SEC Issues "Sample" Climate Change Disclosure Comment Letter

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As part of the SEC Division of Corporation Finance’s focus on climate-related disclosure in public company filings, and as a follow up to guidance on this topic issued in 2010, the Division posted an illustrative letter containing sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure. These sample comments impact several sections of company filings, including most significantly management’s discussion and analysis of financial condition and results of operations (MD&A):

General

  1. We note that you provided more expansive disclosure in your corporate social responsibility report (CSR report) than you provided in your SEC filings.  Please advise us what consideration you gave to providing the same type of climate-related disclosure in your SEC filings as you provided in your CSR report.

Risk Factors

  1. Disclose the material effects of transition risks related to climate change that may affect your business, financial condition, and results of operations, such as policy and regulatory changes that could impose operational and compliance burdens, market trends that may alter business opportunities, credit risks, or technological changes.
  2. Disclose any material litigation risks related to climate change and explain the potential impact to the company.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  1. There have been significant developments in federal and state legislation and regulation and international accords regarding climate change that you have not discussed in your filing. Please revise your disclosure to identify material pending or existing climate change-related legislation, regulations, and international accords and describe any material effect on your business, financial condition, and results of operations.
  2. Revise your disclosure to identify any material past and/or future capital expenditures for climate-related projects. If material, please quantify these expenditures.
  3. To the extent material, discuss the indirect consequences of climate-related regulation or business trends, such as the following:
    • decreased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources;
    • increased demand for goods that result in lower emissions than competing products;
    • increased competition to develop innovative new products that result in lower emissions;
    • increased demand for generation and transmission of energy from alternative energy sources; and
    • any anticipated reputational risks resulting from operations or products that produce material greenhouse gas emissions.
  4. If material, discuss the physical effects of climate change on your operations and results. This disclosure may include the following:
    • severity of weather, such as floods, hurricanes, sea levels, arability of farmland, extreme fires, and water availability and quality;
    • quantification of material weather-related damages to your property or operations;
    • potential for indirect weather-related impacts that have affected or may affect your major customers or suppliers;
    • decreased agricultural production capacity in areas affected by drought or other weather-related changes; and
    • any weather-related impacts on the cost or availability of insurance.
  5. Quantify any material increased compliance costs related to climate change.
  6. If material, provide disclosure about your purchase or sale of carbon credits or offsets and any material effects on your business, financial condition, and results of operations.

The full letter may be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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