SEC Proposes to Update Disclosures Required by Regulation S-K: Impact on Environmental Disclosure

• Legal Proceedings – Regulation S-K, Item 103: An instruction to the current rule requires disclosure of a proceeding under environmental laws to which a governmental authority is a party, or which is known to be contemplated by a governmental authority, and that involves potential monetary sanctions unless the registrant reasonably believes that the proceeding will result in no monetary sanctions or monetary sanctions of less than $100,000. To account for inflation because that requirement was enacted in 1982, the SEC proposes increasing the $100,000 threshold to $300,000. In using a dollar threshold to trigger reporting, the SEC states that it “continue[s] to believe that a disclosure threshold based on the imposition of a governmental fine is appropriate because such a fine may be important for investors in assessing a registrant’s environmental compliance.” SEC Release Nos. 33-10668; 34-86614; File No. S7-11-19 at 62.
• Description of Business – Regulation S-K, Item 101(c)(1)(xii): Registrants are currently required to disclose their estimated capital expenditures for environmental control facilities, if material, for the remainder of the fiscal year, the succeeding fiscal year and for such further periods as they may deem material. To simplify that disclosure, and in keeping with what the SEC describes as its “more principles-based approach,” the SEC proposes revising Item 101(c)(1)(xii) to require disclosure of environmental control facilities expenditures, if material, for the registrant’s current fiscal year and any other subsequent period deemed material. In other words, the express requirement for disclosure of material estimated capital expenditures for the registrant’s succeeding fiscal year would be removed, but the registrant would be required to make such disclosure if material.

While the SEC states that it will accept comments on any aspect of its proposal, specific environmental issues it identifies for comment include these:

• what amount of potential fines should be the threshold for disclosure of government environmental proceedings, whether that amount should be adjusted periodically for inflation, whether consumer price index inflation would be the appropriate adjustment factor and whether there should be an alternative threshold for disclosure such as materiality; and
• whether disclosure of the material estimated capital expenditures for environmental control facilities should continue to be required.

The SEC will accept public comments on the proposal for 60 days following its publication in the Federal Register.