SEC Issues Warning Letters on Climate Disclosures

Letters identify specific areas of interest to the Securities and Exchange Commission.

October 4, 2021
The Securities and Exchange Commission (SEC) recently released an example letter to hypothetical company ABC showing how they will be reviewing companies’ climate change disclosures. A number of these warning letters have already been issued to a variety of companies. These letters come ahead of the expected release of the SEC’s new guidance on climate-related disclosures, anticipated before the close of 2021. A few takeaways from these letters are:

1. The SEC is taking notice of differences between SEC filings and CSR reports.

The example letter specifically inquires why more detail is provided in the company’s voluntary corporate sustainability and responsibility (CSR) report than in SEC filings. This suggests that the SEC may want to hold companies to account for the claims and stated goals in their voluntary reports, which may put companies who disclose ambitious goals in CSR reports in a difficult position if those goals were not founded on a plan with a scientifically defensible basis and data supporting progress.

2. The SEC is looking for litigation and reputational risks.

The example letter specifically references “reputational” and “litigation” risks. This is notable because the increased pressure from the SEC comes at the same time as companies face increased pressure from “greenwashing” suits, in which citizen groups challenge the veracity of businesses’ sustainability claims. Companies who market their products, services, or net-impacts as climate friendly may be at the greatest risk for these suits if their claims are not accurately stated based on the assumptions and limitations in the underlying scientific assessments.

3. The SEC is looking at offsets.

The example letter specifically references disclosing information on the purchase and sale of carbon offsets. While offsets can be an important tool for a company to reach net-zero emissions, over-reliance on offsets, purchases of unverified offsets, or improper claims based on those offsets could create risk. Companies who purchase offsets should understand the basis of the offsets they purchase (avoided, reduced, or sequestered emissions) and the limitations of claims that can be made based on those offsets.

How Exponent Can Help

Exponent is a recognized and trusted engineering and scientific consulting firm that has, for more than 50 years, advised and assisted clients in addressing their most pressing interdisciplinary and technologically complex business challenges. Today, as companies rapidly pivot operations and corporate culture to meet sustainability goals in response to changing climate conditions, changing stakeholder expectations, and evolving technology, Exponent applies its scientific and engineering expertise to help our clients create, develop, execute, and disclose sustainability projects while managing physical, transitional, and liability risk.

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