Earlier this year, Acting SEC Chair Allison Herren Lee issued a directive to the SEC’s Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings. Yesterday, Corp Fin posted a sample letter identifying some of the comments that companies should expect to receive during the filing review process. Not surprisingly, the sample letter includes comments seeking additional risk factor disclosure concerning climate change-related risks, but it’s also pretty clear that the Staff expects the MD&A section to do a lot of heavy lifting on climate change disclosure.
In fact, the bulk of the sample letter addresses MD&A disclosures. Specific areas where additional MD&A disclosure is sought include:
– the material impact of climate change-related legislation, regulation or international accords, historical and anticipated cap ex for climate-related projects;
– the indirect consequences of climate-related regulation or business trends, such as changes in demand for products and services, increasing competition to develop new lower-emission products, increases in demands for alternative energy & the reputational risks associated with operations or products that produce material greenhouse gas emissions;
– the physical effects of climate change on operations and results, including the impact of severe weather, quantification of weather-related damages and weather-related impacts on the cost of insurance;
– quantification of increased compliance costs and disclosure concerning the purchase and sale of carbon credits and any material effects on the company’s business, results of operations or financial condition.
Another topic addressed in the sample letter was discrepancies between the level of disclosure provided in corporate sustainability reports and in SEC filings. Companies should expect to be asked to what consideration they gave to providing the same type of climate-related disclosure in their SEC filings as they provided in their sustainability reports. Not to blow our own horn, but in our March issue, we told subscribers to The Corporate Counsel to keep an eye on this issue in preparing for Staff scrutiny of their climate change disclosures:
Look Beyond SEC Filings. Many companies have addressed climate change in sustainability reports and other publications beyond their Exchange Act reports. Those communications and third-party publications should be reviewed with an eye toward determining whether what is said in them is appropriately addressed in the company’s SEC filings.
Okay, so maybe the SEC did mention this issue back in its 2010 guidance, but I’m still calling this one a “W” for Dave and me.
-John Jenkins, TheCorporateCounsel.net September 23, 2021