SEC to vote on climate disclosures this week

Under SEC chair Gary Gensler's initial proposal, US-registered investors would be required to disclose their greenhouse gas emissions and 'material' climate-related risks upon registration and in their annual reports.

The SEC is set to vote on landmark climate-related disclosure requirements for US-registered public companies on Wednesday. While most private equity-owned companies would be exempt, the proposed rule is relevant for private fund managers: many PE and debt firms are listed in the US, such as Blackstone, Carlyle, Apollo, Ares, KKR and TPG; private debt funds are increasingly lending to public companies; and the new requirements will affect IPO-readiness for PE-backed companies.

This vote has been a long time coming: the first iteration of the rule was proposed by Gary Gensler, chair of the US’s Securities and Exchange Commission, in March 2022. The rule would introduce “consistent and clear reporting obligations for issuers”, Gensler said in the initial proposal.

Under Gensler’s initial proposal, companies would be required (upon registration with the SEC and in their annual reports) to disclose their Scopes 1 and 2 greenhouse gas emissions, material climate-related risks and processes to manage these risks. Companies must also disclose Scope 3 upstream and downstream emissions if they have set GHG emissions reductions targets that include Scope 3, or if Scope 3 emissions are material to the business.

The proposal defines material risks as physical and transition risks that “have affected or are likely to affect the registrant’s strategy, business model and outlook”. Disclosures must cover the impact of physical and transition risks “on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements”.

The latest version of the proposal will be heard on Wednesday, New Private Markets understands. We will bring you a deeper dive of the rule, including analysis from legal experts on how this affects private fund managers, later this week.