On January 30, 2020, Chairman Jay Clayton (the chairman) of the U.S. Securities and Exchange Commission (SEC, or the commission) issued a statement related to 1) financial disclosures and performance metrics in light of the commission's disclosure effectiveness initiative, 2) ongoing disclosure initiatives, 3) the impact of the coronavirus, and 4) environmental and climate-related disclosure. Below please find a brief summary of each of the topics addressed in the chairman's public statement.

Disclosure Effectiveness Initiative—Financial Disclosures and Performance Metrics

The chairman referenced the commission's proposed amendments to eliminate duplicative disclosure, and modernize and enhance Management's Discussion and Analysis (MD&A) disclosures as well as the commission's guidance on the use of key performance indicators and metrics in MD&A. For additional information on these items, please see our related client alert here.

Ongoing Disclosure Initiatives

The chairman noted that the SEC staff (the staff) and the commission have recently provided guidance on an array of evolving disclosure topics, including 1) the LIBOR (London Interbank Offered Rate) transition; 2) cybersecurity and information system integrity and resilience; 3) environmental and climate-related disclosures; 4) the protection of intellectual and other property in jurisdictions with varying legal regimes and access requirements relating to intellectual and other property; 5) the Brexit transition; 6) the Public Company Accounting Oversight Board's ability to conduct inspections of audit firms in China and other jurisdictions; and 7) matters related to the role and functioning of audit committees. Companies for whom these topics are relevant should review the guidance, particularly as they prepare year-end disclosure documents.

Impact of the Coronavirus

The chairman indicated that he has directed the staff to monitor the evolving coronavirus outbreak and, to the extent necessary or appropriate, provide guidance to issuers and market participants regarding disclosure as it pertains to the effects of the virus. The chairman acknowledged the uncertainty related to assessment of the effects of the outbreak, generally and as an industry- or issuer-specific concern, and noted that the manner in which issuers plan for uncertainty in situations like these and respond to events as they unfold can be material to an investment decision.

Discussion of Environmental and Climate-Related Disclosure Efforts

The chairman provided a summary of the commission's ongoing work in the area of environmental and climate-related disclosure against the backdrop of these five threshold issues related to this complex area:

1. The landscape related to environmental and climate issues is and will continue to be complex, uncertain, multi-national/jurisdictional, and dynamic.
2. Capital allocation decisions based on environmental and climate-related factors are substantially forward-looking and likely involve estimates and assumptions that are both industry- and issuer-specific.
3. The commission's disclosure-based regulatory regime is largely focused on verifiable and historical issuer-specific information and, where forward-looking disclosures are required or voluntarily disclosed, they are oftentimes afforded safe harbor protection.
4. The chairman is mindful not to substitute his own operational and capital allocation judgments for those of issuers and investors.
5. Disclosure regimes operate differently across jurisdictions—the U.S. regulatory regime stands apart from others from an investor protection perspective and private liability and enforcement perspective.

The chairman's summary addressed the following three areas of historical and ongoing action by the commission:

• Interpretive Guidance and Disclosure Review. The staff regularly reviews annual and periodic reports against the commission's 2010 interpretive release that provided guidance to public companies regarding the applicability of the commission's disclosure requirements as they apply to environmental and climate-related issues. The chairman also noted that the Office of Compliance Inspections and Examinations reviews disclosures of investment advisors and other issuers regarding funds and other products that pursue environmental or climate-related investment mandates to ensure investors receive accurate and adequate information regarding material aspects of such strategies.
• Issuer and Investor Engagement. Through staff trainings, meetings with investors and market participants, and outside speaking engagements, the staff seeks to 1) better understand the environmental and climate-related information investors currently use and how such investors analyze that information to make investment decisions on both an issuer- and industry-specific basis, and more generally; 2) better understand the extent to which and how issuers identify, assess, and manage environmental and climate-related risks in their particular business and industry; and 3) remind issuers and other market participants of how the commission's principles-based disclosure requirements apply to environmental or climate-related matters.
• Participation with Non-U.S. Regulators in International Review Initiatives. The staff collaborates in the areas of climate-related securities law disclosures with securities regulators and other authorities in various jurisdictions. These include membership in the IOSCO Sustainable Finance Network Steering Group, membership on the Financial Stability Board, participation in the Task Force on Climate-Related Financial Disclosures and engagement with authorities at the Bank of England, the United Kingdom, Financial Conduct Authority, the European Securities and Market Authority, and the European Commission, among others. Recently, certain of the discussions in the context of these relationships have focused on shared, core purposes of capital markets disclosure regulation, including facilitating better analysis of long-term capital allocation decisions for both issuers and investors.

Finally, the chairman noted that the commission's and the staff's focus on and work in the area of environmental and climate disclosure will continue. He encouraged market participants to continue to engage the commission and the staff. Further the chairman encouraged such market participants to address, to the extent relevant and practicable, the threshold issues raised by the chairman and assist the staff in better understanding how issuers and investors use environmental and climate-related information to make capital allocation decisions on an issuer, industry, and more general basis.

Conclusion

While the chairman's statement is not rulemaking or official SEC guidance, it does provide important reminders on key SEC initiatives and gives a glimpse into the chairman's views particularly on environmental and climate-related disclosure, which is increasingly an area of focus for issuers, investors, and the commission.

For more information on the chairman's statement or any related matters, please contact any member of Wilson Sonsini's public company representation practice.