SEC Open Comment Letter on Climate Change Disclosure: What Public Companies Should Do Now | Ballard Spahr srl

Summary
State-owned companies are expected to improve their disclosure on the impact of climate change in accordance with the SEC’s open comment letter released on September 29, 2021.
The result

  • In an open comment letter published on September 29, 2021, the SEC provided guidance to issuers on disclosures regarding the impact of climate change. Public companies should seek to incorporate the disclosure principles reflected in this open letter of comment into this year’s annual report on Form 10-K.
  • SEC letter stresses that if information is important to investors, it should be reflected in a 1934 law report, not just a corporate social responsibility (CSR) / environment, social and governance report (ESG). This commentary has broader application than climate change disclosure and expresses the SEC’s position on ESG disclosure in general.
  • Disclosures to investors on climate change or other ESG matters should be aligned with the 1934 public company law disclosures, and investor disclosures should go through a disclosure control process to ensure accuracy and completeness, comparable to the disclosure controls of a 1934 statute. report.

The bottom line
Accurate disclosure of climate change is a multidisciplinary effort. Lawyers in Ballard Spahr’s Securities and Capital Markets group work closely with lawyers in the company’s Environment and Natural Resources group to ensure that technical disclosures related to the environment or climate change meet SEC requirements and investor expectations.

In February 2021, Allison Herren Lee, then Acting Chairman of the Securities and Exchange Commission (SEC), announced that she had tasked the Division of Corporation Finance to examine the extent to which state-owned enterprises were following the SEC guidelines of February 2010 on climate change disclosure. . The announcement also hinted that climate change rule making was on the horizon. Since then, the SEC has solicited public comment on climate change disclosures, and climate change disclosure regulations have been added to the SEC’s regulatory agenda for October 2021.

At that time, we predicted to Ballard Spahr clients that staff in the Division of Corporation Finance would post comments to public companies on their 2020 annual reports on Form 10-K or post some sort of “Dear CFO” letter to give general guidelines. on climate change disclosure. This prediction was not due to any particular knowledge of the SEC’s business. It was based on the wording of the announcement and in part on the timing of Herren Lee’s leadership, which was the last week of February when most large public companies would already be stuck in disclosing the 10-K 2020 form. and would not be able to preemptively address the 2010 directions. This timeline has provided staff in the SEC’s Division of Corporation Finance with a wealth of fodder in the 2020 annual reports for climate change commentary. .

On September 29, 2021, the SEC issued an open comment letter to issuers on climate change disclosure. This open-ended comment letter follows individual comment letters that staff in the SEC’s Division of Corporation Finance sent to selected issuers.

The open letter is intended as a comment letter on the latest Annual Report on Form 10-K from the “ABC Corporation” sample issuer. Obviously, the SEC’s intention is to encourage disclosure among all issuers, even those who have not received the individual comment letters. As companies are planning workflows for this year’s annual report on Form 10-K, additional time should be added to develop information that is appropriately tailored to this open comment letter. Issuers should also consider developing and improving processes to ensure the accuracy of this information, especially more technical information. For companies with a fiscal year ending September 30 or otherwise at the start of the fourth quarter, it will be especially important to familiarize themselves with the open comment letter as soon as possible.

Most of the comments are fairly consistent with the 2010 guidelines, but the comment letter format will be useful to many issuers as a starting template for a disclosure checklist. However, the first comment – pointing to the disclosure differences between ABC Corporation’s filing with the SEC and its CSR report – sparked additional interest among public companies and lawyers:

We note that you provided more detailed information in your corporate social responsibility report (CSR report) than in your documents filed with the SEC. Please let us know your interest in providing the same type of climate-related disclosure in your SEC documents that you provided in your CSR report.

This first comment emphasizes to issuers that if information is important to investors, it must be reflected in a 1934 Law report, and not just in a CSR report. This commentary has broader application than climate change disclosure and expresses the SEC’s position on ESG disclosure in general. It is also consistent with previous comments made by staff in the SEC’s Division of Corporation Finance on the differences between disclosure in 1934 Act reports and other investor communications – that is to say, news releases, conference presentations, management interviews and other public sources. As companies increase the volume and frequency of their ESG disclosures and investors increasingly voice the importance of ESG disclosure, public companies need to take additional precautions to ensure that (1) disclosure intended disclosure to investors is aligned with their disclosure under the 1934 Act, and (2) disclosure to investors is subject to a process to ensure accuracy and completeness in a manner comparable to disclosure under the 1934 Act For technical disclosures related to the environment or other climate change, securities lawyers will likely need to work with environmental and natural resource lawyers to ensure that such information meets this standard. At Ballard Spahr, we recognize the multidisciplinary nature of climate change disclosure by public companies. Our securities and environmental lawyers work together in a transparent manner to ensure that disclosures meet SEC requirements and investor expectations.

From seed funding to public offerings, our Securities and Capital Markets group advises private and public companies at all stages of development and capital raising activities. We also help our clients comply with public declaration, proxy and disclosure obligations.

Our more than 50 securities lawyers represent public and private companies, underwriters, selling shareholders, officers and directors, as well as private equity funds, venture capital firms and institutional investors in matters compliance, capital raising activities and other transactions.


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