SEC Issues Guidelines to Help Companies Assess Effects of Climate-Change Laws, Rules

This story appears in the Feb. 8 print edition of Transport Topics.

The Securities and Exchange Commission for the first time has voted to issue guidelines to help public companies decide whether climate change laws and regulations will have a material effect on their businesses.

The commission’s interpretive guidelines will not create new legal requirements nor modify existing ones, but they are intended to “provide clarity and enhance consistency for public companies and their investors,” the commission said.

“We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes,” SEC Chairman Mary Schapiro said at the commission’s Jan. 27 meeting. “Nothing that the commission does today should be construed as weighing in on those topics. To-day’s guidance will help to ensure that our disclosure rules are consistently applied.”

Although the U.S. Senate is working on climate change legislation and the U.S. Environmental Protection Agency has pledged to begin regulation of greenhouse gas emissions, the SEC guidelines seemed to come out of nowhere, a U.S. Chamber of Commerce official told Transport Topics.

“Although this is not a formal rule amendment, we are disappointed that a decision that will have such a significant impact on public companies was not vetted through a more public and robust process,” said David Hirschmann, president and chief executive officer of the Chamber’s Center for Capital Markets.

Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies, the SEC said in a Jan. 27 statement after voting 3-2 in favor of issuing the guidelines.

The SEC also said a company may face decreased demand for goods that produce significant greenhouse gas emissions or in-creased demand for goods that result in lower emissions than competing products.

In either case, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face because of climate-related regulatory or business trends, the SEC said in its statement.

Although the SEC did not discuss the reason or timing of its decision to issue the new climate-change guidance, public interest groups and some investors have been pressuring the agency to issue the guidance at least since 2007.

In September 2007, for instance, a broad coalition of state officials with regulatory, law enforcement and fiscal management responsibilities; some of the nation’s largest institutional investors; and other public interest groups petitioned the SEC to issue the guidance.

“Climate change has now become a significant factor bearing on companies’ financial condition,” the groups said in their petition. “For many companies, climate risk is material and subject to mandatory disclosure under traditional principles of the securities laws and the commission’s regulations.”

However, the petitioners said disclosure of climate risk has been “scant and inconsistent.”

“In periodic reports filed pursuant to the commission’s disclosure regulations, many corporations have taken the position that any risks associated with climate change are too uncertain and remote in time to be material to their performance,” the petitioners said. “The rapidly changing regulatory environment makes clear that this position is no longer sound.”

A study last year by the Environmental Defense Fund and the Center for Energy and Environmental Security reviewed more than 6,000 SEC filings by Standard & Poor’s 500 companies from 1995 to 2008.

The study concluded that climate risk disclosure has shown some modest improvement since 1995, but in 2008, 75% of annual reports filed by S&P 500 corporations failed even to mention climate change, and only 5% articulated a strategy for managing climate-related risks.

“These findings are a clarion call for quick SEC action to require better climate risk disclosure from publicly traded companies,” Mindy Lubber, president of CERES and director of the Investor Network on Climate Risk, said last year. “Climate change is a bottom-line issue, and investors have a right to know which companies are best positioned for the emerging clean energy global economy.”