New SEC Guidance Regarding Climate Change Disclosure

On January 27, 2010, the U.S. Securities and Exchange Commission (“SEC”) voted 3-2 to provide interpretive guidance intended to clarify existing disclosure requirements as they apply to “business or legal developments relating to the issue of climate change.” On February 2, 2010, SEC issued the guidance document.

The interpretative guidance highlights four climate change risk areas as potential triggers of disclosure requirements:

  • Impact of Legislation and Regulation—Consider whether the impact of certain existing and pending laws and regulations regarding climate change is material to the business.
  • Impact of International Accords—Consider the risks/effects that international accords and treaties relating to climate change would have on the business.
  • Indirect Consequences of Regulation or Business Trends—Consider the “actual or potential indirect consequences” due to climate change-related regulatory or business trends (such as increased or decreased demand for products and services).
  • Physical Impacts of Climate Change—Evaluate the “actual and potential material impacts of environmental matters” on the business (such as severity of weather, sea levels, arability of farmland, and water availability and quality).

SEC Chairman Mary Schapiro made clear that SEC was “not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what cause” but rather to help “ensure that our disclosure rules are consistently applied.”

The new interpretive guidance does not create new legal requirements or modify existing ones, but is intended to provide clarity and enhance consistency for public companies and their investors.

For more information about how this interpretive guidance may affect your company, and what your company can do now to ready itself, please contact Stephen E. O’Day or Terry Schwartz.

A copy of SEC’s press release regarding the guidance is available here. For a copy of SEC Commissioner Elisse B. Walter’s Opening Remarks regarding the guidance, please click here.

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