SEC Issues Sample Letter to Firms on Climate Change Disclosures

The Securities and Exchange Commission recently gave companies a preview of how it will look at their climate-related disclosures. Specifically, the SEC’s Division of Corporate Finance released a sample letter detailing the sorts of hard questions and requests the SEC will consider when they conduct a review of a company’s disclosures related to climate change.

While the SEC is expected to issue proposed climate-related disclosure rules this fall or early next year, the fact is that there is already guidance on climate-related disclosures. That is, under the SEC’s existing 2010 Guidance Regarding Disclosure Related to Climate Change, companies already may need to consider disclosing the impact of pending or existing climate-change legislation, regulation and international accords; the indirect consequences of regulation or business trends; and the physical impact of climate change on their companies and businesses.

Building on the existing Guidance, the sample letter highlights nine possible comments the SEC may provide companies wishing to revise or update their disclosures to ensure compliance with the 2010 Guidance. The topics range from inconsistent climate reporting across corporate disclosures to clarifying the material direct and indirect consequences of climate-related regulation on business. There are also questions on quantifying compliance costs and comments on revising disclosures given pending or existing climate-related legislation.

The sample letter, together with the SEC’s Division of Examinations announcement that its 2021 examination priorities include an “enhanced focus on climate-related risk,” serve notice that the SEC may be looking closer at climate-change disclosures. And the sample letter may provide a useful tool for preparing for that closer look.

The Mortgage Bankers Association and other trade associations are monitoring the SEC and other regulators for future regulatory action on climate change, including a possible notice of proposed rulemaking on climate change-related disclosures this fall or early next year.

In a report last week, the Mortgage Bankers Association’s Research Institute for Housing America said climate change triggered by global warming will continue at an unpredictable pace and will add stress to the complex system of allocating risks across housing and housing finance stakeholders. The study, The Impact of Climate Change on Housing and Housing Finance, identifies wildfires as a major threat to homeowners, mortgage lenders and mortgage servicers.