SEC Votes for Disclosure of Climate Change–Related Business Risks

The Securities and Exchange Commission (SEC) last week voted to approve interpretive guidance that calls for disclosure of climate-related business risks. These include the anticipated impact of climate change on assets and financial risks associated with compliance costs for existing and pending regulations.

The measure, which passed by a vote of 3–2, would not create new legal obligations or modify existing ones. It is intended “to provide clarity and enhance consistency for public companies and their investors,” SEC said in a statement.

 “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,” said SEC Chairman Mary Schapiro on Jan. 27. “Today’s guidance will help to ensure that our disclosure rules are consistently applied."

Although SEC regulations do not explicitly address climate change-related disclosure, existing rules do require disclosure of all material risks faced by a reporting company. It identifies three material forms of environmental risk: regulatory/litigation risk, market risk, and physical risk.

The SEC’s decision follows actions by various states. New York’s Attorney General Andrew Cuomo, for example, has been insisting on climate-related disclosures by companies. Global energy company AES Corp.—a company that operates four coal power plants in New York—was the latest to strike a deal with Cuomo to disclose financial risks that climate change posed to its investors. In 2008, Cuomo made similar agreements with Dynegy and Xcel Energy.

The measure was opposed by the commission’s two Republican members. Before the vote, Reps. Joe Barton (R-Texas) and Greg Walden (R-Ore.) had sent a letter (PDF) to the SEC, asking that the SEC chair consider whether the commission had the authority to issue the guidance, whether there was a link between corporation actions on global warming and investor protection; and whether companies would face civil or criminal penalties for failing to comply with the guidance. 

Sources: SEC, POWERnews, David Wright Tremaine LLP.

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