Beveridge & Diamond

New SEC Investor Advisory Committee Discusses Environmental, Climate Change and Sustainability Disclosures

Beveridge & Diamond, P.C., July 30, 2009

The Securities and Exchange Commission’s newly established Investor Advisory Committee met for the first time on Monday, July 27, 2009.  The Committee’s objective is to provide to the SEC the views of a broad spectrum of investors on their priorities concerning the SEC’s regulatory agenda.  Included on the Agenda for this first meeting was a discussion of possible refinements to the SEC’s disclosure requirements for publicly held companies, including enhanced environmental, climate change, and sustainability disclosures. 

Currently, SEC regulations do not specifically address climate change and sustainability disclosures, although companies must disclose all material information necessary to make the required disclosures not misleading.  In addition, there are four requirements in SEC Regulation S-K that either explicitly require environmental disclosures, or provide the basis for a disclosure requirement due to materiality:

  • Item 101 (Description of Business), requiring disclosure of material effects of compliance with governmental requirements relating to the protection of the environment on the capital expenditures, earnings and competitive position of the company, including disclosure of any material estimated capital expenditures for environmental control facilities;
  • Item 303 (Management’s Discussion and Analysis), requiring disclosure of material events, known trends, and uncertainties that could cause financial information not to be necessarily indicative of the company’s future financial condition, including matters that could have a material impact on liquidity, revenues or income;
  • Item 103 (Legal Proceedings), requiring disclosure of pending or contemplated administrative or judicial proceedings arising under environmental laws if certain materiality or other criteria are met; and
  • Item 503(c) (Risk Factors), requiring disclosure of material risks that could impact the company’s business, financial condition, or future results.

A number of investor and environmental advocacy groups have actively promoted greater disclosures in the environmental, climate change, and sustainability areas for years, and have urged the SEC to issue guidance to improve the quality of such disclosures.  Legislative initiatives also have been introduced in Congress from time to time.  In 2007, the State of New York initiated inquiries into the adequacy of disclosures of the expected impact of climate change and the regulation of GHG emissions made by five energy companies.  Likely in response to increased pressure from advocacy groups, in early 2009 the National Association of Insurance Commissioners began requiring insurance companies to make certain climate change-related disclosures to state insurance commissions.  In June 2009, Ceres and other advocacy groups increased the pressure when they released two reports, one covering trends in climate risk disclosure from 1995 to the present, and a second analyzing climate risk disclosures in 2008 Form 10-K filings by companies in selected industries.  These reports generally concluded that disclosure of climate change risks by public companies in these industries is weak or non-existent, and the groups reiterated their calls for SEC action.  Additionally, initiatives such as the Carbon Disclosure Project have drawn attention to climate-related disclosures in various business sectors.

Due, in part, to this increasing level of interest in environmental, climate change, and sustainability disclosures, the SEC Staff’s briefing paper for the Investor Advisory Committee meeting included the following questions:

  1. Do investors consider environmental compliance, climate change and sustainability issues important in making investment or voting decisions?
  2. Are current disclosure practices with respect to environmental compliance, climate change and sustainability issues sufficient for investors to make informed investment and voting decisions, or do investors need expanded disclosure in any of these areas?
  3. If additional disclosure in these areas would be useful to investors, should the Commission require additional disclosure on these matters by revising its forms and regulations?  Alternatively, should the Commission highlight how its current forms and regulations require disclosure in these areas?

Recent press reports cite statements from SEC officials indicating that the level of interest at the Commission in these issues is quite high, although the same officials suggest that it is far too speculative to predict when, or if, new disclosure standards will be proposed.  At least one SEC official has cited the lack of climate experts at the Commission, suggesting that discussions with knowledgeable stakeholders is important.  Future meetings of the Investor Advisory Committee (which will be announced in the Federal Register) may provide opportunities for the regulated community to provide their perspectives on these issues. 

For more information, please contact Holly Cannon at or Chris McKenzie at