Mary: So no sector left behind-I like that. Publicly-traded companies are already required to report anything considered “material” to their investors. So, why did it take so long? Why was it so difficult to convince the SEC on climate-change related risks and benefits? Were there certain stumbling blocks? And what or who finally made the SEC take action?

Julie: Well, the SEC is kind of like a super-tanker: it doesn’t turn on a dime, and it probably shouldn’t. I think it does wait for issues to reach the level of concern or consciousness among a significant number of financial institutions before it acts. And that’s true of a lot of public policy. There was also an election, if you remember, a couple years ago that changed the makeup of all the executive [branch of government], including the SEC. So, we did have sort of a political change in America, as well as a rising tide of investor concern and sentiment regarding the materiality of climate change.

Mary: So, there has been this growing awareness on the part of the investment community that climate change was an issue that was material to the success of the businesses they were thinking of investing in. Has that awareness and urgency, before the SEC ruling at least, spilled out at all into the corporate community? Or is it just investors that are on board with this?

Julie: Oh, no. [Awareness and urgency] has been growing in the corporate community as well. The financial community is just kind of a mirror of the rest of society in many ways. So, if go back, for example, to 1997 to the third conference of the parties in Kyoto that resulted in the Kyoto Protocol, you could probably have used one hand to count the number of companies that actually reported anything with respect to climate change publicly. That would have included B.P. and Shell and a couple of other leaders, not too many. Since then, we’ve seen the insurance and reinsurance industries really start to run the bases on this issue, partly because they have to; they have long-term liability with respect to storms and fires and floods and droughts. A lot of the companies that were big emitters were aware, even back in 2000, that at some point, and certainly in 2005 when the Kyoto Protocol entered into force, [that they’d have to take account of climate change]. The awareness among U.S. companies was, “well, we may not have a law right now but there probably will be one someday and we should probably get ready to see what our liabilities are.”

Mary: Kristen, do you have anything to add to that?

Kristen: Sure. There’s this misperception amongst many that corporate America is opposed to actions that would deal with the climate change problem head on, and it’s simply just not the case. With the exception of the fossil-fuel industry and a few others who have very vocally opposed any pro-active measures in the U.S. to deal with climate change threats, most of corporate America realizes that the greatest risks of climate change come from its physical impact rather than from regulations per se. Whether you’re talking about big companies like Microsoft, Nike, Coca-Cola, Starbucks, these are just a few examples of businesses that have come out and openly supported immediate and aggressive actions to prevent climate change and have lobbied Congress in that regard. What business hates most is uncertainty. Business in America has been asking our elected leaders for clear and consistent rules, and clear and consistent pricing over carbon so they can plan ahead effectively.

Mary: Clarity-it’s what we all need right?

Kristen: Clarity and certainty.

Mary: Julie, let me get back to you for a couple of quick questions. So the SEC action isn’t a law, right?

Julie: That is correct.

Mary: So, will it be enforced? How does it get enforced? Can companies just choose to ignore it if they want to?

Julie: They can [choose to ignore it], yes. The law says that companies must report material actions to their investors. You ask any corporate lawyer what materiality means and they’ll say, “well, I can give you a long definition, but the short one is nailing jelly to a wall.” There’s always some doubt as to what materiality is, or what an investor would consider material, and the SEC has always resisted setting a numeric threshold: it’s not 5% of your earnings or your assets or something, although that’s often used as a rule of thumb.

The SEC has been issuing guidance on the reporting of environmental liability for over thirty years now, so they’ve done this before. You know, if you have big Superfund cleanup liabilities, or asbestos liabilities, or something like that, you’re expected to say so to your investors. So what this SEC guidance does, is basically signals that the SEC sees climate change as something that could have a material impact on a sufficiently large number of publicly-traded companies that it’s worth considering in its own right. How would it be enforced? It would be enforced pretty much after the fact. If, for example, we had a coal company that decided that climate change wasn’t material, and then we got a law that significantly limited emissions and established a carbon-trading regime and the stocks of the coal company fell 25%, that company’s investors could come back and lodge a securities fraud lawsuit and say ‘you should have told us about this and you didn’t.’