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SEC Boosts Climate Disclosure Scrutiny Before Reporting Mandate

Jan. 19, 2022, 11:00 AM

The SEC is pressing companies on their voluntary climate change disclosures as it moves closer to mandating corporate reporting on greenhouse gas emissions and climate risks.

The Securities and Exchange Commission asked subsidiaries of Morgan Stanley, Verizon Communications Inc., Ford Motor Co., Nissan Motor Co. Ltd., and Toyota Motor Corp. to report any risks they faced from climate change in 2021 or better describe them, according to a Bloomberg Law review of agency letters to companies.

The SEC targeted registration statements that the subsidiaries submitted to the agency to raise money.

The frequency of the SEC letters has increased after Democrats took control of the commission last year and then-Acting Chair Allison Lee dusted off climate disclosure guidance from 2010. Big greenhouse gas emitters, as well as those that finance carbon-producing activities and have other ties to climate change, all face scrutiny under the guidance, said Lee, who continues to serve on the commission.

“As we consider potential new rules, I’m very pleased the staff is doing the critical work of helping ensure that companies comply with their existing obligations to disclose material climate risks,” Lee said.

The SEC is expected to publish several more letters to companies while it works on new rules that would mandate climate disclosures in their annual 10-K reports or elsewhere. The proposed rules are a top priority for Democratic SEC Chair Gary Gensler.

Making Amends

Morgan Stanley, Ford, Nissan, Toyota, and Verizon were among at least seven companies the SEC contacted about their climate reporting after years of little to no agency interest in the disclosures. All the companies that received letters updated their registration statements.

Morgan Stanley, for example, added to its risk factor disclosures that laws requiring mortgaged commercial properties to comply with Energy Star, Leadership in Energy and Environmental Design (LEED), and other green building certification programs may hurt borrowers’ ability to pay their loans.

Verizon, Nissan, and Toyota updated their filings to say extreme weather conditions resulting from climate change could delay customers’ payments, lowering the value of the asset-backed securities they’re offering to investors. Ford changed its filing to say investors could lose money if its reputation is harmed by public perception about greenhouse gas emissions from its gas-powered vehicles.

Morgan Stanley Capital I Inc., Verizon ABS II LLC, Ford Credit Auto Receivables Two LLC, Nissan Auto Leasing LLC II, and Toyota Auto Finance Receivables LLC filed the registration statements to help their parent companies sell securities backed by mortgages, auto lease contracts, and other assets.

Lawyers for Morgan Stanley, Ford, Nissan, Toyota, and Verizon either didn’t respond to requests for comment or declined to comment.

Developing Disclosure

The companies made the changes after the SEC sent them generic comments that prodded them to provide more detail.

The SEC’s letters simply reminded companies that the 2010 guidance says they should disclose the effects of climate-related legislation and regulation, as well as other developments concerning climate change, if material to their businesses.

The agency didn’t engage in multiple rounds of letters with the companies as it sometimes does when evaluating disclosures.

But the process could become more fruitful and help inform the SEC’s rulemaking, said a former agency official, who wasn’t authorized to speak publicly.

“The more tailored those comments get, the more meaningful they will be not only to the registrants’ disclosures but also to the lessons learned by the staff during the comment process,” the former SEC official said.

The SEC’s Division of Corporation Finance regularly sends the missives, known as comment letters, to companies it believes should improve the disclosures they make in their quarterly 10-Qs, annual 10-Ks, and other public filings. The letters aren’t limited to climate reporting concerns and can cover a variety of other disclosures, including information about company operations, owners, and mergers.

The seven companies that received letters about climate disclosures last year were the first to get specific reminders about the 2010 guidance since 2014 and were the most the agency contacted on the matter in a single year. The SEC can raise questions about climate disclosures without directly referencing the guidance, but the majority of agency comments that mentioned climate change last year invoked it.

Most of the letters came before the SEC released a sample letter in September with requests it may make of companies to ensure they comply with the guidance.

Kristen Jaconi, a University of Southern California Marshall School of Business associate professor who studies corporate reporting, said she’s seen an uptick in disclosures about climate risks after the sample letter and a flood of law firm client alerts about it.

“These things really end up impacting how disclosure develops,” Jaconi said.

More to Come

The letters so far may form an incomplete picture of the SEC’s communications with companies about their climate disclosures.

The SEC appears to have dozens of comment letters on climate disclosures from 2021 it has yet to release and could target companies’ annual and quarterly reports, said Marc Siegel, an Ernst & Young LLP partner who focuses on corporate and environmental, social, and governance reporting. He said some of them involved his clients, though he declined to name them.

EY is encouraging clients in all industries to pay attention to what the SEC is telling companies about climate disclosures and prepare for new rules, Siegel said.

“The SEC has put companies on notice that they’re looking at this stuff,” he said.

To contact the reporter on this story: Andrew Ramonas in Washington at

To contact the editors responsible for this story: Michael Ferullo at; Cheryl Saenz at