SEC Proposes Changes to Regulation S-K Affecting Environmental Disclosures

The United States Security and Exchange Commission recently proposed amending Regulation S-K that would, if adopted, alter environmental disclosures.

 Expanding the regulatory disclosure in the business description and changing period of disclosure of CapEx for environmental control facilities (Item 101)

 Item 101 currently requires disclosure of the material effects of compliance with environmental laws on the capital expenditures, earnings and competitive position of the registrant and its subsidiaries, as well as any material estimated capital expenditures for the remainder of the fiscal year, the succeeding fiscal year, and such future periods that the registrant deems material.  The SEC is proposing to change this requirement by:

  1.  expanding the scope of the disclosure to include the material effects of compliance with material government regulations, not just environmental laws; and

  2. changing the period for disclosing material estimated capital expenditures for environmental control facilities to the current fiscal year and any other subsequent period that the registrant deems material.

 Environmental Legal Proceeding Threshold (Item 103)

 Under current Regulation S-K, companies must disclose a proceeding under environmental laws where a governmental authority is a party and involving potential monetary sanctions, unless the company reasonably believes that the proceeding will result in no monetary sanctions or sanctions less than $100,000.  This dollar threshold was first established in 1982.  Given the relatively high per-violation-per-day penalty thresholds in many environmental laws, and statutory and regulatory penalty inflation enhancements, there is the potential for even minor environmental enforcement actions to reach the $100,000 threshold.  The SEC is proposing to increase this threshold to $300,000 to account for inflation. 

 The SEC is also proposing to allow companies to incorporate hyperlinks or cross-references to legal proceedings disclosures located elsewhere in the document to encourage registrants to avoid duplicative disclosure.

 Summarizing Risk Factors (Item 105)

 The SEC is proposing to require a summary risk factor disclosure if the underlying risk factors exceed 15 pages in length.  While this proposal is not limited to environmental laws, it does encourage companies to be succinct in any environmental risk factors.

 Companies subject to Regulation S-K should carefully review the SEC’s rulemaking and consider submitting comments.  A copy of the proposal is available here.

Chris Smith