Understanding SEC’s Sample Letter on Climate Change Disclosures

The world is entering a critical decade of climate action at the heels of the COVID pandemic. Almost all countries are working to build a more sustainable, resilient, and zero-carbon future. An economic transformation is on the horizon as the United States has signed agreements to restrict emissions and has been actively working to limit global temperatures. 

Another significant move towards this has been a sample comment letter based on climate change disclosures issued by SEC’s Division of Corporation Finance in late September this year. This reiterates the SEC’s increasing focus on climate disclosures and throws light on SEC’s views relating to the relevance of investors in climate-related risks. 

SEC’s Sample Letter on Climate Change Disclosure 

The sample comment letter details what the SEC sees as common gaps in the 2010 Climate Change Guidance Disclosures. This guidance touched upon issues such as the impact of climate-related legislation and regulations, business trends, and the direct impact of climate change itself.

Through this letter, the SEC strives to provide insight on the extent of disclosures required and highlights topics that may warrant particular attention in SEC filings. While accurate and granular data will vary based on each company and industry, the letter provides comments on what the staff of SEC’s Division of Corporation Finance may typically look for in its review. 

At DataTracks, we have summarized some of the key points below so you can consider the SEC’s guidance when preparing public filings.

Alignment with CSR Reports 

According to the letter, you should be prepared to explain any difference in the depth or substance of disclosures between annual filings and CSR reports.

Considering Risk Factors

The letter states that the focus should be on forecasting potential obligations arising from climate change-related policy, regulatory, and litigation risks.

Changes to Financial Conditions and Operations

The letter outlines regulatory requirements for climate-related legislative and policy changes. These comments ask to:

  • Detail any business impacts arising out of pending or existing climate-related legislation, regulations, and international accords.
  • Mention capital expenditures for projects related to climate, either in the past or expected in the future.
  • Discuss indirect impacts of climate-related regulation on business trends.
  • Analyze if operations and results of the business will be impacted due to climate change regulations. 
  • Quantify any significantly increased compliance costs related to climate change.
  • Disclose any important purchase or sale of carbon credits or offsets and their effects.

In conclusion, the sample comment letter does not outline any new disclosure requirements. However, this letter should be an additional guide in planning for climate-related disclosures under existing SEC rules. Given that climate regulation will continue to evolve and those business models will also change in response to climate-related risks and opportunities, climate disclosures reports are likely to have an inherently short shelf life.

Ensure you are always prepared to adapt to changes with DataTracks. You can have a chat with an XBRL expert or drop a line at enquiry@datatracks.com to find out how we can simplify the process of compliance reporting.