SEC Requires Disclosure of Climate-Related Impacts

The SEC issued new interpretive guidance that clarify companies must weigh the impact of climate-change laws and regulations when assessing what information to disclose to investors in terms of climate-related ‘material’ effects on business operations, whether from new emissions management policies, the physical impacts of changing weather or business opportunities associated with the growing clean energy economy.

In the 3-to-2 vote, the commission said companies in the U.S. should also consider international accords, indirect effects such as lower demand for goods that produce greenhouse gases, and physical impacts such as the potential for increased insurance claims in coastal regions as a result of rising sea levels. (SEC Sets Climate-Change Disclosure Standards for Companies, BusinessWeek, 1/27/2010)

More than a dozen investors managing over $1 trillion in assets, plus Ceres and the Environmental Defense Fund, requested formal guidance in a petition filed with the Commission in 2007, and supported by supplemental petitions filed in 2008 and 2009.

“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 (CalPERS), the nation’s largest public pension fund with more than $205 billion in assets under management. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for US companies and the urgency for integrating them into investment decision making,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk, a network of 80 institutional investors with $8 trillion in collective assets.

Last June, Ceres, EDF and The Corporate Library issued a report showing that S&P 500 companies – including those with the most at stake in responding to the risks and opportunities from climate change – are providing scant climate-related information to investors. The study was based on an analysis of 10-K and 20-F filings by 100 global companies in 2008. (SEC Issues Ground-Breaking Guidance Requiring Corporate Disclosure of Material Climate Change Risks and Opportunities, Ceres, 1/27/2010)

Social Investment Forum CEO Lisa Woll said:   “This is perhaps the biggest development so far in the long-term campaign to promote wider sustainability reporting.  We welcome today’s SEC action as a critical step in the direction of fuller environmental, social and governance (ESG) or sustainability disclosure.  Today, we renew our call for mandatory corporate ESG or sustainability reporting.

Investors’ efforts to incorporate ESG information into investment decisions have been hindered by a lack of comprehensive, comparable data. Because sustainability reporting among corporate issuers is largely still voluntary, it is far from universal, and often inconsistent and incomplete.

That is why we are asking the SEC to require issuers to report annually on a comprehensive, uniform set of sustainability indicators comprised of both universally applicable and industry-specific components and suggest that the SEC define this as the highest level of the current version of the Global Reporting Initiative (GRI) reporting guidelines.” (Social Investment Forum: SEC Climate Action “Important First Step” Toward Broader Sustainability Reporting For Investors, SIF, 1/27/2010)

Commissioner Aguilar encouraged the SEC’s Investor Advisory Committee to review climate and other ESG risks to see if other disclosure requirements were needed.

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One Response to SEC Requires Disclosure of Climate-Related Impacts

  1. tombrakke January 27, 2010 at 2:00 pm #

    It will be interesting to see how companies handle this and whether investors start to adjust their valuations to account for climate change risks. To the latter point, I wrote a posting awhile back (http://researchpuzzle.com/blog/2008/07/03/warming-up-the-models/) that looked at the need to approach this from a probabilistic standpoint, versus the black-and-white political debates that dominate the discussion.

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