On Jan. 27, 2010, the United States Securities and Exchange Commission (SEC) voted 3-2 to clarify that environmental compliance requirements, environmental risks, and potential future regulations, as well as how these developments may affect profitability and business developments, must be included in annual filings to the SEC.
The SEC announced that it will issue an interpretive release providing guidance to publicly traded companies on the SEC's existing disclosure requirements as they apply to business or legal developments relating to climate change. The release will clarify the type of information that publicly-traded companies must disclose to investors in terms of climate-related "material" effects on business operations. The release may result in publicly-traded companies more consistently disclosing greenhouse gas emission inventories and climate risk analyses.
Federal securities laws and SEC regulations require certain disclosures by public companies for investors' benefit. To assist those who provide such disclosures, the SEC provides the business and investment communities with guidance on how to interpret the disclosure rules. The SEC's interpretive releases do not create new legal requirements or modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors.
The release will clarify certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis.
In describing the release, the SEC noted that the following areas are examples of issues 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 also should 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 also should evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
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