When the SEC Tells You How to Embrace Climate Change, Your Business Should Listen!
02.03.10 9:04 AMLast week, the Securities and Exchange Commission (“SEC”) voted to provide the public with an interpretive guidance document of its disclosure requirements regarding climate change.
The SEC is an independent agency of the United States government with primary responsibility for enforcing the federal securities laws and regulating the securities industry.
Existing SEC rules require businesses 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.” According to the SEC’s press release, the interpretive guidance sheds light on the following issues that may be affected by climate change:
Legislation and Regulation: A company should consider whether the impact of certain existing laws and regulations regarding climate change may impact current business operations (or potential impact of pending legislation). It may be required to disclose such impacts because such legislation might impact a company's bottom line.
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. For instance, the Kyoto Protocol, recent discussions in Copenhagen, and the European Union Emissions Trading System may impact a company's operations, and consequently, its bottom line.
Indirect Consequences of Regulation or Business Trends: 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, such as the effects of legal, technological, political and scientific developments regarding climate change on current business practices. For instance, an indirect consequence might be that legislation affects a supplier company that would have the effect of causing a spike in the supplier's product. In turn, your company would have to bear the pass-through increased costs. Conversely, indirect costs may affect a company in a positive way if the company takes advantage of climate change and develops new products that are in demand because of climate change. Both these scenarios have the potential to impact a company's bottom line.
Physical Impacts of Climate Change: Companies may be required to disclose the actual and potential material impacts of environmental matters on their business. For instance, in an increasingly cold climate, air conditioners may not be as popular as they are in a warmer climate. This may have the potential of impacting a company's bottom line.