Green Industries Initiative

I guess my upcoming presentation on Climate Change Disclosures for the University of Kentucky College of Law Securities Law Conference this Friday, February 5, 2010, is more timely than I could have anticipated. While not opining on the science of climate change, the Securities and Exchange Commission (SEC) issued interpretive guidance (guidance) Tuesday, February 2, 2010, on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.  Proxy activism, investors interest on the impact of climate change on their investments, and the recent regulatory and legislative developments prompted the SEC to recognize that, for some companies, these developments could have a "significant effect on operating and financial decisions, including those involving capital expenditures to reduce emissions and, for companies subject to 'cap and trade' laws, expenses relating to purchasing allowances where reduction targets cannot be met."  The SEC noted that even companies that may not be directly affected by these developments could be indirectly affected as prices change for goods and services. Given this diverse and shifting regulatory landscape, what's a reporting company to do?  The intent of the guidance is to provide the reporting roadmap. The guidance does not change the landscape and notes specifically that a number of SEC rules and regulations may be the source of disclosure obligations for registrants under the federal securities laws.  However, the guidance identifies topics that are some of the ways climate change may trigger disclosures required by those rules and regulations:

• Impact of legislation and regulation - Developments in federal and state legislation and regulation regarding climate change, and provisions which relate to greenhouse gas emissions, may trigger disclosure of material estimated capital expenditures and specific risks registrants face as a result of the changes. The guidance advises registrants to "consider specific risks they face as a result of climate change legislation and avoid generic risk factor disclosure that could apply to any company."
   
• International Accords - Consider and disclose, when material, the impact on a registrant's business of treaties and international accords relating to climate change.
   
• Indirect consequences of regulation or business trends - Think increased or decreased demands for goods, services, products and energy sources depending on their greenhouse gas emissions. The guidance directs a registrant to assess its business and its sensitivity to public opinion.  A registrant may have to consider whether the public's perception of any publicly available data, relating to its greenhouse gas emissions, could expose it to potential adverse consequences on its business operation or financial condition resulting from reputational damage.
   
• Physical impacts of climate change - How do the physical impacts of climate change, (such as effects on the severity of weather [floods, hurricanes] or sea levels, arability of farmland or water availability or quality) affect a registrant's operations and results?  Registrations whose businesses may be vulnerable to severe weather or climate related events should consider disclosing material risks of, or consequences from, such events in their publicly filed disclosure documents.

See http://www.sec.gov/rules/interp/2010/33-9106.pdf for the text of the guidance.