• SEC Issues Interpretive Guidance on Climate Change Disclosure
  • February 24, 2010 | Authors: Mark J. Bennett; Michael P. Coakley
  • Law Firm: Miller, Canfield, Paddock and Stone, P.L.C. - Detroit Office
  • Public Companies May Be Subject to Additional Form 10-K Disclosures for Year Ending 2009

    On January 27, 2010, the U.S. Securities and Exchange Commission (SEC), by a 3-2 vote, agreed to issue interpretive guidance to companies regarding climate change related disclosure obligations.  

    On February 2, 2010, the SEC issued its formal interpretive release. The SEC Release, which has immediate effect, seeks to clarify what companies need to disclose to investors as "material" effects on their business; this may present disclosure obligations for companies preparing their annual Form 10-K reports for the year ending December 31, 2009.

    The SEC's interpretive release indicates some areas that may be subject to disclosure:

    • 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 Release also contains some potentially significant comments on requirements for Management Discussion & Analysis ("MD&A") disclosures, including those in SEC Form 10-K's to be filed for the year ending December 31, 2009.  Indeed, the SEC plans to conduct a public roundtable in "the spring of 2010," after 2009 Form 10-K's are filed, to consider the experiences of registrants and the SEC under this Release.  The Release also comments on the disclosure requirements of foreign private issuers.

    Public companies and certain private issuers should be cognizant of the interpretive guidance by the SEC and evaluate whether they are subject to climate change related disclosure obligations.  In addition, companies that are already disclosing such information may need to re-examine their disclosures to ensure compliance with the new guidance.