In September, the SEC’s Division of Corporation Finance released a sample letter sent to companies regarding climate change disclosures. Such disclosures are currently a focus area of the SEC led by Chair Gary Gensler. The SEC solicited public input on climate change disclosures earlier in 2021 to inform the Commission’s future rulemaking on the topic. Chair Gensler has since directed the staff to put together recommendations for mandatory disclosures on climate-related matters though a formal proposal is pending.
The September guidance and sample letter largely remind registrants of the existing Commission-level interpretive guidance issued in 2010 on disclosures related to climate change. Based on a registrant’s specific facts and circumstances, climate change-related disclosures may be required in SEC filings within the description of the business, legal proceedings, risk factors, and management’s discussion and analysis under existing rules and guidance.
The staff’s example letter requests additional information to understand registrants’ disclosures, particularly in circumstances where there is very little disclosure related to climate-change matters or where such disclosures have been included in a separate corporate social responsibility report, but not within SEC filings. Other requests may include or seek additional information about:
- Risk Factors, including any material transition or litigation risks related to climate change, and
- Management’s Discussion and Analysis, including significant developments in climate-related legislation and international accords, any material past or future climate-related capital commitments, material indirect consequences of climate-related trends or regulation, material physical impacts of climate change on the business, any corresponding material increased compliance costs, and any material purchases or sales of carbon credits or offsets.
Examples of indirect consequences of climate-related regulation and trends and example disclosures regarding the physical effects of climate change are provided in the sample letter.
Registrants are advised to consider the 2010 interpretive guidance and the sample letter regarding climate disclosures in their upcoming SEC filings. In accordance with existing SEC rules, companies are reminded to disclose “such material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.”