOSCOPD750.pdf. 105See, e.g., letters from Americans for Financial Reform Education Fund and Public Citizen (June 16, 2022) (‘‘Amer. for Fin. Reform and Public Citizen’’) (noting that the commenters commissioned a survey of retail investors and describing the results of that survey as ‘‘show[ing] that investors care about climate-related risks and opportunities of public companies, support the SEC requiring climate-related disclosures with third￾party audit, and would factor the information disclosed into their investment practices’’); Ceres (Dec. 2, 2022); and PRI; see also supra note 40 (noting that most individual retail investors and firms advising such investors who submitted comments supported the proposed rules and citing comment letters from some retail investors and investment advisers in support of that proposition); infra note 139 (citing several comment letters in support of the proposition that retail investors have stated that they found much of the voluntary climate-related reporting to be lacking in quality and completeness and difficult to compare and as a result have incurred costs and inefficiencies when attempting to assess climate-related risks and their effect on the valuation of a registrant’s securities). But see, e.g., letter from Soc. Corp. Gov. (asserting that the retail investor survey in the letter from Amer. for Fin. Reform and Public Citizen ‘‘do[es] not support the position that retail investors demand more climate-related information in companies’ SEC filings, and certainly not the detailed disclosures that would be required under the Proposed Rule’’ based on its criticisms of the questions
in the survey and calculation methodologies that the letter Amer. for Fin. Reform and Public Citizen used to report findings from the survey). 106See, e.g., letters from Bloomberg; Ceres; and Miller/Howard. 107See, e.g., letters from CalSTRS (stating that ‘‘[u]sing the TCFD framework as the basis for guiding issuers to more comparable disclosures would help [investors] more easily compare companies’ approach to climate risk management in a timelier fashion’’); Ceres (stating that ‘‘the proposed rule would promote both allocative and informational efficiency’’ and that ‘‘[t]imely, comparable information about each company’s climate related risks and opportunities would improve informational efficiency, leading to more accurate valuation’’); and PwC (stating that ‘‘[m]andatory disclosure in annual filings— including the notes to the financial statements— would enhance comparability while ensuring that the timeliness, quality, and reliability of climate information is commensurate with that of the financial data’’). 108See, e.g., letters from Amer. for Fin. Reform (Dec. 1, 2022) (stating that, with passage of the Inflation Reduction Act, investors will need the Commission’s proposed climate-related disclosures to determine which companies and sectors are best Continued Act or Exchange Act registration statements and Exchange Act annual reports in a separately captioned ‘‘Climate-Related Disclosure’’ section and in the financial statements. The Commission stated that the proposed presentation would facilitate review of the climate-related disclosure by investors alongside other relevant company financial and non-financial information and further the comparability of the disclosure across registrants.97 The Commission also proposed to permit a registrant to incorporate by reference disclosure from other parts of the registration statement or annual report (e.g., Risk Factors, MD&A, Description of Business, or the financial statements) or from other filed or submitted reports into the Climate￾Related Disclosure section if it would be responsive to the topics specified in the proposed Regulation S–K items and if the registrant satisfied the incorporation by reference requirements under the Commission’s rules and forms. As the Commission explained, 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.98
2. Comments
Many commenters, including both investors and registrants, stated that climate-related risks can have material impacts on companies’ financial position or performance.99 Commenters indicated that when it is available, information about climate-related risks is currently used to assess the future financial performance of public companies and inform investment decision-making.100 Some commenters provided specific examples of how that type of information helps investors make investment decisions today.101 However, many commenters stated that the Commission’s current reporting requirements do not yield adequate or sufficient information regarding climate￾related risks.102 Many commenters also expressed the view that the current, largely voluntary reporting of climate￾related information under various third￾party frameworks, which differ in certain respects, has allowed registrants to selectively choose which climate￾related disclosures to provide and has failed to produce complete, consistent, reliable, and comparable information with the level of detail needed by investors to assess the financial impact of climate-related risks on registrants.103 Commenters stated that, despite the Commission’s issuance of the 2010 Guidance, registrants often provided climate-related disclosure that is boilerplate, with some being or bordering on ‘‘greenwashing.’’ 104 Commenters further indicated that investors, both institutional and retail,105 were in need of more consistent and comparable climate￾related disclosure to enable them to make fully informed decisions and ensure securities are priced to better reflect climate-related risk.106 Commenters indicated that adoption of mandatory, climate-related disclosure rules would improve the timeliness, quality, and reliability of climate-related information, which would facilitate investors’ comparison of climate-related risks and lead to more accurate securities valuations.107 Commenters also stated that, as governments and registrants have increasingly made pledges and enacted laws regarding a transition to a lower carbon economy, more consistent and reliable climate￾related disclosure has become particularly important to help investors assess the reasonably likely financial impacts to a registrant’s business, results of operations, and financial condition in connection with such governmental pledges or laws and the related financial and operational impacts of a registrant’s progress in achieving its publicly announced, climate-related targets and goals.108

positioned and ready to capitalize on the IRA’s GHG reduction incentives over the coming decade, and to analyze the progress towards and profitability of companies’ transition strategies in this new investment context); CalPERS; and Ceres. 109See, e.g., letters from American Bar Association, Business Law Section (June 24, 2022) (‘‘ABA’’); Chamber; David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation (June 17, 2022) (‘‘D. Burton, Heritage Fdn.’’); NAM; and Soc. Corp. Gov. See also Form Letter AG. 110See letters from Bank of America (June 17,2022) (‘‘BOA’’) (‘‘Various stakeholders, including asset owners and asset managers, will benefit from consistent, standardized disclosures addressing climate-related risks and opportunities to help them make decisions on where best to deploy capital in alignment with investor goals.’’); Bank Policy Institute (June 16, 2022) (‘‘BPI’’); Dominion Energy, Inc. (June 17, 2022) (‘‘Dominion Energy’’) (‘‘We believe climate-related disclosures are important to our investors and support the Commission’s efforts to design rules and guidance to provide investors with the disclosures that they need in order to make informed decisions.’’); Long-Term Stock Exchange (June 17, 2022) (‘‘LTSE’’) (stating that climate ‘‘represents an investment risk, and investors deserve to understand what public companies are doing to address this issue. . . [w]e believe the proposal represents a significant step toward standardizing, clarifying and verifying disclosures so as to enable investors to make more informed investment decisions. . .’’); United Air. (June 17, 2022); and Walmart Inc. (June 17, 2022) (‘‘Walmart’’) (‘‘The Company supports the adoption of rules that can facilitate the disclosure of consistent, comparable, and reliable material climate-related information.’’). 111See infra section II.B. Some of these commenters stated that the Commission exceeded its statutory authority when issuing the proposed rules because those rules would require disclosure of information that is not financially material and is only of general or environmental interest. See, e.g., letters from Boyden Gray (June 17, 2022); D. Burton, Heritage Fdn.; and National Ocean Industries Association (June 17, 2022) (‘‘NOIA’’). 112See, e.g., letters from Chamber; NAM; and Soc. Corp. Gov. 113See, e.g., letters from Attorneys General of the States of Texas, Alaska, Arkansas, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina, and Utah (June 17, 2022) (‘‘AGs of TX et al.’’); Cato Institute (June 17, 2022) (‘‘Cato Inst.’’); and Society for Mining, Metallurgy, & Exploration (June 17, 2022) (‘‘SMME’’). 114See, e.g., letters from American Petroleum Institute (June 17, 2022) (‘‘API’’); Business Roundtable (June 17, 2022); Chamber; ConocoPhillips (June 17, 2022); Fenwick & West (June 17, 2022) (‘‘Fenwick West’’); Soc. Corp. Gov.; and Williams Companies (June 17, 2022) (‘‘Williams Cos.’’). 115See, e.g., letters from
AllianceBernstein; Alphabet et al.; As You Sow; Alan Beller, Daryl Brewster, Robert G. Eccles, Camen X. W. Lu, David A. Katz, and Leo E. Strine, Jr. (June 16, 2022) (‘‘Beller et al.’’); BHP (June 13, 2022); Bloomberg; BNP Paribas (June 16, 2022); BP Americas (June 17,
2022) (‘‘BP’’); CalPERS; CalSTRS; Chevron (June 17,
2022); CEMEX (June 17, 2022); Dell Technologies (May 19, 2022) (‘‘Dell’’); Eni SpA; Etsy, Inc. (June 16, 2022) (‘‘Etsy’’); Fidelity Investments (June 17,
2022) (‘‘Fidelity’’); Harvard Mgmt.; Impax Asset
Mgmt.; IAC Recommendation; Maple-Brown; Miller/Howard; Natural Resources Defense Council (June 17, 2022) (‘‘NRDC’’); New York City Office of Comptroller (June 17, 2022) (‘‘NY City Comptroller’’); PIMCO; PRI; PwC; Unilever PLC (June 17, 2022) (‘‘Unilever’’); and The Vanguard Group, Inc. (June 17, 2022) (‘‘Vanguard’’). 116See, e.g., letters from Beller et al.; BNP Paribas; CalPERS; CEMEX; Chevron; Eni SpA; Harvard Mgmt.; NRDC; NY City Comptroller; PIMCO; PRI; Unilever; and Vanguard. 117See, e.g., letters from CalSTRS; NRDC; and PRI. 118See, e.g., letters from Alphabet et al.; Eni SpA; Harvard Mgmt.; PRI; and Unilever. 119See letter from CalSTRS. 120See id.; see also letters from Douglas Hileman Consulting LLC (May 2, 2022) (‘‘D. Hileman Consulting’’); T Rowe Price (June 16, 2022); and Vodafone Group Plc (June 17, 2022) (‘‘Vodafone’’) (stating that the Commission should allow the use of the ISSB climate reporting standard as an alternative reporting regime to the Commission’s climate disclosure rules). 121See letter from Petroleum Alliance of Oklahoma (June 16, 2022) (‘‘Petrol. OK’’). 122See letter from Reason Foundation (June 17,
2022) (‘‘Reason Fnd.’’).
123See letter from Western Midstream Partners, LP (June 15, 2022) (‘‘Western Midstream’’). Other commenters, however, opposed adoption of the proposed rules and requested either that the Commission rescind the proposal or make significant revisions in the final rules.109 Some of these commenters, while opposing specific aspects of the proposed rules, agreed with the overall intent of the proposal or otherwise stated that rules requiring climate-related information were appropriate and would be helpful to investors.110 As discussed in more detail below, other commenters asserted that the Commission lacks statutory authority to adopt the proposed climate￾related disclosure rules.111 Other commenters asserted that current voluntary reporting practices are sufficient to serve the needs of investors and markets, and so the proposed rules are unnecessary.112 Similarly, some opposing commenters stated that, because in their view the Commission’s current disclosure regime already requires a registrant to disclose climate￾related risks if material, adoption of the proposed rules would impose a significant burden on registrants while resulting in little additional benefit for investors.113 Opposing commenters further stated that, because the proposed rules were overly prescriptive and not bound in every instance by materiality, their adoption would result in the disclosure of a large volume of immaterial information that would be confusing for investors.114 Many commenters supported basing the Commission’s climate disclosure rules on the TCFD framework.115 Commenters stated that because the TCFD framework has been widely accepted globally by both issuers and investors, its use as a model for the Commission’s rules would help elicit climate-related disclosures that are consistent, comparable, and reliable.116 Commenters also stated that basing the Commission’s climate disclosure rules on the TCFD framework would benefit investors because of their familiarity with the framework and its usefulness in understanding the connection between climate-related risk and financial impact.117 Commenters also stated that basing the Commission’s climate-related disclosure rules on the TCFD framework, with which many registrants are familiar and already using, should help mitigate the compliance burden.118 One commenter expressed support for basing the rule proposal on the TCFD framework while also stating that the Commission should consider requiring the use of the International Sustainability Standards Board’s (‘‘ISSB’’) climate reporting standard.119 This commenter noted that, like the rule proposal, the ISSB climate reporting standard is based on the TCFD framework. This commenter, among others, stated that requiring the use of, or basing the Commission’s climate disclosure rules on, the ISSB climate reporting standard would contribute substantially to the establishment of a global climate disclosure baseline, which would reduce the reporting burden on companies listed
in multiple jurisdictions.120 Some commenters, however, opposed basing the Commission’s climate disclosure rules on the TCFD framework. One commenter stated that the Commission should not base its rules on a disclosure framework, such as the TCFD framework, that has not been developed by a U.S. regulatory agency because there is no process in place for domestic companies, such as oil and gas companies, to provide their input into potential changes to the framework.121 Another commenter stated that the Commission should not base its climate disclosure rules on the TCFD because, in its view, there is currently no third￾party framework, including the TCFD, capable of providing reliable and consistent metrics for climate-related risks.122 A different commenter disputed that U.S. companies have widely adopted the TCFD framework and recommended instead that the Commission base its climate disclosure rules on the EPA’s Greenhouse Gas Reporting Program, with which many U.S. registrants are familiar.123 Commenters expressed mixed views regarding the proposed location of the climate-related disclosure rules. Many commenters supported the proposed placement of climate-related disclosure rules in a new subpart of Regulation S– K and the placement of the proposed financial metrics in a new article of

124See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Attorneys General from California and 19 other states (June 17, 2022) (‘‘AGs of Cal. et al.’’); Bloomberg; CalSTRS; Eni SpA; Miller/Howard; Morningstar; New York State Insurance Fund (June 17, 2022) (‘‘NY SIF’’); PRI; PwC; and SKY Harbor Capital Management (June 16, 2022) (‘‘SKY Harbor’’). 125See, e.g., letter from Amer. for Fin. Reform, Sunrise Project et al. 126See, e.g., letters from AGs of Cal. et al.; CalSTRS; and PRI. 127See, e.g., letters from Bloomberg; and PwC. 128See, e.g., letters from ABA; AllianceBernstein; Alphabet et al.; BOA; BlackRock; Business Roundtable; Cleary Gottlieb Steen & Hamilton LLP (June 16, 2022) (‘‘Cleary Gottlieb’’); FedEx Corporation (June 17, 2022) (‘‘FedEx’’); General Motors Company (June 17, 2022) (‘‘GM’’); Grant Thornton LLP (June 17, 2022) (‘‘Grant Thornton’’); National Association of Manufacturers (June 6,
2022) (‘‘NAM’’); Securities Industry and Financial
Markets Association (June 17, 2022) (‘‘SIFMA’’); Soc. Corp. Gov.; Sullivan & Cromwell (June 17,
2022) (‘‘Sullivan Cromwell’’); Trillium; Unilever;
and Walmart. See infra section II.K for further discussion of these comments. 129See, e.g., letters from AllianceBernstein; Alphabet et al.; Cleary Gottlieb; IAC Recommendation; GM; Grant Thornton; SIFMA; Soc. Corp. Gov.; Unilever (recommending placement of the financial disclosure in either a registrant’s MD&A or its Operating and Financial Review (‘‘OFR’’)); and Walmart. 130See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; (supporting placement of the climate-related disclosure in a separate section as well as in other existing sections of the annual report or registration statement, as applicable); Breckinridge Capital Advisors (June 17, 2022); CEMEX; CFA; Eni SpA; Clifford Howard (June 17,
2022) (‘‘C. Howard’’); Institute for Agriculture and
Trade Policy (June 17, 2022) (‘‘IATP’’); PRI; PwC; and SKY Harbor. 131See, e.g., letters from CalSTRS; CEMEX; Eni SpA; IAA; and PwC. 132See, e.g., ABA; BlackRock; Business Roundtable; CalSTRS; GM; C. Howard; ICCR; Microsoft; Morningstar; PwC; SIFMA; Shearman & Sterling (June 20, 2022) (‘‘Shearman Sterling’’); and Sullivan Cromwell. 133See, e.g., letters from AGs of TX et al.; Brendan Herron (Nov. 1, 2022) (‘‘B. Herron’’); FedEx; Reason Fnd.; Soc. Corp, Gov.; and Unilever. 134See, e.g., letters from BlackRock; Chevron; ConocoPhillips; FedEx; D. Hileman Consulting; HP Inc. (June 17, 2022) (‘‘HP’’); PIMCO; and Sullivan Cromwell. 135See supra notes 102 and 103 and accompanying text. The Commission also stated in the Proposing Release that, as part of its filing review process, Commission staff had assessed the extent to which registrants currently disclose climate-related risks in their filings. Proposing Release at 21339. The staff noted that, since 2010, disclosures climate-related disclosures 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. Id. The staff also observed significant inconsistency in the depth and specificity of disclosures by registrants across industries and within the same industry. Id. The staff 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. Id. In addition, the disclosures in registrants’ Forms 10– K frequently contained general, boilerplate discussions that provide limited information as to the registrants’ assessment of their climate-related risks or their impact on the companies’ business. Id. 136See, e.g., US Global Change Research Program, The Fifth National Climate Assessment (2023) (stating that extreme weather events cause direct economic losses through infrastructure damage, disruptions in labor and public services, and losses in property values, and that the United States currently experiences an extreme weather event causing a billion dollars or more in costs and losses every three weeks compared to one such event every four months in the 1980s). 137See, e.g., letters from BlackRock; Bloomberg; Boston Common Asset Mgmt; Breckinridge Capital Advisors; Calvert; Ceres; CFA; East Bay Municipal Utility District Employee Retirement System (June 6, 2022) (‘‘East Bay Mun.’’) (‘‘[B]ecause climate￾related impacts or risks can materially affect a company’s financial position and operations, we support the inclusion of some climate-related information in the financial statements; this also promotes consistency in information across a company’s reporting.’’); Harvard Mgmt.; Impax Asset Mgmt; Parnassus Investments (June 14, 2022) (‘‘Parnassus’’) (‘‘We commend the Commission for understanding the
urgency and materiality of the disclosure categories addressed in the Proposed Rule. This demonstrates a recognition that the decisions companies and investors make today regarding emissions and climate-related matters can have financial impacts in the short-, medium-, and long-term.’’); Rockefeller Asset Management (June 1, 2022); Rebecca Palacios (June 6, 2022) (‘‘R. Palacios’’) (‘‘[I]t is vital for you to require climate￾related disclosures in order to meet the SECs mandate to protect investors ensure fair, orderly, and efficient markets and facilitate capital formation.’’); (‘‘Rockefeller Asset Mgmt.’’) (‘‘Our fundamental research and company engagements have revealed that climate related risks and opportunities are increasingly relevant to company valuations.’’); PIMCO; PRI; SKY Harbor; Trillium; Allyson Tucker, Chief Executive Officer, Washington State Investment Board (June 17, 2022) Continued Regulation S–X.124 Commenters stated that amending Regulation S–K and Regulation S–X to include climate￾related disclosure requirements would facilitate the presentation of climate￾related business and financial information as part of a registrant’s regular business reporting 125 and appropriately reflect the fact that information about climate-related risks is essential to investors’ decision￾making and fundamental to understanding the nature of a company’s operating prospects and financial performance.126 Commenters further stated that requiring climate￾related disclosures in annual filings, including the notes to the financial statements, would enhance the accessibility, comparability, and reliability of such disclosures for investors.127 Many other commenters, however, opposed adoption of the proposed financial metrics under Regulation S–X because of various concerns relating to implementation and interpretation of the proposed financial metrics.128 A number of these commenters recommended instead requiring disclosure of the financial impact of climate-related events as part of a registrant’s MD&A pursuant to 17 CFR
229.303 (‘‘Item 303 of Regulation S–
K’’).129
Commenters also had mixed views on the proposed placement of the climate￾related disclosures in a separately captioned section of a registration statement or annual report. Several commenters supported the proposed placement because it would facilitate access to and comparability of the climate-related disclosures for investors.130 Commenters also supported the proposed alternative to permit registrants to incorporate by reference climate-related disclosures from other sections of a filing or from other filings because it would avoid duplication in the filing, would add flexibility regarding the presentation of the disclosures, and would be consistent with the Commission’s incorporation by reference rules regarding other types of disclosure.131 Some of the commenters specifically recommended allowing registrants to include climate-related governance disclosure in their proxy statements, which could then be incorporated by reference into their annual reports.132 Some commenters opposed placing climate-related disclosures in a separate
section of a filing, asserting that existing
sections, such as MD&A and Risk Factors, are more appropriate places to provide the climate-related disclosures and stating that it should be up to each registrant to determine the most suitable place for such disclosure.133 Some commenters recommended that the Commission require some or all of the climate-related disclosures to be included in a new, separate report to be furnished to the Commission following the filing of the annual report because of concerns about the timing and liability for disclosures related to GHG emissions, financial metrics, and certain other aspects of the climate-related disclosures.134
3. Final Rules
As discussed in greater detail below, we are adopting climate-related disclosure rules because, as many commenters have indicated, despite an increase in climate-related information being provided by some companies since the Commission issued its 2010 Guidance, there is a need to improve the consistency, comparability, and reliability of climate-related disclosures for investors.135 As climate-related risks have become more prevalent,136 investors have increasingly sought information from registrants about the actual and potential impacts of climate￾related risks on their financial performance or position.137 Both

(‘‘We also support the SEC’s inclusion of a greenhouse gas (GHG) emissions reporting requirement in line with the Greenhouse Gas Protocol because this information is critical to our understanding of the quality of a company’s earnings in the face of climate change and the energy transition.’’); and Vanguard. See also Form Letter AM. 138See, e.g., letters from AllianceBernstein; Franklin Templeton; Harvard Mgmt.; Miller/ Howard; Trillium; and Wellington Mgmt. 139See, e.g., letters from Americans for Financial Reform Education Fund, Public Citizen, Ocean Conservancy, Sierra Club, Evergreen Action and 72 additional undersigned organizations (June 17,
2022) (‘‘Amer. for Fin. Reform, Evergreen Action et
al.’’); Amer. for Fin. Reform and Public Citizen; Americans for Financial Reform, on behalf of 64,357 advocates (June 16, 2022) (‘‘Enclosed are 64,357 petition signatures supporting the [Commission’s] proposed rule on climate-related financial disclosures that would provide investors with the long-awaited and necessary information they and their investment advisors need to make informed investment decisions.’’); see also letter from Betterment (June 17, 2022) (noting that, based on responses of 3,000 retail investors to a survey the commenter conducted, ‘‘a reasonable interpretation . . . would be that 95% of respondents would potentially consider GHG emissions reporting . . . as material to whether they would purchase a security’’ and asserting that ‘‘[a] retail investor’s exposure to equities via index funds makes the uniform availability of standardized climate-related disclosure at the company level that much more critical, and the Proposed Rule would drastically improve the efficiency and robustness of the underlying process that produces such low fee, diversified investing products’’ (emphasis in original)). In addition, the Commission received many unique letters from individual investors expressing their support for the proposed rules, with several stating that there was a need for more consistent and comparable disclosure about climate-related risk from registrants. See, e.g., letters from Kim Leslie Shafer (June 16, 2022) (‘‘[A]s an investor and a citizen, I support the SEC prescribing consistent, comparable, reliable and mandatory disclosure of climate-related information.’’); Neetin Gulati (June 17, 2022); Sandy Spears (June 16, 2022); R. Palacios. 140See letter from PwC (expressing concern about permitting registrants to incorporate by reference from their sustainability reports or corporate responsibility reports because such reports ‘‘may be prepared using a basis of presentation designed for a stakeholder group with different information needs than investors and other providers of capital’’). 141See Rule 13a–15 and Rule 15d–15 [17 CFR 240.13a–15 and 17 CFR 240.15d–15]. Pursuant to Exchange Act Rules 13a–15 and 15d–15, a company’s principal executive officer and principal financial officer must make certifications regarding the maintenance and effectiveness of disclosure controls and procedures. These rules define ‘‘disclosure controls and procedures’’ as those controls and procedures designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is (1) ‘‘recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms,’’ and (2) ‘‘accumulated and communicated to the company’s management . . . as appropriate to allow timely decisions regarding required disclosure.’’ 142See, e.g., letter from Ceres; see also letter from Calvert (stating that ‘‘we believe the disclosures mandated by the SEC in the proposed
rule should be filed in annual reports, as well as quarterly reports where appropriate’’ because ‘‘it is supported by disclosure controls, CEO/CFO certification, audit requirements and a level of scrutiny by management appropriate for climate risks’’). 143See supra notes 115 and 116 and accompanying text. 144See supra note 111 and accompanying text. 145See supra note 107 and accompanying text. 146See, e.g., supra note 109 and accompanying text. 147See supra sections I.B. In this regard, we note that some commenters recommended that the Commission require or allow the use of the ISSB’s climate-related disclosure standards as an alternative to the Commission’s climate disclosure rules. See supra note 120 and accompanying text. While we acknowledge that there are similarities between the ISSB’s climate-related disclosure standards and the final rules, and that registrants may operate or be listed in jurisdictions that will adopt or apply the ISSB standards in whole or in
part, those jurisdictions have not yet integrated the
ISSB standards into their climate-related disclosure rules. Accordingly, at this time we decline to recognize the use of the ISSB standards as an alternative reporting regime. 148The IFRS Foundation refers to the International Financial Reporting Standards Foundation, whose mission is to develop high￾quality IFRS Standards that bring transparency, accountability, and efficiency to financial markets around the world. See IFRS—Who we are, available at https://www.ifrs.org/about-us/who-we-are/. 149See 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/. See also Proposing Release, section I.C.2. institutional 138 and retail investors 139 have stated that they found much of the voluntary climate-related reporting to be lacking in quality and completeness and difficult to compare and as a result have incurred costs and inefficiencies when attempting to assess climate-related risks and their effect on the valuation of a registrant’s securities. Moreover, although the 2010 Guidance reflects that climate-related information may be called for by current Commission disclosure requirements, climate-related information has often been provided outside of Commission filings, such as in sustainability reports or other documents posted on registrants’ websites, which are not subject to standardized disclosure rules, and, as noted by some commenters, are not necessarily prepared with the informational needs of investors in mind.140 Such information also may not be prepared with the same level of rigor that results from the disclosure controls and procedures (‘‘DCP’’) required for disclosure in Commission filings,141 and as a result may not be as reliable.142 Consistent with and as authorized by our enabling statutes, we are adopting the climate-related disclosure requirements discussed herein, so that investors will have the information they need to make informed investment and voting decisions by evaluating a registrant’s exposure to material climate-related risks. We modeled the proposed disclosure requirements in large part on the TCFD framework. As discussed in the Proposing Release and as many commenters noted, that framework has been widely accepted by issuers and investors.143 The TCFD framework focuses on matters that are material to an investment or voting decision and is grounded in concepts that tie climate-related risk disclosure considerations to matters that may affect the results of operations, financial condition, or business strategy of a registrant. Because the TCFD framework is intended to elicit disclosure of climate-related risks that have materially affected or are reasonably likely to materially affect the business, results of operations, or financial
condition of a company, it served as an appropriate model for the Commission’s proposed climate-related disclosure rules. We therefore disagree with commenters that stated that the Commission’s proposed rules would require disclosure of information that is primarily of general or environmental interest and not of financial interest.144 The final rules continue to reflect many of the TCFD’s recommendations, modified based on the input of commenters, which will enhance the usefulness and comparability of the required climate-related disclosures for investors and better serve their informational needs when making investment and voting decisions.145 At the same time, in consideration of some commenters’ concerns,146 we have revised the proposed climate-related disclosure requirements in certain respects to reduce the likelihood that the final rules result in disclosures that could be less useful for investors and costly for registrants to produce and to provide added flexibility for registrants regarding the content and presentation of the disclosure. Modeling the climate￾related disclosure requirements on the TCFD framework while also adopting these revisions will help mitigate the compliance burden of the final rules, particularly for registrants that are already providing climate-related disclosures based on the TCFD framework or soon will be doing so pursuant to other laws or regulations.147 In this regard, we note certain ongoing developments related to climate-risk reporting:

• The formation of the ISSB by the
  IFRS Foundation 148 in November 2021, which consolidated several sustainability disclosure organizations into a single organization.149 In June

150 IFRS S1 sets out the general requirements for a company to disclose information about its sustainability related risks and opportunities. IFRS S2 sets out the requirements for companies to disclose information about their climate-related risks and opportunities, building on the requirements in IFRS S1. See IFRS—Project Summary IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (June 2023), available at https://www.ifrs.org/content/dam/ifrs/ project/general-sustainability-related-disclosures/ project-summary.pdf. 151Concurrent with the release of its 2023 status report, the TCFD fulfilled its remit and transferred to the ISSB its responsibility for tracking company activities on climate-related disclosure. Fin. Stability Bd., FSB Roadmap for Addressing Financial Risks from Climate Change Progress Report (July 13, 2023), available at https:// www.fsb.org/wp-content/uploads/P130723.pdf. As discussed infra, the TCFD recommendations are incorporated into the ISSB standards. Although the TCFD has disbanded, in this release we continue to refer to ‘‘TCFD recommendations’’ as distinct from ISSB standards, both for clarity and because not all jurisdictions that implemented TCFD-aligned disclosure requirements have implemented the broader and more recent ISSB standards. 152For example, the UK has announced that its Sustainability Disclosure Standards (‘‘SDS’’) will be based on the ISSB Standards. See Dep’t of Bus. & Trade, UK Sustainability Disclosure Standards, Gov.UK (Aug. 2, 2023), available at https:// www.gov.uk/guidance/uk-sustainability-disclosure￾standards. Australia recently published draft legislation mandating comprehensive climate￾related reporting and assurance for large and medium-sized companies that is aligned with the ISSB Standards. See Australian Government-the Treasury, Climate-related financial disclosure:
exposure draft legislation (Jan. 12, 2024), available at https://treasury.gov.au/consultation/c2024- 466491. 153See Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance), available at https://eur-lex.europa.eu/legal-content/EN/TXT/ ?uri=uriserv%3AOJ.L_.2022.322.01.0015.01.ENG. In adopting the CSRD, 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. 154See id. The CSRD requires large companies and listed companies to publish regular reports on the social and environmental risks they face, and how their activities impact people and the environment. In July 2023, the European Commission (‘‘EC’’) adopted the delegated act containing the first set of ESRS under the CSRD and the ESRS became effective on Jan. 1, 2024, for companies within scope of the first phase of reporting under the CSRD. See EC, Corporate sustainability reporting, available at https://finance. ec.europa.eu/capital-markets-union-and-financial￾markets/company-reporting-and-auditing/ company-reporting/corporate-sustainability￾reporting_en (last visited Feb. 6, 2024). See also EC Press Release, The Commission Adopts the European Sustainability Reporting Standards (July 31, 2023), available at https://finance.ec.europa.eu/ news/commission-adopts-european-sustainability￾reporting-standards-2023–07–31_en. Separate reporting standards will be developed for SMEs and certain non-EU companies operating in the EU. See EC, Questions and Answers on the Adoption of European Sustainability Reporting Standards (July 31, 2023), https://ec.europa.eu/commission/ presscorner/detail/en/qanda_23_4043. 155See SB–261, Greenhouse gases: climate￾related financial risk (Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNav Client.xhtml?bill_id=202320240SB261. 156See SB–253, Climate Corporate Data Accountability Act (Oct. 7, 2023), available at https://leginfo.legislature.ca.gov/faces/billNav Client.xhtml?bill_id=202320240SB253. The Act directs the California Air Resources Board (CARB) to adopt regulations to implement the requirements of the Act, with disclosures being required as early as 2026, subject to the CARB’s finalization of the rules. The Act further requires the disclosure of Scope 1 and Scope 2 emissions to be subject to assurance, which must be performed at a limited assurance level beginning in 2026 and at a reasonable assurance level beginning in 2030. See SB–253, section II.c.1.F.ii. The statute is currently subject to litigation. See Compl., Chamber of Commerce v. California Air Resources Board,
No. 2:24–cv–00801 (D. C.D. Cal. Jan. 30, 2024). 157See SB–253, supra note 156, at section 1 (stating that ‘‘Californians are already facing devastating wildfires, sea level rise, drought, and other impacts associated with climate change that threaten the health and safety of Californians. . .’’). 158See letter from Petrol. OK. 2023, the ISSB issued General Requirements for Disclosure of Sustainability-related Financial Information (‘‘IFRS S1’’) and Climate￾related Disclosures (‘‘IFRS S2’’).150 Notably, IFRS S1 and S2 integrate the recommendations of the TCFD.151

• Several jurisdictions have
  announced plans to adopt, apply, or otherwise be informed by the ISSB standards, including Australia, Brazil, Canada, Hong Kong, Japan, Malaysia, Nigeria, Singapore, and the United Kingdom (‘‘UK’’), although it is not yet clear how specifically the ISSB standards may be incorporated into certain foreign legal frameworks.152
• Other jurisdictions were already
  well advanced in the process of adopting climate disclosure rules when the ISSB standards were announced. For example, in 2022, the European Union (‘‘EU’’) adopted the Corporate Sustainability Reporting Directive (‘‘CSRD’’),153 which requires certain large and listed companies and other entities, including non-EU entities, to report on sustainability-related issues in line with the European Sustainability Reporting Standards (‘‘ESRS’’).154
• California recently adopted the
  Climate-Related Financial Risk Act (Senate Bill 261), which will require certain public and private U.S. companies that do business in California and have over $500 million in annual revenues to disclose their climate-related financial risks and measures based on the TCFD recommendations or a comparable disclosure regime in a report published biennially on the company’s website commencing no later than January 2026.155
• In addition, California recently
  adopted the Climate Corporate Data Accountability Act (Senate Bill 253), which will require certain public and private U.S. companies that do business in California and have over $1 billion in annual revenues to disclose their GHG emissions (Scopes 1 and 2 emissions by 2026 and Scope 3 emissions by 2027).156 These laws may reduce the compliance burden of the final rules to the extent they impose similar requirements for registrants that are subject to them. However, the disclosure required by these laws will appear in documents outside of Commission filings and therefore will not be subject to the same liability, DCPs, and other investor protections as the climate￾related disclosures required under the final rules. In addition, these laws may serve different purposes than the final rules or apply different materiality or other standards. For example, the California laws were adopted to protect the health and safety of California residents,157 among other reasons, whereas we are adopting the final rules to enhance disclosures of emergent risks companies face so that investors can have the information they need to make informed investment and voting decisions. Regardless of the extent of overlap with other jurisdictions’ reporting requirements and consistent with the Commission’s mission, the final rules are tailored to the particular needs of investors and the specific situations of Commission registrants, as documented in the comment file, and are designed to work within the existing framework of U.S. securities laws that call for disclosure about the material risks that companies face. Integrating the required disclosures into the existing framework of U.S. securities laws will provide investors with more complete information about a company, the risks it faces, and its business, finances, and results of operations while affording investors the protections of the securities laws for this information. We acknowledge the concerns expressed by some commenters about relying on a third-party framework, such as the TCFD, that may not afford affected parties the ability to provide input on potential future changes.158 While we considered the TCFD framework in both proposing and now adopting the Commission’s own climate-related disclosure rules, the final rules do not incorporate the TCFD recommendations or its procedures. Any future updates to the TCFD framework or any successor framework will have no bearing or impact on the

159See TCFD, Implementing the Recommendations of the Task Force on Climate￾related Financial Disclosures (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/ 07/2021–TCFD-Implementing_Guidance.pdf; infra
section II.E.2.
160See supra notes 125 and 126 and accompanying text. 161See supra note 130 and accompanying text. 162See, e.g., letter from Unilever. 163See discussion of 17 CFR 229.1508 infra
section II.M.
164See 17 CFR 230.411 and 17 CFR 240.12b–23. 165See 17 CFR 229.1508. 166See supra note 131 and accompanying text. 167See, e.g., letters from Microsoft; and SIFMA. 168See General Instruction G.3 of Form 10–K, which pertains to information permitted under Part III of Form 10–K, including, among other matters, Item 401 and certain provisions of Item 407. 169See infra section II.E.1. 170See supra note 164 and accompanying text. final rules without future action by the Commission. Any consideration of such updates by the Commission will be subject to the Commission’s own procedures, and any subsequent rulemaking to reflect those updates will be subject to the Administrative Procedure Act’s requirements, including notice and comment, as well as requirements under other relevant laws. The final rules also do not follow every TCFD recommendation. For example, unlike the TCFD, which recommends the disclosure of executive compensation that is linked to climate￾related risk management considerations, we have elected not to include such a requirement in the final rules, as discussed below.159 Like the proposed rules, the final rules amend Regulation S–K by adding a new section (subpart 1500) composed of the climate-related disclosure rules, other than for the financial statement disclosures, and Regulation S–X by adding a new article (Article 14) to govern the financial statement disclosures. We continue to believe that it is appropriate to amend Regulation S– K and Regulation S–X to require climate-related disclosures in Securities Act or Exchange Act registration statements and Exchange Act reports. Information about climate-related risks and their financial impacts is fundamental in many cases to understanding a company’s financial condition and operating results and prospects and therefore should be treated like other business and financial information, including information on risks to the company.160 The proposed rules would have required a registrant to include its climate-related disclosures, other than its financial statement disclosures, either in a separately captioned ‘‘Climate-Related Disclosure’’ section in the registration statement or Exchange Act annual report or in other parts of the Commission filing that would then be incorporated by reference into the separately captioned section. While some commenters supported this proposal because it would facilitate the comparability of the disclosures among registrants,161 other commenters stated that existing parts of the registration statement or annual report could be more appropriate for placement of the climate-related disclosures, and indicated that it should be up to each registrant to determine the most suitable place for the disclosures according to the context of the disclosures and structure of the filing.162 While enhancing the comparability of climate-related disclosures remains an important objective of the rulemaking, we also recognize the benefits of granting each registrant
sufficient flexibility to determine the most appropriate location within a filing for the disclosures based on its particular facts and circumstances. Therefore, the final rules leave the placement of the climate-related disclosures, other than the financial statement disclosures, largely up to each registrant. Further, we are adopting as proposed structured data requirements that will enable automated extraction and analysis of the information required by the final rules, further facilitating investors’ ability to identify and compare climate-related disclosures, regardless of where they are presented.163 A registrant may elect to place most of the subpart 1500 disclosures in a separately captioned ‘‘Climate-Related Disclosure’’ section. Alternatively, a registrant may elect to include these climate-related disclosures in applicable, currently existing parts of the registration statement or annual report (e.g., Risk Factors, Description of Business, or MD&A). If it chooses the latter alternative, then the registrant should consider whether cross-referencing the other disclosures in the separately captioned section would enhance the presentation of the climate-related disclosures for investors. A registrant may also incorporate by reference some of the climate-related disclosures from other filed registration statements or Exchange Act reports if the incorporated disclosure is responsive to the topics specified in the Regulation S–K climate-related disclosure items and if the registrant satisfies the incorporation by reference requirements under the Commission’s rules and forms.164 In addition, any climate-related disclosure that is being incorporated by reference must include electronic tags that meet the final rules’ structured data requirement.165 As commenters noted, allowing incorporation by reference of climate￾related disclosures will avoid duplication in the filing, add flexibility regarding the presentation of the disclosures, and be consistent with the Commission’s incorporation by reference rules regarding other types of disclosure.166 Some commenters recommended that we permit a registrant to include disclosure regarding its climate-related corporate governance in its proxy statement, together with its discussion of other corporate governance matters, which would then be incorporated by reference into the registrant’s Form 10– K.167 Form 10–K currently permits the incorporation by reference pursuant to General Instruction G.3 of certain corporate governance matters from a proxy statement involving the election of directors.168 While disclosure pursuant to Item 401 of Regulation S– K, which pertains to the identification and business experience of directors and executive officers, is permitted to be incorporated by reference from the proxy statement, disclosure pursuant to Item 407(h) of Regulation S–K, which pertains to the board’s leadership structure and its role in risk oversight, is not one of the enumerated matters permitted to
be incorporated by reference from the proxy statement. As discussed below, the final rules do not include the proposed provisions that would have most likely elicited disclosure drawn from the information required by Item 401 (i.e., the proposed requirements to identify the board members responsible for the oversight of climate-related risks and to disclose whether any board member has expertise in climate-related risks).169 Additionally, the retained governance provisions of the final rules require disclosure that is relevant to understanding more generally the board’s oversight of climate-related risks and management’s role in assessing and managing such risks, and do not necessarily pertain to the election of directors. For these reasons, while the final rules do not preclude incorporation by reference from a registrant’s proxy statement to the extent allowed by existing rules,170 we decline to expressly permit the disclosure to be incorporated by reference from a registrant’s proxy statement pursuant to General Instruction G.3 of Form 10–K. Placement of the new disclosures required by the final rules in Commission filings further serves our

171See supra notes 141–142 and accompanying text. As we have stated before, a company’s disclosure controls and procedures should not be limited to disclosure specifically required, but should also ensure timely collection and evaluation of ‘‘information potentially subject to [required] disclosure,’’ ‘‘information that is relevant to an assessment of the need to disclose developments and risks that pertain to the [company’s] businesses,’’ and ‘‘information that must be evaluated in the context of the disclosure requirement of Exchange Act Rule 12b–20.’’ Certification of Disclosure in Companies’ Quarterly and Annual Reports, Release No. 33–8124 (Aug. 28,
2002) [67 FR 57275 (Sept. 9, 2002)].
172See, e.g., letter from Soc. Corp. Gov. (stating that the ‘‘subject of the Proposed Rule is clearly of great economic and political significance,’’ and that ‘‘[a]bsent express authorization by Congress, we believe that the SEC fundamentally lacks the authority to promulgate the Proposed Rule’’); see also letters from Bernard S. Sharfman (Feb. 6, 2024) (stating that the SEC ‘‘has exceeded its delegated authority in promulgating its proposed rule on climate-related disclosures by not adhering to the ascertainable standards found in the 33 and 34 Acts: ‘for the protection of investors,’ promoting ‘efficiency, competition, and capital formation,’ and ‘materiality’’’); Lawrence A. Cunningham and 21 other signatories (Apr. 25, 2022) (‘‘Cunningham et al.’’) (stating that the ‘‘EPA’s empowerment over this topic probably preempts any statutory authority the SEC might claim,’’ that ‘‘the SEC’s mission does not include adopting positions intended to promote particular conceptions of acceptable corporate behavior,’’ and that ‘‘[c]limate change is a politically-charged issue’’ and the ‘‘Proposal would compel corporations and officials to regularly speak on those issues’’); Patrick Morrisey, Attorney General of West Virginia, and the Attorneys General of 23 other states (‘‘Morrissey et al.’’) (June 15,
2022) (stating that the proposed rule ‘‘sidesteps the
materiality requirement,’’ ‘‘offends the major questions doctrine,’’ would ‘‘upend the balance between federal and state powers in the corporate sphere,’’ and that ‘‘if the SEC’s understanding of its powers were right, then the statutes providing it that authority would offend the non-delegation doctrine’’); and Andrew N. Vollmer (May 9, 2022) (stating that adopting the proposal would ‘‘determine significant national environmental policies without direction from Congress, creating a high risk of proving to be a futile gesture because of the likelihood that a court will overturn final rules’’); and Andrew N. Vollmer (Apr. 12, 2022) (stating that ‘‘[c]limate-change information is outside the scope of the subjects Congress has allowed the SEC to cover in disclosure rules, and adopting the Proposal would have a subject and objective different from the disclosure provisions in the federal securities laws’’); Jones Day; Chamber; Bernard S. Sharfman & James R. Copland (June 16,
2022) (‘‘Sharfman et al.’’).
173 15 U.S.C. 77g(a)(1).
174Securities Act section 7(a)(1) and Schedule A; see also Securities Act section 10(a) and (c) [15 U.S.C. 77j(a) and (c)] (generally requiring a prospectus to contain much of the same the information contained in a registration statement and granting the Commission the authority to require additional information in a prospectus as ‘‘necessary or appropriate in the public interest or for the protection of investors’’). 175 15 U.S.C. 78l(b) and (g). 176Exchange Act sections 12(b) and 12(g). 177Exchange Act section 13(a) [15 U.S.C. 78m(a)]. Other issuers that are required to comply with the reporting requirements of section 13(a) include those that voluntarily register a class of equity securities under section 12(g)(1), and issuers that file a registration statement under the Securities Act that becomes effective, pursuant to section 15(d) [15 U.S.C. 78o]. 178Securities Act section 7 [15 U.S.C. 77g]; see Exchange Act section 13(a) [15 U.S.C. 78m(a)] (‘‘necessary or appropriate for the proper protection of investors and to insure fair dealing in the security’’); see also Exchange Act sections 12, 13, and 15 [15 U.S.C. 78l, 78m, and 78o]. 179See NAACP v. Fed. Power Comm’n, 425 U.S. 662, 669–70 (1976) (‘‘[T]he use of the words ‘public interest’ in a regulatory statute . . . take meaning from the purposes of the regulatory legislation.’’). 180See, e.g., Securities Act of 1933, Pub. L. 73– 22, 48 Stat. 74, 74 (preamble) (‘‘An Act to provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof.’’); 15 U.S.C. 78b (‘‘Necessity for regulation’’); 15 U.S.C. 77b(b), 78c(f) (protection of investors, efficiency, competition, and capital formation); Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 178 (2015) (‘‘The Securities Act of 1933 . . . protects investors by ensuring that companies issuing securities (known as ‘issuers’) make a full and fair disclosure of information relevant to a public offering.’’ (quotation omitted)); Basic Inc. v. Levinson, 485 U.S. 224, 230 (1988) (‘‘The [Exchange] Act was designed to protect investors against manipulation of stock prices. Underlying the adoption of extensive disclosure requirements was a legislative philosophy: There cannot be honest markets without honest publicity . . . . This Court repeatedly has described the fundamental purpose of the [Exchange] Act as implementing a philosophy of full disclosure.’’ (quotation omitted)); see also Lorenzo v. SEC, 139 S. Ct. 1094, 1103 (2019) (‘‘The fundamental purpose’’ of the securities laws is substituting ‘‘a philosophy of full disclosure for the philosophy of caveat emptor.’’). 181See supra note 180; see also Nat’l Res. Def. Council, Inc. v. SEC, 606 F.2d 1031, 1050 (D.C. Cir.
1979) (‘‘The SEC . . . was necessarily given very
broad discretion to promulgate rules governing corporate disclosure. The degree of discretion accorded the Commission is evident from the language in the various statutory grants of rulemaking authority.’’); id. at 1045 (‘‘Rather than casting disclosure rules in stone, Congress opted to rely on the discretion and expertise of the SEC for a determination of what types of additional disclosure would be desirable.’’); H.R. Rep. No. 73– 1383, at 6–7 (1934). investor protection goals because it will subject these disclosures to DCPs. These controls and procedures will enhance not only the reliability of the climate￾related disclosures themselves, including both qualitative climate￾related information and quantitative climate-related data, but also their accuracy and consistency.171 B. Commission Authority To Adopt Disclosure Rules Some commenters 172 asserted that the Commission lacks authority to promulgate the proposed rules. We disagree. The rules we are adopting fall within the statutory authority conferred by Congress through the Securities Act and the Exchange Act. In section 7(a)(1) of the Securities Act,173 Congress authorized the Commission to require, in a publicly filed registration statement, that issuers offering and selling securities in the U.S. public capital markets include information—such as the general character of the issuer’s business, the remuneration paid to its officers and directors, details of its material contracts, and certain financial information—specified in Schedule A to that Act, as well as ‘‘such other information . . . as the Commission may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors.’’ 174 In addition, under sections 12(b) and (g) of the Exchange Act,175 issuers of securities traded on a national securities exchange or that otherwise have total assets and shareholders of record that exceed certain thresholds must register those securities with the Commission by filing a registration statement. That registration statement must contain ‘‘[s]uch information, in such detail, as to the issuer’’ regarding, among other things, ‘‘the organization, financial structure and nature of the [issuer’s] business’’ as the Commission by rule or regulation determines to be in the public interest or for the protection of investors.176 These same issuers must also provide, as the Commission may prescribe ‘‘as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security,’’ (1) ‘‘such information and documents . . . as the Commission shall require to keep reasonably current the information and documents required to be included in or filed with [a] . . . registration statement,’’ and (2) such annual and quarterly reports as the Commission may prescribe.177 As the text of each of these provisions demonstrates, Congress not only specified certain enumerated disclosures, but also authorized the Commission to update
and build on that framework by requiring additional disclosures of information that the Commission finds ‘‘necessary or appropriate in the public interest or for the protection of investors.’’ 178 When read in the context of these enumerated disclosures and the broader context of the Securities Act and Exchange Act, these provisions authorize the Commission to ensure that public company disclosures provide investors with information important to making informed investment and voting decisions.179 Such disclosure facilitates the securities laws’ core objectives of protecting investors, facilitating capital formation, and promoting market efficiency.180 Both courts and the Commission have long recognized as much.181 The Commission has amended its disclosure requirements dozens of times over the last 90 years based on the determination

182See SEC v. Life Partners Holdings, Inc., 854 F.3d 765 (5th Cir. 2017) (applying regulations regarding disclosure of risks and revenue recognition); SEC v. Das, 723 F.3d 943 (8th Cir.
2013) (applying Regulation S–K provisions
regarding related-party transactions and executive compensation); Panther Partners Inc v. Ikanos Communs., Inc., 681 F.3d 114 (2d Cir. 2012) (applying Item 303 of Regulation S–K, which requires disclosure of management’s discussion and analysis of financial condition); SEC v. Goldfield Deep Mines Co., 758 F.2d 459 (9th Cir. 1985) (applying disclosure requirement for certain legal proceedings). 183See, e.g., FAST Act Modernization and Simplification of Regulation S–K, Release No. 33– 10618 (Mar. 20, 2019) [84 FR 12674, 12676 (Apr. 2, 2019)] (stating that the amendments ‘‘are intended to improve the quality and accessibility of disclosure in filings by simplifying and modernizing our requirements’’ and ‘‘also clarify ambiguous disclosure requirements, remove redundancies, and further leverage the use of technology’’ which, the Commission expected, ‘‘will increase investor access to information without reducing the availability of material information’’); Disclosure Update and Simplification, Release No. 33–10532 (Aug. 17,
2018) [83 FR 50148, 50176–79 (Oct. 4, 2018)]
(discussing amendments to, among other things, eliminate certain disclosure requirements that ‘‘have become obsolete as the regulatory, business, or technological environments have changed over time’’). 184Prior to enactment of the Exchange Act, the Federal Trade Commission was empowered with administration of the Securities Act. 185 Items 3 through 5 of Form A–1; see Release No. 33–5 (July 6, 1933) [not published in the Federal Register]. The Commission’s disclosure requirements no longer explicitly call for this information. 186This early requirement called for certain information related to those legal proceedings, including a description of the origin, nature, and names of parties to the litigation. Item 17 of Form A–1. The Commission has retained a disclosure requirement related to legal proceedings in both Securities Act registration statements and in Exchange Act registration statements and periodic reports. See 17 CFR 229.103. 187See infra notes 200, 206–207 and accompanying text. 188 17 CFR 229.105(a); see also Adoption of Integrated Disclosure System, Release No. 33–6383 [47 FR 11380 (Mar. 16, 1982)] (‘‘1982 Release’’). Prior to 1982, the Commission stated in guidance that, if the securities to be offered are of a highly speculative nature, the registrant should provide ‘‘a carefully organized series of short, concise paragraphs summarizing the principal factors that make the offering speculative.’’ See Guides for Preparation and Filing of Registration Statements, Release No. 33–4666 (Feb. 7, 1964) [29 FR 2490 (Feb. 15, 1964)]. A guideline to disclose a summary of risk factors relating to an offering was first set forth by the Commission in 1968 and included consideration of five factors that may make an offering speculative or risky, including with respect to risks involving ‘‘a registrant’s business or proposed business.’’ See Guide 6, in Guides for the Preparation and Filing of Registration Statements, Release No. 33–4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 17, 1968)]. 189See 17 CFR 229.305; and Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments, Release No. 33–7386 (Jan. 31, 1997) [62 FR 6044 (Feb. 10, 1997)]. 190 17 CFR 229.305(a)(1). 191See 17 CFR 229.305(b). 192See 17 CFR 229.103; Modernization of Regulation S–K Items 101, 103, and 105, Release No. 33–10825 (Aug. 26, 2020) [85 FR 63726, 63740 (Oct. 8, 2020)] (‘‘The Commission first adopted a requirement to disclose all pending litigation that may materially affect the value of the security to be offered, describing the origin, nature and name of parties to the litigation, as part of Form A–1 in 1933.’’). 193See 17 CFR 229.101(c)(2)(i); Adoption of Disclosure Regulation and Amendments of Disclosure Forms and Rules, Release No. 33–5893 (Dec.
23, 1977) [42 FR 65554, 65562 (Dec. 30, 1977)] (‘‘Appropriate disclosure shall also be made as to the material effects that compliance with Federal, State and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon the capital expenditures, earnings and competitive position of the registrant and its subsidiaries.’’). 194See 17 CFR 229.402; Executive Compensation and Related Person Disclosure, Release No. 33– 8732 (Aug. 11, 2006 [71 FR 53158 (Sept. 8, 2006)]. 195See 17 CFR 229.407(h); Proxy Disclosure Enhancements, Release No. 33–9089 (Dec. 16, 2009) [74 FR 68334 (Dec. 23, 2009)]. 196See 17 CFR Subpart 1200 (Oil and Gas); 17 CFR Subpart 1300 (Mining); and 17 CFR Subpart 1400 (Banks and Savings and Loan). 197See 17 CFR Subpart 1100 (Asset-Backed Securities). that the required information would be important to investment and voting decisions. And courts have routinely applied and interpreted the Commission’s disclosure provisions without suggesting that the Commission lacked the authority to promulgate them.182 When determining that additional ‘‘information’’ is ‘‘necessary or appropriate’’ to protect investors, the Commission has responded to marketplace developments, investors’ need for information important to their decision-making, and advances in economic, financial, and investment analysis and analytical frameworks, as well of the costs of such disclosures. In addition, the Commission has eliminated existing disclosure requirements, or updated and tailored existing disclosures for similar reasons.183 For example, the Commission’s predecessor agency,184 immediately upon enactment of the Securities Act, relied upon Section 7 of that Act as authority to adopt Form A–1, the precursor to today’s Form S–1 registration statement, to require disclosure of information important to investor decision-making but not specifically enumerated in Schedule A of the Securities Act. This information included a list of states where the issuer owned property and was qualified to do business, the length of time the registrant had been engaged in its business,185 and a statement of all litigation that may materially affect the value of the security to be offered.186 The Commission has further exercised its statutory authority to require disclosures that provide investors with information on risks facing registrants. These specific disclosure items are consistent with the Commission’s longstanding view that understanding the material risks faced by a registrant and how the registrant manages those risks can be just as important to assessing its business operations and financial condition as knowledge about its physical assets or material contracts. These disclosures also reflect investors’ increased demand for, and growing ability to use, information regarding the risks faced by registrants through the application of increasingly
sophisticated and specialized measurement and analysis frameworks to make investment and voting decisions.187 For instance, the Commission in 1982 adopted a rule requiring registrants to disclose ‘‘Risk Factors,’’ i.e., a ‘‘discussion of the material factors that make an investment in the registrant or offering speculative or risky.’’ 188 Also, in 1997, the Commission first required registrants to disclose quantitative information about market risk.189 Those rules included requirements to present ‘‘separate quantitative information . . . to the extent material’’ for different categories of market risk, such as ‘‘interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market risks, such as equity price risk.’’ 190 Under these market risk disclosure requirements, registrants must also disclose various metrics such as ‘‘value at risk’’ and ‘‘sensitivity analysis disclosures.’’ In addition, registrants must provide certain qualitative disclosures about market risk, to the extent material.191 Commission rules have also required disclosures regarding specific elements of the risks facing registrants, such as a registrant’s material legal proceedings,192 as part of its description of business, the material effects that compliance with government regulations, including environmental regulations, may have upon a registrant’s capital expenditures, earnings, and competitive position,193 compensation discussion and analysis,194 and the extent of the board’s role in the risk oversight of the registrant.195 In addition, the Commission has adopted comprehensive disclosure regimes related to particular industries,196 offering structures,197 and types of transactions, when it has determined

198See 17 CFR Subpart 900 (Roll-Up Transactions); and 17 CFR Subpart 1000 (Mergers and Acquisitions). 199See Amendments to Annual Report Form, Related Forms, Rules, Regulations and Guides; Integration of Securities Acts Disclosure Systems, Release No. 33–6231 (Sept. 2, 1980) [45 FR 63630 (Sept. 25, 1980)]. Item 303 of Regulation S–K requires a registrant to discuss its financial condition, changes in its financial condition, and results of operations, 17 CFR 229.303(a), other disclosure items, see, e.g., 17 CFR 229.303(b)(1)(i), (1)(ii)(B), and (2)(ii), and requires registrants to ‘‘provide such other information that the registrant believes to be necessary to an understanding of its financial condition, changes in financial condition, and results of operation.’’ 17 CFR 229.303(b). 200Concept Release on Management’s Discussion and Analysis of Financial Condition and Operations, Release No. 33–6711 (Apr. 17, 1987) [52 FR 13715 (Apr. 24, 1987)]. The Commission also has stated that it is important that investors understand the extent to which accounting changes and changes in business activity have affected the comparability of year-to-year data and they should be in a position to assess the source and probability of recurrence of net income (or loss). Id. (quoting Guidelines for Registration and Reporting, Release No. 33–5520 (Aug. 14, 1974) [39 FR 31894 (Sept. 3, 1974)]). 201 In addition to Commission rules requiring disclosures regarding specific elements of the risks facing registrants that are discussed supra notes 192–198 and accompanying text, the Commission has adopted disclosure requirements that are similarly subject to substantive regulation under other statutes and by other agencies, as discussed infra note 207. 202See Environmental Disclosure, Interpretive Release No. 33–6130 (Sept. 27, 1979) [44 FR 56924 (Oct. 3, 1979)] (discussing this history); Proposed Amendments to Item 5 of Regulation S -K Regarding Disclosure of Certain Environmental Proceedings, Release No. 33–6315 (May 4, 1981) [46 FR 25638]; NRDC v. SEC, 606 F.2d 1031, 1036–42 (D.C. Cir.
1979) (same).
203See 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 requirement to disclose information regarding the material effects of compliance with Federal, State and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, on the registrant’s capital expenditures, earnings and competitive position, as well as the disclosure of its material estimated capital expenditures for environmental control facilities, to 17 CFR 229.101(c)(1)(xii). 204See 2010 Guidance. As the Commission discussed in the guidance, the agency reviewed its full disclosure program relating to environmental disclosures in SEC filings in connection with a Government Accountability Office review. Among other things, 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 MD&A; identified certain climate￾related issues that companies may need to consider in making their disclosures; and stated that registrants should consider any financial statement implications of climate change issues in accordance with applicable accounting standards. 205See Modernization of Regulation S–K Items 101, 103, and 105, Release No. 33–10825 (Aug. 26,
2020) [85 FR 63726 (Oct. 8, 2020)].
206See supra section I.A.
207The final rules are also consistent with other disclosure items that are similarly subject to substantive regulation under other statutes and by other agencies. For example, banks, bank holding companies, savings and loan associations, and savings and loan holding companies are subject to subpart 1400 of Regulation S–K despite the substantive jurisdiction and regulation of other state and Federal prudential regulators. Similarly, here, the importance of climate-related risks to investor decision-making makes them appropriate for disclosure regardless of other regimes that substantively regulate those issues. 208See Schedule A, paras. 25 and 26. The ‘‘form’’ required by the Commission includes both financial statements and notes to those statements. See 17 Continued that disclosure in those particular areas was justified.198 Relatedly, the Commission has exercised its statutory authority to require registrants to include in registration statements and annual reports a narrative explanation of a number of aspects of the issuer’s business, most prominently in the MD&A.199 These requirements are ‘‘intended to give the investor an opportunity to look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company,’’ and they reflected increased investor need for this type of information as an important tool to make investment and voting decisions.200 Finally, the Commission for the last fifty years has also required disclosure about various environmental matters.201 In adopting those requirements, the Commission recognized the number of ways that environmental issues can impact a company’s business and its financial performance and determined that these requirements would provide information important to investment and voting decisions. Throughout the 1970s and early 1980s, 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 relating to environmental protection were the subject of several rulemaking efforts, extensive litigation, and public hearings.202 As a result of this process, in 1982, the Commission adopted rules that address disclosure of certain environmental issues.203 More recently, the Commission published the 2010 Guidance, explaining how the Commission’s existing disclosure rules may require disclosure of the impacts of climate change on a registrant’s business or financial condition.204 And in 2020, the Commission amended its disclosure rules 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.205 Similarly, the Commission is adopting the final rules based on its determination that the
required disclosures will elicit information that investors have indicated is important to their investment and voting decisions.206 As explained throughout this release, climate-related risks can affect a company’s business and its financial performance and position in a number of ways. A growing number of investors across a broad swath of the market consider information about climate-related risks to be important to their decision-making. These investors have expressed the need for more reliable information about the effects of climate-related and other severe weather events or other natural conditions on issuers’ businesses, as well as information about how registrants have considered and addressed climate￾related risks when conducting operations and developing business strategy and financial plans. These rules respond to this need by providing investors more reliable and decision￾useful disclosure of strategies and risks that a registrant has determined will likely materially impact its business, results of operations, or financial condition. The disclosure of such information—whether climate-related or otherwise—falls within the authority conferred by Congress in the Securities Act and the Exchange Act.207 The Regulation S–X provisions of the final rules are also within the Commission’s authority. In addition to the statutory provisions discussed above, the Federal securities laws provide the Commission with extensive and specific authority to prescribe financial statement disclosures, set accounting standards, and establish accounting principles for entities that file financial statements with the Commission. As noted above, Section 7(a)(1) of the Securities Act specifies that a registration statement shall contain, among other things, the information specified in Schedule A. Schedule A in turn requires disclosure of balance sheet and profit and loss statement (i.e., comprehensive income statement) information ‘‘in such detail and in such form as the Commission shall prescribe.’’ 208 In addition, Section 12(b)

CFR 210.1–01(b) (specifying the term ‘‘financial statements’’ includes all notes to the statements and related schedules). 209 15 U.S.C. 78l(b)(1)(J) through (L). 210 15 U.S.C. 77s(a). 211 15 U.S.C. 78m(b)(1); see 15 U.S.C. 78w(a)(1) (‘‘The Commission . . . shall . . . have the power to make such rules and regulations as may be necessary or appropriate to implement the provisions of [the Exchange Act] for which [it is] responsible or for the execution of the functions vested in [it] by [the Exchange Act], and may for such purposes classify persons, securities, transactions, statements, applications, reports, and other matters within their respective jurisdictions, and prescribe greater, lesser, or different requirements for different classes thereof.’’); see also 15 U.S.C. 7218(c) (‘‘Nothing in the [Sarbanes￾Oxley Act of 2002] . . . shall be construed to impair or limit the authority of the Commission to establish accounting principles or standards for purposes of enforcement of the securities laws.’’); Policy Statement: Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter, Release No. 33–8221 (Apr. 25, 2003) [68 FR 23333, 23334 (May 1, 2003)] (‘‘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.’’). 212See Adoption of Regulation S–X, 5 FR 949, 954 (Mar. 6, 1940). 213See Improved Disclosures of Leases, Release No. 33–5401 (June 6, 1973) [38 FR 16085, 16085 (June 20, 1973)] (proposing amendments to Rule 3– 16 of Regulation S–X to require disclosure of, among other things, total rental expenses and minimum rental commitments, explaining that for many years corporate disclosure of leased assets ‘‘has not been sufficient to enable investors to determine the nature and magnitude of such assets, the size of financial commitments undertaken and the impact upon net income of this kind of financing’’); Improved Disclosures of Leases, Release No. 33–5428 (Oct. 23, 1973) [38 FR 29215 (Oct. 23, 1973)] (adopting amendments to Rule 3– 16); General Revision of Regulation S–X, Release No. 6233 (Sept. 25, 1980) [45 FR 63660, 63664 (Sept. 25, 1980)] (requiring separate disclosure of domestic and foreign pre-tax income, in part because the Commission had ‘‘seen substantial voluntary inclusion by registrants of this tax information in their annual reports to shareholders’’). 214See Amendments to Financial Disclosures About Acquired and Disposed Businesses, Release No. 33–10786 (May 20, 2020) [85 FR 54002 (Aug. 31, 2020)] (amending Regulation S–X as part of ‘‘an ongoing, comprehensive evaluation of our disclosure requirements’’ to improve for investors the financial information about acquired and disposed businesses); Financial Statements and Periodic Reports for
Related Issuers and Guarantors, Release No. 33–7878 (Aug. 4, 2000) [65 FR 51692 (Aug. 24, 2000)] (amending Regulation S– X to require additional disclosures relating to guaranteed securities, and explaining that the amendments codified Commission staff practices over the years and would eliminate uncertainty regarding financial statement requirements and ongoing reporting). 215See infra notes 1741 and 2133. See also infra note 1961 (commenters generally supportive of the proposed expenditure disclosures). 216See, e.g., letter from Morrisey et al. (June 15, 2022); see also note 172. 217See Gundy v. United States, 139 S. Ct. 2116, 2123 (plurality op.); see also note 182and accompanying text. 218Am. Power & Light Co. v. SEC, 329 U.S. 90, 104 (1946). of the Exchange Act provides the Commission with specific authority to require not only balance sheet and income statement disclosure, but also ‘‘any further financial statements which the Commission may deem necessary or appropriate for the protection of investors.’’ 209
Section 19(a) of the Securities Act
also grants the Commission extensive authority to ‘‘make, amend, and rescind such rules and regulations as may be necessary to carry out the provisions of,’’ the Securities Act, which includes ‘‘defining accounting, technical, and trade terms used in’’ the Securities Act. ‘‘Among other things,’’ this section grants the Commission the authority to ‘‘prescribe . . . the items or details to be shown in the balance sheet and earning statement, and the methods to be followed in the preparation of accounts, in the appraisal or valuation of assets and liabilities, in the determination of depreciation and depletion, in the differentiation of recurring and nonrecurring income, in the differentiation of investment and operating income, and in the preparation, where the Commission deems it necessary or desirable, of consolidated balance sheets or income accounts of any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.’’ 210 Sections 13 and 23 of the Exchange Act grant the Commission similar authority with respect to reports filed under that Act.211 Relying on these provisions, the Commission has prescribed the form and content of the financial statements to ensure that investors have access to information necessary for investment and voting decisions. The Commission adopted Regulation S–X in 1940, which governs the form and content of the financial statements, pursuant to its authority under, among other provisions, Sections 7 and 19(a) of the Securities Act and Sections 12 and 23(a) of the Exchange Act.212 Over time, the Commission has amended Regulation S–X to add, modify, and eliminate requirements, as appropriate, with respect to the form and content of the financial statements, taking into consideration the development of accounting practices in the marketplace, investors’ need for information important to their decision-making, as well of the costs of such disclosures. For example, the Commission has on numerous occasions amended Regulation S–X to require the disclosure of particular items of information in the balance sheet or in the income statement.213 The Commission has similarly amended Regulation S–X to require additional information in the financial statements with respect to particular issuers or types of transactions, when it has determined that action in those specific areas was responsive to the information needs of investors.214 Similarly, the Commission is adopting the final rules based on its determination that the required financial statement disclosures will provide investors with information that is important to their investment and voting decisions. Specifically, the Commission is exercising its authority to prescribe the content and form of the financial statements to require registrants to disclose certain information about costs and expenditures related to: (1) severe weather events and other natural conditions; and (2) in connection with
the purchase and use of carbon offsets and RECs, as well as certain information about financial estimates and assumptions, in the notes to the financial statements. As explained in greater detail below, investors have expressed a need for this information,215 and we believe the final rules will allow investors to make better informed investment or voting decisions by eliciting more complete disclosure of financial statement effects and by improving the consistency, comparability, and reliability of the disclosures. For similar reasons, we disagree with objections by commenters based on the non-delegation and major-questions doctrines.216 The non-delegation objection is misplaced because the long￾standing statutory authority that we rely on provides intelligible principles to which the Commission must conform in its rulemaking.217 Indeed, the Supreme Court early in the Commission’s history rejected a non-delegation challenge to one of the securities laws that the Commission administered, and the well￾tested delegation of rulemaking authority that we exercise here likewise falls comfortably within the Court’s holding that a delegation poses no constitutional difficulty when it provides standards that derive ‘‘meaningful content from the purpose of the Act, its factual background and the statutory context in which they appear.’’ 218 Also, the major-questions objection is misplaced because the Commission is not claiming to ‘‘discover in a long-extant statute an unheralded power representing a

219West Virginia v. EPA, 597 U.S. 697, 724 (2022) (quotations omitted). 220See, e.g., letters from Andrew N. Vollmer (May 9, 2022); Andrew N. Vollmer (Apr. 12, 2022); Morrisey et al. (June 15, 2022); Cunningham et al. (Apr. 25, 2022); Sharfman et al. For similar reasons, we disagree with commenters who suggested the disclosures required by the final rules impermissibly interfere with state corporate law. See, e.g., letters from Morrisey et al. (June 15, 2022); Cunningham et al. (Apr. 25, 2022) Sharfman et al. 221See, e.g., letters from Cunningham et al. (Apr. 25, 2022); Morrisey et al. (June 15, 2022); Sean J. Griffith (June 1, 2022); Jones Day; Chamber; Sharfman et al. 222See Proposing Release, section II.B.1. 223See id. 224See TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures,
Appendix 5 available at https://assets.bbhub.io/
company/sites/60/2020/10/FINAL-2017-TCFD￾Report-11052018.pdf. 225See Proposing Release, section II.B.1. 226See id. 227See id. 228See id. 229See id. 230See id. 231See id. 232See id. 233See id. 234See id. 235See id. 236See id. transformative expansion in [its] regulatory authority.’’ 219 Nor is it seeking to determine national environmental policy or dictate corporate policy, as commenters suggest.220 Rather, it is adopting the final rules based on its long standing authority to require disclosures that provide investors with information that is important to their investment and voting decisions, as discussed above. Consistent with this authority and its traditional role, the Commission is agnostic as to whether and how issuers manage climate-related risks so long as they appropriately inform investors of material risks. Finally, we disagree with commenters who raised objections to the proposed rules on First Amendment grounds.221 The required disclosures are factual information about certain risks companies face to their businesses, finances, and operations–the type of information that companies routinely disclose when seeking investments from the public. And as discussed throughout this release, these required disclosures also advance crucial interests: the final rules respond to the growing investor need for more reliable information regarding climate-related risks by providing investors with information that is important to their investment and voting decisions. Further, the final rules have been appropriately tailored to serve those interests, including with a number of significant changes having been made from the proposal to take account of the burdens imposed by requiring such disclosures.
C. Disclosure of Climate-Related Risks

1. Definitions of Climate-Related Risks
   and Climate-Related Opportunities (Items 1500 and 1502(a)) a. Proposed Rule The Commission proposed to 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.222 As proposed, a registrant could also optionally disclose the actual and potential impacts of any climate￾related opportunities it is pursuing.223 The Commission proposed definitions of ‘‘climate-related risks’’ and ‘‘climate￾related opportunities’’ that were substantially similar to the TCFD’s corresponding definitions of those terms 224 to provide a common terminology that would allow registrants to disclose climate-related risks and opportunities in a consistent and comparable way. In the Proposing Release, the Commission expressed its belief that grounding the definitions in a framework that is already widely accepted could help limit the burden on registrants to identify and describe climate-related risks while improving the comparability and usefulness of the disclosures for investors.225 The Commission proposed to 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 a whole.226 The Commission proposed to define ‘‘value chain’’ to mean the upstream and downstream activities related to a registrant’s operations.227 Under the proposed definition, upstream activities would 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 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).228 The Commission 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.229 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’’). The Commission proposed to define ‘‘physical risks’’ to include both acute and chronic risks to a registrant’s business operations or the operations of those with whom it does business.230 The Commission proposed to define ‘‘acute risks’’ to mean event-driven risks related to shorter-term extreme weather events, such as hurricanes, floods, and tornadoes.231 Under the proposed rule, ‘‘chronic risks’’ would be defined to mean those risks that a business may face as a result of
   longer term weather 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.232 The Commission proposed to 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.233 Transition risks would include, but not be 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.234 The Commission proposed to 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.235 If a physical risk, the rule proposal would require a registrant to describe the nature of the risk, including whether it may be categorized as an acute or chronic risk.236 A registrant would also be required to describe the location and nature of the properties, processes, or operations subject to the physical

237See id.
238See id.
239See id.
240See id.
241See id.
242See id.
243See id.
244See, e.g., letters from Acadian Asset Management (June 14, 2022) (‘‘Acadian Asset Mgmt.’’); AGs of Cal. et al.; AllianceBernstein; Amer. for Fin. Reform, Evergreen Action et al.; As You Sow; CalPERS; CalSTRS; Center for American Progress (June 17, 2022) (‘‘Center Amer. Progress’’); CFA; Domini Impact; D. Hileman Consulting; Eni SpA; IAA; ICI; Impax Asset Mgmt.; KPMG (June 16, 2022); Moody’s Corporation (June 17, 2022) (‘‘Moody’s’’); Morningstar; NY SIF; NY St. Comptroller; PRI; SKY Harbor; TotalEnergies SE (June 17, 2022) (‘‘TotalEnergies’’); Unilever; and Wellington Mgmt. 245See letter from AllianceBernstein. 246See letter from Center Amer. Progress. 247See letter from AGs of Cal. et al. 248See letter from Wellington Mgmt; see also letter from Farm Girl Capital (June 17, 2022) (‘‘FGC’’) (stating that ‘‘disclosure of material and systemic risks of climate change will help companies and investors to understand, price, and manage climate risks and opportunities’’). 249See letter from SKY Harbor. 250See, e.g., letters from Beller et al.; BHP; CalSTRS; D. Hileman Consulting; Eni SpA; IAA; ICI; Impax Asset Mgmt.; KPMG; Moody’s; Morningstar; TotalEnergies; Unilever; and Wellington Mgmt. 251See letter from D. Hileman Consulting. 252See letter from ICI; see also letters from KPMG; and Morningstar. 253See letter from CEMEX. 254See letter from Amer. for Fin. Reform, Sunrise Project et al. 255See, e.g., letters from Beller et al.; CalSTRS; Eni SpA; IAA; Impax Asset Mgmt.; Moody’s; and Unilever. 256See letter from Moody’s. 257See id.; see also letter from Eni SpA. risk.237 The rule proposal defined ‘‘location’’ to mean a ZIP code or, in a jurisdiction that does not use ZIP codes, a similar subnational postal zone or geographic location. The Commission proposed to require additional disclosure from a registrant that has identified a climate-related risk related to flooding or high water stress. As proposed, if a risk concerns the flooding of buildings, plants, or properties located in flood hazard areas, the registrant would be required to disclose the percentage of those assets that are located in flood hazard areas in addition to their location.238 If a risk concerns the location of assets in regions of high or extremely high water stress, as proposed, the registrant would be required to disclose the amount of assets (e.g., book value and as a percentage of total assets) located in those regions in addition to their location. The registrant would also be required to disclose the percentage of the registrant’s total water usage from water withdrawn in those regions.239 The Commission proposed to require a registrant to describe the nature of an identified transition risk, including whether it relates 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.240 In this regard, the proposed
rule stated that a registrant that has significant operations in a jurisdiction that has made a GHG emissions reduction commitment may be exposed to transition risks related to the implementation of the commitment.241 As the Commission noted in the Proposing Release, climate-related conditions and any transition to a lower carbon economy may also present opportunities for registrants and investors.242 The rule proposal defined ‘‘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.243 b. Comments Many commenters supported the proposal to require a registrant to disclose any climate-related risks that are reasonably likely to have a material impact on its business or consolidated financial statements.244 These commenters provided various reasons for supporting the proposal. For example, one commenter noted that it views material climate-related risks and opportunities as fundamental financial factors that impact company cash flows and the valuation investors attribute to those cash flows and stated that the proposed rules will lead to ‘‘more consistent, comparable, and reliable disclosures that will enable investors to make better decisions on how and where to allocate capital.’’ 245 Another commenter stated that the proposed requirements would provide a thorough foundation for disclosure of climate risks, including future risks.246 A different commenter stated that the proposed disclosure requirement would ensure that investors receive specific, comparable details about registrants’ climate-related risks, which are currently lacking from many registrants.247 One other commenter stated that, based on its own research, most registrants are exposed to climate￾related risks, and without sufficient information regarding transition risks and physical risks facing a registrant, investors may be unable to correctly value a registrant’s securities, thus potentially paying too high or too low a price.248 One commenter stated that, because long-term climate-related risks can quickly become financially impactful, the proposed requirement would elicit disclosure that, at a minimum, would indicate the quality of a company’s governance and risk management.249 Many commenters supported the proposed definition of climate-related risk, including that the definition encompass both physical and transition risks, and further supported the proposed requirement to specify whether an identified climate-related risk is a physical or transition risk.250 One commenter stated that the proposed definition of climate-related risk is comprehensive and would help ensure that registrants consider a broad spectrum of climate-related risks.251 Another commenter expressed approval of the proposed definition of climate￾related risk because it is substantially similar to the TCFD’s definition of climate-related
risk, which is familiar terminology for investors and companies alike and therefore should promote consistent and comparable disclosure across companies.252 A different commenter stated that the definition of climate-related risk should include only the actual negative impacts of climate-related conditions and events, and not potential negative impacts, as proposed, but agreed that the definition should include both physical and transition risks because that would be consistent with the TCFD framework.253 One other commenter stated that the proposed definition of climate-related risk is generally ‘‘correct’’ because it is similar to the TCFD definition and would facilitate comparability of climate-related disclosure, but recommended that the Commission address in the definition the intersection of climate-related risks and adverse consequences to local communities.254 A number of commenters supported including in the proposed definition of physical risk both acute and chronic risks, and further supported specifying whether an identified physical risk is acute or chronic.255 One commenter stated that it supported the proposed disclosure of a physical risk, including whether the physical risk is acute or chronic, in addition to any transition risk, and noted that all these risk categories can have ‘‘financial materiality.’’ 256 This commenter did not, however, support requiring the disclosure of whether or how an acute risk and chronic risk may affect each other because of the complex interaction between the two types of risks.257

258See letter from IAA.
259See letter from Unilever.
260See letter from Amer. for Fin. Reform, Sunrise Project et al. 261See, e.g., letters from Amer. for Fin. Reform, Evergreen Action et al.; Bloomberg; BMO Global Asset Management (June 17, 2022) (‘‘BMO Global Asset Mgmt.’’); CalSTRS; Domini Impact; IAC Recommendation; IATP; Longfellow Investment Management (June 17, 2022) (‘‘Longfellow Invest. Mgmt.’’); Moody’s; Morningstar; NY St. Comptroller; PRI; TotalEnergies; UCS; and Wellington Mgmt. 262See, e.g., letters from BMO Global Asset Mgmt.; CalSTRS; IATP; and Morningstar. 263See IAC Recommendation. 264See, e.g., letters from Amer. for Fin. Reform, Evergreen Action et al.; IATP; and TotalEnergies. 265See letter from CalSTRS. 266See letter from Wellington Mgmt. 267See id. 268See, e.g., letters from Anthesis Group (June 16,
2022) (‘‘Anthesis’’); CalPERS; Domini Impact; Eni
SpA; ERM CVS (June 17, 2022); IAA; Moody’s; Morningstar; NRDC; PRI; TotalEnergies; and Wellington Mgmt. 269See, e.g., letters from Anthesis; CalSTRS; Domini Impact; ERM CVS; IAA; Moody’s; Morningstar; Paradice Investment Management (June 17, 2022) (‘‘Paradice Invest. Mgmt.’’); TotalEnergies; and Wellington Mgmt. 270See, e.g., letters from ERM CVS; IAA; Moody’s; and Morningstar. 271See, e.g., letters from Anthesis; CalPERS; IAA; and Morningstar. 272See, e.g., letters from Anthesis; NRDC; and PRI. 273See letter from CalPERS (recommending use of the First Street Foundation Flood Model). 274See letter from Moody’s; see also letter from Wellington Mgmt. (stating that, if address-specific locations are not required, the Commission should require the disclosure of methodologies and data sources used for flooding disclosure). 275See, e.g., letters from Eni SpA; Moody’s; Morningstar; SKY Harbor; TotalEnergies; and Wellington Mgmt. 276See, e.g., letters from Eni SpA; Morningstar; SKY Harbor; and TotalEnergies. 277See, e.g., letters from Boston Common Asset Mgmt.; CalPERS; Domini Impact; IAA; and ICCR. 278See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Domini Impact; D. Hileman Consulting; Eni SpA; Morningstar; NY SIF; PRI; PwC; TotalEnergies; US Technical Advisory Continued Another commenter similarly stated that, while it supported the disclosure of acute and chronic risks, because such risks are complex and may overlap, the Commission should clarify that companies can decide how to categorize acute and chronic risks and, where there may be overlap (e.g., wildfires can be both an acute and chronic risk to a company), the risk only needs to be identified once.258 A different commenter stated that it supported the proposed definition of climate-related risk, which includes acute and chronic risks within physical risk, because it aligned with the TCFD framework, and such alignment would be of significant benefit because it will help elicit comparable disclosures and help reduce the reporting burden.259 One other commenter, while acknowledging that the proposed definition of physical risk aligned with the TCFD framework, recommended that the Commission include, in the definition of chronic risk, systemic threats to public health and safety.260 Several commenters supported the proposed requirement to describe the location and nature of the properties, processes, or operations subject to the physical risk.261 Commenters stated that the proposed location disclosure would enable investors to more fully assess a registrant’s exposure to physical risks, such as extreme storm events, flooding, water shortages, and drought, which may be geographically specific, and whether the registrant is adequately taking steps (e.g., through adopting a transition plan) to mitigate or adapt to the physical risks.262 One commenter stated that ‘‘[i]nvestors and investment analysts are often tasked with understanding the risk that climate change poses
to physical assets that are critical to the company’s overall business model,’’ including both facilities owned by the company and those owned by key suppliers, and recommended that the Commission ‘‘require the disclosure of the locations of all material facilities i.e., geographical concentrations that pose material risks of loss.’’ 263 Some of these commenters also supported defining location by the ZIP code or other subnational postal zone if the ZIP code is not available.264 One commenter recommended using geographic coordinates to describe the location of assets subject to a material physical risk because they would better fit climate models.265 Another commenter recommended requiring the disclosure of specific addresses, and not just ZIP codes, to identify the location of assets subject to a material physical risk to enable investors to fully assess the registrant’s exposure to the physical risk.266 This commenter also urged the Commission to require the proposed disclosure with respect to all of a registrant’s locations that are material to its businesses rather than only the locations subject to a physical climate risk, stating that physical climate risk potentially impacts a registrant at all of its locations.267 Several commenters supported the proposed requirement to disclose the percentage of assets that are located in flood hazard areas if a registrant has determined that flooding is a material physical risk.268 Several commenters also supported the proposed requirement to disclose the amount of assets (e.g., book value and as a percentage of total assets) located in regions of high or extremely high water stress, and the percentage of the registrant’s total water usage from water withdrawn in those regions, if a registrant has determined that high or extremely high water stress is a material physical risk.269 Commenters stated that the proposed disclosure requirements would help investors understand the extent of the water-related risk to which a registrant is exposed.270 Some commenters generally stressed the importance to investors of obtaining quantitative data from registrants about the physical risks to which they are subject and recommended that the Commission require registrants to similarly provide the percentage of assets or other quantitative data relevant to assessing a registrant’s exposure to other material physical risks, such as heatwaves, droughts, and wildfires.271 With regard to flooding risk disclosure, some commenters recommended that the Commission require the use of Federal Emergency Management Agency’s (‘‘FEMA’s’’) flood hazard terminology and maps to help further the comparability of the disclosure.272 One commenter recommended the use of a different flood model that it believed was more up-to-date and more comprehensive than FEMA’s flood mapping.273 Another commenter supported an approach that would allow for different definitions of ‘‘flood hazard area’’ or ‘‘water-stressed area’’ to be used as long as the
registrant disclosed the source of the definitions together with the methodologies and assumptions used in disclosing the water-based physical risk.274 Several commenters supported the proposed provision requiring a registrant to describe the nature of an identified transition risk, including whether it relates 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.275 Some commenters also supported the proposed definition of transition risk.276 Several commenters stated that the Commission should include additional examples within the definition of transition risk, including the risk of impacts on local and indigenous communities and workers caused by a transition to a lower carbon economy.277 Several commenters supported including the negative impacts on a registrant’s value chain in the definition of climate-related risk, as proposed.278

Group to TC207 (June 17, 2022) (‘‘US TAG TC207’’); and Wellington Mgmt. 279See letter from PwC. This commenter provided the following examples of when climate￾related risks involving a registrant’s value chain may be more important to investors than such risks involving the registrant’s own operations: the manufacturer of ‘‘a product reliant on a rare mineral for which mining may be limited due to emissions created in extraction, precursor manufacturing, and transport, or, alternatively, a lender whose primary business is financing emissions-intensive operations.’’ 280See letter from Eni SpA. 281See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; and Morningstar. 282See letter from Morningstar; see also letter from D. Hileman Consulting (stating that if the Commission defines value chain, it should adopt a definition that is already well-established, such as the GHG Protocol’s definition of value chain). 283See, e.g., letters from ABA; American Chemistry Council (June 17, 2022) (‘‘Amer. Chem.’’); American Fuel and Petrochemical Manufacturers (June 17, 2022) (‘‘AFPM’’); Biotechnology Innovation Organization (June 17,
2022) (‘‘BIO’’); Business Roundtable; Chamber;
Davis Polk (June 9, 2022); Fenwick West; GPA Midstream Association (June 17, 2022) (‘‘GPA Midstream’’); Insurance Coalition (June 17, 2022) (‘‘IC’’); Nareit (June 17, 2022) (‘‘Nareit’’); National Mining Association (June 17, 2022) (‘‘NMA’’); Retail Industry Leaders Association (June 17, 2022) (‘‘RILA’’); and Soc. Corp. Gov. 284See, e.g., letters from AFPM; BIO; and GPA Midstream. 285See, e.g., letters from ABA; Amer. Chem.; AFPM; Business Roundtable; Chamber; Davis Polk; Fenwick West; Nareit; NMA; RILA; SIFMA; and Soc. Corp. Gov. 286See, e.g., letters from ABA; Allstate Corporation (June 17, 2022) (‘‘Allstate’’) (‘‘Requiring information at a granular level such as ZIP code would create an operational burden and would produce an excessive amount of information that we expect would not be decision-useful for most investors.’’); Amer. Chem.; AFPM; BOA; Business Roundtable; Chamber; Davis Polk; NAM; Nareit; PGIM (June 17, 2022); RILA; SIFMA; and Soc. Corp. Gov. 287See, e.g., letters from ABA; Fenwick West; GPA Midstream; and Nareit. 288See, e.g., letters from IC; NAM; National Grid; RILA; and Soc. Corp. Gov. 289See, e.g., letters from NMA; and RILA; see also letter from IC (stating that the proposed climate risk disclosure requirement raises concerns for insurers because there is no consensus scientific method for insurers to distinguish between weather-related risks and climate-related risks). 290See letter from PwC. 291See, e.g., letters from ABA; AFPM; BOA; and D. Hileman Consulting. 292See letter from AFPM; see also letter from BOA (stating that investors would not be able meaningfully to compare water-stress risks across different companies without standard definitions for ‘‘high water-stress’’ and ‘‘extreme high water￾stress.’’). 293See letter from AFPM; see also letter from ABA (stating that by proposing highly prescriptive disclosure requirements, such as those based on flood hazard areas or assets of ‘‘high or extremely high water stress,’’ the Commission may potentially narrow disclosures related to the full range of environmental or climate issues that are materially relevant to a registrant’s business and strategy); and D. Hileman Consulting (stating that it is not necessary for the Commission to enumerate specific climate-related risks, such as flooding or water stress, as there is the risk that registrants could downplay other types of risk). 294See letter from BIO. 295See, e.g., letters from CEMEX; and NAM. 296See, e.g., letters from Airlines for America (June 17, 2022); Allstate; Alphabet et al.; American Council for Capital Formation (June 17, 2022) (‘‘ACCF’’); Chamber; Enbridge Inc. (June 16, 2022) (‘‘Enbridge’’); Interstate Natural Gas Association of America (June 17, 2022) (‘‘INGAA’’); PwC; and United States Council for International Business (June 17, 2022) (‘‘USCIB’’). 297See, e.g., letters from ACCF; and Allstate. 298See letter from Alphabet et al. One commenter stated that because information concerning climate-related risks
involving a registrant’s value chain may be more important to investors than such risks involving a registrant’s own operations, disclosure of climate-related risks in the value chain should be an integrated part of the broader disclosures about the material climate￾related risks management is assessing, managing, and reporting to the board, despite the difficulty of providing such value chain information.279 Another commenter stated that it supported including value chain impacts in the definition of climate-related risk as long as such impacts relate to direct impacts on a registrant’s operations.280 Some commenters also supported the proposed definition of value chain to mean the upstream and downstream activities related to a registrant’s operations.281 One commenter stated that the definition of value chain should be consistent with the definition provided by the GHG Protocol.282 Many other commenters opposed the proposed climate-related risk disclosure requirement.283 Some of these commenters contended that the Commission’s rules already require a registrant to disclose material climate risks, and that therefore there is no need for the proposed climate-related risk disclosure requirement.284 Several other commenters stated that the proposed climate-related risk disclosure requirement would inundate investors with an extensive amount of granular information that is largely immaterial.285 Commenters provided as an example of such immaterial disclosure the proposed requirement to disclose the ZIP codes of assets located in flood hazard areas or other regions in which a registrant’s assets are subject to a material climate-related risk.286 Some commenters stated that the highly detailed disclosure required by the proposed climate risk disclosure rule would confuse investors by causing them to believe that a climate-related risk is more important than other disclosed risks that are presented in less detail.287 Some commenters also stated that the overly granular disclosure elicited by the proposed rule would potentially require registrants to disclose competitively sensitive information.288 Other commenters stated that, due to uncertainties in climate science, and uncertainties regarding some of the underlying concepts upon which the proposed climate risk disclosure requirement is based, the disclosure of material climate-related risks would be unduly burdensome for many registrants.289 Another commenter stated that a registrant should only be required to disclose a climate-related risk that management is assessing, managing, and reporting to the board, rather than disclosing information regarding any climate risk.290 Several commenters also opposed the proposed disclosure requirements concerning the percentage of assets located in flood zones and similar quantitative data for assets located in high water-stressed areas.291 One commenter stated that flood risks and high water-stress risks are not comparable within a firm, across sectors, and
across regions of the country, so investors are unlikely to make investment decisions based on this information.292 This commenter further stated that the Commission has not justified singling out risks relating to flooding and high water stress for detailed prescriptive disclosures, which dilutes the importance of other material information.293 One other commenter stated that the proposed flood risk requirement is not necessary because the majority of companies are not subject to such physical risk.294 Other commenters stated that such granular disclosure for water-related physical risks would impose a heavy reporting burden for registrants and could raise competitive and security risk concerns.295 Several commenters also opposed the proposed transition risk disclosure requirement, including the proposed definition of transition risk.296 Some commenters stated that the proposed requirement would result in overly granular disclosure that would not be decision-useful for investors and would be burdensome for registrants to produce.297 One commenter stated that the proposed definition was overly broad and would require a registrant to make the difficult determination of whether a particular activity was undertaken to address a transition risk or was part of a registrant’s normal business strategy.298 Another commenter stated that it would be challenging for companies doing business in multiple markets to provide comparable, consistent, and reliable

299See letter from USCIB.
300See letters from Airlines for America; and Chamber. 301See letter from INGAA. 302See letter from PwC. 303See, e.g., letters from Airlines for America; Arizona Farm Bureau Federation (June 17, 2022) (‘‘AZ Farm’’); California Farm Bureau (June 17,
2022) (‘‘CA Farm’’); Chamber; CEMEX;D. Burton,
Heritage Fdn.; Energy Transfer LP (June 17, 2022) (‘‘Energy Transfer’’); Georgia Farm Bureau (‘‘June 17, 2022) (‘‘GA Farm’’); GPA Midstream; HP; Indiana Farm Bureau (June 17, 2022) (‘‘IN Farm’’); National Agricultural Association (June 17, 2022) (‘‘NAA’’); Pennsylvania Farm Bureau (June 17,
2022) (‘‘PA Farm); Soc. Corp. Gov.; United Airlines
Holdings, Inc. (June 17, 2022) (‘‘United Air’’); Western Midstream; and Williams Cos. 304See, e.g., letters from CEMEX; GPA Midstream; HP; Soc. Corp. Gov.; United Air; Western Midstream; and Williams Cos. 305See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN Farm; NAA; and PA Farm. 306See, e.g., letters from Energy Transfer; HP; and Western Midstream. 307See, e.g., letters from CEMEX; GPA Midstream; HP; NAA; United Air; Western Midstream; and Williams Cos.; see also letter from Soc. Corp. Gov. (stating that ‘‘the required disclosure should be limited to climate-related risks, including value chain-related risks, reasonably likely to materially impact the registrant’s financial statements and operations’’). 308See, e.g., letters from ABA; API; Chamber; NAM; SIFMA; and Soc. Corp. Gov. 309See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; CEMEX; NY City Comptroller; and TotalEnergies. 310See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Bloomberg; CEMEX; Eni SpA; Hannon Armstrong (June 17, 2022); IATP; NY City Comptroller; and TotalEnergies. 311See, e.g., letters from Anthesis; Bloomberg; CEMEX; and Eni SpA; see also letter from Cleveland-Cliffs, Inc. (June 16, 2022) (‘‘Cleveland￾Cliffs’’) (opposing required disclosure of climate￾related opportunities because such disclosures ‘‘are likely to be optimistic, overestimated projections at best’’). 312See, e.g., letters from Morningstar; PwC; and World Business Council for Sustainable Development (Jun. 16, 2022) (‘‘WBCSD’’). 313See 17 CFR 229.1502(a). 314See supra note 284 and accompanying text. 315See, e.g., supra note 102 and accompanying text; infra notes 395–397 and accompanying text. 316See supra notes 244–249 and accompanying text. 317See supra notes 283 and 285. disclosure about transition risks given complex, dynamic, and varied global factors.299 Other commenters stated that because the proposed definition of transition risk would require a registrant to consider impacts on its value chain, the resulting disclosures are likely to be overly detailed and could obscure more important information.300 One other commenter stated that the proposed transition risk disclosure requirement would be difficult to comply with because of the speculative nature of certain transition risks.301 A different commenter stated that because of the broad definition of transition risk, the Commission should provide additional guidance regarding the scope of the transition risk disclosure requirement.302 Many commenters opposed including the negative impacts on a registrant’s value chain in the definition of, and related disclosure requirement concerning, its climate-related risks.303 Commenters stated that the proposed definition would impose impractical burdens on registrants by forcing them to obtain and assess climate risk information about their third-party suppliers and customers over which they have little to no control.304 Commenters in the
agricultural sector were particularly opposed to the proposed definition because it would impose costs and burdens on farmer and rancher suppliers, many of whom are private entities, to produce the information needed by registrants to comply with the proposed climate￾related risk requirement.305 Other commenters stated that, due to the inability to obtain such third-party information, the proposed disclosure requirement is likely to elicit boilerplate disclosure about the climate-related risks of a registrant’s value chain.306 Because of these concerns, several commenters requested that the Commission remove the concept of value chain from the scope of the climate risk disclosure requirement.307 More generally, several commenters stated that any Commission climate risk disclosure requirement should be more principles-based and grounded on traditional notions of materiality.308 Many commenters supported the proposed definition of climate-related opportunities because it is consistent with the TCFD definition.309 Many commenters also supported keeping the disclosure of climate-related opportunities optional, as proposed.310 Some of these commenters expressed the view that, while disclosure of climate-related opportunities can provide insight into a registrant’s management of climate-related risks and its related strategy, mandatory disclosure of climate-related opportunities could lead to greenwashing.311 Some commenters, however, stated that disclosure of climate-related opportunities should be mandatory because such opportunities are frequently related to the reduction of climate-related risks and would provide investors with a more balanced perspective of the overall impacts of climate on a company’s business and operating performance.312
c. Final Rules
We are adopting final rules (Item 1502(a)) to require the disclosure of any climate-related risks that have materially impacted or are reasonably likely to have a material impact on the registrant, including on its business strategy, results of operations, or financial condition, with several modifications in response to commenter concerns.313 We disagree with those commenters who stated that a climate￾related risk disclosure provision was not necessary because the Commission’s general risk factors disclosure rule already requires such disclosure.314 In our view, a separate disclosure provision specifically focused on climate-related risks will help investors better understand a registrant’s assessment of whether its business is, or is reasonably likely to be, exposed to a material climate-related risk, and thereby enhance investor protection. Many commenters indicated that the Commission’s current disclosure rules, including the general risk factor provision, has not provided investors with disclosure of climate-related risks and their financial impacts at the level of detail sought by investors that would make the disclosure useful for their investment or voting decisions.315 The final rules, by contrast, are responsive to investors’ need for decision-useful information regarding registrants’ material climate-related risks and will help ensure investors receive more consistent, comparable, and reliable disclosures about such risks.316 Furthermore, adopting a climate￾related risk disclosure rule that uses similar definitions (set forth in Item
1500) and is based on the climate￾related disclosure framework of the
TCFD, with which many registrants and investors are already familiar, will assist in standardizing climate-related risk disclosure and help elicit more consistent, comparable, and useful information for investors and limit the reporting burden for those registrants that are already providing some climate￾related disclosure based on the TCFD framework. At the same time, we recognize that many commenters expressed significant concerns about the scope of the proposed rules, indicating that they may elicit too much detail, may be costly or burdensome, could result in competitive harm, or may obscure other material information.317 We have sought to address these concerns by modifying the definition of climate-related risks, by making the climate-related risk disclosure requirements less prescriptive, and by specifying the time frames during which a registrant should describe whether any such material

318See infra section II.C.2.
319See 17 CFR 229.1500.
320See supra notes 303 and 304 and accompanying text. 321See supra notes 292303 and 293304 and accompanying text. 322See 17 CFR 229.1500 323See, e.g., letter from Chamber. 324See 17 CFR 229.1500. See infra section II.K.3.c.v for a discussion of the phrase ‘‘severe weather events’’ as used in subpart 1500 of Regulation S–K and Article 14 of Regulation S–X. 325See id. 326As discussed in more detail in section II.K.3.c.v, although Article 14 of Regulation S–X requires a registrant to disclose certain financial effects of severe weather events and other natural conditions, which may include weather events that are not climate-related, subpart 1500 of Regulation S–K does not require the disclosure of material impacts from non-climate-related weather events. 327See 17 CFR 229.1500. 328As noted above, a registrant would only need to disclose the transition risk of a party in its value chain when such transition risk has materially impacted or is reasonably likely to materially impact the registrant itself. 329See 17 CFR 229.1500. For example, one source of transition risk may be the IRA, Public Law 117– 169, which was signed into Federal law on Aug. 16, 2022, and includes various initiatives meant to encourage companies, states, and consumers to invest in and adopt renewable energy and other ‘‘clean energy’’ technologies. See The White House, Building A Clean Energy Economy: A Guidebook To The Inflation Reduction Act’s Investments In Clean Energy And Climate Action (Dec. 2022) (‘‘Inflation Reduction Act Guidebook’’). If, as a result of the IRA, consumers, small businesses, and other entities switch to more energy efficient products and services, a registrant that produces or uses less energy efficient products could face material impacts to its business, results of operations, or financial condition. 330See supra note 277 and accompanying text. 331See 17 CFR 229.1500 (definition of transition risk). 332See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans section E (Oct. 2021), available at https://assets.bbhub.io/company/sites/ 60/2021/07/2021-Metrics_Targets_Guidance-1.pdf. 333See Proposing Release, section II.B.1. risks are reasonably likely to manifest, as discussed below.318 The proposed rule would have required a registrant to describe any climate-related risks reasonably likely to have a material impact on the registrant, including on its business or consolidated financial statements. We have substituted ‘‘results of operations’’ and ‘‘financial condition’’ for ‘‘consolidated financial statements’’ here and in several of the final rule provisions to be more consistent with other Commission rules relevant to risk assessment, such as Item 303 of Regulation S–K regarding MD&A. We have used the term ‘‘business strategy’’ in the final rules to more closely align the final rules with the TCFD recommendation regarding the disclosure of the impacts of climate￾related risks on strategy. These revisions do not create any substantive
differences compared to the proposed rules but should facilitate compliance because many registrants should be familiar with the terminology used. Similar to the rule proposal, the final rules define climate-related risks to mean the actual or potential negative impacts of climate-related conditions and events on a registrant’s business, results of operations, or financial condition.319 To make a registrant’s determination of whether it is exposed to a material climate-related risk less burdensome, in response to commenters’ concerns,320 we have eliminated the reference to negative climate-related impacts on a registrant’s value chain from the definition of climate-related risks. This change means that a climate-related risk involving a registrant’s value chain would generally not need to be disclosed except where such risk has materially impacted or is reasonably likely to materially impact the registrant’s business, results of operations, or financial condition. In addition, because a registrant may be able to assess the material risks posed by its value chain without having to request input from third parties in its value chain, this change will also limit the burdens of climate risk assessment on parties in a registrant’s value chain that might have occurred under the rule proposal.321 Similar to the rule proposal, the definition of climate-related risks includes both physical risks and transition risks. Also similar to the proposed definition, the final rules define ‘‘physical risks’’ to include both acute and chronic risks to a registrant’s business operations.322 However, we are not including in the definition acute or chronic risks to the operations of those with whom a registrant does business, as proposed. This change addresses the concerns of commenters regarding burdens associated with obtaining climate risk information about their counterparties over which they lack control.323 Similar to the rule proposal, ‘‘acute risks’’ is defined as event-driven risks and may relate to shorter-term severe weather events, such as hurricanes, floods, tornadoes, and wildfires.324 ‘‘Chronic risks’’ is defined as those risks that the business may face as a result of longer term weather patterns, such as sustained higher temperatures, sea level rise, and drought, as well as related effects such as decreased arability of farmland, decreased habitability of land, and decreased availability of fresh water.325 These enumerated risks are provided as examples of the types of physical risks to be disclosed and many represent physical risks that have already impacted and may continue to impact registrants across a wide range of economic sectors.326 The final rules define ‘‘transition risks’’ largely as proposed to mean the actual or potential negative impacts on a registrant’s business, results of operations, or financial condition attributable to regulatory, technological, and market changes to address the mitigation of, or adaptation to, climate￾related
risks.327 For reasons discussed above in relation to the definition of ‘‘climate-related risks,’’ we are no longer including value chain impacts in the definition of ‘‘transition risks.’’ 328 The final rules’ definition of ‘‘transition risks’’ includes the same non-exclusive list of examples of transition risks as the rule proposal. Transition risks 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.329 Although some commenters asked the Commission to provide additional examples of transition risks in the definition,330 we decline to do so. The final rules’ examples are non￾exclusive 331 and, consistent with the TCFD framework, a registrant’s description of its material transition risks should include any type of transition risk that is applicable based on its particular facts and circumstances.332 The particular type of material transition risk disclosed may be one that is not included or only partially included in the definition. Not every manifestation of transition risk, however, may apply or be material to every registrant and transition risks are dynamic and may change over time. The proposed rules would have required a registrant to disclose certain items of information about any material climate-related risk that a registrant has identified.333 In order to help address commenters’ concerns that the rule proposal was too burdensome and could result in the disclosure of immaterial information, we have revised Item 1502, as adopted, to be less prescriptive. In doing so, we have sought to strike an

334See 17 CFR 229.1502(a).
335See 17 CFR 229.1502(a)(1)(i).
336See 17 CFR 229.1502(a)(1)(ii).
337See Proposing Release, section II.B.1. 338See, e.g., letters from CEMEX; Eni SpA; and ERM CVS. 339See letter from IAA. 340 In this regard, according to the National Oceanic and Atmospheric Administration (‘‘NOAA’’), weather refers to short-term changes in the atmosphere whereas climate describes what the weather is like over a long period of time in a specific area. See NOAA, What’s the Difference Between Weather and Climate?, available at https:// www.ncei.noaa.gov/news/weather-vs-climate. 341See supra notes 289 and 298. 342We also expect that compliance with the final rules will become easier as registrants commence disclosing climate-related information pursuant to other jurisdictions’ climate disclosure requirements, to the extent those requirements are similar to the final rules. 343See, e.g., infra section II.D. 344See infra section II.O. 345See Proposing Release, section II.B.1. 346See 17 CFR 229.1502(a)(1). 347See supra note 286 and accompanying text. appropriate balance between providing investors with more consistent and decision-useful information about material climate-related risks while being conscious of the costs to registrants and investors of requiring specified disclosures that may not be relevant in every circumstance. The final rules provide that a registrant that has identified a climate-related risk pursuant to Item 1502 must disclose whether the risk is a physical or transition risk, providing information necessary to an understanding of the nature of the risk presented and the extent of the registrant’s exposure to the risk.334 The final rules then provide a non-exclusive list of disclosures that a registrant must disclose as applicable:

• If a physical risk, whether it may be
  categorized as an acute or chronic risk, and the geographic location and nature of the properties, processes, or operations subject to the physical risk; 335 and
• If a transition risk, whether it
  relates to regulatory, technological, market (including changing consumer, business counterparty, and investor preferences), or other transition-related factors, and how those factors impact the registrant.336 When proposing the climate-related disclosure rules, the Commission stated that in some instances, chronic risks might give rise to acute risks. For example, a drought (a chronic risk) might contribute to wildfires (an acute risk), or increased temperatures (a chronic risk) might contribute to severe storms (an acute risk). In such instances, the Commission indicated that a registrant should provide a clear and consistent description of the nature of the risk and how it may affect a related risk, as well as how those risks have evolved or are expected to evolve over time.337 The final rules require a registrant to provide information necessary to an understanding of the nature of the risk presented and the extent of the registrant’s exposure to the risk. We agree, however, with commenters that indicated that requiring a discussion about the interaction of two related physical risks may, due to its complexity, increase the burden on the registrant without yielding a corresponding benefit for investors.338 While a registrant may opt to provide such discussion, it is not a mandatory disclosure item under the final rules. We also agree with commenters that stated that, for complex and overlapping physical risks, registrants can determine how best to categorize the physical risk as either acute or chronic.339 What is important is that a registrant describe the climate-related physical risks it faces clearly and consistently, including regarding the particular categories of physical risk. As a disclosed risk develops over time, for example where the category of physical risk has changed and/or the nature of the impact to the registrant has evolved, depending on the facts and circumstances, the registrant may need to describe the changed risk in order for an investor to understand the impact or reasonably likely impact of the risk on the registrant, including on its business strategy, results of operations, or financial condition. Some commenters opposed proposed Item 1502 because in their view it would be difficult for a registrant to distinguish between a climate-related physical risk and an ordinary weather risk,340 or between a business activity in response to a transition risk and one that is part of a routine business strategy.341 While we recognize that application of some of the Commission’s climate disclosure rules may initially be difficult for certain registrants, we expect that compliance will become easier as registrants grow more familiar with disclosing how climate-related factors may impact their business strategies.342 In this regard, we note that many registrants are already providing some of the TCFD-recommended disclosures, although in a piecemeal fashion and largely outside of the registrant’s Commission filings. In addition,
  we have modified the proposed rules in several places to require disclosure only if a registrant is already undertaking a particular analysis or practice or has already made a judgment that a particular risk is climate-related.343 Further, the lengthy phase in periods for the final rules will provide registrants additional time to develop, modify, and implement any processes and controls necessary to the assessment and reporting of any material climate-related risk.344 The final rules include several changes from the proposal that mitigate some of the burdens of Item 1502(a), as it was proposed. For example, the rule proposal would have required a registrant to disclose the location and nature of the properties, processes, or operations subject to the physical risk, and to provide the ZIP code or other subnational postal zone.345 The final rules we are adopting no longer require such disclosure and instead include, as one of the physical risk items that a registrant must disclose, as applicable, the geographic location and nature of the properties, processes, or operations subject to the identified physical risk.346 This revision is intended to address the concern of many commenters that the proposed ZIP code disclosure requirement would be burdensome to produce and would likely not provide useful information for many investors.347 This revision will give registrants the flexibility to determine the granularity of any location disclosures based on their particular facts and circumstances as long as they provide information necessary to understand the extent of the registrant’s exposure to the material risk. The proposal would have called for specific information about physical risks, such as disclosures relating to flooding and the location of assets in regions of high or extremely high water stress. In particular, the rule proposal would have required a registrant that faces a material physical risk due to flooding or water stress to disclose the percentage of buildings, plants, or properties that are located in flood hazard areas or the amount and percentage of assets located in water￾stressed areas. In a change from the rule proposal, we have eliminated this proposed requirement in order to make the final rules less burdensome and permit the registrant to determine the particular metrics that it should disclose, if any, based on its particular facts and circumstances. Instead, the physical risk disclosure provision we are adopting is less prescriptive and subject to the general condition applicable to both physical and transition risk disclosure that, when describing a material climate-related risk, a registrant must provide information necessary to an

348See 17 CFR 229.1502(a).
349See, e.g., letters from ABA; CEMEX; NAM; and SIFMA. 350See supra note 287 and accompanying text. As described below, the addition of materiality qualifiers to certain of the final rule’s climate risk disclosure requirements will also help address this concern by eliciting detailed disclosure only when it is material. See infra section II.D. 351See, e.g., letters from CalPERS (recommending that the Commission should also require information on areas subject to droughts, heatwaves, and wildfires); IAA (recommending that the Commission require registrants to provide quantitative details of the volume or revenue (percentage) contribution for facilities located in areas subject to water scarcity, flood risk, wildfires, and other climate-related natural disasters); and Morningstar (recommending that the Commission go further in mandating quantitative disclosures related to a registrant’s assets exposed to physical climate risk, as such data is important across economic sectors). 352See 17 CFR 229.1502(a) and 1502(a)(2). In a change from the proposal, the final rules omit a specific reference to liability and reputational factors from the transition risk disclosure required pursuant to Item 1502(a)(2). This change was made in order to conform more closely to the definition of ‘‘transition risks’’ in Item 1500, which refers to ‘‘regulatory, technological, and market changes.’’ Although this definition refers to impacts to a registrant’s liability or reputation as non-exclusive examples of negative impacts resulting from such changes, the definition of transition risks also refers to other examples of negative impacts that are not specifically mentioned in Item 1502(a)(2). To streamline the Item 1502(a)(2) disclosure requirement, and to avoid giving undue emphasis to impacts to a registrant’s liability or reputation over other transition risk-related impacts, we have removed the specific reference to liability and reputational factors and have retained the more general reference to ‘‘other transition-related factors.’’ A registrant that, due to regulatory, technological, or market changes, has incurred or is reasonably likely to incur a material negative impact to its reputation or liability will be required to include a description of such impact, together with any other material transition-related impact, in its disclosure pursuant to Item 1502(a)(2). 353See 17 CFR 229.1502(a)(2). 354See Proposing Release, sections II.B through II.E. 355Compare Proposing Release, section II.B (proposing to 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) with TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, Appendix 5 (defining ‘‘climate-related opportunity’’ to mean ‘‘the potential positive impacts related to climate change on an organization’’).
356Registrants have a fundamental obligation not to make materially misleading statements or omissions in their disclosures and may need to provide such additional information as is necessary to keep their disclosures from being misleading. See 17 CFR 230.408 and 17 CFR 240.12b–20. 357See Proposing Release, section II.B. 358See, e.g., letters from Anthesis; Bloomberg; BNP Paribas; CalPERS; CalSTRS; CEMEX; CFA; Center for Climate and Energy Solutions (June 17,
2022) (‘‘C2ES’’); Dell; D. Hileman Consulting; Eni
SpA; ERM CVS; Harvard Mgmt.; IAA; ICGN; ICI; Moody’s; Morningstar; PRI; PwC; SKY Harbor; TotalEnergies; US TAG TC207; and Wellington Mgmt. 359See, e.g., letters from Anthesis; and PRI. 360See, e.g., letters from PRI; and Wellington Mgmt. understanding of the nature of the risk presented and the extent of the registrant’s exposure to the risk.348 These revisions help address the concern of some commenters that the proposed disclosure requirements were too prescriptive and could result in overly granular and immaterial disclosure.349 The less prescriptive approach of the final rules also addresses the concern of some commenters that the resulting disclosure could cause investor confusion by obscuring other disclosed risks that are presented in less detail.350 We expect that the final rules will elicit disclosures more reflective of a registrant’s particular business practices. With respect to those commenters who stated that the required metrics disclosure should cover more than just water-related physical risks, the less prescriptive approach in the final rules eliminates any potential overemphasis on water-related physical risks and gives registrants flexibility to describe any physical risks they may be facing.351 Finally, the revised approach in the final rules will allow a registrant’s disclosures to adapt to changing circumstances over time, while still providing sufficient information for investors to understand and assess any such changes. Similar to the physical risk rule provision, the final rule requires registrants to disclose the nature of any transition risk presented and the extent of the registrant’s exposure to the risk. It also includes a non-exclusive list of disclosures the registrant must provide, as applicable, including whether the transition risk relates to regulatory, technological, market, or other transition-related factors, and how those factors impact the registrant.352 Describing the nature of an identified transition risk in this manner will help investors understand the realized or potential material impacts of the identified transition risk and whether and how a registrant intends to mitigate or adapt to such risk. Consistent with the rule proposal, the final rule provision states that a registrant that has significant operations in a jurisdiction that has made a GHG emissions reduction commitment should consider whether it may be exposed to a material transition risk related to the implementation of the commitment.353 Including this guidance within the rule text will serve to remind registrants operating in such a jurisdiction that they may need to provide disclosure to investors about this specific type of transition risk. The proposed rule provisions pertaining to governance, strategy, and risk management would have permitted a registrant, at its option, to describe any climate-related opportunities it was pursuing when responding to those provisions.354 In this regard, the Commission proposed a definition of
‘‘climate-related opportunities’’ that was similar to the corresponding definition provided by the TCFD.355 While we are retaining the optional approach to disclosure related to climate-related opportunities, unlike the proposed rules, the final rules do not refer to climate-related opportunities and therefore do not include a corresponding definition. We are treating the disclosure of climate-related opportunities the same as other voluntary disclosure. Accordingly, despite the absence of a corresponding provision, a registrant may elect to also include disclosure regarding any material climate-related opportunities it is pursuing or is reasonably likely to pursue in addition to disclosure regarding material climate-related risks.356
2. Time Horizons and the Materiality
Determination (Item 1502(a)) a. Proposed Rule The rule proposal would have required a registrant to describe any climate-related risks reasonably likely to have a material impact, which may manifest over the short, medium, and long term. The rule proposal also would have required the registrant 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 its climate-related planning processes and goals.357 b. Comments Many commenters supported the proposed requirement to describe any material climate-related risk that may manifest over the short, medium, and long term.358 Commenters stated that the proposed time horizons are consistent with the time horizons recommended by the TCFD.359 Commenters also stated that it is important to assess climate-related risks over multiple time periods because of the changing frequency and severity of climate-related events.360 Some commenters supported leaving the time periods undefined while requiring a registrant to specify how it defines short-, medium-, and long-term

361See, e.g., letters from Bloomberg; C2ES; IAA; PRI; SKY Harbor; and TotalEnergies. 362See, e.g., letters from Bloomberg; IAA; J. McClellan (June 17, 2022); and PRI. 363See, e.g., letters from CalSTRS; Calvert; CEMEX; Dell; D. Hileman Consulting; ERM CVS; ICI; Morningstar; and Wellington Mgmt. 364See letter from CalSTRS. 365See letters from Calvert; and ICI. 366See letter from CEMEX. 367See letter from US TAG TC207. 368See, e.g., letters from ABA; Alphabet et al.; AFPM; American Investment Council (June 17,
2022) (‘‘AIC’’); Associated General Contractors of
America (June 17, 2022) (‘‘AGCA’’); BOA; ‘‘BPI; Cato Inst.; Chamber; Davis Polk; Enbridge; NAM; RILA; SIFMA; Soc. Corp. Gov.; and J. Weinstein. 369See, e.g., letters from Alphabet et al.; AIC; BOA; and BPI. 370See, e.g., letters from AFPM; Cato Inst.; Chamber; Davis Polk; RILA; Soc. Corp. Gov.; and J. Weinstein. 371See, e.g., letters from ABA; and SIFMA; see also letter from NAM (stating that the relevant time periods should be short-term (18 to 24 months) and long-term (anything over 24 months), according to the registrant’s particular facts and circumstances). 372See letter from ABA. 373See id. 374See 17 CFR 229.1502(a). 375See, e.g., letter from ABA. 376See 17 CFR 229.303(b)(1). 377See Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operation, Release No. 33–8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)]. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations; Certain Investment Company Disclosures, Release No. 33–6835 (May 18, 1989) [54 FR 22427 (May 24, 1989)] (stating that MD&A is ‘‘an opportunity to look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company’’). 378See supra notes 368–371 and accompanying text. 379See 17 CFR 229.303(a). 380See Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, Release No. 33–10890 (Nov. 19, 2020), [86 FR 2080, 2089 (Jan. 11, 2021)] (‘‘2020 MD&A Adopting Release’’). horizons, as proposed.361 Commenters stated that the proposed approach aligns with the TCFD framework and would provide flexibility for registrants by allowing them to choose time periods that best fit their particular facts and circumstances.362 Other commenters stated that the Commission should define short-, medium-, and long-term horizons to enhance the comparability of climate risk disclosure.363 Commenters recommended various definitions for such time periods. For example, one commenter stated that the Commission should define short-term as 5 years, medium-term as 6 to 15 years, and long-term as 16 to 30 years.364 Other commenters recommended defining short-term as one year, medium-term as 5 years, and long-term as 10 years.365 Another commenter recommended defining short-term as 1 to 5 years, medium-term as 5 to 20 years, and long-term as 20 to 30 years.366 One other commenter recommended defining medium-term as 5 to 10 years and long-term as 10 to 30 years.367 Many other commenters opposed the proposed requirement to disclose material climate-related risks as manifested over the short, medium, and long term.368 Commenters stated that the proposed requirement ran counter to the traditional materiality standard by which a registrant determines if a risk is material to itself as a general matter rather than applying that standard over multiple different timeframes, and indicated that such an approach could require the
registrant to engage in multiple different materiality analyses.369 Commenters also stated that the proposed requirement, which could compel a registrant to consider circumstances many years into the future, would elicit risk disclosure that is highly speculative.370 Some commenters stated that, instead of the proposed disclosure requirement, the Commission should impose the same temporal standard that registrants use in practice when preparing a registrant’s MD&A (i.e., when assessing the risks that are reasonably likely to have a material impact on future operations ‘‘over whatever time period is relevant to a registrant’s particular facts and circumstances’’).371 Some commenters recommended bifurcating the climate risk disclosures into short-term and long-term timeframes, without a medium-term timeframe, similar to certain MD&A disclosures.372 One of those commenters stated that imposing a different temporal standard for climate risk disclosure would pose meaningful challenges to management as they seek to adapt their strategies and could result in misalignment of climate-related disclosures with ‘‘other, potentially more critical, strategically relevant disclosure issues, including the financial statements and MD&A.’’ 373
c. Final Rule
In a change from the rule proposal, the final rule (Item 1502(a)) provides that in describing any climate-related risks that have materially impacted or are reasonably likely to have a material impact, a registrant should describe whether such risks are reasonably likely to manifest in the short-term (i.e., the next 12 months) and separately in the long-term (i.e., beyond the next 12 months).374 This temporal standard is generally consistent with an existing standard in MD&A, which was recommended by some commenters.375 That MD&A standard specifically requires a registrant to analyze its ability to generate and obtain adequate amounts of cash to meet its requirements and plans for cash in the short-term (i.e., the next 12 months from the most recent fiscal period end required to be presented) and separately in the long-term (i.e., beyond the next 12 months).376 The existing MD&A standard also generally requires that a registrant ‘‘provide insight into material opportunities, challenges and risks, such as those presented by known material trends and uncertainties, on which the company’s executives are most focused for both the short and long term, as well as the actions they are taking to address these opportunities, challenges and risks.’’ 377 We are adopting this temporal standard to address the concern of commenters that imposition of a different temporal standard (and, in particular, one that includes a ‘‘medium term’’ period) for climate risk disclosure would pose challenges and potentially conflict with a registrant’s assessment of other risks and events that are reasonably likely to have a material impact on its future operations.378 We note, however, that a registrant is not precluded from breaking down its description of risks reasonably likely to manifest beyond the next 12 months into components that may include more medium- and longer￾term risks, if that is consistent with the registrant’s assessment and management of the climate-related risk. We are modeling the temporal standard in Item 1502(a) on this MD&A standard as recommended by commenters because the materiality determination that a registrant will be required to make regarding climate￾related risks under the final rules is the same as what is generally required when preparing the MD&A section in a registration statement or annual report. MD&A requires 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.379 MD&A further requires the inclusion of 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.380 When evaluating whether any climate-related risks have materially impacted or are reasonably likely to have a material impact on the registrant, including on its
business strategy,

381See 17 CFR 230.405 (definition of ‘‘material’’); 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.’’). 382See Litwin v. Blackstone Group, L.P., 634 F.3d 706, 720 (2d Cir. 2011) (‘‘[A] court must consider ‘both quantitative and qualitative factors in assessing an item’s materiality,’ and that consideration should be undertaken in an integrative manner.’’). See also Business and Financial Disclosure Required by Regulation S–K, Release No. 33–10064 (Apr. 13, 2016) [81 FR 23915 (Apr. 22, 2016)] (‘‘Concept Release’’) (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. Staff accounting bulletins and any other staff statements discussed in this release have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person. 383See, e.g., 2020 MD&A Adopting Release. As noted above, the materiality determination that a registrant will be required to make regarding climate-related risks under the final rules is the same as what is generally required when preparing the MD&A section of a registration statement or annual report. Accordingly, registrants can look to the guidance in the 2020 MD&A Adopting Release regarding application of the ‘‘reasonably likely’’ standard when considering their disclosure obligations under the various components of Item
1502. According to this guidance, the reasonably
likely standard ‘‘is not intended to, nor does it require, registrants to affirm the non-existence or non-occurrence of a material future event.’’ Rather, ‘‘it requires management to make a thoughtful and objective evaluation, based on materiality, including where the fruition of future events is unknown.’’ 2020 MD&A Adopting Release, 86 FR at 2093. 384See Proposing Release, section II.C.1. 385See id. 386See id. 387See Proposing Release, section I.B. 388See Proposing Release, section II.C.1. 389See id. 390See id. 391See id. 392See id. 393See id. results of operations, or financial condition, registrants should rely on traditional notions of materiality. 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 or such a reasonable investor would view omission of the disclosure as having significantly altered the total mix of information made available.381 The materiality determination is fact specific and one that requires both quantitative and qualitative considerations.382 The ‘‘reasonably likely’’ component of the rules we are adopting, as with the same standard in MD&A regarding known trends, events, and uncertainties, is grounded in whether disclosure of the climate-related risk would be material to investors and requires that management evaluate the consequences of the risk as it would any known trend, demand, commitment, event, or uncertainty. Accordingly, management should make an objective evaluation, based on materiality, including where the fruition of future events is unknown.383 D. Disclosure Regarding Impacts of Climate-Related Risks on Strategy, Business Model, and Outlook

1. Disclosure of Material Impacts (Item
   1502(b), (c), and (d)) a. Proposed Rules The Commission proposed to require a registrant to describe the actual and potential impacts on its strategy, business model, and outlook of those climate-related risks that it must disclose pursuant to proposed Item 1502(a).384 The Commission further proposed to require a registrant to include in such description any 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.
  The proposed rules would have required a registrant 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).385 When proposing these disclosure requirements, the Commission stated that information about how climate￾related risks have impacted or are likely to impact a registrant’s strategy, business model, and outlook can be important for purposes of making an investment or voting decision about the registrant.386 The Commission further noted that, in response to a request for public input,387 several commenters had stated that many registrants included largely boilerplate discussions about climate-related risks and failed to provide a meaningful analysis of the impacts of those risks on their businesses.388 The Commission proposed the disclosure requirements about climate-related impacts to elicit more robust and company-specific disclosure on this topic.389 The proposed rules also would have required a registrant to discuss whether and how it has considered the identified impacts as part of its business strategy, financial planning, and capital allocation.390 In this regard, the proposed rules would have required a registrant to provide both current and forward-looking disclosures 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. The proposed rules would have required the discussion to include how any of the climate-related financial metrics referenced in proposed Article 14 of Regulation S–X, the metrics referenced in the GHG emissions section of proposed subpart 1500 of Regulation S– K, or any of the targets referenced in the targets and goals section of proposed subpart 1500, relate to the registrant’s business model or business strategy.391 In addition, the proposed rules would have required 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.392 The proposed rules would have required this discussion to include any of the climate-related financial metrics referenced in proposed Article 14 of Regulation S–X that demonstrate that the identified climate-related risks have had a material impact on the registrant’s reported financial condition or operations.393 This proposed provision was intended to provide climate-related disclosure that is similar to MD&A, and, as noted in the discussion above, the proposed rules would allow a registrant to provide such disclosure as part of its MD&A. b. Comments Many commenters supported the Commission’s proposal to require a

394See, e.g., letters from AGs of Cal. et al.; Amazon; Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Bloomberg; BNP Paribas; Breckinridge Capital Advisors; CalSTRS; Center Amer. Progress; Ceres; Eni SpA; D. Hileman Consulting; IAC Recommendation; NY St. Comptroller; PIMCO; PRI; PwC; SKY Harbor; Unilever; and Wellington Mgmt. 395See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; CalSTRS; Ceres; Eni SpA; and Wellington Mgmt. 396See letter from Center Amer. Progress. 397See, e.g., letters from Ceres; PIMCO; PwC; and Wellington Mgmt. 398See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; CalSTRS; Eni SpA; PRI; TotalEnergies; and Wellington Mgmt. 399See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; and PRI. 400See, e.g., letters from CalSTRS; and Eni SpA. 401See letter from PwC. 402See, e.g., letters from Anthesis; CalPERS; D. Hileman Consulting; PRI; and TotalEnergies. 403See, e.g., letters from AllianceBernstein; Beller et al.; BNP Paribas; CalPERS; CEMEX; Eni SpA; ICI; Morningstar; PwC; TotalEnergies; and Unilever. 404See, e.g., letters from AllianceBernstein; Beller et al.; and BNP Paribas. 405See letter from Amer. for Fin. Reform, Sunrise Project et al. 406See letter from PwC. 407See id. 408See IAC Recommendation. 409See, e.g., letter from Randi Morrison, Soc. Corp. Gov (Sept. 9, 2022); see also letters from ABA; Airlines for America; Alphabet et al.; Amer. Bankers; BDO USA LLP; BPI; California Resources Corporation (June 17, 2022) (‘‘Cal. Resources’’); Can. Bankers; CAQ; FEI’s Committee on Corporate Reporting (June 17, 2022) (‘‘CCR’’); Climate Risk Consortia; Connor Grp.; Diageo; Dominion Energy; Eni SpA; Grant Thornton; LLP; IIB; IIF; Financial Reporting Committee of the Institute of Management Accountants (June 21, 2022) (‘‘IMA’’); IPA; JLL (June 17, 2022) (‘‘JLL’’); Linklaters LLP (June 17, 2022) (‘‘Linklaters’’); Mtg. Bankers; NG; Royal Gold (June 17, 2022); Shearman Sterling; SIFMA AMG; T. Rowe Price; Unilever; Walmart; and Wells Fargo. 410See letter from Amazon. 411See id. registrant to describe the actual and potential impacts on its strategy, business model, and outlook of those climate-related risks that it has determined are reasonably likely to have a material impact on its business or consolidated financial statements.394 Commenters indicated that detailed information about the actual and potential impacts of a registrant’s identified climate-related risks is central to helping investors do the following:
understand the extent to which a registrant’s business strategy or business model may need to change to address those impacts; evaluate management’s response to the impacts and the resiliency of the registrant’s strategy to climate-related factors; and assess whether a registrant’s securities have been correctly valued.395 One commenter indicated that investors need more detailed information about the effects of climate-related risks because such risks can affect a company’s operations and financials in a wide range of ways, including impacts on revenues, the useful life of assets, loan qualification, and insurance costs.396 Other commenters stated that, despite the importance for investors of information about climate-related financial impacts, such information is currently underreported.397 Several commenters also supported the proposed requirement to include in the impacts description any impacts on, or any significant changes made to, a registrant’s business 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 and expenditure for research and development, and any other significant changes or impacts.398 Commenters stated that the proposed enumerated disclosure items, including impacts related to a registrant’s supply or value chain, are necessary to provide a comprehensive description of a registrant’s identified climate-related risks, and are consistent with the types of impacts that a registrant may face and that are recommended for disclosure by the TCFD.399 Commenters further stated that the proposed disclosure items would help investors understand the extent to which a registrant has taken actions to mitigate or adapt to a material climate-related risk.400 One commenter, however, recommended that the final rules should clarify that the list of impacts are examples of impacts, to be disclosed if applicable, and not required items of disclosure.401 A number of commenters also supported the proposed requirement to disclose whether and how a registrant has considered any identified impacts as part of its business strategy, financial planning, and capital allocation because it would help investors assess a registrant’s likely resiliency to climate￾related impacts and because, due to its consistency with the TCFD’s recommendations, the proposed disclosure requirement would lead to more consistent, comparable, and reliable climate-related disclosure.402 Several commenters further supported the proposed provision requiring 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.403 Some of those commenters recommended that this narrative discussion should be part of a registrant’s MD&A.404 One commenter stated that the proposed provision would help investors understand
how management views the realized or likely impacts of identified climate-related risks on a company’s consolidated financial statements, which would then assist investors in their assessment of a registrant’s climate risk management.405 One commenter recommended adopting a climate disclosure framework, similar to MD&A, that focuses on providing investors with material climate-related information that management uses to make strategic decisions while allowing registrants to tailor the disclosure to fit their particular circumstances.406 This commenter stated that requiring a discussion of climate-related impacts from management’s perspective and encompassing impacts to the registrant, its suppliers, and other parties in its value chain would provide investors with what has primarily been missing from current Commission filings.407 The Commission’s Investor Advisory Committee similarly recommended requiring a separate ‘‘Management Discussion of Climate-Related Risks and Opportunities’’ in Form 10–K, similar to the disclosure required by Item 303 of Regulation S–K (MD&A), which would enhance investor understanding of management’s views of climate-related risks and opportunities.408 Several commenters stated that, instead of requiring the disclosure of financial metrics concerning climate￾related impacts in the financial statements, as proposed, the Commission should require registrants to consider material climate-related impacts when discussing the results of operations, capital resources, and liquidity under MD&A.409 One commenter, responding to the Commission’s proposed amendments to Regulation S–X, recommended requiring the disclosure of a registrant’s actual discrete and separable climate￾related expenditures, both expensed and capitalized, made during each fiscal year, which would be linked to and aligned with the risks, goals, and strategies companies would disclose under proposed Item 1502 of Regulation S–K.410 The commenter’s recommended expenditures disclosure would be included in the financial statements but would take the place of the proposed ‘‘financial impacts’’ disclosure under Regulation S–X and would be presented in tabular format and cover three distinct categories: climate-related events; transition activities for publicly disclosed climate-related targets and goals, such as those included in a company’s sustainability report; and all other transition activities.411 Another

412See letter from IMA.
413See, e.g., letters from American Automotive Leasing Association, America Car Rental Association, Truck Renting and Leasing Association (June 17, 2022) (‘‘AALA’’); American Bankers Association (June 17, 2022) (‘‘Amer. Bankers’’); Amer. Chem.; AGC; CEMEX; Fenwick West; D. Burton, Heritage Fdn.; J. Brendon Herron (June 17,
2022) (‘‘J. Herron’’); NMA; National Retail
Federation (June 17, 2022) (‘‘NRF’’); RILA; and Walmart. 414See, e.g., letters from CEMEX; Fenwick West; D. Burton, Heritage Fdn; and NMA. 415See, e.g., letters from AGC; Fenwick West; NMA; NRF; RILA; and Walmart. 416See, e.g., letters from AGC; Soc. Corp. Gov.; United Air; and Williams Cos. 417See, e.g., letters from AGC; Soc. Corp. Gov.; and United Air. 418See, e.g., letters from AALA; J. Herron; NMA; and Walmart. 419See letter from ABA. 420See, e.g., letters from Amazon; Beller et al.; and ICI. 421See, e.g., letters from ABA; Beller et al.; and Walmart. 422See 17 CFR 229.1502(b). As used in the final rules, the term ‘‘outlook’’ means ‘‘the prospect for the future,’’ consistent with its general definition. See Merriam-Webster Dictionary, available at https://www.merriam-webster.com/dictionary/ outlook. For the avoidance of doubt, use of the term ‘‘outlook’’ is not intended to suggest that a registrant must disclose its earnings guidance or forecasts in response to Item 1502(b). 423See supra note 395 and accompanying text. 424See supra section II.C.1.a. 425See, e.g., letter from Fenwick West. 426See, e.g., letters from Fenwick West; and RILA. 427See supra note 414 and accompanying text. 428See supra note 397 and accompanying text. 429See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Eni SpA; and PRI. commenter stated that if a registrant’s financial estimates and assumptions are impacted by exposures to uncertainties associated with transition risks, the registrant should be required to provide qualitative disclosure about such impacts to its financial estimates and assumptions in its climate-related disclosure or in its MD&A instead of in the financial statements.412 Many other commenters, however, broadly opposed the proposed disclosure requirement regarding impacts from climate-related risks.413 Some commenters stated that the proposed disclosure requirement was unnecessary because the Commission’s existing rules already require a registrant to disclose material impacts from climate-related risks.414 Some commenters expressed concern that the proposed disclosure requirement would result in disclosure of a large volume of information that is immaterial to investors and burdensome for registrants to produce.415 Some commenters stated that the proposed requirement to disclose impacts on participants in a registrant’s value chain was particularly onerous for registrants because of difficulties in collecting relevant and reliable information from third parties.416 In this regard, some commenters stated that suppliers and other parties in a registrant’s value chain may resist pressure to provide the data necessary to assess their climate risk exposure because they are private companies concerned about incurring increased costs or competitive harm.417 Other commenters stated that the proposed disclosure requirement was too prescriptive and would not allow a registrant to tailor its disclosures according to its particular
business or industry.418 One commenter recommended that we delete the term ‘‘business model’’ because it is not otherwise used in Regulation S–K and might be interpreted by some registrants that do not have a business model as implying that they must adopt one.419 Some commenters generally supported the proposed impact disclosure provision but recommended that the Commission add a materiality qualifier to elicit disclosure of only the most likely and significant impacts, which they asserted would provide more useful information for investors and reduce a registrant’s compliance burden.420 Similarly, some commenters generally supported some form of climate disclosure while recommending that the Commission make the final rules more principles-based so that registrants could better tailor their disclosures to reflect their own particular facts and circumstances.421
c. Final Rules
The final rule provision (Item 1502(b)) will require a registrant to describe the actual and potential material impacts of any climate-related risk identified in response to Item 1502(a) on the registrant’s strategy, business model, and outlook.422 Information about the actual and potential material impacts of climate-related risks on a registrant’s strategy, business model, and outlook is central to understanding the extent to which a registrant’s business strategy or business model has changed, is changing, or is expected to change to address those impacts. This information is also central to evaluating management’s response to the impacts and the resiliency of the registrant’s strategy to climate-related factors as it pertains to the registrant’s results of operations and financial condition. Numerous commenters on the proposal shared some or all of these views.423 The proposed rule did not specifically include a materiality qualifier when requiring a registrant to describe the actual and potential impacts of any identified climate-related risk in response to proposed Item 1502(a). In practice, however, proposed Item 1502(b) would have elicited disclosure focused on material impacts because proposed Item 1502(a) would have required a registrant to describe only those climate-related risks that the registrant had identified as having materially impacted or being reasonably likely to have a material impact on the registrant.424 Nevertheless, we recognize that, as proposed, Item 1502(b) may have caused some confusion regarding the scope of the proposed disclosure requirement.425 Some commenters misinterpreted the rule proposal as requiring the disclosure of actual or potential impacts of climate-related risks, regardless of their materiality.426 We have, therefore, added an explicit materiality qualifier to Item 1502(b) to clarify that a registrant is only required to disclose material impacts of climate￾related risks that it has identified in response to Item 1502(a). This clarifying amendment will help address commenters’ concerns that the proposed rule could result in the disclosure of large amounts of immaterial information and thus be unduly burdensome for registrants. Some commenters asserted that the proposed rule provision was not necessary because the Commission’s existing rules generally require a registrant to disclose the effects of material risks, including climate-related risks.427 However, as other commenters have stated, many companies do not discuss any climate-related risks in response to existing disclosure requirements.428 Accordingly, a rule provision that specifically requires the disclosure of material impacts of climate-related risks, and lists the types of potential material impacts that must be described, if applicable, will provide investors access to this information on a more consistent and comparable basis.429 The final rule provision largely lists the same types of potential material impacts of climate-related risks
as under the rule proposal. The list, which is intended to be non-exclusive, includes, as applicable, material impacts on the registrant’s:

• Business operations, including the
  types and locations of its operations;
• Products or services;
• Suppliers, purchasers, or
  counterparties to material contracts, to the extent known or reasonably available;
• Activities to mitigate or adapt to
  climate-related risks, including adoption of new technologies or processes; and

430See supra note 416 and accompanying text. 431See 17 CFR 229.1502(b)(3). Registrants are required to include material contracts in Commission filings under existing rules. See, e.g., 17 CFR 229.601(b)(10). 432See 17 CFR 230.409 and 17 CFR 240.12b–21. 433See 17 CFR 229.1502(c). 434See infra section II.G. 435See infra section II.D.2. 436See supra note 402 and accompanying text. 437See supra note 415 and accompanying text; see also letters from API; Chamber; NAM; SIFMA; and Soc. Corp. Gov. 438See Proposing Release, section II.C.1. 439See id. 440One commenter stated that the Commission should follow the TCFD’s recommendation that ‘‘[d]isclosures should be eliminated if they are immaterial or redundant to avoid obscuring relevant information.’’ Letter from Chamber. 441See infra section II.G. 442See 17 CFR 229.1504(d). 443See letter from ABA. 444See, e.g., business model, Oxford English Dictionary (2023), available at https://doi.org/ 10.1093/OED/2631068139; and business model, Cambridge Business English Dictionary (2023), available at https://dictionary.cambridge.org/ dictionary/english/business-model. 445See TCFD, supra note 159, at Table A2.1; IFRS, IFRS S2 Climate-related Disclosures (June 2023); See also IFRS, IFRS S2 Accompanying Guidance on Climate-related Disclosures (June 2023).

• Expenditure for research and
  development.
  If none of the listed types of impacts or any other impacts are material, a registrant need not disclose them. Similarly, if a registrant has identified a climate-related risk that has materially impacted or is reasonably likely to impact its business strategy, results of operations, or financial condition, but the actual and potential material impact on its strategy, business model, and outlook is not specifically listed in the final rule, the impact will need to be disclosed. By providing a non-exclusive list of material impacts of climate risks in the rule text, but not mandating that all or only these impacts be disclosed, the final rule will help elicit more meaningful and relevant disclosure without overburdening registrants or investors with the presentation of irrelevant information. We have revised one of the types of potential material impacts listed in the proposal that referenced ‘‘suppliers and other parties in [a registrant’s] value chain,’’ by replacing this phrase with ‘‘[s]uppliers, purchasers, or counterparties to material contracts, to the extent known or reasonably available.’’ This revision is intended to address the concern of some commenters that requiring a registrant to include material impacts to a registrant’s value chain would be overly burdensome to both the registrant and to entities in the registrant’s value chain.430 Thus the final rule limits the scope of this specific topic to include only material impacts to the registrant’s suppliers, purchasers, or counterparties to material contracts and further limits the information that should be disclosed about those impacts to information that is known or is reasonably available.431 The adopted provision is consistent with the Commission’s general rules regarding the disclosure of information that is difficult to obtain, which will apply to the final rules if their conditions are met.432 Accordingly, as modified, this provision will help limit the compliance burden of the final rules by eliminating any potential need for registrants to undertake unreasonable searches or requests for information from their value chains. Final Item 1502(c) will require a registrant to discuss whether and how the registrant considers any material impacts described in response to Item 1502(b) as part of its strategy, financial planning, and capital allocation.433 Similar to the rule proposal, but modified to make Item 1502(c) less prescriptive, the final rule provision will require a registrant to include in its disclosure responsive to this provision, as applicable:
• Whether the impacts of the climate￾related risks described in response to
  Item 1502(b) have been integrated into the registrant’s business model or strategy, including whether and how resources are being used to mitigate climate-related risks; and
• How any of the targets referenced in
  Item 1504 434 or in a described transition plan 435 relate to the registrant’s business model or strategy. As noted by several commenters, this provision will help investors assess a registrant’s resiliency to impacts of climate-related risks, by providing information about how management considers the realized or likely impacts of identified material climate-related risks on a company’s business model or strategy.436 In further response to commenters’ concern that the proposed rules were overly prescriptive and could result in a volume of information that could be confusing for investors,437 we have streamlined the Item 1502(c) disclosure requirement. For example, we have omitted from the final Item 1502(c) provision the proposed requirement to ‘‘[p]rovide both current and forward￾looking disclosures,’’ 438 which should provide registrants with more flexibility to determine the appropriate disclosures needed in response to the requirement. We also have eliminated the requirement to describe how any of the financial statement metrics or GHG emissions metrics relate to the registrant’s business model or business strategy.439 Although a registrant may choose to include forward-looking information or discuss any climate￾related metrics or financial information in response to Item 1502(c), the final rule leaves it up to each registrant to determine, based on its particular facts and circumstances, what disclosure is necessary to help investors understand whether and how management has incorporated the material impacts of its climate-related risks into its business strategy, financial planning, and capital allocation. In addition, to further streamline the disclosure and reduce some of the redundancy in the rule proposal,440 we have eliminated from Item 1502(c) the proposed disclosure requirement concerning the role that the use of carbon offsets or RECs has played in a registrant’s climate-related strategy. Under the final rules, as part of its targets and goals disclosure,441 a registrant will be required to provide disclosure concerning its use of carbon offsets or RECs if they constitute a material component of a registrant’s plan to achieve its climate-related targets or goals.442 Given this targets and goals disclosure requirement, explicitly requiring disclosure concerning the use of carbon offsets and RECs in the context of Item 1502(c) is not necessary. We acknowledge the commenter who recommended that we delete the term ‘‘business model’’ in the proposed disclosure item; 443 however, we have retained the use of this term in the final rule because requiring a registrant to disclose a material impact on its business model caused by a climate￾related risk will provide important information to investors about the effectiveness of the registrant’s climate risk management that would otherwise be lost were we to omit this reference. In addition, registrants generally should be familiar with the term even if not previously used in Regulation S–K.444
  Moreover, the TCFD uses that term in connection with disclosure about the resilience of a company’s strategy to climate-related risks, and as such, using the concept in the final rules will provide consistency for those registrants that have been providing climate-related information based on that framework.445 If a registrant has not yet articulated a business model, or does not believe that its business model is or will be materially impacted by climate-related

446See Proposing Release, section II.C.1. 447See id. 448See supra note 415 and accompanying text. 449See 17 CFR 229.1502(d)(1). 450As previously noted, several commenters recommended making or linking any climate￾related financial disclosure requirements under or with MD&A disclosure requirements. See supra note 409 and accompanying text. 451See 17 CFR 229.1502(d)(2). 452See, e.g., letters from Amazon; and PwC. 453See infra sections II.D.2.c and II.G.3.a for a similar material expenditures disclosure requirement, respectively, as part of a registrant’s transition plan disclosure under Item 1502(e) and targets and goals disclosure under Item 1504 of Regulation S–K. To the extent that there is any overlapping disclosure of material expenditures in response to these Items, to avoid redundancy, a registrant should provide disclosure of material expenditures regarding the Item where, in its assessment, such disclosure is most appropriate, and then cross-reference to this disclosure when responding to the other Items. 454See letter from Amazon. As examples of transition activities expenditures, this commenter presented costs and expenses related to electrifying its delivery fleet, renewable energy purchases, and carbon offset purchases. See id., Appendix A. 455The structured data requirements set forth in Item 1508 will facilitate investors’ ability to find and analyze material expenditures disclosure regardless of whether provided in tabular or narrative form. See infra section II.M.3. 456See infra section II.K. In addition, in a change from the proposal, the amendments to Regulation S–X do not require the disclosure of expenditures to mitigate the risks of severe weather events and other natural conditions. Therefore, under Item 1502, investors will also receive information about expenditures related to the mitigation of physical risks that they will not otherwise receive in the disclosures required by the amendments to Regulation S–X. 457See supra notes 409 and 452 and accompanying text. The amendments to Regulation S–X will require the disclosure of expenditures related to carbon offsets and RECs, a type of transition activity, if carbon offsets and RECs have been used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals in a note to the financial statements. See infra section II.K. 458See infra sections II.K.2.b.iii, 3.b and c. 459See infra note 1892 and accompanying text. risks, it need not provide the disclosure specified in this rule provision. Proposed Item 1502(d) would have required a registrant to provide a narrative discussion of whether and how any 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.446 When proposing Item 1502(d), the Commission explained that this provision was intended to elicit a discussion of the financial effects of climate-related risks similar to
MD&A.447 In a clarifying change from the proposal, and to address commenters’ concern that the proposed rule could result in immaterial disclosure,448 we have added materiality qualifiers to ‘‘have affected’’ and ‘‘are reasonably likely to affect’’ to clarify that Item 1502(d) requires a discussion only of material climate￾related risks (i.e., climate-related risks that a registrant has identified as having had or being reasonably likely to have a material effect on the registrant).449 In a further change from the proposal, the final rules refer to the registrant’s ‘‘business, results of operations, and financial condition’’ rather than ‘‘consolidated financial statements.’’ This is to reflect that the type of disclosure that is intended by this provision is more similar to that found in MD&A than that found in the notes to the financial statements.450 Proposed Item 1502(d) also would have required a discussion that included the financial statement metrics to be disclosed pursuant to proposed
Article 14 of Regulation S–X. In a
change from the proposal, Item 1502(d)(2) will require a registrant to describe quantitatively and qualitatively the material expenditures incurred and material impacts on financial estimates and assumptions that, in management’s assessment, directly result from activities to mitigate or adapt to climate￾related risks disclosed pursuant to Item 1502(b)(4).451 Focusing the disclosure requirement on material expenditures that, based on management’s assessment, were incurred as a direct result of the registrant’s mitigation or adaptation activities will provide investors with a financial metric that is important to assessing the registrant’s management of the disclosed risk, as well as assessing the financial impact of such activities. At the same time, linking the disclosure of the expenditures with management’s assessment that they directly result from mitigation or adaptation activities will more closely align the disclosure requirement with how the registrant actually evaluates a material climate￾related risk. This will not only provide investors with important information about a registrant’s strategic decision￾making concerning a material climate￾related risk but should also help the registrant determine whether there are material expenditures that must be disclosed, thereby lowering the compliance burden, as some commenters noted.452 This disclosure requirement is intended to capture actual material expenditures, both capitalized and expensed, made during the fiscal year for the purpose of climate-related risk mitigation or adaptation. As one commenter noted, requiring the disclosure of material expenditures that are directly linked to a registrant’s climate-related goals as part of a registrant’s strategy or targets and goals disclosure under Regulation S–K,453 instead of requiring the disclosure of climate-related financial impacts on line items under Regulation S–X, as proposed, will help reduce the compliance burden of the final rules while providing material information for investors.454 Although this commenter recommended that such expenditures disclosure be presented in tabular format, the final rule provision does not specify a particular format. The final rule also does not require disclosure of ‘‘discrete and separable’’ expenditures, as the commenter suggested. A registrant may present the material expenditures disclosure in tabular or narrative form according to how it believes such information best fits within its overall climate risk disclosure.455 Likewise, the final rules provide registrants with more flexibility than that suggested by the commenter to determine which and to what extent expenditures must be disaggregated or otherwise broken out. This disclosure requirement covers material expenditures for the mitigation or adaptation of both physical risks and transition risks. The final Regulation S– X provisions that we are adopting, on the other hand, do not cover financial impacts caused by transition risks.456 This
Regulation S–K provision, therefore, will elicit disclosures about material expenditures related to activities engaged in for the mitigation of and adaptation to climate-related risks in Commission filings while avoiding the difficulties of reporting such information in a note to the financial statements, as proposed.457 As discussed in more detail below,458 we recognize that some commenters on the proposed Regulation S–X amendments expressed concern regarding the attribution of expenses to climate risk mitigation activities. Specifically, these commenters stated that registrants make business decisions, such as incurring an expenditure to purchase a piece of machinery that is more energy efficient, for multiple reasons, and as a result, a registrant’s transition activities may be inextricably intertwined with its ordinary business activities.459 Although similar concerns could arise with respect to Item 1502(d)’s expenditures disclosure requirement, subjecting the disclosure requirement to materiality rather than a bright-line threshold, as was proposed for the Regulation S–X amendments, and limiting the disclosure to material expenditures that, in ‘‘management’s assessment,’’ are the direct result of

460We note also that the ‘‘significant contributing factor’’ attribution principle applicable to certain disclosures required by the final rules in the financial statements, as well as any other guidance we provide below regarding the presentation of the disclosures in the financial statements, does not pertain to the expenditure disclosure in Regulation S–K. See infra section II.K.3.c. 461See, e.g., letter from IMA. 462See, e.g., letters from ABA; Cohn Rez; HP; and IMA. 463We are providing the same one-year phase in for the material expenditures disclosure requirements being adopted in connection with a transition plan or a target and goal. See infra section II.O.3 below. 464See Proposing Release, section II.E.2. The Commission proposed to require transition plan disclosure in connection with a registrant’s risk management discussion. The final rules include transition plan disclosure as part of a registrant’s disclosure about climate-related risks and their impact on the registrant’s strategy to be consistent with TCFD’s recommended transition plan disclosure. See, e.g., TCFD, Guidance on Metrics, Targets, and Transition Plans (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/ 07/2021-Metrics_Targets_Guidance-1.pdf. 465See Proposing Release, section II.E.2. 466See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; BNP Paribas; CalPERS; CalSTRS; Ceres; Eni SpA; Etsy; International Corporate Governance Network (June 17, 2022) (‘‘ICGN’’); Miller/Howard; Morningstar; Norges Bank Investment Management (June 17,
2022) (‘‘Norges Bank’’); NY SIF; NY St. Comptroller;
Paradice Invest. Mgmt.; PRI; PwC; SKY Harbor; Soros Fund; TotalEnergies; and US SIF. 467See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; and Calvert. 468See, e.g., letters from CalPERS; Calvert; ICGN; Morningstar; PRI; PwC; and Soros Fund. 469See, e.g., letters from Anthesis; Calvert; and TotalEnergies. mitigation or adaptation activities, will help to mitigate the compliance burden and related concerns. In addition, in responding to the final rules, registrants will have the flexibility to explain qualitatively the nature of the expenditure and how management has determined that it is a direct result of the disclosed transition activities, which may help alleviate concerns about potential liability exposure for attribution decisions.460 Requiring the disclosure of material impacts on financial estimates and assumptions that, from management’s assessment, directly result from mitigation or adaptation activities will also provide investors with important information that will help them understand a registrant’s climate risk management and assess any effects on its asset valuation and securities pricing.461 Registrants will similarly have the flexibility to explain qualitatively the nature of the impact on financial estimates and assumptions and how, in management’s assessment, it is a direct result of the disclosed mitigation or adaptation activities. We recognize that registrants may need to develop new systems and adjust their DCPs to ensure the accurate tracking and reporting of material expenditures and material impacts on financial estimates and assumptions that directly result from climate-related mitigation or adaptation activities.462 To accommodate such development and adjustment, we are providing an additional phase in for the requirement to disclose this information in the context of Item 1502. Accordingly, a registrant will not be required to comply with the Item 1502(d)(2) requirement until the fiscal year immediately following the fiscal year of its initial compliance date for subpart 1500 disclosures based on its filer status.463
2. Transition Plan Disclosure (Items
1500 and 1502(e)) a. Proposed Rule The Commission proposed to require a registrant that has adopted a transition plan as part of its climate-related risk management strategy to describe the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks.464 The proposed requirements were intended to 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. The Commission proposed to define ‘‘transition plan’’ to mean a registrant’s strategy and implementation plan to reduce climate-related risks, which may include a plan to reduce its GHG emissions in line with its own commitments or commitments of jurisdictions within which it has significant operations. To allow for an understanding of a registrant’s progress to meet its plan’s targets or goals over time, the proposed rules would have required the registrant 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.465 The proposed rules would have further required a registrant that has adopted a transition plan to discuss, 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; and
• How the registrant plans to mitigate
  or adapt to any identified transition risks, including the following:
  Æ Laws, regulations, or policies that:
  D Restrict GHG emissions or products with high GHG footprints, including emissions caps; or D Require the protection of high conservation value land or natural assets; Æ Imposition of a carbon price; and Æ Changing demands or preferences of consumers, investors, employees, and business counterparties. The proposed rules provided that a registrant that has adopted a transition plan may also describe how it plans to achieve any identified climate-related opportunities, such as:
• The production of products that
  may 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 services related to
  any transition to a lower carbon economy. b. Comments Many commenters supported the proposed provision requiring a registrant that has adopted a transition plan to describe the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks.466 Commenters stated that information about a registrant’s transition plan would help investors evaluate the seriousness of stated corporate intentions to identify and manage climate-related risks, including the credibility of climate-related targets and progress made toward those targets.467 Several commenters stated that information regarding a registrant’s transition plan is important to help investors evaluate a registrant’s management of its identified climate￾related risks and help them assess the resiliency of a registrant’s strategy in a potential transition to a lower carbon economy.468 Some commenters specifically supported requiring disclosure, as applicable, of a registrant’s plan to mitigate or adapt to identified physical risks, as proposed, and further stated that there are no transition risks, as identified in the rule proposal, that should be excluded from the transition plan disclosure requirement.469 Other commenters stated that the proposed requirement would help provide more consistent and comparable disclosure about companies’ transition plans, which, despite the

470See, e.g., letters from CalSTRS; and Ceres. 471See letter from Amazon. 472See letter from BNP Paribas. 473See letter from Paradice Invest. Mgmt. 474See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al. (stating that mandatory transition plan disclosure should not raise competitive harm concerns because the Commission is not requiring the disclosure of any proprietary or commercially sensitive information); and Eni SpA (stating that a discussion of the short- , medium- and long-term objectives of a registrant’s transition plan, the levers that will be used to achieve them, and the metrics used to track the registrant’s progress towards alignment with the Paris Agreement goals, would not raise any competitive harm concerns); see also letter from Morningstar (stating that registrants ‘‘may integrate transition plans into formats akin to medium-term plans or capital markets-day presentations, where they have historically been able to present forward￾looking information without raising a competitive harm concern.’’). 475See letter from PRI. 476 Id. 477See, e.g., letters from AALA; Amer. Chem.; Beller et al.; Business Roundtable; CEMEX; Chamber; Dimensional Fund Advisors (May 13,
2022) (‘‘Dimensional Fund’’); D. Hileman
Consulting; B. Herron; NAM; RILA; and Western Midstream. 478See, e.g., letters from Beller et al.; CEMEX; Dimensional Fund; GM; B. Herron; D. Hileman Consulting; NAM; and Western Midstream. 479See, e.g., letters from AALA; Business Roundtable; CEMEX; NAM; and RILA. 480See letter from Chamber; see also letter from Sullivan Cromwell. 481See, e.g., letters from ABA; Alphabet et al.; BlackRock; and Mortgage Bankers Association (June 17, 2022) (‘‘Mtg. Bankers’’). 482See letter from SIFMA. 483See, e.g., letters from CEMEX; and J. McClellan. 484See, e.g., letters from Anthesis; CalSTRS; Morningstar; and TotalEnergies. 485See, e.g., letters from CalSTRS; and Morningstar. 486See letter from Amer. for Fin. Reform, Sunrise Project et al. 487See, e.g., letters from Anthesis; IAC Recommendation; IATP; Morningstar; and TotalEnergies. 488See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; IAC Recommendation; and Morningstar. 489 IAC Recommendation. 490See, e.g., letters from Anthesis; and IATP. 491See, e.g., letters from CEMEX; and SIFMA. 492See letter from CEMEX. 493See letter from SIFMA. 494See id. importance of such information, is currently lacking.470 As previously noted, one other commenter recommended requiring the disclosure of a registrant’s climate-related expenditures, both expensed and capitalized, made during each fiscal year, which would be linked to and aligned with the risks, goals, and strategies that the registrant would disclose under proposed Item 1502 of Regulation S–K.471 One commenter stated that the Commission should require a registrant that has a transition plan to disclose how it is aligned with the goals of the Paris Agreement.472 Another commenter similarly indicated that the proposed transition plan disclosure requirement would help investors evaluate the extent to which a registrant’s plan is aligned with global climate-related goals.473 A few commenters stated that mandatory disclosure of a transition plan would not raise competitive harm concerns.474 One commenter recommended that we revise the transition plan disclosure requirement so that it aligns more with the TCFD’s recommended disclosure of transition plans, which focuses solely on transition risk and does not include the mitigation or adaptation of physical risk.475 According to this commenter, a transition plan ‘‘is not a tool for addressing physical risks, and disclosures on how an organization would address, manage and reduce the impact of physical risks should be disclosed under the risk management or targets sections.’’ 476 A number of commenters opposed the proposed requirement to describe a transition plan if one has been adopted.477 Some commenters stated that the proposed disclosure requirement was too prescriptive and would likely create a disincentive for the adoption of transition plans.478 Some commenters also stated that the proposed requirement would compel the disclosure of confidential business information and raise competitive harm
concerns.479 One commenter asserted that the proposed requirement is not necessary because the Commission’s existing rules, which require disclosure of any material change to a previously disclosed business strategy, would arguably elicit disclosure of a registrant’s transition plan.480 Other commenters recommended that the Commission reduce the prescriptive nature of the proposed transition plan disclosure provision by requiring disclosure only of elements of a transition plan or transition activities that are material.481 One other commenter similarly recommended requiring the disclosure only of a material transition plan that has been approved by the board of directors.482 Still other commenters stated that transition plan disclosure should be voluntary.483 Some commenters supported the proposed provision specifying that a registrant may disclose how it plans to achieve any climate-related opportunities.484 Commenters stated that information about whether and how a registrant intends to achieve climate￾related opportunities, such as by creating products and services to facilitate a transition to a lower carbon economy, would be helpful for investors when comparing registrants’ climate￾related preparedness for the purpose of making investment decisions.485 One commenter recommended that the Commission require, rather than permit, the disclosure of how a registrant plans to achieve any climate-related opportunities mentioned in its transition plan in order to discourage deceptive statements.486 Some commenters supported the proposed provision requiring a registrant 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.487 Several of these commenters stated that the updating provision was necessary to help investors track a registrant’s progress toward meeting a transition plan’s goals and to enable investors to make or alter their investment decisions based on current climate-related information.488 One of these commenters stated that ‘‘[c]ompanies that try to distinguish themselves by releasing a public transition plan often are not required to provide updates as to how they are progressing against those targets, significantly limiting an investor’s ability to assess management’s success in reaching their goals.’’ 489 A few of these commenters further stated that the proposed updating requirement would not act as a disincentive to the adoption of a transition plan because companies that intend to follow through on their transition plan commitments will want to assess their progress in achieving them and report on such progress and any climate-related opportunities they may be pursuing.490 Other commenters, however, opposed the proposed updating requirement.491 One commenter stated that the proposed requirement would be burdensome for registrants and would act as a disincentive to the adoption of a transition plan.492 Another commenter stated
that, due to the long timeline of transition plans, annual progress updates would in many cases not provide meaningful information for investors.493 This commenter recommended that there should instead be a requirement to annually report any actions taken to achieve transition plans that are material to the registrant, as well as any material positive or negative deviations from the plan or changes to it that are material to the registrant.494 Another commenter stated that a registrant should have to update its

495See letter from Unilever.
496See 17 CFR 229.1502(e).
497See 17 CFR 229.1500 (definition of ‘‘transition plan’’). 498See Proposing Release, section II.E.2. 499See supra section II.A. 500See, e.g., letters from AGs of Cal. et al.; BNP Paribas; and Morningstar. 501See supra note 483 and accompanying text. 502See supra note 480 and accompanying text. 503See supra note 470 and accompanying text. 504See supra notes 478 and 481 and accompanying text. 505See Proposing Release, section II.E.2. 506As discussed above, transition risk is defined as the actual or potential negative impacts on a registrant’s business, results of operations, or financial condition attributable to regulatory, technological, and market changes to address the mitigation of, or adaptation to, climate-related risks, such as increased costs attributable to changes in law or policy, reduced market demand for carbon￾intensive products leading to decreased 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, and reputational impacts (including those stemming from a registrant’s customers or business counterparties) that might trigger changes to market behavior, consumer preferences or behavior, and registrant behavior. See 17 CFR 229.1500. 507See infra section II.J.3. 508See 17 CFR 229.1502(e)(1). 509See supra note 488 and accompanying text. 510See supra note 490 and accompanying text. 511See, e.g., letters from AGs of Cal. et al.; Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; BNP Paribas; CalPERS; CalSTRS; Ceres; and Morningstar. 512We note that such an update would not be required where disclosure of the underlying transition plan would not be currently required (e.g., because the plan is no longer used to manage a material transition risk). 513See, e.g., letters from AGs of Cal. et al.; BNP Paribas; and Morningstar. transition plan disclosure only when the registrant believes it is appropriate to do so, and such updating should occur at most on an annual basis.495
c. Final Rule
After considering comments received, we are adopting, with modifications from the proposal, a final rule provision (Item 1502(e)) that will require a registrant to describe a transition plan if it has adopted the plan to manage a material transition risk.496 Like the rule proposal, the final rules define (in Item
1500) a ‘‘transition plan’’ to mean a
registrant’s strategy and implementation plan to reduce climate-related risks, which may include a plan to reduce its GHG emissions in line with its own commitments or commitments of jurisdictions within which it has significant operations.497 The final rules do not mandate that registrants adopt a transition plan; if a registrant does not have a plan, no disclosure is required. As noted in the Proposing Release, registrants may adopt transition plans to mitigate or adapt to climate-related risks as an important part of their climate￾related risk management strategy, particularly if the registrant has made commitments, or operates in a jurisdiction that has made commitments, to reduce its GHG emissions.498 We recognize that not every registrant has a transition plan and, as noted above, this rulemaking does not seek to prescribe any particular tools, strategies, or practices with respect to climate-related risks. If, however, a registrant has adopted such a plan, information regarding the plan is important to help investors evaluate a registrant’s management of its identified climate-related risks and assess the potential impacts of a registrant’s strategy to achieve its short- or long￾term climate-related targets or goals on its business, results of operations, and/ or its financial condition. Moreover, a registrant’s transition plan may have a significant impact on its overall business strategy, for example, where companies operate in jurisdictions with laws or regulations in place designed to move them away from high emissions products and services.499 Because the steps a registrant plans to take pursuant to its transition plan may have a material impact on its business, results of operations, or financial condition, investors have sought more detailed disclosure about transition plans.500 We disagree with commenters that stated that transition plan disclosure should be voluntary 501 and that a transition plan disclosure requirement was not necessary because the Commission’s existing business description rules would arguably elicit sufficient disclosure of a registrant’s transition plan.502 As other commenters noted, many registrants are not providing decision-useful information about their transition plans under the Commission’s existing disclosure rules.503 While existing Item 101 of Regulation S–K may result in some disclosure regarding transition plans in response to the general requirements of that rule, mandatory disclosure about transition plans will help ensure that investors receive the information they need to evaluate a registrant’s management of material climate-related risks and the impact of those plans on its results of operations and financial condition in a more consistent and predictable manner. We are cognizant, however, of commenters’ concerns that the proposed transition plan disclosure provision was overly prescriptive and could result in immaterial disclosure or discourage registrants from adopting a transition plan to
avoid having to describe the plan in detail.504 To address these concerns, we have significantly streamlined the transition plan disclosure provision and revised the provision so that the description of a transition plan is only required if a registrant has adopted the plan to manage a material transition risk. Unlike the proposed rule, the final rule does not list the types of transition risks and factors related to those risks that must be disclosed, if applicable.505 Instead, a registrant that is required to provide transition plan disclosure will have the flexibility to provide disclosure that addresses the particular facts and circumstances of its material transition risk.506 We also note that, as with scenario analysis and use of internal carbon price disclosure, a registrant’s transition plan disclosure will be subject to a safe harbor.507 Similar to the proposed rule, the final rule requires a registrant to update its annual report disclosure about the transition plan each fiscal year by describing any actions taken during the year under the plan, including how such actions have impacted the registrant’s business, results of operations, or financial condition.508 This updating requirement will help investors understand the registrant’s progress under the plan over time, track the impacts of a transition plan on a registrant’s business and, as noted by commenters, help inform investment decisions.509 We disagree with the view of commenters who stated that this updating requirement would result in disclosure of information that is not meaningful for investors.510 Investors have indicated that they need periodic information regarding the steps a registrant has taken to achieve an announced climate-related target or goal in order to evaluate a registrant’s ongoing management of a material transition risk for the purpose of informing their investment or voting decisions.511 Once a registrant has provided disclosure about a transition plan it has adopted to manage a material climate risk, we do not expect that it would be particularly burdensome for the company to disclose updated information about actions taken under the plan on a going forward basis.512 Disclosure of the steps a registrant intends to make under a transition plan, and whether it has taken those steps, will help investors assess the financial impacts of the plan on the registrant’s business, results of operations, or financial condition.513 Moreover,

514See supra note 495 and accompanying text. 515See supra note 490 and accompanying text. 516To the extent that a registrant no longer uses a transition plan to manage a material climate risk, disclosure under this item, including the requirement for updates, would not be required. 517See 17 CFR 229.1502(e)(2). 518See supra section II.D.1.c for a discussion of Item 1502(d)(2)’s requirement to disclose material expenditures and material impacts on financial estimates and assumptions directly resulting from mitigation or adaptation activities. 519For example, Item 1504(c)(2) requires similar disclosure regarding material impacts that directly result from actions taken by a registrant to achieve a disclosed target or goal. See infra section II.G.3. To the extent that there is any overlapping disclosure of material expenditures in response to Items 1502(d)(2), 1502(e), and 1504(c)(2), to avoid redundancy, a registrant should provide disclosure of material expenditures regarding the Item where, in its assessment, such disclosure is most appropriate, and then cross-reference to this disclosure when responding to the other Items. 520See, e.g., letters from Amazon; and PWC. 521We remind registrants that while they are permitted to cross-reference to information in their financial statements to satisfy their Regulation S– K disclosure obligations, they are not permitted to cross-reference to Regulation S–K disclosures in their financial statements, unless otherwise specifically permitted or required by the Commission’s rules or by U.S. Generally Accepted Accounting Principles (‘‘U.S. GAAP’’) or International Financial Reporting Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board (‘‘IASB’’), whichever is applicable. See 17 CFR 230.411 and 17 CFR 240.12b–23. 522See infra section II.O.3. 523See letter from PRI. 524See Proposing Release, section II.E.2. 525See TCFD, Guidance on Metrics, Targets, and Transition Plans section E (Oct. 2021), available at https://assets.bbhub.io/company/sites/60/2021/07/ 2021-Metrics_Targets_Guidance-1.pdf. 526See, e.g., infra note 2690 and accompanying text (describing a report finding that 50 percent of sustainability reports from Russell 1000 companies aligned with the TCFD recommendations). 527See 17 CFR 229.1503, discussed infra section II.F. requiring this information on an annual basis will allow investors to take into account current climate-related information in their investment and voting decisions more consistently than they would be able to if registrants were required to update their climate-related information less frequently or only when they deemed it appropriate.514 We recognize that some commenters asserted that an updating requirement would act as a disincentive to the adoption of a transition plan. This effect may be attenuated, as some commenters indicated,515 if registrants that have disclosed a plan wish to inform investors about progress achieved pursuant to the plan. In any
event, if a registrant is using a transition plan to manage a material transition risk, we think it is appropriate for registrants to provide ongoing disclosure about the plan so that investors can assess its impact on the registrant’s business.516 As previously noted, however, we are agnostic about whether or how a registrant is managing its climate-related risks, and the final rules are intended neither to incentivize nor disincentivize the use of a transition plan or any other climate risk management tool. In a modification of the proposed rule, which would have generally required the disclosure of the relevant metrics and targets used to identify and manage transition risk under a transition plan, the final rule will require a registrant, as part of its updating disclosure, to include quantitative and qualitative disclosure of material expenditures incurred and material impacts on financial estimates and assumptions as a direct result of the disclosed actions taken under the plan.517 While this provision is similar to Item 1502(d), Item 1502(e) differs in that it is intended to elicit disclosure about material expenditures and material impacts on financial estimates and assumptions that directly result from actions taken under a transition plan (e.g., material expenditures made for climate-related research and development). Item 1502(e) is not limited to disclosure concerning expenditures and impacts that directly result from mitigation or adaptation activities; 518 however, to the extent that a registrant’s disclosure made in response to Item 1502(d) or Item 1502(e) overlap with each other or with disclosure required under any other subpart 1500 provision,519 the registrant need not repeat the disclosure. Similar to Item 1502(d), the disclosure requirement under Item 1502(e) is intended to capture material expenditures, both capitalized and expensed, made during the fiscal year under a transition plan, and to more closely align with how the registrant actually makes strategic decisions about taking actions under a transition plan. This provision will provide an important metric to help investors assess a registrant’s climate risk management and the financial impact of a transition plan while also helping to limit the compliance burden, as some commenters noted.520 We have not qualified Item 1502(e) by referring to management’s assessment as we have done in Item 1502(d) (i.e., material expenditures and material impacts that, in management’s assessment, directly result from the disclosed actions). We believe that if a registrant has adopted a transition plan to manage a material transition risk, it is likely that management will oversee actions taken under the plan and, therefore, any material expenditures or material impacts on financial estimates and assumptions that are disclosed will have been assessed by management as being the direct result of such actions. As under Item 1502(d), when responding to Item 1502(e), a registrant will have
flexibility to explain qualitatively the nature of a material expenditure or material impact on its financial estimates or assumptions and how it directly resulted from the disclosed actions taken under the plan. Additionally, when considering which expenditures related to actions taken under a disclosed plan are material over the relevant period and therefore require disclosure, if individual expenditures do not appear to be material, registrants should consider whether overall expenditures related to actions taken under the plan are material in the aggregate and, if so, provide appropriate disclosure. For example, a series of individually immaterial expenditures could be the result of the same action or related actions under the plan, and those expenditures could be material in the aggregate. With respect to the disclosure of material impacts on financial estimates and assumptions as a direct result of the disclosed actions, to the extent that such information is disclosed in response to Rule 14–02(h) of Regulation S–X, a registrant would be able to cross-reference to such disclosure.521 Similar to Item 1502(d)(2), to allow for the development of systems, controls, and procedures to track and report material expenditures and material impacts on financial estimates and assumptions directly resulting from actions taken under a transition plan, we are phasing in compliance with Item 1502(e)(2). A registrant will not be required to comply with either provision until the fiscal year immediately following the fiscal year of its initial compliance date for the subpart 1500 rules based on its filer status.522 As recommended by one commenter,523 we have removed the reference to physical risks that was in the proposed rule.524 This change will make the transition plan disclosure requirement more consistent with voluntary disclosures that are based on the TCFD’s recommendations,525 which may mitigate the costs and complexity of complying with the final rule for registrants already familiar with the TCFD’s framework.526 A registrant that faces a material physical risk, however, will still be required to disclose how it is managing that risk as part of its risk management disclosure.527 These revisions will elicit material information for investors about how a registrant

528See supra note 479 and accompanying text. 529See, e.g., letters from CEMEX; and SIFMA. 530See supra note 482 and accompanying text. 531See supra section II.C.1.c. 532See supra note 486 and accompanying text. 533See Proposing Release, section II.A.1. 534See Proposing Release, section II.C.4. 535See id. 536See id. More generally, scenario analysis is a process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty. See, for example, the definition of ‘‘scenario analysis’’ in TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, Appendix 5. 537See Proposing Release, section II.C.4. 538See id. 539See, e.g., letters from American Institute of CPAs (June 15, 2022) (‘‘AICPA’’); AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; Bloomberg; CalSTRS; Ceres; CFA; Council of Institutional Advisors (May 19, 2022) (‘‘CII’’); Eni SpA; IAC Recommendation; ICGN; ICI; J. McClellan; Morningstar; Norges Bank; NRDC; Paradice Invest. Mgmt.; Member of the U.S. House of Representatives Kathy Castor and 130 other House Members (Jun. 17, 2022) (‘‘U.S. Reps. Castor et al.’’); San Francisco Employees’ Retirement System (June 17, 2022) (‘‘SFERS’’); Unilever; Vodafone; and Wellington Mgmt. 540See letter from Amer. for Fin. Reform, Sunrise Project et al. 541See id.; see also letters from ICI (stating that ‘‘[i]nformation about scenario analysis can help investors evaluate the resilience of the company’s business strategy in the face of various climate scenarios that could impose potentially different climate-related risks’’); and Wellington Mgmt. (stating that ‘‘disclosure of a scenario analysis enables investors to assess an issuer’s risk management process and whether an issuer is considering different climate risk outcomes in its planning’’). intends to reduce its exposure to a material transition risk while limiting the burdens on registrants and providing them more flexibility to determine what aspects of the transition plan should be disclosed in light of their facts and circumstances. We are cognizant that some commenters expressed concern that the proposed transition plan disclosure requirement would result in the disclosure of confidential or proprietary information that could cause competitive harm to the registrant.528 Modifying the transition plan disclosure provision to focus on material expenditures and material impacts on financial estimates and assumptions, rather than all relevant metrics and targets, will help to mitigate this concern by providing registrants with more flexibility to determine what is necessary to disclose in order to describe the plan. Similarly, modifying the transition plan disclosure provision to require disclosure only when a plan has been adopted to manage a material transition risk will further help to mitigate this concern. This added flexibility regarding transition plan disclosure will also help address concerns that the final rule
could act as a disincentive to adoption of transition plans.529 While the final rules seek neither to incentivize nor disincentivize the adoption of transition plans, we recognize that the compliance burdens of disclosure may influence some registrants’ decisions with respect to risk management practices and have therefore sought to mitigate such effects. We decline to follow the recommendation of one commenter to limit the transition plan disclosure requirement to only material transition plans that have been formally approved by a registrant’s board of directors.530 We do not believe that board approval should be the determining factor in whether disclosure is provided. Such a provision would fail to elicit disclosure of a material transition plan adopted by senior management that, due to a registrant’s particular corporate governance structure, is not required to be subject to a board vote but nevertheless has significant potential implications for the registrant’s financial condition or results of operations. Like the proposal, the final rule does not require a registrant to disclose climate-related opportunities included in its transition plan. Nevertheless, as previously mentioned, a registrant may still elect to describe any opportunities that it intends to achieve as part of its transition plan discussion or when responding to any of the Item 1502 provisions.531 We decline, however, to follow the recommendation of one commenter to require the disclosure of how a registrant intends to achieve any climate-related opportunities that are a part of its transition plan.532 Consistent with the rule proposal, we have determined to treat disclosure regarding climate￾related opportunities as optional, among other reasons, to allay any anti￾competitive concerns that might arise from a requirement to disclose a particular business opportunity.533 We believe those concerns could be exacerbated by requiring disclosure not only of the existence of opportunities in the transition plan but also how the registrant intends to achieve those opportunities.
3. Disclosure of Scenario Analysis If
Used (Items 1500 and 1502(f)) a. Proposed Rule The Commission proposed to require a registrant to describe the resilience of its business strategy in light of potential future changes in climate-related risks.534 In connection with this disclosure, the Commission proposed to require a registrant 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, and to support the resilience of its strategy and business model in light of foreseeable climate￾related risks.535 The Commission proposed to define scenario analysis to mean a process for identifying and assessing a potential range of outcomes of various possible future climate scenarios, and how climate-related risks may impact a registrant’s operations, business strategy, and consolidated financial statements over time.536 The proposed definition included an example of how registrants might use scenario analysis.537 The Commission proposed to require a registrant that uses scenario analysis to assess the resilience of its business strategy to climate-related risks to disclose the scenarios considered (e.g., an increase of no greater than 3 deg;C, 2 deg;C, or 1.5 deg;C above pre￾industrial levels), including the parameters, assumptions, and analytical choices, and the projected principal financial impacts on the registrant’s business strategy under each scenario. The Commission further proposed that such disclosure should include both qualitative and quantitative information.538 b. Comments Several commenters supported the proposed rule requiring a registrant 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, and to support the resilience of its strategy and business model in light of foreseeable climate-related risks.539 One commenter stated that scenario analysis has emerged as a key analytical tool for assessing potential climate-related impacts on a company by allowing market participants to understand multiple possible outcomes while still reflecting a realistic level of uncertainty.540 This commenter further indicated that disclosure of scenario analysis if used would allow investors to review the general models and projections used by the company in its planning and capital allocation strategy, and would greatly assist investors in understanding a firm’s resilience and assumptions about the effects of climate change.541 Another commenter supported the disclosure of scenario analysis if used because of the importance to investors of forward￾looking assessments of climate-related

542See letter from Bloomberg; see also letter from Morningstar (stating that scenario analysis is an important analytical tool in which companies may project their performance and results subject to various changes, including, but not limited to, policy interventions, technological advancement, or environmental and physical challenges, and that such analysis would help investors understand circumstances under which the value of a company could be at risk, and how a company’s strategy may—or may not—move it forward toward long￾term value creation and sustainability). 543See, e.g., letters from Anthesis; NY St. Comptroller; PRI; and SFERS. 544See letter from SFERS. 545See id. 546See letter from Wellington Mgmt. 547See letter from CII. 548See, e.g., letters from AICPA; J. McClellan; and Unilever. 549See, e.g., letters from ABA; and AllianceBernstein. 550See, e.g., letters from BlackRock; ICI; NEI Investments (June 17, 2022) (‘‘NEI’’); and NY City Comptroller. 551See, e.g., letters from Alphabet et al.; Amazon; Amer. Bankers; AFPM; CEMEX; Chamber; Chevron; Citigroup; Hydro One Limited (June 16, 2022) (‘‘Hydro One’’); Institute of International Finance (June 17, 2022) (‘‘IIF’’); NAM; Northern Trust; RILA; Shearman Sterling; Soc. Corp. Gov.; Sullivan Cromwell; the Travelers Companies (June 17, 2022) (‘‘Travelers’’); and Western Midstream. 552See, e.g., letters from AFPM; Amazon; Amer. Bankers; Chevron; Citigroup; GPA Midstream; IIF; NAM; RILA; Shearman Sterling; Soc. Corp. Gov.; Sullivan Cromwell; and Travelers. 553See, e.g., letters from Chamber; PGIM; Sullivan Cromwell; United Parcel Service, Inc. (Jun. 14,
2022) (‘‘UPS’’); and Western Midstream; see also
letter from Beller et al. (opposing a mandatory scenario analysis disclosure requirement because it would stifle innovation). 554See, e.g., letters from Amer. Bankers; Dimensional Fund; NAM; and Soc. Corp. Gov. 555See, e.g., letters from Alphabet et al.; Beller et al.; Chamber; Hydro One; and Northern Trust. 556See, e.g., letters from ABA; and Chevron. 557See letter from Amazon. 558See, e.g., letters from Anthesis; Bloomberg; CalSTRS; Chevron; and Shell plc (June 17, 2022) (‘‘Shell’’). 559See, e.g., letters from American Council of Life Insurers (June 17, 2022) (‘‘ACLI’’); J. Herron; and TotalEnergies. 560See supra notes 540–542 and accompanying text. 561See, e.g., letter from AllianceBernstein (stating that ‘‘[s]cenario analysis is particularly important for those registrants in emissions-intensive industries where such analysis can demonstrate the quality of impairment testing and increase confidence in asset values’’). The Federal Reserve Board’s climate scenario analysis pilot program, in which six of the nation’s largest banks are voluntarily participating, further demonstrates the increased recognition of scenario analysis as an important tool to assess climate-related financial risks. See Board of Governors of the Federal Reserve System, Federal Reserve Board announces that six of the nation’s largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks (Sept. 29, 2022), available at https://www.federal reserve.gov/newsevents/pressreleases/ other20220929a.htm. 562See, e.g., letters from AllianceBernstein (stating that ‘‘[w]hile many registrants claim to perform scenario analysis, however, there is little disclosure around assumptions used in these models and how registrants use results impact strategy, business and capital allocation decisions, risks in understanding the resilience of a company’s climate-related strategy.542 Some commenters recommended that the Commission require all registrants to provide scenario analysis disclosure in their climate risk reporting, regardless of whether they otherwise use scenario analysis.543 One such commenter stated that requiring scenario analysis disclosure is essential if a registrant’s disclosure of material climate-related risks is to be decision-useful for investors.544 According to that commenter, because scenario analysis requires a registrant to make assumptions regarding different global temperature increase pathways and various potential pathways of decarbonization involving regulatory, technological, and behavioral responses, investors need to know the assumptions and parameters considered by the registrant in order to understand the registrant’s disclosure of likely climate￾related impacts.545 One other commenter stated that, ‘‘all else being equal,’’ registrants that conduct strong scenario analyses should have more intrinsic value in the securities they offer
than issuers that do not plan sufficiently for climate risk.546 One commenter stated that the proposed scenario analysis disclosure requirement struck an appropriate balance 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 conducted such analysis.547 Some commenters similarly stated that, due to cost concerns, they could only support a requirement to disclose scenario analysis if it was limited to situations in which a registrant has actually used such analysis in its assessment of climate￾related risks.548 Other commenters supported the proposed scenario analysis disclosure requirement but only if the use of scenario analysis reflected an expected material impact on the registrant’s business strategy, financial planning, and capital raising.549 Still other commenters recommended that the Commission require a registrant that does not currently use scenario analysis to explain why it does not do so to prevent the disclosure requirement from acting as a disincentive to the adoption of scenario analysis.550 Several commenters opposed or expressed concerns about the proposed requirement to disclose scenario analysis, if used.551 Some commenters stated that the proposed requirement could result in the disclosure of confidential business information.552 Other commenters stated that a scenario analysis disclosure requirement that is not qualified by materiality would act as a disincentive to the use of scenario analysis as a climate-related tool.553 Still other commenters opposed the proposed disclosure requirement because it was too prescriptive and would be costly and burdensome to fulfill.554 Because of the above concerns, some commenters stated that the disclosure of scenario analysis should be voluntary.555 Other commenters stated that the required scenario analysis disclosure should be limited to high level trends or material drivers and impacts, and should not cover more detailed parameters, assumptions, and analytical choices underlying the scenario analysis, as proposed.556 One commenter stated that scenario analysis disclosure should only be required when it is broadly used by senior management and the board as part of their strategic planning process and when integrated and material to a publicly announced climate-related strategy or initiative.557 Some commenters recommended that the Commission require the use of certain publicly available scenario models, such as those published by the Intergovernmental Panel on Climate Change (‘‘IPCC’’), the International Energy Agency (‘‘IEA’’), or the Network of Central Banks and Supervisors for Greening the Financial System (‘‘NGFS’’), to enhance the comparability of the scenario analysis disclosure.558 Other commenters stated that it should be up to each registrant to choose those scenarios that best fit its particular
business or industry and tailor its disclosure accordingly.559
c. Final Rule
We are adopting a final rule (Item 1502(f)) requiring the disclosure of scenario analysis under certain circumstances. The disclosure of a registrant’s use of scenario analysis can provide important forward-looking information to help investors evaluate the resilience of the registrant’s strategy under various climate-related circumstances.560 Scenario analysis has increasingly been recognized as an important analytical tool in assessing a company’s climate-related risk exposure,561 and investors have increasingly sought information from registrants about their use of scenario analysis and expressed a need for improved disclosure about such use.562

making their results challenging to compare’’); and Ceres (citing evidence from the Climate Action 100+ Benchmark that companies’ ‘‘scenario analyses leave much room for improvement’’). 563See supra note 543 and accompanying text. 564See supra note 554 and accompanying text. 565See infra section II.J.3. 566We are largely adopting the definition of scenario analysis, as proposed. See 17 CFR
229.1500 (‘‘Scenario analysis means a process for
identifying and assessing a potential range of outcomes of various possible future climate scenarios, and how climate-related risks may impact a registrant’s business strategy, results of operations, and financial condition over time.’’) We have deleted from the definition the example that ‘‘registrants might use scenario analysis to test the resilience of their strategies under certain future climate scenarios, such as those that assume global temperature increases of 3 °C, 2 °C, and 1.5 °C above pre-industrial levels’’ because we do not wish to convey the impression that these scenarios are required should a registrant elect to conduct scenario analysis. 567See 17 CFR 229.1502(f). Conversely, if a registrant conducts scenario analysis and determines from its results that it is not likely to be materially impacted by a climate-related risk, no disclosure about its use of scenario analysis is required under Item 1502(f). 568See id. 569See 17 CFR 229.1500. 570See TCFD, supra note 332. 571See supra note 552 and accompanying text. 572See supra note 558 and accompanying text. Although some commenters recommended that we require all registrants to include scenario analysis disclosure in their climate risk reporting,563 we recognize that not every registrant conducts scenario analysis and, as noted above, this rulemaking does not seek to prescribe any particular tools, strategies, or practices with respect to climate-related risks but rather, when material, to provide investors with the information they need to evaluate the climate-related risks faced by the registrant and their potential impacts on the registrant’s business, results of operations, or financial condition. Therefore, similar to the proposed rule, the final rule’s scenario analysis disclosure requirement will depend on whether and how a registrant uses such analysis. Importantly, the rule will not require any registrant to conduct scenario analysis. We are, however, adopting modifications in the final rules. For example, we have added a materiality qualifier regarding the disclosure of scenario analysis to address commenters’ concern that the proposed requirement could result in disclosure of immaterial information that would be burdensome and costly to produce.564 We also note that, as with transition plan and use of internal carbon price disclosure, a registrant’s scenario analysis disclosure will be subject to a safe harbor.565 The final rule provides that, if a registrant uses scenario analysis 566 to assess the impact of climate-related risks on its business, results of operations, or financial condition, and if, based on the results of scenario analysis, a registrant determines that a climate-related risk is reasonably likely to have a material impact on its business, results of operations, or financial condition, then the registrant must describe each such scenario,567 including a brief description of the parameters, assumptions, and analytical choices used, as well as the
expected material impacts, including financial impacts, on the registrant under each such scenario.568 We are adopting this disclosure requirement because, if a registrant has used scenario analysis to assess and manage a material climate￾related risk, investors need to understand how it conducted that analysis in order to evaluate the registrant’s conclusions regarding material impacts on its business, results of operations, or financial condition. We also have streamlined the proposed scenario analysis disclosure requirements to reduce redundancy in the final rules. For example, we have eliminated the introductory provision in the rule proposal requiring a registrant to describe the resilience of its business strategy in light of potential future changes in climate-related risks. Because companies use scenario analysis to test the resilience of their business strategies under varying future climate scenarios, and because such use is explained in the definition of scenario analysis (in Item 1500) that we are adopting largely as proposed,569 if registrants are required to disclose their use of scenario analysis under the final rules, such disclosure likely would include a description of the resilience of their strategies under various climate scenarios. The rule proposal would have required a registrant to disclose ‘‘any analytical tools, such as scenario analysis’’ that it uses to assess the impact of climate-related risks on its business. In a modification of the proposed rule, we have eliminated the reference to ‘‘any analytical tools’’ to clarify that the disclosure required by this provision should concern the registrant’s use of scenario analysis rather than any other analytical tools. We note that the TCFD’s guidance discusses scenario analysis as the primary tool to help companies assess the impacts of climate-related risks on their business strategies, and therefore this change should eliminate any confusion about what other analytical tools might fall under the scope of the requirements.570 In another change from the rule proposal, we have added the term ‘‘brief’’ to modify the ‘‘description of the parameters, assumptions, and analytical choices used’’ prong of the scenario analysis disclosure provision. The adopted provision will continue to elicit disclosure that will enhance investors’ assessment of the resiliency of a registrant’s strategy while also mitigating the compliance burden for registrants. Requiring a brief description of the parameters, assumptions, and analytical choices used, together with a description of the projected material financial impacts on the registrant’s business strategy under each scenario, should help elicit disclosure that neither burdens investors with immaterial detail nor unduly adds to a registrant’s compliance burden. As with disclosure related to transition plans, we reiterate that our focus in adopting these requirements is neither on incentivizing nor disincentivizing any particular risk
management practice but rather on providing investors with the information they need with respect to the particular practices of a registrant in order to make informed investment and voting decisions. These revisions to the proposed rule also address commenters’ concern that the required scenario analysis disclosure could result in the disclosure of confidential business information.571 If a registrant has used scenario analysis to determine that an identified climate￾related risk is likely to have a material impact on its business, results of operations, or financial condition, it is important for investors to receive disclosure about that material impact. The registrant will not, however, be required to provide a lengthy description of the underlying parameters and assumptions that may be more likely to reveal confidential business information. Although some commenters recommended that we require the use of one or more climate scenario models,572 the final rules do not impose any specific risk management model. By requiring disclosure based on whether a registrant has determined to conduct scenario analysis as part of its consideration of material climate-related risks, a registrant will be able to select the climate scenario model or models that it believes best fits its particular industry or business, or its climate risk assessment approach. This approach will provide useful information to investors about the resilience of a registrant’s climate-related business

573See Proposing Release, section II.C.4. 574See supra note 566 and accompanying text. 575See id. 576See, e.g., letters from Bloomberg; and Chamber. 577See letter from Amazon. 578See Proposing Release, section II.C.3. 579See id. 580See id. 581See, e.g., letters from AGs of Cal. et al.; AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Ceres; CFA; Eni SpA; ERM CVS; IAC Recommendation; Microsoft; Morningstar; Norges Bank; NY City Comptroller; Paradice Invest. Mgmt.; PRI; SFERS; and TotalEnergies. 582See letter from Amer. for Fin. Reform, Sunrise Project et al. 583See id. 584See letter from Eni SpA. 585See letters from AllianceBernstein (stating that ‘‘[i]nternal carbon pricing can guide capital expenditures, research and design and other fundamental decisions towards projects, products and services that are more resilient to climate change and away from assets that may become economically unviable in the global transition to a lower carbon economy’’); and Ceres. 586See letter from NY City Comptroller. 587See, e.g., letters from BlackRock; and Teachers Insurance and Annuity Association of America (June 17, 2022) (‘‘TIAA’’). 588See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Ceres; ERM CVS; Microsoft; NY City Comptroller; Paradice Invest. Mgmt.; PRI; SFERS; and TotalEnergies. Commenters also supported requiring a registrant that uses more than one internal carbon price to provide the proposed disclosures for each internal carbon price and to explain why it uses different internal carbon prices. See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; ERM CVS; and NY City Comptroller. 589See, e.g., letters from AllianceBernstein; Anthesis; ERM CVS; Microsoft; and PRI. strategy while also helping to limit the registrant’s compliance burden relating to scenario analysis disclosure under the final rules. The proposed scenario analysis disclosure provision would have included as an example of potential scenarios to be considered ‘‘an increase of no greater than 3 °C, 2 °C, or 1.5 °C above pre-industrial levels.’’ 573 Because this was for illustrative purposes only, and because we have removed the same example from the definition of scenario analysis to avoid conveying the impression that these scenarios are required,574 we have also removed the example from Item 1502(f). To further streamline the scenario analysis disclosure requirement, we have removed the proposed provision stating that the disclosure should include both qualitative and quantitative information.575 We recognize that, as noted by some commenters, scenario analysis practices are still evolving,576 and that, in the early stages of use, a registrant’s disclosure regarding its use of scenario analysis may be qualitative. As a registrant’s use of scenario analysis becomes more sophisticated, we would expect its disclosure of the results of scenario analysis to become more quantitative,
particularly when discussing the expected material financial impacts on the registrant’s business strategy, under each considered scenario, which, like the proposed rule, must be addressed should a registrant be required to disclose its use of scenario analysis. Streamlining the proposed scenario analysis disclosure requirement in this way will enable a registrant to determine the mix of qualitative and quantitative disclosure that best fits its particular circumstances when satisfying its obligations under the final rule. We decline to follow the recommendation of one commenter who stated that disclosure of scenario analysis should only be required when integrated and material to a publicly announced climate-related strategy or initiative.577 Conditioning the disclosure requirement in this way could deprive investors of needed information solely because the registrant has not yet announced the corresponding strategy or initiative.
4. Disclosure of a Maintained Internal
Carbon Price (Item 1502(g)) a. Proposed Rule The Commission proposed to define an internal carbon price to mean an estimated cost of carbon emissions used internally within an organization.578 The Commission also proposed that, if a registrant maintains an internal carbon price, it would have to disclose:

• The price in units of the registrant’s
  reporting currency per metric ton of carbon dioxide equivalent (‘‘CO2e’’);
• 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 the proposed GHG emissions disclosure provision; and
• The rationale for selecting the
  internal carbon price applied.579 The proposed rules would have further required a registrant to describe how it uses an internal carbon price to evaluate and manage climate-related risks. In addition, the proposed rules would have required a registrant that uses more than one internal carbon price to provide the proposed disclosures for each internal carbon price and to disclose its reasons for using different prices.580 b. Comments Several commenters supported the rule proposal requiring a registrant to disclose information about a maintained internal carbon price because of the important role played by internal carbon pricing in the management of climate￾related risks.581 One commenter stated that internal carbon pricing has become an important mechanism to help companies manage risks and capitalize on emerging opportunities in the transition to a low-carbon economy.582 According to this commenter, in the event that governments adopt a carbon tax, registrants that have not begun using internal carbon pricing could find themselves increasingly vulnerable due to their failure to internalize the cost into their business.583 A different commenter stated that an internal carbon price is a multifaceted tool that enables a registrant to embed a shadow cost for carbon in all carbon mitigation investment decisions, or impose an internal carbon fee by charging business units for their emissions and using the revenue generated to support investment into clean technologies.584 Other commenters similarly stated that an internal carbon price can assist companies in steering capital expenditures, research and design, and other financing decisions toward projects with reduced emissions.585 One commenter asserted that nearly half of the world’s largest companies factor a cost of carbon into their business plans.586 Other commenters recommended that the Commission require a registrant that does not use internal carbon pricing to explain its reason for not doing so, as to prevent the proposed disclosure requirement from acting as a disincentive toward the use of this tool.587 Most of the above commenters supported requiring a registrant that uses internal carbon pricing to disclose the proposed items, including:
• The price in units of the registrant’s
  reporting currency per metric ton of CO2e;
• The total price;
• The rationale for selecting the
  internal carbon price applied; and
• How it uses internal carbon price to
  evaluate and manage climate-related risks.588 Some commenters also supported requiring the disclosure of the methodology used to develop and apply an internal carbon price.589 In this regard, one commenter stated that while many companies claim to utilize

590See. e.g., letter from AllianceBernstein; see also letter from Paradice Invest. Mgmt. (stating that ‘‘[w]here a company does use an internal carbon price, unless transparency is provided on what the price is and how it is set, investors cannot determine whether this is appropriate and what the financial implications may be’’). 591See, e.g., letter from AllianceBernstein; ERM CVS; and PRI. 592See letter from PRI. 593See letter from ERM CVS. 594See, e.g., letters from Amer. Bankers; Amer. Chem.; AFPM; BOA; CEMEX; Chevron; Cleary Gottlieb; Dimensional Fund; J. Herron; NAM; Northern Trust; PGIM; PwC; RILA; Sullivan Cromwell; Unilever; Jeremy Weinstein (June 17,
2022) (‘‘J. Weinstein’’); and Western Midstream.
595See, e.g., letters from ConocoPhillips, CEMEX, Chevron, Amazon, RILA, SIFMA, NAM, TRC, ESPA, and Center for Climate and Energy Solutions (‘‘CCES’’). 596See, e.g., letters from Amer. Bankers; Amer. Chem.; AFPM; BOA; CEMEX; Chevron; NAM; Sullivan Cromwell; and J. Weinstein. 597See letter from ConocoPhillips. 598See letter from Amer. Bankers. 599See letter from Enbridge. 600See, e.g., letters from Cleary Gottlieb; Dimensional Fund; J. Herron; PGIM; PwC; and RILA. 601See, e.g., letters from Cleary Gottlieb; Dimensional Fund; J. Herron; NAM; PGIM; RILA; Sullivan Cromwell; and Western Midstream. 602See, e.g., letters from ConocoPhillips; Amazon; and CCES. 603See, e.g., letters from Reinsurance Association of America (June 16, 2022) (‘‘Reinsurance AA’’); Third Coast; BOA; CEMEX; BHP; RILA; CEBA; WMBC; Zions Bancorporation (June 7, 2022) (‘‘Zions’’); Can. Coalition GG; Airlines for America; IATA; Southside Bancshares, Inc. (June 16, 2022) (‘‘Southside Bancshares’’); WY Bankers; and CCES. 604See, e.g., letters from Managed Funds Association (June 17, 2022) (‘‘MFA’’); Moody’s; TRC; and Inclusive Capital Partners, L.P. (June 24,
2022) (‘‘Inclusive Cap.’’).
605See letter from Amazon.
606See letter from Chevron (recommending ‘‘a disclosure requirement similar to FASB Accounting Standards Codification (ASC) 932, which requires a standardized measure of discounted future cash flows relating to proved oil and gas reserves quantities, often referred to as the standardized measure of oil and gas, or SMOG’’). 607See 17 CFR 229.1502(g). 608See supra notes 581–585 and accompanying text. We 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. 609See supra note 600 and accompanying text. 610See 17 CFR 229.1502(g)(1). 611See 17 CFR 229.1502(g)(2). internal carbon pricing, it is challenging for investors to assess ‘‘the validity and strength’’ of such pricing without transparency on methodology, price, and application.590 Other commenters stated that the proposed disclosure details are important for investors to assess the reasonableness, applicability, comparability, and accuracy of internal carbon pricing by registrants.591 These commenters supported requiring the disclosure of the boundaries for measurement of overall CO2e on which the total price is based,592 including when those boundaries are different than the organizational boundaries used to measure a registrant’s GHG emissions, in order to increase the transparency underlying the use of internal carbon pricing.593 Several other commenters, however, opposed the proposed internal carbon disclosure requirement.594 Some commenters stated that the proposed requirement could result in competitive harm for registrants,595 such as through potential disclosure of confidential or proprietary business information.596 For example, commenters asserted that such disclosures ‘‘would divulge sensitive information to . . . competitors’’ 597 and noted that registrants ‘‘us[ing] internal prices of carbon in their operations may often be doing so for pricing or other competitive purposes’’ 598 and ‘‘private companies and state-owned enterprises that compete in a registrant’s sector would not need to provide the same type and level of information as public companies.’’ 599 Other commenters indicated that the proposed disclosure requirement was too prescriptive and, lacking a materiality qualifier, would result in the disclosure of information that is not decision-useful for investors and costly to produce.600 Because of these concerns, commenters stated that the proposed disclosure requirement would act as a disincentive to the use of internal carbon pricing.601 Accordingly, some commenters recommended that the Commission provide exceptions to any internal carbon price disclosure requirements (such as exclusions for information that is competitively sensitive),602 a separate safe harbor or exemption from liability for internal carbon price disclosure,603
or a phase in period for these requirements.604 One commenter stated that disclosure of internal carbon pricing should be required only when it is broadly used by senior management and the board as part of their strategic planning process and when integrated and material to a publicly announced climate-change strategy or initiative.605 Finally, one commenter, who was concerned that the proposed internal carbon pricing requirement would require the disclosure of proprietary information, recommended that the Commission adopt an alternative approach to obtain carbon price-related disclosures, such as an approach similar to the Financial Accounting Standards Board’s (‘‘FASB’’) standardized measure of oil and gas, or SMOG.606
c. Final Rule
The final rule (Item 1502(g)) will require a registrant that uses internal carbon pricing to disclose certain information about the internal carbon price, if such use is material to how it evaluates and manages a climate-related risk that, in response to Item 1502(a), it has identified as having materially impacted or is reasonably likely to have a material impact on the registrant, including on its business strategy, results of operations, or financial condition.607 As commenters have noted, many registrants use internal carbon pricing as a planning tool, among other purposes: 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 tax be put into effect; and to guide capital investment decisions.608 Information about a registrant’s use of internal carbon pricing will help investors evaluate how a registrant is managing climate-related risks, particularly transition risks, and the effectiveness of its business strategy to mitigate or adapt to such risks. At the same time, we recognize commenters’ concern that, without a materiality qualifier, the proposed rule could have resulted in the disclosure of internal carbon pricing data that would not be decision-useful for investors and would be burdensome for registrants to produce.609 To address this concern, in a change from the proposed rule, which would have required internal carbon pricing disclosure whenever a registrant maintains an internal carbon price, the final rule will require this disclosure only when the registrant’s use of internal carbon pricing is material to how it evaluates and manages a climate￾related risk identified in response to Item 1502(a). If a registrant’s use of internal carbon pricing is material, similar to the proposed rule, the final rule will require it to disclose in units of the registrant’s reporting currency:

• The price per metric ton of CO2e;
  and
• The total price, including how the
  total price is estimated to change over the time periods referenced in Item 1502(a), as applicable.610 Similar to the proposed rule, if a registrant uses more than one internal carbon price to evaluate and manage a material climate-related risk, it must provide the required disclosures for each internal carbon price, and disclose its reasons for using different prices.611 We also have included a provision, similar to the rule proposal and as

612See supra notes 592–593 and accompanying text. 613See 17 CFR 229.1502(g)(3). 614See supra notes 590–591 and accompanying text. 615See, e.g., letters from ERM CVS; and PRI. 616See Proposing Release, section II.C.3. 617See 17 CFR 229.1502(e). 618See Proposing Release, section II.C.3. 619See supra note 596 and accompanying text. 620See infra section II.J.3. 621See supra notes 602–603 and accompanying text. 622See supra note 604 and accompanying text. 623See Proposing Release, section II.D.1. 624See id. 625See id. 626See id. 627See id. 628See id. recommended by some commenters,612 stating that if the scope of entities and operations involved in the use of a described internal carbon price is materially different than the organizational boundaries used for the purpose of calculating a registrant’s GHG emissions pursuant to the final rule, the registrant must briefly describe this difference.613 We are requiring disclosure of this information because, as commenters noted, it will help investors understand a registrant’s internal carbon pricing practice and how such practice has contributed to the registrant’s overall evaluation and planning regarding climate-related risk.614 Increased transparency about internal carbon pricing by registrants that use an internal carbon price to evaluate and manage a material climate-related risk, in particular a material transition risk, will help investors understand the assumptions and analyses made by registrants when determining and managing the likely financial impacts of such risks on the company. Moreover, including a requirement to disclose any material difference in the boundaries used for internal carbon pricing and GHG emissions measurement will help minimize investor confusion about the scope of entities and operations included in a registrant’s application of internal carbon pricing and improve transparency about the methodology underlying the use of internal carbon pricing so that investors may better compare such use across registrants.615 To streamline the internal carbon price disclosure requirement and to reduce redundancy, we have eliminated the proposed requirement to describe how a registrant uses an internal carbon price to evaluate and manage climate￾related risks.616 If a registrant is required to provide internal carbon pricing disclosure under the final rules, the registrant is likely to describe how it uses an internal carbon price to evaluate and manage a material climate￾related risk when responding to other final rule provisions, such as when describing a related transition plan,617 even if the description of internal carbon pricing is less detailed because it is part of a broader narrative discussion. To further streamline the internal carbon price disclosure requirement, we have eliminated from the final rule the proposed requirements to disclose the rationale for selecting the internal carbon price applied.618 By streamlining the internal carbon price disclosure requirement in this
way and adding materiality qualifiers, the final rules will help ensure that investors receive material information about the registrant’s use of internal carbon pricing to inform their investment and voting decisions while limiting the compliance burden for registrants. Moreover, eliminating the proposed requirement to provide a separate narrative description of how a registrant uses an internal carbon price and the rationale for selecting the internal carbon price applied will help address commenters’ concerns that the proposed disclosure requirement would result in the disclosure of confidential or proprietary information and act as a disincentive to using an internal carbon pricing mechanism.619 We also note that, as with transition plan and scenario analysis disclosure, disclosure of a registrant’s use of an internal carbon price will be subject to a safe harbor.620 Because of these changes to the proposed rule, we believe that it is unnecessary to adopt an exemption or exception to the internal carbon price disclosure requirement, as some commenters recommended,621 or a separate phase in for the disclosure requirement, as recommended by other commenters.622 E. Governance Disclosure

1. Disclosure of Board Oversight (Item
   1501(a)) a. Proposed Rules The proposed rules would have required a registrant to disclose a number of items related to a board of directors’ oversight of climate-related risks, largely based on the TCFD framework. First, the Commission proposed to require the identification of any board members or board committees responsible for the oversight of climate￾related risks,623 whether an existing committee, such as the audit committee or risk committee, or a separate committee established to focus on climate-related risks. Next, the proposed rules required detailed disclosure of whether any member of a registrant’s board of directors possessed expertise in climate-related risk.624 Additionally, the proposal required a description of the processes and frequency by which the board or board committee discusses climate-related risks,625 including disclosure of how the board is informed about climate-related risks, and how frequently the board considers such risks. These proposed disclosure items were intended to afford investors with transparency into how a registrant’s board considers climate-related risks and any relevant qualifications of board members.626 The proposed rules would also have required disclosure about whether and how the board or board committee considered climate-related risks as part of its business strategy, risk management, and financial oversight.627 This disclosure was intended to give investors information regarding 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. The proposed disclosure requirement sought to provide investors with information to 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. The proposed rules also would have required disclosure about whether and how the board sets climate-related targets or goals and how it evaluates progress, including the establishment of any interim targets or goals.628 This proposed requirement was intended to help investors evaluate whether and how a board is preparing to mitigate or adapt to material transition risks. Finally, the proposed rule provided that, if applicable, a registrant may describe the board of directors’ oversight of climate-related opportunities. While the goal of these governance￾related proposals was to elicit decision￾useful information about the board’s oversight of climate-related risks for investors, the proposal neither required nor encouraged any particular board composition or board practices. Similarly, the proposal was not intended to affect how a registrant

629See, e.g., letters from CalPERS; British Columbia Investment Management Corporation (June 17, 2022) (‘‘BC IM Corp.’’); and Mirova US LLC. 630See, e.g., letter from NY City Comptroller. 631See, e.g., letter from Bloomberg. 632See, e.g., letter from Hydro One. 633See, e.g., letter from WSP. 634See, e.g., letters from Davis Polk; Amer. Bankers; Business Roundtable; and Sullivan Cromwell. 635See, e.g., letter from GPA Midstream. 636See, e.g., letters from PwC; and Davis Polk (‘‘We believe proposed new Regulation S–K Item 1501(a), covering the board’s role in the management of climate-related risk, is overly prescriptive and unnecessary, because any material information that could be captured by the proposed rule is already addressed by Item 407(h) of Regulation S–K, which obligates companies to disclose the extent of the board’s role in the company’s risk oversight and how the board administers this oversight function.’’). 637See letters from BlackRock (‘‘We believe that robust board oversight with respect to climate requires a whole-of-the-board approach, and the identification of ‘specialist’ directors is not conducive to a holistic undertaking by the board.’’); INGAA (‘‘More fundamentally, the proposed requirement is problematic because the emphasis on climate expertise will have the practical result of elevating climate issues above other business considerations, thus removing the flexibility that companies need to select the right board members for their unique circumstances.’’); Sullivan Cromwell (‘‘We believe some of these requirements could harm the overall effectiveness of governance by reducing the flexibility of registrants’ boards and management to exercise their judgment on the most appropriate governance framework for responding to climate-related risks and opportunities, and to evolve their approach based on new risks developments.’’); and Deloitte & Touche LLP (May 31, 2022) (‘‘Deloitte & Touche’’) (‘‘While specific expertise may be valuable in some cases, in general, especially given the limited size of boards, we do not think it is practical for all boards to recruit dedicated experts in each of its critical oversight areas.’’). See also, e.g., letters from ACA Connects (June 17, 2022); Airlines for America; Amer. Bankers; API; AGs of TX et al.; BPI; CalSTRS; Capital Research; Davis Polk; Energy Transfer LP; IAC Recommendation; NMA; NRF; National Waste & Recycling Association (June 17, 2022) (‘‘NWRA’’); Natural Resource Partners LP (June 16, 2022) (‘‘NRP’’); and SIFMA. 638See, e.g., letters from BIO; and NRP. 639See, e.g., letters from Texas Pipeline Association (June 17, 2022) (‘‘TX Pipeline’’); American Forest & Paper Association (June 17,
2022) (‘‘AFPA’’); API; INGAA; Amer. Chem.;
Alliance Resource Partners, L.P (June 17, 2022) (‘‘Alliance Resource’’). 640See, e.g., CEMEX; and Soc. Corp. Gov. 641See letter from U.S. Chamber of Commerce (stating that some of the information referenced in proposed Regulation S–K Item 1501 could be provided pursuant to Regulation S–K Item 407(h), which requires disclosure regarding the board’s role in the risk oversight of the registrant, including how the board administers its oversight function). 642See, e.g., letters from Federated Hermes, Inc (June 17, 2022) (‘‘Fed. Hermes’’); MBA; and MFA. 643See, e.g., letters from CalPERS; RMI (June 17, 2022); PRI; 60 Plus Association (June 17, 2022) (‘‘60 Plus’’); Reward Value Foundation (June 17, 2022) (‘‘RVF’’); TotalEnergies; NEI; and Norges Bank. 644See, e.g., letters from Risk Management Association’s Climate Risk Consortia (June 16,
2022) (‘‘Climate Risk Consortia’’); Canadian Bankers
Association (June 17, 2022) (‘‘Can. Bankers’’); Eni SpA; Sullivan Cromwell; Fenwick West; Dominion Energy; BOA; Citigroup; Unilever; CalSTRS; BlackRock; MFA; IIF; ACLI; Business Roundtable; NRF; RILA; NMA,TX Pipeline, American Property Casualty Insurance Association (June 17, 2022) (‘‘APCIA’’); National Grid; Diageo plc (June 17,
2022) (‘‘Diageo’’); Davis Polk; Airlines for America;
IATA; Corteva, Inc. (June 17, 2022) (‘‘Corteva’’); PGIM; GPA Midstream; Energy Transfer; and Shearman Sterling. 645See, e.g., letter from RILA. 646See, e.g., letter from NRP. 647See, e.g., letters from Anthesis; Bloomberg; ICCR; and the Greenlining Institute (June 17, 2022) (‘‘Greenlining Institute’’). 648See, e.g., letter from ICCR. 649See, e.g., letters from United Air Holdings, Fidelity, ICI; U.S. Chamber of Commerce; Targa Resources Corp; Vodafone; Business Roundtable; and SIFMA. 650See, e.g., letter from SIFMA. operates, at any level, either through management or the board of directors. b. Comments A number of commenters supported the Commission’s proposed board oversight disclosures.629 Some of these commenters stated that investors currently lack easily accessible and comparable information regarding how registrants’ governance structures contribute to the evaluation and assessment of material climate-related risks,630 while others stated the proposed rules would allow investors to understand the governance context in which financial results are achieved.631 One commenter expressed particular support for those aspects of the proposal that aligned with the TCFD framework.632 Another commenter suggested that registrants should be required to describe board member training, expertise, or skill-building related to the understanding of climate￾related financial risks and opportunities.633 Other commenters opposed the proposed board oversight disclosures, stating that the proposals were overly prescriptive,634 duplicative,635 and should be integrated into existing disclosure requirements.636 Commenters that opposed the board oversight provisions expressed concern that the proposed rules narrowly focused on board members’ climate expertise and could have a negative overall impact on governance by limiting the flexibility of companies to fill limited numbers of board seats with the individuals best suited to a given company’s needs, including individuals’ suitability to whole-of-the￾board undertakings.637 These commenters stated that registrants may be better served appointing directors with wide ranging expertise rather than technical skills in one particular area.638 Other commenters stated that the Commission was placing an undue emphasis on board oversight of climate risk, disproportionate to disclosure requirements in other areas.639 Some commenters asserted that Regulation S– K already requires the disclosure of information that allows for investors to adequately assess a registrant’s board of directors 640 while another commenter stated that the Commission should enhance existing disclosure requirements rather than adopt a new rule.641 Other commenters noted that the proposed rules went beyond the requirements of the TCFD, in particular as it pertains to board-level expertise.642 With respect to the proposed requirement to identify any board members or board committees responsible for the oversight of climate￾related risks, some commenters
were supportive of the proposal.643 However, many commenters were opposed or expressed concerns about the proposed requirement.644 Several commenters stated that the identification of key personnel could lead to poaching and would undermine registrant’s efforts to retain individuals with climate expertise.645 Other commenters highlighted the difficulty that small or specialized companies could face if the proposed disclosure requirement creates pressure to appoint individuals with climate expertise, as it elevates climate expertise at the expense of other skills that are arguably more important to their business.646 Some commenters were supportive of the proposal for detailed disclosure of whether any member of a registrant’s board of directors possessed expertise in climate-related risk, with some also recommending that the Commission require additional detailed disclosures.647 For example, one of these commenters suggested that the rules should require disclosure of whether and how the board brings in additional expertise and conducts training for board members.648 Other commenters, however, asserted that this proposed disclosure requirement would drive registrants to appoint board members with climate expertise, at the potential expense of more relevant areas, and stated that the Commission’s rules should not influence registrants’ decisions regarding the composition of their boards.649 Some suggested that this proposed disclosure requirement would result in the expansion of boards, driving up costs for registrants, even those that do not currently have a need for particularized climate-related expertise.650 Others asserted that, by designating specific board members as having climate-related expertise, the

651See, e.g., letter from Vodafone. 652See, e.g., letter from NEI. 653See, e.g., letter from Center for International Environmental Law (June 17, 2022) (‘‘CIEL’’). 654See, e.g., letter from Business Roundtable. 655See, e.g., letters from Fidelity; and PGIM. 656See, e.g., letter from SIFMA. 657See, e.g., letter from Morningstar. 658See, e.g., letter from Energy Transfer. 659See letter from NY City Comptroller. See also, e.g., letters from AFL–CIO; IATP; PRI; 60 Plus; NEI; Vodafone; CalSTRS; CalPERS; BlackRock; Soros Fund; Morningstar; State Street Corporation (June 17, 2022) (‘‘State St.’’); and Canadian Investor Relations Institute (June 17, 2022). 660See, e.g., letters from Corteva; Energy Transfer; and Soc. Corp. Gov. 661See, e.g., letter from Bipartisan Policy Center (June 13, 2022) (‘‘Bipartisan Policy’’). 662See, e.g., letters from The Ocean Foundation (June 10, 2022) (‘‘Ocean Fnd.’’); ICCR; For the Long Term (June 17, 2022); and PRI. 663See, e.g., letters from American Securities Association (June 13, 2022) (‘‘ASA’’); Morningstar; and PGIM (stating that only registrants with material climate-related exposure should be required to provide detailed disclosure of board management of climate-related risk). 664See, e.g., letter from National Association of Corporate Directors (June 13, 2022). 665See, e.g., letters from Ceres; PRI; and RMI. 666We are also adding Instruction 1 to Item 1501 to clarify that in the case of a foreign private issuer with a two-tier board of directors, the term ‘‘board of directors’’ means the supervisory or non￾management board. In the case of a foreign private issuer meeting the requirements of 17 CFR 240.10A–3(c)(3), the term board of directors’ means the issuer’s board of auditors (or similar body) or statutory auditors, as applicable. 667The proposed governance provision stated that a registrant may also describe the board of directors’ oversight of climate-related opportunities. As previously mentioned, although the final rules do not contain a similar provision, a registrant may elect to provide such disclosure as part of its governance disclosure. provision would discourage the full engagement of the board on climate￾related matters.651 Commenters expressed mixed views on the proposal to describe the processes and frequency by which the board or board committee discusses climate-related risks, including disclosure of how the board is informed about climate-related risks, and how frequently the board considers such risks. One commenter stated that this aspect of the Commission’s proposal would help ensure that the board was receiving and processing consistent information on climate-related risk.652 Others went further, asserting that directors have a fiduciary responsibility to conduct increased oversight of climate-related risks, and that the proposal would require registrants to report whether and how its board was fulfilling these responsibilities.653 Some commenters stated that this proposed disclosure
requirement was too detailed, would invite micromanagement of both the board and management, and be potentially misleading to investors.654 Commenters also stated that disclosure of when and how often boards meet on climate-related matters could lead to changes in how board time and resources are allocated, without necessarily improving the quality of climate-related risk disclosure.655 Some commenters pointed out that the Commission does not require registrants to report on how frequently other topics are considered by the board of directors and asserted that requiring the disclosure of this information with respect to climate-related risks would be out of step with other governance disclosure rules.656 According to these commenters, the proposed disclosure requirements were so prescriptive that they singled out climate-related disclosures for presentation in a level of detail that was not consistent with the Commission’s overall disclosure regime. Other commenters stated that the information was simply unnecessary and could lead to boilerplate disclosures.657 Some commenters cautioned that, by requiring this level of detail, the Commission was inadvertently discouraging companies from engaging in internal decision making that would then have to be disclosed under the proposal.658 Regarding the proposal for disclosure on whether and how the board considers climate-related risks as part of its business strategy, risk management, and financial oversight, a number of commenters agreed that registrants should disclose this information as it is currently ‘‘unnecessarily difficult’’ for investors to assess whether there is ‘‘effective oversight of risks to firm value, including material environmental risks.’’ 659 However, a number of commenters expressed concerns with the granularity of the proposal and urged the Commission to take a less￾prescriptive approach more consistent with the Commission’s overall disclosure regime.660 Some commenters urged the Commission to adopt a materiality qualifier to avoid eliciting immaterial or overly granular information and bring the requirements more in line with other required disclosures.661 Commenters were divided on the proposal related to disclosure of board oversight of targets and goals, particularly how the board sets such targets and monitors progress. Commenters supportive of the proposal stated that investors need more granular governance disclosures to assess whether the board has sufficient experience in managing dynamic climate-related risk.662 In contrast, other commenters asserted that the proposal would require the expenditure of significant resources by registrants while offering little in the way of benefit to investors.663 Other commenters expressed the view that the proposal should focus on management’s role in setting targets and goals, given that the board’s role is more appropriately focused on monitoring the targets and goals that management sets.664
c. Final Rule
We are adopting the proposed requirements to disclose board oversight of climate-related risks (Item 1501(a)), with some modifications to address the concerns of commenters. These disclosures will enhance investors’ ability to evaluate a registrant’s overall management of climate-related risks by improving their understanding of the board’s role in overseeing those risks.665 The final rule will require a description of a board of directors’ oversight of climate-related risks, as proposed.666 The final rule will also require the identification, if applicable, of any board committee or subcommittee responsible for the oversight of climate￾related risks and a description of the processes by which the board or such committee or subcommittee is informed about such risks. Further, if there is a target or goal disclosed pursuant to § 229.1504 or transition plan disclosed pursuant to § 229.1502(e)(1), the final rule will require disclosure of whether and how the board oversees progress against the target or goal or transition plan.667 These disclosures are not required for registrants that do not exercise board oversight of climate￾related risks. Despite the concerns expressed by several commenters, the proposed rules were not intended to shift governance behaviors, including board composition or board practices. Similarly, the final rules neither seek to influence registrants’ decisions about how to manage climate-related risks nor does their design incorporate, reflect, or favor any governance structure or process. Rather, consistent with our statutory authority, the final rules focus on disclosure of registrants’ existing or developing climate-related risk governance practices. We recognize that registrants have varied reasons for pursuing different oversight arrangements, and some registrants may reasonably determine that climate￾related risks are not among the most pressing issue facing the company. The final rules will provide investors with the information they need to understand and evaluate those oversight arrangements and make informed

668See supra note 663 and accompanying text. 669See, e.g., letters from FTLT; Morningstar; and PRI. 670See supra note 655. 671See supra note 646. 672See discussion infra section II.E.2.c (regarding our reasons for adding a materiality qualifier to Item 1501(b)). investment decisions in light of their overall investment objectives and risk tolerance. Furthermore, as stated above, these disclosure requirements apply to those registrants the boards of which exercise oversight of climate-related risks; no disclosure is required for registrants that do not have information responsive to the disclosure requirements. We are not adopting some of the more prescriptive elements of the proposal in response to commenter concerns. Specifically, we are eliminating the proposed requirements to disclose:

• The identity of specific board
  members responsible for climate-risk oversight;
• Whether any board member has
  expertise in climate-related risks and the nature of the expertise;
• How frequently the board is
  informed of such risks; and
• Information regarding whether and
  how the board sets climate-related targets or goals, including interim targets or goals. While the proposal would have required this disclosure only to the extent applicable, we appreciate the concerns of some commenters who stated that these elements of the proposal could have unintended effects on the registrant’s governance structure and processes by focusing on one area of risk at the expense of others. In addition, some commenters raised concerns that the level of detail required by the proposal would cause registrants to divulge sensitive internal board processes. It may be that a registrant, in describing ‘‘the board of directors’ oversight of climate-related risks,’’ will find it necessary to disclose, or otherwise choose to disclose, some or all of the information called for by the proposal. But, by adopting a more streamlined rule, we intend to eliminate any misperception that this information is required for all registrants, particularly those without existing processes or information to disclose. We are, however, adopting the proposed requirement to identify any board committee or subcommittee responsible for the oversight of climate￾related risks, if a registrant has such a committee or subcommittee. This information is important to an understanding of how the board is managing such risk and will not be burdensome to disclose. Moreover, the provision simply requires the registrant to identify any committee or subcommittee that has been tasked with managing climate-related risks and is not designed to influence decisions about whether and how the board allocates responsibility for oversight of such risk. We are also adopting a requirement, albeit modified from the proposal, to describe whether and how the board of directors oversees progress against disclosed climate-related targets, goals, or transition plans. By tying this disclosure requirement to circumstances in which the registrant has a disclosed climate-related target, goal, or transition plan, the final rule will avoid generating detailed disclosure about matters that are not important to investors. In addition, in light of commenter concerns regarding the proposed disclosure of whether and how the board of directors establishes any final or interim targets or goals,668 we are omitting this requirement from the final rule. Overall, the less prescriptive approach to disclosure in the final rule will facilitate investors’ understanding of how a registrant intends to manage a target or goal that is material to its business while discouraging boilerplate disclosures and avoiding any unintended adverse effects on the board’s governance structures. We are also adopting the proposed requirement to describe the processes by which the board or any board committee or subcommittee is informed about climate-related risks, while eliminating the requirement to describe the frequency of these discussions. While some commenters stated that it would be helpful to investors for registrants to
  disclose both the processes and frequency of these discussions,669 other commenters expressed concern that this disclosure will shift governance behavior.670 The final rules balance investors’ need to understand the board’s governance of climate-related risks in sufficient detail to inform an investment or voting decision with concerns that the proposal could inadvertently pressure registrants to adopt specific or inflexible climate-risk governance practices or organizational structures or otherwise influence the conduct of the board. By retaining the requirement to disclose the process by which the board is informed, investors will have meaningful information that they can use to assess the conduct of boards in dealing with climate-related risks while avoiding overly detailed or granular disclosures that could unduly influence such processes. Although some commenters asserted that registrants may feel pressure to appoint certain individuals with climate expertise,671 we reemphasize that the Commission remains agnostic about whether and/or how registrants govern climate-related risks. Registrants remain free to elect whether and how to establish or retain the procedures and practices that they determine best fit their business. The focus of the final rules remains on investor protection and improving investors’ access to comparable and consistent climate￾related disclosures. The final rules are focused on disclosure and do not require, and are not formulated to prompt, registrants to change their governance or other business practices. We are not, as suggested by some commenters, adopting a materiality qualifier for this portion of the final rule. As discussed above, we have revised the final rule from the proposal to make the disclosure requirement less prescriptive. As such, registrants will have additional flexibility to determine how much detail to provide about the board’s oversight of climate-related risk. These revisions help mitigate some commenters’ concerns that the rule will require disclosure of immaterial information. The specific information called for by the final rule will provide important context for an investor to evaluate the extent to which the board is evaluating climate-related risks. If a board of directors determines to oversee a particular risk, the fact of such oversight being exercised by the board is likely material to investors given other demands on the board’s time and attention.672 Moreover, unlike management, which likely oversees many more routine matters, some of which may not be material to investors, we expect that any risks elevated to the board level will be material to the company and limited in number. Accordingly, we do not believe that a materiality qualifier is necessary for this provision.

2. Disclosure of Management Oversight
   (Item 1501(b)) a. Proposed Rules Similar to the proposed disclosures on board oversight, the proposed rules would have required a registrant to disclose a number of items, as applicable, about management’s role in the assessment and management of climate-related risks. First, the Commission proposed to require registrants to disclose whether certain management positions or committees are responsible for assessing and managing climate-related risks and, if so, to identify such positions or

673See Proposing Release, section II.D.2. 674See id. 675See id. 676See, e.g., letters from RMI; PRI; IAA; CFA; Beller et al.; HP; Uber; BHP; Etsy; UAW Retiree Medical Benefits Trust (June 17, 2022) (‘‘UAW Retiree’’); ICGN; AIMco, BCI, CDPQ, HOOP, IMCO, OMERS, OTPP, PSP, UPP (June 17, 2022) (‘‘BCI, et al.’’); US SIF; Seventh Generation Interfaith, Inc. (June 16, 2022) (‘‘Seventh Gen.’’); AllianceBernstein.; SKY Harbor; Paradice Invest. Mgmt.; Wellington Mgmt.; Bailard, Inc. (June 14,
2022) (‘‘Bailard’’); Harvard Mgmt.; IIF; BNP Paribas;
Rick Love (March 30, 2022); NY City Comptroller; GHGSAT; J. Herron; California Farm Bureau (June 17, 2022) (‘‘CFB’’); Richard Bentley (May 21, 2022) (‘‘R. Bentley’’); D. Higgins; Richard Burke (May 20,
2022) (‘‘R. Burke’’); ICI; Anthesis; Canadian Post
Corporation Pension Plan (June 17, 2022) (‘‘Can. PCPP’’); WSP USA (June 17, 2022) (‘‘WSP’’); Arjunal; Ecofin; Fiduciary Trust International (June 17, 2022); and Can. IRI. 677See, e.g., letters from Ocean Fnd.; PRI; Harvard Mgmt.; and WSP. 678See, e.g., letters from Climate First Bank; and Bailard. 679See, e.g., letters from ICI; and Harvard Mgmt. 680See letter from Morningstar. 681See, e.g., letters from RVF; Can. PCPP; IEEFA (May 10, 2022) (stating that ‘‘[t]he linkage of executive compensation to climate-related goals is a significant indicator to investors that the company is serious about climate change,’’ and noting that IFRS sustainability disclosure protocols require disclosure of such linkage); AllianceBernstein; BCI, et al.; CalSTRS; CalPERS; I. Millenaar; and T. Sanzillo. 682See, e.g., letters from Airlines for America; BPI; and MFA. 683See, e.g., letter from Amer. Chem. 684See letter from Sullivan Cromwell (‘‘Requiring registrants to disclose governance and risk management information with more granularity inappropriately places greater emphasis on climate risk oversight compared to the oversight of other business risks that are equally (and in some cases, more) deserving of the attention of a registrant’s board and management.’’). 685See, e.g., letter from CFA. 686See, e.g., letter from NRP. 687See, e.g., letters from AFPA; BlackRock. 688See, e.g., letter from PRI. 689See, e.g., letters from CFA; and Nia Impact Capital (June 15, 2022) (‘‘Nia Impact’’). 690See, e.g., letter from D. Higgins. 691See, e.g., letter from RMI. 692See, e.g., letters from RMI; and Ocean Fnd. 693See, e.g., letters from PRI; and NEI. 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.673 This proposed requirement was intended to better inform investment or voting decisions by providing information on the extent to which management addresses climate￾related risks. Additionally, the proposed rules would have required disclosure about the processes by which the responsible managers or management committees are informed about and monitor climate-related risks.674 Finally, the proposed rule would have also required disclosure about whether the responsible positions or committees report to the board or board committee on climate-related risks and how frequently this occurs.675 These proposed disclosure items were intended to help investors understand management’s processes to identify, assess, and manage climate-related risks. Under the proposal, if applicable, a registrant also could elect to describe management’s role in assessing and managing climate-related opportunities. b. Comments Many commenters generally supported the proposed requirement to disclose management oversight of climate-related risks,676 and expressed support for the proposed requirement to describe management’s role in assessing and managing climate-related risks.677 These commenters stated
that investors are interested in procuring comprehensive and standardized information that allows for an examination of how management monitors and assesses climate-related risk. Some supportive commenters stated that there is currently a lack of detailed and available information on how registrants manage climate-related risks.678 Commenters were generally supportive of the proposals that aligned with the TCFD, including the proposal to require a description of management’s role in assessing and managing climate-related risks.679 A few commenters also recommended that the final rule require more detailed disclosure, including organizational diagrams so that reporting lines to the executive management and board of directors are disclosed 680 and information about executive management remuneration linked to climate-based incentives.681 By contrast, some commenters expressed concerns that the proposals were overly prescriptive, and would require disclosure of potentially proprietary and sensitive information about management structure and individual employees.682 These commenters further expressed concerns that disclosure of such information would cause competitive harm.683 Another commenter stated that the Commission could elicit more helpful information by adopting a principles￾based approach that would allow registrants to tailor disclosures to their specific business, thereby avoiding unnecessary reporting burdens and the production of boilerplate language that provides little value to investors.684 With respect to the proposed requirement to describe management’s role in assessing and managing climate￾related risks, some commenters emphasized how critical this information is to investors, explaining that the current lack of transparent and standardized information prevents investors from assessing the operating environments of the companies in which they invest.685 Another commenter stated that the requirement would be unduly burdensome for many companies, particularly smaller companies that either do not maintain a large management team or have not established formalized internal controls to produce the proposed disclosures on climate-related risks.686 Commenters expressed mixed views about the proposal to require disclosure of the management positions or committees responsible for assessing and managing climate-related risks and the identity of such positions or committees. Some commenters were concerned that the disclosure of management positions or committees could reveal proprietary information about the internal structure of registrants.687 On the other hand, some commenters emphasized the relevance of these proposed disclosures,688 with many of these commenters explicitly tying this information to the need for transparency about compensation practices.689 Supportive commenters also emphasized that the proposed disclosure requirements would allow investors to evaluate the capabilities and preparedness of a company’s executive management,
who are often tasked with incorporating climate￾related risk management into business practices and decisions.690 One commenter indicated that this proposal would provide different information to investors than the proposed information about boards, as it would allow investors to understand the operational expertise and accountability that exists in relation to how a registrant is overseeing such risk.691 Commenters stated that investors are seeking particularized information about management’s role in dealing with climate-related risks given that effective oversight requires business-level understanding of these risks.’’ 692 Some commenters supported the proposed requirement to disclose the relevant expertise or identity of management position holders or members responsible for managing climate related risk, stating that such disclosures would provide investors with a general understanding of how management’s climate expertise is deployed, as well as whether and how climate-related risk is integrated in the organization.693 In contrast, many commenters stated that this disclosure would require registrants to publish

694See, e.g., Can. Bankers.
695See, e.g., letters from ABA; Fed. Hermes; ICI; RILA; Sullivan Cromwell; and Wellington Management Company. 696See, e.g., letter from Can. Bankers (arguing ‘‘Highlighting reliance on these experts will . . . lead to potential poaching issues that could further inhibit registrants’ ability to comply with climate disclosures and to implement climate strategies.’’). 697See, e.g., letters from RILA; and ICI. 698See, e.g., letters from GHGSAT; NY City Comptroller; Anthesis; and J. Brendan Herron. 699See, e.g., letters from TotalEnergies; and Greenlining Institute. 700See, e.g., letters from Corteva; IC; and AFPA. 701See, e.g., letters from Charles Franklin (Nov. 1, 2022); Southside Bancshares; and BIO. 702See, e.g., letters from GPA Midstream (‘‘While we agree with the Commission that general information on governance, such as identification of the committee or committees responsible for addressing climate-related risks, may be relevant information for investors, we disagree with the level of detail called for by the Proposed Rules.’’); and PwC (‘‘Focusing on information that the registrant’s management uses to make strategic decisions— instead of a broad requirement to disclose ‘any’ climate-related risks—would improve the usefulness of the disclosures and provide additional insight to investors, while simultaneously reducing the burden on registrants.’’). 703See, e.g., letters from Southside Bancshares; BIO; and NRP. 704See, e.g., letters from PRI; NY City Comptroller; CIEL; Greenlining Institute; TotalEnergies; NEI; J. Brendan Herron; ICI; Canadian Coalition for Good Governance (June 16,
2022) (‘‘Can. Coalition GG’’); Anthesis; WSP; Fed.
Hermes; and Ocean Fnd.
705See, e.g., letters from Alliance Resource; NRP; The Sustainability Board Report; Corteva, Inc.; Energy Transfer LP; Center for Climate and Energy Solutions; IIF; AFPA; PGIM; Southside Bancshares; IC; GPA Midstream; AALA; D. Burton, Heritage Fdn.; and Akin Gump Strauss Hauer & Feld LLP. 706See, e.g., letter from CEMEX. 707See, e.g., letter from CHRE and Institute for Governance & Sustainable Development. 708See, e.g., letter from We Mean Business Coalition (June 13, 2022) (‘‘We Mean Business’’). 709See, e.g., letters from MFA; and RILA. detailed descriptions of in-house staff and management’s reliance on such staff.694 Other commenters asserted that the universe of climate-related experts is limited, and that the proposed requirements would increase the competition for executives with climate￾related expertise.695 Some commenters further asserted that the proposed rules would encourage the recruitment of climate experts, who are already scarce, and constrain registrants’ ability to produce climate disclosures and institute climate-related strategies.696 Other commenters were skeptical of the value added by disclosing the relevant expertise or identity of management, stating that these positions turn over frequently and more generalized disclosures of the management process would afford investors with better quality information.697 Many commenters were supportive of the proposal to require registrants to describe the processes by which the management positions or committees responsible for climate-related risks are informed about and monitor climate￾related risks.698 These commenters stated that this information was highly relevant to and sought after by investors, and would provide the kind of detailed and standardized information that is currently unavailable in current disclosures.699 Other commenters expressed concerns regarding the utility of this information.700 Some commenters stated that, by requiring this kind of disclosure, the Commission was placing an undue priority on climate-related risks above other more pressing business risks.701 Other commenters stated that a high-level summary of the management of material climate-related risks was sufficient and would avoid the expense of producing excessive and unnecessary information.702 In addition, commenters representing smaller registrants or registrants in particular industries stated that their management of climate-related risks are appropriately tailored to their size and scale and asserted that the proposed rule unduly pressures such registrants into a one-sized-fits-all approach.703 Commenters were divided on the proposal to require disclosure of whether and how frequently such positions or committees report to the board or a committee of the board on climate-related risks. Commenters supportive of the proposal stated that the disclosure would allow investors to analyze how boards integrate climate￾related information into the overall risk management structure and how this
information affects decision-making.704 Other commenters suggested that this disclosure would drive unwelcome changes in current business practice and structure, potentially diverting attention and resources away from other material risks or other matters.705 Commenters also provided views on the proposal to allow, but not require, registrants to disclose the board’s oversight of, and management’s role in, assessing and managing climate-related opportunities. While some commenters supported allowing such disclosure to be optional and not mandatory,706 others indicated that how companies are responding to highly dynamic opportunities is material information and therefore should be required to be disclosed.707 One commenter stated that climate-related opportunity reporting is likely to be adopted in both the EU and UK, and therefore, to streamline mandatory disclosures for dually-listed companies, the commenter recommended that the Commission require this disclosure, except for opportunities unrelated to a registrant’s principal line of business.708
c. Final Rule
We are adopting the proposed requirement to disclose management oversight of climate related risks (Item 1501(b)) with some modifications to address the concerns of commenters. The final rules will, like the proposed rules, require that registrants describe management’s role in assessing and managing climate-related risks. As commenters stated, investors need information about how management￾level staff assess and manage material climate-related risks to make informed investment and voting decisions. However, we are limiting the disclosure required by this final rule provision to material climate-related risks, as suggested by commenters,709 given the multitude of climate-related matters that may be overseen by management. The final rules also specify that a registrant should address, as applicable, the following non-exclusive list of disclosure items when describing management’s role in assessing and managing the registrant’s material climate-related risks:

• Whether and which management
  positions or committees are responsible for assessing and managing climate￾related risks, and the relevant expertise of such position holders or committee members in such detail as necessary to fully describe the nature of the expertise;
• The processes by which such
  positions or committees assess and manage climate-related risks; and
• Whether such positions or
  committees report information about such risks to the board of directors or a committee or subcommittee of the board of directors. The non-exclusive list of disclosures in Item 1501(b) should help elicit specific information about management’s oversight of climate￾related risks and thereby mitigate any tendency towards boilerplate disclosures. At the same time, by focusing the disclosure on management’s role in assessing and managing material climate-related risks, the final rules will provide registrants with the flexibility to tailor the disclosures based on their particular governance structure. Given these changes, we believe the final rule appropriately balances investors’ needs for information to understand management’s involvement in assessing

710Although we are not adopting specific requirements related to executive management remuneration linked to climate-based incentives, to the extent a climate-related target or goal or other measure is a material element of a registrant’s compensation of named executive officers, such information is required to be disclosed under Item 402(b) of Regulation S–K. 711Further, we are adding Instruction 2 to Item 1501 to clarify that relevant expertise of management in Item 1501(b)(1) may include, for example: prior work experience in climate-related matters; any relevant degrees or certifications; any knowledge, skills, or other background in climate￾related matters. 712See section II.C.1.c. 713See Proposing Release, section II.A.1. 714See, e.g., letter from BIO. 715See, e.g., letter from Chamber (‘‘We believe the Proposed Rule, if adopted, would create a board oversight and risk management structure that not only makes little sense for certain companies but could harm investors in companies that have no need for such extensive oversight of climate risk. The Proposed Rule, if adopted, would present a costly distraction for companies with limited resources (particularly small-cap and many mid-cap companies) to attempt to align their behavior and disclosures with those of other companies that similarly felt pressured by the rule to adapt their behavior to what appears to be the SEC’s preferred response to climate-related risks.’’). 716See letter from BIO. 717See Proposing Release, section II.E.1. As previously noted, see supra note 464, the Commission proposed to require transition plan disclosure in connection with a registrant’s risk management discussion. See Proposing Release,
section II.E.2. The final rule includes transition
and managing material climate risks with concerns that a more prescriptive rule could have adverse consequences on registrants’ governance practices or organizational structures. We reiterate, as we did above with respect to our rules requiring disclosure of board oversight of climate-related risks, that the final rule does not seek to influence decisions about how to manage climate-related risks or otherwise change registrant behavior. Rather, the final rule seeks to elicit disclosure about existing oversight practices that will allow investors to make better informed judgments about registrants’ oversight processes and mechanisms in light of their overall investment objectives and risk tolerance. Furthermore, the final rule does not require registrants that do not engage in the oversight of material climate-related risk to disclose any information. We are mindful of the suggestions of some commenters that we adopt additional requirements to disclose information related to management oversight of climate-related risks, including descriptions of internal positions and reporting structures and detailed information about climate￾based remuneration. However, consistent with our overall goal to streamline the proposed requirements and to focus on management’s oversight of material climate-related risk, we are not including such additional disclosure elements in the final rule.710 We are adopting the proposal requiring a description of the relevant expertise of position holders or members responsible for assessing and managing climate-related risk.711 While we considered the view of commenters that this could cause registrants to feel compelled to find and hire management with such expertise, regardless of whether that is the most sensible use of managerial resources given the registrant’s particular facts and circumstances, the added qualification that disclosure is only required where the risk is material mitigates this concern. We agree with commenters that asserted that this information will be helpful to understanding a registrant’s ability to manage climate￾related risks given the direct role that management will play in overseeing any such risks yet emphasize that registrants are required to make this disclosure only if they have identified a material climate risk. As noted above, the final rule has been modified to eliminate many of the prescriptive disclosure elements from the proposal, and it instead provides a non-exclusive list of the types of disclosures that a registrant should include, as applicable, when describing management’s role in assessing and managing the registrant’s material climate-related risk. For example, if applicable, registrants should describe the processes by which certain positions or committees are informed about and monitor climate-related risks. A process￾based description of management’s governance of material climate-risks can offer investors a meaningful look at how registrants manage material climate￾related
risks. Registrants should also disclose, if applicable, whether management reports to the board or a subcommittee of the board on climate￾related risks. Elimination of the proposed requirement to disclose how frequently the board meets to discuss climate-related matters, as discussed above, addresses commenters’ concerns that this disclosure, if provided, could divert limited resources from the consideration of other material risks and encourage changes to business practices. Nonetheless, information on whether management reports to the board can provide needed clarity on the connection between board and management level governance of climate-related risks, and accordingly, we have retained it as an example of the type of disclosure that might be responsive to the rule. We have also added a reference to a subcommittee of the board because some registrants may establish a subcommittee to focus on climate-related issues. Finally, as noted above,712 we are not adopting the proposed rule that would have allowed, but did not require, registrants to describe management’s role in assessing and managing climate￾related opportunities. As with other voluntary disclosure, registrants may elect to include such disclosure. While we recognize that some commenters recommended that such disclosure be mandatory, we have determined to treat the disclosure regarding climate-related opportunities as optional, among other reasons, to allay any anti-competitive concerns that might arise from a requirement to disclose a particular business opportunity.713 These changes will also help address the concerns expressed by some commenters, including from smaller reporting companies and registrants in certain industries,714 that the proposed rules would unduly pressure such registrants into a one-sized-fits-all governance approach given the line of business, size, and structure of their companies.715 While we disagree with one commenter’s suggestion that the proposal would ‘‘mandate that every company in the United States be required to expand management structures in order to accommodate concerns that are not material to a company,’’ 716 shifting to a non￾exclusive list of topics that a registrant should address, as applicable, will mitigate the concerns raised by some commenters that the prescriptiveness of the proposed disclosures could lead to such a result. In addition, the flexibility afforded to registrants under the final rule to determine which details about management’s oversight of climate￾related risks to include in their disclosure will help alleviate concerns that the proposal would elevate climate￾related disclosures above other, equally important, disclosures. Furthermore, as stated above, the final rule does not impose any disclosure requirements on registrants that do not exercise management oversight of climate-related risks. F. Risk Management Disclosure (Item 1503)

1. Proposed Rule
   The Commission proposed to require a registrant to describe any processes the registrant has for identifying, assessing, and managing climate-related risks.717 The Commission stated that

plan disclosure as part of a registrant’s disclosure about climate-related risks and their impact on the registrant’s strategy. We discuss transition plan disclosure requirements above in section II.D.2. 718See Proposing Release, section II.E.1. 719See id. 720See id. 721See id. 722See id. 723See id. 724See id. 725See, e.g., letters from AGs of Cal. et al.; Amer. for Fin. Reform, Sunrise Project et al.; Anthesis; Bloomberg; BNP Paribas; BOA; CalPERS; Center Amer. Progress; Ceres; CFA; C2ES; Eni SpA; Friends Fiduciary Corporation (June 17, 2022) (‘‘FFC’’); Grant Thornton; Morningstar; IAC Recommendation; NY St. Comptroller; PRI; PwC; SKY Harbor; TotalEnergies; and US SIF. 726See, e.g., letters from AGs of Cal. et al.; CFA; and Morningstar. 727See, e.g., letters from Bloomberg; and PRI. 728See, e.g., letters from Center Amer. Progress; C2ES; and US SIF. We note that other commenters that approved of the proposed risk management disclosure requirements also supported aligning the Commission’s climate disclosure requirements generally with the TCFD recommendations because it would help elicit consistent, comparable, and reliable disclosure for investors. See, e.g., letters from Bloomberg; CalPERS; and PRI. 729See, e.g., letters from Airlines for America; BIO; Business Roundtable; CEMEX; Chamber; Davis Polk; Dominion Energy; Fenwick & West; GPA Midstream; J. Herron; RILA; and Soc. Corp. Gov. 730See, e.g., letters from BIO; Chamber; Dominion Energy; GPA Midstream; J. Herron; RILA; and Soc. Corp. Gov. 731See, e.g., letters from Airlines for America; Business Roundtable; CEMEX; and Dominion Energy. 732See, e.g., letters from Airlines for America; BOA; Business Roundtable; and Soc. Corp. Gov. 733See, e.g., letters from BIO; CEMEX; and Dominion Energy. 734See, e.g., letters from Airlines for America; Davis Polk; Dominion Energy; RILA; and Soc. Corp. Gov. 735See, e.g., letters from CEMEX; Davis Polk; GPA Midstream; Fred Reitman (June 16, 2022) (‘‘F. Reitman’’); and J. Weinstein. 736See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; C2ES; ICI; Morningstar; PRI; TotalEnergies; and WSP. 737See letter from Anthesis. See also supra note 728. 738See letter from PRI (stating that the determination of how a company determines the importance of climate-related risks ‘‘will then go on Continued more granular information regarding 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.718 Such information could also permit investors to ascertain whether a registrant has integrated the assessment of climate-related risks into its regular risk management processes.719 The rule proposal would have required a registrant, when describing the processes for identifying and assessing climate-related risks, to disclose, as applicable, how the registrant:

• Determines the relative significance
  of climate-related risks compared to other risks;
• Considers existing or likely
  regulatory requirements of policies, such as GHG emissions limits, when identifying climate-related risks;
• Considers shifts in customer or
  counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks; and
• Determines the materiality of
  climate-related risks, including how it assesses the potential size and scope of any identified climate-related risk, such as the risks identified in response to proposed Item 1502.720 The rule proposal also required a registrant, when describing any processes for managing climate-related risks, to disclose, as applicable, how the registrant:
  (a) Decides whether to mitigate, accept, or adapt to a particular risk; (b) Prioritizes addressing climate￾related risks; and (c) Determines how to mitigate a high priority risk.721 The rule proposal further required a registrant to disclose whether and how climate-related risks are integrated into the registrant’s overall risk management system or processes.722 If a separate board or management committee is responsible for assessing and managing climate-related risks, the rule proposal required a registrant to disclose how that committee interacts with the registrant’s board or management committee governing risks.723 The Commission explained that 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.724

2. Comments
   Many commenters supported the proposed rule requiring registrants to describe any processes in place for identifying, assessing, and managing climate-related risks.725 Commenters stated that investors would use the risk management disclosures to evaluate an issuer’s readiness for confronting climate-related risks.726 Commenters also stated that the proposed risk management disclosure requirement would improve the quality of the disclosures that registrants currently provide on a voluntary basis.727 Commenters further stated that the proposed risk management disclosure requirement is aligned with the TCFD’s recommended disclosures regarding risk management, with which many registrants are already familiar.728 Other commenters generally opposed the proposed risk management disclosure requirement.729 Commenters objected to the prescriptiveness of the proposal, which they stated would result in overly granular disclosure that may not be relevant to a registrant’s particular business or industry and, therefore, may not be material for investors.730 Commenters also stated that the prescriptive nature of the rule proposal may result in the disclosure of commercially sensitive and strategic information.731 These commenters urged the Commission to adopt a more principles-based approach that would allow registrants to avoid the disclosure of commercially sensitive or proprietary information.732 Some commenters opposed the proposed risk management disclosure requirement because they believed that the Commission’s existing rules already require the disclosure of material risks and how the registrant is managing them.733 Other commenters stated that the Commission’s proposed climate￾related risk management disclosure provision deviated from the Commission’s disclosure requirements for other risk categories and placed undue emphasis on climate-related matters.734 Additionally, some commenters expressed general opposition to the proposed disclosure requirements, including risk management disclosures, because of concerns about the resulting compliance burden and costs.735 Several of the commenters that supported the risk management disclosure proposal also expressed support for the proposal’s discrete disclosure items.736 For example, one commenter supported requiring the disclosure of how a registrant determines the relative significance of climate-related risks compared to other risks, how it determines the materiality of climate-related risks, and how it considers various factors, such as existing or prospective regulatory requirements or policies, shifts in customer or counterparty preferences, technological changes, and changes in market prices, in assessing potential transition risks, and specifically mentioned that such disclosures are recommended by the TCFD.737 Another commenter stated that requiring disclosure of how a company determines the importance of climate￾related risks would be useful to investors, as this determination provides the foundation
   for all other climate-related considerations.738

to dictate how management and the board consider climate-related risks as part of governance, [and] whether management sets climate related targets or uses other tools such as scenario analysis’’). 739See letter from Calvert. 740See letter from WSP. 741See, e.g., letters from ICI; PRI; and TotalEnergies. 742See, e.g., letter from WSP. 743See, e.g., letter from ICI. 744See, e.g., letters from C2ES; ICI; PRI; TotalEnergies; and WSP. 745See, e.g., letter from C2ES. 746See, e.g., letters from CalPERS; C2ES; ICI; PRI; Morningstar; TotalEnergies; and WSP. 747See letter from ICI. 748See, e.g., letters from ICI; Morningstar; TotalEnergies; and WSP. 749See, e.g., letters from C2ES; and WSP. 750See letter from CalPERS. 751See, e.g., letters from Earthjustice (June 17, 2022); and RMI. 752See, e.g., letters from Anthesis; Eni SpA; ICI; Morningstar; NY St. Comptroller; PRI; Verena Rossolatos (June 8, 2022) (‘‘V. Rossolatos’’); SKY Harbor; TotalEnergies; and WSP. 753See letter from Morningstar; see also letter from PRI (stating that understanding the extent to which risk management disclosure on climate￾related issues is integrated into a company’s overall risk management process is essential for investors). 754See letter from Anthesis. 755See letter from V. Rossolatos. 756See letter from BOA. 757See, e.g., letters from Chamber; International Energy Credit Association (June 17, 2022) (‘‘IECA’’); MFA; Soc. Corp. Gov; and J. Weinstein. 758See, e.g., letter from Alliance Resource. 759See, e.g., letter from CEMEX. 760See, e.g., letter from Business Roundtable. 761See, e.g., letters from MFA; and Soc. Corp. Gov. 762See, e.g., letters from Chamber; IECA; and J. Weinstein. Relatedly, one commenter stated that it needs transparent disclosure regarding how companies are determining the materiality of climate-related risks in order to evaluate issuer risks properly.739 Another commenter stated that how a registrant determines the materiality of climate-related risks is important for investors to understand because it helps set the necessary context for all of the other climate￾related disclosures.740 Commenters also supported the proposed requirement to describe how the registrant considers existing or likely regulatory requirements or policies, such as GHG emissions limits, when identifying climate-related risks.741 One commenter stated that this would provide information about an important transition-related risk.742 Another commenter stated that this type of information, among others, would help investors evaluate whether a company has implemented adequate processes for identifying, assessing, and managing climate-related risks.743 For similar reasons, some commenters supported the proposal requiring a registrant to disclose how it considers shifts in customer or counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks.744 Certain commenters, while supportive of the proposal, stated that the Commission
should go further and also afford registrants the ability to provide additional disclosures, such as regarding how climate-related technological and customer shifts are being managed, minimized, tracked over time, and reported on regularly.745 Many commenters supported the proposal to require a registrant to disclose how it decides whether to mitigate, accept, or adapt to a particular climate-related risk.746 One of these commenters stated that this information would help investors evaluate whether a company has implemented adequate processes for identifying, assessing, and managing climate-related risks.747 Many commenters similarly supported the Commission’s proposal to require disclosure of how registrants prioritize climate-related risks and how they determine to mitigate a high priority risk.748 Commenters indicated that information concerning how the registrant prioritizes climate-related risks vis-a`-vis other risks that the registrant is managing would be particularly useful.749 One commenter stated that disclosure of a registrant’s rationale for pursuing capital expenditures for managing certain climate-related risks would be beneficial for investors to better assess the company’s capital allocation.750 Other commenters emphasized that since investors must depend on issuers’ assessment of their own significant or material climate-related risks, the proposed disclosure requirements would allow investors to understand how issuers reach these conclusions.751 Many commenters also supported the proposed disclosure requirement concerning whether and how climate￾related risk management processes are integrated into a registrant’s overall risk management system.752 One commenter stated that information about how a registrant integrates its climate risk management processes into its overall risk management system is essential to understanding the effectiveness of those climate risk management processes.753 Another commenter stated that disclosure regarding how a registrant’s identified material climate-related risks are ‘‘integrated into its company-wide enterprise risk management framework [would] allow for comparability of climate risks with other financial and non-financial risks.’’ 754 Yet another commenter stated that information about whether a registrant has centralized its climate-related risk management into its regular risk management processes is decision￾useful for investors because the disintegration of climate-related risks from other risks signals insufficient competence in managing the financial implications of climate-related matters.755 One commenter expressed support for the proposed risk management disclosure provision but cautioned that registrants should not be required to speculate about future restructurings, write-downs, or impairments related to climate risks or disclose any trade secrets or confidential business information in their climate-related risk management disclosures.756 Several commenters opposed the proposed
risk management disclosure requirement because of the detailed items that a registrant would be required to address when describing the processes used to identify, assess, and manage climate-related risks and how those processes are integrated into the registrant’s overall risk management system.757 One commenter stated that the proposed disclosure requirement could cause investors to overestimate climate-related risks and improperly contextualize the materiality of those risks.758 Another commenter stated that the proposed disclosure requirement was redundant because such information already must be included in annual reports.759 Other commenters expressed concern that the proposed disclosure requirement called for unnecessarily detailed, confidential, and proprietary information.760 Some commenters also asserted that the proposed itemized risk management disclosure requirements go well beyond the TCFD framework, which one commenter stated would ‘‘not provide a material benefit to investors and in fact may harm the public markets by creating undue costs on issuers to produce such information.’’ 761 Other commenters criticized the proposed risk management disclosure provision for not including materiality qualifiers and not being more principles-based, and cautioned that the prescriptiveness of the rule proposal would lead to boilerplate language that would not provide decision-useful information to investors.762
3. Final Rule
After considering the comments received, we are adopting a requirement (Item 1503), modified from the proposal

763See 17 CFR 229.1503(a). As noted in section II.D.2.c above, we have moved the disclosure requirement concerning a registrant’s transition plan to the 17 CFR 229.1502. 764See, e.g., letters from Ceres; C2ES; PWHC; SKY Harbor; and WSP. 765See supra note 730 and accompanying text. 766See, e.g., letters from API; Chamber; and SIFMA. 767See supra note 727 and accompanying text. See also Anthesis (stating that the SEC should require the registrant to disclose its process for identifying climate risks with the highest materiality and explain its adaptation/mitigation plan to build resiliency). 768See TCFD, 2022 Status Report (Oct. 2022), available at https://assets.bbhub.io/company/sites/ 60/2022/10/2022-TCFD-Status-Report.pdf (indicating that only approximately one-third of over 1,400 public companies surveyed provided disclosure concerning climate risk management processes in their 2021 reports). 769See supra note 727 and accompanying text. 770See section IV.A.5. 771See supra note 730 and accompanying text. 772See supra note 730 and accompanying text. 773See 17 CFR 229.1503(a)(1). as discussed below, to describe any processes the registrant has for identifying, assessing, and managing material climate-related risks.763 We agree with those commenters that stated investors need more comprehensive disclosure of registrants’ climate-related risk management practices to inform their investment and voting decisions.764 Because climate-related risks can have material impacts on a registrant’s business, it is important for investors to have information available to them so that they can understand how a registrant identifies, assesses, and manages any such risks. At the same time, we are mindful of commenters’ suggestions, both for this risk management disclosure in particular and climate-related disclosures more generally, that the Commission promulgate rules that allow registrants to tailor the disclosure of material climate-related risks and related management practices to their own particular facts and circumstances.765 Accordingly, we are adopting a less prescriptive approach that focuses on a description of processes for identifying, assessing, and managing material climate-related risks. In doing so, we have sought to avoid imposing a ‘‘one￾size-fits-all’’ disclosure model 766 that fails to account for differences in industries and businesses and that could result in disclosure of immaterial information while still eliciting decision-useful information for investors about registrants’ risk management practices. As a number of commenters indicated, consistent information about a registrant’s management of climate￾related risks is vital to informed investment and voting decisions.767 Despite the importance of climate￾related risk management information to investors, only a minority of registrants currently include such information in their voluntary climate reports or in their Exchange Act filings.768 We considered comments that the proposed
disclosure requirements are redundant because existing rules already require disclosure about material risks in annual reports, but we continue to believe that a specific disclosure item focused on managing material climate￾related risks is warranted. While registrants may be required to disclose certain climate-related information in filings made with the Commission pursuant to existing disclosure requirements, as noted above 769 there is a need to improve the consistency, comparability, and reliability of disclosures about climate-related risk management for investors given that, as noted above, most registrants are not currently including the type of information called for by the final rules in voluntary climate reports or Exchange Act filings.770 We also considered comments that the proposal placed undue emphasis on climate￾related risks and, as discussed below, have made a number of changes in response to streamline the requirements and focus on material climate-related risks. First, in a change from the proposal, we have added a materiality qualifier to the disclosure item.771 The final rule will require registrants to disclose any existing processes for the identification, assessment, and management of material climate-related risks. Including a materiality qualifier addresses the specific concerns expressed by commenters that the proposal would require registrants to disclose this information in a level of detail that would impose undue costs. If a registrant has not identified a material climate-related risk, no disclosure is required. Given the concerns expressed by commenters that there is a wide range of risks that registrants manage as
part of their operations, we are
persuaded that it is appropriate to include a materiality qualifier for this aspect of the proposal to help ensure that the final rule elicits decision-useful information for investors without imposing an undue burden on registrants and placing undue emphasis on climate-related risks that are not material. Similarly, to address the concerns of commenters that the proposed risk management disclosure provision would require registrants to address items that might not be relevant to their particular business or industry,772 we have removed several prescriptive elements from the final rule. Those proposed provisions that we are not adopting would have required a registrant, when describing any processes for identifying and assessing climate-related risks, to disclose, as applicable, how the registrant:

• Determines the relative significance
  of climate-related risks compared to other risks;
• Considers existing or likely
  regulatory requirements or policies, such as GHG emissions limits, when identifying climate-related risks;
• Considers shifts in customer or
  counterparty preferences, technological changes, or changes in market prices in assessing potential transition risks; and
• Determines the materiality of
  climate-related risks.
  Instead, the final rule will allow a registrant, when describing its processes for identifying, assessing, and managing material climate-related risks, to determine which factors are most significant, and therefore should be addressed, based on its particular facts and circumstances, which may include information on the items listed above. Commenters that supported the proposal stated that a meaningful description of the processes underlying climate risk management is necessary to enable investors to evaluate registrants’ climate risk management practices as
  part of their investment decisions. The
  final rule will elicit disclosures that offer a more complete picture of the management of material climate-related risks while also mitigating concerns that the proposed rule could unnecessarily elevate climate-related risk above other important matters and give rise to competitive harm and increased litigation risk for registrants. The final rule will also promote more consistent and comparable disclosure of registrants’ climate-related risk management practices than is currently available from voluntary reporting and, as these provisions of the final rules more closely align with the TCFD, they may limit costs for those registrants who are familiar with reporting under this framework. The final rule provides that a registrant should address, as applicable, how it identifies whether it has incurred or is reasonably likely to incur a material physical or transition risk.773 This provision is similar to the proposed rule that would have required a registrant to describe its processes for

774See Proposing Release, section II.E.1. 775See TCFD, supra note 332, at 13–14 (providing different tables (Tables D2 and D3) outlining the identification and assessment approaches for transition risks and physical risks). 776See 17 CFR 229.1503(a)(2). 777See 17 CFR 229.1503(a)(3). 778See supra note 747 and accompanying text. 779See supra note 749 and accompanying text. 780See supra note 733 and 734 and accompanying text. 781See e.g., letter from BOA. 782See 17 CFR 229.1503(b). 783See supra note 753 and accompanying text. 784See, e.g., letter from SKY Harbor. 785See, e.g., letter from BIO. 786See, e.g., letter from Chamber. 787See supra section II.C.1.c. 788See 17 CFR 229.1503(c). 789See Proposing Release, section II.A.1. 790See Proposing Release, section II.I. 791See id. 792See id. The proposed rule further provided, as an example, that 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. identifying a climate-related risk.774 The final rule substitutes the more specific terms ‘‘physical risk or transition risk’’ for ‘‘climate-related risk’’ to clarify and simplify the requirement since Item 1500 defines climate-related risk to encompass physical and transition risks. In addition, because the processes and factors that a registrant may use to identify the two types of risks may differ in certain respects, or in some cases a registrant may face one and not the other kind of risk, this change should elicit more relevant information for investors.775 Similar to the rule proposal, the final rule also provides that a registrant should address, as applicable, how it:

• Decides whether to mitigate, accept,
  or adapt to the particular risk; 776 and
• Prioritizes whether to address the
  climate-related risk.777
  The final rules will help investors to understand the processes that a registrant has for identifying, assessing, and managing climate-related risks, consistent with the feedback of many commenters.778 In this regard, commenters further indicated that information concerning how a registrant prioritizes climate-related risks vis-a`-vis other risks that the registrant is managing would be particularly useful.779 We are not, however, retaining the proposed requirement to disclose how a registrant determines how to mitigate any high priority risks. In response to the concerns expressed by several commenters,780 we have removed this proposed disclosure item to reduce the prescriptiveness of the risk management disclosure requirement and streamline this requirement, as we have done with other areas of the final rules. Furthermore, in response to one commenter who supported the proposal but cautioned against an overly broad application,781 we confirm that the final rules do not require registrants to speculate in their disclosures about future restructurings, write-downs, or impairments related to climate risk management. The flexibility afforded by the final rules also helps address the point made by the same commenter that the proposed disclosure item should not compel registrants to disclose trade secrets or confidential business information. Also similar to the rule proposal, the final rule provides that, if a registrant is managing a material climate-related risk, it must disclose whether and how any of the processes it has described for identifying, assessing, and managing the material climate-related risk have been integrated into the registrant’s overall risk management system or processes.782 As some commenters noted, information about how a registrant integrates its climate risk management processes into its overall risk management system is important to help investors understand and assess the effectiveness of those climate risk management processes.783 Mandating this disclosure, therefore, will allow investors to make better informed decisions about the overall risk profile of their investment in the registrant and provide a measure from which they can evaluate similarly situated companies.784 We are not adopting the proposed requirement for a registrant to disclose, if it has a separate board or management committee responsible for assessing and managing climate-related risks, how that committee interacts with the registrant’s board or management committee governing risks. Several commenters stated that they do not have dedicated board or management committees for managing climate-related risks,785 or asserted that including such prescriptive elements in the final rule could lead to boilerplate disclosure.786 Having considered these comments, and in light of our overall aim to reduce the prescriptiveness of the proposed requirements, we are not including this disclosure item in the final rule. We believe the other disclosure items we are
  adopting will still provide investors with decision-useful information about how registrants manage their material climate-related risks. Finally, as noted above,787 we are not adopting the proposed rule that allowed but did not require registrants to describe any processes for identifying, assessing, and managing climate-related opportunities when responding to any of the provisions in the risk management section.788 As with other voluntary disclosure, registrants may elect to include such disclosure. While we recognize the recommendation of some commenters that such disclosure be mandatory, consistent with the rule proposal, we have determined to treat disclosure regarding climate-related opportunities as optional, among other reasons, to allay any anti-competitive concerns that might arise from a requirement to disclose a particular business opportunity.789 G. Targets and Goals Disclosure (Item 1504)

1. Proposed Rule
   The Commission proposed to require a registrant that has set any climate￾related targets or goals to disclose certain information about those targets or goals.790 The proposed rule provided examples of climate-related targets or goals, such as those related to the reduction of GHG emissions or 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 established by a climate￾related treaty, law, regulation, policy, or organization.791 The proposed rule would have required a registrant that has set climate-related targets or goals to disclose the targets or goals and include, 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.792 The proposed rule also would have required 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

793See id.
794The proposed rules defined carbon offsets as representing 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 Proposing Release, section II.C.2. 795The proposed rules defined an 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. See id. 796See id. The Commission proposed the requirement to disclose information about the carbon offsets or RECs used by a registrant both in the proposed disclosure requirements for targets and goals and as part of the proposed disclosure requirements regarding the impacts of climate￾related risks on a registrant’s strategy. See Proposing Release, sections II.C.2 and II.I. To streamline and reduce redundancies in the subpart 1500 disclosure requirements, the final rules require disclosure of used carbon offsets or RECs only as part of the targets and goals disclosure requirements. Nevertheless, as discussed below, a registrant may elect to provide its disclosure about targets and goals as part of its strategy discussion, including its transition plan disclosure, as applicable. The final rules also require certain disclosures of offsets and RECs under the Regulation S–X amendments. See 17 CFR 210.14– 02(e)(1) and infra section II.K.3.c.vi. 797While both carbon offsets and RECs represent commonly used GHG emissions mitigation options for companies, they are used for somewhat different purposes. A company may purchase carbon offsets to address its GHG emissions (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? (Feb. 2018), available at https://www.epa.gov/sites/ default/files/2018-03/documents/gpp_guide_recs_ offsets.pdf. In contrast, a company may purchase an 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. 798See Proposing Release, section II.I. 799See id. 800See, e.g., letters from AllianceBernstein; Amazon; Amer. for Fin. Reform, Sunrise Project et al.; As You Sow; BHP; Bloomberg; BNP Paribas; Boston Common Asset Mgmt; CalPERS; CalSTRS; Calvert; CEMEX; Center Amer. Progress; Ceres; CFA; Dell; D. Hileman Consulting; Engine No. 1 (June 17, 2022); HP; Impax Asset Mgmt.; IAA; IAC Recommendation; IIF; Maple-Brown; Morningstar; Norges Bank; NRDC; NY City Comptroller; NY St. Comptroller; Paradice Invest. Mgmt.; PGIM; PwC; Salesforce (June 15, 2022); U.S. Sen. Brian Schatz and seven other
U.S. Senators (June 17, 2022) (‘‘Sens. B. Schatz et al.’’); SKY Harbor; TotalEnergies; Unilever; Vodafone; and World Resources Institute (June 17, 2022) (‘‘WRI’’). 801See, e.g., letters from CalPERS; CalSTRS; Ceres; Engine No. 1; Norges Bank; and NY St. Comptroller. 802See, e.g., letters from Morningstar; and Paradice Invest. Mgmt. 803See, e.g., letters from Center Amer. Progress; D. Hileman Consulting; and Sens. Schatz et al. 804See, e.g., letters from Calvert; Engine No. 1; IIF; Maple-Brown; NY St. Comptroller; and Paradice Invest. Mgmt. 805See, e.g., letters from Amer. for Fin. Reform, Evergreen Action et al.; Ceres; Moody’s; TotalEnergies; U.S. Green Building Council (June 17, 2022) (‘‘USGBC’’); and WRI. 806See, e.g., letters from CIEL; ICCR; and Seventh Gen. 807See letter from Dell. 808See id. 809See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; Bloomberg; Maple-Brown; Moody’s; and WRI; see also letters from IATP (supporting disclosure of the scope of activities and emissions, how targets have been set, and progress realized); and Unilever (supporting disclosure of the scope, details of the method of calculation and any baseline being used, together with any plans to meet the targets, but stating that it is not necessary to require disclosure of any other climate targets Continued achieved. The proposed rule would have required the registrant to update this disclosure each fiscal year by describing the actions taken during the year to achieve its targets or goals.793 Finally, the Commission proposed to require a registrant that, as part of any net emissions reduction strategy, uses carbon offsets 794 or RECs 795 to disclose the role that carbon offsets or RECs play in the registrant’s climate-related business strategy.796 If the registrant used carbon offsets or RECs in its plan to achieve climate-related targets or goals,797 the proposed rule would have required it 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.798 The proposed rule further stated that a registrant could provide the disclosures regarding its targets and goals when discussing climate-related impacts on its strategy, business model, and outlook or when discussing its transition plan.799
2. Comments
a. The Overall Proposed Disclosure Requirements Many commenters supported the rule proposal requiring a registrant that has set climate-related targets or goals, including the reduction of GHG emissions, to disclose certain information about those targets or goals.800 Commenters stated that information about a registrant’s set targets and goals, how a registrant plans to achieve them, and progress made towards them is critical to understanding a registrant’s transition risk management and its exposure to the likely financial impacts of identified transition risks.801 Commenters also stated that the proposed targets and goals disclosure requirement would help investors assess a registrant’s transition plan and whether it is aligned with global climate-related goals so that they may better understand the registrant’s transition risk exposure.802 Commenters also indicated that the proposed targets and goals disclosure requirement would provide needed data to help investors determine if a registrant’s climate-related public commitments are real and would help discourage greenwashing.803 Commenters further indicated that, despite the importance of information about a registrant’s targets or goals to investors, such information currently is lacking.804 Several of the commenters that supported requiring disclosure of a GHG emissions reduction target or goal also supported the disclosure of other climate-related targets or goals, such as those pertaining to energy usage, water usage, conservation or ecosystem restoration, and revenues from low￾carbon products.805 Some commenters also recommended requiring the disclosure of any targets or goals that a registrant has set to mitigate climate￾related impacts on local or indigenous communities or that involve human capital management goals related to employee retraining and retention in clean energy jobs.806 One commenter, however, stated that the targets and goals disclosure requirement should only pertain to GHG emissions reduction.807 According to this commenter, because standards for other climate-related targets and goals have not been broadly defined or accepted, voluntary reporting regarding such targets or goals is more appropriate.808 Several commenters that supported the proposed targets and goals disclosure requirement also supported requiring a registrant that has set a climate-related target or goal to describe, as proposed:

• 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.809

because, if material, they will be included in the registrant’s plans to meet the GHG reduction target). 810See, e.g., letters from Maple-Brown; and USGBC. 811See, e.g., letter from WRI. 812See, e.g., letter from Amer. for Fin. Reform, Sunrise Project et al. (‘‘The Commission should require a registrant, when disclosing its targets or goals, to disclose any data that indicate whether the registrant is making progress toward meeting the target and how such progress has been achieved, as proposed. This should include how a registrant’s progress toward targets or goals links to the financial statements, because capital expenditures made by registrants in implementing transition plans are a key metric for investors.’’). 813See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; CalPERS; CEMEX; D. Hileman Consulting; Morningstar; Paradice Invest. Mgmt.; PwC; Sens. B. Schatz et al.; TotalEnergies; USGBC; and WRI. 814See letter from PwC. 815See id. 816See letter from Amer. for Fin. Reform, Sunrise Project et al. 817See letter from Amazon. 818See, e.g., letters from Impax Asset Mgmt.; Maple-Brown; and TIAA. 819See letter from PwC (recommending that the Commission clarify that the disclosure of voluntary targets or goals applies only to targets and goals that have been publicly announced by the registrant, its subsidiaries that are separate registrants, or its significant subsidiaries); see also letter from Amazon (indicating that some internal targets or goals may never be as fully developed with the level of detail that the proposed rule would require). 820See letter from SKY Harbor. 821See letter from Amazon. 822See, e.g., letters from Abrasca Ibri (Oct. 13,
2022) (‘‘Abrasca’’); ACLI; AFPM; Amer. Chem.; AIC;
Business Roundtable; CA Farm; Chamber; Footwear Distributors and Retailers of America (June 15,
2022) (‘‘FDRA’’); IN Farm; LTSE; NAA; Nebraska
Farm Bureau Federation (June 17, 2022) (‘‘NB Farm’’); Oklahoma Farm Bureau (June 17, 2022) (‘‘OK Farm’’); Petrol. OK; RILA; Soc. Corp. Gov.; and USCIB. 823See, e.g., letters from Abrasca; ACLI; AIC; Business Roundtable; Chamber; FDRA; RILA; and Soc. Corp. Gov. 824See, e.g., letters from Abrasca; AIC; AFPM; Business Roundtable; CA Farm; Chamber; FDRA; IN Farm; LTSE; NAA; NB Farm; OK Farm; Petrol. OK; RILA; Soc. Corp. Gov.; and USCIB. 825See letter from Abrasca. 826See letter from Chamber. 827See letter from Business Roundtable. 828See, e.g., letters from Abrasca; AIC; Amer. Chem.; Chamber; and Soc. Corp. Gov. 829See, e.g., letters from Abrasca; AIC; Chamber; and Soc. Corp. Gov. 830See, e.g., letters from AllianceBernstein; Amazon; Amer. for Fin. Reform, Sunrise Project et al.; As You Sow; CalPERS; Calvert; Carbon Direct (June 16, 2022); CarbonPlan (June 16, 2022); Ceres; Constellation Energy Corporation (June 7, 2022) (‘‘Constellation Energy’’); D. Hileman Consulting; Domini Impact; Enerplus (June 16, 2022); Engine No. 1; Eni SpA; Ethic Inc. (June 17, 2022) (‘‘Ethic’’); Harvard Mgmt.; J. Herron;IATP; ICCR; J. McClellan; Morningstar; NRDC; Paradice Invest. Mgmt.; PGIM; SKY Harbor; TotalEnergies; and WRI. See also IAC Recommendation (‘‘We support requiring companies to disclose the role that carbon offsets or renewable energy credits play in their climate￾related business strategy or if the company used them to meet targets or goals’’). Commenters stated that the proposed detailed disclosure requirements would help investors understand the level of a registrant’s commitment to achieving its climate-related targets and goals.810 Some commenters recommended requiring additional disclosure requirements, such as whether the registrant has set science-based greenhouse gas emission reduction targets under the Science Based Targets Initiative,811 or the extent to which it can achieve its targets or goals using existing technology.812 Several commenters supported the proposed rule provision requiring a registrant to disclose relevant data indicating whether it is making progress toward achieving a set target or goal and how such progress has been achieved.813 One commenter stated that the proposed requirement would enhance management’s accountability for its climate-related commitments.814 This commenter further supported requiring a registrant to provide periodic updates to help investors evaluate its progress in achieving its targets or goals.815 Another commenter stated that disclosure regarding a registrant’s progress toward achieving its targets or goals should include information about the related capital expenditures it has made or intends to make.816 One other commenter, in response to the proposed Regulation S– X amendments, recommended requiring the disclosure of a registrant’s discrete and separable expenditures, both expensed and capitalized, related to transition activities for the registrant’s publicly disclosed, climate-related targets and
goals.817 Some commenters supported a targets and goals disclosure requirement but recommended conditions to such requirement. For example, some commenters stated that, in order to prevent the proposed disclosure requirement from acting as a disincentive to the adoption of climate￾related targets or goals, the final rule should provide an opportunity for a registrant that has not set a target or goal to explain why it has not done so.818 Some commenters indicated that a registrant should only be required to provide data about a publicly announced target or goal.819 One commenter stated that the disclosure requirement should only be triggered by the board’s or CEO’s formal adoption of the target or goal to encourage the informal development of the target or goal.820 One other commenter similarly stated that the Commission should require disclosure of targets or goals only when the board and senior management use the target or goal in their decision-making.821 Several commenters opposed the proposed targets and goals disclosure requirement.822 Commenters expressed concern that the proposed disclosure requirement was overly prescriptive and would require detailed disclosure about a target or goal even if the target or goal was not material.823 Commenters asserted that the disclosure requirements for targets and goals were overly prescriptive and would impose a costly compliance burden on registrants that, together with liability concerns, would discourage registrants from setting climate-related targets or goals.824 One commenter stated that the proposed targets and goals disclosure requirement would have a chilling effect on registrants setting even aspirational targets or goals.825 Another commenter stated that the proposed disclosure requirement would chill even preliminary discussions of climate￾related initiatives at the board or management level.826 A different commenter stated that the proposed targets and goals disclosure requirement would effectively punish early adopters of targets or goals by exclusively requiring them to disclose their targets and goals in extensive detail.827 Commenters also expressed concern that the proposed disclosure requirement would compel disclosure of internal, non-public targets that would reveal confidential proprietary information.828 Because of these concerns, some of these commenters recommended that the Commission only require the disclosure of material targets and goals that have been publicly announced.829 b. The Proposed Disclosure Requirement Concerning the Use of Carbon Offsets or RECs Many commenters supported the proposed rule provision requiring a registrant that uses carbon offsets or RECs in its plan to achieve climate￾related targets or goals to disclose information about: 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.830 Commenters stated that, because many registrants rely on the use of carbon offsets or RECs to achieve their GHG emissions reduction targets or goals, and because there are different types of carbon offsets and RECs with different attendant risks and benefits, investors need detailed information

831See, e.g., letters from AllianceBernstein; Carbon Direct; CarbonPlan; and Ceres. 832See, e.g., letter from AllianceBernstein (stating that ‘‘[t]he markets for carbon credits and offsets are nascent, fragmented and opaque, with significant variability in governance, quality, pricing and sourcing’’ and that ‘‘[i]ncreasing transparency on offsets is critical to an investor’s assessment of how well a registrant is managing the risk of climate change to its business, particularly transition risk.’’); see also letters from Calvert; CarbonDirect; CarbonPlan; Ceres; Engine No. 1; and Ethic. 833See, e.g., letters from CarbonPlan; Ceres; and Morningstar. 834See letter from CarbonPlan. 835See, e.g., letters from Amer. Fin. Reform, Sunrise Project et al.; Business Council for Sustainable Energy (June 17, 2022) (‘‘BCSE’’); Ceres; and WBCSD. 836See, e.g., letter from ICCR. 837See, e.g., letters from Amer. Fin. Reform, Sunrise Project et al.; CarbonDirect; and CarbonPlan. 838See, e.g., letters from American Clean Power Association (June 17, 2022) (‘‘Amer. Clean Power’’); BCSE; CalPERS; and International Emissions Trading Association (June 17, 2022) (‘‘IETA’’). 839See letters from Amer. Clean Power; and IETA; see also letter from CalPERS (stating its belief that unbundled RECs should not be allowed to be counted, but if the final rule allows for unbundled RECs to be counted, then a registrant should be required to disclose both a total amount with, and a total amount without, the use of unbundled RECs for each scope of emissions). 840A bundled REC is one that is sold together with the generated electricity directly to the consumer or reseller whereas an unbundled REC is one that has been separated from and sold without delivery of the generated electricity. See, e.g., U.S. EPA, Retail RECs, available at https://www.epa.gov/ green-power-markets/retail-recs (last updated Nov. 1, 2023); see also Sustainable Development Strategy Group (‘‘SDSG’’), Renewable Energy Credits (Jan. 2020), available at https://static1.squarespace.com/ static/5bb24d3c9b8fe8421e87bbb6/t/ 5e212aa512182f60deb4849c/1579231912520/ RECs+Policy+Primer.pdf. 841See, e.g., letters from Amer. Clean Power; and BCSE. 842Utilities may purchase RECs in a compliance market to comply with a state’s renewable portfolio standard whereas a non-utility company may purchase RECs in a voluntary market to support the general deployment of renewable energy. RECs purchased in a compliance market must meet certain standards and must be certified by an approved certifying group. RECs purchased in a voluntary market may or may not be subject to certain standards and technically are not required to be certified. See SDSG, supra note 840. 843See, e.g., letters from Beller et al.; CEMEX; and J. Weinstein. 844See letter from Beller et al. 845See letter from J. Weinstein. 846See letter from CEMEX. 847See 17 CFR 229.1504(a). 848See supra notes 823 and 828 and accompanying text. 849See supra note 829 and accompanying
text. about the carbon offsets or RECs used in order to evaluate the effectiveness of a registrant’s transition risk strategy and management of climate-related impacts on its business.831 Commenters further stated that, despite this need, such information is currently lacking, and that without detailed information about the type, underlying project, authentication, and cost of the offsets, investors cannot adequately assess a registrant’s climate-related strategy and its exposure to climate-related risks, particularly transition risks.832 For example, some commenters expressed concern that registrants’ carbon offset purchases vary considerably in terms of quality and effectiveness in meeting their own net￾zero carbon targets or those required by jurisdictions in which they operate.833 In this regard one commenter stated that investors need to know the type of carbon offset purchased in order to assess a registrant’s climate risk management because, if the registrant has a net-zero target or goal, it must use a carbon removal offset rather than a carbon avoidance offset to achieve the net-zero target or goal.834 Commenters relatedly recommended defining carbon offsets to include those that seek to avoid emissions (in addition to those that seek to reduce or remove them) and to require registrants that have used offsets to disclose the type of offset used (e.g., avoidance, reduction, or removal).835 Other commenters expressed support for increased disclosure about carbon offsets because of concerns about perceived problems in carbon offset markets regarding the quality and permanence of offsets.836 Commenters further stated that a registrant’s strategy that is heavily dependent on the use of carbon offsets or RECs runs the risk of market volatility, including spikes in the price of such instruments due to low supply and increased demand, and litigation and reputational risks from conducting an ineffective transition risk strategy or from claims of greenwashing.837 Some commenters recommended that the Commission require the disclosure of certain information about RECs in addition to the proposed disclosure items.838 For example, commenters 839 recommended requiring the disclosure of whether a registrant’s RECs are bundled or unbundled.840 Commenters 841 also sought disclosure regarding whether a registrant purchased or obtained its RECs from a compliance market or voluntary market.842 Other commenters, however, opposed the proposed requirement to disclose detailed information regarding a registrant’s use of carbon offsets or RECs.843 One commenter stated that the proposed disclosure requirement was overly prescriptive and that, without a materiality qualifier, it was likely to result in disclosure that was not decision-useful for investors.844 Another commenter similarly stated that the proposed requirement would result in the disclosure of immaterial information and also indicated that the proposed requirement, which the commenter characterized as
seeking to regulate offsets and RECs, was outside the area of the Commission’s expertise and beyond the Commission’s statutory authority.845 One other commenter stated that it did not believe it was necessary for companies to disclose the amount of energy represented by RECs, their nature, or the location of the underlying projects.846
3. Final Rule
a. The Overall Disclosure Requirement (Item 1504(a), (b), and (c)) The final rule (Item 1504(a)) will require a registrant to disclose any climate-related target or goal if such target or goal has materially affected or is reasonably likely to materially affect the registrant’s business, results of operations, or financial condition.847 Investors need detailed information about a registrant’s climate-related targets or goals in order to understand and assess the registrant’s transition risk strategy and how the registrant is managing the material impacts of its identified climate-related risks. We recognize, however, as some commenters indicated, that an overly broad requirement to disclose any climate-related target or goal, even one that is meant for preliminary, internal planning purposes and that is not yet material, could impose a compliance burden on registrants that may outweigh its benefit to investors.848 Conditioning the targets and goals disclosure requirement on the targets or goals being material will help to address this concern by focusing the requirement on the information that is most likely to be decision-useful for investors. If a registrant sets an internal target or goal that materially affects or is reasonably likely to materially affect the registrant’s business, results of operations, or financial condition (e.g., due to material expenditures or operational changes that are required to achieve the target or goal), then investors should have access to information about that target or goal to help them understand the financial impacts and assess the registrant’s transition risk management. While some commenters recommended that the Commission require the disclosure only of targets or goals that are both material and publicly announced,849 we decline to follow this suggestion. Such a condition would enable a registrant to keep non-public an internal target or goal that is material, which would fail

850See supra note 820 and accompanying text. 851See supra note 807 and accompanying text. 852See supra note 806 and accompanying text. 853See 17 CFR 229.1504(b). 854See supra note 823 and accompanying text. 855See 17 CFR 229.1504(b). 856 In addition, as discussed below in section II.H, elimination of this proposed disclosure requirement is consistent with our removal of the proposed requirement to disclose a registrant’s GHG emissions metrics in intensity terms in addition to absolute terms. 857See 17 CFR 229.1504(b)(5). 858See Proposing Release, section II.I. to protect investors by potentially precluding their access to information that is important to make informed investment and voting decisions. We reemphasize, however, that a registrant is not required to disclose an internal target or goal that is not material. In addition, we decline to follow the recommendation of some commenters that the targets and goals disclosure requirement should only be triggered by the board’s or CEO’s formal adoption of the target or goal.850 Such a provision would deprive investors of material information for procedural reasons unrelated to the importance of the information to investors. Furthermore, as previously mentioned, the final rules are intended to elicit material climate￾related disclosures for investors and not to influence governance practices regarding climate-related matters. Because registrants may have different processes for setting targets or goals, we believe that materiality is a better threshold for disclosure of targets or goals than basing the disclosure requirement on an internal process that may differ from company to company. Similarly, although one commenter recommended that the Commission require the disclosure only of targets or goals related to a registrant’s GHG emissions,851 we decline to follow this recommendation. Investors need information about all of a registrant’s material climate-related targets and goals in order to assess the impact of such targets and goals on a registrant’s overall business, results of operations, financial condition, and prospects. Although the particular non-GHG emissions target or goal to be disclosed will depend on a registrant’s particular facts and circumstances, to the extent such targets or goals are material, a registrant must disclose them. To simplify the targets and goals disclosure requirement and avoid implying any topical focus regarding the particular targets or goals that should be discussed, we have eliminated from the final rule the parenthetical ‘‘e.g., the reduction of GHG emissions or regarding energy usage, water usage, or revenues from low-carbon products.’’ We also decline to follow the recommendations of some commenters to include provisions that specifically require the disclosure of targets or goals related to mitigation of impacts on local communities or that concern human capital management goals.852 The final rule is intended to elicit disclosure of any climate-related
target or goal that has materially affected or is reasonably likely to materially affect a registrant’s business, results of operations, or financial condition. Accordingly, any target or goal meeting the conditions of the final rule (including that it is material) will need to be disclosed regardless of the particular issues it addresses, if that target or goal is considered climate-related in the registrant’s particular circumstances and if achieving such target or goal would materially impact its business, results of operations, or financial condition. We note that a registrant may voluntarily disclose additional information that is not required to be disclosed under the final rule (and not part of a target or goal) but that is related to the mitigation of climate-related risks. Similar to the proposed rule, with some modifications as discussed below, the final rule (Item 1504(b)) will require a registrant that is disclosing its targets and goals pursuant to Item 1504 to provide any additional information or explanation necessary to an understanding of the material impact or reasonably likely material impact of the target or goal, including, as applicable, a description of:

• The scope of activities included in
  the target;
• The unit of measurement;
• The defined time horizon by which
  the target is intended to be achieved, and whether the time horizon is based on one or more goals established by a climate-related treaty, law, regulation, policy, or organization;
• If the registrant has established a
  baseline for the target or goal, the defined baseline time period and the means by which progress will be tracked; and
• A qualitative description of how the
  registrant intends to meet its climate￾related targets or goals.853 These disclosures will allow investors to better understand a registrant’s targets or goals and how it intends to achieve them, which will help investors better assess a registrant’s transition risks and make more informed investment and voting decisions. In order to address the concern of some commenters that the proposed targets and goals disclosure provision was too prescriptive and would impose a costly compliance burden without necessarily resulting in material information,854 the final rule has been revised so that the listed items are non-exclusive examples of additional information or explanation that a registrant must disclose only if necessary to an understanding of the material impact or reasonably likely material impact of the target or goal.855 To further streamline the targets and goals disclosure requirement, the final rules do not include ‘‘emissions’’ in the list of information that must be disclosed if necessary to an understanding of the material impact or reasonably likely material impact of a target or goal. If a registrant has set a material target or goal to reduce emissions, it will be required to disclose this when explaining the scope of activities included in the target. We also have eliminated the proposed disclosure item regarding whether a target is absolute or intensity-based because this information will likely be elicited by other required disclosure, such as the unit of measurement pertaining to the target or goal.856 Similar to the proposed rule, the final rule requires disclosure, as applicable, of how the registrant intends to meet its climate-related targets or goals.857 However, in order to help address the concern of some commenters that the proposed rule could result in the disclosure of an excessive amount of detail, the final rule specifies that this discussion of prospective activities need only be qualitative. In addition, we are eliminating the proposed example that, 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.858 This will avoid any misperception that these are required items of disclosure. The final rule leaves it up to the registrant to determine what specific factors to highlight as part of the qualitative description of how it plans to meet its targets or goals. We are also not adopting the proposed requirement to disclose any interim targets set by the registrant. We agree

859See letter from Unilever.
860See 17 CFR 229.1504(c).
861See id.
862See supra notes 508–514 and accompanying text. In addition, as with the required transition plan disclosure, no update about targets and goals would be required to be disclosed if the underlying targets or goals are not required to be disclosed (e.g., because the target or goal is no longer material). 863See 17 CFR 229.1504(c)(1). 864See 17 CFR 229.1504(c)(2). 865See supra notes 816 and 817 and accompanying text. 866See, e.g., letters from Amazon; Amer. for Fin. Reform, Sunrise Project et al.; and PwC. 867See infra sections II.K.3.b and c. 868See infra notes 1967 and accompanying text. 869See infra notes 1902 and 1907 and accompanying text. 870See supra sections II.D.1.c. and II.D.2.c for discussion of similar material expenditures disclosure requirement, respectively, as part of a registrant’s transition plan disclosure under Item 1502(e) and from activities to mitigate or adapt to climate-related risks disclosed pursuant to Item 1502(b)(4) under Item 1502(d) of Regulation S–K. To the extent that there is any overlapping disclosure of material expenditures in response to these Items, to avoid redundancy, a registrant should provide disclosure of material expenditures regarding the Item where, in its assessment, such disclosure is most appropriate, and then cross￾reference to this disclosure when responding to the other Items. 871See supra note 521. 872See 17 CFR 229.1504(a). 873See id. 874See section II.O.3. 875See supra notes 811–812 and accompanying text. 876See supra section II.C.1.c. with commenters that stated that this disclosure item is not necessary because, if a registrant has set an interim target that is material, it will likely be included in the registrant’s discussion of its plan to achieve its targets or goals.859 Similar to the proposed rule, the final rule (Item 1504(c)) will require a registrant to disclose any progress toward meeting the target or goal and how such progress has been achieved.860 Also similar to the proposed rule, the final rule will require the registrant to update this disclosure each fiscal year by describing the actions taken during the year to achieve its targets or goals.861 We are adopting this updating requirement for substantially the same reasons we are adopting the updating requirement with respect to the transition plan disclosure required under Item 1502(e),862 including because it will better enable investors to monitor impacts on the registrant as it attempts to meet its targets or goals. Relatedly, the final rule will require a registrant to include in its targets and goals disclosure a discussion of any material impacts to the registrant’s business, results of operations, or financial condition as a direct result of the target or goal or the actions taken to make progress toward meeting the target or goal.863 This discussion must include quantitative and qualitative disclosure of any material expenditures and material impacts on financial estimates and assumptions as a direct result of the
target or goal or the actions taken to make progress toward meeting the target or goal,864 consistent with the suggestion of some commenters.865 We have added these latter provisions because, as commenters noted, a company’s climate commitments, and progress in relation to its commitments, may materially impact its business, outlook, operating expenditures, capital expenditures, liquidity, and other capital resources, which is why investors seek and need information about such material expenditures and other material financial impacts related to its targets and goals.866 As discussed in more detail below,867 a number of commenters who supported the proposed expenditures disclosures in Regulation S–X indicated that such disclosure would help investors understand a registrant’s ability to meet its climate-related targets and goals.868 We recognize commenters’ concerns about registrants’ abilities to identify, attribute, and quantify the impact of transition activities in the financial statements.869 We believe that providing for this disclosure in the context of Item 1504 information on progress towards targets or goals appropriately balances investors’ need for this information with commenters’ concerns about implementation challenges. As discussed above,870 with respect to concerns raised in the context of the proposed Regulation S–X amendments about registrants’ abilities to disaggregate the portion of an expenditure that is directly related to transition activities, under the final rules, registrants will have flexibility to explain qualitatively the nature of any disclosed expenditure and how it is a direct result of progress under a disclosed target or goal. In addition, subjecting the disclosure requirement to materiality rather than a bright-line threshold, as was proposed for the Regulation S–X amendments, will help reduce the compliance burden of the final rules while providing material information for investors. Additionally, when considering which expenditures related to progress under a disclosed target or goal are material over the relevant period and therefore require disclosure, registrants should consider whether overall expenditures related to progress under a disclosed target or goal are material in the aggregate and, if so, provide appropriate disclosure. Finally, to the extent that disclosure of material impacts on financial estimates and assumptions as a direct result of the target or goal is disclosed in response to Rule 14–02(h) of Regulation S–X, a registrant would be able to cross￾reference to such disclosure.871 Similar to the rule proposal, the final rule will permit a registrant to provide the required targets and goals disclosure as part of its discussion pursuant to Item 1502 regarding its transition plan or when otherwise discussing material impacts of climate-related risks on its business strategy or business model.872 A registrant will also be permitted to provide the required targets and goals disclosure in its
risk management discussion pursuant to Item 1503.873 This provision will help to eliminate redundancies in the subpart 1500 disclosure. Similar to Items 1502(d)(2) and 1502(e)(2), and for similar reasons, we are providing a phase in for compliance with the Item 1504(c)(2) disclosure requirement. A registrant will not be required to comply with the requirements of Item 1504(c)(2) until the fiscal year immediately following the fiscal year of its initial compliance date for the subpart 1500 rules based on its filer status.874 We decline to follow the recommendation of some commenters to require the disclosure of whether the registrant has set science-based GHG emission reduction targets under the Science Based Targets Initiative, or the extent to which it can achieve its targets or goals using existing technology.875 As we similarly noted when declining to follow a recommendation to broaden transition risk disclosure, the targets and goals disclosure requirement we are adopting is consistent with the TCFD framework, which provides flexibility in terms of which tools or methods a registrant chooses to use, and therefore will limit the targets and goals compliance burden for those registrants that are already familiar with the TCFD framework.876 A registrant may elect to provide disclosure regarding these additional items, but they are not required items of disclosure. b. The Carbon Offsets and RECs Disclosure Requirement (Item 1504(d)) Similar to the proposed rule, the final rule includes a disclosure requirement about a registrant’s use of carbon offsets or RECs (Item 1504(d)). Unlike the proposed rule, however, a registrant will be required to disclose certain

877See 17 CFR 229.1504(d).
878See, e.g., letters from Beller et al.; and J. Weinstein. 879The nature of an offset refers to whether it represents carbon avoidance, reduction, or removal. The nature of an REC refers primarily to whether it is bundled or unbundled. The source of an offset or REC refers to the party that has issued the offset or REC. Commenters stated that investors need such detailed information about offsets or RECs in order to evaluate the effectiveness of a registrant’s transition risk strategy and management of climate￾related impacts on its business. See supra notes 831–834 and accompanying text. 880See 17 CFR 229.1504(d). At the recommendation of commenters, see supra note 835, to clarify that an offset can represent carbon avoidance, in addition to carbon reduction or removal, we have added ‘‘avoidance’’ to the definition of carbon offset. See 17 CFR 229.1500. 881A carbon avoidance occurs, e.g., when a company protects a forest from deforestation. A carbon reduction occurs when emissions are reduced, e.g., when a company switches from the use of fossil-fuel based energy to the use of wind or solar power. A carbon removal occurs when CO2 is drawn out of the atmosphere and sequestered, e.g., by carbon capture and storage technology. See, e.g., letter from Ceres; and Ceres, Evaluating the Use of Carbon Credits (Mar. 1, 2022), available at https://www.ceres.org/resources/reports/evaluating￾use-carbon-credits. 882See, e.g., letters from Amer. Fin. Reform, Sunrise Project et al.; BCSE; and Ceres. 883See, e.g., letters from Amer. Clean Power; and IETA. 884See, e.g., letter of IETA (referencing the Carbon Offset Reduction Scheme for International Aviation (‘‘CORSIA’’) market established by the UN International Civil Aviation Organization (‘‘ICAO’’) and adopted by the U.S. Federal Aviation Authority). 885See, e.g., letter from Amer. Clean Power. 886See letter from CarbonPlan. 887See letter from J. Weinstein. 888We proposed to define ‘‘greenhouse gases’’ as carbon dioxide (‘‘CO2’’); methane (‘‘CH4’’); nitrous oxide (‘‘N2O’’); nitrogen trifluoride (‘‘NF3’’); hydrofluorocarbons (‘‘HFCs’’); perfluorocarbons (‘‘PFCs’’); and sulfur hexafluoride (‘‘SF6’’). 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. This list of constituent greenhouse gases is 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, the EPA, and the GHG Protocol. See Proposing Release, section II.G.1.a. 889See id. information about the carbon offsets or RECs only if they have been used as a material component of a registrant’s plan to achieve climate-related targets or goals.877 We have added a materiality qualifier to the final rule to address the concern of commenters that the proposed disclosure requirement
could result in detailed offsets or RECs information that is of little use to investors.878 Under the final rule, registrants will need to make a determination, based upon their specific facts and circumstances, about the importance of such carbon offsets and credits to their overall transition plan and provide disclosure accordingly. If carbon offsets or RECs have been used as a material component of a registrant’s plan to achieve climate￾related targets or goals, then, similar to the proposed rule, the registrant will be required to disclose: the amount of carbon avoidance, reduction or removal represented by the offsets or the amount of generated renewable energy represented by the RECs; the nature and source of the offsets or RECs; 879 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.880 Information about the source, value, underlying projects, and authentication of the carbon offsets or RECs will help investors evaluate the role of these instruments in a registrant’s climate￾related strategy and the impacts on its business. For example, understanding the role that carbon offsets or RECs play in a registrant’s climate-related business strategy can help investors assess the potential risks and financial impacts of pursuing that strategy. Relatedly, a registrant that relies on carbon offsets or RECs as a material component of its plan to achieve its targets or goals might need to consider whether fluctuating supply or demand, and corresponding variability of price, related to carbon offsets or RECs, presents an additional material risk that is required to be disclosed when discussing its plan to achieve such target or goal pursuant the requirements of subpart 1500. At the recommendation of commenters, in addition to carbon reduction, we have added the amount of carbon avoidance and carbon removal 881 represented by carbon offsets as disclosure items to clarify that disclosure is required about offsets representing carbon removal and those representing carbon avoidance or reduction if the registrant has used these types of offsets as a material part of its climate-related strategy.882 This addition will help investors assess the risks associated with the different types of offsets used and how they may affect a registrant’s transition risk management and the related impacts on the registrant’s business and financial condition. Also, at the recommendation of commenters, we have added the nature of the carbon offsets or RECs as a disclosure item in addition to the source of the offsets or RECs.883 This addition will help investors understand whether a purchased offset represents carbon avoidance, reduction, or removal, and whether an REC is bundled or unbundled. Requiring the disclosure of the source of the offset or REC will help investors determine whether the offset has met certain criteria of an established standard-setting body,884 and
whether the REC originated from and met the standards of a compliance market or is instead derived from a more loosely regulated voluntary market.885 These factors can affect the value and cost of the offsets and RECs and their attendant risks. For example, as one commenter noted, a market that develops increased demand for carbon removal offsets, either because of new regulation or stricter voluntary standards for net-zero targets, could result in a significant increase in offset prices, potential supply bottlenecks, and increased transition risk for registrants that assumed the continued availability and abundance of cheaper offsets.886 One commenter who objected to the proposed offsets and RECs disclosure requirement asserted that the Commission lacks statutory authority to regulate offsets and RECs.887 We disagree with that commenter’s characterization of the rule. In requiring the disclosure of certain information about a registrant’s use of offsets or RECs when such use is a material component of the registrant’s plan to achieve a target or goal that is required to be disclosed, we are not advocating for or against the use of offsets or RECs generally, or for or against the use of certain types of offsets or RECs. Nor are we substantively regulating their use. As previously mentioned, the final rules, including those pertaining to the use of offsets or RECs, are neutral regarding any strategy that a registrant may choose to manage a material climate-related risk. Instead, like the other climate￾related disclosure rules we are adopting, the final rule regarding the disclosure of offsets or RECs is intended to provide investors with the decision-useful information they need to understand a registrant’s strategy to mitigate or adapt to the realized or reasonably likely financial impacts of a material climate￾related risk. H. GHG Emissions Disclosure (Item 1505)

1. Proposed Rule
   The proposed rules would have required a registrant to disclose its GHG emissions 888 for its most recently completed fiscal year and for the historical fiscal years included in its consolidated financial statements, to the extent such historical GHG emissions data is reasonably available.889 The Commission based the proposed GHG emissions disclosure requirement on the

890 Direct emissions are GHG emissions from sources that are owned or controlled by a registrant, 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. See World Business Council for Sustainable Development and World Resources Institute, GHG Protocol, Corporate Accounting and Reporting Standard (2004), available at https://ghgprotocol. org/sites/default/files/standards/ghg-protocol￾revised.pdf. 891See Proposing Release, section II.G.1.a. 892See id. 893See Proposing Release, section I.D.2. 894See Proposing Release, section II.G.1.a. 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. 895See Proposing Release, section II.G.1.b. 896See id. 897See Proposing Release, section II.G.1.a. 898See id. 899See Proposing Release, section II.G.1.c. The proposed rules would have required the disclosure of GHG intensity to be in terms of metric tons of CO2e per unit of total revenue and per unit of production for the fiscal year. 900See Proposing Release, section II.G.2. 901See Proposing Release, section II.G.2.a. 902See id. 903See Proposing Release, section II.G.2.d. 904See Proposing Release, section II.G.1.a. 905See Proposing Release, section II.G.1. 906See id. concept of scopes, which are themselves based on the concepts of direct and indirect emissions, developed by the GHG Protocol.890 The Commission proposed to require a registrant to disclose its Scope 1 emissions, which, similar to the GHG Protocol, were defined to mean the direct GHG emissions from operations that are owned or controlled by a registrant.891 The Commission also proposed to require a registrant to disclose its Scope 2 emissions, which, similar to the GHG Protocol, were defined to mean the 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.892 By sharing certain basic concepts and a common vocabulary with the GHG Protocol, the Commission intended to both elicit consistent, comparable, and reliable climate-related information for investors, and mitigate the compliance burden of the proposed rules for those registrants that are already disclosing or estimating their GHG emissions pursuant to the GHG Protocol.893 The Commission further proposed to require a registrant, other than an SRC, to disclose its Scope 3 emissions, which, similar to the GHG Protocol, were defined to mean all indirect GHG emissions not otherwise included in a registrant’s Scope 2 emissions that occur in the upstream and downstream
activities of a registrant’s value chain.894 Unlike the proposed disclosure requirement for Scopes 1 and 2 emissions, however, the Commission proposed to require the disclosure of a registrant’s 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 Scope 3 emissions.895 The Commission proposed these limitations regarding Scope 3 disclosure in recognition of the fact that, unlike Scopes 1 and 2 emissions, Scope 3 emissions typically result from the activities of third parties in a registrant’s value chain and, thus, collecting the appropriate data and calculating these emissions would potentially be more difficult than for Scopes 1 and 2 emissions. Although the Commission recognized that the disclosure of Scope 3 emissions may be important to provide investors with a complete picture of the climate-related risks that a registrant faces—particularly transition risks—it also believed it was necessary to balance the importance of Scope 3 emissions with the potential relative difficulty in data collection and measurement.896 For each of its Scopes 1, 2, and 3 emissions, the proposed rules would have required a registrant to disclose the emissions both disaggregated by each constituent greenhouse gas and in the aggregate, expressed in terms of CO2e. The Commission proposed this requirement so that investors could gain decision-useful information regarding the relative risks to the registrant posed by each constituent GHG in addition to the risks posed by its total GHG emissions by scope.897 The proposed rules would also have required a registrant to disclose the GHG emissions data in gross terms, excluding any use of purchased or generated offsets,898 and in terms of GHG intensity.899 The proposed rules would have required a registrant to describe the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions metrics.900 While the proposed GHG emissions disclosure rules shared many features with the GHG Protocol, they differed regarding the approach required to set a registrant’s organizational boundaries. Those boundaries determine the business operations owned or controlled by a registrant to be included in the calculation of its GHG emissions. The proposed approach would have required 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.901 The Commission proposed this approach in order to provide investors a consistent view of the registrant’s business across its financial and GHG emissions disclosures. The same organizational boundaries requirement would have applied to each disclosure of a registrant’s Scope 1, Scope 2, and Scope 3 emissions.902 The rule
proposal provided 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. In proposing this provision, the Commission stated that while it encouraged registrants to provide as accurate a measurement of its GHG emissions as is reasonably possible, it recognized that, in many instances, direct measurement of GHG emissions at the source, which would provide the most accurate measurement, may not be possible.903 The Commission proposed to require the disclosure of a registrant’s GHG emissions as of the end of its most recently completed fiscal year in its Exchange Act annual report for that year and in a Securities Act or Exchange Act registration statement filed subsequent to the compliance date for the climate￾related disclosure rules.904 The Commission also proposed to 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.905 The Commission proposed this accommodation to address the concern of some commenters 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.906

907See, e.g., letters from AGs from Cal. et al.; AllianceBernstein; Alphabet et al.; Amazon; Amer. for Fin. Reform, Sunrise Project et al.; BHP; BP; CalPERS; CalSTRS; Chevron; Etsy; IAC Recommendation; Member of the U.S. House of Representatives Kathy Castor and 130 other House Members; Member of the U.S. House of Representatives Adam B. Schiff and 25 Other House Members from California (Oct. 12, 2023) (‘‘Rep. Adam Schiff et al.’’); Microsoft; Miller/Howard; NRDC; Sens. B Schatz et al.; Trillium; UPS; Wellington Mgmt.; and WRI. 908See, e.g., letters from AllianceBernstein; AGs from Cal. et al.; CalPERS; Ceres; Rep. Maxine Waters; Sen. Elizabeth Warren, et al.; and Wellington Mgmt. 909See, e.g., letter from Amer. for Fin. Reform, Sunrise Project et al. 910See id; see also letters from AllianceBernstein; and Wellington Mgmt. 911See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; CalPERS; CalSTRS; and Wellington Mgmt.; see also letter from Rep. Adam Schiff et al.(stating that enactment of California’s Climate Corporate Data Accountability Act (SB 253), which will require companies with more than $1 billion in annual revenues to file annual reports publicly disclosing their Scope 1, 2, and 3 GHG emission, ‘‘virtually eliminates the cost of compliance with a federal Scope 3 disclosure requirement for all businesses operating in California with over $1 billion in revenue’’). 912See, e.g., letters from CalSTRS; Soros Fund; and Wellington Mgmt. 913See, e.g., letters from Amazon; and Microsoft. 914See letter from Sens. B. Schatz et al. 915See, e.g., letter from AGs from Cal. et al. (stating that ‘‘Scope 3 GHG emissions disclosures will help avoid gamesmanship and greenwashing by registrants that artificially limit their Scope 1 and 2 GHG emissions by transferring higher￾emission activities and their climate-related risks to third parties’’); and Wellington Mgmt. 916See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; C2ES; Ceres (Feb. 1, 2023); and Fidelity. 917See letter from Amalgamated Financial Corp. (June 17, 2022) (‘‘AFC’’) (‘‘We have published three years of our scope 3 financed emissions, starting in
2019. For 2021, this included our listed equities
and fixed income assets under management. As a firm we track absolute emissions and emissions intensity across our lending and investment portfolios and understand where risks and opportunities present. We have done this work with modest cost to us, requiring some redirection of resources and modest consultant and data support. This work has not been cost prohibitive and builds on existing systems within the bank for reporting and disclosure.’’) 918See, e.g., letters from D. Burton, Heritage Fdn.; and Chamber. 919See infra note 925 and accompanying text. 920See infra notes 924 and accompanying text. 921See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN Farm; NAA; and PA Farm; see also letter from National Association of Convenience Stores (June 8, 2022). 922See, e.g., letters from AZ Farm; CA Farm; GA Farm; IN Farm; NAA; and PA Farm. 923See, e.g., letters from Beller et al.; Exxon Mobil Corporation (June 17, 2022) (‘‘Exxon’’); Fed. Hermes; Fidelity; Harvard Mgmt.; IAA; ICI; Nareit; Reed Smith LLP (June 17, 2022) (‘‘Reed Smith’’); Stanford Management Company (June 17, 2022) (‘‘Stanford Mgmt.’’); and State St. 924See, e.g., letter from Beller et al.; Blackrock; Fed. Hermes; ICI; Reed Smith; Stanford Mgmt.; and State St. 925See, e.g., letters from Exxon; Fed. Hermes; Fidelity; Harvard Mgmt.; IAA; Reed Smith; Stanford Mgmt.; and State St. 926See, e.g., letter from Harvard Mgmt. 927See letter from Fidelity. While not directly opposing the proposed Scope 3 emissions disclosure requirement, another commenter recommended that, due to perceived complexities in the calculation of Scope 3 emissions, the Commission reconsider this proposed requirement
2. Comments
a. Overall GHG Emissions Disclosure Requirement Several commenters supported the proposed requirement to disclose Scopes 1 and 2 emissions, as well as Scope 3 emissions if material or if included in a registrant’s GHG emissions reduction target or goal.907 The most common reason asserted for supporting the mandatory disclosure of GHG emissions is that such disclosure would provide investors with specific metrics to assess a registrant’s exposure to transition risks.908 Commenters also relatedly stated that mandatory disclosure of GHG emissions would enable investors to evaluate a registrant’s progress towards achieving any publicly announced transition targets and goals,909 and allow investors to compare registrants across sectors and industries to determine whether their transition strategies are aligned with investors’ investment objectives.910 Some of these commenters also indicated that Scope 3 emissions disclosure was necessary to provide a complete picture of a registrant’s transition risk exposure and therefore recommended that the Commission require the disclosure of Scope 3 emissions for all registrants.911 Some commenters indicated that they are already using Scope 3 emissions data to make investment decisions.912 Other commenters stated that, as registrants, they have disclosed Scope 3 emissions from certain activities and indicated their support for a Scope 3 emissions disclosure requirement with certain accommodations.913 One commenter stated that capital markets are now assigning financial value to Scope 3 emissions metrics and, in supporting a Scope 3 emissions disclosure requirement, recommended that the Commission establish a quantitative threshold for determining the materiality and corresponding disclosure of Scope 3 emissions.914 In addition, some commenters indicated that the disclosure of Scope 3 emissions may deter registrants from outsourcing to third-parties facilities that would otherwise count as sources of Scopes 1 and 2 emissions, thereby seeming to lower their transition risk exposure and facilitating greenwashing.915 Some commenters indicated that while many registrants already measure and voluntarily disclose their Scopes 1 and 2 emissions, that is not the case for Scope 3 emissions.916 Another commenter stated that publishing Scope 3 emissions information has not been cost prohibitive.917 While many commenters, including both issuers and investors, stated that they supported requiring Scope 1 and 2 disclosures, a significant number of commenters raised serious concerns about requiring Scope 3 emissions disclosures. Some asserted that the Commission lacks the authority to require disclosures of information that may come largely from non-public companies in registrants’ value chain; 918 others questioned the value of Scope 3 emissions disclosures for investors, citing their concerns about the reliability of the metric; 919 others focused on their view of the costs and burdens of gathering, validating, and reporting
the information.920 A number of commenters representing entities not subject to the Commission’s disclosure authority raised serious concerns about the costs and burdens they could face as a result of the requirement on registrants.921 Among those costs, they highlighted not only the cost of collecting and reporting information but also the potential competitive disadvantage for smaller suppliers, if registrants select larger suppliers that may be in a better position to supply information to use in their Scope 3 emissions disclosures.922 We discuss certain of these comments in more detail. Some commenters supported the mandatory disclosure of Scopes 1 and 2 emissions but opposed the proposed disclosure of Scope 3 emissions.923 Commenters stated that, because much of the data underlying Scope 3 emissions is in the control of third parties, registrants could face difficulty collecting such data, resulting in likely data gaps.924 Commenters also asserted that the methodologies underlying the measurement and reporting of Scope 3 emissions are still too uncertain and expressed concerns about the reliability of Scope 3 emissions disclosure.925 In light of these concerns, commenters stated that the compliance burden associated with Scope 3 emissions disclosure would be costly to registrants and that such costs were likely to exceed the benefit to investors.926 Relatedly, one commenter raised concerns that Scope 3 emissions disclosure would not meet the materiality threshold for any registrant because of the challenges in calculating Scope 3 emissions in a reliable and consistent manner.927

and, if it retains the requirement, then it should provide guidance around determining the materiality of Scope 3 emissions as well as more explicit standards to calculate Scope 3 emissions for key industries. See letter from SFERS. 928See letter from Amazon. 929See id. 930See, e.g., letters from API; Atlas Sand Company, LLC (June 17, 2022) (‘‘Atlas Sand’’); Bipartisan Policy; Brigham Exploration (June 17, 2022); Chamber; ConocoPhillips; Dimensional Fund; Independent Petroleum Association of New Mexico (June 17, 2022); Iowa Commissioner of Insurance (June 13, 2022); and Soc. Corp. Gov. 931See, e.g., letters from API; Dimensional Fund Advisors; and Soc. Corp. Gov. 932See, e.g., letters from API; Chamber; and ConocoPhillips. According to commenters, confusion could result from the fact that the EPA’s Greenhouse Gas Reporting Program (‘‘GHGRP’’) requires the disclosure of emissions by individual source whereas the Commission’s proposed rules would require the disclosure by company; see also discussion infra notes 2593–2595 and accompanying text. As noted in section IV.A.3, we estimate that approximately 365 registrants had an ownership stake in facilities that reported to the GHGRP in 2022; see infra note 2596 and accompanying text. 933See infra sections IV.C.3.b.ii and iii for more information on specific cost estimates provided by commenters. 934See infra section IV.A.5c (citing statistics in the 2021 TCFD Status Report and a Moody’s Analytics analysis of TCFD reporting of 2020/21 public disclosures showing that only 21% of North American companies and 19% of U.S. companies reported their Scopes 1 and 2 emissions and, if appropriate, their Scope 3 emissions). 935See, e.g., letters from API; Atlas Sand; Bipartisan Policy; Brigham Exploration; Chamber; ConocoPhillips; Independent Petroleum Association of New Mexico; and Iowa Commissioner of Insurance. 936See, e.g., letter from ConocoPhillips. 937See letter from Soc. Corp. Gov. 938See id. Specifically, the commenter noted that the proposed rules would require a registrant’s organizational boundaries to be consistent with the scope of entities included in its consolidated financial statements, whereas the GHG Protocol permits a company to choose between an equity share, operational control, or financial control method. The commenter also noted that the Commission’s proposed rules would require a company to disclose its GHG emissions both on a disaggregated and aggregated basis whereas the TCFD requires a company to disclose its Scopes 1 and 2 emissions, without specifying whether the disclosure must be on a disaggregated basis. According to the commenter, these differences could result in an increased compliance burden for a registrant. We discuss additional commenter input on these differences below. 939See id; see also Bipartisan Policy; Brigham Exploration; Chamber; D. Burton, Heritage Fdn.; and the National Association of Convenience Stores (June 8, 2022). 940See, e.g., letter from Airlines for
America. 941See letter from Joseph A. Grundfest, William A. Franke Professor of Law and Business, Stanford Law School (June 15, 2022) (‘‘Grundfest’’); see also letters from Joseph A. Grundfest, Professor of Law and Business (emeritus), Stanford Law School (Oct. 9, 2023); and Devon S. Wilson (Sept. 7, 2023). 942Letter from Grundfest. 943See id. As previously noted, California has since enacted a mandatory emissions reporting regime. See supra section II.A. One commenter supported the disclosure of Scope 3 emissions but only for activities, such as business travel, over which a registrant has influence or indirect control.928 This commenter also recommended adopting a safe harbor for Scope 3 emissions modeled on the PSLRA safe harbors and treating Scope 3 emissions disclosure as furnished rather than filed because of the ‘‘inherent uncertainty’’ in the estimates and assumptions underlying Scope 3 emissions disclosure.929 Many commenters, however, generally opposed the proposed mandatory GHG emissions disclosure requirement, including the disclosure of Scopes 1 and 2 emissions.930 Commenters stated that because the proposed disclosure of Scopes 1 and 2 emissions would require such disclosure even when a registrant has not determined climate-related risks to be material, the proposed GHG emissions disclosure requirement may not result in decision-useful information for investors.931 Commenters also stated that because the registrants producing 85 to 90 percent of the emissions in the United States already report their emissions pursuant to the EPA’s Greenhouse Gas Reporting Program, the Commission’s proposed emissions disclosure requirements are unnecessary and the resulting emissions data potentially confusing for investors.932 Further, commenters opposed the GHG emissions disclosure requirement because of the expected high compliance costs, which they believed the Commission had underestimated.933 One commenter further indicated that, although the Commission had stated that many companies were already disclosing their GHG emissions, according to a number of studies, most registrants have not yet measured and reported their Scopes 1 and 2 emissions, let alone their Scope 3 emissions.934 Commenters also expressed concerns, in connection with registrants’ disclosure of Scope 3 emissions, regarding compliance costs involving private companies, which comprise a large percentage of many registrants’ value chains or joint ventures, and which, through the influence of those registrants, would be compelled to measure and report their GHG emissions for the first time.935 Some of these commenters asserted that registrants would likely incur costs to renegotiate contracts with these third parties to obtain the GHG emissions data required to comply with the proposed rules.936 Another commenter stated that third parties that are unwilling or unable to provide their GHG emissions to registrants could eventually be excluded from consideration for contracts to
provide goods or services to registrants, which could diminish opportunities for these third-parties, which may often be smaller businesses.937 In addition, commenters stated that, even if registrants are already voluntarily disclosing their Scopes 1 and 2 emissions pursuant to the GHG Protocol, those registrants will incur an increased compliance burden if the Commission was to adopt the proposed GHG emissions disclosure requirement, because of differences between the Commission’s proposed requirement and the GHG Protocol and the TCFD.938 These commenters also shared many of the concerns about the proposed Scope 3 emissions disclosure provision discussed above, including the difficulties of collecting emissions data from third parties in its value chain, the unreliability of reported data stemming from third parties’ lack of sophisticated data collection technologies and the use of proxy data to fill data gaps, and the absence of a fully developed and uniformly accepted methodology to report Scope 3 emissions. According to commenters, these concerns would increase compliance costs and raise a registrant’s liability exposure so that the total cost of the Scope 3 emissions disclosure would likely exceed its benefit.939 Because of the difficulties and uncertainties involved in Scope 3 emissions disclosure, some commenters recommended that the reporting of Scope 3 emissions should remain voluntary.940 One commenter presented an alternative to the proposed GHG emissions requirement.941 This commenter stated that, rather than adopting the proposed GHG emissions disclosure requirement, the Commission should ‘‘mandate reporting, on a standardized form, of emissions data that registrants are required to disclose publicly pursuant to other federal, state, or foreign regulations.’’ This commenter also stated that the alternative set of rules ‘‘would, in effect, integrate the existing EPA reporting regime with the SEC’s disclosure system in a manner that would be easier for investors and registrants to access and analyze.’’ 942 This commenter further stated that approximately 40 foreign countries already require various forms of emissions disclosures, and that California and other states are considering the adoption of their own mandatory emissions reporting regimes.943 According to this commenter, the alternative set of rules ‘‘would efficiently integrate, aggregate, and collate those disclosures on a single form available to all investors through

944See letter from Grundfest. 945See, e.g., letters from D. Burton, Heritage Fdn.; J. Herron; ICI; Morningstar; and TotalEnergies. 946See, e.g., letters from BDO USA, LLP (June 17,
2022) (‘‘BDO USA’’); D. Burton, Heritage Fdn.; and
Volta Inc. (June 15, 2022) (‘‘Volta’’). 947See, e.g., letters from AGs of Cal. et al. (recommending requiring SRCs that have adopted transition plans with Scope 3 emissions reductions to report on those emissions); Amer. for Fin. Reform, Sunrise Project et al.; CalSTRS; CEMEX; Center Amer. Progress (stating that at a minimum, the final rule should establish a date in the future, such as fiscal year 2026 (filed in 2027), when small companies would be required to begin reporting Scope 3 emissions); Center for Sustainable Business at the University of Pittsburgh (June 17, 2022) (‘‘CSB’’) (recommending requiring universal disclosure of Scope 3 emissions in 3–5 years of effectiveness of the final rule); and PwC (recommending requiring SRCs that have included Scope 3 emissions in their targets and goals to disclose those emissions). 948See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; and Center Amer. Progress. 949See letters from CalSTRS; Center Amer. Progress; and J. McClellan. 950See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; ICI; and Soros Fund. 951See, e.g., letters from BIO; Davis Polk; Grant Thornton; D. Burton, Heritage Fdn.; J. Herron; Nasdaq, Inc. (June 14, 2022) (‘‘Nasdaq’’); Shearman Sterling; and SBCFAC Recommendation. 952See, e.g., letters from Davis Polk; and Grant Thornton. 953See, e.g., letters from ICI; PwC; and Soros. 954See, e.g., letters from PwC; and WRI. 955See, e.g., letters from Amer. for Fin. Reform, Sunrise Project et al.; As You Sow; and Wellington Mgmt. 956See, e.g., letters from Calvert; Fidelity; C. Howard; Impax Asset Mgmt.; and Morningstar. 957See, e.g., letters from ABA; ERM CVS; Sullivan Cromwell; and T Rowe Price. 958See, e.g., letters from ABA; Sullivan Cromwell; and T Rowe Price. 959See, e.g., letters from Cleary Gottlieb; Deloitte & Touche; and Walmart. 960See letter from Amazon. 961See letter from CEMEX. 962See, e.g., letters from CalPERS; Calvert; Impax Asset Mgmt.; and WRI. 963See, e.g., letters from CalPERS; and WRI. 964See letter from ABA. 965See, e.g., letters from ABA; D. Hileman Consulting; ERM CVS; and Futurepast (June 16, 2022). 966See, e.g., letters from Alphabet et al.; As You Sow; Beller et al.; CalSTRS; CFA; Dell; Deloitte & Touche; Engine No. 1; ERM CVS; KPMG; Morningstar; Soc. Corp. Gov.; and WRI. 967See, e.g., letters from Alphabet et al.; Beller et al.; Deloitte & Touche; and KPMG; see also Soc. Corp. Gov (stating that because many registrants use the operational control method, the proposed GHG emissions requirement would not only require unnecessary additional time, effort, and resources and present significant challenges, but it would also generate discrepancies between earlier-reported data and data disclosed pursuant to the proposed rule). See also discussion supra note 938. documents provided to the Commission.’’ 944 Some commenters supported the proposed exemption from Scope 3 emissions reporting for SRCs.945 Some commenters also supported
exempting SRCs from the requirement to disclose Scopes 1 and 2 emissions because, in their experience, SRCs have not historically tracked their GHG emissions and exempting SRCs from a GHG emissions reporting requirement would be consistent with a scaled disclosure regime for such issuers.946 Other commenters, however, opposed exempting all SRCs from the proposed Scope 3 emissions disclosure requirement.947 Commenters stated that investors need climate-related disclosures from SRCs because SRCs are as exposed to climate-related risks as larger issuers, including risks stemming from their value chains.948 Commenters also stated that because many large companies obtain climate-related data (e.g., Scopes 1 and 2 emissions data) from small companies in their value chains, exempting SRCs from climate￾related disclosures could hamper larger registrants from accurately assessing their Scope 3 emissions.949 Instead of, or in addition to, an exemption from Scope 3 reporting, some commenters recommended providing a longer transition period for SRCs.950 Some commenters recommended that the Commission exempt EGCs from the proposed rules, including GHG emissions reporting requirements, or at least provide them with the same accommodations as SRCs.951 Commenters stated that the large compliance costs of the proposed rules would likely deter many potential EGCs from going public.952 Other commenters opposed exempting EGCs from the proposed rules because such companies, like SRCs, may be exposed to climate￾related risks.953 b. Presentation of the GHG Emissions Metrics and Underlying Methodologies and Assumptions Commenters expressed mixed views on the proposed requirement to disclose GHG emissions on both an aggregated and disaggregated basis. Some commenters supported the proposed requirement because each constituent gas may be subject to differing regulations and presents its own set of risks, which aggregated disclosure, by itself, would conceal.954 Other commenters supported the proposed requirement because it would standardize the GHG emissions disclosure and help investors compare the GHG emissions data when making their risk assessments regarding a registrant.955 Still other commenters supported the proposed requirement because it is consistent with the GHG Protocol and would generally enhance the transparency of GHG emissions disclosure, which they viewed as fundamental for investors because it helps investors understand the financial impacts that transition risk may have on a registrant’s business and financial condition, including on its liquidity and capital resources.956 Other commenters, however, opposed the proposed requirement to disclose GHG emissions on a disaggregated basis because they believe it would impose additional costs without necessarily resulting in material disclosure.957 Several of these commenters stated that a registrant should only be required to disclose disaggregated data for constituent gases that are material.958 Other
commenters opposed the proposed requirement because it would be difficult to obtain the necessary data for each constituent gas, particularly for Scopes 2 and 3 emissions.959 One commenter stated that the proposed disaggregated disclosure requirement would not be compatible with certain industry standard life cycle assessment models.960 Another commenter opposed a disaggregated disclosure requirement for GHG emissions unless a registrant’s particular industry required such disclosure.961 Many commenters supported the proposed requirement to describe the methodology, significant inputs, and significant assumptions used to calculate a registrant’s GHG emissions metrics.962 Commenters stated that such disclosure is necessary to place the GHG emissions data in context and to help investors properly understand and interpret the reported emissions information and associated risks.963 One commenter, however, opposed the proposed requirement, asserting that it would require extensive disclosure of information that is unlikely to be material to investors and will require significant additional effort by registrants.964 Other commenters opposed a requirement to disclose the emission factors used when calculating GHG emissions because, in their view, such disclosure would be burdensome to produce and of limited use by investors.965 Many commenters stated that a registrant should be required to calculate its GHG emissions pursuant to the GHG Protocol because the GHG Protocol’s methodologies have been widely accepted and requiring their adherence would promote comparability.966 Several of these commenters further recommended that the Commission allow registrants to follow the GHG Protocol’s methodology regarding setting organizational boundaries 967 instead of the proposed requirement to base a registrant’s organizational boundaries on the

968See letter from Alphabet et al. 969See letters from Futurepast (referencing ISO 14064–1, Specification with guidance at the organization level for quantification and reporting of greenhouse gas statements and ISO 14067, Carbon footprint of products—Requirements and guidelines for quantification); and International Organization for Standardization (ISO) Committee on GHG and Climate Change Management (June 13,
2022) (‘‘ISO Comm. GHG’’).
970See, e.g., letters from AllianceBernstein; Amer. for Fin. Reform, Sunrise Project et al.; As You Sow; CalPERS; Etsy; C. Howard; ICCR; KPMG; and Wellington Mgmt. 971See, e.g., letters from Anthesis Group; As You Sow; CEMEX; Domini Impact; ICI; IATP; KPMG; PRI; and Wellington Mgmt. 972See, e.g., letters from Amer. For Fin. Reform, Sunrise Project et al.; Ceres; and ICCR. 973See, e.g., letters from AllianceBernstein; CalPERS; and ERM CVS. 974See, e.g., letters from Airlines for America; International Air Transport Association (June 17,
2022) (‘‘IATA’’); and SIFMA (each opposed to a
requirement to solely disclose GHG emissions in gross terms and supporting GHG emissions disclosure both in gross and net terms); see also letter from J. Weinstein (opposed to any requirement to exclude carbon offsets when disclosing GHG emissions). 975See letters from Airlines for America; and SIFMA. 976See, e.g., letters from Amazon; BOA; CalPERS; D. Hileman Consulting; C. Howard; Morningstar; PIMCO; and PRI. 977See, e.g., letters from Amazon; BOA; and PIMCO. 978See, e.g., letters from BOA; and PRI. 979See letter from BOA. 980See, e.g., letters from Amazon (stating that an intensity metric based on ‘‘gross merchandise sales’’ should be an appropriate unit of production); ERM CVS (stating that an intensity metric based on unit of production should be required where possible); and C. Howard. 981See, e.g., letters from BOA (stating that registrants should be permitted to use GHG intensity metrics specified under the TCFD framework or incorporated into the Partnership for Carbon Accounting Financials’ Global GHG Accounting & Reporting Standard used by banks and other financial institutions); and NAM (supporting increased flexibility that would allow companies to choose and disclose a single GHG intensity metric, or to forgo intensity reporting, depending on the metrics’ relevance to their operations and emissions). 982See, e.g., letters from ABA; PwC; SIFMA; and Sullivan Cromwell. 983See letters from ABA; and Sullivan Cromwell. 984See letters from ABA; PwC; SIFMA; and Sullivan Cromwell. 985See, e.g., letters from CEMEX; PwC; and SIFMA. 986See, e.g., letters from C2ES; CEMEX; D. Hileman Consulting; ERM CVS; KPMG; PWC; and WSP. 987See letter from Cemex. 988See letters from PWC; and KPMG (supporting the use of estimates generally because the measurement of emissions usually includes many estimates, assumptions, and extrapolations of data); see also letter from BIO (supporting maximum flexibility in the reporting of GHG emissions because ‘‘the current ecosystem of GHG emission reporting is ‘evolving and unique’ and in some cases may warrant the use of varying methodologies, differing assumptions, and a substantial amount of estimation’’). 989See letter from C2ES. entities included in its consolidated financial statements. One of these commenters stated that because many registrants use the ‘‘operational control’’ approach permitted under the GHG Protocol, allowing such registrants to continue to follow the GHG Protocol in this regard would mitigate the compliance burden of GHG emissions disclosure because those registrants would not be required to implement a different approach, in particular, regarding equity method investees.968 Some commenters, however, stated that a registrant should be permitted to follow other climate-related standards, such as certain International Organization for Standardization (ISO) standards, used by some companies when calculating their GHG emissions.969 Several commenters supported the proposed requirement to disclose
gross emissions by excluding any purchased or generated carbon offsets.970 Commenters stated that requiring the disclosure of gross emissions would enable investors to gain a full picture of a registrant’s emissions profile and better assess its transition risk exposure.971 Some commenters also pointed to perceived problems in carbon offset markets regarding the quality and permanence of offsets when supporting a gross emissions disclosure requirement.972 Other commenters stated that a registrant should be required to disclose both a total amount with, and a total amount without, the use of offsets for each scope of emissions because such disclosure would increase transparency on offset use, which is critical to understanding how a registrant is managing transition risk to its business.973 Some commenters, however, opposed the proposed requirement to exclude carbon offsets when disclosing GHG emissions.974 These commenters stated that the purchase of carbon offsets is a legitimate means for a registrant to reduce its carbon emissions and expressed the view that high-quality carbon offsets should play a significant role in a transition to a lower carbon economy.975 A number of commenters supported the proposed requirement to disclose GHG emissions in terms of GHG intensity.976 These commenters stated that investors would find the disclosure of GHG intensity useful because it would help them assess a registrant’s progress in achieving its emissions management and reduction goals, put in context its emissions in relation to its scale, and facilitate comparing the registrant’s emissions efficiency with other registrants in the same industry.977 Some commenters also noted that the TCFD recommends the disclosure of GHG emissions both in absolute terms and terms of intensity because each metric serves a different purpose.978 For example, one commenter stated that the disclosure of emissions in absolute terms provides necessary baseline emissions data whereas normalizing the data using an intensity metric allows for a focus on emissions efficiency per unit of production relevant to the registrant’s industry.979 While some commenters supported the proposed requirement to disclose GHG intensity in terms of both metric tons of CO2e per unit of total revenue and per unit of production relevant to the registrant’s industry,980 other commenters recommended making the final rules more flexible by expressly permitting registrants to use other GHG intensity metrics.981 Some commenters, however, opposed the proposed GHG intensity disclosure requirement.982 These commenters stated that the proposed requirement to disclose a registrant’s GHG emissions per unit of total revenue was unnecessary because investors can easily calculate this metric from a registrant’s gross GHG emissions divided by its total revenues.983 Some commenters further stated that the proposed requirement to disclose a registrant’s GHG emissions per unit of production would be unworkable for many
registrants with different product lines, even within the same industry, and would not result in comparable disclosure for investors.984 Consequently, according to these commenters, GHG intensity disclosure should only be voluntary.985 Several commenters supported the proposed provision that would allow 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.986 One commenter stated that the proposed provision would encourage the disclosure of GHG emissions.987 Other commenters supported the proposed provision because the reporting of GHG emissions often relies on the use of estimates, such as emission factors and location-based data.988 Another commenter stated that, while the use of estimates would primarily be needed for the disclosure of Scope 3 emissions, in certain instances registrants may need to estimate their Scope 1 and 2 emissions if they are not able to access the necessary information.989 One other commenter stated that the use of

990See letter from ERM CVS.
991See, e.g., letters from Morningstar; Salesforce; Unilever; and WRI. 992See, e.g., letters from Alphabet et al.; ABA; BHP; BlackRock; BOA; BP; Chamber; Citigroup; Cleary Gottlieb; Dell; D. Hileman Consulting; NAM; PwC; SIFMA; and T Rowe Price. 993See, e.g., letters from Alternative Investment Management Association (June 17, 2022) (‘‘AIMA’’); CalPERS; CEMEX; Eni SpA; Morningstar; TotalEnergies; and XBRL US (June 17, 2022). 994See, e.g., letters from AIMA; CEMEX; and XBRL US. 995See letter from XBRL US. 996See, e.g., letters from ABA; ACLI; Amer. Bankers; Blackrock; Can. Bankers; Chamber; ConocoPhillips; GM; HP; Hydro One; Microsoft; NAM; Nareit; Nasdaq; NMA; NRF; Prologis (June 17, 2022); Real Estate Board of New York (June 15,
2022) (‘‘Real Estate NY’’); SIFMA; Soc. Corp. Gov.;
Walmart; and Williams Cos.
997Commenters also expressed timing concerns regarding the proposed requirement to include the GHG emissions disclosure in a Securities Act or Exchange Act registration statement. In particular, commenters raised concerns with applying the proposed climate disclosure rules to registrants in initial public offerings or to companies that are the target of a Form S–4 or F–4 transaction. We discuss these comments in section II.L below. 998See, e.g., letters from ABA; BlackRock; Chamber; GM; SIFMA; and Soc. Corp. Gov. 999See, e.g., letters from Alphabet et al. (recommending inclusion in a separate form filed no earlier than 180 days after fiscal year-end); BlackRock (recommending inclusion in a new form due 120 days after fiscal year-end); Chamber (recommending inclusion in a form due no earlier than 180 days after fiscal year-end); D. Hileman Consulting (recommending inclusion in a form due by May 31st in the subsequent fiscal year); NAM (recommending inclusion in a form due no earlier than the end of the second quarter in the subsequent fiscal year); and T Rowe Price (recommending inclusion in a form due 120 days after fiscal year-end). 1000See, e.g., letters from ABA (recommending inclusion in the Form 10–Q for the first quarter in the subsequent fiscal year or in a Form 6–K furnished at a comparable time); BOA (recommending inclusion no later than the due date for the Form 10–Q for the second quarter in the subsequent fiscal year); and SIFMA (recommending inclusion in the Form 10–Q for the second quarter in the subsequent fiscal year or in a Form 6–K furnished at a comparable time). 1001See letter from Cleary Gottlieb. 1002See, e.g., letters from Blackrock; and GM (suggesting alignment with GHG emissions reporting deadline of other agencies (90–120 days after fiscal year-end)). 1003See, e.g., letters from ACLI; Can. Bankers; Chamber; HP; Nareit; NMA; Soc. Corp. Gov.; Sullivan Cromwell (recommending 180 days after fiscal year-end deadline for all climate disclosures). 1004See, e.g., letter from ABA. 1005See, e.g., letters from NAM (recommending that GHG emissions be disclosed in separate report that is aligned with due date for 2nd fiscal quarter Form 10–Q); and SIFMA. 1006See, e.g., letters from ABA; Chamber; GM; HP; NAM; NMA; and Soc. Corp. Gov. 1007See, e.g., letters from ABA; Can. Bankers; Chamber; GM; HP; Microsoft; NAM; Nareit; and Soc. Corp. Gov. 1008See, e.g., letters from AGs of Cal. et al.; AllianceBernstein; CalPERS; CalSTRS; IAA; Miller/ Howard; Morningstar; Trillium; and Wellington Mgmt. 1009See supra notes 933 to 935 and accompanying text. 1010See supra notes 924–925 and accompanying text. 1011The concept of scopes was developed as part of the GHG Protocol. See World Business Council for Sustainable Development and World Resources Institute, GHG Protocol, Corporate Accounting and Reporting Standard (2004), available at https:// ghgprotocol.org/sites/default/files/standards/ghg￾protocol-revised.pdf. We understand that some estimates
should not be permitted when actual data is available.990
c. Timeline for Reporting GHG
Emissions Metrics
Some commenters supported the proposed requirement to provide 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.991 Other commenters, however, stated that the GHG emissions disclosure requirement should be applied initially only to the most recently completed fiscal year following the date of compliance, with GHG emissions disclosure for historical periods required prospectively only.992 Several commenters supported the proposed requirement to disclose a registrant’s GHG emissions as of fiscal year-end in its corresponding Exchange Act annual report.993 Commenters stated that the proposed timeline for reporting a registrant’s GHG emissions should be consistent with the timeline for its financial reporting to maximize the use of the GHG emissions data and to enhance the data’s comparability.994 One commenter further stated that the timing of a registrant’s emissions data disclosure should be coincident with its financial statement data reporting because the objective of reporting climate-related data for investors is to understand the correlation with financial performance.995 Many other commenters 996 opposed the proposed requirement to disclose GHG emissions metrics in a registrant’s Exchange Act annual report.997 Commenters stated that, because of the difficulty required to calculate, verify, and disclose a registrant’s GHG emissions, and because much of the necessary data for such disclosure does not become available along the same timeline as its other Exchange Act annual reporting requirements, the Commission should permit a registrant to provide its GHG emissions disclosure sometime after the Exchange Act annual report deadline.998 Commenters recommended that the Commission permit registrants to include the GHG emissions disclosure either in a separate report that would be due later than the deadline for filing their annual report on Form 10–K or Form 20–F,999 in a Form 10–Q or Form 6–K filed subsequent to the due date for the Exchange Act annual report,1000 or in an amendment to the Exchange Act annual report.1001 Commenters recommended varying deadlines for reporting GHG emissions, such as 120 days 1002 or 180 days following the end of its most recently completed fiscal year,1003 or the due date for the Form 10–Q for the registrant’s first 1004 or second fiscal quarter.1005 Commenters further stated that providing a later deadline for GHG emissions disclosure would better align with the GHG emissions reporting required by other administrative agencies.1006 In addition, commenters stated that providing a later deadline for GHG emissions disclosure would be preferable to the proposed use of a fourth quarter estimate, which would likely require an additional submission that would be burdensome for
registrants and potentially confusing for investors.1007
3. Final Rule
a. Overview of the GHG Emissions Disclosure Requirement As many commenters have indicated, investors view information about a registrant’s GHG emissions, including its Scopes 1 and 2 emissions, as a central measure and indicator of the registrant’s exposure to transition risk as well as a useful tool for assessing its management of transition risk and understanding its progress towards a registrant’s own climate-related targets or goals.1008 Because such information can be necessary to inform an investor’s understanding of the overall impact of transition risk and related targets and goals on a registrant’s business, results of operations, financial condition, and prospects, the final rules include a Scopes 1 and 2 emissions disclosure requirement (Item 1505), although modified from the rule proposal. We recognize commenters’ concerns about the potentially high cost of compliance associated with the proposed GHG emissions disclosure requirement, including Scopes 1 and 2 emissions,1009 as well as concerns about the current availability and reliability of the underlying data for Scope 3 emissions.1010 To help address these concerns, instead of requiring, as proposed, the disclosure of Scopes 1 and 2 emissions by all registrants regardless of their materiality, the final rules will require the disclosure of Scope 1 emissions and/or Scope 2 emissions metrics 1011 by LAFs and AFs

registrants may measure their GHG emissions pursuant to other well-established standards, such as ISO 14064 and related ISO standards, which do not refer to scopes. For the purposes of the final rules, we have defined ‘‘Scope 1 emissions’’ and ‘‘Scope 2 emissions,’’ respectively, as a registrant’s direct emissions and indirect emissions largely from the generation of purchased or acquired electricity consumed by the registrant’s operations. We intend these definitions to include substantially similar emissions as those measured pursuant to the ISO standards. Accordingly, registrants have flexibility to leverage standards of their choice in calculating and disclosing GHG emissions metrics required by the final rules, including the GHG Protocol or relevant ISO standards, or other standards that may be established over time. 1012As discussed in section II.O below, LAFs will have a one-year transition period before they are required to comply with the final rule’s GHG emissions disclosure requirements. AFs that are not SRCs or EGCs will be required to comply with the final rule’s GHG emissions disclosure requirements two years following the GHG emissions compliance date for LAFs. 1013See 17 CFR 229.1505(a)(1). To the extent Scope 1 and/or 2 emissions disclosure are required under the final rules, 17 CFR 230.409 or 17 CFR 240.12b–21, which provide accommodations for information that is unknown and not reasonably available, would be available if its conditions are met. 1014See supra note 916 and accompanying text. 1015See id. 1016Although the TCFD has reported a significant increase in the number of companies that have publicly disclosed their GHG emissions across the globe in recent years, a minority of North American and U.S. companies have done so. The TCFD recently reported that only 30% of North American companies surveyed reported their Scopes 1, 2, and 3 emissions in 2021. See TCFD, supra note 768. 1017 If a registrant is an LAF or an AF other than an SRC or EGC and its Scope 1 emissions are material but its Scope 2 emissions are not material, then, under the final rules, the registrant must disclose its Scope 1 emissions and is not required to disclose its Scope 2 emissions (and vice versa if its Scope 2 emissions are material but its Scope 1 emissions are not). If a registrant’s Scope 1 and Scope 2 emissions both are material, then it must disclose both categories of emissions. 1018See, e.g., supra note 381 and accompanying text. 1019See supra section II.A.3 (discussing adoption of the ISSB climate disclosure standard and the foreign jurisdictions that intend to implement the standard and California’s recently adopted laws requiring certain large corporations to disclose their GHG emissions metrics and their climate-related financial risks). 1020See, e.g., Simone Foxman, The Electric Revolution Is Coming for Your Lawn Mower, Bloomberg (Nov. 20, 2023), available at https://
www.bloomberg.com/news/articles/2023-11-20/gas￾lawn-care-ban-in-california-tests-electric-leaf￾blower-appeal. 1021See id. 1022See letter from Grundfest. 1023See infra section IV.C.2.e. that are not SRCs or EGCs, on a phased in basis,1012 if such emissions are material.1013 As commenters have noted, some registrants already measure their GHG emissions, typically Scopes 1 and 2 emissions,1014 and some use the data to manage their transition risk exposure or monitor their progress towards achieving climate-related targets and goals.1015 Many other registrants, however, have determined that climate is not a material risk to their business, or are not currently measuring their GHG emissions.1016 In balancing these considerations, we are not mandating Scopes 1 and/or 2 emissions disclosures from all registrants. Rather, under the final rule, if either or both of those categories of GHG emissions are material, and the registrant is an LAF or an AF other than an SRC or EGC, it must disclose its Scopes 1 and/or 2 emissions metrics.1017 As we stated when discussing a registrant’s determination of material impacts of climate-related risks, we intend that a registrant apply traditional notions of materiality under the Federal securities laws when evaluating whether its Scopes 1 and/or 2 emissions are material.1018 Thus, materiality is not determined merely by the amount of these emissions. Rather, as with other materiality determinations under the Federal securities laws and Regulation S–K, the guiding principle for this determination is whether a reasonable investor would consider the disclosure of an item of information, in this case the registrant’s Scope 1 emissions and/or its Scope 2 emissions, important when making an investment or voting decision or such a reasonable investor would view omission of the disclosure as having significantly altered the total mix of information made available. A registrant’s Scopes 1 and/or 2 emissions may be material because their calculation and disclosure are necessary to allow investors to understand whether those emissions are significant enough to subject the registrant to a transition risk that will or is reasonably likely to materially impact its business, results of operations, or financial condition in the short- or long-term. For example, where a registrant faces a material transition risk that has manifested as a result of a requirement to report its GHG emissions metrics under foreign or state law 1019 because such emissions are currently or are reasonably likely to be subject to additional regulatory burdens through increased taxes or financial penalties, the registrant should consider whether such emissions metrics are material under the final rules. A registrant’s GHG emissions may also be material if their calculation and disclosure are necessary to enable investors to understand whether the registrant has made progress toward achieving a target or goal or a transition plan that the registrant is required
to disclose under the final rules. Conversely, the fact that a registrant is exposed to a material transition risk does not necessarily result in its Scope 1 and Scope 2 emissions being de facto material to the registrant. For example, a registrant could reasonably determine that it is exposed to a material transition risk for reasons other than its GHG emissions, such as a new law or regulation that restricts the sale of its products based on the technology it uses, not directly based on its emissions.1020 Such a risk may trigger disclosure under other provisions of subpart 1500 but may not necessarily trigger disclosure of Scope 1 and Scope 2 emissions information under Item 1505.1021 This revised approach to GHG emissions disclosure will provide investors with information they need to make informed investment and voting decisions while addressing concerns regarding the disclosure of GHG emissions data that may be immaterial. This approach will also limit the compliance costs of the final rules, as it will not require disclosure of GHG emissions data where such data is immaterial. Basing the GHG emissions disclosure requirement on traditional notions of materiality, which are fundamental to U.S. securities laws and the Commission’s securities regulation, is more appropriate than a requirement that relies on GHG emissions disclosure laws or regulations required by other Federal agencies and foreign or state jurisdictions, as one commenter recommended.1022 Those other laws or regulations may be adopted to serve other purposes and may be presented without the additional disclosures that supplement the ‘‘total mix’’ of information investors need for context and to understand why the GHG emissions information is material. We acknowledge, however, that registrants could incur costs to assess and monitor the materiality of their emissions, even in situations in which they ultimately determine that they do not need to provide disclosure, and that for some registrants these costs could be significant, especially if firms are not already tracking this information for internal purposes.1023 Mindful of these costs, we are further limiting the GHG emissions disclosure requirement to LAFs and AFs that are not SRCs or EGCs and on a phased in basis. These further limitations will help ensure that any registrants potentially subject to the final rule have sufficient resources and time to prepare for what we

1024As discussed below, neither EGCs nor SRCs will be required to disclose their Scopes 1 and 2 emissions under the final rules. See 17 CFR 229.1505(a)(3)(i). 1025See 17 CFR 229.1505(a)(2)(i). 1026See supra note 957 and accompanying text. 1027See 17 CFR 229.1505(a)(2)(i). 1028For example, the EPA recently adopted a new regulation to curb methane emissions, which could be a source of transition risk for some registrants. See EPA, EPA’s Final Rule for Oil and Natural Gas Operations Will Sharply Reduce Methane and Other Harmful Pollution (Dec. 2, 2023), available at https://www.epa.gov/controlling-air-pollution-oil￾and-natural-gas-operations/epas-final-rule-oil-and￾natural-gas. 1029See Proposing Release, section II.G.1. 1030See 17 CFR 229.1505(a)(2)(ii). While the rule specifies that gross emissions should be calculated without taking into account any purchased or generated offsets, the extent to which a registrant will exclude RECs from its gross emissions will depend on the methodology the registrant chooses to use. As described in the Proposing Release,
section II.G.2., there are two common methods for
calculating Scope 2 emissions: the market-based method and the location-based method. The market-based method may involve the use of RECs. See 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. A registrant is required to describe its methodology, and in the case of Scope 2 emissions, it should include a description of whether and how RECs factor into its gross emissions calculation. 1031See, e.g., letters from ICI; and Wellington Mgmt. 1032See California Legislative Information, Assembly Bill No. 1305, Voluntary carbon market disclosures (Oct. 7, 2023), available at https:// leginfo.legislature.ca.gov/faces/ billTextClient.xhtml?bill_id=202320240AB1305. 1033See Proposing Release, section II.G.2. 1034See 17 CFR 229.1505(b)(1). 1035See, e.g., letters from ABA; Chamber; SIFMA; and Soc. Corp. Gov. 1036Like the rule proposal, the final rule defines ‘‘organizational boundaries’’ to mean the boundaries that determine the operations owned or controlled by a registrant for the purpose of calculating its GHG emissions. See 17 CFR 229.1500. 1037See Proposing Release, section II.G.2.a. acknowledge could be a significant additional compliance obligation.1024 We recognize that many commenters supported the proposed requirement for disclosure of Scopes 1 and 2 emissions for all registrants. Nevertheless, mindful of the attendant costs, we believe that the final rules present an appropriate means to achieve the primary benefits of GHG emissions disclosure, namely:
providing investors with material metrics that will aid in the assessment of transition risk for those registrants that have identified a material climate risk; and facilitating investors’ evaluation of a registrant’s progress towards achieving a material target or goal and the attendant effects on the registrant’s business, results of operations, or financial condition. While the final GHG emissions disclosure provision will not apply to as many registrants or achieve the same level of comparability as may have been achieved under the proposed rules, on balance, we believe that, coupled with the other disclosures required under subpart 1500 and the structured data requirements of the final rules, investors will have sufficient information to assess the operational and financial impact of transition risks and strategies on registrants and compare such impacts across registrants. b. Presentation of the GHG Emissions Metrics and Disclosure of the Underlying Methodologies and Assumptions In a change from the rule proposal, which would have required the disclosure of a registrant’s GHG emissions both disaggregated by each constituent GHG and in the aggregate, the final rule will require the disclosure of any described scope of emissions to be expressed in the aggregate in terms of CO2e.1025 This change is intended to address the concern of some commenters that the proposed approach would impose additional burdens and costs on registrants without necessarily resulting in material information for investors.1026 In addition, if a registrant is required to disclose its Scope 1 and/ or Scope 2 emissions, and any constituent gas of the disclosed emissions is individually material, it must also disclose such constituent gas disaggregated from the other gases.1027 For example, if a registrant has included a particular constituent gas, such as methane, in a GHG emissions reduction target that is disclosed pursuant to Item 1504(a) because it is reasonably likely to materially affect the registrant’s business, such constituent gas may be material and, therefore, required to be disclosed in disaggregated fashion. The required disaggregated disclosure of an individually material gas will help inform investors about the degree to which a registrant is exposed to transition risk as governments and markets may treat the individual GHG components differently.1028 As explained in the Proposing Release, requiring a standard unit of measurement for GHG emissions with which many registrants are familiar should simplify the disclosure for investors and enhance its comparability across registrants with different types of GHG emissions.1029 Consistent with the rule proposal, under the final rule, a registrant that is required to disclose its Scope 1 and/or Scope 2 emissions must disclose those emissions in gross terms by excluding the impact of any purchased or generated offsets.1030 As noted by some commenters, this requirement will enable investors to gain a more complete
understanding of the full magnitude of a registrant’s exposure to transition risk and to assess the extent to which a registrant relies upon purchased or generated offsets, if the registrant provides disclosure about the offsets pursuant to Item 1504, and better compare such exposure across registrants.1031 Information about the degree to which a registrant’s strategy relies on offsets is increasingly important for investors not only because their use exposes the registrant to offset market fluctuations but also because such use may indicate heightened transition risk exposure to the extent governments seek to regulate their use.1032 Also, similar to the rule proposal,1033 the final rule will require a registrant to describe the methodology, significant inputs, and significant assumptions used to calculate the registrant’s disclosed GHG emissions.1034 We continue to believe that this information is important to investors because it will help them understand GHG emissions disclosures by providing important contextual information, such as the scope of the entities included in the GHG emissions results that may be subject to transition risk, and inform comparability across registrants while also providing registrants with flexibility to determine the appropriate methodologies and assumptions to use based on their own facts and circumstances. However, we have modified the proposed requirement to provide registrants with greater flexibility to present this information in a manner that best fits with their particular facts and circumstances, as several commenters recommended.1035 For example, like the rule proposal, the final rule will require a registrant to disclose the organizational boundaries used when calculating its Scope 1 emissions and/or its Scope 2 emissions.1036 Unlike the rule proposal, however, which would have required a registrant to use the same scope of entities and other assets included in its consolidated financial statements when determining the organizational boundaries for its GHG emissions calculation,1037 the final rule provides that the registrant must disclose the method used to determine the organizational boundaries, and if the organizational boundaries materially differ from the scope of entities and operations included in the registrant’s consolidated financial statements, the registrant must provide a brief

1038See 17 CFR 229.1505(b)(1)(i).
1039See supra note 967 and accompanying text. 1040See supra notes 956 and 968 and accompanying text. 1041Like the rule proposal, the final rule defines ‘‘operational boundaries’’ to mean the boundaries that determine the direct and indirect emissions associated with the business operations owned or controlled by a registrant. See 17 CFR 229.1500. 1042See 17 CFR 229.1505(b)(1)(ii). 1043Emission 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. The EPA has published a series of commonly used emission factors. See 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. See also 17 CFR 229.1500 (definition of ‘‘emission factors’’). 1044See 17 CFR 229.1505(b)(1)(iii). 1045See supra note 969. 1046The market-based method and the location￾based method are two common methods for calculating Scope 2 emissions for purchased electricity. For a description of these methods, see World Resources Institute, GHG Protocol Scope 2 Guidance, Chapter 7, available at https:// files.wri.org/d8/s3fs-public/ghg-protocol-scope-2- guidance.pdf; and EPA Center for Corporate Climate Leadership, Scope 1 and Scope 2 Inventory Guidance, available at https://www.epa.gov/climate leadership/scope-1-and-scope-2-inventory￾guidance. 1047The 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. See 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. 1048See supra note 963 and accompanying text. 1049See supra note 964 and accompanying text. 1050See Proposing Release, section II.G.1. 1051See supra note 983 and accompanying text. 1052See 17 CFR 229.1505(b)(2). explanation of this difference in sufficient detail for a reasonable investor to understand. In addition, when describing its organizational boundaries, a registrant must describe the method used to determine those boundaries.1038 Under this approach, a registrant will have flexibility to use, for example, one of the methods for determining control under the GHG Protocol, including the operational control approach, as recommended by some commenters,1039 as long as it discloses the method used, and provides investors with information material to understanding the scope of entities and operations included in the GHG emissions calculation as compared to those included in its financial statements. We
have made this change to address widely shared concerns about the compliance burden and associated costs of the more prescriptive aspects of the rule proposal.1040 At the same time, requiring the registrant to provide a brief explanation of any material difference from the scope of entities and operations included in the consolidated financial statements will help avoid any potential confusion on the part of investors about the scope of entities included in the GHG emissions calculation and help them assess the extent of the registrant’s transition risk￾related financial impacts. Similarly, we have also streamlined the methodology disclosure provision by, for example, specifying that a brief discussion, in sufficient detail for a reasonable investor to understand, is required of the operational boundaries used,1041 including the approach to categorization of emissions and emissions sources.1042 This provision is intended to provide investors with a general understanding of how the registrant determined which sources of emissions to include when calculating its direct emissions (Scope 1) and indirect emissions (Scope 2) to facilitate investors’ understanding of the GHG emissions results and enhance their comparability across registrants while avoiding extensive disclosure that may be more burdensome for registrants to produce or investors to process. Whereas the rule proposal would have required the disclosure of the calculation approach, including any emission factors used and the source of the emission factors,1043 and any calculation tools used to calculate the GHG emissions, the final rule requires a brief description of, in sufficient detail for a reasonable investor to understand, the protocol or standard used to report the GHG emissions, including the calculation approach, the type and source of any emission factors used, and any calculation tools used to calculate the GHG emissions.1044 Rather than potentially requiring a lengthy explanation of the calculation approach used, this provision will require a registrant to disclose whether it calculated its GHG emissions metrics using an approach pursuant to the GHG Protocol’s Corporate Accounting and Reporting Standard, an EPA regulation, an applicable ISO standard,1045 or another standard. Pursuant to this provision, we would expect a registrant to also disclose whether it calculated its Scope 2 emissions using a particular method (which may differ from the method used to calculate Scope 1 emissions, to the extent both Scope 1 and 2 emissions are required to be disclosed under the final rules), such as the location-based method, market￾based method, or both.1046 Similarly, a registrant should disclose the identity of any calculation tools used, such as those provided by the GHG Protocol or pursuant to GHG emissions calculation under the ISO standards. In addition, by modifying the proposed requirement to disclose any emission factors used, we are clarifying that the final rule will not
require the disclosure of any quantitative emission factors used. Instead, the final rule will require a registrant to disclose the type and source of any emission factors used, such as the EPA’s emission factors for stationary combustion and/or mobile combustion of various fuel types.1047 Requiring a brief description of the protocol or standard used to calculate a registrant’s GHG emissions, together with the type and source of any emission factors used, will provide investors with information that is important to understanding the reported emissions data and associated risks 1048 without burdening registrants by requiring disclosure of detailed information that may not be material.1049 Such disclosure should assist investors in understanding the emission disclosures and promote consistency and comparability over time. For example, with the required disclosures, an investor will be able to evaluate the registrant’s selected emission factor(s) in the context of its operations and assess whether changes in reported emissions over time reflect changes in actual emissions in accordance with its strategy or simply a change in calculation methodology. Unlike the rule proposal, which would have required a registrant to disclose its GHG emissions in both absolute terms and terms of intensity,1050 under the final rule, registrants will not be required to disclose its GHG emissions in terms of intensity. As some commenters noted, the proposed intensity disclosure requirement is not necessary because investors should be able to calculate a registrant’s GHG emissions per unit of total revenue by dividing a registrant’s gross GHG emissions by its total revenues.1051 Eliminating the GHG intensity disclosure requirement will also help lower the final rules’ compliance burden. Although a registrant may choose to disclose its GHG emissions in terms of intensity, it is not required under the final rule. Like the rule proposal, the final rule provides 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.1052 This explanation will

1053See, e.g., letter from PWC. 1054See supra notes 924–925 and accompanying text. 1055See, e.g., letters from AllianceBernstein; CalPERS; Miller/Howard; Trillium; and Wellington Mgmt. 1056See supra section II.A.3. 1057See Proposing Release, section II.G.3. 1058See 17 CFR 229.1505(a)(3)(i). A registrant will be exempt from any requirement to disclose its GHG emissions for any fiscal year in which it qualified as an SRC. A registrant that previously qualified as an SRC also will be exempt from the GHG emissions disclosure requirements in the first fiscal year in which it no longer so qualifies because a registrant must reflect the determination of whether it came within the definition of smaller reporting company in its quarterly report on Form 10–Q for the first fiscal quarter of the next year, see 17 CFR 240.12b–2, which will be after the date of the annual report on Form 10–K in which the GHG emissions disclosure is required. This remains the case notwithstanding the permissibility under the final rules (as discussed infra Section II.H.3.d) of a registrant incorporating by reference its GHG emissions disclosures required in its Form 10–K from its Form 10–Q for the second quarter of that next fiscal year. 1059See supra notes 946 and accompanying text. 1060See, e.g., letter from BIO (When recommending adoption of additional exemptions for small companies from the proposed rules, this commenter stated that ‘‘67% of BIO members surveyed said that they currently do not report on carbon emissions, and a similar majority have significant concerns with the ability to collect and accurately report without significant liability.’’). 1061See 17 CFR 229.1505(a)(3)(ii). 1062Public Law 117–328, div. G, tit. IV, § 437, 136 Stat. 4459, 4831 (2022). 1063See 17 CFR 229.1505(a)(1). 1064For example, if a registrant becomes an LAF during the fiscal year, it is required to present these disclosures for the most recently completed fiscal year in which it became an LAF; however, it is not required to provide those disclosures for the prior fiscal years included in its filing when it was not an LAF, to the extent that information was not previously required to be disclosed. 1065See supra note 992 and accompanying text. 1066See infra section II.K. help investors understand and assess the GHG emissions disclosures and facilitate comparability across registrants. 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. We also recognize that it is common practice under various GHG emissions reporting methodologies to use estimates, such as emission factors, when calculating a company’s Scopes 1 and 2 emissions.1053 A registrant may use reasonable estimates under the final rule as long as it describes the underlying assumptions and explains its reasons for using the estimates. Allowing for the use of reasonable estimates with an explanation will help lower the compliance
burden for a registrant that must disclose its GHG emissions without, in our view, unduly undermining comparability and reliability of the GHG emissions metrics disclosure.
c. Exclusions From the GHG Emissions
Disclosure Requirement
We are not adopting a provision that would require a registrant to disclose its Scope 3 emissions at this time. We are mindful of the potential burdens such a requirement could impose on registrants and other parties as well as questions about the current reliability and robustness of the data associated with Scope 3 emissions, as noted by commenters.1054 However, we also recognize that, as some commenters indicated, disclosure of a registrant’s Scope 3 emissions, including emissions from its suppliers (i.e., upstream emissions) and its customers or consumers (i.e., downstream emissions), or at least from those parties in its value chain that have significant emissions, may allow investors to develop a fuller picture of the registrant’s transition risk exposure and evaluate and compare investment risks across registrants more thoroughly.1055 Moreover, because many registrants will be required to disclose their Scope 3 emissions under foreign or state law or regulation,1056 Scope 3 calculation methodologies may continue to evolve, mitigating many of the concerns noted by commenters about the disclosure of Scope 3 emissions. While such developments may encourage more registrants to disclose their Scope 3 emissions in Commission filings, at the present time, because of the potential costs and difficulties related to Scope 3 emissions reporting, the disclosure of Scope 3 emissions in Commission filings will remain voluntary. Unlike the proposed rule, which would have exempted SRCs from the requirement to disclose Scope 3 emissions,1057 the final rule will exempt SRCs and EGCs from any requirement to disclose its GHG emissions, including its Scopes 1 and 2 emissions.1058 Such treatment is consistent with the scaled disclosure approach that is sometimes adopted for SRCs and EGCs.1059 We understand from commenters that SRCs and EGCs will face the greatest burden and costs in attempting to comply with the GHG emissions disclosure requirement as compared to the other climate-related disclosure requirements.1060 Accordingly, exempting SRCs and EGCs from this requirement but requiring them to comply with the final rules’ other climate-related disclosure requirements should allow investors in SRCs and EGCs to gain a better understanding of the material climate risks such companies may be facing while limiting the overall costs to these registrants by alleviating the significant burdens associated with GHG emissions disclosure. The final rules provide that a registrant is not required to include GHG emissions from a manure management system when disclosing its overall Scopes 1 and 2 emissions pursuant to 17 CFR 229.1505(a)(1).1061 This exclusion from the GHG emissions disclosure requirement has been included in light of the 2023 Consolidated Appropriations Act, which provides that none of the funds made available under that Act or any other Act (including to the Commission) may be used to implement ‘‘any provision in a rule, if that provision requires
mandatory reporting of greenhouse gas emissions from manure management systems.’’ 1062 Accordingly, an agricultural producer or other registrant that operates a manure management system will not be required to include GHG emissions from that system when disclosing its overall Scopes 1 and 2 emissions for so long as implementation of such a provision is subject to restrictions on appropriated funds or otherwise prohibited by Federal law. d. Timeline for Reporting GHG Emissions Metrics Under the final rules, if a registrant is required to disclose its Scope 1 and/or Scope 2 emissions, it must disclose those emissions for its most recently completed fiscal year and, to the extent previously disclosed in a Commission filing, for the historical fiscal year(s) included in the consolidated financial statements included in the filing.1063 By contrast, a registrant that has not previously disclosed its Scopes 1 and 2 emissions in a Commission filing for a particular historical fiscal year will not be required to estimate and report those emissions for such period.1064 Limiting the historical period disclosure requirement for GHG emissions in this fashion is largely consistent with the recommendation of commenters that any GHG emissions disclosure not be required for historical periods prior to the initial compliance date 1065 and should help mitigate the compliance costs for registrants that have not yet disclosed their Scopes 1 and 2 emissions in a Commission filing. This approach is also consistent with the approach taken for the disclosure of financial effects for historical periods under new Article 14 of Regulation S– X,1066 as well as with approaches taken

1067See, e.g., Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, Release No. 33–10890 (Nov. 19, 2020) [86 FR 2080 (Jan. 11, 2021)]; and Pay Versus Performance, Release No. 34–95607 (Aug. 25, 2022) [87 FR 55134 (Sept. 8, 2022)], which provided similar transition periods. 1068See supra note 998 and accompanying text. 1069See 17 CFR 229.1505(c)(1). A registrant may also include this in an amended Form 10–K filed no later than the due date for the registrant’s second quarter Form 10–Q. This deadline would also apply to transition year registrants, i.e., to registrants that have changed their fiscal year and the difference in reporting periods is so small that they are not required to file a Form 10–KT and can report the difference in a Form 10–Q. 1070See Form 10–Q, General Instruction A.1, which states that the Form 10–Q must be filed within 40 days after the end of the fiscal quarter if the registrant is an LAF or AF (and, if that 40 day period falls on a Saturday, the filing is not due until the following Monday, which is the 42nd day after the end of the quarter). The end of the second fiscal quarter corresponds to 181 days following the most recently completed fiscal year (and 182 days in a leap year). The 225-day deadline is intended to account for the upper limit combined periods (42 days + 182 days = 224 days). 1071See 17 CFR 229.1505(c)(1). 1072See 17 CFR 230.411(e) and 17 CFR 240.12b– 23(e). 1073See 17 CFR 229.1505(c)(2). 1074Similarly, for a registration statement on Form S–3, because information is incorporated by reference from a registrant’s Exchange Act filings, to address the scenario where a Form S–3 registration statement goes effective after a registrant files its Form 10–K annual report for its most recently completed fiscal year but before it has filed its second quarter Form 10–Q containing its GHG emissions metrics disclosure for its most recently completed fiscal year, we have added a provision to Form S–3 stating that the GHG emissions metrics disclosure must be as of its most recently completed fiscal year that is at least 225 days prior to the date of effectiveness of the Form S–3 registration statement. Accordingly, where a registrant has filed its annual report on Form 10– K for the most recently completed fiscal year but has not yet filed its Form 10–Q for the second fiscal quarter containing the disclosure required by 17 CFR 229.1505(a), it must incorporate its GHG emissions metrics disclosure for the fiscal year that is immediately prior to its most recently completed fiscal year. See Item 12(e) to Part I of Form S–3. For example, if a calendar year-end LAF has a Form S– 3 registration statement go effective after it files its Form 10–K for 2028 but before it files its second quarter Form 10–Q (due no later than Aug. 9, 2029), it must incorporate its GHG emissions disclosure for the 2027 fiscal year previously filed on a Form 10–Q or a Form 10–K/A. We have added a
similar provision to Form F–3. See Item 6(g) to Part I of Form F–3. For any registration statement, if the date of effectiveness is less than 225 days after its most recently completed fiscal year-end, a registrant will only be required to disclose its GHG emissions for the fiscal year that is immediately prior to its most recently completed fiscal year if the registrant was required to disclose its Scope 1 and/or Scope 2 emissions pursuant to Item 1505 for that year. 1075See Proposing Release, section II.H.1. 1076See Proposing Release, section II.H.2 and 3. 1077Limited 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. 1078Reasonable 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. 1079See Proposing Release, section II.H.1. 1080See id. for other recently adopted changes to Regulation S–K.1067 We recognize that, as many commenters have stated, a registrant may have difficulty measuring and reporting its GHG emissions as of fiscal year-end by the same deadline for its Exchange Act annual report.1068 To address this concern, the final rules provide that any GHG emissions metrics required to be disclosed pursuant to Item 1505 in an annual report filed with the Commission on Form 10–K may be incorporated by reference from the registrant’s Form 10–Q for the second fiscal quarter in the fiscal year immediately following the year to which the GHG emissions metrics disclosure relates.1069 Many commenters requesting additional time to disclose GHG emissions metrics indicated that most registrants currently report such metrics outside of Commission filings after completion of the second fiscal quarter. Accordingly, this change will help alleviate the challenges with disclosing such data in the annual report and be consistent with current market practices while still providing investors with timely GHG emissions information. To provide comparable treatment for foreign private issuers, the final rules provide that the GHG emissions metrics required to be disclosed pursuant to Item 1505 may be disclosed in an amendment to their annual report on Form 20–F, which shall be due no later than 225 days after the end of the fiscal year to which the GHG emissions metrics disclosure relates. This corresponds approximately to the second quarter Form 10–Q filing deadline and should provide foreign private issuers with an appropriate and similar amount of time as domestic registrants to provide the required GHG emissions metrics disclosure.1070 In order to treat the GHG emissions disclosure as filed and maintain the same level of liability as for corresponding disclosure by domestic registrants, a foreign private issuer must provide its GHG emissions disclosure in an amendment to its annual report on Form 20–F instead of on a Form 6–K. Whether a
registrant is a domestic registrant or foreign private issuer, the final rules provide that the registrant must include an express statement in its annual report indicating its intention to incorporate by reference or amend its filing for this information.1071 This requirement will provide notice to investors regarding where to find the required GHG emissions metrics disclosure and is consistent with the general notice requirements for information that is being incorporated by reference under existing Securities Act and Exchange Act rules.1072 To provide similar treatment to GHG emissions metrics required to be disclosed under Item 1505 in a Securities Act or Exchange Act registration statement, the final rules state that the GHG emissions metrics must be provided as of the most recently completed fiscal year that is at least 225 days prior to the date of effectiveness of the registration statement.1073 For example, if a calendar year-end LAF files a Form S–1 registration statement in 2028, which goes effective on or after Monday, August 7, 2028, its GHG emissions metrics disclosure must be as of 2027 since the Form S–1’s date of effectiveness is at least 225 days after the 2027 fiscal year-end. If, however, the Form S–1 registration statement goes effective on Friday, August 4, 2028, which is less than 225 days after its 2027 fiscal year-end, the registrant may provide its GHG emissions metrics disclosure as of its 2026 fiscal year￾end.1074
I. Attestation Over GHG Emissions
Disclosure (Item 1506)

1. Overview
   a. Proposed Rules
   The Commission proposed to require a registrant, including a foreign private issuer, that is an AF or an LAF to include in the relevant filing an attestation report covering the disclosure of its Scope 1 and Scope 2 emissions and to provide certain related disclosures about the service provider providing the attestation report.1075 The proposed rules also included requirements related to the service provider and requirements for the engagement and the attestation report.1076 The proposed rules would have required the attestation engagement to be performed by the service provider at a ‘‘limited assurance’’ level 1077 for fiscal years 2 and 3 after the Scopes 1 and 2 emissions disclosure compliance date and at a reasonable assurance level 1078 for fiscal year 4 and beyond.1079 The Commission explained that during the transition period when limited assurance would be required, an AF or an LAF would be permitted to obtain ‘‘reasonable assurance’’ of its Scope 1 and 2 emissions disclosure at its option.1080 Also at its option, an AF or an LAF would have been permitted under the proposed rules to obtain any level of assurance over climate-related disclosures that are not subject to the

1081See id. For example, the Commission stated that an AF or LAF could voluntarily include an attestation report at the limited assurance level for its GHG intensity metrics or its Scope 3 emissions disclosure. 1082See id. 1083See id. 1084See id. 1085See id. 1086See id. 1087For example, the Commission stated that 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. See CAQ, S&P 500 and ESG Reporting (Aug. 9, 2021), available at https:// www.thecaq.org/sp-500-and-esg-reporting-2019-
2020. 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 obtaining assurance. See 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. Proposing Release,
section II.H.1.
1088See Proposing Release, section II.H.1. 1089See id. The Commission noted in the Proposing Release that the consequences of such fragmentation have also been highlighted by certain international organizations, including IOSCO, which stated that it ‘‘identified a perceived lack of clarity and consistency around the purpose and scope of [voluntary] assurance . . . [which] can potentially lead to market confusion, including misleading investors and exacerbating the expectations gap.’’ IOSCO, Report on Sustainability￾related Issuer Disclosures (June 2021), available at https://www.iosco.org/library/pubdocs/pdf/ IOSCOPD678.pdf. See also, e.g., 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/publications/state￾play-sustainability-assurance. See Proposing Release, section II.H.1. 1090The Commission explained in the Proposing Release that 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 Item 1504). See Proposing Release, section II.H.1 (citing, for example, AICPA’s Statement on Standards for Attestation Engagements (SSAE) No. 22, AT–C section 210). In such engagements the conclusion is expressed in the form of negative assurance regarding whether any material misstatements have been identified. See id. 1091The Commission explained in the Proposing Release that 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. See Proposing Release,
section II.H.1 (citing, for example, AICPA SSAE No.
21, AT–C sections 205 and 206).
1092See Proposing Release, section II.H.1. 1093See id. 1094See id. 1095See id. 1096See id. 1097See id. proposed assurance requirements.1081 To avoid potential confusion, however, the proposed rules would have required the voluntary assurance obtained by such registrant to follow the requirements of proposed Items 1505(b) through (d), including using the same attestation standard as the required assurance over Scope 1 and Scope 2 emissions. For filings made by AFs and LAFs after the compliance date for the GHG emissions disclosure requirements but before proposed Item 1505(a) would require limited assurance, the proposed rules only would have required the filer to provide the disclosure called for by proposed Item 1505(e) if it chose to voluntarily obtain attestation.1082 The Commission stated that a registrant that is not an AF or LAF that obtains voluntary assurance would be required to comply only with proposed Item 1505(e).1083 In the Proposing Release, the Commission stated that requiring GHG emissions disclosure in Commission filings should enhance the consistency, comparability, and reliability of such disclosures due to the application of a registrant’s DCP and the proposed inclusion of certain prescriptive elements that may help improve standardization of GHG emission calculations.1084 The Commission also observed that the evolving and unique nature of GHG emissions involves and, in some cases, warrants varying methodologies, differing assumptions, and a substantial amount of estimation.1085 Certain aspects of GHG emissions disclosure also involve reliance on third-party data. As such, the Commission concluded that 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.1086 In the Proposing Release, the Commission explained that, although many registrants have voluntarily obtained some level of assurance for their climate-related disclosures,1087 current voluntary climate-related 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.1088 The Commission stated that 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.1089 Accordingly, to improve accuracy, comparability, and consistency with respect to the proposed GHG emissions disclosure, the Commission proposed to require a minimum level of assurance services for AFs and LAFs including: (1) limited assurance 1090 for Scopes 1 and 2 emissions disclosure that scales up to reasonable assurance 1091 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.1092 The Commission stated that by specifying minimum standards for the attestation provided with respect to GHG emissions disclosure by AFs and LAFs, 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.1093 In addition to the proposed minimum standards for attestation services, the Commission explained that the proposed additional disclosure requirements for registrants 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 currently provide and that would be permitted under the proposed rules to provide attestation services.1094 The Commission explained that the proposed rules did not aim to create or adopt a specific attestation standard for assuring GHG emissions 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.1095 The Commission acknowledged in the Proposing Release that 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.1096 Nevertheless, the Commission stated it believed some flexibility in its approach was warranted at this time given the unique and evolving nature of third￾party assurance for climate-related disclosures.1097 In proposing mandatory assurance of GHG emissions disclosure, the

1098See id. The Commission further stated that, for the many LAFs that are already voluntarily obtaining some form of assurance over GHG emissions, any cost increases associated with complying with the proposed rules would be mitigated and larger issuers generally bear proportionately lower compliance costs than smaller issuers due to the fixed cost components of such compliance. See id. 1099See id. 1100See id. 1101See id. (citing 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)) and CAQ, S&P 100 and ESG Reporting (Apr. 29, 2021), available at https://www.thecaq.org/sp-100-and-esg-reporting/). The Commission stated that based on an analysis by Commission staff on Mar. 3, 2022, a substantial number of the S&P 500 companies (460+) are LAFs. See Proposing Release, section II.H.1. 1102See Proposing Release, section II.H.1. 1103See id. 1104See id. 1105See, e.g., letters from 3Degrees Group Inc. (June 17, 2022) (‘‘3Degree’’); AGs of Cal. et al.; ANSI National Accreditations Board (June 17, 2022) (‘‘ANSI NAB’’); Anthesis Grp.; A. Payton; BC IM Corp.; Better Markets (June 17, 2022) (stating that the Commission should apply the attestation requirement to all registrants); Bloomberg; BNP Paribas (supporting the proposal to require attestation over Scope 1 and 2 emissions but recommending only requiring limited assurance initially and on a time-limited basis); BOA (supporting the proposal to require attestation over Scope 1 and Scope 2 emissions with a two-year extension to the proposed phase in periods); Boston Common Asset Mgmt; Breckinridge Capital; Bureau Veritas; CalPERS; CalSTRS; Can. Coalition GG; Center for Amer. Progress; Center for Audit Quality (June 17, 2022) (‘‘CAQ’’); CEMEX; Ceres; CFA; CFA Institute; Chevron (supporting the proposal to require attestation over Scope 1 and Scope 2 emissions with an extended phase in period); CFB; Climate Advisers; Corteva; DSC Meridian; East Bay Mun.; Educ. Fdn. Amer.; Engine No. 1; E. Kenny; ERM CVS; Ernst & Young LLP (June 17, 2022); Etsy; Futurepast; Florian Berg (Feb. 23, 2024) (‘‘F. Berg’’); Galvanize Climate; Grant Thornton; H. Marsh; Humane Society; IAA; IAC Recommendation; ICAEW (June 17, 2022) (‘‘ICAEW’’); ICCR; IFAC; Impax Asset Mgmt.; ISS ESG; IWAP; JLL; KPMG; K. Talbot; Mackenzie Invest.; Maple-Brown; Mazars USA LLP (June 17, 2022) (‘‘Mazars’’); MFA; Mickey Hadick (‘‘M. Hadick’’) (supporting attestation on an accelerated timeline); Mariam Khaldoon (‘‘M. Khaldoon’’); Morningstar; Northern Trust; NY City Comptroller; NY SIF; NY St. Comptroller; PAM; Paradice Invest. Mgmt.; PGIM; Prentiss Smith and Company, Inc. (June 6,
2022) (‘‘Prentiss’’); PRI; PwC (noting that it would support requiring reasonable assurance beginning in the first year of disclosure required for impacted registrants assuming a delayed effective date); Redington; Rockefeller Asset Mgmt.; SFERS; S. Spears; Sumitomo Mitsui; TotalEnergies; UAW Retiree; USIIA; XBRL US; and Xpansiv. 1106See, e.g., letters from Better Markets; Boston Common Asset Mgmt; Ceres; CFA; ICI (stating that limited assurance would enhance the reliability of Scopes 1 and 2 disclosures); Inherent Grp.; KPMG; Mackenzie Invest.; Mazars; MFA; M. Khaldoon; PAM; and Prentiss. See also IAC Recommendation (stating that the proposed assurance requirement would improve the quality of data being provided to investors). 1107See, e.g., letters from BC IM Corp. (stating that assurance ‘‘will provide investors with enhanced confidence in companies’ reported emissions’’); CalSTRS; NEI Investments; and Oxfam America. 1108See letter from CalSTRS. 1109See letter from Can. Coalition GG. 1110See letter from DSC Meridian. 1111See, e.g., letters from Better Markets; CAQ; IFAC; and SFERS. 1112See, e.g., letters from Climate Advisers; BNP Paribas; and UAW Retiree. Commission weighed the challenges such requirements could present with the benefits that assurance would provide to investors and proposed only requiring AFs and LAFs to obtain an attestation report, subject to a phased in compliance period, to help mitigate concerns about cost and burden.1098 In addition, the Commission stated that the proposed phase in periods would provide AFs and LAFs with 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.1099 During the proposed transition period, GHG emissions attestation providers would also have had time to prepare themselves for providing such services in connection with Commission filings.1100 In the Proposing Release, the Commission stated that the voluntary attestation obtained by some registrants has been at the reasonable assurance level; however, it acknowledged that a limited assurance engagement is less extensive and currently the level of assurance most commonly provided in the voluntary assurance market for climate-related disclosure.1101 The Commission explained that, for this reason, 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 are already obtaining limited assurance for their climate related disclosures.1102 Although reasonable assurance provides a significantly higher level of assurance than limited assurance, the Commission expressed its belief that 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. Finally, the Commission stated in the Proposing Release that it did not propose to require assurance of Scope 3 emissions disclosure because the preparation of such disclosure presents unique challenges.1103 The Commission explained that 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, and 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.1104 b. Comments Commenters expressed a variety of views on the proposal to require AFs and LAFs to provide an attestation report from a service provider over Scope 1 and Scope 2 emissions. A number of commenters supported the proposal to require some form of attestation.1105 These commenters generally stated that subjecting Scope 1 and Scope 2 emissions to attestation would help increase the reliability and accuracy of the disclosures.1106 Several commenters stated that the proposed mandatory assurance requirement would provide confidence to investors.1107 For example, one commenter explained that ‘‘[g]reenhouse gas emissions are the basic unit of input for all our individual company, industry, and market climate risk assessments’’ and that ‘‘[a]ssurance provides investors with greater confidence that this essential data is prepared faithfully and in line with globally accepted standards.’’ 1108 Another commenter stated that ‘‘[i]ndependent assurance on the accuracy, completeness and consistency of GHG emissions data would be beneficial to both internal decision￾making and for investors and other external stakeholders.’’ 1109 One commenter stated it supported the proposed mandatory assurance requirement because ‘‘[r]eliable, standardized and assured data will strengthen our underwriting as it is critical to our understanding of the quality of a company’s earnings in the face of climate change and the energy transition.’’ 1110 Other commenters stated that the proposed attestation requirements would increase investor protection 1111 or help prevent greenwashing.1112 One commenter that is a public company registrant explained that ‘‘[w]hile obtaining assurances certainly requires additional resources, we do not feel it is overly burdensome and believe it has significantly improved our risk