SEC Life — Rockridge Venture Law

Photo by Natalie Dmay from Pexels

Impact of the SEC’s New Climate Change Rules on Life Science Companies

On March 21, the Securities and Exchange Commission (SEC) released its long anticipated proposed climate change disclosure rules. We got a first glimpse of these rules back in 2010 with SEC Release №33–9106 (2010 Guidance Related to Climate Change), and then again in 2021 with the Sample Letter to Companies Regarding Climate Change Disclosures.

While the SEC’s guidance has variously been referred to as climate change regulations or ESG regulations, the proposed rules are at first glance is limited to greenhouse gas (GHG) reporting. However, there are several aspects of the proposed rules that go well beyond GHG emissions tied to physical sites and supply chains.

Prior to Monday’s release of the 510-page proposed rules (summarized in Release №33–11042 Enhancement and Standardization of Climate-Related Disclosures) , the SEC solicited public comment and received feedback from industry trade group participants, for instance, the Biotechnology Innovation Organization (BIO). Among BIO’s concerns stated in its June 2021 comments were that biotech companies already use internal measurement standards like SASB and GRI, that the life science industry is unique and that any climate standards should be sector specific, that smaller companies should be exempt from any climate standards, and that this form of regulation would be misguided since biotech is focused on improving lives and society (suggesting that climate regulation might impede that focus).

The proposed rules differentiate somewhat among larger and smaller companies, both in rollout timelines and scope of disclosure. For instance, smaller companies need only detail GHG emissions within its control, whereas larger companies have to detail GHG metrics all along its “value chain,” including sourcing and supplier activities as well as transportation, distribution, and end product use. However, in its review of materiality the SEC significantly expands the onus upon companies large and small by requiring the observation and planning for changing consumer, investor, and employee behavior and choices.

There is presently an open comment period where the SEC is likely to receive significant opposition, in response to which the rules will likely be further refined. Given the last decade of movement towards climate regulation, they are unlikely to differ significantly from what we now see. While we can expect several years of challenges and adjustment similar to public response to SEC environmental regulations of the 1970’s, there are clear, immediate trends the life sciences industry can expect:

• Blockchain based supply chain reporting will be a critical tool in measuring the “value chain” defined by the SEC.
• Technology platforms and providers that present more environmentally friendly ways of doing business will be well positioned for investment opportunities.
• Adoption of corporate legal models such as Public Benefit Corporations and certifications like B Corp will be more attractive and ways to position companies within framework of changing public attitudes about climate change and impactful business.

Generally, the life science business model of clinical phasing and acquisition requires intensive energy inputs and result in tremendous waste justified by the potential for life improving products.

What are some ways life science companies can prepare for the new climate change framework?

As things stand at present, the rules around the new climate change framework will require two things from every company — life science included. First, subject companies will need to articulate clearly and precisely how they intend to manage climate-related risks to their businesses, with specific goals and business transition plans included; these plans will need to be publicly disclosed on a regular basis. Secondly, there is a requirement for full, detailed disclosure of climate impacting behavior — specifically global greenhouse gas emissions, both those directly caused by the company and for larger organizations, indirectly caused by other firms in the vertical “value chain.”

If the proposed framework is adopted (and it is almost certainly going to, in a form very close to what we currently see), then phased implementation is expected to begin in 2023. Companies can, and should, get started with climate strategies now to best ensure compliance with the regulations, and to gain competitive advantages over those who delay or fight the inevitable standardization in corporate reporting.

Assess

Companies will need to assess every part of their operational ecosystems, including activities and impacts above and below them in the value chain. These assessments ostensibly extend to vendors of supplies and energy, as well as retailers and end use handlers of tangible goods. These assessments will form the baseline for your goals and transition plans, as well as form the first of your disclosure statements.

Progress

Once companies have established baselines of impact and risk, they will need to start planning for how to improve. That could involve modifying energy portfolios for greater focus on renewables, implementing blockchain supply chain measurements, or switching to fully biodegradable or recyclable materials. Even small plans for improvement should be documented and shared.

About Kevin Christopher

Kevin Christopher is the founder and principal of Rockridge Venture Law®, a B Corp Best For The World and Real Leaders Top 150 impact company. Kevin is a Berkeley Form + Fund Fellow, Yale 2050 Fellow, SuperLawyer, and Conscious Company Magazine Top Business Leader. Kevin is a registered patent attorney with practice areas including: patent and trademark prosecution, licensing and litigation; corporate law, with an emphasis on benefit corporations, socially responsible businesses and high-growth emergent companies; government contracts, with an emphasis on innovation funding; corporate and investor financing; and, technology commercialization. Kevin is also an entrepreneur, having co-founded companies in biotech, renewables, and consumer product industries, all active and growing. Kevin mentors entrepreneurs as program advisor with Bethesda Green Hub, First Flight Venture Center, Nashville Entrepreneur Center, University of California Venture Catalyst, and Yale Tsai CITY. With a background in public-private partnerships, Kevin is also a National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) Center for Bioplastics and Biocomposites program evaluator.

About RVL®

Rockridge Venture Law® is a certified B Corp law firm embracing the mantra of technology lawyers for good. include corporate, intellectual property, litigation, M&A, privacy, technology, and venture capital law. Rockridge has been recognized as a B Corp Best for the World and Real Leaders Top 150 Impact Company, and has been featured by Conscious Company Magazine, Forbes, and other top media focused on industry leaders in impact and innovation.

The Rockridge team has worked with Grammy winners, Nobel Prize winners, and world champion athletes to create and monetize distinctive intellectual property assets. Rockridge clients include founders, investors, and multinationals scaling disruptive technologies and iconic brands. Rockridge is headquartered in Tennessee, with satellite offices in Durham, New Haven, and New York.

We’re Building Today’s Company for Tomorrow’s Economy® by leading clients through the dizzying array of information controls, by helping them to develop and monetize proprietary assets, and by enabling their impactful products, programs, and principles.

See case studies on how we’ve helped transformative companies at

Originally published at https://rockridgelaw.com on April 6, 2022.