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SEC issues new guidance on climate change disclosure requirements for public companies

February 14, 2010


The Securities and Exchange Commission (SEC) issued new guidance for publicly traded business on their obligation to disclose to investors the positive and negative effects of climate change on their business. The guidance also instructs companies to assess and disclose the impact to their businesses of possible physical changes to the environment due to climate change. SEC guidance does not create new law or modify existing law but is intended to provide clarity to investors and uniformity of disclosures. The final guidance will be published in the Federal Registrar.

The SEC guidance document advises that publicly traded companies may be required to disclose “material” information to investors in response to four potentially changing circumstances arising from climate change. SEC Regulations S-K, “material” information regarding environmental liabilities must be disclosed in periodic filings with the SEC and in public offering disclosures. 17 C.F.R. Part 229 (2009). Under the Supreme Court’s decision inTSC Industries v. Northway decision, information is “material” if it would be affect a reasonable shareholder or investor, or if it would “significantly alter the total mix of information available.”426 U.S. 438, 449 (1976). The SEC specifies four climate change related circumstances that may give rise to an obligation to disclose. The four circumstances are:

  1. Impact of Legislation and Regulation: When assessing potential disclosure obligations, the SEC advises that 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. Where a company reasonably believes that a new climate related regulation will affect investor behavior, they should disclose it.
  2. 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.
  3. 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.
  4. Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Source: Joseph Pallett

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