TheCorporateCounsel.net

I don’t know about you, but in the current high-risk environment that we live in, I seem to have risk factors running through my brain on a loop and it is very difficult to quiet them down. I suspect that is a message to me that it is a good time to revisit public company risk factor disclosure as we enter yet another reporting cycle to see if any material updates are warranted in this particularly risky time. Here are my top five risk areas that seem to haunt me the most:

1. Political risks – As we have seen in the past two Presidential elections, some companies are including risk factors that address the political uncertainties that we face in this country and the potential consequences for public companies.

2. Conflict risks – With the continued war in Ukraine and rising tensions in the Middle East, companies should continue to review their risk factors concerning geopolitical risks and conflict around the world.

3. Cybersecurity risks – The cybersecurity threat environment only seems to get scarier every day, so it is always a good idea to stay current in your disclosure concerning the nature of that threat environment and the incidents that the company has been experiencing.

4. Artificial intelligence risks – As companies increasingly integrate generative AI into their business, risk factor disclosure should continue to evolve as risks with AI continue to reveal themselves.

5. Climate risks – While the SEC’s climate disclosure rules remain on pause, the SEC’s 2010 climate guidance is still applicable to your public disclosures, including the guidance about risk factor disclosure. Weather-related events over the course of the past year have certainly emphasized areas where companies may encounter climate risk in their daily operations, so it is important to keep any risk factor disclosure on this topic up-to-date.

Keep in mind that risk factors should be tailored to provide investors with an accurate and complete view of the risks that the company faces. Further, it is not sufficient to highlight a risk in the abstract or as a hypothetical risk when company has experienced that risk.

– Dave Lynn