In 3-2 Vote, SEC requires companies to disclose climate risks to investors

Many major industries have climate risks, starting with insurers.  In this Wonk Room repost, Brad Johnson explains what the SEC did today to help investors understand what those risks are.  I’ll add a note on the two anti-science SEC commissioners at the end.

UPDATE:  SEC has put out a Press Release (and a video of the Chair’s statement).

Green InvestingIn a 3-to-2 vote, the U.S. Securities and Exchange Commission determined today that companies “must consider the effects of global warming and efforts to curb climate change when disclosing business risks to investors.”

Guidelines approved today require companies to weigh the impact of climate-change laws and regulations when assessing what information to disclose, the commission said. The SEC is responding to investors who said companies aren’t providing enough data on the potential risks to their profits and operations from environmental- protection laws. 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.

Ceres, a network of investors and climate activists, hailed the action as “the first economy-wide climate risk disclosure requirement in the world.” 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.

For too long, the reality of climate change has been ignored by American business, exemplified by the U.S. Chamber of Commerce’s denial of global warming. This willful ignorance has left American business “” from agriculture to the financial sector “” unprepared for the increasing damages of climate change, such as sea level rise, drought and wildfires. Furthermore, these blinders have kept American business behind international competitors, who have leapt ahead by investing in the coming low-carbon economy.

JR:  Business Week reports that anti-science still rules with the minority:

The commission voted along party lines with two Republicans, Kathleen Casey and Troy Paredes, rejecting the proposal. Both said scientific claims that man-made emissions are contributing to global warming are “unsettled” and today’s move could swamp investors with unnecessary information.

Sad.  Yes, wouldn’t want to swamp those investors with unnecessary information.  That’s what conservatives do — they protect the people from unnecessary information.  Thank goodness we didn’t swamp investors with information about risks pertaining to mortgage-backed securities and credit default swaps a few years ago.  Who knows what bad decisions they might have made with all that unnecessary information.


SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change

Washington, D.C., Jan. 27, 2010 “” The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.

Federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors. Occasionally, to assist those who provide such disclosures, the Commission provides guidance on how to interpret the disclosure rules on topics of interest to the business and investment communities. The Commission’s interpretive releases do not create new legal requirements nor modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors.

The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company’s risk factors, business description, legal proceedings, and management discussion and analysis.

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

Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

* * *

The SEC’s interpretive release will be posted on the SEC Web site as soon as possible.

9 Responses to In 3-2 Vote, SEC requires companies to disclose climate risks to investors

  1. Derwood Washington says:

    “When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances:”

    An example would be where an IPO is drafting cash flow assumptions and must be required to disclose risks and legislation that feed inducements and subsidize the product. How does one draft a red herring prospectus regarding future sierra Club litigation and damage to birds and other wildlife around wind farms?

  2. john atcheson says:


    Long overdue — you may remember we were pushing this way back when we were at DOE together — this will prove very powerful.

  3. How does “should consider” have any teeth? “Should evaluate” does not sound very strong.

    Will this require a shareholder to file suit? How might this be enforced?

  4. Wit's End says:

    I heard this report on NPR All Things Considered this evening. The reporter mentioned that SEC has other rulings about disclosures that are widely ignored.

    Let’s hope this gets enforced, it’s a very clever way to bring the home the fact that climate change will have economic effects, and completely marginalize the deniers.

    Insurance companies will be affected, I can’t wait to see their required quarterly analysis of what ozone damage to trees and crops is expected to cost!

  5. Lou Grinzo says:

    This development is a perfect example of something that could have a huge, positive effect, even though it’s not a dramatic event like the passage of a climate change bill or a breakthrough agreement in Mexico City 11 months from now.

    Even though there’s no carbon tax being paid or cap-and-trade permits being exchanged, this ruling should begin the process of assigning a risk (and therefore a monetary value) to the effects of CO2 pollution.

    About freakin’ time.

  6. David B. Benson says:

    Hope it is stringently enforced.

  7. Ben says:

    Finally, a financial regulatory agency that has stopped the unwilling, uneducated, and willfully ignorant to control policy. Lets hope this trend continues.

  8. James Newberry says:

    Curb your dog, curb your climate.

    The JRN disclosure: All of you monied (money: a tradable symbol of political power) capitalists are too late. This is good policy for maybe a quarter century ago. Based on current science, the past emissions presently residing in the air at 430 ppm (equivalent) exceeds that during a past geologic age when polar ice caps did not exist. This is due to the phenomena of radiative forcing.

    This means over seven million cubic miles of land ice are headed to sea and our way. Impact: new sea level maybe one quarter up the Empire State Building. All world seaports, total loss. Have a nice investment.

  9. djrabbit says:

    #7 David:

    If the SEC doesn’t enforce the new disclosure requirement, plaintiffs’ lawyers will be more than happy to do it for them. Recent changes in federal procedure have made it harder than simply waiting for a company’s stock to go down after Cap & Trade passes and then blaming the dip on insufficient disclosure (a fraud-on-the-market type theory), but profit-motivated attorneys will find clever ways to get it done.

    How long until Sen. Murkowski calls for legislation to reverse the SEC?