Disclosure Revolution:

The US, Securities & Exchange Commission (SEC), is finalizing a comprehensive disclosure rule that will impact all US listed companies, including foreign registrants, and their auditors.

· Will the SEC regulation’s costs outweigh the benefits to investors?

· Will the pending disclosure rule achieve the objective of helping to solve climate change?

In March 2022, the SEC issued a proposed disclosure rule: Enhancement and Standardization of Climate-Related Disclosures for Investors. The objective of the rule is to make climate-related disclosures consistent, comparable, comprehensive, and reliable for investors and to identify risk and opportunities.

Some of the more controversial aspects of the proposed rule include:

Legal scope – These disclosures will be required to be included in a company’s securities filing with the SEC, therefore, will be subject to a higher level of legal liability to companies and their executive officers.

Assurance requirement – some of the proposed disclosures are required to be included in the audited financial statements. This will require the company’s auditors to perform specific audit procedures to test the completeness and accuracy of the information. The process of capturing and disclosing this information will also be subject to audit. Such controls are costly to implement, and any weaknesses identified must be disclosed.

Materiality – the proposed rule only focuses on the materiality of the disclosures on the company. It does not extend to third parties and the impact on society and the environment, also known as dynamic or double materiality.

The SEC received over 15,000 comments from companies, investors, and politicians. In a CNBC poll conducted in 2022, only 25% of CFOs supported the disclosure rule as drafted.

In this presentation, Mr. Thurston will provide an overview of the proposed rule and its economic and legal impact and unintended consequences and try to answer the many questions raised by the stakeholders regarding this controversial new rule.