SEC Publishes Sample Letter to Companies on Environmental Disclosures

Environmental, social, and governance components (“ESG”) have pushed to the forefront of the SEC’s consideration in recent times.  In September, constructing on prior steering, the SEC’s Division of Company Finance launched a pattern remark letter that requests further info from corporations associated to local weather change.  The letter doesn’t create new substantive legislation, however it illustrates the SEC’s elevated curiosity in ESG and climate-related disclosures underneath the Biden Administration.

On February 2, 2010, the SEC issued its Steering Relating to Disclosure Associated to Local weather Change (Launch No. 33-9106), an interpretive launch guiding public corporations on how to apply the SEC’s present disclosure necessities to local weather change and its impression on companies.  The 2010 Steering addressed 4 matters of climate-related disclosures, together with: 1) the impression of home laws and regulation associated to local weather change, 2) the impression of worldwide accords associated to local weather change, 3) the oblique penalties of laws and enterprise developments, and 4) the bodily impacts of local weather change.  Sheppard Mullin’s assessment of this 2010 Steering could be discovered right here: SEC Interpretive Release On Climate Change Disclosure | Sheppard Mullin Richter & Hampton LLP – JDSupra.

For the reason that begin of the Biden Administration, the SEC has centered on selling ESG-related disclosures to present buyers with extra details about how corporations will each impression and be impacted by local weather change.  In February 2021, then Performing Chair of the SEC Allison Herren Lee directed the Division of Company Finance to improve its consideration on climate-related disclosures.  In March 2021, the SEC additionally created a process pressure to deal with violations of its ESG disclosure necessities.  In current months, SEC Chair Gary Gensler has additionally indicated that the SEC would place further focus on ESG-related disclosures, and has indicated that the SEC would suggest a compulsory local weather danger disclosure rule by the top of 2021.

The September 2021 pattern letter states that it’s meant to help the SEC in higher understanding company disclosures required underneath its 2010 Steering.  The letter could be discovered right here: | Sample Letter to Companies Regarding Climate Change Disclosures.  The SEC’s pattern letter requests further info relating to the next matters:


  • Whether or not the corporate offered extra expansive disclosures in its company social accountability report (CSR report) than it did in SEC filings

Threat Components

  • Materials impacts of climate-related transition dangers on the enterprise, its monetary situation, and outcomes of operations, together with coverage and regulatory adjustments, market developments, credit score dangers, or know-how adjustments

  • Materials litigation dangers associated to local weather change

Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations

  • Present or pending local weather change-related laws, laws, and worldwide accords which will have a cloth impact on the enterprise, monetary situation, and outcomes of operations

  • Materials previous and/or future capital expenditure for climate-related projections

  • Oblique penalties of climate-related laws and enterprise developments, together with:

    • the impact on demand for items and companies that produce important greenhouse gasoline emissions or are associated to carbon-based power assets

    • enhance in demand for items that lead to decrease emissions than competing merchandise

    • enhance in competitors to develop revolutionary new merchandise that lead to decrease emissions

    • enhance in demand for technology and transmission of power from different power sources, and

    • anticipated reputational dangers ensuing from operations or merchandise that produce materials greenhouse gasoline emissions

  • Materials bodily results of local weather change on operations and outcomes, together with:

    • severity of climate

    • quantification of weather-related harm to property or operations

    • potential for oblique impacts of climate affecting main prospects or suppliers

    • decreased agricultural manufacturing capability in areas affected by drought or different weather-related adjustments, and

    • weather-related impacts on the associated fee or availability of insurance coverage

  • Quantifying any materials will increase in compliance prices associated to local weather change

  • The corporate’s buy or sale of carbon credit or offsets and its impression on the enterprise, monetary situation, and outcomes of operations

Public corporations ought to take into account the SEC’s pattern letter as further perception into the company’s priorities with regard to climate-related disclosures and ESG.  The disclosures ought to embrace thorough info in step with the potential questions raised within the letter, each to present further info to buyers and to keep away from scrutiny from the SEC.  The SEC’s effort to promote climate-related disclosures will enhance company transparency into how totally different corporations are contributing to and being affected by local weather change, making environmental components a higher consideration for company management and buyers.

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