On January 27, 2010, the SEC approved the release of interpretive guidance that addresses when legislative or business developments relating to climate change trigger disclosure obligations under SEC rules. The guidance had been anticipated given the inclusion of climate change among the items cited by SEC staff members as examples of emerging trends in disclosure as well as among the items cited by corporate risk managers as potential emerging risks.

The SEC’s current rules require SEC reporting companies to disclose material risks that may impact their businesses. These risks could be included in the section on risk factors, in the business description, in legal proceedings or in the MD&A. In her remarks discussing the guidance, Chairman Schapiro stressed that the SEC was not adding new disclosure requirements, amending existing disclosure requirements or refining existing standards of materiality; rather she characterized the guidance as an effort to clarify existing disclosure requirements and ensure that they are consistently applied.

The full text of the interpretive guidance is not yet available but the SEC has indicated that disclosure obligations may be triggered when a company evaluates, and determines to be material to its business:

  • the impact of existing (or, in certain circumstances, proposed) legislation and regulation relating to climate change;
  • the risks or effects of international accords and treaties relating to climate change;
  • the potential or actual indirect consequences of regulatory or business trends associated with climate change to the company (this may include the costs, risks and opportunities that the company may face by reason of business or regulatory trends); and
  • the actual or potential impact of environmental matters.

The SEC noted that it will be focusing on climate change disclosure in upcoming filing reviews. Companies therefore should take the interpretive guidance into account as they prepare their upcoming Form 10-Ks. In particular, companies should draw the attention of their disclosure committees and members of management responsible for disclosure to the potential impact of this interpretive guidance.