Insight

Special Alert | Climate Change and ESG

SEC to enhance focus on climate-related disclosure

Amy S. Matsuo

Amy S. Matsuo

ESG and Regulatory Insights Lead, KPMG LLP

Enhanced focus on climate-related disclosure

SEC Acting Chair Allison Herren Lee issued a statement indicating that the SEC’s Division of Corporate Finance will enhance its focus on climate-related disclosure in public company filings. In particular, staff will review the extent to which the companies address the SEC’s 2010 Interpretive Guidance Regarding Disclosure Related to Climate Change, assess companies’ compliance with disclosure obligations under the federal securities laws, and develop an understanding of how the market is currently managing climate-related risk. The staff will use the insights gained to update the 2010 guidance. 

Interpretive guidance under review

In January 2010, the SEC approved interpretive guidance intended to clarify the application of existing disclosure requirements (such as Regulation S-K) to “business or legal developments relating to the issue of climate change.” The guidance highlights 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 or pending laws and regulations regarding climate change is material to the business. Disclosure should be specific to the company and not generic risk factors; negative and positive impacts may be disclosed. 
  • 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. 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 (such as increased or decreased demand for products and services).
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material risks of, or consequences from, environmental matters on their business (such as severity of weather, arability of farmland, rising sea levels).
Other notable points
  • On February 1, 2021, SEC announced the appointment of a Senior Policy Advisor for Climate and ESG to serve in the office of the Acting Chair and whose role will be “to advise the agency on environmental, social, and governance matters and advance related new initiatives across its offices and divisions.”
  • On November 19, 2020, then-Commissioner Herren Lee published a dissenting opinion to the SEC’s amendments to Regulation S-K, citing in part the fact that the updates did not address climate risk. She acknowledged that the securities laws require companies to include material information about how they manage climate risk in their discussions of MD&A (Management’s Discussion and Analysis of Financial Condition and Results of Operations), and descriptions of business, legal proceedings, and risk factor disclosure, but added that many companies do not include financial risks of climate change in their filings. 

Division of Corporate Finance 

“In support of the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, the Division of Corporation Finance seeks to ensure that investors are provided with material information in order to make informed investment decisions, both when a company initially offers its securities to the public and on an ongoing basis as it continues to give information to the marketplace. The Division also provides interpretive assistance to companies with respect to SEC rules and forms and makes recommendations to the Commission regarding new rules and revisions to existing rules.”


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