On January 27, by a vote of three to two, the SEC adopted new interpretive guidance on how public companies should evaluate the impacts of climate change in their communications with shareholders. Such guidance had long been sought by certain pension funds, shareholder advocacy groups and states, who were unsatisfied with the varied nature of corporate disclosure concerning climate change. While a copy of the guidance has not yet been made available, the Commissioners discussed the guidance at length.

The SEC identified four topics to be evaluated and, as appropriate, discussed in disclosures:

  • The impact of existing as well as pending climate-change legislation and regulation.
  • The impact of international accords and treaties on climate change or greenhouse gas emissions.
  • The actual and potential indirect consequences of climate change regulation or business trends (e.g., reduced demand for carbon-intensive products).
  • The actual and potential impacts of the physical effects of climate change.

As Commissioner Walter acknowledged, the guidance does not require disclosure of carbon footprint or what companies are doing to reduce greenhouse gas emissions, since such requirements would require the SEC to undergo formal rulemaking. The guidance does not intend to modify the principal tenets of disclosure law. Climate disclosure still requires a case-by-case evaluation of materiality by the company in light of reasonable shareholder expectations.

For a more detailed analysis of this SEC action, click here.