March 21, 2023

Corp Fin Comments: Climate Disclosure Makes the “Top 3”!

The SEC’s proposed climate disclosure rules aren’t yet final, but companies should still be paying close attention to the Commission’s 2010 interpretive release. A recent PwC analysis of Corp Fin’s 2022 disclosure review activity underscores why: climate disclosure has broken into the “top 3” most prevalent topics that are drawing comments on Form 10-K & 10-Q filings – a trend that was noticeable as early as Q1 last year.

If you haven’t already made sure that your CSR/ESG/Sustainability report and your SEC filings are consistent with each other – not just “not conflicting” but also in terms of expansiveness – now is the time to do that. PwC explains:

These comments are largely focused on information related to climate change-related risks and opportunities that may be required in a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations. In these letters, the staff frequently commented on:

– inconsistencies between a registrant’s corporate social responsibility report and its SEC filings;

– the lack of disclosure in a registrant’s SEC filing of the risks, trends, and impact of climate change for the registrant and its business; and

– the lack of disclosure in a registrant’s SEC filings related to pending, or existing climate-related legislation and regulations that could have a material impact on a registrant’s business.

The memo gives several examples of specific comments that have been issued. Here’s a few:

– We note that you provided more expansive disclosure in your corporate social responsibility report (CSR report) than you provided in your SEC filings. Please advise us what consideration you gave to providing the same type of climate-related disclosure in your SEC filings as you provided in your CSR report.

– Disclose the material effects of transition risks related to climate change that may affect your business, financial condition, and results of operations, such as policy and regulatory changes that could impose operational and compliance burdens, market trends that may alter business opportunities, credit risks, or technological changes.

– There have been significant developments in federal and state legislation and regulation and international accords regarding climate change that you have not discussed in your filing. Please revise your disclosure to identify material pending or existing climate change-related legislation, regulations, and international accords and describe any material effect on your business, financial condition, and results of operations.

Other areas of focus during the past year included several “old favorites”: MD&A, non-GAAP, segment reporting, revenue recognition, disclosure controls, and more. We’re posting info about comment letter trends in our “Comment Letter” Practice Area, which is also where you can find our “SEC Comment Letter Process Handbook.” The Handbook shares guidance on how to navigate the response process and includes insights from Sidley’s Sonia Barros & Sara von Althann, who both spent time on the Staff.

Liz Dunshee