SEC Climate Change Risk Disclosures

On February 2, 2010, the Securities and Exchange Commission issued guidance regarding disclosures related to climate change risk, such as global warming, for publicly-traded companies. While the SEC previously required its registrants to disclose the financial or legal impact of environmental challenges and issues, it never specifically cited climate change as presenting significant business risks. Under the SEC interpretive guidelines, companies may have to disclose climate change risk information in the following sections of the annual 10-K report: 1) the description of the business, 2) the summary of legal proceedings, 3) the discussion of risk factors, and/or 4) the Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (SEC, 2010b). The future of the disclosure requirement is somewhat uncertain since it has been controversial since its adoption. It has not been repealed at this time but legislation was introduced in the 112th Congress to do so.

The criticisms of the SEC climate change risk disclosure guidance include that it is not extensive enough and does not include the disclosure of harm to an entity's reputation that might result from climate change. Another criticism is that the climate change disclosures may do more harm than good because most companies are disclosing information that may be uncertain and speculative in nature. Additionally, the SEC has carried out negligible enforcement with regard to the guidance, thus weakening corporate attention to the disclosures. It remains to be seen if Congress will appeal the guidance at a later date.

"SEC Climate Change Risk Disclosures"
(co-authored by Debbie Lindberg and Debbie Seifert),  Today's CPA, forthcoming 2013.