Continued climate disclosure focus by SEC staff

Key impacts

Background

• On February 24, 2021, then SEC Acting Chair, Allison Herren Lee, released a statement that she was directing the SEC’s Division of Corporation Finance to enhance its focus on climate-related disclosures in public company filings.
  
• The statement indicated that efforts would be directed at evaluating current disclosure rules with an eye toward the disclosure guidance that was issued in 2010 and developing insights to help modernize that guidance.
  
• Lee’s statement was followed by inclusion of the topic in the SEC’s 2021 examination priorities, and the announcement of a new enforcement taskforce to focus on climate and ESG issues.
• The SEC staff issued its example comment letter with nine key questions in September 2021.

Over two years later, we are seeing more focus by staff

• As of January 2024, the staff has sent letters to more than 80 issuers since the example comment letter was issued. Staff has made over 500 comments and the follow-up rate on issuer responses has exceeded 50%.
• Recent letters have focused on the quality of climate disclosures related to regulatory and physical risks, as well as differences between a company’s sustainability report and its Form 10-K, and the use of carbon credits.
• When an issuer indicates to the SEC staff that disclosures are not material, it is not uncommon for the staff to request a quantitative materiality analysis. In addition, the staff has continued to probe explanations that it feels are not sufficiently precise about how an issuer considered the need for disclosure in its Form 10-K or its choice of words when disclosure was included. In some cases, issuers are agreeing to update risk language after back-and-forth with the staff.
• We recommend using the example letter to assess planned disclosures. This assessment helps to highlight areas in which disclosures could be strengthened to meet staff expectations under the 2010 climate disclosure guidance.