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