This is Part 1 of 3 of an IDFA series breaking down the SEC's new climate disclosure rules. Please stay tuned to the IDFA Blog for more on sustainability topics or visit the IDFA Sustainability Hub and check out the new SEC Disclosure resources from IDFA and partner PwC.

On March 21, 2022, the Securities and Exchange Commission (SEC) proposed a rule requiring domestic publicly traded corporations[1] to file specific climate-related[2] disclosures as part of the company’s annual report. The proposed rule would require detailed information about the company’s greenhouse gas (GHG) emissions footprint and the risks the emissions and associated climate change may have on the company’s financial statements and business. Many dairy processors are privately owned corporations that have no SEC filing obligations, but a majority sell to or co-pack dairy products/ingredients for publicly traded major brands and retailers that are registered with the SEC[3]. Moreover, most major financial institutions that service the dairy industry are publicly traded and would be required to comply with a final rule.

In this IDFA Blog series, we will highlight the major requirements in the SEC proposal that, if finalized, would likely have an impact on the dairy industry.

For over a decade, the SEC has asked publicly traded companies to disclose “material”[4] climate risks, but few have provided detailed climate impacts and metrics to the SEC. What information has been filed (or furnished[5]) by companies, however, has lacked the level of transparency, accountability, and consistency the SEC believes is necessary to adequately inform investors. According to the SEC, the investor community seeks and needs meaningful and comparable insight into how companies’ value chains impact climate, how companies are addressing current and future business risks posed by climate change, and how those risks impact companies’ financial statements and viability. Consequently, the SEC is proposing to require companies to examine a broad range of climate risks and provide disclosures and metrics that would purport to convey meaningful insight for investors into the company’s business viability.

To increase data comparability and reduce regulatory burdens, the SEC’s proposal recommends that companies use standardized measurements and disclosures largely based on the GHG Protocol and the disclosure framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD). When flexibility is needed, the SEC proposes to allow any reputable framework, so long as the methodology is thoroughly disclosed.

The SEC’s proposed disclosures generally fall into two categories: climate metrics and a discussion of climate risks. Companies would be required to disclose climate-related information and risks that would be reasonably likely to have a material impact on the company’s business or consolidated financial statements.


  • GHG emissions metrics: All companies would be required to disclose gross Scope 1 and 2 GHG emissions with phased-in assurances, including an intensity measure. Scope 3 GHG emissions and intensity measures would be required if a company made public climate targets/goals that include Scope 3 emissions, or if the Scope 3 emissions are material to the company. Since Scope 3 emissions are more difficult to obtain and verify, in many areas are still developing, and outside of the company’s control, the SEC proposes a liability safe harbor[6].
  • Climate-related financial metrics: Companies would be required to analyze the impact of climate risks (i.e., extreme weather, drought) on individual line items of the consolidated financial statement (i.e., revenues, assets, and cash flow). Reporting metrics would then be required if in the aggregate, climate risks affect 1% or more of the value of a relevant line item of the consolidated financial statement. As a “note” to the financial statement, these disclosures would be subject to audit and internal controls over financial reporting and SEC liability for misstatements and omissions.
  • Targets and goals: Companies with climate-related targets and goals along with any transition plans would be required to report on the relevant baselines, metrics, and time-line horizons.

Risk Disclosures

  • Climate risks: In addition to material financial metrics, companies would be required to identify and disclose actual and likely climate-related physical risks (i.e., extreme weather, drought) and risks associated with a transition to a low-carbon economy over the short, medium and long term (i.e., regulatory, technological, market-related, or reputational risks).
  • Climate risk impacts: Companies would then be required to identify and disclose the impact of any material climate-related risks they identified above. These include a company’s risk calculation, scenario analysis, carbon offsets/renewable energy credits, and internal carbon pricing methods.
  • Governance and risk management: How a board oversees and manages climate-related risks would be part of the company’s annual disclosure, with the SEC providing details on what it expects to see from fiduciary boards. The SEC would expect to see board oversight and activities on par with what is now expected for food safety oversight after the 2019 decision in Marchand v. Barnhill[7].

Assuming the SEC meets its goal of publishing a final rule by the end of 2022 and there is no court-imposed delay, the SEC proposes to phase in the requirements based on a corporation’s filing status.

Stay tuned for Blog 2 in this series where we detail reporting requirements and compliance.

[1] Private foreign issuers are also included in this proposed rule.

[2] Although the “social” prong of Environmental, Social and Governance (ESG) is not within the scope of this proposal, the SEC is expected to require mandatory reporting of diversity, equity, and inclusion metrics in the near future.

[3] Many dairy processors also sell to brands traded on European stock exchanges with similar carbon reporting mandates.

[4] “Material” is a statutory term-of-art in securities law with years of judicial interpretation. Generally, it means that there is a substantial likelihood that a reasonable investor would consider the information important when making an investment or voting decision. The SEC believes doubts should be resolved in favor of disclosure to investors.

[5] The distinction between information that is “filed” or “furnished” to the SEC is important because “filed” information carries very different legal consequences for misstatements or emissions and thus has distinct auditing and internal financial controls requirements.

[6]Marchand v. Barnhill, 212 A.3d 805 (Del. 2019)

[7] The proposed safe harbor would provide that disclosure of Scope 3 emissions by or on behalf of a company would not be considered a fraudulent statement unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith.