By: Steve Soter
The Securities and Exchange Commission has posted a sample letter highlighting potential disclosures that public companies should consider related to climate change.
Commission staff members are in the middle of developing a proposal for a mandatory climate risk disclosure rule, which we should see in the coming weeks. The sample letter posted Wednesday is a signal that the SEC intends to build on its 2010 climate disclosure guidance, which public companies should have been following all along.
If you had questions about how to apply the 2010 guidance, you might feel simultaneously grateful and nervous about the sample letter. The good news is that the letter provides a convenient summary for considerations on applying the 2010 guidance. The bad news is that the SEC just fired a shot across the bow to indicate, in no uncertain terms, that you might be missing a few things in your current disclosures.
Across regulators, investors, and other stakeholders, interest in reliable environmental, social, and governance (ESG) reporting has been growing dramatically on both sides of the Atlantic. The European Union has already made swift progress through its recent Corporate Sustainability Reporting Directive (CSRD) proposal, and we’re anxiously awaiting an SEC proposal on additional climate change disclosures. In the meantime, regulators are closely watching existing disclosures, including those potentially affected by Wednesday’s sample letter. U.S. authorities are investigating Deutsche Bank AG’s asset-management arm, whose former head of sustainability said it wasn’t quite living up to public statements on ESG, The Wall Street Journal has reported.
Be sure to read the SEC's full announcement and sample letter for yourself, but this is what stuck out to me about what companies certainly should consider before their next SEC filing:
- The SEC expects consistency between corporate social responsibility (CSR) reports and your SEC reporting, especially for material items
- If there’s significant climate-related litigation, a government initiative, new law, accord, or other regulatory change that clearly affects your business, you really need to be talking about it in your 10-K or 10-Q
- If your investments for climate-related projects are material, or your compliance or insurance costs have been materially impacted by climate-related factors, this needs to be disclosed and quantified
- Indirect consequences of climate-related regulation or trends are important too, like lower demand for goods or services that produce significant greenhouse gases or rely on carbon-based energy sources
- If factories, buildings, or operations are at risk due to climate-related events such as hurricanes, drought, or rising sea levels, it needs to be disclosed
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