Beware of Gaps: SEC Template Letter Provides Valuable Guidance on Relevant Climate Change Information | Kelley Drye & Warren LLP


On September 22, 2021, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC” or the “Commission”) released new guidance on climate change. The guidelines consist of a sample letter outlining comments related to climate change disclosures, which division staff would likely release to a public company after reviewing its documents with the SEC. SeeSample Letter to Businesses Regarding Climate Change Disclosures.

The comments in the template letter provide public companies with valuable information about what information the SEC would consider relevant when assessing climate-related disclosure in documents filed with the SEC, such as periodic reports. under the Securities Exchange Act of 1934 and registration statements under the Securities Act of 1933. It is important to note that the template letter gives companies a window into what the SEC considers to be common shortcomings in the statements. disclosures and highlights matters that may merit particular attention in filings with the SEC.

The SEC explained on its website that staff send letters to public companies seeking more information on how climate change could affect their financial income or business operations. These letters were sent to dozens of companies, including in agriculture, oil and gas, banking, real estate and transportation. See Paul Kiernan, SEC asks dozens of companies for more climate disclosures, The Wall Street Journal (September 22, 2021).

In February 2021, Acting SEC Chairman Allison Herren Lee asked the SEC’s Division of Corporation Finance “to focus more on climate-related disclosure in public company records” and said the SEC staff would begin reviewing existing disclosures as part of a 2010 guidance update process. SEC Statement, Review of Climate-Related Disclosure (February 24, 2021), available at In early March, the SEC also announced the creation of a Climate and ESG Working Group within the SEC’s Division of Enforcement to initially focus on identifying any material gaps or inaccuracies. in disclosure by issuers of climate risks under existing rules.

It should be noted that the sample comment letter conforms to the 2010 SEC guidelines for climate change disclosure. He said that information relating to the risks and opportunities associated with climate change may be required in disclosures of a company’s business description, legal proceedings, risk factors and management’s discussions and analyzes of the situation. financial and operating results. See, Commission Guidelines on Climate Change Disclosure, Publication No. 33-9106 (February 2, 2010) [75 FR 6290] (February 8, 2010) (“2010 Climate Change Guidance”).

Companies should now consider the general information, risk factors and MD&A commentary highlighted in the SEC template letter and the importance of this climate-related information when preparing a report. their periodic reports, although they did not receive a comment directly from the SEC.

General Disclosure
  • The comment letter template indicates that future comment letters may ask an issuer to correct potential discrepancies between the scope of information provided in that issuer’s corporate social responsibility reports (CSR reports) and the lack of abbreviated or even total of such information in its filings with the SEC.
Risk factors
  • Disclose the material effects of climate change transition risks that may affect your business, financial condition and results of operations, such as policy and regulatory changes that may impose operational and compliance costs, business trends market that can alter business opportunities, credit risks, or technological changes.
  • Disclose any significant climate change litigation risk and explain the potential impact to the business.
Management report and analysis of the financial position and operating results
  • Identify pending or existing laws, regulations and international agreements related to climate change, and describe any significant effects on the business, financial condition and results of operations.
  • Identify any significant past and / or future capital expenditures for climate-related projects. If significant, please quantify these expenses.
  • Where possible, discuss the indirect consequences of climate-related regulations or business trends, such as the following:
    • decreased demand for goods or services that produce significant greenhouse gas emissions or are linked to carbon-based energy sources; increased demand for goods that result in lower emissions than competing products;
    • increased competition to develop new innovative products which translate into lower emissions;
    • increased demand for the production and transmission of energy from alternative energy sources; and
    • any anticipated reputational risk resulting from operations or products that produce significant greenhouse gas emissions.
  • If important, discuss the physical effects of climate change on your operations and bottom line. This disclosure may include the following:
    • severity of weather conditions, such as floods, hurricanes, sea level, the arability of agricultural land, extreme fires, and water availability and quality;
    • quantifying the material damage caused by inclement weather to your property or operations;
    • the potential for indirect impacts related to weather conditions that have affected or could affect your main customers or suppliers;
    • decreased agricultural production capacity in areas affected by drought or other weather-related changes; and
    • any weather-related impact on the cost or availability of insurance.
  • Quantify any significant increase in compliance costs related to climate change.
    • If important, provide information about your purchase or sale of carbon credits or offsets and any significant effect on your business, financial condition and results of operations.

With the release of the sample disclosure comments, companies should now consider SEC guidelines when preparing public documents.

We believe that having a centralized list of these disclosure statements could make the process more manageable. Additionally, companies should keep in mind that the information and disclosures in a CRS report are typically designed for use by many different stakeholders. In particular, issuers could consider whether there are material discrepancies between voluntary CSR reports and information contained in documents filed with the SEC. Therefore, companies should review their existing SEC information to identify any areas for potential review or revision.

As we have indicated in our previous client reviews, ESG and climate change issues are a very important focus for the SEC and the change is clearly happening in disclosures on these topics. Businesses need to be prepared.

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