January 27, 2010
Corporate Disclosure on Climate Change
Posted by Christine Hurt

The SEC today released interpretive guidelines on corporate disclosures relating to climate change.  When I first saw this come across my email, I thought that the disclosures would actually be about either (1) how large a carbon footprint the particular business had or (2) how climate change would create risk factors for the particular business.  Actually, my intuitions were all wrong.  The guidelines actually deal more with risk factors created by (1) climate change regulation, domestic and international; (2) public perception of climate change, including changes in demand for certain products; and (3) almost as an afterthought, how climate change could physically impact a business.  Perhaps if I had read the title of the SEC press release and not the title of the headline emailed to me I would have caught this:  "SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change."

Here are the four guidelines:

Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

My favorite part is the disclaimer from Chairman Schapiro: "We are not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics."

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