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22 February 202333 minute read

Early Filers Risk Factors Report

A recent study by DLA Piper Corporate Data Analytics analyzed the disclosures of 150 “early filers” with fiscal years ending from August to December 2022 to determine recent risk factor trends.  For more on updating risk factors in Annual Report on Form 10-K for fiscal year 2022, see our DLA Piper alert, Updating Risk Factors in 2023: Key Risks and Developments.

General Risk Factor Trends

Type of Risk

Percentage of Early Filers Discussing Risk

COVID-19

97%

General Economic Downturn or Inflation

87.33%

Cybersecurity

85.33%

Climate

78%

Russia and War in Ukraine

63.33%

Supply Chain Disruptions

59.33%


Spotlight on climate risk factors

78% of early filers discussed climate change in their risk factors, with companies in the Industrials, Technology and Real Estate sectors being most likely to discuss climate change and companies in the Financial Services sector being the least likely to discuss climate change.  The below chart analyzes the most common specific climate-related risks discussed.

Type of Climate-Related Risk

Percentage of Early Filers Reporting Risk in a Climate Risk Factor

Extreme Weather Events (drought, wildfire, thunderstorms, snow, earthquakes, floods, hurricanes)

71%

Reporting Risk to Comply with Regulations (Including Increased Costs)

68%

Material Adverse Effect on Profitability or Results of Operations

57%

Disruptions to Manufacturing Operations (Such as Project Cancellation)

56%

Increased Energy Usage & Product Costs

54%

Inadequate Insurance Coverage

51%

Disrupt Supply Chains with Limited Availability of Materials

47%

Damage to Facilities

47%

Adverse Effect on Product Demand

39%

Reputational Harm Among Stakeholders

39%

Inability to Respond to Regulations to Minimize Emissions with ESG Goals

36%

Need for Technologies That Do Not Currently Exist to Meet Net Zero Commitments or Other Climate Goals

11%

Inability to Compete with Companies Not Subject to Regulations

10%

Net Zero Commitment

9%

"Forests" or "Deforestation"

5%

"Land Degradation" or "Desertification"

1%

Biodiversity

1%


Spotlight on COVID-19 risk factor trends

Early filers have adjusted their COVID-19 risk factors as widespread vaccination has become available and as US state, local and federal governments ease on lockdown requirements and prepare to declare an official end to the COVID-19 public health emergency. Nearly all early filers analyzed, 97%, discussed COVID-19 in their risk factors. The below chart analyzes the most common specific COVID-19- related risks discussed. Risk relating to supply chain disruptions was the most common COVID-19-related risk, with 79% of companies mentioning this risk in their COVID-19 risk factor.

Type of COVID-19-Related Risk

Percentage of Early Filers Reporting Risk in a COVID-19 risk factor

Supply Chain Issues and Disruptions

79%

Unpredictable Impacts with Inability to Predict Future Performance

71%

Government and Regulatory Response of Restrictions to Contain Spread

67%

Impact on Consumer Demand

66%

Reductions in Labor Workforce

 

64%

Material Adverse Effect

55%

Shutdown of Facilities

49%

Impact on Global Capital Markets and Cost of Borrowing

43%

Pandemic Increases or Heightens Other Risk Factors

29%

Operational Risk with Remote Work (Such as Cybersecurity or Productivity)

26%


Spotlight on Russia and Ukraine risk factor trends

While almost two-thirds of the companies analyzed mentioned the war in Ukraine as a risk factor, most of these disclosures did not address tangential risks like supply chain issues, inflation, sanctions or workers in Ukraine. 

Type of Russia/Ukraine Related Risk

Percentage of Early Filers Reporting Risk in a Russia/Ukraine risk factor

Supply Chain Issues

22%

Inflation

17%

Sanctions

13%

Workers in Ukraine

3%


About our dataset

Our dataset of 150 early filers included 46 small cap companies, 47 medium cap companies and 57 large cap companies. The following sectors were represented as follows:

Sector

Number of Companies in Sector

Industrials

47

Technology

23

Consumer Goods, Food and Retail

23

Financial Services

13

Real Estate

12

Life Sciences

8

Infrastructure, Construction and Transport

8


If you have any questions about the contents of this report, or if you would like a more detailed early filer analysis for a particular topic, sector or peer group, contact DLAPiperCorporateDataAnalytics@us.dlapiper.com or your usual DLA Piper relationship attorney.

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