November 10, 2021

Climate Change Comment Letters: Round 2

As we have previously reported, over the past few months companies across a wide range industries have been receiving comments from the Corp Fin Staff that are focused on climate change disclosure. In September, the Staff published a sample comment letter highlighting its comments on climate change disclosure. Now that companies have had a chance to respond to the initial round of comments and the Staff has had time to consider those responses, we are now seeing round 2 of the climate change comment letters.

Comments in the first round of letters asked questions focusing on a company’s materiality analysis with respect to information about climate change, harkening back to the SEC’s 2010 climate change disclosure guidance. In round 2, the Staff is generally digging deeper into a company’s materiality analysis, asking for additional details on the company’s determination that disclosure of climate change matters was not material. In some cases, the follow-up comments request more quantitative information from companies in support of the materiality determination. Some companies and practitioners have been surprised by this approach, noting that the Staff has in the past been more deferential to a company’s conclusions as to materiality.

It is obvious from these round 2 comment letters that the Staff is not going to “let it go” when it comes to climate change, and additional work will be necessary to justify for the Staff why climate-related disclosure was not included in the periodic reports that the Staff has reviewed. Areas of focus in the round 2 comments letters appear to be:

  • More information concerning disclosure decisions with respect to specific transition risks related to climate change that are relevant to a company’s business and operations;
  • Considerations made in determining whether to disclose the direct and indirect consequences of climate-related regulations or business trends;
  • The existence (or nonexistence) of material capital expenditures for climate-related purposes, and how that materiality decision was made;
  • Consideration of the impact of weather-related events on a company’s results of operations and financial condition; and
  • The quantification of material compliance costs associated with climate change.

We expect that with climate change disclosure rules just around the corner, the Staff has an incentive to continue to press for more information through the comment process. The round 2 comment letters that we have seen appear to be focusing mostly on asking for additional information and analysis, rather than requesting specific disclosures in the future, or seeking amendments to prior periodic reports.

– Dave Lynn