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SEC Issues Guidance on Climate Change Disclosure

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The political debate over climate change continues following the December global meeting in Copenhagen. It certainly didn’t help matters that in mid-February Washington D.C. was hit with major snowstorms of historic proportions, leading some conservative writers (e.g. “Tough Sledding for Global Warming Gang,” by Paul Mulshine, The Star Ledger, February 9, 2010) to point to that as proof that global warming and climate change are myths.

The Securities and Exchange Commission has wisely chosen to stay out of that fight, but has decided to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.

The Commission’s interpretive release offers guidance on a number of existing rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company’s risk factors, business description, legal proceedings, and management discussion and analysis.

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

o 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.

o 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.

o 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.

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