SEC Focuses Attention on Climate Change Disclosure

The SEC has recently released a sample comment letter focusing specifically on public companies’ climate change related disclosures. This comes as no surprise as earlier in the year, Acting Chair Allison Herren Lee issued a statement directing the staff of the Division of Corporation Finance to review how public companies are addressing the topics identified in the 2010 Commission Guidance Regarding Disclosure Related to Climate Change while engaging with public companies on climate issues. The SEC went one step further in March and announced the creation of a Climate and ESG Task Force in the Division of Enforcement. This task force was created to, among other things, identify the gaps in public company disclosures on climate risks. It appears the task force has identified at least some of those gaps and intends to close them in future public company filings, as described below. A more expansive summary of these past actions can be found in a previous LEGALcurrents from this past spring.

In this sample comment letter, the SEC makes it clear that it will be scrutinizing public companies’ disclosures on a number of climate change topics. These topics touch on many areas included in public company disclosures, including a company’s description of business, risk factors, litigation, and management’s discussion and analysis of financial condition and results of operations. One general issue the SEC is focused on is when a company is less expansive about climate change issues and their effect on the company in their SEC-filed disclosures than in their CSR report.

The sample letter requests an expansion of risk factor disclosure. To closely follow the SEC’s guidance, a company should be addressing the transition risks related to climate change that may affect the company, its financial condition, or results of operations. These transition risks include changes the company will need to make due to policy and regulatory changes, market trends, and technological changes. A company should also describe any material litigation risks or the risk of facing future litigation related to climate change.

Another major area of the SEC’s focus is Management’s Discussion and Analysis of Financial Condition and Results of Operations. The SEC will be looking for the following points to be addressed, if material to the business: 

  • Regulatory Compliance: A company should identify current and pending environmental regulations that may affect the company and describe the potential impact of climate change and environmental regulations on the company.
  • Physical Effects: A company should identify the physical effects climate change is having on its business. Depending on the company, this could range from discussing weather-related impacts, such as floods, hurricanes, rising sea levels, wildfires, and the availability of water on its business or its customers or suppliers, to quantifying damage caused by extreme weather. If climate change is impacting the cost of availability of insurance, a company should also address that impact.
  • Capital Expenditures: A company should discuss and quantify any material past or future capital expenditures related to climate change or resulting from climate change.
  • Other Costs: A company should discuss any costs relating to climate change, such as increased spending on compliance with climate change policies or the purchase or sale of carbon credits or offsets.
  • Indirect Consequences: A company should discuss indirect consequences of climate change, considering the following questions:
    • will demand for your company’s product or services decrease because of their related greenhouse gas emissions or relationship with carbon-based energy sources?
    • will your products or services face competition from those lower in greenhouse gas emissions?
    • how will the race to develop lower-emissions products impact your business?
    • does your company need to adapt to use alternative energy sources?
    • does your company face reputational risks related to the impacts of climate change?

This latest disclosure guidance coupled with the SEC’s focus on climate change this year make it clear that public companies will need to take stock of how the changing natural environment is changing the regulatory environment. We expect further information and guidance will be given when the SEC releases a proposed rule about climate change disclosure. Until then, public companies should remain focused on this issue and expect to make a regular practice of including environmental-related information, such as the topics described above, in their public disclosures.

If you have any questions about the SEC’s latest guidance in this area, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at 585.232.6500, 716.853.1616, or visit  

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