The SEC’s climate disclosure proposal: 10 key points for banks

On March 21st, the SEC released its long awaited proposal of climate-related disclosure requirements. The proposed rules would require public companies, including banks, to disclose their greenhouse gas (GHG) emissions as well as the climate-related risks they face and how they manage those risks. This proposal is the 1 SEC’s response to growing investor demands to understand what companies are doing to manage increasing risks around climate change and the transition to a low carbon economy. It raises the bar from existing voluntary disclosures of climate-related risks to mandatory requirements that carry increased legal liability.

Financial institutions have already been responding to pressure from various stakeholders to take action on the impacts of climate change. Through the Glasgow Financial Alliance for Net-Zero (GFANZ), over 450 financial institutions totalling over $130 trillion in assets have committed to net-zero initiatives. The majority of US global systemically important banks (GSIBs) have also signed on to initiatives to reduce their own GHG footprints by 2030 and their financing activity emissions by 2050. The proposal raises the bar even further for institutions that have made public GHG reduction commitments by requiring them to describe their strategies for meeting their net-zero goals and provide annual updates on progress toward those targets.

The proposal would also require banks to disclose the impact of identified climate risks on their strategy, business model and financial outlook as well as their governance frameworks and processes for managing those risks. These qualitative disclosures would also have higher expectations for banks that have more advanced climate risk programs, such as requiring details on methods and results for firms that use scenario analysis. The expectation to publicly disclose these details and face comparison to peers may accelerate banks’ efforts to enhance their climate risk measurement and management practices, but they will need to balance this pressure with the lack of prescriptive regulatory requirements from their primary regulators.

The proposal indicates that the SEC is targeting a final rule with an effective date by the end of this year. This would result in the first mandatory climate disclosures being filed in 2024 for Large Accelerated Filers, a category that includes not only GSIBs but also most large regional banks. See the appendix for all deadlines outlined in the proposal. This timeframe would allow relatively little time to prepare for the challenging expectations outlined in the proposal, so firms should not hesitate to begin their preparations.

Read our First Take on the requirements of the proposal and outlines key responsibilities that public businesses should start having in mind:

1. Raising the bar for climate risk and GHG emissions disclosures.
2. Scope 3 in scope for many banks.
3. Safe harbor for Scope 3.
4. No rest for GHG-reduction leaders.
5. A scenario analysis quandary.
6. Get specific on risk integration and governance.
7. Choose your own time horizon.
8. Attestation ahead.
9. Climate impacts on financials could be difficult to disaggregate.
10. What’s next?

First take

A publication of PwC's financial services regulatory practice