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SEC Proposed Rules for Climate-Related Disclosures

May 24, 2022

The SEC’s proposal in March that would require both domestic and foreign SEC registrants to include new disclosures on greenhouse gas (“GHG”) emissions and other climate-related risks, likely to have a material impact on their business or operational practices, will impact the manufacturing and distribution industry.

According to the proposal, registrants would be required to disclose information on their GHG emissions through the following metrics:

  • Scope 1 – Direct GHG emissions[1] from sources that are owned or controlled by the registrant.
  • Scope 2 – Indirect GHG emissions that result from activities of the registrant but occur at sources not owned or controlled by the registrant, such as those from purchased electricity or other forms of energy. Scope 2 emissions physically occur at the facility where electricity is generated.
  • Scope 3 – Upstream and downstream GHG emissions from its value chain, such as transportation of goods to the registrant, employee business travel and commuting, end-of-life treatment of sold products, and those from goods and services the registrant acquires.

Scope 1 data would presumably be within the registrant’s ability to acquire and disclose, while Scope 2 data should be accessible from their utility providers. Scope 3 data poses a challenge not only for the registrant but also for non-registrant entities within a registrant’s supply chain.

Even with the one-year delayed compliance date for Scope 3, even the most organized registrants may have difficulties. Scope 3 disclosures may also be a challenge for non-registrant entities who may find themselves being asked to provide GHG emission data to their registrant customers, even though they themselves are not required to disclose such information. Some risks to non-registrants are:

  • Would registrant purchasers of goods and services require verified GHG emission data as a proposal requirement which, in effect, places a registrant level burden on a non-registrant?
  • Will non-registrants be disadvantaged when compared to registrants in bid reviews?
  • What will be the costs and benefits for a non-registrant to comply with GHG emission data requests from their registrant business partners?

How Will the Manufacturing and Distribution Industry Be Impacted?

The proposed changes will certainly affect SEC registrants directly and non-SEC registrants indirectly. For registrants with complex global supply chains, the data gathering requirements will require additional effort and a learning curve. Existing internal staff will need to be trained to collect, verify and standardize (for reporting purposes) the data from a diverse set of inputs. Other companies may turn to consultants to prepare the information for them.

Registrants will be asking the entities, including non-registrants, throughout their supply chain for the required information for Scope 3 disclosures. Non-registrants who adapt quickly and can provide reliable information to their registrant business partners may gain a competitive advantage when compared to those that assume the rule (if adopted) doesn’t apply to them as non-registrants.


This proposal was open for public comments until May 22, 2022, and contains the following proposed schedule for adoption.

  • Large, accelerated filer: fiscal year 2023 (filed in 2024).
  • Accelerated filer and non-accelerated filer: fiscal year 2024 (filed in 2025).
  • Smaller reporting companies: fiscal year 2025 (filed in 2026).


[1] The proposed rule defines “greenhouse gases” as carbon dioxide, methane, nitrogen trifluoride, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

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David Sumner

David Sumner is a director in the Financial Advisory Services Group with years of auditing, forensic accounting, financial reporting and internal control design and implementation experience serving clients in a variety of industries.

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