TheCorporateCounsel.net

When the SEC voluntarily stayed its climate disclosure rules earlier this month, John blogged that in light of the compliance efforts that will be involved and the other disclosure regimes at play, a “go slower” approach may be safer than “pencils down.” This Covington memo gives more color on why it’s risky to become complacent:

– First, the SEC staff is likely to continue issuing comment letters on companies’ current climate-related disclosures, including comments based on the SEC’s 2010 guidance on climate change disclosures.

– Second, many public companies could become subject to separate climate disclosure requirements under laws and regulations adopted in other jurisdictions, such as the European Union and individual states in the United States, most notably in California.

– Third, even if the SEC’s rules are struck down, it is likely that investor pressure will drive continued private ordering resulting in increased and more comparable climate-related disclosures, particularly for larger public companies.

– Finally, the outcome of the challenge to the SEC’s climate rules is uncertain, including with respect to the content of any portion of the rules that is upheld and the ultimate timing of required compliance with such rules.

The memo goes on to outline next steps based on filer status – which is very helpful! There are a number of activities that large accelerated filers may want to consider while the climate disclosure litigation is pending. For companies that may be facing less pressure, the memo recommends:

Accelerated filers, smaller reporting companies and emerging growth companies may also want to consider the steps recommended above for large accelerated filers, to the extent such companies already produce or are considering producing climate-related disclosures. If these companies are not already generating or disclosing climate-related information, they could well use the time afforded by the rules’ challenge to:

– get up to speed on the climate-related reporting and the obligations it would impose on the company, and if material, educate their boards of directors to facilitate the company’s development of corporate governance and risk management policies and procedures related to climate risk;

– if climate-related risks are expected to be material, review climate-related disclosures that competitors, industry leaders, suppliers or end-users make; and

– strategize about the information systems, processes and controls that the company would need to implement if the rules come back into effect.

The Covington team points out that if all or part of the rule is upheld, the SEC is likely to provide some transition period before the clock starts ticking again, although any such transition period will likely depend on the duration and result of the litigation, including which parts of the rules remain intact. The SEC appears to be preparing for a long battle – which may go all the way to the SCOTUS. It is difficult to predict at this point when the final outcome will be determined and what it will be.

– Liz Dunshee