In 3-2 vote, SEC requires companies to disclose climate risks to investors
Cross-posted from The Wonk Room.
In 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.
The SEC has posted its summary:
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.