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February 09, 2010
SEC Posts Interpretive Guidance for Climate Change Disclosure on Website
    by Robert Kropp

The Commission reminds companies of their obligation to consider such issues as legislative and regulatory developments, business trends, and physical impacts in disclosure relating to climate change.

When the Securities and Exchange Commission (SEC) announced on January 27th the issuance of interpretive guidance for corporate reporting on climate change, some advocates for disclosure wondered at Chairman Mary Schapiro’s efforts to distance herself and the Commission from the articulation of a position on climate science.

In her speech announcing the guidance, Schapiro said, “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.”

On February 2nd, the SEC posted its new interpretive guidance on its website. The document appears to be free of any statement distancing the Commission from a position on the validity of climate science.

Instead, the guidance states, “This interpretive release is intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors.”

After summarizing the rules and regulations that may require corporations to disclose climate change risks and opportunities, the document provides a number of topics that could trigger disclosure requirements.

Significant legislative and regulatory developments regarding climate change may trigger disclosure requirements, should a cap-and-trade system lead to increased costs or profits for companies. Additionally, regulatory limits on greenhouse gas (GHG) emissions may require disclosure of costs associated with improvements of facilities and equipment. Changes in legislation or regulation may lead to changes in profit or loss from increased or decreased demand for goods and services.

Treaties or international accords relating to climate change could impact businesses as well, and companies that could be affected by them should monitor such agreements and consider their impact in satisfying disclosure obligations.

Climate change may lead to business trends that could create demand for new products or services, or decrease demand for existing products or services, and companies may be required to disclose such changes as risk factors, including the potential impact on their reputation.

The physical impacts of climate change may affect a company’s operations and results. Companies that may be vulnerable to severe weather or climate related events could be required to disclose material risks.

In its conclusion, the SEC stated that its Investor Advisory Committee “is considering climate change disclosure issues as part of its overall mandate to provide advice and recommendations to the Commission.” Formed in June 2009, the mission of the Committee includes giving investors a greater voice in the Commission's work.

Included among the members of the Committee are three members of the Social Investment Forum (SIF), which has called on the SEC to intriduce mandatory corporate environmental, social, and governance (ESG) reporting. The three are Adam Kanzer of Domini Social Investments, Mellody Hobson of Ariel Capital Management, and Hye-Won Choi of the Teachers Insurance and Annuity Association, College Retirement Equities Fund (TIAA-CREF).


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