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SEC and Corporate Climate Reporting: New Review Explained

Feb. 25, 2021, 7:12 PM

The SEC plans to take a hard look at how public companies apply 2010 agency guidance that emphasized the importance of disclosing how climate change impacts their bottom lines.

Allison Lee, the acting chair of the Securities and Exchange Commission, ordered the agency to enhance its focus on climate in its reviews of corporate filings that are pored over by investors. The goal is to move toward more “consistent, comparable, and reliable” climate reporting by companies, she said Wednesday.

The SEC’s potential scrutiny of annual 10-Ks and a host of other public company filings comes as the agency ramps up its work on environmental, social, and governance issues under President Joe Biden. Lee frequently called for more ESG disclosures before becoming the agency’s interim leader last month, echoing similar pleas from investors, environmental groups, and others.

1. What’s the 2010 climate guidance?

It’s a 29-page document that reminds companies they should be making disclosures about the effects of climate-related legislation, regulation, and international accords, as well as other developments concerning climate change, if material to their businesses.

The guidance isn’t a rule and doesn’t have legal requirements for companies.

But the guidance can’t be ignored, either. During the Obama administration, the SEC sent letters to nearly a dozen companies — including paint manufacturer Sherwin-Williams Co. and Chinese oil and gas company CNOOC Ltd. — that formally cited the 2010 guidance and questioned the firms’ compliance with it, according to a Bloomberg Law review.

2. Is the SEC requiring anything new?

No, it isn’t. Companies should have been complying with the guidance since it was issued in 2010.

But the guidance hasn’t garnered much attention at the SEC in recent years. The last time the SEC formally cited the guidance in a letter that questioned a company’s climate disclosures was in 2014, Bloomberg Law’s review showed.

3. Why guidance and not rules?

The SEC is under pressure to act quickly on ESG, and the guidance is one of the only tools it has at its disposal.

Any new rules mandating disclosures are unlikely until after Democrats gain the majority with a third member at the commission. The commission is evenly divided at 2-2 as Biden’s nominee for SEC chairman, Gary Gensler, awaits a Senate confirmation vote. A Senate Banking Committee hearing is scheduled for next month.

Dusting off the 2010 guidance allows the SEC to strongly encourage climate disclosures now. And the agency can use its review of corporate compliance as the basis for regulations down the line.

4. What can companies expect?

The 2010 guidance will be top of mind for staff in the SEC’s Division of Corporation Finance as they review public companies’ filings.

The division may send companies letters with questions about their climate disclosures in their annual reports and other submissions to the SEC. Companies then may have to provide more disclosures or explain why they don’t need to.

The SEC does “some level of review of each reporting company at least once every three years and reviews a significant number of companies more frequently,” according to its website. But the agency doesn’t say how it picks companies and filings for review.

To Learn More:

—From Bloomberg Law

ESG Reporting Top Priority for SEC Director on Leave From Harvard (1)

Proposed SEC Climate Disclosure Mandate Draws Republican’s Ire

SEC Gets New Call to Mandate Corporate Climate Disclosures

New SEC’s First Climate Disclosure Tool Is Blast From the Past

SEC’s Lee Names Agency’s First Senior Adviser for Climate, ESG

—From Bloomberg News

Corporate Climate Disclosures to Get Aggressive Scrutiny by SEC

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Jo-el J. Meyer at jmeyer@bloombergindustry.com

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