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Following a statement by the SEC Acting Chair, the SEC staff is set to increase attention on climate-related disclosures.
Applicability
Public companies, including foreign filers.
ESG (Environmental, Social, Governance) is playing an increasingly important role in the strategy and operations of companies, and investment decisions are increasingly being driven by ESG metrics (see recap).
Fun facts, impacts and actions
On February 24, 2021, Acting SEC Chair, Allison Herren Lee, released a statement that she is directing the SEC’s Division of Corporation Finance to enhance its focus on climate-related disclosures in public company filings; this was followed by inclusion of the topic in the SEC’s 2021 examination priorities. Efforts will be directed at evaluating compliance with existing disclosure guidance that was issued in 2010 and developing insights to help modernize that guidance.
The specific actions may evolve over time and could range from review and analysis of existing disclosures to inform future rulemaking, to the issuance of comment letters to registrants regarding compliance with the 2010 disclosure guidance.
The SEC’s announcement is a call to action for registrants to refresh their understanding of the 2010 disclosure guidance – which explains how the Regulation S-K requirements apply to climate-related matters – and to carefully analyze the quality of their disclosures. Consistent with the most recent amendments to Regulation S-K, these disclosures should provide investors with a view of the registrant through the eyes of management.
Background to the SEC announcement
Recent actions have begun to make one thing clear: ESG is quickly moving to the forefront of the SEC’s agenda in response to the growing interest of investors. For the first time, a Senior Policy Advisor for Climate and ESG has been appointed to “advise the agency on environmental, social and governance matters and advance related new initiatives across its offices and divisions.”
Shortly after that announcement, Acting Chair Lee released a statement that she is directing the Division of Corporation Finance to enhance its focus on climate-related disclosures in public company filings. There has been no new rulemaking. Instead, this statement puts the spotlight on existing disclosure guidance released in 2010, which is an area of interest from Lee’s time as a commissioner. It was followed by the inclusion of climate-related disclosures in the SEC’s 2021 examination priorities.
The statement lays out Lee’s intent to focus on how companies have complied with the 2010 guidance, and to engage with companies and the market to gain insights with a view to updating the guidance. SEC Chair nominee Gary Gensler also shared his views on the importance of disclosures around climate risks and other aspects of ESG in his recent Senate nomination hearing.
As a result, a critical first step is for registrants to refresh their understanding of the existing Regulation S-K requirements and where these requirements intersect with the many potential impacts of climate change.
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