SEC shines spotlight on climate change in sample comment letter

As discussed in our March 4, 2021 and March 17, 2021 posts, Allison Herren Lee, then the Acting Chair of the SEC, previously issued a Public Statement and delivered a speech announcing the SEC’s enhanced focus on climate-related disclosures. Yesterday, the SEC’s Division of Corporation Finance issued a sample comment letter to provide additional guidance on the application of its rules to climate change, including  the following topics covered in the SEC’s 2010 climate change guidance:

  • The impact of pending or existing climate-change related legislation, regulations and international accords
  • The indirect consequences of regulation or business trends
  • The physical impacts of climate change

The Division noted that climate change may be implicated in an issuer’s description of business, legal proceedings, risk factors and MD&A.

The topics addressed by the sample comment letter included:

  • In general
    • The level of consideration given to providing the same type of climate-change disclosure as the issuer provides in its corporate social responsibility report (CSR report)
  • Risk factors that address
    • Material effects of transition risks related to climate change on the issuer’s business, financial condition and results of operations, including
      • Policy and regulatory changes that could impose operational and compliance burdens
      • Market trends that may alter business opportunities, credit risks or technological changes
    • Material litigation risks related to climate change and their potential impact
  • MD&A disclosures that cover following, to the extent material
    • The effects of pending or existing climate change-related legislation, regulation and international accords
    • Past and future capital expenditures for climate-related projects, which should be quantified if material
    • The indirect consequences of climate-related regulation or business trends, including:
      • increases and decreases in demand and competition related to greenhouse gas emissions standards and alternative energy sources
      • anticipated reputational risks from operations or products that produce material emissions
    • The physical effects of climate change on the issuer’s operations and results, including weather-related disclosures and related impacts on the issuer’s property, operations, customers, suppliers, production capacity and the cost and availability of insurance
    • Increased compliance costs related to climate change
    • Purchases and sales of carbon credits or offsets

The Division noted that the sample comments do not constitute an exhaustive list of the issues that companies should consider.

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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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