At a January 27 Open Meeting, the Securities and Exchange Commission, by a 3-2 vote, approved guidance on disclosure related to the effects on public companies of climate change and regulation concerning climate change.

In particular, the guidance seeks to clarify the responsibility of companies to disclose, where material:

  • the direct and indirect effects on a registrant’s business, financial condition and results of operations of, and the risks related to, existing and pending environmental regulation and legislation;
  • the effects on a registrant’s business of, and the risks related to, international accords and treaties related to climate change;
  • the actual and potential, direct and indirect consequences (or opportunities) resulting from climate change and legal, business, political and scientific developments related to climate change, such as the effect on demand for a company’s products of “green” technologies and products used or sold by the registrant or its competitors and the effect of such developments on a company’s reputation; and
  • the effect on a company’s business and operations related to physical changes to the planet caused by climate change, such as rising seas, stronger storms and increased drought—the effects may be impaired production or distribution of products or damage to a company’s property, plant or equipment.

The staff of the SEC noted that, in order to evaluate whether disclosure regarding the effects of pending climate change regulation (such as the federal cap and trade legislation) is required, registrants need to consider whether they have effective systems for collecting information about their emissions. Therefore, “management should ensure that it has sufficient information regarding the registrant’s greenhouse gas emissions and other operational matters to evaluate the likelihood of a material effect arising from the subject legislation or regulation.”

Mary Schapiro, Chairman of the SEC, indicated that the interpretive guidance was not intended to amend or expand existing disclosure requirements, or alter the threshold for materiality. Rather, the SEC expressed the view that the guidance is intended to ensure that existing disclosure requirements are consistently applied to matters related to climate change. Specifically, the SEC indicated that disclosure regarding the material effects of climate change and climate change regulation already exist in Regulation S-K under Items 101 (which, among other things, requires disclosure regarding the effects of regulation and information regarding planned expenditures), 103 (which requires disclosure of legal proceedings), 503 (risk factors) and 303 (management’s discussion and analysis of, among other things, material trends effecting the registrant’s business)

Finally, the SEC noted that the guidance represented a “first step” in addressing disclosure related to climate change and indicated that it would consider further action in the area of environmental disclosure in the future.

The SEC intends to publish the guidance described above as soon as possible.

Click here to view the SEC’s press release regarding the guidance described above. Click here to view the text of Chairman Schapiro’s remarks regarding the guidance described above. Click here to view the text of Commissioner Luis Aguilar’s remarks regarding the guidance described above. Click here to view the text of Commissioner Elisse Walter’s remarks regarding the guidance described above.