A study from the Center for Audit Quality (CAQ) reviewed 10-Ks from the S&P 500 filed as of June 2022 to determine
“… what companies disclosed in their SEC filing about:
– Climate-related information (e.g., mention of climate change)
– Greenhouse gas emissions (Scope 1, 2, and 3)
– Net-zero and carbon neutral commitmentThis analysis was solely focused on information disclosed in an S&P 500 company’s SEC Form 10-K, and does not contemplate climate-related information communicated by companies in information outside of their SEC Form 10-K.”
Perhaps not surprisingly, “the types of information included in the climate-related disclosures varied from company to company.” There was a bit more consistency in where registrants placed their climate information: “The majority of S&P 500 companies that mention climate-related information in their 10-K do so in Item 1A. Risk Factors and/or Item 1. Business.”
Only 18 companies included climate information in Item 8 Financial Statements, which would be subject to external audit/assurance. The types of information in Item 8 included:
- discussions of “lawsuits, consumer trends, and/or regulatory activities that were climate-related”
- “details about their climate-related commitments or strategies.” One company went further, stating that their climate goals/strategy “could result in changes to the useful lives of certain assets.”
- green bonds
CAQ notes that there was one Critical Audit Matter (CAM) – likely associated with the issue of useful asset life.
Interestingly, 396 of the companies did not provide quantified Scope 1, 2, or 3 GHG emissions in the information disclosed.
What This Means
To me, there is good news and bad news here. The good news is that an overwhelming majority of the S&P 500 are already putting some climate information in the 10-K. That implies they are giving due consideration to the matter and its impact on the company certainly in the context of risk. The bad news is that so few of these companies included quantified emissions in their information provided. Perhaps that is included in non-regulatory filings such as an ESG report. Maybe companies aren’t confident that the data is good enough to put into a regulatory filing, or maybe companies just wanted to “stick to the script” of regulatory filing requirements (I saw that approach frequently in conflict minerals filings when I was assisting companies with those).
While S&P 500 companies may be ahead of the game (to some extent) for an SEC climate disclosure, it seems likely that a final rule for such a disclosure will go far beyond current trends in 10-K content on climate. Even these companies should be thoroughly evaluating what it takes to align with the proposed release and be prepared. As I’ve mentioned in the past and even featured in last week’s 1st Annual Practical ESG Conference, our 50+ page Sample Climate Disclosure includes guidance and annotations to help companies prepare for the new filing. Members can access the Sample Disclosure in our Checklists section.
