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January 29, 2010Client Alert

Securities and Exchange Commission Issues Guidance on Disclosure of Climate Change Risks

On January 27, 2010, the U.S. Securities and Exchange Commission (“SEC”) voted to issue new interpretive guidance as to when business risks associated with climate change trigger mandatory disclosure requirements. Specifically, the SEC's interpretative guidance highlights the following areas as 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 laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

  • Impact of 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.

  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, 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.

  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.


SEC Chairman Mary Schapiro noted that the guidance does “not create new legal requirements or modify existing ones – it is merely intended to provide clarity and enhance consistency.” Indeed, various provisions of Regulation S‑K arguably already require such disclosures:

  • Item 101 of Regulation S-K: Item 101 requires disclosure as to “the material effects that compliance with federal, state and local provisions ... regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon the capital expenditures, earnings and competitive position of the company.”

  • Item 103 of Regulation S-K: Item 103 requires disclosure of “any material pending legal proceedings, other than ordinary routine litigation incidental to the business,” including “an[y] administrative or judicial proceeding ... arising under any federal, state or local provisions ... regulating the discharge of materials into the environment ... for the purpose of protecting the environment.”

  • Item 303 of Regulation S-K: Item 303 requires disclosure of “known trends or uncertainties” that a company believes will result, or are reasonably likely to result, in material changes in the company’s liquidity, net sales, revenues or income from continuing operations.

  • Item 503(c) of Regulation S-K: Item 503(c) provides for the disclosure of risk factors that make investments in the company speculative or risky to the extent that they are not generally applicable to any issuer.


The new SEC guidance clarifies that when complying with these and other disclosure requirements, public companies should consider impacts of proposed and pending climate change legislation, regulation and international accords, indirect consequences of regulation or business trends, and actual and potential material impacts of environmental matters on their business.

A formal SEC's interpretive release is expected to be released shortly and posted on the SEC website.

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