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January 28, 2010
SEC Issues Guidance for Corporate Reporting on Climate Change
    by Robert Kropp

The decision, which directs companies to disclose business risks and opportunities associated with climate change, is welcomed by investors who have been calling for such guidance for years.

In a decision that sustainability investors have called on it to make for years, the Securities and Exchange Commission (SEC) yesterday issued guidance on disclosure of climate change risks and opportunities at publicly traded companies.

Noting that “regulations require certain disclosures by public companies for the benefit of investors,” the SEC decision “provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business,” according to a statement released by the Commission.

The guidance focuses on four areas in which public disclosure may be required by climate change. It directs companies to consider the impact of laws and regulations regarding climate change on their business operations, and in certain cases to evaluate pending legislation and regulation. Secondly, international accords and treaties should be considered as well.

The guidance also directs companies to consider climate change related regulatory or business trends that may create new opportunities or risks. As an example, the SEC statement noted, “A company may face decreased demand for goods that produce significant greenhouse gas (GHG) emissions or increased demand for goods that result in lower emissions than competing products.”

Finally, the guidance directs companies to evaluate and disclose the physical impacts of climate change on their operations.

SEC Chairman Mary Schapiro said, “It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation — whether that legislation concerns climate change or new licensing requirements — is likely to occur… Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather. These principles of materiality form the bedrock of our disclosure framework.”

The decision was hailed by advocates for sustainability investing.

Julie Gorte, the Senior Vice President for Sustainable Investing at Pax World, which in 2007 joined with 21 other institutional investors to petition the SEC to issue guidance on climate risk disclosure, said, “Climate change is a material risk to businesses, and ignoring this is a disservice to investors. As companies become more aware of the risks they face, they will be increasingly conscious of the business opportunities associated with the shift to a cleaner, more sustainable economy.”

Lisa Woll, CEO of the Social Investment Forum (SIF), said, “This is perhaps the biggest development so far in the long-term campaign to promote wider sustainability reporting. Today, we renew our call for mandatory corporate environmental, social, and governance (ESG) or sustainability reporting.”


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