SEC sends companies a climate “wake-up call”


The Securities and Exchange Commission has started to put more pressure on publicly traded companies to say more about how climate change is affecting their businesses.

In recent weeks, the agency has sent letters to companies regarding climate-related data they have included – or not included – in their latest 10-K filings.

That’s what corporate governance attorneys at Gibson Dunn law firm say, which examined a number of documents and discussed them with E&E News.

The company has seen a “substantial increase” in comment letters of this nature related to climate, said James Moloney, a partner at Gibson Dunn who previously worked at the SEC.

He said this trend is important because it marks a noticeable departure from the “low” number of climate-related comment letters the SEC has sent to companies over the past decade.

The letters differ from company to company.

But in general, Moloney said, they encourage companies to submit additional information on the risks they face as a result of the clean energy transition, looming environmental regulations and growing climate impacts – as well as the extent to which they include these risks in their financial information.

Notably, the SEC’s Division of Corporation Finance has sent letters to companies in a variety of industries, including those that are not particularly carbon intensive.

“When you start to see [letters] with very similar comments applied to different companies in different industry groups… [it means] it is not just one or a few people who publish these letters. This is only part of a commission-wide or corporate finance effort, ”Moloney said.

“It’s probably in its infancy now, it’s probably not a sweep yet, but I guess by the end of the year you’ll hear about three digits – 300 to maybe 500 letters – going to business. Because it’s kind of a red flag, if you will, that’s what they signal. And also a data collection exercise, ”added Moloney.

It’s no surprise that the agency has started to lobby companies on the issue. SEC Chairman Gary Gensler has made it clear since taking office in April that climate risk is one of his top priorities and that the agency under his leadership will develop rules to ensure companies provide more climate information. strong and consistent.

The possible rulemaking would serve as an update of the existing climate agency regulations. advice – which was published over ten years ago and most agree that it has never been actively implemented or enforced.

Recent comment letters are “essentially the SEC more conscientiously enforcing the 2010 climate disclosure guidelines than it has [had] over the past decade, ”said Gregg Gelzinis, associate director of the Left Center for American Progress.

But it should also be noted, Gelzinis added in an email, that the agency “is following through on its commitment and taking action even before the new disclosure regulations are advanced.”

The agency did not respond to questions from E&E News on when the agency started posting the comment letters, which industries received them, or whether companies would be asked to update their most recent 10-Ks with relevant information.

But late yesterday afternoon, the SEC posted on its website a Example a letter the agency could send to a company regarding climate-related information it has incorporated – or failed to incorporate – in recent securities filings.

The template letter addressed a number of issues, including the possibility that some companies may include more comprehensive disclosure of climate-related risks and efforts in their voluntary sustainability reports than in their mandatory reporting, which is subject to more scrutiny. legal and regulatory depth. The letter asks the limited company to provide information on the extent to which it has considered providing the same information in the voluntary and mandatory documents.

Thomas Lee Hazen, a law professor at the University of North Carolina who focuses on securities law and regulatory compliance, said this approach makes sense given the rise of voluntary sustainability reports that companies publish annually to satisfy investors who increasingly focus on social and environmental issues. problems.

“I don’t know the exact number, but I think the vast majority of publicly traded companies, at least the biggest companies, publicly traded ones, are likely to do some sort of environmental disclosure,” Hazen said.

“So it basically opens up Pandora’s box,” he added. “Once you’ve made a voluntary disclosure… that’s when the SEC will look at it and say, ‘Well, now that you’ve disclosed that, we think you need to add something or the to expand. “”

The letter provided by the agency also prompted the anonymous company to reveal whether it could face climate-related litigation, the risk of physical climate impacts – such as extreme weather events – or losses associated with international efforts. imminent to reduce carbon emissions.

In Moloney’s eyes, the SEC staff’s quest is simple: They are “trying to get a glimpse of how the cake is baked.”

“The comments don’t specifically say you should put more or less. They are not saying that what someone has done is right, wrong or indifferent, ”he said. “They just lift the hood and ask the question, why is there so much disclosure here and maybe not so much there.”

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