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SEC Issues Guidance on Climate Risk DisclosureSubmitted by Lejla Hadzic, U.S. Research (ESG proxy issues)

In a 3-to-2 vote on Wednesday, the SEC decided to issue an interpretative release on existing climate change disclosure requirements to provide additional guidance for publicly owned companies.

The SEC said that in their required disclosure, companies should consider how their businesses may be impacted not only by existing, but also pending legislation and regulation on climate change, by existing international treaties, by direct and indirect economic, scientific, political and similar impacts of climate change, and by the actual and potential impact of the physical effects of climate change on their business operations, such as availability of natural resources and potential damages to property. The SEC also said that the standard that should be used to determine materiality for disclosure requirements regarding climate change should be based on the ?substantial likelihood that an average investor would consider it important.?

SEC Chairman Mary Schapiro and Commissioners Elisse Walter and Luis Aguilar voted for the release, while Commissioners Troy Paredes and Kathleen Casey voted against.

Walter stressed that the guidance was necessary, stating that she ?does not believe public companies are [currently] doing a best job with respect to required disclosure.? In his remarks before voting, Aguilar said that companies need to consider whether they have an effective system for gathering information and that they should ensure they have sufficient information to evaluate whether climate change has a material effect on their companies. The last time the SEC issued interpretative guidance on environmental disclosure was 25 years ago.

Casey questioned the timing of the release, noting that the science around climate change is ?far from settled.? However, Schapiro stressed that the SEC ?was not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes.? The ?guidance will help to ensure that our disclosure rules are consistently applied," she said.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on January 28, 2010 (boomark / email).