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Keeping you in-the-know on environmental, social and governance developments

This alert from Gibson Dunn confirms rumblings we heard earlier – the SEC’s Division of Corporation Finance has issued comment letters to individual companies about climate change disclosures in their most recent Form 10-K filings. The comments apparently are aligned with the SEC’s 2010 Guidance Regarding Disclosure Related to Climate Change and therefore may not be a complete surprise – especially in light of the statement from Commissioner Lee from earlier this year in which she directed the Staff to review these disclosures.

Interestingly, though, Gibson Dunn says that the companies receiving the comment letters are in industries that are not “particularly carbon-intensive.” The alert includes this sampling of the types of comments that have been issued:

  • ​To the extent material, discuss the indirect consequences of climate-related regulation or business trends.
  • Please revise your disclosure to identify any material past and/or future capital expenditures for climate-related projects.
  • Quantify any material increased compliance costs related to climate change.
  • Disclose any material litigation risks related to climate change and the potential impact to the company.
  • If material, provide disclosure about your purchase or sale of carbon credits or offsets and any material effects on your business, financial condition, and results of operations.
  • To the extent that you expect decreased demand for your goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources, please disclose any material expected effect on your business, financial condition, and results of operations.
  • If material, discuss the significant physical effects of climate change on your operations and results.
  • Please advise us what consideration you gave to providing the same type of climate-related disclosure in your SEC filings as you provided in your sustainability report.

The law firm also points out that:

[c]ompanies should not view this initiative, or even the receipt of such a comment letter, as a mandate to include wide-ranging climate-related data and disclosures in future Form 10-K filings.  However, the comments serve as a useful reminder that, as part of a company’s disclosure controls and procedures, climate-related information should be carefully considered for possible inclusion in a company’s periodic reports.    

The alert walks through recommendations to prepare for the possibility of a comment on this topic. I would add to those – validate the data and assumptions on which you relied in (a) quantifying your emissions and (b) making future reduction commitments. At a minimum, consider using an internal team of environmental and internal audit staff, augmented with other internal functions as needed. Alternatively, it may be worth considering engaging a qualified external climate emissions quantification and/or risk management expert.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile