On September 22, 2021, the SEC’s Division of Corporation Finance (the “Division”) provided guidance regarding climate-related disclosures in the form of a sample letter containing examples of comments that the Division may issue to companies regarding such disclosures.1 In the text accompanying the sample letter, the Division explained that a number of the SEC’s disclosure rules may require disclosure related to climate change depending on the facts and circumstances of the specific issuer. This disclosure is in addition to the general requirement that companies disclose “such further 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.”2 The Division selectively reviews filings made with the SEC to monitor compliance with these disclosure requirements.
The following list provides a summary of the comments included in the sample letter:
- Please explain why you provided more expansive climate-related disclosure in your corporate social responsibility report than in your SEC filings.
- Risk Factors
- Disclose the material effects of climate-related transition risks that may affect your company. For example, regulatory changes, market trends, credit risks, or technological changes could increase operational and compliance burdens and/or impact business opportunities.
- Disclose any material litigation risks related to climate change and the potential impact on the company.
- Management’s Discussion and Analysis of Financial Condition and Results of Operations.
- Please update your disclosure to reflect the significant developments in federal, state and international law relating to climate change such that it identifies material pending or existing climate-related legislation, regulations or international accords and describes the effects on your company.
- Identify any material past and/or future capital expenditures for climate-related projects.
- Discuss any material indirect consequences of climate-related regulation or business trends.
- Discuss any material physical effects of climate change on your company.
- Quantify any material increased compliance costs related to climate change.
- Disclose any material purchases or sales of carbon credits or offsets and related effects on your company.
The sample letter does not represent an exhaustive list of issues that companies should consider in their public disclosures. However, it does highlight certain areas on which the staff of the Division may be focused regarding climate-related disclosures.
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If you have any questions regarding the information discussed above, please contact your Investment Management Group attorney at Seward & Kissel LLP.