The Securities and Exchange Commission (SEC) revealed its landmark climate change disclosure policy on Monday, requiring U.S. issuers to disclose climate-related risks and greenhouse gas (GHG) emissions.

During the open meeting, held by the SEC’s division of corporate finance, the U.S. regulator revealed that companies will be required to disclose their Scope 1 and 2 emissions annually.

Companies will be expected to disclose Scope 3 emissions, which arise from their value chains, where such reporting is considered to be material and where an issuer has set and disclosed Scope 3 emissions reduction targets.

Companies will be expected to start disclosing some Scope 1 and 2 emissions data within one year and will have a further two years to improve the quality of the data.

A longer phase-in period will be implemented for Scope 3 emissions disclosure, as well as a safe harbor from liability, given the evolving technologies related to Scope 3 reporting. Small companies will not be subject to Scope 3 reporting requirements.

The U.S. regulator revealed that companies will also be expected to enhance their climate-related disclosure in their annual reporting, in line with “widely accepted” recommendations from the Task Force for Climate-related Financial Disclosures (TCFD).

Companies will be expected to report on their oversight and governance on climate-related risks. Reporting should also encompass how such risks have a material impact on businesses and their financial statements.

Where a company has a climate transition plan in place, it will be expected to disclose its plans and relevant metrics and targets used to manage its net-zero transition. Companies should disclose if carbon offsets or renewable energy targets are used to achieve decarbonization.

Democratic Commissioner Allison Herren Lee voiced her support for the proposed policy and urged the public to share their thoughts on whether the proposed policy goes into sufficient detail regarding Scope 3 emissions and whether such reporting should require third-party verification.

Republican Commissioner Hester Peirce criticized the proposed policy, arguing that the rule “dispenses with materiality” and forces investors to view companies through a “vocal set of stakeholders where climate reputation is more important than financial performance.”

The draft proposal will be subject to public feedback and will be finalized later this year.