Posted by: Steven M. Taber | January 27, 2010

Companies Must Consider Effects of Climate Change When Disclosing Business Risks, SEC Says

On a 3 to 2 vote, the U.S Securities and Exchange Commission passed a recommendation to provide public companies with interpretive guidance on existing disclosure requirements as they relate to business or legislative events on the issue of climate change.

SEC Chairman Mary Schapiro wanted to make it clear that the SEC was not adding any new legal requirements, nor adding to the debate about climate change or global warming:

the Commission is not making any kind of statement regarding the facts as they relate to the topic of “climate change” or “global warming.” And, 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 “Interpretative Release” approved today provides guidelines  for companies to weigh the impact of climate-change laws and regulations when assessing what information to disclose.  Chairman Schapiro pointed out:

It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation — whether that legislation concerns climate change or new licensing requirements — is likely to occur. If so, then under our traditional framework the company must then evaluate the impact it would have on the company’s liquidity, capital resources, or results of operations, and disclose to shareholders when that potential impact will be material. Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather. These principles of materiality form the bedrock of our disclosure framework.

Today’s guidance will help to ensure that our disclosure rules are consistently applied, regardless of the political sensitivity of the issue at hand, so that investors get reliable information.

The commission said companies in the U.S. should also consider international accords, indirect effects such as lower demand for goods that produce greenhouse gases, and physical impacts such as the potential for increased insurance claims in coastal regions as a result of rising sea levels.

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