SEC Climate Change Disclosure Letter Foreshadows Anticipated Regulatory Changes

Washington, D.C. (October 13, 2021) - In late September 2021, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) issued a Sample Letter providing guidance to companies on how their climate disclosures will be analyzed for compliance with material risk reporting obligations. The Sample Letter precedes the SEC’s issuance of mandatory climate-related disclosure rules anticipated by year-end and signals a greater focus on specific information used to support securities filings, a development that businesses should take seriously.

The Sample Letter builds on climate change guidance the SEC issued in 2010 and identifies nine categories of disclosures the SEC suggests may be material risks that must be disclosed. These include:

• Consistency between a company’s corporate social responsibility report and its SEC filings;
• Risks associated with climate-related legislation, regulation, or policy, and resulting compliance costs;
• Litigation risks related to climate change; and
• Risks linked to an array of operational and market factors, including capital expenditures, continuity of business operations, supply chain stability, changing demand, reputation, availability of credit and insurance, and other climate-change related potential impacts on the financial condition of the company.

Although the Sample Letter notes that neither it nor the 2010 guidance is legally binding, there is no question the SEC is putting all reporting companies on alert that it will take a broad view of existing materiality requirements in reviewing disclosures for climate change-related matters, even before it proposes formal new rules on the subject.

At the same time, the Sample Letter serves as a reminder that both the disclosures themselves and any responses to SEC inquiries will become publicly available to the full spectrum of interested parties, including investors, commercial customers, competitors, and potential shareholder suit plaintiffs.

Climate change-related risks are no simple matter to quantify and disclose, and businesses subject to SEC reporting requirements will likely need expert advice from experienced legal counsel.

For more information on this topic, contact the authors of this report. Visit Lewis Brisbois' Sustainability and Environmental, Social, and Governance (ESG) Practice page to find additional alerts in this area.

Authors:

Karen C. Bennett, Partner

Jane C. Luxton, Managing Partner - Washington, D.C.