On September 22, 2021, the Commission’s Division of Corporation Finance published a sample letter to businesses regarding climate change disclosure. The letter contains examples of comments the Division can make to businesses regarding climate change disclosure and cites areas of disclosure addressed in the 2010 Climate Change Commission guidance, including:
- the impact of existing or existing legislation, regulations and international agreements relating to climate change;
- indirect consequences of regulation or business trends; and
- the physical impacts of climate change.
The division said companies should disclose, in addition to information expressly required by regulation, “other material information, if any, that may be necessary to make the required statements, in light of the circumstances in which it is made. , not misleading. “
The full text of the nine sample Commission comments is presented in Annex A. The first example of a comment (published under the heading “General”) concerns the information provided by companies in reports on corporate social responsibility (CSR):
“We note that you provided more detailed information in your corporate social responsibility report (CSR report) than you provided in your documents with the SEC. Please let us know your interest in providing the same type of climate-related disclosure in your SEC documents that you provided in your CSR report. “
Companies that have already published reports should review their existing disclosures in light of the template letter. The template letter emphasizes the importance of adopting a unified approach to ESG disclosure. Whether on the company’s website, in an ESG report or in a Commission file, the company’s ESG disclosures should be prepared in the context of a framework, where the company’s ESG metrics are implemented as part of a coordinated plan and incorporated into disclosure across various corporate editions.
The second and third example comments focus on risk factors, including the effects of climate change transition risks and significant climate change litigation risks. Most of the information discussed can be found in Commentaries Fourth through Ninth which deal with management’s discussion and analysis of the financial condition and results of operations, including legislative developments, capital expenditures, business trends and compliance costs, among other areas.
The division has sent letters to individual companies regarding climate change disclosures in their most recent 10-K Forms. The comments correspond to the 2010 SEC Climate Change Disclosure Guidelines and therefore may not come as a total surprise – especially in light of the declaration from Commissioner Lee earlier this year, in which she asked staff to review these disclosures.
Securities and Exchange Commission Division of Corporation Finance Sample Letter to Companies Regarding Climate Change Disclosures
The Commission said a number of its disclosure rules may require disclosure related to climate change. For example and depending on the particular facts and circumstances, information relating to the risks and opportunities related to climate change may be required in the information relating to the description of a company’s activities, legal proceedings, risk factors and discussions. and management’s analyzes of the financial position and results. operations.
Companies must also disclose, in addition to the information expressly required by the Commission Regulation, “other material information, if any, which may be necessary to make the required declarations, in light of the circumstances in which they are made, not misleading ”.
The Division of Corporation Finance selectively reviews filings made under the Securities Act and the Exchange Act to monitor and improve compliance with applicable disclosure requirements. The following illustrative letter contains examples of comments the Division can make to companies regarding their climate-related disclosure or lack thereof. The sample comments are not an exhaustive list of questions companies should consider. Any comments made would be tailored appropriately to the particular company and industry and would take into consideration the disclosure that a company has provided in documents filed by the Commission.
We have reviewed your file and have the following comments regarding compliance with the matters addressed in the Commission’s 2010 Climate Change Disclosure Guidelines, Version # 33-9106 (February 2, 2010). In some of our comments, we may ask you to provide us with information so that we can better understand your disclosure. Please respond to these comments by providing the requested information and / or revising or updating your disclosure, as appropriate. If you believe that our comments do not apply to your facts and circumstances, please explain the reason to us in your response.
- We note that you provided more detailed information in your Corporate Social Responsibility Report (CSR Report) than in your documents filed with the SEC. Please let us know your interest in providing the same type of climate-related disclosure in your SEC documents that you provided in your CSR report.
- 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 could 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
- There have been significant developments in federal and state legislation and regulations and international agreements regarding climate change that you did not discuss in your file. Please review your disclosure to identify pending or existing laws, regulations and international agreements related to climate change and describe any material effects on your business, financial condition and results of operations.
- Review your disclosure to identify any significant past and / or future capital expenditures for climate-related projects. If they are 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 resulting in lower emissions than competing products;
- increased competition to develop new innovative products that result in 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;
- quantification of material damage caused by weather conditions 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 material effects on your business, financial condition and results of operations.
We remind you that the company and its management are responsible for the accuracy and adequacy of their information, notwithstanding any review, comment, action or lack of action by staff.
Corporate Finance Division