Incremental Changes in Soonto-Be-Released Disclosures Unlikely to Satisfy Advocates

• Date: 01 December 2009

12-2009 NEWS & ANALYSIS 39 ELR 11145

Incremental Changes in Soon-

to-Be-Released Disclosures

Unlikely to Satisfy Advocates

by Tom Mounteer

Tom Mounteer is a partner in the Washington, D.C., oce of Paul Hastings, where he

co-chairs the law rm’s environmental practice. Since 1997, he has been an adjunct professor in

the Masters in Environmental Law program at the George Washington University Law School.

He is also author of the Climate Change Deskbook (ELI 2009). He thanks Washington oce

summer associate Derrick Lam (George Washington University Law School) for his assistance.

In the coming months, U.S. com-

panies that sell their shares on pub-

lic stock exchanges will be ling

annual reports with the Securities and

Exchange Commission (SEC). In part,

those SEC lings aim to allow investors

to see the company’s prospects from

management’s perspective. In their l-

ings, management describes develop-

ments it sees on the horizon that have

the potential to a ect their companies’

operations—and prots.

Many will be intently reading the l-

ings to see what insights they shed on

managements’ perception of how cli-

mate change will aect their businesses.

e smart money is on margina lly

greater disclosurethan in preced-

ing years. This will continue a trend

we have seen in eac h of the past few

years’ di sclosures.

What more might we reasonably

expect to read in those disclosures? And

will those disclosures satisfy those that

have asked the SEC to provide guidance

on what those disclosures should reveal?

In §7.4 of our Climate Change Desk-

book, we describe two factors that drive

the trend toward more fulsome disclo-

sure: (1) greater clarity about the con-

tours of the legal regime that will apply

to greenhouse gas (GHG) emissions;

and (2) the continuing tide of scientic

reports detailing the eects of climate

change. It is unlikely that developments

on either front in 2009 will bring about

a sea change in the upcoming SEC

annual reports.

As to certainty with respect to the

governing legal regime, enactment of

comprehensive federal legislation would

certainly result in more specic disclo-

sures. In the absence of federal legisla-

tion, however, it tends to be electric

power generators subject to the dictates

of the Regional Greenhouse Gas Initia-

tive (RGGI) (see§4.2 of our Deskbook)

that have had the most specic things to

say about the carbon constraints on their

operations. e disclosures of others in

the power-generation sector but operat-

ing outside the Northeast (and so not

subject to RGGI) have generally noted

the U.S. Supreme Court’s decision in

Massachusetts v. EPA, 549 U.S. 497, 37

ELR 20075 (2007), holding that car-

bon dioxide is a “pollutant” subject to

regulation under the Clean Air Act, and

the potential ramications of that deci-

sion in terms of cascading regulation of

stationary sources (see §§3.1.1.1.1 and

3.2.2.2 of our Deskbook).

What about the scientic front?

What advances in understanding have

come about in 2009 that might make

their impact felt in SEC disclosures? In

preparing their upcoming lings, com-

panies subject to disclosure obligations

likely need to reckon with two major

reports issued in 2009.

On May 27, the National Center for

Atmospheric Research released a study

indicating that temperature increases

brought about by climate change may

cause an even higher sea-level rise along

the Atlantic coast than previously

thought. e Center now predicts the

north Atlantic sea-level rise caused by

Greenland’s melting glaciers could be

one to two feet along the northeastern

Atlantic coast by the end of the century.

On June 16, a collective of U.S.

government agencies, operating as the

U.S. Global Change Research Project,

issued a report that found, among other

things, that parts of the Southeast that

currently experience about 60 days per

year of temperatures greater than 90

degrees could experience as many as

150 such days by the end of the cen-

tury. e report also projects potential

drought concerns in Great Plains states

caused by temperature increases, as well

as increased insect outbreaks, wildres,

and changing species composition in

forests in the Northwest.

Will these new reports necessarily

translate into more specic SEC disclo-

sures? Candidly, it is hard to see how

they will. Would it be reasonable for

businesses aected by a sea-level change

in 90 years to identify it as a trend they

are preparing for? One could imagine

that electricity suppliers to the South-

east might project increased demand

to run air conditioners longer, but will

that be material to their nancial posi-

tions, even in a carbon-constrained

world? Will pesticide manufacturers

crow about the opportunity to sell more

product as a result of changed climatic

conditions? One doubts so, but we will

have to see.

Against this backdrop of evolving

legal standards and scientic under-

standing, interest groups continue to

push for more disclosure and for the

SEC to step into the breach and issue

guidance on just what companies should

be disclosing. In §7.4.2 of the Deskbook,

we describe the Global Framework for

Climate Risk Disclosure’s four-part

voluntary standard. Two reports issued

in June of this year appear to be aimed

Tom Mounteer

Copyright © 2009 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.