SEC asks companies to reason behind climate risk disclosures

Many companies already share details on climate risks when they disclose information, but investors often find comparisons difficult.

The Biden administration and the SEC, led by Chairman Gary Gensler, have made combating climate change a priority and getting investors to put more capital toward green businesses. The campaign includes an effort to mandate climate-related risk disclosure, with a proposal expected this spring.

The SEC sent at least 43 letters to US public companies on the matter last year, compared to none in the past four years, according to Thursday data from research firm Audit Analytics. It was the highest in a year since at least 2008. The SEC’s corporate-finance division, which oversees company disclosures, often sends comment letters to public companies asking them about their disclosure or accounting practices in quarterly or annual filings with the regulator. The SEC did not respond to a request for comment.

Retail chain Target Corp and Facebook parent Meta Platforms Inc are among companies that the SEC sent letters to exchanges that the regulator made public this month.

The SEC requested information from companies about significant risks related to climate change. The risks ranged from physical impacts to severe weather to litigation and regulatory compliance costs. Regulators often send follow-up questions asking companies to explain the reasons they share with investors.

The inquiry came after the SEC published a list of requests sent by its employees related to its 2010 guidance document on climate change disclosures in September.

The SEC has asked some companies in recent months to explain why they provide more information about climate change in corporate social-responsibility reports than in regulatory filings. Many large businesses voluntarily release annual CSR reports that provide data on their renewable-energy use and carbon emissions.

For example, sportswear brand Under Armor Inc. told the SEC that emissions-reducing initiatives summarized in its CSR report have not progressed to the level of materiality under SEC regulations.

When asked about its capital spending on climate-related projects, network-equipment company Cisco Systems Inc. said it implemented 443 energy-efficiency projects between fiscal years 2016 and 2020, such as improving airflow in laboratories and buildings. Installing LED lighting in Cisco said in response to the SEC that the projects totaled $55 million, compared to $4.6 billion in total capital spending during the period.

Chief Accounts Officer Prat Bhatt said in a letter made public on Wednesday that Cisco has fully reimbursed the implementation cost of the projects.

The SEC has asked Target to show its purchases of carbon credits or offsets and it is not expected to have a significant impact on its business. Target has so far purchased about $100,000 of carbon offsets, Chief Financial Officer Michael Fidelke wrote in a letter dated December 8. In fiscal years 2019 and 2020, the retailer purchased offsets from the Arbor Day Foundation for tree conservation and restoration programs in California, Peru and elsewhere.

In some cases, the SEC has told companies that their answers are short. “Your response appears to be conclusive and does not adequately address the specific items from our prior comments,” the SEC wrote to Charles Schwab Corp., referring to the financial-services company’s determination that climate-related regulation on its business The indirect consequences of immaterial.

Charles Schwab is not aware of any climate-related reputational damage to its operations, customers or financial products, CFO Peter Crawford wrote in a November 15 letter in response. However, if the environmental, social and governance products offered were to be misrepresented to investors by the third-party advisors who manage them, the company could experience such losses, they wrote.

Jay Knight, partner at law firm Bass, Berry & Sims plc, and former special counsel for the SEC’s corporate-finance division, said how companies handle these disclosures should help the SEC create potential future rules on climate-change reporting requirements. can be found. He added that many of his corporate clients rely on other companies’ SEC exchanges to compile disclosures on a variety of issues.

“Regulators are taking a hard look at these disclosures, which could result in additional comments going forward,” Mr Knight said.