On February 24, 2021, Acting SEC Chair Allison Herren Lee issued a statement directing the Commission’s Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings. The statement represents the Commission’s first significant step toward enhanced climate-related disclosure since it issued its interpretive guidance in 2010.

According to the statement, the staff of the Division of Corporation Finance is directed to:

• review the extent to which public companies address the topics identified in the 2010 guidance;
  
  
• assess compliance with disclosure obligations under the federal securities laws;
  
  
• engage with public companies on these issues; and
  
  
• absorb critical lessons on how the market is currently managing climate-related risks.

The staff will also begin updating the 2010 guidance to take into account climate-related developments over the last decade.

According to Acting Chair Lee, investors are increasingly considering climate-related issues when making their investment decisions. These steps are intended to produce more consistent, comparable and reliable climate-related disclosures.

2010 Commission Guidance Regarding Disclosure Related to Climate Guidance

In 2010, the Commission provided guidance to public companies regarding existing disclosure requirements as they apply to climate change matters. The guidance did not establish any new requirements, but was intended to provide clarity and enhance consistency for public companies and their investors.

In its 2010 press release associated with the guidance, the SEC highlighted the following areas as examples of where climate change may trigger disclosure requirements:

 

Impact of Legislation and Regulation	When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
Impact of International Accords	A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
Indirect Consequences of Regulation or Business Trends	Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
Physical Impacts of Climate Change	Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

 

The guidance also highlighted the most pertinent non-financial statement rules that may require disclosure of climate change issues. Depending on the individual facts and circumstances of a particular company, each of the above risks may trigger disclosure obligations under parts of Regulation S-K, including:

• Item 101: Description of Business;
  
  
• Item 103: Legal Proceedings;
  
  
• Item 105: Risk Factors; and
  
  
• Item 303: Management’s Discussion and Analysis.

The SEC staff will be reviewing the extent to which public companies addressed the topics identified in the 2010 guidance. Registrants should review their SEC reports alongside the 2010 guidance to ensure adequate disclosure of climate change related matters.

Implications of SEC Chair’s Statement

Ms. Lee was designated Acting Chair of the Commission by President Biden on January 21, 2021. On February 1, she hired the Commission’s first SEC policy advisor for climate and ESG, signaling the Commission’s emphasis on environmental, social and governance issues.

Acting Chair Lee’s statement may be laying the groundwork for more prescriptive standards to be pursued by Gary Gensler, President Biden’s nominee to lead the SEC. Gensler’s confirmation hearing before the Senate is scheduled for March 2, 2021. The SEC is likely to expand climate-related disclosure requirements after completing its review of the 2010 guidance.

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