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In my blog series this week on the SEC’s climate disclosure rules, I have been tackling various aspects of the new rules (and the subsequent fallout) that I find interesting, recognizing that a more complete discussion of the requirements will be addressed in our upcoming webcast next Wednesday and in the next issue of The Corporate Counsel. Today I want to tackle the new safe harbor that the SEC adopted to cover certain portions of the climate disclosure requirements.

Whenever I ponder safe harbors, I always think about the rant that my old friend Marty Dunn would inevitably engage in whenever the topic of safe harbors came up. In his best whiny lawyer voice, he would talk about how when lawyers were given broad principles-based rules or statutory requirements to work with, they would say “this is too hard to figure out, we really need a safe harbor,” but then if you adopt a more detailed requirement, the whiny lawyers would say “this is too prescriptive, you haven’t given us enough flexibility to apply this to particular situations.” Such are the laments of a man who spent almost twenty years of his life working on rulemakings and providing interpretative guidance at the SEC!

In the case of the climate disclosure rulemaking, the SEC ended up with a safe harbor that was not originally proposed. The Commission had proposed a safe harbor for Scope 3 emissions data to mitigate potential liability concerns that companies would have had about providing emissions information derived largely from third parties in a company’s value chain. The proposed safe harbor would have provided that disclosure of Scope 3 emissions by or on behalf of the company would have been deemed not to be a fraudulent statement, unless it was shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith. Obviously, this safe harbor approach was no longer necessary once the Commission did not proceed with a Scope 3 disclosure requirement.

In the proposing release, the Commission did actually solicit comment on whether to provide a safe harbor for disclosures related to a company’s use of internal carbon pricing, scenario analysis, and a transition plan, while also requesting comment on whether it should adopt a provision similar to Item 305(d) of Regulation S-K that would apply the PSLRA safe harbors to forward-looking statements made in response to specified climate-related disclosure items, such as proposed Item 1502 pertaining to impacts of climate-related risks on strategy. Marty’s “whiny lawyers” out there responded in the affirmative, essentially on the principle that “everybody loves a safe harbor, right?” The Commission obliged, adopting Item 1507 of Regulation S-K to provide a safe harbor from private liability for climate-related disclosures (excluding historical facts) pertaining to transition plans, scenario analysis, the use of an internal carbon price, and targets and goals.

– Dave Lynn