The Securities and Exchange Commission (“SEC”) voted on Wednesday, January 27, 2010 to adopt an interpretive release to provide guidance on existing public company disclosure requirements as they apply to business or legal developments relating to climate change. The SEC has not yet distributed the interpretive release itself--the information contained in this alert is drawn from meeting materials released by the SEC. We will provide an updated alert when the interpretive release itself becomes available.

A statement released by SEC Chairman Mary L. Schapiro indicated that the interpretive release will provide guidance on how to interpret existing SEC disclosure rules and requirements as applied to business and legal developments associated with climate change. Chairman Schapiro’s statement emphasized that the interpretive release does not create new legal requirements or modify existing requirements but is intended to provide clarity and enhance consistency for public companies and investors as they, respectively, prepare disclosures related to the impacts of climate change and analyze such disclosures. The interpretive release will provide guidance with regard to the following categories of public company disclosure: Management’s Discussion and Analysis; Risk Factors; Business Description and Legal Proceedings.

Chairman Schapiro’s statement identified four particular areas as examples of topics where climate change may trigger disclosure requirements. The specified areas were: Legislation and Regulation; International Accords; the Indirect Consequences of Regulation or Business Trends; and Physical Impacts of Climate Change.

Legislation and Regulation: In addition to considering the impact and materiality of existing laws and regulations regarding climate change, the interpretive release will indicate that public reporting companies also should evaluate the potential impact of pending legislation and regulation related to climate change.

International Treaties and Accords: The interpretive release also will indicate that public reporting companies should consider disclosure related to the impacts on their businesses of international treaties or accords relating to climate change and provide such disclosure when such impacts are material.

Indirect Consequences of Regulation or Business Trends: Chairman Schapiro’s statement noted that developments regarding climate change may create new opportunities or risks for companies. Of particular interest, the interpretive release will indicate that public reporting companies should consider disclosure related to the actual or potential indirect consequences that their businesses may face due to climate change trends. Under the interpretive release, examples of such indirect consequences will include potential decreased demand for goods that produce significant greenhouse emissions or potential increased demand for goods that result in lower emissions than competing products.

Physical Impacts of Climate Change: Under the interpretive release, public reporting companies will be asked to evaluate the actual and material impacts of environmental matters on their businesses. Such disclosures could include information related to the impact on a business of changes in the severity of weather, sea levels, the arability of farmland and water availability and quality.

The interpretive release was approved at the SEC’s meeting by a 3 to 2 vote of the Commissioners. The two Commissioners who voted against adoption of the release, Commissioner Troy A. Paredes and Commissioner Kathleen L. Casey, released statements describing the reasons for their opposition. In particular, Commissioner Paredes expressed concern that the interpretive release’s emphasis on potential reputational damage and potential physical impacts associated with climate change may create confusion and uncertainty because of the speculative nature of such impacts. The dissenting Commissioners were also concerned that the interpretive release will not result in public company disclosure of material information that is of significant use to investors as they make investment decisions. Among other concerns, the dissenters referenced i) the possibility that the release will embroil the SEC in the debate about climate change and might be viewed as lending support to a particular position in that debate and ii) other pressing priorities before the Commission.