SEC Director of the Division of Corporation Finance William Hinman underscored the importance of providing specific disclosure on issues such as Brexit risk and sustainability.
In remarks at the Annual Institute on Securities Regulation in Europe, Mr. Hinman said that companies that provide generic disclosures (i.e., that Brexit presents a risk and that the outcome is unpredictable) fail to disclose adequately to investors the specific potential impact of such risks.
Mr. Hinman identified questions that the SEC will consider when assessing Brexit-related disclosure in 2018 annual reports:
- "Is the business exposed to new regulatory risk given the uncertainty of which set of laws and regulations will apply"?
- "Are there significant supply chain risks"?
- "Does the company face a material risk of losing customers, a decrease in sales or revenues or an increase in costs"?
- "Does the company have exposure to currency devaluation, foreign currency exchange rate risk or other market risk"?
- "What is the company's exposure to contractual risk"?
- "Do Brexit-related issues affect" accounting issues or tax treatment?
He urged each company to provide disclosure with "tailored insight" into how management looks at risk for businesses and the actions they will undertake to address them.
On the topic of sustainability disclosure, Mr. Hinman noted that the market is still assessing what additional disclosure would provide useful information. He said that the "marketplace evolution of sustainability disclosures" is still continuing and market participants should be given the opportunity to decide the types of information that are useful.
Commentary / Steven Lofchie
A good take on these issues by the Director, particularly his declining to assert that particular environmental, social and governance ("ESG") issues require particular types of disclosure. If anything, ESG disclosures are inherently company-specific. They depend on how an issuer/investors/market may assess the likelihood of a particular risk or event, and how significant that risk or event is to the relevant issuer.
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