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.