Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

On February 11, 2025, Mark T. Uyeda, the acting chairman of the Securities and Exchange Commission, took action with respect to The Enhancement and Standardization of Climate Disclosures for Inventors rule, which was adopted by the Commission on March 6, 2024 (the “Rule”).  This statement signals a significant change in the Commission’s position on the controversial climate disclosure requirement.

On March 28, 2024, the Commission published the final rules regarding The Enhancement and Standardization of Climate Disclosures for Inventors, as a response to the demands of investors for consistent and reliable information about the financial effects of the climate risks of a registrant’s business. The Rule required public companies and companies making public offerings to make material climate risk disclosures.  The Rule was intended to provide useful information to investors and to provide specificity as to what companies must disclose.

Following the final adoption of the rules, a multitude petitioners challenged the Rule in court. The Commission filed a motion to consolidate the challenges into one Eighth Circuit case.  The Commission then decided to “exercise discretion” to stay the enforcement of the Rule pending the outcome of the consolidated Eighth Circuit case. The Commission pledged to “continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation.”

However, the Commission has walked back its pledge to vigorously defend the Rule and instead has flipped its position. Due to Acting Chairman Uyeda’s views on the Rule, the recent changes in the makeup of the Commission, and President Trump’s regulator freeze, the Commission has indicated that it will suspend the defense of the challenges to the Rule in the Eighth Circuit case. Acting Chairman Uyeda ordered the Commission staff to “notify the Court of the changed circumstances and request that the Court not schedule the case for argument to provide time for the Commission to deliberate and determine the appropriate next steps in these cases.” 

Acting Chairman Uyeda states that he, alongside Commissioner Peirce, voted against the Rule. At that time, he stated to the Commission that the rule was “‘without statutory authority or expertise’ to address climate change issues and that ‘this [R]ule is climate regulation promulgated under the Commission’s seal.'”  Commissioner Peirce had argued that the rule was “only a mandate from Congress should put us in the business of facilitating the disclosure of information not clearly related to financial returns.”

Seeking to “unleash prosperity through deregulation” and fulfilling a campaign promise, President Trump has signed an executive order to implement a requirement that for every new regulation, ten existing regulations must be eliminated.  The regulation puts the Director of the Office of Management and Budget (the “Director”), in charge of implementing the order. 

The order is similar to Executive Order 13771 from President Trump’s first term in 2017, which had a two-to-one regulatory elimination requirement.  President Trump’s first administration exceeded this requirement and eliminated five and a half regulations for each new regulation.

The executive order provides that “whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least 10 existing regulations to be repealed.”

The following requirements of the executive order are immediately applicable to the 2025 current fiscal year.  According to the order:

  • The total incremental cost of all new regulations, including repealed regulations, to be significantly less than zero.  This is increased from the previous requirement from 2017, which required the net costs to be zero.
  • Any new incremental costs, associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least ten prior regulations.
  • The Director shall provide the heads of agencies with guidance on the implementation of these provisions.

The executive order also provides parameters for regulations proposed in fiscal year 2026, and each subsequent fiscal year thereafter.  According to the order:

  • The head of each agency shall identify, for each regulation that increases incremental cost, the regulations which offset incremental cost described above, and provide the agency’s best approximation of the total costs or savings associated with each new regulation or repealed regulation.
  • Each regulation approved by the Director during the Presidential budget process shall be included in the Unified Regulatory Agenda required under Executive Order 12866, as amended, or any successor order.
  • During the Presidential budget process, the Director shall identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.  No regulations exceeding the agency’s total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the Director.  The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.
  • The Director shall provide the heads of agencies with guidance on the implementation of the requirements in these provisions.

As used in the executive order, the term “regulation” or “rule” is broadened from the 2017 definition and means “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency, including, without limitation, regulations, rules, memoranda, administrative orders, guidance documents, policy statements, and interagency agreements, regardless of whether the same were enacted through the processes in the Administrative Procedure Act.”  The definition includes exceptions for military, national security, or foreign affairs functions, regulations related to agency organization, management, or personnel, and any other category of regulations exempted by the Director.

Following Executive Order 13771 in 2017, the Order was challenged in court by both private parties and several states, though all challenges were ultimately dismissed.  Additionally, in 2017, the OMB clarified that the Executive Order did not apply to independent agencies like the SEC.  It remains to be seen what challenges or clarifications will follow this Executive Order.

In a settled enforcement action, the Securities and Exchange Commission (“SEC”) charged Shift4 Payments, Inc. (“Shift4”), a payment processing company based in Pennsylvania, with failing to disclose payments made to immediate family members of executive officers and directors as compensation.

Item 404(a) of Reg S-K requires companies describe transactions since the beginning of the last fiscal year if: (1) the transaction is in excess of $120,000; (2) the company was a participant; and (3) any “related person had or will have a direct or indirect material interest.” The definition of a “related person” is quite broad, as it includes any director (or nominee), executive officers, and immediate family members of directors (or nominees) and executive officers. Under Item 404(a), immediate family members include “any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer or nominee for director, and any person (other than a tenant or employee) sharing the household of such director, executive officer or nominee for director.”

If the transaction meets the requirements outlined in Item 404(a), the company must disclose:

  • the related person’s name;
  • the nature of the relationship;
  • the related person’s interest in the transaction;
  • the approximate dollar amount of the transaction; and
  • any other information that would be material to investors.

The same disclosure requirements also apply to transactions between companies and any 5% shareholder.

As an example, X is a director of Company A. Company A employs X’s son at a yearly salary of $150,00. Because X’s son is a related person and has a material interest in his yearly compensation, this transaction must be disclosed under Item 404(a).

In its Order against Shift4, the SEC alleged Shift4 violated Sections 13(a) and 14(a) after failing to disclose two transactions which met the requirements for disclosure under Item 404(a). Specifically, Shift4 employed a sibling of an executive officer and director, who received $1.1 million in compensation between 2020 and 2022. Additionally, another sibling of an executive officer and director received over $1 million as “residual commissions while acting as an independent sales agent” between 2020 and 2022. Shift4 did not disclose either of these transactions in its Form 10-K or proxy statements. As such, it violated Item 404(a).

Because Shift4 cooperated with the SEC during its investigation and took several remedial acts, including improving its company policies and procedures, Shift4 and the SEC settled. The company agreed to pay a civil money penalty of $750,000.

Shift4 did not admit or deny the SEC’s allegations.

On January 21, 2025, SEC Acting Chairman Mark T. Uyeda launched a crypto task force charged with “developing a comprehensive and clear regulatory framework for crypto assets.”

The SEC acknowledged in the announcement that it “has relied primarily on enforcement actions to regulate crypto retroactively and reactively,” resulting in “confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud.” The task force will “help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”

The task force will be led by Commissioner Hester Peirce, and will include Uyeda’s senior advisor, Richard Gabbert, as its chief of staff, and Uyeda’s senior policy advisor, Taylor Asher, as its chief policy advisor. The task force will coordinate with federal departments and agencies, including the Commodity Futures Trading Commission (CFTC), and state and international counterparts, as well as across SEC divisions and offices.

Peirce noted that the task force “will succeed only if [it] has input from a wide range of investors, industry participants, academics, and other interested parties. To that end, the task force anticipates holding roundtables in the future and welcomes public input via email in the meantime.

President Donald Trump has already announced that he intends to nominate Paul Atkins to chair the Commission, but the Senate has yet to schedule a hearing on his nomination.

On Inauguration Day (January 20, 2025) President Trump issued an executive order requiring an immediate regulatory freeze.  The order was among several executive orders that President Trump signed shortly after taking the inaugural oath.  According to the memo:

  • No regulation shall be proposed, issued, or sent to the Office of the Federal Register (the “OFR”), until a department or agency head, appointed or designated by the President after noon on January 20, 2025, reviews and approves the regulation.  This prohibition is subject to exemption by the Director or Acting Director of Office Management and Budget for any rule he deems necessary to address emergency or urgent circumstances.
  • Any regulations that have been sent to the OFR but not published in the Federal Register must be immediately withdrawn from OFR review and sent for OFR approval as described above.
  • For regulations that have been published in the OFR but have not taken effect, steps shall be taken, as permitted by applicable law, to temporarily postpone their effective date for 60 days.

 The order is very similar to the Regulatory Freeze memorandum (link via Politico) that President Trump’s then Chief of Staff, Reince Priebus, circulated following his inauguration in 2017.

On December 17, 2024, the Securities and Exchange Commission (“SEC”) announced that it had settled charges against Ohio-based Express, Inc. (“Express”). The SEC ultimately found that Express violated Sections 13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-15(a), 14a-3, and 13a-9 by failing to disclose all of its former Chief Executive Officer’s (“CEO”) executive compensation. Specifically, Express did not disclose a number of perks provided to the CEO during his employment with the company.

Public companies are required to comply with disclosure obligations regarding executive compensation to assist investors in making educated investment decisions. Specifically, under Reg S-K Item 402, companies must disclose and identify executive perks and other personal expenses by type for each executive that receives at least $10,000 of perks or other personal benefits each year. For each perk or personal benefit exceeding a value of $25,000 or 10% of total perks for that executive, the total number of perks must be quantified and disclosed.

According to the SEC, for fiscal years 2019, 2020 and 2021, Express ‘s “All Other Compensation” for its CEO consisted of retirement contributions, insurance premiums, one private flight for the CEO’s relocation, and private aircraft usage by the CEO’s family members. However, these proxies understated other compensation for its executive officers by an average of 94% by failing to classify personal travel expenses, paid by Express, as perks or personal benefits.

The SEC determined that Express’s system used to identify, track and calculate perks applied an improper standard. Items were not categorized as a perk or benefit needing disclosure if there was a business purpose for the expense. However, whether an item has a business purpose does not affect whether an expense needs to be disclosed as a perk.

Rather, Express and other public companies subject to the SEC’s guidelines must engage in a separate inquiry to classify expenses. Specifically, the SEC considers the following factors:

  • If an item is integrally and directly related to the performance of an executive’s duties, it is not a perk.
  • If the item is not generally available on a non-discriminatory basis to all employees and confers a direct or indirect benefit that is personal in some aspect, it is a perk, regardless of whether it is provided for some business reason or for the convenience of the company.

Integrally and directly related to job performance is a narrow distinction, encompassing only items a company provides because the executive needs it to do his or her job. In Release No. 33-8732A (Aug. 29, 2006), the SEC specifically explained that a company policy permitting an executive (and/or his or her family) to use a company aircraft for personal travel does not affect the ultimate conclusion that the use of the aircraft is a provided perk or personal benefit. Although this policy had a business purpose in providing security to its executives, the personal use still needed to be disclosed.

According to the SEC, for Express, this meant that the “expenses associated with the CEO’s personal flights, including transportation, meals, and hotel” were in fact perks. Upon learning of its errors, Express acted promptly by self-reporting and instructing outside counsel to conduct an internal investigation. The former CEO ultimately reimbursed Express for approximately $454,000 of expenses that were determined to be perks. Because of Express’s cooperation, the SEC declined to impose a civil penalty and Express agreed to a cease-and-desist order without admitting or denying the SEC’s findings.

Erik Gerding, Director, SEC Division of Corporation Finance, issued a statement to clear up misconceptions following filing of an 8-K disclosing a cybersecurity incident.

According to Mr. Gerding, some companies are under the impression that if they experience a material cybersecurity incident, the SEC’s new rules prohibit them from discussing that incident beyond what was included in the Item 1.05 Form 8-K disclosing the incident.  Mr. Gerding added “That is not the case.”

According to the statement, nothing in Item 1.05 prohibits a company from privately discussing a material cybersecurity incident with other parties or from providing information about the incident to such parties beyond what was included in an Item 1.05 Form 8-K.

Mr. Gerding also addressed selective disclosure questions under Regulation FD.  As is well-known, Regulation FD requires public disclosure of any material nonpublic information that has been selectively disclosed to securities market professionals or shareholders, as specified in the regulation.  Depending on the information disclosed, and the persons to whom that information is disclosed, discussions regarding a cybersecurity incident may implicate Regulation FD.

“Nothing in Item 1.05 alters Regulation FD or makes it apply any differently to communications regarding cybersecurity incidents” according to Mr. Gerding.  There are several ways that a public company can privately share information regarding a material cybersecurity incident beyond what was disclosed in its Item 1.05 Form 8-K without implicating Regulation FD:

  • For example, the information that is being privately shared about the incident may be immaterial, or the parties with whom the information is being shared may not be one of the types of persons covered by Regulation FD.
  •  Further, even if the information being shared is material nonpublic information and the parties with whom the information is being shared are the types of persons covered by Regulation FD, an exclusion from the application of Regulation FD may apply.
  •  For example, if the information is being shared with a person who owes a duty of trust or confidence to the issuer (such as an attorney, investment banker, or accountant) or if the person with whom the information being shared expressly agrees to maintain the disclosed information in confidence (e.g., if they enter into a confidentiality agreement with the issuer), then public disclosure of that privately-shared information will not be required under Regulation FD.

Erik Gerding, Director, Division of Corporation Finance, released a statement on the preferred methods to disclose certain cybersecurity incidents.  Mr. Gerding noted “The cybersecurity rules that the Commission adopted on July 26, 2023 require public companies to disclose material cybersecurity incidents under Item 1.05 of Form 8-K.  If a company chooses to disclose a cybersecurity incident for which it has not yet made a materiality determination, or a cybersecurity incident that the company determined was not material, the Division of Corporation Finance encourages the company to disclose that cybersecurity incident under a different item of Form 8-K (for example, Item 8.01).  Although the text of Item 1.05 does not expressly prohibit voluntary filings, Item 1.05 was added to Form 8-K to require the disclosure of a cybersecurity incident “that is determined by the registrant to be material,” and, in fact, the item is titled “Material Cybersecurity Incidents.”  In addition, in adopting Item 1.05, the Commission stated that “Item 1.05 is not a voluntary disclosure, and it is by definition material because it is not triggered until the company determines the materiality of an incident.”  Therefore, it could be confusing for investors if companies disclose either immaterial cybersecurity incidents or incidents for which a materiality determination has not yet been made under Item 1.05.”

Mr. Gerding also noted “This clarification is not intended to discourage companies from voluntarily disclosing cybersecurity incidents for which they have not yet made a materiality determination, or from disclosing incidents that companies determine to be immaterial.  I recognize the value of such voluntary disclosures to investors, the marketplace, and ultimately to companies, and this statement is not intended to disincentivize companies from making those disclosures.”

Finally, Mr. Gerding indicates “in determining whether a cybersecurity incident is material, and in assessing the incident’s impact (or reasonably likely impact), companies should assess all relevant factors.  As the Commission noted in the Adopting Release, that assessment should not be limited to the impact on “financial condition and results of operation,” and “companies should consider qualitative factors alongside quantitative factors.”  For example, companies should consider whether the incident will “harm . . . [its] reputation, customer or vendor relationships, or competitiveness.”  Companies also should consider “the possibility of litigation or regulatory investigations or actions, including regulatory actions by state and Federal Governmental authorities and non-U.S. authorities.””

In Macquarie Infrastructure Corp., et al., v. Moab Partners, L. P., et. al, a unanimous United States Supreme Court held that failure to make MD&A disclosures required by Item 303 of Regulation S-K does not violate Rule 10b-5(b).  The Court reiterated the tenet of Basic Inc. v. Levinson that “Silence, absent a duty to disclose, is not misleading under Rule 10b–5.”

The facts are straightforward. Macquarie owned a subsidiary that operateed terminals to store bulk liquid commodities, including No. 6 fuel oil, a byproduct of the refining process with a typical sulfur content close to 3%. In 2016, the United Nations’ International Maritime Organization formally adopted IMO 2020, a regulation capping the sulfur content of fuel oil used in shipping at 0.5% by 2020. In the ensuing years, Macquarie did not discuss IMO 2020 in its public offering documents. In February 2018, however, Macquarie announced a drop in the amount of storage contracted for use by its subsidiary due in part to the decline in the No. 6 fuel oil market. Macquarie’s stock price fell 41%.

In response, Moab Partners, L. P., sued Macquarie and various officer defendants. Moab alleged, among other things, that Macquarie violated SEC Rule 10b–5(b)—which makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading—because it had a duty to disclose the IMO 2020 information under Item 303 of SEC Regulation S–K. Item 303 requires companies to disclose “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” in periodic filings with the SEC. The District Court dismissed Moab’s complaint. The Second Circuit reversed, concluding in part that Moab’s allegations concerning the likely material effect of IMO 2020 gave rise to a duty to disclose under Item 303, and Macquarie’s Item 303 violation alone could sustain Moab’s §10(b) and Rule 10b–5 claim.

Reversing the Second Circuit, the Supreme Court held pure omissions are not actionable under Rule 10b–5(b). Rule 10b– 5(b) makes it unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”  In addition to prohibiting “any untrue statement of a material fact”—i.e., false statements or lies—the Rule also prohibits omitting a material fact necessary “to make the statements made . . . not misleading.”  According to the Court, this case turned on whether this second prohibition bars only half-truths or instead extends to pure omissions.

The Court stated a pure omission occurs when a speaker says nothing, in circumstances that do not give any special significance to that silence. Half-truths, on the other hand, are “representations that state the truth only so far as it goes, while omitting critical qualifying information.” Rule 10b–5(b) requires disclosure of information necessary to ensure that statements already made are clear and complete. Logically and by its plain text, Rule 10b–5(b) therefore covers half-truths, not pure omissions, because it requires identifying affirmative assertions (i.e., “statements made”) before determining if other facts are needed to make those statements “not misleading.”

The Court bolstered its conclusion by comparing the foregoing analysis to the Section 11(a) of the Securities Act of 1933. Section 11(a) of the Securities Act of 1933 prohibits any registration statement that “omit[s] to state a material fact required to be stated therein.” By its terms, §11(a) creates liability for failure to speak. Neither §10(b) nor Rule 10b–5(b) contains language similar to §11(a), and according to the Court, that omission is telling.

Concluding the analysis, the Court looked to Basic Inc. v. Levinson, noting “Silence, absent a duty to disclose, is not misleading under Rule 10b–5.”  The Court noted a duty to disclose, however, does not automatically render silence misleading under Rule 10b–5(b). The failure to disclose information required by Item 303 can support a Rule 10b–5(b) claim only if the omission renders affirmative statements made misleading.

Moab and the SEC suggested that a plaintiff does not need to plead any statements rendered misleading by a pure omission because reasonable investors know that the Exchange Act requires issuers to file periodic informational statements in which companies must furnish the information required by Item 303. But that argument reads the words “statements made” out of Rule 10b–5(b) and shifts the focus of that Rule and §10(b) from fraud to disclosure.

What remains open after Macquarie?  Macquarie only addresses whether a pure omission violated Rule 10b-5(b).  The Court did not opine on issues that were either tangential to the question presented or were not passed upon by the lower courts, including what constitutes “statements made,” when a statement is misleading as a half-truth, or whether Rules 10b–5(a) and 10b–5(c) support liability for pure omissions.

The SEC adopted amendments to its rules under the Securities Act of 1933 and Securities Exchange Act of 1934 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.

The final rules will become effective 60 days after publication in the Federal Register, and compliance will be phased in based on a registrant’s filing status.  For large accelerated filers (“LAF”), compliance starts with fiscal years beginning in 2025, for accelerated filers (“AF”) other than smaller reporting companies (“SRC”) and emerging growth companies (“EGC”), compliance starts with fiscal years beginning in 2026 and for other filers (including SRCs and EGCs) for fiscal years beginning in 2027.

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);
  • 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;
  • 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;
  • 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;
  • 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;
  • 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;
  • 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;
  • 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;
  • 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;
  • If a registrant is an LAF or an AF that is not otherwise exempted, and its Scope 1 emissions and/or its Scope 2 emissions metrics are material, certain disclosure about those emissions;
  • 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;

Attestation Reports

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.

Modifications From Proposed Rules

The final rules reflect a number of modifications to the proposed rules based on the comments the SEC received. The SEC 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;
  •  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;
  • 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.

Presentation and Submission of the Climate-Related Disclosures

The final rules provide that a registrant (both domestic and foreign private issuer) must:

  • File the climate-related disclosure in its registration statements and Exchange Act annual reports;
  • 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 electronic tagging requirements of the final rules;
  • If required to disclose its Scopes 1 and 2 emissions, provide such disclosure:
    • 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;
    • 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; and
    • 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;
  • 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;
  • 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; and
  • Electronically tag both narrative and quantitative climate-related disclosures in Inline XBRL.

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 1502(e), 502(f), 1502(g), and 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 safe harbors for forward-looking statements provided in section 27A of the Securities Act and section 21E of the Exchange Act.