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SEC Announces Meeting on Climate Change Disclosure Requirements

Beveridge & Diamond, P.C., January 25, 2010

The Securities and Exchange Commission (SEC) will hold a public meeting on January 27, 2010 to consider issuing an interpretive release on climate change disclosure requirements.  Pressure for SEC action stems in part from a recent supplement to a 2007 petition requesting the SEC to require companies to address climate-related risks when reporting other financial risks.  Related efforts to engage the SEC on climate-related disclosures have been ongoing since 2003 through the Investor Network on Climate Risk.  The key questions at this stage focus on whether commitments to reduce greenhouse gas (GHG) emissions could give rise to material liabilities and whether climate change constitutes a known trend.  The announcement, available here, signals the SEC’s first steps in the potential development of long-awaited guidance on climate-related corporate disclosure obligations.  The meeting is scheduled to be held at 10:00 a.m. in the SEC Auditorium, Room L-002.

Background

In 2007, a group of investors, environmental organizations, and chief financial officers from several states petitioned the SEC to require corporate reporting of climate-related information.  Emphasizing the wide variance in climate-related disclosures in SEC filings, the petition called on the SEC to issue an interpretive release clarifying that material climate-related information must be included in corporate disclosures under existing law.  The petition proposed three “key elements” for inclusion in the interpretive release: (1) disclosure of physical risks associated with climate change; (2) disclosure of financial risks associated with present or probable regulation of GHG emissions; and (3) disclosure of legal proceedings relating to climate change.

The signatories filed a supplement to the petition in November 2009 requesting urgent SEC action to ensure public disclosure of GHG emissions data and associated risks.  The supplement cited recent developments in the U.S. legal context, including the Environmental Protection Agency’s final rule on mandatory GHG reporting, proposed federal cap-and-trade legislation, advancement of state and regional climate initiatives, and increased climate-related litigation.

Growing SEC Support for Climate-Related Disclosure

Current SEC leadership appears to be taking the issue of climate-related disclosure seriously.  The SEC has held several recent meetings with climate risk experts, and at least one commissioner believes that some companies may be obligated to disclose climate-related information under existing rules.  The SEC also released a staff bulletin in October 2009 requiring companies in most instances to respond to shareholder resolutions that seek information on social and environmental financial risks, including climate change.  Despite these indications of the SEC’s willingness to direct greater attention toward climate-related risks and opportunities, it is far from clear how the SEC will formulate interpretive guidance, particularly given that key elements of future federal legislation and international obligations have not yet been decided.

For a printable PDF of this article, please click here.

For more information, please contact Holly Cannon at (202) 789-6029, dcannon@bdlaw.com, or Lauren Hopkins at (202) 789-6081, lhopkins@bdlaw.com.  

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