On February 24, 2021, Acting Chair Allison Herren Lee issued a Statement on the Review of Climate-Related Disclosure where she directed the CorpFin staff to “enhance its focus on climate-related disclosures” in filing reviews. On September 22, 2021, CorpFin issued a Sample Letter to Companies Regarding Climate Change Disclosures to provide example climate change comments. The issues raised in the sample letter to companies are consistent with the SEC’s 2010 FR-82 – Commission Guidance Regarding Disclosure Related to Climate Change. You can find more background in this blog post.
The staff posts all the comment letters and responses from an individual company review twenty business days or more after the review is closed. Some climate change related reviews are now being posted on the EDGAR system. Cintas, Monster, and Palo Alto Networks are among the companies that have received climate change related comment letters.
Cintas received a climate change related comment letter in September 2021. You can read the complete SEC comment letters and company responses with these links:
First SEC comment letter – Dated September 16, 2021 – five climate comments
First company response – Dated September 28, 2021
Second SEC comment letter – Dated October 21, 2021
Second company response – Dated November 3, 2021
Closing letter – Dated January 14, 2022
The first comment in the SEC’s letter to Cintas is essentially the same as the first example in the Sample Letter to Companies:
- We note that you provided more expansive disclosure in your CSR report than you provided in your SEC filings. Please advise us what consideration you gave to providing the same type of climate-related disclosure in your SEC filings as you provided in your CSR report.
The company’s first response to this comment was:
Response: In response to the Staff’s comment, the Company respectfully advises the Staff that the Company’s Environmental, Social and Governance Report (“ESG Report”) is designed to provide selected information regarding the Company’s ESG performance to a broad audience that includes investors, employee-partners, customers, communities, suppliers and other interested parties. As a result, the ESG Report may include detailed information, such as information regarding the Company’s efforts to reduce energy use and greenhouse gas (“GHG”) emissions, that is beyond the scope of the information that is required to be disclosed pursuant to applicable SEC rules and/or regulations. When considering whether to include climate-related disclosure in its SEC filings, including the type of climate-related disclosure provided in the ESG Report, the Company takes into account applicable SEC rules and regulations, including Item 101, Item 103, Item 105 and Item 303 of Regulation S-K, as well as the SEC’s Compliance and Disclosure Interpretations, available guidance from the Staff (including the SEC’s 2010 Commission Guidance Regarding Disclosure Related to Climate Change) and applicable standards of materiality. The Company also considers that, while certain climate-related information may be of interest to readers of the ESG Report, such information may not be material to investors in the context of an SEC filing, while SEC filings may otherwise include separate climate-related disclosure required pursuant to Regulation S-K and other applicable SEC rules, regulations and guidance. The Company respectfully advises the Staff that it will, in response to the Staff’s comment, and historical practice, continue to evaluate its climate-related disclosure in SEC filings in light of applicable SEC rules, regulations and guidance and applicable standards of materiality.
The SEC’s follow-up comment letter did not raise this issue again.
The fourth comment in the original letter addressed, consistent with FR-82 and the Sample Letter, the indirect effects of climate change:
- To the extent material, discuss the indirect consequences of climate-related regulation or business trends, such as the following:
- decreased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources;
- increased demand for goods or services that result in lower emissions than competing products;
- increased competition to develop innovative new services that result in lower emissions; and
- any anticipated reputational risks resulting from operations or products that produce material greenhouse gas emissions.
The companies first response to this comment was:
Response: In response to the Staff’s comment, the Company respectfully advises the Staff that the Company considers applicable SEC disclosure rules, regulations, and guidance, including Item 101, Item 105 and Item 303 of Regulation S-K, when preparing its SEC filings and, as applicable and to the extent material, evaluates disclosure regarding indirect consequences of climate-related regulation or business trends. As of the filing of the Form 10-K, however, the Company had not identified any material indirect consequences of climate-related regulation or business trends. The Company respectfully advises the Staff that it will, in response to the Staff’s comment, and historical practice, continue to evaluate its climate-related disclosure in SEC filings, including disclosure regarding the indirect consequences of climate-related regulation or business trends, in light of applicable SEC rules, regulations and guidance and applicable standards of materiality.
The SEC’s second letter included a follow-up comment about this issue:
- Your response to prior comment 3, which states that you have not identified any material indirect consequences of climate-related regulation or business trends, appears to be conclusory without providing sufficient detail. Please provide us with additional support for your conclusion, including with regard to the individual items noted in our prior comment.
The company’s second response expanded its answer:
Response: As background for the Staff, the Company respectfully advises the Staff that the Company provides certain products and services that generally enhance its customers’ image and help keep customers’ facilities and employees clean and safe. These products and services include uniforms through rental and sales programs, mats, mops, restroom supplies, first aid and safety products, fire extinguishers and testing and safety training. None of these products produce significant greenhouse gas emissions. The Company generally provides these products to customers via approximately 11,000 local delivery routes. These local delivery routes are run by Company employees on Company-owned trucks. These trucks do create greenhouse gas (“GHG”) emissions in compliance with current regulatory emissions requirements. Many of the Company’s products, such as uniforms, mats, mops and other rentable products, are laundered in Company-owned laundry facilities. The laundering process uses water and energy to run the washers, dryers and other processing equipment.
In response to the Staff’s comment, the Company respectfully advises the Staff that, at the time of the filing of the Form 10-K and to date, aside from the general economic effects of the COVID-19 pandemic on its customers, the Company did not experience and has not experienced any significant decreased demand for products or services, whether such products or services might produce significant GHG emissions or are related to carbon-based energy sources, or significant demand for products or services that might result in lower emissions than competing products or services. The Company did not identify and has not identified any significant changes in competition due to innovative new services that result in lower emissions. While the Company has had inquiries from customers and investors about its fleet and laundry processes with regards to GHG emissions and other carbon-based energy impacts, the Company did not identify and has not identified any material reputational risks resulting from these inquiries.
The next letter the SEC sent to the company was the closing letter, which included the SEC’s standard closing language:
We have completed our review of your filing. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
As always, your thoughts and comments are welcome!