On June 11, the Society, with support from our Securities Law Committee and Sustainability Practices Committee, submitted this comment letter in response to former Acting SEC Chair Allison Herren Lee’s request for input on climate change disclosure (“request”). The Society expressed support for the existing principles- and materiality-based disclosure scheme but welcomed updated or additional SEC interpretive guidance on climate-related disclosure to reflect developments since 2010 when the SEC last provided guidance on this topic.
The Society further recommended the SEC consider these and other factors with regard to any new climate-related disclosure requirements:
- Any new rules should be principles-based and grounded in materiality.
- If the SEC mandates non-material climate disclosure, it should take into account the potential costs and other unintended consequences of any new rule and consider reasonable alternatives.
- If the SEC mandates new climate change-related disclosure, the disclosure framework should provide that such disclosure can be posted to a company’s website or included in a separate furnished (not filed) report, similar to the Form SD used for conflict minerals reporting.
- If the SEC requires new mandated, quantitative disclosure to be disclosed in a periodic filing, the new disclosures should receive the benefit of a safe harbor from Securities Act and Exchange Act liability as a safeguard against meritless litigation and to encourage robust disclosure.
- Any new prescriptive, quantitative disclosure requirements should be limited to large accelerated filers and should have a phase-in period to provide sufficient time for compliance.
- Any new climate or sustainability-related disclosure requirements should be developed by the SEC in lieu of third-party standard setters, whose missions are not aligned with the SEC’s and which lack SEC oversight, as well as structural, independence, and other governance safeguards.
- Any new climate or sustainability-related disclosure requirements as initially imposed and as they evolve over time should be governed by the APA.
- If the SEC broadens its review to encompass a broader set of “ESG” issues, it should apply the same considerations expressed by the Society in relation to climate-related disclosure.
In response to specific questions raised in the request, the Society also addressed disclosure about board climate-related oversight and the connection between compensation and climate change risks and impacts, noting that Item 407(h) and Item 402 of Regulation S-K, respectively, obviate the need for new climate-specific disclosure requirements in these areas.
Access additional resources on our Climate Disclosure and Sustainability/ESG pages.
This post first appeared in the weekly Society Alert!