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25 February 20215 minute read

Climate change disclosures – under SEC scrutiny

Yesterday, Acting SEC Chair Allison H. Lee directed the Division of Corporation Finance (Corp Fin) to enhance its focus on climate-related disclosure in public company filings.

Chair Lee directed the staff to “review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate-related risks.”  She stated:

“Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future.”

This new directive does not come as a surprise to many of us who have been following the developments at the SEC and anticipating changes in light of the election. Corp Fin has a new acting director, John Coates,[1] and the SEC just appointed Satyam Khanna as its first-ever senior policy adviser for ESG regulatory issues. These appointments are in conjunction with Chair Lee’s prior statements on climate change.[2]

Clearly, the agency intends to take action regarding climate change disclosures.[3] In this alert, we briefly summarize the SEC’s 2010 guidance and provide some thoughts on the current state of affairs.

2010 SEC interpretive guidance

In January 2010, the SEC provided interpretive guidance[4] on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change. The interpretive guidance provided guidance on existing disclosure rules that a registrant should consider in determining whether to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules covered by the guidance related to risk factors, business description, legal proceedings, and management discussion and analysis. The guidance highlighted the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of legislation and regulation: When assessing potential disclosure obligations, a registrant should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a registrant should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of international accords: A registrant should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect consequences of regulation or business trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a registrant may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a registrant should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical impacts of climate change: Registrants should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Climate change disclosure has garnered increasing attention over the past few years. We have observed, however, that while many of companies address climate change in their general risk factors, or produce annual ESG reports with environmental data, not many registrants include expansive discussion of climate change in their business section. In fact, based on our internal survey, thorough climate change discussions appear in less than ~10 percent of the Form 10-K business sections of large registrants, and the level of the disclosure varies based on sector/size of company/peer group.


We know that Corp Fin is giving substantial attention to climate change disclosures. More will come on this topic,[5] not least in the form of proposed rulemaking from the SEC. It is also likely that we may see additional interpretive guidance from the SEC staff on this issue.

Accordingly, it is time to assess the need for environmental impact analysis and disclosure and to develop appropriate processes to evaluate such information and its impact on a registrant’s business.

Please visit our Sustainability and Environment, Social and Governance portal, and read more of our insights on the federal government transition here.

[1] Mr. Coates was a member of the SEC’s Investor Advisory Committee that, in May 2020 published certain ESG disclosure recommendations which can be found here. Interestingly, one of the recommendations was for the SEC to take the lead on ESG disclosure by “establishing a principles-based framework that will provide the Issuer-specific material, decision-useful, information that investors (both institutional and retail) require to make investment and voting decisions.”

[2] At the 52nd Securities Law Institute in November 2020, Chair Lee called climate change a “green swan," or an irreversible “new type of systemic risk that involves interacting, nonlinear, fundamentally unpredictable, environmental, social, economic and geopolitical dynamics.” The entire speech can be found here.

[3] Please see this DLA Piper alert (picked up by the Harvard Law Corp Gov Blog), Climate Activism Starts Now: Status Check and Opportunities for Public Companies

[4] The 2010 SEC Climate Change Interpretive Guidance can be found here.