On February 2, 2010, the SEC published an interpretive release that provides guidance on the SEC’s existing disclosure requirements as they apply to climate change matters. The interpretive guidance does not create new disclosure requirements, but clarifies existing Regulation S-K reporting obligations. The relevant rules cover a company’s risk factors, business description, legal proceedings, and management’s discussion and analysis. The SEC’s interpretive guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
- 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.
- 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.
- Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for a company. For instance, a company may face:
- decreased demand for goods that produce significant greenhouse gas emissions (GHGs)
- increased demand for goods that result in lower emissions than competing products
- increased competition to develop innovative new products
- increased demand for generation and transmission of energy from alternative energy sources
- decreased demand for services related to carbon-based energy sources, such as drilling services or equipment maintenance services
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.
- Physical Impacts of Climate Change: A company should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business. Significant physical effects of climate change, such as effects on the severity of weather (e.g., floods or hurricanes), sea levels, the arability of farmland, and water availability and quality have the potential to affect a company’s operations and results. The SEC cited the following as possible consequences of severe weather:
- for companies with operations concentrated on coastlines, property damage and disruptions to operations
- disruptions to the operations of major customers or suppliers
- increased insurance claims and liabilities for insurance and reinsurance companies
- decreased agricultural production in areas affected by drought
- increased insurance premiums and deductibles