SEC climate change disclosures: effects on businesses.

• Author: Malonza, Lorraine
• Position: Washington insights - Securities and Exchange Commission - Conference news

During the long health-care reform debate and legislative process, climate change rules have flown mostly under the radar. With President Barack Obama having signed into law the Patient Protection and Affordable Care Act, however, some of the legislative focus can be redirected to the interpretive guidance on climate change disclosures.

At an open commission meeting on Jan 27, the U.S. Securities and Exchange Commission agreed, by a slight majority, to publish these disclosures. The SEC's guidance is on how existing public company-disclosure requirements may apply to climate change and help interpret existing environmental-disclosure rules as they relate to climate change risk.

This continues the evolution of disclosure requirements around business risks and opportunities associated with operating energy, greenhouse gas emissions and natural resources. Companies should take the SEC's guidance as an opportunity to review the adequacy of their controls in terms of identifying, measuring, reporting and disclosing climate change risks.

As the regulatory framework on these issues and measurement and reporting of environmental performance evolves, companies should also prepare for potential regulatory or legislative changes that may have financial statement implications. When accessing what information to disclose under the SEC's existing disclosure rules, companies should review the following SEC requirements:

--Description of business;

--Legal proceedings;

--Risk factors; and

--Management discussion and analysis.

The SEC's interpretative guidance highlights some 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 federal and state laws and regulations regarding climate change are material. A company should also evaluate the potential impact of pending legislation and regulation related to this topic.

Companies should avoid disclosing generic risk factors that could apply to any company and instead focus on specific risk factors they face. Disclosures should not be limited only to negative consequences.

For example some companies may be able to profit from the sale of carbon credits if an emission "cap-and-trade" system is put in place.

* Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of...