Recently Adopted Rules

Pay-Versus-Performance Disclosure Rules. New Item 402(v) of Regulation S-K (“Item 402(v)”), which sets forth the new pay-versus-performance disclosure rules (the “PVP Rules”), became effective on October 11, 2022 and applies to proxy statements for which executive compensation disclosure is required under SEC rules for fiscal years ending on or after December 16, 2022. The PVP Rules require three new types of disclosures: a pay-versus-performance table, relationship disclosure, and a tabular list of financial performance measures. The disclosures: can be included anywhere in the proxy statement (i.e., do not need to be integrated into the issuer’s compensation discussion and analysis section (“CD&A”)); will not be deemed to be incorporated by reference into any SEC filing (except to the extent that the issuer specifically incorporates the disclosures by reference); and must be tagged in Inline XBRL.

• Pay-versus-performance table.

  Year	Summary compensation table total for PEO	Compensation actually paid to PEO	Average summary compensation table total for non-PEO named executive officers	Average compensation actually paid to non-PEO named executive officers	Value of initial fixed $100 investment based on:		Net income	[Company-selected measure]
  					Total shareholder return	Peer group total shareholder return
  (a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)

  The pay-versus-performance table (the “PVP Table”) requires the inclusion of information in response to each of the column headings above for each of the issuer’s last five completed fiscal years. However, in the first proxy filing in which the issuer provides such information, the issuer may provide the required disclosure for the last three years for such filing and add disclosures for an additional year in each of the two subsequent annual meeting proxy filings.

• If more than one person served as the issuer’s CEO during the covered fiscal year, the issuer will need to provide the total compensation as reported in the issuer’s Summary Compensation Table (“SCT”) and the compensation “actually paid” (“CAP”) for each person who served as the CEO during that period separately in additional columns for each such person.

• CAP is calculated by referring to the total compensation as reported on the issuer’s SCT and making adjustments as set forth under Item 402(v) to the amounts reported under the “change in pension value and nonqualified deferred compensation earnings,” “stock awards,” and “option awards” columns of the SCT. The calculation of these adjustments to convert from the SCT total to CAP is novel and could result in issuers having to make numerous calculations relating to equity award grants, vestings, and forfeitures for these events as they occurred over the historical three/five-year period. An explanation of intricacies of the calculations is beyond the scope of this article.

  Cumulative total shareholder return (“TSR”) is calculated in the same manner used to produce the performance graph required to be included in an issuer’s annual report on Form 10-K, except that for purposes of the PVP Table, the “measurement period” begins at the market close on the last trading day before the issuer’s earliest fiscal year in the PVP Table, through and including the end of the fiscal year for which the cumulative TSR is being calculated. The peer group to be used for the issuer’s peer group cumulative TSR can be either the same peer group used for the issuer’s performance graph or the issuer’s peer group used for compensation benchmarking purposes in the CD&A. If the peer group is not a published industry or line-of-business index, the issuer will need to identify in a footnote the companies that comprise the peer group. Also, if the peer group or industry/business index group used to determine peer group cumulative TSR changes from year to year, the issuer must explain the reason for the change and compare the cumulative TSR for the two peer sets over the applicable measurement period.

  “Company-selected measure” is the measure chosen by the issuer as the single most important “financial performance measure” not otherwise included in the PVP Table used to link CAP to the named executive officers (“NEOs”) to the issuer’s performance for the most recently completed fiscal year. “Financial performance measures” mean: measures determined and presented in accordance with the accounting principles used in preparing the issuer’s financial statements; measures derived wholly or in part from such measures; and stock price and TSR. If the Company-selected measure is not a GAAP measure, the issuer will need to disclose how the measure is calculated from its audited financial statements, but the measure will not be subject to Regulation G or Item 10(e) of Regulation S-K.

• Relationship disclosure. Using the information in the PVP Table, issuers will be required to describe:

  • The relationships between the CEO’s CAP and the average of the other NEOs’ CAP with respect to each of the performance metrics included in the PVP Table over the issuer’s five most recently completed years, and
  • The relationship of the issuer’s cumulative TSR to its peer group cumulative TSR over its five most recently completed fiscal years.

  These disclosures may be reported in a narrative or graphical format or a combination of the two.

• Tabular list of performance measures. Issuers must provide an unranked tabular list of three to seven financial performance measures representing the most important metrics used to link CAP to the NEOs to the issuer’s performance for the most recently completed fiscal year. The Company-selected measure must be included in the list. If the issuer has fewer than three financial performance measures, it is required to disclose only the number of measures it actually considers. An issuer can include non-financial performance measures it considers to be among its three to seven most important performance measures as long as it discloses the minimum of three (or fewer if it only uses fewer) of the issuer’s most important financial performance measures. The disclosure can be in the form of one tabular list, one tabular list for the CEO and one for all the other NEOs, or separate tabular lists for each of the CEO and each other NEO. If the issuer provides multiple tabular lists, each list must include at least three and up to seven financial performance measures.

The PVP Rules permit disclosure of supplemental measures of compensation or financial performance, such as in the PVP Table or with other mandatory measures, and other supplemental disclosures, provided that such measures or disclosures are clearly identified as supplemental, are not misleading, and are not presented with greater prominence than the mandatory disclosure.

The PVP Rules do not apply to emerging growth companies, registered investment companies, or foreign private issuers. Smaller reporting companies will be subject to scaled disclosure requirements, and new public companies will only be required to report information for those years in which they were public.

Universal Proxy Card. The SEC’s final rules mandating parties to use universal proxy cards in contested director elections became effective on January 31, 2022 and apply to all shareholder meetings involving contested director elections held after August 31, 2022.

Under the final rules, a universal proxy card must include the names of all director nominees (i.e., company nominees, dissident nominees, and proxy access nominees). The following is a summary of additional requirements under the final rules:

• Notice: Dissidents must provide issuers with a notice of intent to solicit proxies and the names of their nominees no later than 60 calendar days prior to the anniversary of the previous year’s annual meeting. Issuers must notify dissidents of the names of the company nominees no later than 50 calendar days prior to the anniversary of the previous year’s annual meeting.
• Minimum solicitation: Dissidents must solicit at least 67% of the voting power of the issuer. Note that a statement to this effect must be included in the dissident’s notice to the company and in the dissident’s materials.
• Filing: Dissidents must file the definitive proxy statement by the later of (i) 25 calendar days before the shareholder meeting, or (ii) five calendar days after the company files its definitive proxy statement.
• Access to information about all director nominees: Each party must refer shareholders to the other party’s proxy statement for information about the other party’s director nominees, and refer shareholders to the SEC’s website to access the other party’s proxy statement free of charge.
• Formatting and presentation: Each universal proxy card must: include names of all director nominees; provide a means for shareholders to grant authority to vote “for” the nominees set forth on the proxy card; clearly distinguish between the company nominees, dissident nominees, and proxy access nominees; within each group of nominees, list the nominees in alphabetical order by last name; use the same font type, style, and size to present all nominees on the proxy card; prominently disclose the maximum number of nominees for which the authority to vote can be granted; and prominently disclose the treatment and effect of a proxy executed in a manner that grants authority to vote for the election of fewer or more nominees than the number of directors being elected, or that does not grant authority to vote for any nominees. A universal proxy card may offer the ability to vote for all company nominees or dissident nominees as a group as long as both parties have proposed a full slate of nominees, there is a similar means for the shareholder to withhold authority to vote for nominees as a group, and there are no proxy access candidates.
• Voting options: The form of proxy must include an “against” voting option when there is legal effect to vote against a director nominee, and must provide shareholders with the ability to “abstain” in a director election where the majority voting standard applies.

The final rules also require additional disclosure in proxy statements about the treatment and effect of a “withhold” vote in an election of directors.

Final Clawback Rules. Final rules relating to the recovery of erroneously awarded compensation (i.e., clawback rules), effective January 27, 2023, require securities exchanges to adopt listing standards that require issuers to develop and implement a policy for the recovery of erroneously awarded incentive-based compensation received by current or former executives. Securities exchanges are required to file proposed listing standards no later than February 27, 2023, and the listing standards must be effective no later than November 28, 2023. Issuers subject to such listing standards will be required to adopt a compliant clawback policy no later than 60 days following the date on which the applicable listing standards become effective.

Clawback policy and disclosure requirements under the final rules apply to all listed issuers, including emerging growth companies, smaller reporting companies, foreign private issuers, and controlled companies.¹ An issuer would be subject to delisting if it does not adopt and comply with its clawback policy.

In order to comply with the requirements under new Rule 10D-1 (“Rule 10D-1”) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a clawback policy must provide for the issuer to recover promptly any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure (“incentive-based compensation”) in the event that the issuer is required to prepare an accounting restatement due to the material noncompliance with any financial reporting under the securities laws (an “Accounting Restatement”), including any required accounting restatement to correct an error in previously issued financial statements (“Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (“little r” restatement). In general, the amount of erroneously awarded incentive-based compensation is the amount of incentive-based compensation received that exceeds the amount of incentive-based compensation that otherwise would have been received had it been determined based on restated amounts, computed without regard to any taxes paid.

The clawback policy must apply to all incentive-compensation received by current or former “executive officers” (using the definition of “officer” under Section 16 of the Exchange Act) during the three completed fiscal years immediately preceding the date on which the issuer is required to prepare an Accounting Restatement, which date is the earlier to occur of (i) the date the issuer’s board of directors, a board committee, and/or management concludes or reasonably should have concluded that an Accounting Restatement is required, or (ii) the date a regulator, court, or other legally authorized entity directs the issuer to prepare an Accounting Restatement. Incentive-based compensation received prior to the person becoming an “executive officer” is not subject to clawback under Rule 10D-1.

There are limited exceptions to the required recovery of erroneously awarded compensation, and issuers are prohibited from indemnifying any current or former executive officer against the loss of erroneously awarded compensation.

The new rules require additional disclosures in the annual report on Form 10-K (or corresponding proxy statement involving the election of directors) by an issuer that was required to prepare an Accounting Restatement during or after the last completed fiscal year, and if there was an outstanding balance as of the last completed fiscal year, of erroneously awarded compensation to be recovered under the issuer’s clawback policy. These disclosures must be tagged in Inline XBRL.

An issuer is required to file its clawback policy as an exhibit to its annual report on Form 10-K, and Form 10-K has been amended to add two new checkbox questions on the cover page addressing the existence of a restatement in the financial statements and, if such Form 10-K does include a restatement, whether such restatement resulted in the recovery of erroneously awarded compensation.

Rule 10b5-1 and Insider Trading. On December 14, 2022, the SEC adopted amendments to Exchange Act Rule 10b5-1. Rule 10b5-1 provides an affirmative defense to Rule 10b-5 insider trading liability for individuals and entities if the purchases and/or sales at issue are made pursuant to a written plan that satisfies certain conditions. Generally, the rule is intended to permit trading in circumstances where material nonpublic information is not a factor in the trading decision. The amendments significantly impact the SEC’s insider trading regime, including with respect to current trading practices and disclosure obligations by both insiders and issuers. The final rules will be effective 60 days after publication of the adopting release in the Federal Register.

Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023, and issuers (other than smaller reporting companies) will be required to comply with the new disclosure and Inline XBRL tagging requirements in their Exchange Act periodic reports and in any proxy or information statements that are required to include the new disclosures in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. Smaller reporting companies will be required to comply with the new disclosure and Inline XBRL tagging requirements in the first filing that covers the first full fiscal period that begins on or after October 1, 2023.

The following is a summary of key conditions to the availability of the affirmative defense to Rule 10b-5 insider trading liability as reflected in the amendments:

• Cooling off Period: A cooling-off period for directors and officers of the later of (i) 90 days following adoption of a 10b5-1 plan or modification to an existing plan or (ii) two business days following the disclosure in certain periodic reports of the issuer’s financial results for the fiscal quarter in which the 10b5-1 plan was adopted or modified (but not to exceed 120 days following plan adoption or modification) before any trading can commence under the trading arrangement. For persons other than the issuer's directors and officers (e.g., employees) the cooling off period is 30 days. (Note that the SEC did not adopt a cooling-off period for issuers at this time.)
• Director and Officer Certifications: Directors and officers must include a representation in their 10b5-1 plan certifying, at the time of the adoption of a new or modified plan, that (1) they are not aware of any material nonpublic information about the issuer or its securities, and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Exchange Act Rule 10b-5.
• Restrictions on Multiple Overlapping Plans: Persons, other than issuers, may not maintain another outstanding Rule 10b5-1 plan, or subsequently enter into an additional overlapping Rule 10b5-1 plan, for open market purchases or sales of any class of securities of the issuer during the same period (subject to certain exceptions).
• Limitation on Single-Trade Arrangements: A person, other than the issuer, will be able to rely on the Rule 10b5-1 affirmative defense for only one single-trade plan per 12-month period.
• Good Faith: All persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.

Additional Disclosure Requirements: The amendments also create significantly enhanced disclosure requirements, including:

• Disclosure in Form 10-Q and Form 10-K pursuant to a new Item 408 of Regulation S-K of the adoption and termination of Rule 10b5-1 plans or non-Rule 10b5-1 plans (as defined under new Item 408(c) of Regulation S-K) by the issuer’s directors or officers during the quarter covered by the report (the fourth quarter in the case of a Form 10-K), as well as a description of the material terms of such plans (other than terms with respect to the price of the authorized trades);
• Disclosure in Form 10-K and proxy statements pursuant to the new Item 408 regarding whether an issuer has adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of its securities by directors, officers, and employees, or the issuer itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the issuer; if an issuer has not adopted insider trading policies and procedures, it must explain why it has not done so. Item 601 of Regulation S-K and Form 20-F are amended to require issuers to file a copy of their insider trading policies and procedures as an exhibit to Forms 10-K and 20-F, respectively;
• Narrative disclosure pursuant to a new Item 402(x) of Regulation S-K discussing an issuer’s policies and practices with respect to the timing of awards of stock options, stock appreciation rights (“SARs”), and/or similar option-like instruments in relation to the release of material nonpublic information by the issuer;
• Additional tabular disclosure pursuant to the new Item 402(x) disclosing certain information about each stock option, SAR, or similar instrument granted to an NEO within a period starting four business days before the filing of a Form 10-Q or Form 10-K, or the filing or furnishing of a Form 8-K that discloses material nonpublic information (including earnings information), other than a Form 8-K disclosing a material new option award grant under Item 5.02(e), and ending one business day after such a triggering event. The table will include a column disclosing the percentage change in the market value of the securities underlying the award between the closing market price of the securities one trading day before and one trading day after the release of the material nonpublic information;
• Identifying in Forms 4 and 5 filings via a new checkbox whether a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c);
• Eliminating the deferred reporting option on Form 5 of bona fide gifts to now require such transactions be reported on Form 4 within two business days of the gift; and
• Tagging of required disclosures in Inline XBRL.

Glossy Annual Report Filing Requirements. In June 2022, the SEC adopted amendments to Exchange Act Rule 14a-3, Form 10-K and Regulation S-T, among others, which mandate that issuers electronically submit to the SEC the “glossy” annual report to security holders required by Exchange Act Rule 14a-3(b). Pursuant to the new requirements, the glossy annual report must be submitted electronically in PDF format (which may include other formats in the future to be determined by the SEC) and in accordance with the EDGAR Filer Manual, with each glossy annual report submission due no later than the date on which such report is first sent or given to security holders. The glossy annual reports are not allowed to be re-formatted, re-sized, or otherwise re-designed for purposes of submission on EDGAR. Importantly, the EDGAR submission of the glossy annual report will not be considered “filed” with the SEC. The amendments were effective July 11, 2022 and provide for a six-month transition period after this effective date. For calendar year reporting companies, the new requirements will be effective for the upcoming annual report and proxy season. Contemporaneously with the effectiveness of these amendments, the SEC withdrew its prior interpretative guidance that previously allowed issuers to satisfy their delivery obligations by posting the glossy annual report on their corporate website.

Nasdaq Board Diversity Disclosures. As further discussed in our Fall 2021 Corporate Communicator and in last winter’s Corporate Communicator, the SEC adopted Nasdaq’s board diversity rules in August 2021. The rules require Nasdaq-listed issuers, subject to certain exceptions (including for smaller reporting companies and foreign issuers), to:

1. Board Diversity Matrix Disclosure: publicly disclose, on an annual basis, specified diversity statistics relating to each director’s voluntary self-identified characteristics using a “Board Diversity Matrix”; and
2. “Comply or Explain” Diversity Objectives and Related Disclosure: have, or explain why they do not have, at least two “Diverse” members on their board, including at least one member who self-identifies as “Female” and at least one member who self-identifies as an “Underrepresented Minority” or as “LGBTQ+” (as such terms are defined in Nasdaq Listing Rule 5605(f)(1)).

By now, the vast majority of Nasdaq-listed issuers (other than newly listed companies) should have provided the initial Board Diversity Matrix disclosure for 2022 in accordance with Nasdaq Listing Rule 5606. As a reminder, issuers will need to continue providing the Board Diversity Matrix disclosure on an annual basis by December 31*. Additionally, following the first year of implementation, the Board Diversity Matrix disclosure will need to include diversity statistics for both the current year and the immediately prior year. For example, the Board Diversity Matrix disclosure in 2023 will need to include diversity statistics for both 2023 and 2022 and be disclosed by December 31, 2023.

For the Comply or Explain disclosure requirements, Nasdaq has provided for a phased approach beginning in 2023 based on an issuer’s Nasdaq market tier or whether the issuer has five or fewer directors. The following table summarizes the Comply or Explain disclosure requirement compliance dates for issuers listed on Nasdaq prior to August 6, 2021:

* These dates reflect Nasdaq’s recently proposed amendments to simplify such compliance dates, which were declared immediately effective by the SEC on December 14, 2022 but remain subject to the SEC’s right to temporarily suspend the rule changes.

Recently Proposed Rules

Issuer Share Repurchases. In December 2021, the SEC announced proposed amendments to its rules regarding disclosure about an issuer's repurchases of its equity securities (i.e., stock buybacks) that are registered under Section 12 of the Exchange Act. The comment period for the proposed amendments ended in April 2022, but on December 7, 2022, was reopened for 30 days to allow for comment about the economic impact of the Inflation Reduction Act of 2022, which imposed a one percent excise tax on most issuer stock repurchases.

The following is a summary of key changes reflected in the proposed amendments:

Proposed Form SR (Next Day Reporting)

The proposed amendments would require issuers to furnish to the SEC a new Form SR pursuant to a new Exchange Act Rule 13a-21 to report purchases of its equity securities for each day that it or an “affiliated purchaser” (as defined under Exchange Act Rule 10b-18(a)(3)) makes a share repurchase, which would need to be furnished before the end of the first business day following the day such share repurchase is executed. The following information would need to be presented in Form SR in tabular format:

• Date of the repurchase;
• Identification of the class of securities purchased;
• The total number of shares purchased, including all issuer repurchases whether or not made pursuant to publicly announced plans or programs;
• The average price paid per share;
• The aggregate total number of shares purchased on the open market;
• The aggregate total number of shares purchased in reliance on the safe harbor in Exchange Act Rule 10b-18; and
• The aggregate total number of shares purchased pursuant to a plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c).

Additionally, the information in Form SR would need to be tagged in Inline XBRL, and issuers would be required to disclose material errors or changes to information previously reported on an amended Form SR.

Proposed Enhanced Periodic Reporting (Forms 10-Q and 10-K)

The proposed amendments would also enhance the existing periodic disclosures about stock buybacks required to be provided in Form 10-Q and Form 10-K pursuant to Item 703 of Regulation S-K. The proposed amendments would revise Item 703 to require an issuer to disclose:

• The objective or rationale for its share repurchases and the process or criteria used to determine the amount of repurchases;
• Any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction on such transactions;
• Whether repurchases were made pursuant to a plan that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c), and if so, the date that the plan was adopted or terminated; and
• Whether repurchases were made in reliance on the Exchange Act Rule 10b-18 safe harbor.

Additionally, a new check box would be added for the issuer to indicate whether any of its Section 16 officers or directors purchased or sold shares of the class of the issuer’s equity securities that is the subject of an issuer share repurchase plan or program within 10 business days before or after the announcement of such plan or program.

Climate Change Disclosure. On March 21, 2022, the SEC proposed new disclosure requirements under Regulation S-K to enhance and standardize climate-related disclosures for investors.

Under the proposed rules, issuers would be required to provide certain climate-related information in annual reports under a separate, appropriately captioned section (e.g., “Climate-Related Disclosure”). Accelerated filers and large accelerated filers, including foreign private issuers, would be subject to an attestation requirement regarding certain proposed greenhouse gas (“GHG”) emissions metrics disclosures. Issuers would also be required to disclose certain climate-related financial metrics and related disclosure in a note to the audited financial statements under a new article to Regulation S-X. Climate-related disclosures would be considered “filed” rather than “furnished” and would be required to be tagged in Inline XBRL.

Proposed Disclosure. The following is a summary of the proposed climate-related disclosures:

• Oversight and governance of climate-related risks by the issuer’s board of directors and management. With respect to its board of directors, the issuer would be required to, among other things, identify any board members or board committees responsible for the oversight of climate-related risks, identify the director or directors who have expertise in climate-related risks, discuss how the board is informed, and continues to be informed, about climate-related risks, and whether and how the board considers climate-related risks as part of the issuer’s business strategy and risk management. With respect to management, the issuer would be required to disclose management’s role in assessing and managing climate-related risks.
• How any climate-related risks identified by the issuer have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term. Whether the impact is material is largely a fact-specific determination and requires both quantitative and qualitative considerations. The materiality determination with regard to potential future events will require an assessment of both the probability of the event occurring and its potential magnitude, or significance, to the issuer.
• How any identified climate-related risks affected or are likely to affect the issuer’s strategy, business model, and outlook. The issuer would be required to discuss, among other things, impacts of climate-related risks on, for example, its business operations, products or services, or suppliers, activities engaged in to mitigate or adapt to climate-related risks, and expenditures on research and development. The discussion would include the time horizon for each described impact and how the identified impacts are considered as part of the issuer’s business strategy, financial planning, and capital allocation.
• Processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated in the issuer’s overall risk management system or processes. The issuer would be required to disclose, as applicable, how it determines the relative significance of climate-related risks compared to other risks, how it considers existing or likely regulatory requirements or policies when identifying climate-related risks, how it considers shifts in customer or vendor preferences, technological changes, or changes in market prices in assessing potential transitional risks, and how it determines the materiality of climate-related risks.
• Impact of climate-related events and transition activities on the line items of an issuer’s consolidated financial statements and related expenditures, and disclosure of financial estimates and assumptions impacted by such climate-related events and transition activities. Disclosure would be required by new Article 14 of Regulation S-X in a separate footnote to the financial statements. In the footnote, issuers would have to disclose the financial impacts related to severe weather events and other natural conditions as well as climate-related transition activities. This footnote would be subject to audit by the external auditor and would fall with the scope of the issuer’s internal controls.
• Disclosure of GHG emissions for the fiscal years included in the issuer’s consolidated financial statements. The issuer would be required to separately disclose Scopes 1 and 2 GHG emissions metrics, expressed both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute and intensity terms. Scope 1 emissions are direct GHG emissions from operations that are owned or controlled by an issuer. Scope 2 emissions are indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by an issuer. The issuer would also be required to disclose Scope 3 GHG emissions and intensity, if material, or if the issuer has set a GHG emissions reduction target or goal that includes its Scope 3 emissions. Scope 3 emissions are all indirect GHG emissions not otherwise included in an issuer’s Scope 2 emissions, which occur in the upstream and downstream activities of an issuer’s value chain. The issuer must also describe the methodology, significant inputs, and significant assumptions used to calculate its GHG emissions metrics.
• Climate-related targets or goals, and transition plan, if any. If the issuer has set any climate-related targets or goals, then it will be required to provide certain information about those targets or goals, including, among other things, a description of the scope of activities and emissions included in the target, defined time horizon by which the target is intended to be achieved, interim targets, and how the issuer intends to meet its climate-related targets or goals. If the issuer has adopted a transition plan, it will be required to describe the plan, including the relevant metrics and targets used to identify and manage physical and transition risks.

Attestation Report. Accelerated filers and large accelerated filers would be required to include in the relevant filing an attestation report covering the disclosure of their Scope 1 and Scope 2 emissions and to provide certain related disclosures about the service provider engaged to provide the attestation report. The proposed rules would provide for transition periods to give time to accelerated and large accelerated filers to transition to the minimum attestation requirements.

Climate-Related Financial Statement Metrics. The proposed rules would require issuers to provide climate-related financial statement metrics and related disclosure in a note to the issuer’s audited financial statements. The financial metrics would consist of disaggregated climate-related impacts on the issuer’s existing financial statement line items. The disclosures required would fall under the following three categories of information: financial impact metrics, expenditure metrics, and financial estimates and assumptions. The financial metrics would be subject to audit by an independent registered public accounting firm and come within the scope of the issuer’s internal control over financial reporting.

Mitigation Features. The proposed rules include features in an attempt to mitigate the burden on issuers of complying with the proposed rules. The proposed rules include phase-in periods for the climate-related disclosure requirements, with the compliance date depending on the issuer’s filer status. Issuers subject to Scope 3 disclosure requirements would have one additional year to comply with the Scope 3 disclosure requirements. In addition, the proposed rules provide for a safe harbor for Scope 3 emissions disclosures from certain forms of liability under federal securities laws. Smaller reporting companies would be exempt from the Scope 3 emissions reporting requirements. The proposed rules also would permit issuers to provide a reasonable estimate of GHG emissions for the fourth fiscal quarter (together with actual GHG emissions data for the first three fiscal quarters) if the actual reported fourth quarter data is not reasonably available. In this case, the issuer would be required to promptly disclose in a subsequent filing any material difference between the estimate and the actual GHG emissions data for the fourth fiscal quarter. Finally, existing safe harbors for forward-looking statements under the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act would be available for aspects of the proposed climate-risk disclosures.

Cybersecurity Disclosures. On March 9, 2022, the SEC proposed new rules and amendments to require: current reporting about material cybersecurity incidents; periodic disclosures about an issuer’s policies and procedures to identify and manage cybersecurity risks, management’s role in implementing cybersecurity policies and procedures, cybersecurity expertise of any members of the issuer’s board of directors and the board’s oversight of cybersecurity risk; and updates about previously reported cybersecurity incidents. Cybersecurity disclosures would be required to be tagged in Inline XBRL.

Form 8-K. The proposed rules would amend Form 8-K to require disclosure of information under new Item 1.05 about a cybersecurity incident within four business days after the issuer determines that it has experienced a material cybersecurity incident (i.e., date on which the issuer determines that a cybersecurity incident is material, rather than the date of discovery of the incident). The proposed rules would not provide any allowance for a reporting delay when there is an ongoing internal or external investigation related to the cybersecurity incident. An untimely Form 8-K filing regarding the new Item 1.05 would not result in loss of Form S-3 eligibility so long as Form 8-K reporting is current at the time the Form S-3 is filed.

Updating previously reported cybersecurity incidents on Form 10-Q and Form 10-K. The proposed rules would add new Item 106 to Regulation S-K, which would require issuers to provide updates to previously disclosed cybersecurity incidents in periodic reports for the period in which the material change, addition, or update occurred. Issuers would also be required to disclose, to the extent known to management, when a series of previously undisclosed individually immaterial cybersecurity incidents has become material in the aggregate. This disclosure would be included in the periodic report for the period in which the issuer made a determination that the immaterial cybersecurity incidents are material in the aggregate.

Form 10-K. The proposed rules would amend Form 10-K to require the following disclosures as specified in the proposed new Item 106 of Regulation S-K: the issuer’s policies and procedures, if any, for identifying and managing cybersecurity risks, including whether the issuer considers cybersecurity risks as part of its business strategy, financial planning, and capital allocation; and the issuer’s cybersecurity governance, including information regarding oversight by the issuer’s board of directors of cybersecurity risk and management’s role in assessing and managing cybersecurity risk, management’s cybersecurity expertise, and management’s role in implementing the registrant’s cybersecurity policies, procedures, and strategy.

Item 407 of Regulation S-K. The proposed rules would amend Item 407 of Regulation S-K to require disclosure of whether any of the members of the issuer’s board of directors has expertise in cybersecurity, and, if so, the identity of the member and a description of the nature of the expertise. The person determined to have expertise in cybersecurity would not be deemed to be an expert for any purpose, including for purposes of Section 11 of the Securities Act.

Foreign private issuers. The proposed rule would amend Form 20-F to require foreign private issuers to provide cybersecurity disclosures in annual reports and amend Form 6-K to add “cybersecurity incidents” as a reporting topic.