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While the SEC’s climate disclosure rules did ultimately include several accommodations for different types of issuers, the SEC did not make accommodations for foreign private issuers. This approach is consistent with a trend in recent years where the SEC has determined to apply new disclosure requirements equally to domestic and foreign private issuers, after a historical approach of trying to accommodate different circumstances faced by foreign private issuers and encourage US listings through a more accommodative regulatory environment.

When the SEC climate disclosure rules were proposed, the Commission explained that accommodations for foreign private issuers were not appropriate, because climate-related risks “potentially impact both domestic and foreign private issuers regardless of the registrant’s jurisdiction of origin or organization.” The Commission noted that requiring the same climate-related disclosures from foreign private issuers was important to “achieving the Commission’s goal of more consistent, reliable, and comparable information across registrants.” The Commission also noted at the proposal stage that Form 20-F “imposes substantially similar disclosure requirements as those required for Form 10-K filers on matters that are similar and relevant to the proposed climate-related disclosures, such as risk factors and MD&A.”

In response to the Commission’s proposal, some commenters indicated that the Commission should permit foreign private issuers to follow the climate disclosure requirements of their home jurisdiction or of an alternative reporting regime to which they are subject. It was noted that this approach could ease the burden of complying with multiple climate disclosure requirements and avoid the potential outcome of foreign issuers not listing in the U.S. After considering these comments, the Commission noted in the adopting release:

While we acknowledge commenters who suggested that foreign private issuers be permitted to substitute compliance with the final rules through disclosures made in response to requirements of other jurisdictions, we are not adopting substituted compliance at this time. We believe it makes sense to observe how reporting under international climate-related reporting requirements and practices develop before making a determination whether such an approach would result in consistent, reliable, and comparable information for investors. The Commission may consider such accommodations in the future depending on developments in the international climate reporting practices and our experience with disclosures under the final rules.

Clearly, the Commission does not think that international climate-related disclosure standards are far enough along in other jurisdictions to rely on for US reporting purposes. As Lawrence Heim recently noted on the PracticalESG.com blog:

There is much momentum behind the ISSB sustainability disclosure standards, but that doesn’t guarantee governments are falling over each other to adopt the framework. In the US, the SEC’s final climate disclosure rules bluntly addressed ISSB standards in footnote 147:

“While we acknowledge that there are similarities between the ISSB’s climate-related disclosure standards and the final rules, and that registrants may operate or be listed in jurisdictions that will adopt or apply the ISSB standards in whole or in part, those jurisdictions have not yet integrated the ISSB standards into their climate-related disclosure rules. Accordingly, at this time we decline to recognize the use of the ISSB standards as an alternative reporting regime.”

To some, that may be a bitter pill to swallow but it could be prescient.

So, while the Commission still dangles the prospect of a “substituted compliance” approach in some far away future, in the meantime, foreign private issuers are expected to be subject to the same one-size-fits-all approach when it comes to reporting climate-related information for purposes of the U.S. federal securities laws.

It should be noted that one group of foreign private issuers did catch a break from the Commission – Canadian registrants that use the Multijurisdictional Disclosure System (MJDS) and file their Exchange Act registration statements and annual reports on Form 40-F will not be required to comply with the SEC’s climate disclosure rules, consistent with the framework of the MJDS that allows filers to follow their home jurisdiction laws and rules.

– Dave Lynn