SEC Approves Guidance on Climate Change Disclosure

February 2, 2010
MGKF Special Alert

On January 27, 2010, the Securities and Exchange Commission ("SEC") approved an "interpretive guidance" concerning existing disclosure requirements related to "business or legal developments related to climate change."  The interpretive guidance, approved along party lines at an SEC open meeting, marks the latest development in an ongoing effort by environmental organizations and investor groups to push climate change issues through corporate disclosure and governance issues (see here and here for previous articles).  While this guidance would most directly affect public companies subject to Regulation S-K, it could also influence how all companies address issues such as climate change disclosures and representations in private transactions, corporate sustainability reporting, and "green" claims by various businesses.

The SEC has not yet published the full guidance document, but the SEC's announcement highlighted the following four areas that will be addressed in the guidance: (1) the impact of existing and pending laws and regulations related to climate change; (2) the impact of international climate change accords; (3) indirect consequences of regulations or business trends (e.g., whether climate change developments could lead to an increase or decrease in demand for certain goods); and (4) the actual and potential physical impacts of climate change on the business.  The guidance will likely focus on disclosures made under Item 101 (business description), Item 103 (legal proceedings) and Item 303 (management discussion and analysis) under SEC Regulation S-K.  As with all disclosures under these items, there will be key questions and uncertainties concerning the materiality of climate change risks as they apply to a given business, and the interpretive guidance, when released, may provide some insight as to the SEC's views on that issue.

In their announcement, the SEC specifically noted that the interpretive guidance does not attempt to take a position on the extent, pace or causes of climate change, and that the guidance does not create new requirements, but rather is merely an interpretation of existing SEC requirements.  Nevertheless, the forthcoming guidance will undoubtedly engender some controversy in Washington, as evidenced by a letter from two ranking Republican members of the House Energy and Commerce Committee urging the SEC not to approve the new guidance.

If you have any questions about the SEC's interpretive guidance, or any other issue related to developing climate change legislation and regulation, please contact Todd Kantorczyk at 484-430-2359 or