Legal Community Begins to Weigh in on SEC Interpretive Guidance

Now that SEC’s Interpretive Guidance has been published, legal experts are beginning to comment publicly about the Guidance, its meaning and implementation.  The legal analyses generally agree that publicly-traded companies will need to significantly change their current environmental risk assessment practices and/or should look to outside experts on risk assessment techniques.

Some of these comments were recently published in an article in Law.com.  Excerpts from that article are below:

Jane Kroesche, head of the West Coast environmental transactions practice at Skadden, Arps, Slate, Meagher & Flom:

… meeting the new requirements will not just be a matter of “plugging language” into the business discussion or legal proceedings section, where companies usually make environmental disclosures.

“It is a very broad-reaching guidance.  It’s important for companies to understand that it’s not just about disclosing the impact from emissions regulations. It goes way beyond that.”

Robert O’Connor, head of the clean tech practice at Wilson Sonsini Goodrich & Rosati:

… the challenge for corporations under these new guidelines will be twofold. Companies must have the infrastructure in place to know whether there is something to disclose. And, they must find out if they are responsible for carbon emissions along their whole supply chain, or just some of it.

“It is very early. For many companies, it will not rise to the level of materiality, but I do think that all companies need to ask the question, ‘Do I have the procedures and systems in place to know one way or the other?'”

Other leading firms have issued client alerts on the SEC’s action.

King & Spalding stated

… companies should ensure that they have sufficient controls and procedures in place to process relevant information. Most companies in the energy and insurance industries have in-house professionals that are well versed in climate change related issues and will be able to quickly make an assessment of whether additional disclosure is required in light of the guidance. However, the guidance could impact companies in a range of industries, some of which may not have regularly monitored these issues in the past. All companies should consider whether additional in-house training or periodic consultation with outside advisors is advisable to supplement existing controls.

McDermott Will & Emery made the following comments:

Under previous SEC guidance… known trends and other uncertain events do not need to be disclosed if they are not reasonably likely to come to fruition.  However, if management cannot make that determination, disclosure is required unless management determines that the occurrence of such known trend or other uncertain event would not be reasonably likely to have a material impact on the registrant’s financial condition or operations.  Registrants should also address in the MD&A, when material, the difficulties involved in assessing the effect of the amount and timing of uncertain events, and provide where possible an indication of the time periods in which resolution of the uncertainties is anticipated.

Elm is unique in our risk assessment experience and capabilities.  We have conducted environmental risk assessments in the past that included detailed reviews of climate risk exposures that are aligned with the SEC’s new guidance.  Please contact us with questions about how we can assist you.

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