SEC Staff Demanding Detailed Climate Risk Disclosure

The Securities and Exchange Commission’s staff isn’t waiting for its climate-related disclosure rules to be finalized before demanding detailed disclosures from public companies concerning environmental issues.

In a blog, the Wilmer Hale firm reports that the Division of Corporation Finance staff sent comment letters to 12 companies in August and September 2023. They sought more information about the impact of climate change on their business and operations than they had disclosed.

In several instances, follow-up questions concerned the processes the companies used to determine the materiality of climate-related issues. If those issues incurred costs and damages, they were asked to quantify. The Letters have four comment types.

Type 1 compares filed disclosures to published information in filings or other sources pertaining to climate change. The question is why the company provided less information in its Form 10-K than on its website, in ESG Reports, or in other relevant publications.

Type 2 asks companies to consider the impact and indirect consequences of climate-related regulation or business trends.

In type 3, companies are asked to quantify the physical effects of climate-related activity. Any damages related to major weather incidents and the effects of such damages on third parties or consumers are required to be described. Increased premiums or insurance cancellations must be disclosed.

Type 4 queries companies on purchases or sales of carbon credits or offsets, and how that materially affects their business.

When materiality or its lack was discussed, the staff asked for analysis leading to those conclusions. Detail was demanded, but generally speaking, explanations that certain risks were not material were accepted.