SEC Division of Corporation Finance Releases Sample Climate Disclosure Commentary

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Staff at the SEC Division of Corporation Finance posted a sample comment letter (available here) reflecting comments on climate disclosure that staff may post when reviewing companies’ public documents. The publication of these comments reflects the SEC’s in-depth review of climate disclosures and follows a call made by then-Acting President Allison Herren Lee in February 2021 for Division of Corporation staff Finance “puts more emphasis on climate-related disclosure in state-owned enterprises. “And the creation in March 2021 of the Climate and ESG Working Group within the SEC’s Division of Enforcement, whose preliminary objective is” to identify any material gaps or inaccuracies in the disclosure by climate risk issuers under existing rules ”. Chairman Gary Gensler has called on the SEC to develop mandatory climate disclosure requirements to provide investors with “consistent, comparable and decision-making” disclosure, which the SEC is expected to offer this fall.

Example comments refer to the SEC 2010 Climate Disclosure Guidelines (available here) and request additional information, if applicable, in the risk factors and management report sections. Additionally, the sample comments indicate that the SEC will review information provided by companies in their corporate social responsibility / sustainability reports and compare it to information filed with the SEC. If there are any discrepancies, companies may be asked to explain their interest in providing the same type of climate-related disclosures in their documents to the SEC as those provided in their social responsibility / sustainability reports.

Below is a summary of the risk factors of the staff sample and comments from the MD&A. Even if they have not received a direct comment, companies should take these guidelines and the materiality of these climate-related disclosures into account when preparing their periodic reports.

Risk factors

  • disclose the material effects of transition risks related to climate change that may affect the business, financial condition and results of operations (for example, changes in policy and regulations that could impose operational and compliance costs, market trends that may alter business opportunities, credit risks or technological changes).
  • disclose any significant climate change litigation risk and explain the potential impact on the business.

Management report

  • identify current or existing laws, regulations and international agreements related to climate change, and describe any material effects on the business, financial condition and results of operations.
  • identify and quantify all significant past and / or future investment expenditures for climate-related projects.
  • Where possible, discuss the indirect consequences of climate-related regulations or business trends, such as:
    • 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 operations and outcomes, such as:
    • 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 to property or operations due to bad weather;
    • the potential for indirect impacts related to weather conditions that have affected or could affect the 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.
  • to the extent material, provide information on the purchase or sale of carbon credits or offsets and any material effects on the business, financial condition and results of operations.

The example climate disclosure comments reflect increased attention and expectations by the SEC on the quality and content of climate-related corporate disclosure expected in filings. Companies that previously limited substantial climate-related disclosure to corporate social responsibility / sustainability reports should now consider the advice of these SEC comments when preparing their public documents.


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