SEC Issues New Guidance on Disclosure of Climate Change Risk

U.S. Securities and Exchange Commission (SEC) issued new guidance on what publicly traded companies must disclose to investors in terms of material climate change risks.

On January 27, 2010, the U.S. Securities and Exchange Commission (SEC) issued new guidance on what publicly traded companies must disclose to investors in terms of material climate change risks. The SEC’s guidance is an interpretive release and does not create new legal requirements or modify existing ones. Rather, the guidance is intended to help public companies determine what climate change-related disclosures need to be made pursuant to existing disclosure rules relating to a company’s risk factors, business description, legal proceedings, and management’s discussion and analysis (MD&A). The SEC highlighted the following areas as examples of where climate change and its consequences, if material to a company’s business, may trigger disclosure requirements:

– costs of compliance associated with pending laws and regulations;

– impacts on business of climate change-related international accords and treaties;

– physical impacts of changing weather on assets and operations;

– opportunities for trading in new carbon markets;

– changes in demand for products or services resulting from climate change impacts.

Previously, the SEC required that public companies disclose legal and financial risks posed by environmental challenges; climate change was not specifically named. Given the lack of clarity around climate change-specific disclosure, it was difficult for investors to make well-informed decisions because of inconsistent disclosure of climate change-related risks. As a result, stakeholder groups petitioned the SEC to require full corporate disclosure of climate-related business impacts in financial filings. The objective of the new guidance is to facilitate more accurate and consistent reporting of bottom-line risks posed by climate change to shareholders.

For further details, please see the SEC’s press release: www.sec.gov/news/

or refer to the SEC’s guidance document: http://www.sec.gov/rules/interp/2010/33-9106.pdf.