Client Alerts
Oct. 01, 2021

SEC Staff Guidance Signals Agency Review of Companies’ Current ESG and Climate-Related Disclosures

Despite SEC Chair Gary Gensler’s recent statement that formal rules related to Environmental Social Governance (ESG) may slip to next year, the SEC recently began sending out letters prompting public companies to review and bolster disclosures related to climate-related risks, as noted in guidance from the staff of the Division of Corporation Finance posted to the agency’s website on Sept. 22, 2021 (the Staff Guidance). The Staff Guidance references 2010 Climate Change Guidance put out by the SEC, which prompts companies to consider the materiality of the impact of climate change–related legislation; the indirect consequences of regulation or business trends; and the physical impacts of climate change as part of their Regulation S-K Item 101 (Description of Business), Item 103 (Legal Proceedings), Item 105 (Risk Factors) and Item 303 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) disclosures. As a result of the Staff Guidance, public filers (whether they receive a letter of their own or not) should begin to review their current environmental and climate change–related disclosures as they await the SEC to issue formal rules on expanded requirements for ESG disclosures.

The Staff Guidance included a sample letter addressed to “ABC Corporation” (the Sample Letter), which requests that this fictitious company provide further information on how climate-related risks are impacting the company’s financial condition, “impose operational and compliance burdens,” or otherwise alter “business opportunities, credit risks, or technological changes.” The Sample Letter requests revision of disclosures related to the effect material pending or existing climate change–related legislation (at the international, federal and state levels), capital expenditures for climate-related projects, the physical effects of climate change on operations, material increased compliance costs related to climate change, and the purchase or sale of carbon credits or offsets. Of note, the letter also requests information on why the company had more expansive disclosures in its corporate social responsibility report than in its SEC filings.

The letter is illustrative of what companies may soon expect to receive from the SEC; indeed, some companies have reportedly started receiving the letters as early as the week of Sept. 20, 2021.

Authors and Editors

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