SEC Votes To Issue Interpretive Guidance On Climate Change Disclosures

At an open commission meeting earlier today, the U.S. Securities and Exchange Commission voted to publish interpretive guidance on climate change disclosures. The measure passed by a 3-2 vote, with Commissioners Kathleen Casey and Troy Paredes voting against the action.

Meredith Cross, Director of the SEC's Division of Corporation Finance, explained that the guidance would be issued in the form of an "interpretive release regarding existing disclosure requirements as apply to climate change matters." She added that the guidance was expected to be "useful to public companies, and to the benefit of investors, to remind companies to consider climate change disclosure matters... just as any material issues covered by the SEC's disclosure rules."

Four Areas In SEC Filings Where Disclosure May Be Required
As noted in the SEC's press release:

The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's:

• risk factors,
• business description,
• legal proceedings, and
• management discussion and analysis.

Four "Triggers" To Disclosure Provided As Examples
Additionally, the press release notes:

[T]he interpretive 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.

According to the press release, "The SEC's interpretive release will be posted on the SEC Web site as soon as possible."

SEC To Convene Roundtable On Climate Change
There was a brief reference to an upcoming SEC roundtable on climate change, noted in Commissioner Aguilar's statement:

I look forward to the Commission's roundtable on climate change to be held later this year. I also look forward to the ongoing work of the Commission's Investor Advisory Committee regarding enhanced environmental, social, and governance disclosures.

UPDATE: MATERIALITY

In her statement, Commissioner Elisse Walter noted:

I am concerned by the fact that today many public companies are in fact providing disclosure about significant climate change related matters through mechanisms outside of the disclosure documents they file with the Commission. While all of the information provided voluntarily by companies through these mechanisms undoubtedly is not required to be disclosed under our rules, I do not believe that public companies today are doing the best job they possibly can do with respect to their current mandated disclosures.

Of course, I understand that company analyses and determinations whether information is material and required to be disclosed involve judgment. And, I understand that there may be some degree of doubt that companies face in reaching their decisions about climate change disclosures. As the staff noted in the interpretive guidance, the Supreme Court has already provided guidance to publicly held companies in TSC Industries when it said that “it is appropriate that these doubts be resolved in favor of those the statute is designed to protect.”2

Walter asked the SEC staff: "Are we applying different materiality standards to this topic?"

Corp Fin Director Meredith Cross replied:

"No; traditional standards of materiality as articulated by the Supreme Court in Basic and TSE industry cases.... That language provides useful background to the traditional materiality description in the [interpretive] release; it is included as additional background information, but it doesn’t change the standard… information is material if [there is a] substantial likelihood an investor ... would consider important in making an investment decision, or if the information would alter the total mix of information..."

Walter added:

As I quoted in my statement, the Supreme Court has said, resolve doubts in favor of those designed to protect…[i.e. investors]

Highlights of Commissioner's Remarks, Q&A

Below are links to the statements made at the SEC's January 27 open commission meeting by:
Chairman Mary L. Schapiro
Commissioner Luis Aguilar
Commissioner Kathleen Casey
Commissioner Troy Paredes
Commissioner Elisse Walter (we will update this post to include a link to Commissioner Walter's remarks, if posted by the SEC)

We are working on a summary of additional highlights from the Commissioner's remarks and the Q&A that took place during the open commission meeting, check back here later for a link to our summary. ** SEE UPDATE POSTED ON 1/28 ABOVE RE: MATERIALITY

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