June 29, 2016

Climate Change Disclosures: Corp Fin Taking a Close Look

This recent speech by SEC Chair White not only indicates that a rule proposal regarding board diversity disclosures is coming soon, it highlights that the Corp Fin Staff is actively reviewing climate change & sustainability disclosures – and it could conduct rulemaking in this area soon too. Here’s an excerpt:

Currently, disclosure of sustainability information under SEC rules is being addressed by a combination of our materiality-based approach to disclosure, guidance on certain issues,[55] and shareholder engagement on a range of sustainability topics, whether through direct dialogue with management or our Rule 14a-8 shareholder proposal process. Although we are seeing increased disclosure and engagement on sustainability matters, we are taking a more focused look at such disclosures, particularly related to climate change, in our annual filings reviews.

We understand, however, that there are those who do not believe that our materiality-based approach to sustainability disclosure goes far enough.[56] That is one of the reasons we included a discussion of the topic in our recent Regulation S-K Concept Release and solicited input from investors and others on whether we should consider line-item disclosure on certain issues.[57] I encourage you to share your perspectives and give us your input on whether changes are needed, and if so, what specifically should be changed.[58]

Brexit Risk Factors: Tailor Them!

When I blogged about Brexit last Friday, I wrote “companies should now be assessing how this uncertain future will impact them uniquely.” As I write on page 23 of my “Risk Factors Disclosure Handbook,” macro events or trends can be appropriate risk factors – but I also write on page 25 that you should illustrate how those macro trends specifically impact your company. As nicely fleshed out in this memo, how do those known uncertainties impact how your company is thinking about its future? What is the impact of currency fluctuations? You’ll be writing about this for your MD&A & forward-looking safe harbors – so tailor them like your risk factors too. See this MarketWatch piece with a mention of me.

The first set of Form 8-Ks, Form 10-Ks & Form 10-Qs mentioning Brexit are dribbling in. And I’ve been posting oodles of Brexit memos in our “Europe” Practice Area – and here’s a few memos on the data privacy implications. Finally, get ready for our upcoming webcast: “After Brexit! Current Developments in Capital Raising.”

“Golfing” Risk Factors

Bass Berry’s Jay Knight sent along this risk factor for the Form S-1 that Titleist (corporate name – Acushnet Holdings Corp) recently filed for an IPO – a good example of a tailored risk factor:

Changes to the Rules of Golf with respect to equipment could materially adversely affect our business, financial condition and results of operations.

Golf’s most regulated categories are golf balls and golf clubs. We seek to have our new golf ball and golf club products conform with the Rules of Golf published by the United States Golf Association, or the USGA and The Royal and Ancient Golf Club of St. Andrews, or The R&A, because these rules are generally followed by golfers, both professional and amateur, within their respective jurisdictions. The USGA publishes rules that are generally followed in the United States and Mexico, and The R&A publishes rules that are generally followed in most other countries throughout the world. However, the Rules of Golf as published by The R&A and the USGA are virtually the same and are intended to be so pursuant to a Joint Statement of Principles issued in 2001. The Rules of Golf set the guidelines and establish limitations for the design and performance of all golf balls and golf clubs.

Many new regulations on golf balls and golf clubs have been introduced in the past 10 to 15 years, which we believe was one of the most active periods for golf equipment regulation in the history of golf. The USGA and R&A have historically regulated the size, weight, and initial velocity of golf balls. More recently, the USGA and R&A have specifically focused on regulating the overall distance of a golf ball. The USGA and R&A have also focused on golf club regulations, including limiting the size and spring-like effect of driver faces and club head moment of inertia. In the future, existing USGA and/or R&A rules may be altered in ways that adversely affect the sales of our current or future products. If a change in rules was adopted and caused one or more of our current or future products to be nonconforming, sales of such products would be impacted and we may not be able to adapt our products promptly to such rule change, which could materially adversely affect our business, financial condition and results of operations. In addition, changes in the Rules of Golf may result in an increase in the costs of materials that would need to be used to develop new products as well as an increase in the costs to design new products that conform to such rules.

Broc Romanek