SEC Issues Sample Letter Regarding Climate Change Disclosures

On September 22, the US Securities and Exchange Commission (SEC) issued an “illustrative letter” that the Division of Corporation Finance may send to companies in order to “monitor and enhance” compliance with current climate-related disclosure requirements.

Companies reporting to the SEC may want to review this sample letter in order to understand the types of issues and question of interest to the SEC.

Among other items, the illustrative letter points to the following important observations:

• The SEC is reviewing and comparing a company’s SEC’s filings with the company’s social responsibility and sustainability documents, and may ask about any discrepancies.
• The SEC may ask detailed questions related to climate risk factors including regulatory and litigation risks.
• The SEC appears focused on whether or not companies have fully accounted for the “significant developments in federal and state legislation and regulation and international accords regarding climate change” in their disclosures.
• The SEC’s sample letter asks companies to discuss in depth the “indirect consequences” of climate-related regulation and “business trends” including “decreased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources.”
• The SEC may request further information from companies related to operational or financial impacts from the physical effects of climate change including increased severe weather.
• And the SEC has indicated that it will explicitly ask about a company’s purchase or sale of carbon credits or offsets.

As expected, the September 22 announcement further indicates the SEC’s increased interest in ensuring that companies are planning for, and disclosing, climate-related risks. Companies may want to consider proactively looking at their investor materials now in anticipation of SEC review in this area. Consideration should be given to whether there are discrepancies and if updates are needed. Companies may also want to keep these issues in mind as they draft upcoming SEC filings and/or investor documents.

For additional information related to ESG issues, please see our ESG Advisory Series including our most recent Advisory, which highlights, among other things, the SEC’s enforcement focus in this area.

If you have any questions about best practices related to ESG disclosures, please reach out to any of the authors of this article or your regular Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.