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Home > By DEPARTMENTS > Green Operations > California Environmental Compliance

SEC Sets Glimate Change Reporting for Public Companies

The SEC’s action should prompt more companies to collect, analyze and report on climate change information.

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SEC Sets Corporate Climate-Change Disclosure Standard

The US Securities and Exchange Commission (SEC) on January 27, 2010, approved interpretive guidance on climate change reporting for publicly traded companies.

The new climate change reporting guidance is intended to clarify the circumstances in which existing SEC regulations require companies to disclose climate change–related information that could have "material" financial impacts.

The text of the climate change reporting guidance will be published soon in the Federal Register.

According to an SEC press release, the new climate change interpretative guidance highlights the areas where climate change may trigger disclosure.

Climate change related disclosures

The following are some of the ways climate change may trigger disclosure required by these rules and regulations.
  • Impact of legislation and regulation
  • Impact of international accords
  • Indirect consequences of regulation or business trends
  • Physical impacts of climate change.

Investors and environmental advocates in 2007 had urged the SEC to issue guidance on disclosure of climate-related impacts. Petitioners included pension funds, state treasurers, investor advocates and environmental groups, among others.

Actions related to climate change against companies have already occurred. In 2008, the New York state attorney general set a precedent when he negotiated an agreement with Xcel Energy to disclose climate change information after subpoenaing the firm for emissions and climate change information related to the construction of a new coal-fired power plant.

Overview of rules requiring disclosure of climate change issues

When a registrant is required to file a disclosure document with the Commission, the requisite form will largely refer to the disclosure requirements of Regulation S-K37 and Regulation S-X. Application to disclosure of certain specific climate change related matters include:
  • Description of business. Item 101 expressly requires disclosure regarding certain costs of complying with environmental laws.
  • Legal proceedings. Briefly describe any material pending legal proceeding to which it or any of its subsidiaries is a party. A registrant also must describe material pending legal actions in which its property is the subject of the litigation.
  • Risk factors. A discussion of the most significant factors that make an investment in the registrant speculative or risky.
  • Management's discussion and analysis. This is a very complex array of information including among topic, trends, demand, commitment, event or uncertainty.
  • Foreign private issuers. Requires a foreign private issuer to describe any environmental issues that may affect the company’s utilization of its assets; including risk factor disclosure.

Background Information

On January 1, 2010, the EPA began, for the first time, to require large emitters of greenhouse gases to collect and report data with respect to their greenhouse gas emissions.10 This reporting requirement is expected to cover 85% of the nation’s greenhouse gas emissions generated by roughly 10,000 facilities.

In December 2009, the EPA issued an "endangerment and cause or contribute finding" for greenhouse gases under the Clean Air Act, which will allow the EPA to craft rules that directly regulate greenhouse gas emissions.

Insurance Adjustments for Climate Change

The insurance industry is already adjusting to these developments. A 2008 study listed climate change as the number one risk facing the insurance industry.

Reflecting this assessment, the National Association of Insurance Commissioners recently promulgated a uniform standard for mandatory disclosure by insurance companies to state regulators of financial risks due to climate change and actions taken to mitigate them.

The SEC understands that insurance companies are developing new actuarial models and designing new products to reshape coverage for green buildings, renewable energy, carbon risk management and directors’ and officers’ liability, among other actions.

Potential Impact on Public Companies

For some companies, the regulatory, legislative and other developments noted above could have a significant effect on operating and financial decisions, including those involving capital expenditures to reduce emissions and, for companies subject to “cap and trade” laws, expenses related to purchasing allowances where reduction targets cannot be met. Companies that may not be directly affected by such developments could nonetheless be indirectly affected by changing prices for goods or services provided by companies that are directly affected and that seek to reflect some or all of their changes in costs of goods in the prices they charge.

New trading markets for emission credits related to “cap and trade” programs that might be established under pending legislation, if adopted, could present new opportunities for investment. These markets also could allow companies that have more allowances than they need, or that can earn offset credits through their businesses, to raise revenue through selling these instruments into those markets. Some companies might suffer financially if these or similar bills are enacted by the Congress while others could benefit by taking advantage of new business opportunities.

The Climate Registry

The Climate Registry provides standards for and access to climate-related information. The Registry is a non-profit collaboration among North American states, provinces, territories and native sovereign nations that sets standards to calculate, verify and publicly report greenhouse gas emissions into a single public registry. The Registry supports both voluntary and state-mandated reporting programs and provides data regarding greenhouse gas emissions

Carbon Disclosure Project

The Carbon Disclosure Project collects and distributes climate change information, both quantitative (emissions amounts) and qualitative (risks and opportunities), on behalf of 475 institutional investors.

Over 2500 companies globally reported to the Carbon Disclosure Project in 2009; over 500 of those companies were U.S. companies. Sixty-eight percent of the companies that responded to the Carbon Disclosure Project’s investor requests for information made their reports available to the public.

The Global Reporting Initiative

The Global Reporting Initiative has developed a widely used sustainability reporting framework.27 That framework is developed by GRI participants drawn from business, labor and professional institutions worldwide. The GRI framework sets out principles and indicators that organizations can use to measure and report their economic, environmental, and social performance, including issues involving climate change. Sustainability reports based on the GRI framework are used to benchmark performance with respect to laws, norms, codes, performance standards and voluntary initiatives, demonstrate organizational commitment to sustainable development, and compare organizational performance over time.


These and other reporting mechanisms can provide important information to investors outside of disclosure documents filed with the SEC. Although much of this reporting is provided voluntarily, registrants should be aware that some of the information they may be reporting pursuant to these mechanisms also may be required to be disclosed in filings made with the Commission pursuant to existing disclosure requirements.

US Securities and Exchange Commission
DOWNLOAD: Interpretation: Commission Guidance Regarding Disclosure Related to Climate Change

Edited by Carolyn Allen, owner/editor of California Green Solutions
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