SEC 2010 Interpretive Release

This page summarizes the Securities and Exchange Commission’s interpretive release on including climate change within disclosure documents, and collects additional resources on climate and securities disclosures.

This page is intended as a reference resource and should not be construed as legal advice. Actual disclosures, where highlighted or presented, are provided solely as examples. Please contact the Center at [email protected] with comments or recommended additions for this resource page.

The Securities and Exchange Commission published an interpretive release, effective Feb. 8, 2010, to guide U.S. public companies on the SEC’s existing disclosure requirements related to climate change. The SEC Guidance is available here[PDF].

Background

The SEC Guidance follows several years of activity by state attorneys general, institutional investors, environmental groups, and others to clarify the climate change disclosure requirements of public companies. For example, Ceres, the New York State Attorney General, the California Public Employees’ Retirement System, and other parties, representing public treasuries and pension funds, major investment and asset management firms, and other institutional investors, began submitting formal petitions for climate change related disclosure guidance to the SEC in 2007. Some of those parties filed supplemental petitions in 2008 and 2009.

In 2008, the N.Y. Attorney General reached settlement agreements requiring disclosure of material climate change risks with three power companies: Xcel Energy, Dynegy Inc., and The AES Corporation.

On June 12, 2008, the Investor Network on Climate Risk and other 40 other signatories wrote to the SEC, requesting improvement in the disclosure of climate change risks in securities filings.

Prior to the SEC’s guidance, several organizations have provided monitoring and tracking of voluntary and state-mandated disclosures regarding greenhouse gas emissions and climate related risks. These include The Climate Registry, The Carbon Disclosure Project, and The Global Reporting Initiative. The SEC guidance makes clear that while most of the information submitted to these groups was submitted voluntarily, some of the information disclosed may also be subject to the SEC’s disclosure requirements.

Rules Triggering Disclosure

The SEC guidance points to the four most pertinent sources of climate change related disclosure requirements, all contained in Regulation S-K (17 CFR Part 229):

• Item 101, Description of Business
• Item 103, Legal Proceedings
• Item 503(c), Risk Factors
• Item 303, Management’s Discussion and Analysis (“MD&A”)

Disclosure Topics

The SEC guidance specifies four subjects that may trigger the disclosures required by Regulation S-K. These four topics are “examples of climate change-related issues that a registrant may need to consider,” and are intended as a starting point, rather than a comprehensive list of subjects a registrant should consider. For all subjects, the guidance advises registrants to consider positive consequences and potential opportunities, not merely the negative consequences of a particular law, regulation, or business trend.

The four subjects identified in the SEC guidance are:

• Impact of legislation and regulation
• Impact of international accords
• Indirect consequences of regulation or business trends
• Physical impacts of climate change

Below we provide resources that may be helpful in a registrant’s consideration of each of these areas.

Impacts of Legislation and Regulation

The SEC guidance advises registrants to consider the impact of federal, state, and local laws and regulations, and whether disclosure is required under Items 101, 103, 503(c), or 303 of Regulation S-K, or under another SEC rule or regulation. For Item 503(c) risk factors, the guidance states that, “[r]egistrants should consider specific risks they face as a result of climate change legislation or regulation and avoid generic risk factor disclosure that could apply to any company.” The guidance also discusses a two-step analysis for disclosure under MD&A in Item 303: First, the registrant must evaluate whether the pending legislation or regulation is “reasonably likely to be enacted”; second, management must determine whether the legislation or regulation “is reasonably likely to have a material effect on the registrant, its financial condition or results of operations.”

• For federal legislation, SCCCL maintains a Legislative Resource Center, which tracks bills being discussed in the current U.S. Congress and provides links to bill texts, committee hearing transcripts and webcasts, useful analyses and reports, and news and blog articles. The Legislative Resource Center can be a helpful resource for assessing the status of federal climate change related legislation; its referenced analyses and reports will be helpful in ascertaining the potential impacts of such legislation on particular sectors of the economy.
• For federal regulations, SCCCL maintains a Regulation Tracking Service, which tracks the status of climate change related regulations, findings, and interpretations promulgated by the U.S. Environmental Protection Agency and other federal government bodies, including the SEC, Executive Office of the President, Department of Transportation, and Department of Energy.  This Regulation Tracking Service can be a helpful resource in assessing the status and potential impacts of federal regulation.
• For local ordinances and regulations, SCCCL maintains a Municipal Climate Change Laws Database, which presents a selection of local laws, mostly in New York state, that are related to energy efficiency, green buildings, and renewable energy.

International Accords

The SEC Guidance notes that registrants should consider whether international accords relating to climate change will impact their business and should disclose those impacts that are material. Registrants that are reasonably likely to be affected by international agreements should monitor the progress of any potential international agreement and consider their possible impact in satisfying the disclosure requirements.

• SCCCL maintains a Copenhagen Accord page, which provides links to discussions and studies of the agreement reached by certain of the parties attending the most recent Conference of the Parties under the U.N. Framework Convention on Climate Change and the Kyoto Protocol.
• U.N. Framework Convention on Climate Change (UNFCCC).
• U.S. Department of State maintains a comprehensive page devoted to U.S. climate change and energy commitments and negotiations abroad, including bilateral and multilateral agreements, and efforts under UNFCCC and Kyoto.
• USAID Global Climate Change Program.
• Harvard Project on International Climate Agreements, John F. Kennedy School of Government.
• European Union Emission Trading System (EU ETS).

Indirect Consequences of Regulation or Business Trends

This topic comprises opportunities or risks that may develop as a result of legal, political, and scientific changes related to climate change. The consequences may include decreased demand for existing products and services or increased demand for new products and services that create or utilize alternative energy sources or that produce lower emissions. The SEC advises that these trends may need to be disclosed in MD&A, and those that are significant enough may need to be disclosed in the description of business. Another risk highlighted by the SEC is the potential reputational risk related to any required disclosure of the registrant’s greenhouse gas emissions or other environmental impacts.  As this is something of a catch-all category, the following list of resources is not exhaustive and will be frequently updated. If you know of a helpful resource that is not listed, please contact us.

• SCCCL and Arnold & Porter maintain U.S. and Non-U.S. Climate Litigation Case Charts, which compile climate change related case law, categorized by the type of claim. The Case Chart can be a helpful resource in recognizing and assessing potential legal claims and risks.
• Ceres, 21st Century Corporation: The Ceres Roadmap to Sustainability (March 2010).
• Ceres has published numerous other reports related to different sectors and issues, which are available here.
• Energy Information Administration (EIA), U.S. Department of Energy. The EIA, among other responsibilities, compiles statistics related to demand and supply of different types of energy, greenhouse gas emissions, energy costs, environmental mediation costs, and other important items.
• Environmental Defense Fund Innovation Exchange.
• Investor Network on Climate Risk, Climate Resolutions Tracker.
• Pew Center on Climate Change Business Environmental Leadership Council.
• Pew Center on Climate Change, Adapting to Climate Change: A Business Approach (April 2008).
• World Resources Institute, Next Practice Collaborative: Business Leadership and Climate Change.
• World Resources Institute, Sharpening the Cutting Edge: Corporate Action for a Strong, Low -Carbon Economy (2009).

Physical Impacts of Climate Change

Climate change has the potential to have significant physical impacts as a result of the effects of increased severity of weather phenomena and sea level rise on physical infrastructure, water resources, and the like. The SEC advises registrants that may be vulnerable to severe weather or other climate-related events to consider disclosing the material risks of those events. The following resources identify some of the physical impacts of climate change on different geographical areas in the U.S. as well as on different sectors and industries.

• California Climate Action Team Biennial Report (2009). Identifies impacts of climate change on California’s public health, infrastructure, and natural resources, as well as the economic impacts of climate change on various sectors (including agriculture and energy).

• Congressional Budget Office, Potential Impacts of Climate Change in the United States (2009).

• Intergovernmental Panel on Climate Change (IPCC) Working Group II, Fourth Assessment Report, North America Chapter (2007). Identifies key future impacts and vulnerabilities in various sectors and resources, including coastal regions, energy, industry, and agriculture.

• National Research Council, Transportation Research Board Special Report 290, Potential Impacts of Climate Change on U.S. Transportation (2008).

• Union of Concerned Scientists, 2009 U.S. Assessments: National, Northeast, Midwest, Northwest,Great Plains, Southeast, Southwest, Alaska, Islands.

• U.S. Climate Change Science Program, Synthesis and Assessment Product 4.3: The Effects of Climate Change on Agriculture, Land Resources, Water Resources, and Biodiversity in the United States(2008).

• U.S. Government Accountability Office (GAO), Climate Change: Financial Risks to Federal and Private Insurers in Coming Decades Are Potentially Significant — Report to the Senate Committee on Homeland Security and Governmental Affairs, GAO-07-285 (March 2007).

• U.S. Global Change Research Program, Global Climate Change Impacts in the U.S. (Full Report) (2009). Individual chapters on specific regions are also available for download: Alaska, Coasts, Great Plains, Islands, Midwest, Northeast, Northwest, Southeast, Southwest, as are individual chapters on economic and social sectors: Agriculture, Ecosystems, Energy, Human Health, Society,Transportation, Water Resources.

• Washington State Climate Change Impact Assessment Report, Chapter 11 “Preparing for Climate Change in Washington State” (2009).

• O. Choi & A. Fisher, The Impacts of Socioeconomic Development and Climate Change on Severe Weather Catastrophe Losses: Mid-Atlantic Region (MAR) and the U.S., 58 Climatic Change 149 (May 2003).

Reports, Articles, and Other Resources on Disclosure of Climate Change Related Issues

• Acclimatise has created the Building Business Resilence to Inevitable Climate Change: Carbon Disclosure Project Report for the following industries: Global Electric Utilities, Global Mining, and Global Oil and Gas.

• Acclimatise (Amando, J.-C., Fayolle, V. and J. Firth), Corporate Disclosure of Physical Climate Change Risks and Adaptation, Client Note, (Nov. 2011).

• Acclimatise (Amando, J.-C., Fayolle, V. and J. Firth), A Look at 2010-2011 Guidance and Disclosure on Climate Impacts and Adaptation, Insight Note No. 1, (2011).

• ASTM International, Standard Guide for Financial Disclosures Attributed to Climate Change, Active Standard E2718-10.

• Bureau of National Affairs (BNA), The Business Impacts of Climate Change (EHS Strategies, May 2008).

• Calvert Investments, Ceres, and Oxfam America published a guide for companies and investors on disclosure and management of climate impacts titled Physical Risks from Climate Change (May 2012).

• The Canadian Institute of Chartered Accountants (CICA) has provided guidance and written several excellent reports on climate change disclosures in Canada and the United States.

• Canadian Securities Administrators (CSA), Environmental Reporting Guidance, CSA Staff Notice 51-333, (Oct. 2010).

• Center for Energy and Environmental Security (CEES), Environmental Defense Fund, and Ceres, Reclaiming Transparency in a Changing Climate: Trends in Climate Risk Disclosure by the S&P 500 from 1995 to the Present (2009).

• Ceres, the Institutional Investors Group on Climate Change (UK), and the Investors Group on Climate Change (Australia/New Zealand) have created three industry-specific climate disclosure frameworks, for oil and gas, electricity production, and automobiles.

  Read more at greenbiz.com

• Ceres, Climate Risk Disclosures by Insurers: Evaluating Insurer Responses to the NAIC Climate Disclosure Survey, (Sept. 2011).

• Ceres, Disclosing Climate Risks and Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors(2011).

• Ceres, Murky Waters? Corporate Reporting on Water Risk, 2010.

• The Corporate Library for Ceres and Environmental Defense Fund, Climate Risk Disclosure in SEC Filings: An Analysis of 10-K Reporting by Oil and Gas, Insurance, Coal, Transportation and Electric Power Companies(June 2009).

• Climate Disclosure Standards Board (CDSB), The CDSB Reporting Framework (Exposure Draft) (May 2009).

• Climate Risk Disclosure Initiative, Global Framework for Climate Risk Disclosure: A Statement of Investor Expectations for Comprehensive Corporate Disclosure (Oct. 2006).

• Friends of the Earth, Fifth Survey of Climate Change Disclosure in SEC Filings of Automobile, Insurance, Oil & Gas, Petrochemical, and Utilities Companies (Oct. 2006).

• Simon Johnson et al., The Fair Value of Environmental Liabilities, in ABA Environmental Disclosure Committee Newsletter (Aug. 2008).

• Law360, Early Effects of SEC’s Climate Disclosure Release (Dec. 2010).

• LexisNexis and American College of Environmental Lawyers, The SEC and Climate: Disclosure Requirements (LexisNexis Global Climate Change Special Pamphlet Series, Jan. 2010).

• Li-Wen Lin, Corporate Social and Environmental Disclosure in Emerging Securities Markets, 35 N.C. J. INT’L L. & COM. REG. 1-32 (2009).

• McGuireWoods LLP, Climate Change Disclosure: Out With the Old, In With the New? (Oct. 2009).

• National Association of Insurance Commissioners (NAIC), Climate Change and Global Warming Task Force. Conducts an annual Insurer Climate Risk Disclosure Survey, which is mandatory for all insurers with annual premiums of $500 million or more.

• Erin M. Reid and Michael W. Toffel, Responding to Public and Private Politics: Corporate Disclosure of Climate Change Strategies (Harvard Business School Working Paper 09-019, June 2009).

• RiskMetrics Group, Guide to Climate Risk Management (Nov. 2009).

• Andrew B. Schatz, Note, Regulating Greenhouse Gas Emissions by Mandatory Information Disclosure, 26 VA. ENVTL. L. J. 335 (2008).

• Jeffrey A. Smith, Matthew Morreale, and Kimberley Drexler, The SEC’s Interpretive Release on Climate Change Disclosure, 4 CARBON & CLIMATE L. REV. 147 (Feb. 2010).

• Elizabeth Stanny, Voluntary Disclosures by US Firms to The Carbon Disclosure Project (Working Paper, 2010).

• U.S. Senate Committee on Banking, Housing, & Urban Affairs, Hearing on Climate Disclosure: Measuring Financial Risks and Opportunities (Oct. 31, 2007).

• Perry E. Wallace, Climate Change, Fiduciary Duty, and Corporate Disclosure: Are Things Heating Up In the Boardroom?, 26 VA. ENVTL. L. J. 293 (2008).

Disclosures Catalog

The Sabin Center for Climate Change Law has compiled a catalog of links to and excerpts from the 2009 annual reports and 2010 third quarter statements filed with the SEC by 160 Fortune 500 companies. SCCCL believes this resource will be useful for those researching the state of climate change related disclosures. It may be particularly useful to those wishing to compare a pre-SEC Guidance report (2009 10-K) to post-SEC Guidance reports, to determine whether and how the SEC’s Guidance has affected disclosures.

The spreadsheet includes companies from 19 industries (industry categories are taken from the 2010 Fortune500). The industries included are: Airlines; Chemicals; Construction and Farm Machinery; Energy; Food Production; Forest and Paper Products; Industrial Machinery; Insurance: Property and Casualty (Stock); Metals; Mining, Crude Oil Production; Motor Vehicles and Parts; Oil and Gas Equipment, Services; Petroleum Refining; Pipelines; Railroads; Transportation and Logistics; Trucking and Truck Leasing; Utilities: Gas and Electric; and Waste Management. The full list of industries, including the 48 that are not included in the spreadsheet, is available here.

The default sorting of the spreadsheet is by Industry, but a user can change this by going to Data->Sort.

Download the spreadsheet here (.xls, approx. 1 MB)