Policy Note: SEC Guidance Regarding Disclosure Related to Climate Change

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Introduction
In January 2010 the US Government Securities and Exchange Commission (SEC) voted to provide public companies with interpretive guidance on existing SEC disclosure and they apply to disclosing risks associated with climate change. The vast majority of public companies treat SEC guidance, which does not carry the force of law, as if it were legally binding. Therefore, the SEC decision in effect creates the first economy-wide climate risk disclosure requirement in the world and empowers stakeholders to demand disclosure.

Who It Applies To
All companies that file with the SEC including Foreign Based companies.

What Has To Be Done
The SEC ruling interprets existing disclosure requirements to provide guidance on how business or legal developments related to climate change may impact the business. Specifically, the SEC guidance requires companies to disclose the following risks arising from climate change:

  • Costs to comply with climate change regulations and legislation. For example, capital expenditures to reduce emissions.
  • Costs to comply with international accords. For example, expenses related to purchasing allowances where reduction targets cannot be met for companies subject to cap and trade laws. Management assume an accord will be enacted or positively determines otherwise.
  • Indirect consequences of regulation or business trends. For example, changing prices for goods or services provided by companies that are directly affected by climate change.
  • Physical impacts of climate change. For example, where changes in weather patterns or sea level rise effect physical assets, supply chains and distribution chains.

Firms must disclose these risks through the following items in SEC filings:

Form 10K and 10Q:

  • Item 101: Description of business. Includes registrant and each portable segment about which information is represented in the financial statements.
  • Item 103: Legal proceedings. Includes the registrant or any of its property that is the subject of litigation. Instruction 5 to Item 103 provides some specific requirements that apply to disclosure of certain environmental litigation.
  • Item 503c: Risk factors. Must clearly state risk and specify how particular risk effects the particular registrant.
  • Item 303: Management’s discussion and analysis.

Form 20-F For Foreign-based Companies:

  • Disclosure of material risks.
  • Description of impact of government regulation
  • Description of environmental issues that may effect utilization of assets
  • Explanation of legal proceedings and factors that affect or may affect financial condition

Implications:
The SEC guidance immediately affects disclosure practices and will have the following more far-reaching impacts on business practices:

  • Management will more rigorously assess the impact of climate change on their business in terms of business trends, risks, and litigation.
  • Firms will engage in more systematic data collection and analysis relating to climate change in order to provide basis for disclosure statements.
  • Management will face increased scrutiny of of non-financial disclosure in filings.
  • Leadership, including Board of Directors, must understand climate change and how it may effect their business.

Role of the AMEE Platform
AMEE’s neutral platform aggregates and maintains carbon accounting methodologies, enabling anyone to understand, calculate, and share their carbon footprint. AMEE’s Platform service therefore provides an ideal partner for firms attempting to meet the new challenges of the SEC guidance and improve the accuracy and rigor of disclosure relating to climate change.

Specifically, AMEE can help firms comply with the SEC in the following ways:

  • Increase productivity by providing a common place to access global standards and also to expedite the calculation of CO2 information.
  • Enhance veracity and management of data to ensure accurate and defensible climate risk assessment and disclosure.

Please contact AMEE at help@amee.com if you have any questions.

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Helpful links/References:
SEC press release announcing Interpretive Guidance on Disclosure Regarding Climate Change: http://www.sec.gov/news/press/2010/2010-15.htm
SEC Interpretive Release: Commission Guidance Regarding Disclosure Relating to Climate Change. http://www.sec.gov/rules/interp/2010/33-9106fr.pdf

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