On February 2, 2010, the U.S. Securities and Exchange
Commission (SEC) published new interpretive guidance (the Release)
(www.sec.gov/rules/interp/2010/33-9106.pdf) that clarifies the
information companies with reporting obligations under the U.S.
federal securities laws and regulations must disclose in documents
they file with the SEC regarding the impact of climate change on
the company, its business, financial conditions and results of
operations. While the SEC's interpretive release does not
create new legal requirements, nor modify existing ones, it does
change the landscape governing climate change disclosure.
The Release identifies specific rules where disclosure related
to climate change may be required. These non-financial statement
rules govern disclosure of the following areas:
Description of business;
Risk factors; and
Management's discussion and analysis.
In addition, the SEC outlines some of the ways climate change
may trigger disclosure. The following topics are examples of
climate change-related issues that a registrant may need to
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 or regulations (for more information, please
see our Osler Update entitled
U.S. House of Representatives Passes American Clean Energy and
Impact Of International Accords: A company
should consider, and disclose when material, the impact on their
business of treaties or international accords relating to climate
change, as applicable, such as the Kyoto Protocol, the European
Union Emissions Trading System and any future international
treaties focused on remedying environmental damage caused by
greenhouse gas emissions.
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, including the impact on its reputation.
Physical Impacts Of Climate Change:
Significant physical effects of climate change, such as effects on
the severity of weather (for example, floods or hurricanes), sea
levels, and water availability and quality, have the potential to
affect a company's operations and results. Companies whose
businesses may be vulnerable to severe weather or climate related
events should consider disclosing material risks of, or
consequences from, such events in their disclosure documents.
The SEC indicated that it will monitor the impact of the Release
on company filings as part of its ongoing disclosure review
program. Thus, companies will need to review and understand the
SEC's new interpretive guidance to ensure compliance with the
disclosure requirements. The Release notes that non-U.S. companies
that make their disclosure in accordance with Form 20-F are likely
to require disclosure related to climate change that parallels
requirements applicable to U.S. domestic issuers.
Canadian foreign private issuers that rely on the
Multijurisdictional Disclosure System to make registered offerings
of securities in the United States and to satisfy their U.S.
continuous disclosure obligations are not directly affected by the
Release. Nevertheless, Canadian foreign private issuers may wish to
consider the SEC's guidance as a potentially significant
development in disclosure best practices.
Kevin Cramer is a partner in the Business Law
Department of the firm's New York office where he practices
U.S. M&A and securities law. Kate Coolican is
an associate in the Business Law Department of the firm's New
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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