SEC Votes to Require Public Disclosure of Financial Risk of Climate Change

The Securities and Exchange Commission (SEC) today voted to require public companies to disclose the financial risks they face related to climate change.

In her opening remarks, SEC Chairman Mary Shapiro emphasized that

we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics.

The Commission is also not considering amending well-defined rules concerning public company reporting obligations, nor redefining long-standing interpretations of materiality.

The vote requires that the SEC develop and issue an “interpretive release” – guidance that can help public companies in determining what does and does not need to be disclosed under existing rules.

Specifically, the SEC’s interpretative 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 companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, 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: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Although the Commission ultimately voted in favor of the mandate, The NYT reported that Commissioner Kathleen L. Casey said it made little sense to issue such guidance “at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux.”

The SEC’s interpretive release will be posted on the SEC Web site as soon as possible.

Once the guidance is available, companies will need to review and evaluate the current risk assessment and reporting framework to determine if it is robust enough to comply with the new SEC action.  With our substantial experience with EHS risk assessment and management that extends well beyond basic regulatory compliance, Elm is uniquely suited to assist companies with this.  Please feel free to contact us to discuss further.

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