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The safe harbor that the Commission ultimately adopted in Item 1507 of Regulation S-K relates to the very familiar, 1990s-era statutory safe harbor for forward-looking statements that was enacted in the Private Securities Litigation Reform Act (PSLRA) in the form of Securities Act Section 27A and Exchange Act Section 21E. In addition to the forward-looking statement exemptions expressly provided for under the PSLRA, the Commission has authority under the PSLRA to provide exemptions from liability for other statements based on projections or other forward-looking information if the Commission determines that such exemption “is consistent with the public interest and the protection of investors.” The Commission previously utilized this authority only once, when it adopted Item 305 of Regulation S-K requiring disclosure concerning market risk.

Item 1507 states that the disclosures (other than historic facts) provided pursuant to the following Regulation S-K provisions constitute “forward-looking statements” for purposes of the PSLRA statutory safe harbors: (i) Item 1502(e) (transition plans); (ii) Item 1502(f) (scenario analysis); (iii) Item 1502(g) (internal carbon pricing); and Item 1504 (targets and goals). Given that the PSLRA safe harbor only extends to forward-looking statements, the safe harbor is not available for statements consisting solely of historical fact, because the Commission stated that “such information does not involve the assumptions, judgments, and predictions about future events that necessitates additional protections.” The safe harbor provision provides non-exclusive examples of historical facts that are excluded from the safe harbor, including information related to carbon offsets or RECs described pursuant to a target or goal, and a company’s statements in response to Item 1502(e) or Item 1504 (targets and goals disclosure) about material expenditures actually incurred.

Perhaps most helpfully, the final rules provide that the PSLRA safe harbors will apply to the specific climate-related forward-looking statements in connection with certain transactions and disclosures by certain issuers, notwithstanding that these transactions and issuers are excluded from the PSLRA safe harbors in subparagraphs (a) and (b) of Section 27A of the Securities Act and Section 21E of the Exchange Act (including, for example, forward-looking statements made in connection with an IPO).

Importantly, to get the benefit of the statutory PSLRA safe harbors, a company would still need to satisfy all of the requirements specified in the Sections 27A and 21E, including that a forward-looking statement must be accompanied by a meaningful cautionary statement that identifies important factors that could cause actual results to differ materially from those in the forward-looking statement.

A whiny securities lawyer might say that the Commission’s new safe harbor in Item 1507 does not give us much, in that, at least in most cases, the forward-looking statements provided in response to the identified disclosure items arguably could have already been within the protections afforded by the PSLRA statutory safe harbors, because they constitute statements of the plans or objectives of management for future operations. In response, a grateful securities lawyer might say that at least we have the added clarity that the safe harbors apply (similar to the clarity provided for all of these years in Item 305 of Regulation S-K), and the Commission did go so far as to override the provisions of the PSLRA that prohibited reliance on the safe harbors by specified issuers and in specified transactions, such as in an IPO. I think both types of securities lawyers are in the right on this one!

– Dave Lynn