SEC tells US firms to disclose climate risks

New York, 28 January: After substantial prodding from investor advocates, the US Securities and Exchange Commission (SEC) will provide guidance to companies about what they must tell their investors about climate risks and opportunities.

Companies must consider whether the impact of existing and potential climate legislation and regulation is material and warrants disclosure, according to the guidance announced yesterday. Companies should also consider and disclose any material risks or impacts from international accords or treaties related to climate change, the SEC said.

Reporting companies must also disclose material, indirect consequences of regulation or business trends such as decreased demand for goods that produce significant greenhouse gas (GHG) emissions.

“This area of indirect consequences is a more challenging area to put into practice,” said Bill Thomas, a Washington, DC-based lawyer in the environmental and climate change practice of Skadden, Arps.

Companies should also evaluate the physical impacts of climate change on their business such as severe weather, the SEC guidance 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,” said SEC chairwoman Mary Schapiro. “Today's guidance will help to ensure that our disclosure rules are consistently applied.”

The guidance does not require companies to analyse their carbon footprints or disclose efforts to reduce GHG emissions. But companies would find it hard to offer full disclosure without this information, Thomas said.

Investor coalitions such as Boston-based Ceres and the Investor Network on Climate Risk have filed multiple petitions asking the SEC to force public companies to disclose material risks and opportunities related to climate change, arguing current disclosure is inconsistent and inadequate.

"We’re glad the SEC is stepping up to the plate to protect investors,” said Anne Stausboll, chief executive officer of the California Public Employees' Retirement System, the nation’s largest public pension fund with more than $205 billion in assets under management.

But one of the SEC's five commissioners, Kathleen Casey, said the guidance was unnecessary because SEC disclosure requirements related to environmental issues are “highly developed and robust” and this action could do more harm than good by making the requirements more cumbersome. 

“I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection,” she said.

Casey was appointed Commissioner by George W Bush in 2006.