SEC Issues Interpretive Guidance on Disclosure Related to Climate Change
At a January 27 open meeting, the Securities and Exchange Commission (SEC), by a 3-2 vote, approved guidance on disclosure related to the effects on public companies of climate change and regulation concerning climate change.
On February 2, the SEC issued its formal interpretive release on the disclosure guidance, which was effective immediately. Thus, companies preparing their annual Form 10-K reports should consider the new guidance in evaluating their disclosures in response to the following Items of Regulation S-K:
The SEC’s guidance points out that companies should already be considering issues relating to climate change as part of their required disclosures in response to these items. The SEC’s guidance also noted that disclosures should consider the potential indirect consequences of regulation or business trends related to climate change. The SEC’s guidance does not amend or expand existing disclosure requirements or change any materiality thresholds.
In particular, the guidance seeks to clarify the responsibility of companies to disclose, where material:
The staff of the SEC noted that, in order to evaluate whether disclosure regarding the effects of pending climate change regulation (such as the federal cap and trade legislation) is required, registrants need to consider whether they have effective systems for collecting information about their emissions. Therefore, “management should ensure that it has sufficient information regarding the registrant’s greenhouse gas emissions and other operational matters to evaluate the likelihood of a material effect arising from the subject legislation or regulation.”
What Should Companies Do Now in Response to the SEC Climate Change Guidance?
Based on the SEC’s statements to date, companies should take the following steps to ensure compliance:
Click here to view the SEC’s interpretive release on climate change disclosure.
Click here to view the SEC’s press release regarding the guidance described above.
Click here to view the text of Chairman Schapiro’s remarks regarding the guidance described above.
Click here to view the text of Commissioner Walter’s remarks regarding the guidance described above.
1 Two significant international accords related to this topic are the Kyoto Protocol, which was adopted in Kyoto, Japan, on December 11, 1997, and became effective on February 16, 2005, and the European Union Emissions Trading System (EU ETS), which was launched as an international “cap and trade” system of allowances for emitting carbon dioxide and other greenhouse gases, built on the mechanisms set up under the Kyoto Protocol.