June 21, 2022

SEC’s Climate Disclosure Proposals: Some Lessons Learned Drafting Model Disclosure

You may have noticed that our upcoming event is a video webcast, so it’s not surprising that given my previously noted “radio face” issues, I’m not going to participate other than as a spectator. However, I did help draft the model disclosures that we’ll unveil there. Lawrence and Dave will share more details about the challenges we faced preparing them, but since I’m not going to be there, I thought I’d share a few of my own thoughts here:

Shame is the Name of the Game. The disclosures required under the proposed rules are designed to promote a proactive approach to addressing climate change and to shame companies that don’t follow the script by compelling them to make awkward disclosures. For example, proposed Item 1501’s requirement to disclose “whether and how the board of directors sets climate-related targets or goals, and how it oversees progress against those targets or goals, including the establishment of any interim targets or goals” is going to result in uncomfortable disclosure for companies that haven’t established those targets or don’t provide board oversight of progress in attaining them.

The Boilerplate Potential is High.  When disclosure requirements lay out the path that regulators want companies to take and are designed to shame those that don’t, companies tend to follow that path. An unfortunate consequence of that approach is the potential for lemming-like behavior that will likely result in a lot of boilerplate disclosure. And yes, a lot of this stuff lends itself to boilerplate, even though that’s an outcome the Staff says it wants to avoid.

Item 1502 of S-K may be a Comment Magnet. Companies aren’t the only ones who are going to need to ramp up their expertise on non-traditional topics. The Staff faces that challenge as well, which I think means that in the early years of implementation, new disclosure requirements that are similar to existing ones are likely to be a magnet for Staff comments. Proposed Item 1502, which calls for companies to provide what is essentially a climate-centric MD&A, seems to me to be a prime candidate for Staff comments.

You Can’t Do This Yourself.  The proposed rules will require compliance with extraordinarily granular disclosure requirements dealing with matters that are beyond the expertise of the lawyers and accountants who traditionally take the lead in preparing SEC filings. That means that many companies – even those that currently provide climate disclosure – will need to add capabilities, enhance disclosure controls and procedures, and expand the group responsible for SEC reporting to include people with experience in climate-related disclosures and metrics.

Finally, it’s worth noting that you don’t have to start with a blank piece of paper.  In addition to our model disclosure, there are some other disclosure documents out there that can help you start the process.  Perhaps the most useful of these are the standalone TCFD reports that many large cap companies put out.  Since the proposed rules incorporate a lot of concepts from the TCFD framework, those reports are likely to be quite helpful – check out this example from Microsoft. We’ll be posting additional samples & checklists – along with our model disclosures – on

John Jenkins