SEC Climate Change Disclosure Guidance: An
Overview and Congressional Concerns
Gary Shorter
Specialist in Financial Economics
May 24, 2012
Congressional Research Service
7-5700
www.crs.gov
R42544
CRS Report for Congress
Pr
epared for Members and Committees of Congress
SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
Summary
Publicly traded companies are required to transparently disclose material business risks to
investors through regular filings with the Securities and Exchange Commission (SEC). On
January 27, 2010, the SEC voted to publish Commission Guidance Regarding Disclosure Related
to Climate Change, which clarifies how publicly traded corporations should apply existing SEC
disclosure rules to certain mandatory financial filings with the SEC regarding the risk that climate
change developments may have on their businesses. The Guidance has been controversial and has
prompted legislation in the 112th Congress to repeal it.
Proponents of the Guidance, including several union and public pension funds, have argued that it
was necessary because a consensus has been established on the reality of climate change and that,
given the salience of climate change and the various related legislative and regulatory responses
to it, the Guidance would help foster a better understanding of how the SEC’s existing disclosure
requirements applied to it. Some that oppose the guidance, including several business interests,
argue that the current state of the science and the law underlying the idea of global climate change
remains uncertain; existing SEC disclosure rules are adequate with respect to corporate reporting
on environmental change; and while certain interest groups had advocated for such climate
change disclosure guidance, the climate change disclosure guidance’s usefulness for most
investors is unclear.
In the 112th Congress, Senator John Barrasso and Representative Bill Posey introduced identical
bills (S. 1393 and H.R. 2603, respectively) that would prohibit the enforcement of the SEC’s
climate change disclosure guidance.
Since the Guidance went into effect on February 8, 2010, there have been several attempts to
gauge its impact. A 2011 report from Ceres, a nonprofit coalition of institutional investors,
environmental organizations, and other public interest groups, concluded that most corporate
filers needed more experience at communicating the risks associated with climate change.
Although it found that large public companies had improved their climate-change risk disclosures
in recent years, the report concluded that there was more work to be done in this area.
A report from the law firm of Davis Polk & Wardwell found that the Guidance did not appear to
have had as significant an impact on disclosure as some had expected; that new disclosures
emerged involving potential changes in demand for products and services and increases in fuel
prices; and that there was little disclosure of actual or potential reputational harm that might result
from climate change.
A third study published for the American Bar Association found that many companies reported
seeing little upside and even less downside in climate change disclosures. It also found that many
companies reported few meaningful business opportunities resulting from climate change
disclosures, which instead carried a potential for creating risks. In addition, many companies
indicated that disclosing frequently uncertain climate change-related information was often a very
speculative process and that there were few, if any, penalties from the SEC for nondisclosure of
climate change matters. This perception was underscored by other observations that characterized
the SEC’s level of enforcement in this area as negligible.
This report will be updated as events warrant.
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SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
Contents
Introduction...................................................................................................................................... 1
Views on the Need for and Merits of the Guidance......................................................................... 2
Supportive Perspectives on the Guidance ................................................................................. 3
Opposing Views on the Guidance.............................................................................................. 4
A Preliminary Look at Potential Costs and Benefits from Implementing the Guidance ................. 6
Studies on the Guidance’s Impact.................................................................................................... 6
The Quality of Disclosures After the Guidance, from an Investor’s Perspective...................... 6
Climate Change-Related Filings After the Guidance, from a Corporate Securities Law
Firm’s Perspective .................................................................................................................. 7
Changes in the Number of Climate Change-Related Disclosures After the Guidance,
and Financial Professionals’ Perceptions of Those Disclosures............................................. 8
Contacts
Author Contact Information............................................................................................................. 9
Congressional Research Service
SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
Introduction
On January 27, 2010, the Securities and Exchange Commission (SEC) voted to provide an
interpretive guidance, the Commission Guidance Regarding Disclosure Related to Climate
Change (the Guidance), which technically does not create new legal obligations, but clarifies how
publicly traded corporations should apply existing SEC disclosure rules to certain mandatory
financial filings with the SEC regarding the risk that climate change developments may have on
their businesses.1 The Guidance’s release was controversial and prompted legislation in the 112th
Congress that seeks to repeal it.
This report (1) briefly describes the Guidance; (2) provides opposing views on the Guidance,
including congressional legislation; (3) summarizes a study on potential corporate costs and
benefits of implementing the Guidance; and (4) examines the impact of the Guidance from the
perspective of investors, corporations, and finance professionals.
At the opening of the SEC commissioners’ vote on the Guidance, SEC Chair Mary Schapiro
explained that the Guidance provided “interpretive guidance on existing [public company]
disclosure requirements as they relate to business or legislative events on the issue of climate
change.â€2 As such, the Guidance, which went into effect on February 8, 2010, attempts to give
greater specificity to various existing disclosure rules that may require a public company to
disclose the impact that business, legal, regulatory, or legislative developments related to climate
change may have on its business. This information must meet the test of “materialityâ€â€”the
notion that information should be disclosed if a reasonable investor would want it in order to
make an informed investment decision.3
Specifically, the Guidance states what companies could be required to disclose in relation to
climate change under the corporate disclosure requirements that fall under the SEC’s Regulation
S-K,4 including Forms 10-K5 and 20-F filings.6 In accordance with the Sarbanes-Oxley Act of
1 U.S. Securities and Exchange Commission, “SEC Issues Interpretive Guidance on Disclosure Related to Business or
Legal Developments Regarding Climate Change,†January 27, 2010, available at http://www.sec.gov/news/press/2010/
2010-15.html and “Commission Guidance Regarding Disclosure Related to Climate Change: Securities and Exchange
Commission, February 2, 2010, available at http://www.sec.gov/rules/interp/2010/33-9106.pdf.
2 “Speech by SEC Chairman: Statement Before the Open Commission Meeting on Disclosure Related to Business or
Legislative Events on the Issue of Climate Change by Chairman Mary Schapiro,†January 27, 2010, available at
http://www.sec.gov/news/speech/2010/spch012710mls-climate.htm.
3 For example, see “Speech by SEC Commissioner: Remarks to the ‘SEC Speaks in 2008’ Program of the Practising
Law Institute by SEC Commissioner Paul S. Atkins,†February 8, 2008, available at http://www.sec.gov/news/speech/
2008/spch020808psa.htm.
4 Regulation S-K is part of the 1933 Securities Act that sets forth in detail the information to be disclosed in registration
statements and periodic reports of public companies and lays out the policies and procedures for companies to report in
filings to the SEC.
5 A 10-K is a comprehensive summary report of a company’s performance that must be submitted annually to the SEC.
Typically, the 10-K contains much more detail than the annual report to shareholders.
6 Foreign-private issuers registered with the SEC are required to file Form 20-F with the SEC. There are several
applicable types of Form 20-F filings for foreign-private issuers, including a form for issuing an annual report. A
foreign-private issuer is any publicly traded foreign company other than a foreign government defined as (1) having
more than 50% of the outstanding voting securities of such issuer directly or indirectly owned by residents of the
United States and (2) any one of the following:
•
the majority of the executive officers or directors are U.S. citizens or residents,
(continued...)
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SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
2010 (P.L. 107-204), the SEC must look at one filing from each public company at least once
every three years.
In part, the Guidance attempts to clarify how certain climate change-related matters should be
disclosed under the aforementioned SEC corporate disclosures through providing examples of
developments that could trigger such disclosures. Key points expressed in the Guidance include
the
• impact of climate change legislation and regulation,
• impact of international accords on climate change,
• indirect consequences of regulation or business trends, and
• physical impacts of climate change.
On the day that the SEC voted to adopt the Guidance, Chairman Mary Schapiro, who had voted
for adoption, observed,
[T]he Commission is not making any kind of statement regarding the facts as they relate to
the topic of “climate change†or “global warming.†And, we are not opining on whether the
world’s climate is changing; at what pace it might be changing; or due to what causes.
Nothing that the Commission does today should be construed as weighing in on those
topics…. It is neither surprising nor especially remarkable for us to conclude that of course a
company must consider whether potential legislation—whether that legislation concerns
climate change or new licensing requirements—is likely to occur. If so, then under our
traditional framework the company must then evaluate the impact it would have on the
company’s liquidity, capital resources, or results of operations, and disclose to shareholders
when that potential impact will be material. Similarly, a company must disclose the
significant risks that it faces, whether those risks are due to increased competition or severe
weather. These principles of materiality form the bedrock of our disclosure framework.
Today’s guidance will help to ensure that our disclosure rules are consistently applied,
regardless of the political sensitivity of the issue at hand, so that investors get reliable
information.7
Views on the Need for and Merits of the Guidance
The vote by the SEC commissioners in favor of the Guidance split 3-2, a vote that reflected two
rival perspectives on the merits of the Guidance. Below are examples of views both in support of
and in opposition to the Guidance.
(...continued)
•
more than 50% of the assets of the company are located in the United States, or
•
the /business of the issuer is administered principally in the United States.
7 “Statement Before the Open Commission Meeting on Disclosure Related to Business or Legislative Events on the
Issue of Climate Change by SEC Chairman Mary Schapiro,†January 27, 2010, available at http://www.sec.gov/news/
speech/2010/spch012710mls-climate.htm.
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SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
Supportive Perspectives on the Guidance
A Supportive SEC Commissioner. Articulating a view commonly found among many of the
Guidance’s advocates, Luis A. Aguilar, a Democratic commissioner who voted for it, argued for
the Guidance’s importance. His stance significantly derived from his view that a clear consensus
had been established on the reality of climate change. At the time, his view was also informed by
the belief that, given the salience of climate change and the various related legislative and
regulatory responses to it, the Guidance would help foster a better understanding of how the
SEC’s existing disclosure requirements applied to climate change. Climate change, he argued,
had become increasingly material to corporate affairs as well as to corporate investors, the
disclosures’ ultimate beneficiaries:
Over two years ago, the Intergovernmental Panel on Climate Change concluded that it is
“unequivocal†that the Earth’s climate is warming. In October of last year, 13 federal
agencies and departments published a coordinated annual report to Congress that reached the
same conclusion. It is expected that climate change, if unchecked, will result in severe harm
to ecosystems and people around the world. So it is no surprise that regulation of greenhouse
gases has the attention of state governments, Capitol Hill, and the Environmental Protection
Agency, as well as the attention of investors and companies. Against this backdrop of a
changing climate and changing legislative and regulatory landscapes, it is only natural that
there are questions about what companies should be disclosing to investors. Today’s release
is an important step toward answering these questions. By explaining what our existing rules
currently require with respect to climate change disclosure, today’s release should help
companies comply.... Climate change and related governmental action can create risks and
opportunities for companies. It is clear that disclosure of this material information will
inform and aid investors in their decision making.... This release clarifies that effects
resulting from climate change that are keeping management up at night should be disclosed
to investors. Additionally, today’s interpretive release should facilitate disclosure to investors
regarding regulatory restrictions on greenhouse gas emissions that would materially change a
company’s business and future prospects.8
A Supportive Group of Institutional Investors. In March 2010, soon after the release of the
Guidance, a group called the Investor Network for Climate Risk, a coalition of public pension
fund and corporate treasurers, comptrollers, controllers, institutional investors, and asset
managers, wrote to SEC Chairman Schapiro to lend their support to the guidance. Echoing the
views expressed by Commissioner Aguilar, the network stressed that the Guidance would add
significant value to corporate disclosures:
Climate change already poses significant risks to economies and investments. Many of us
have concluded that corporate assessments of the regulatory, physical and litigation risks
from climate change are critical in understanding the value of our investments. In response to
our efforts to engage companies, more businesses have started to account for the impacts of
climate change on their financial performance, while others have pursued opportunities to
develop energy-efficient and low-carbon products and services in order to gain market share
and improve competitiveness. However, few companies disclose sufficient information about
these issues in SEC filings to allow us to make more informed investment decisions. The
SEC’s new interpretive guidance provides registrants valuable information about how to
8 “Statement Before the Open Commission Meeting on Disclosure Related to Business or Legislative Events on the
Issue of Climate Change by SEC Chairman Mary Schapiro,†January 27, 2010, available at http://www.sec.gov/news/
speech/2010/spch012710laa-climate.htm.
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apply longstanding disclosure requirements to the evolving challenges posed by climate
change.9
Two Supportive Members of Congress During the 111th Congress. In January 2010, during the
111th Congress, Senator Christopher Dodd, then-chair of the Senate Committee on Banking,
Housing, and Urban Affairs, lent his support to the Guidance.
Investors have a right to know if their investment may be helped or hurt by severe weather,
rising sea levels, or new greenhouse gases regulation or legislation. These new guidelines
will help ensure that investors have the guidance they need to make well-informed
decisions.10
Concurrently, Senator Jack Reed, chair of the Senate Banking Subcommittee on Securities,
Insurance, and Investment in the 111th and the 112th Congress, expressed similar support:
I am pleased the SEC has taken the important step of issuing guidelines regarding climate
change disclosure that will increase informational transparency. Climate change is creating
new opportunities and risks in the economy. Major environmental risks and liabilities can
significantly impact companies’ future earnings and, if undisclosed, could impair investors’
ability to make sound investment decisions.11
Opposing Views on the Guidance
A Critical SEC Commissioner. At the time, then-SEC Commissioner Katherine Casey cast one
of the two dissenting votes against adopting the Guidance. Ms. Casey argued that her opposition
largely stemmed from her view that (1) the state of the science and the law underlying the idea of
global change lacked certainty; (2) existing SEC disclosure rules were adequate with respect to
corporate reporting on environmental change; and (3) while certain interest groups had advocated
for such climate change disclosure guidance, the usefulness of the information to most investors
from the Guidance was questionable:
I believe that the release is premised on the false notion that registrants may not recognize
that disclosure related to “climate change†issues may be required. In truth, our disclosure
regime related to environmental issues including climate change is highly developed and
robust, and registrants are well aware of, and have decades of experience complying with,
these disclosure requirements.... There is undoubtedly a constituency that is interested in, and
has long pressed the Commission to require, more extensive disclosures on environmental
issues in order to drive particular environmental policy objectives. The issuance of this
release, however, at a time when the state of the science, law and policy relating to climate
change appear to be increasingly in flux, makes little sense.... I do not believe that this
release will result in greater availability of material, decision-useful information geared
toward the needs of the broad majority of investors.12
9 “Letter to SEC Chairman Schapiro from the Investor Network for Climate Risk,†March 3, 2010, available at
http://www.ceres.org/files/INCR_SEC_LETTER_March_2010.pdf.
10 U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Dodd, Reed, Praise SEC Decision on
Climate Risk Disclosure, news release, January 27, 2010, available at http://banking.senate.gov/public/index.cfm?
FuseAction=Newsroom.PressReleases&ContentRecord_id=76a31da5-ecc6-9a2e-6847-aece2d94c719&Region_id=&
Issue_id=.
11 Ibid.
12 SEC, “Speech by SEC Commissioner: Statement at Open Meeting on Interpretive Release Regarding Disclosure of
(continued...)
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SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
Criticism from an Electrical Utility Industry Trade Group. In the private sector, major
criticism of the Guidance came from the Edison Electrical Institute, an electrical utility trade
group, which reports that its members are responsible for 60% of the total electricity supplied in
the United States. In a July 2010 letter to SEC’s Chairman Schapiro, the group voiced concerns
that the SEC Guidance (1) required too much speculation by corporate registrants in areas such as
predicting weather patterns, the likelihood of enacting climate-change-related legislation, and
potential corporate reputational damage related to climate change; and (2) could discourage
voluntary disclosures by registrants fearful of liability under securities laws for the contents of
such disclosures, which would reduce the total amount of general climate change information
provided to investors; and (3) might be interpreted as requiring that corporate management
conduct a comprehensive review of climate change-related matters, which could be both
unnecessary and excessively burdensome.13
Critical Responses from Two Members of Congress in the 112th and the 111th Congresses.
During both the 111th and the 112th Congresses, various Members have expressed displeasure with
the SEC’s Guidance by introducing legislation and through correspondence with the SEC.
In the 112th Congress, Senator John Barrasso and Representative Bill Posey introduced identical
bills (S. 1393 and H.R. 2603, respectively) that would prohibit the enforcement of the SEC’s
climate change disclosure guidance. In a joint news release accompanying the introduction of the
bills, the Members explained the purpose behind the legislation:
In this economy, the SEC’s main responsibility should be to protect American investors and
maintain fair markets. Instead, it’s actually using time and resources on regulating climate
change. This is yet another startling example of how the Administration is making it worse
for job creators across our country. Our bill blocks the SEC from forcing American
employers to conduct burdensome and expensive climate analysis.14
In March 2010, during the 111th Congress, Representative Posey joined 20 of his House
colleagues in writing a letter to Chairman Schapiro to express their opposition to the climate
change disclosure guidance. Among the signatories were Representative Ron Paul, the current
chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, and
Representative Scott Garrett, currently chair of the Subcommittee on Capital Markets and
Government-Sponsored Enterprises.15 Earlier in the 111th Congress, similar concerns were
expressed in a February 2, 2010, letter to SEC chair Schapiro from Representative Spencer
Bachus, then-ranking Member of the House Committee on Financial Services, and now the
committee chair. In his letter, Representative Bachus reportedly observed,
(...continued)
Climate Change Matters by SEC Commissioner Kathleen L. Casey,†January 27, 2010, available at
http://www.sec.gov/news/speech/2010/spch012710klc-climate.htm.
13 “Letter from Richard McMahon, executive director of the Edison Electric Institute, to SEC Chairman Mary L.
Schapiro,†July 13, 2010, available at http://www.eei.org/whatwedo/PublicPolicyAdvocacy/TFB%20Documents/
100713McMahonSECClimateChangeDisclosures.pdf.
14 U.S. Congress, Office of Bill Posey, “Posey, Barrasso Defend Job Creators from Excessive SEC Regulations,†press
release, July 20, 2011, available at http://posey.house.gov/News/DocumentSingle.aspx?DocumentID=252940.
15 “Letter from Representative Bill Posey, et al, to SEC Chairman Mary Schapiro,†March 16, 2010, available at
http://posey.house.gov/UploadedFiles/SECLetter-ClimateChangeRegs-March15-2010.pdf.
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SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns
With legislative progress on climate change having stalled, this guidance suggests an attempt
by the SEC to promote a political agenda through regulation. The guidance reaches beyond
the SEC’s expertise and will impose potentially significant compliance costs on issuers with
little apparent benefit to investors.16
A Preliminary Look at Potential Costs and Benefits
from Implementing the Guidance
The Guidance did not address the issue of the added costs or burdens of its implementation. Soon
after the Guidance’s release, however, a law review article was published that examined the
Guidance’s potential costs and benefits for corporations. Among other things, the article, An
Inconvenient Risk: Climate Change Disclosure and the Burden on Corporations, concluded that
(1) in the context of the fairly limited data that exists on climate change risks previously placed in
10-K filings and in existing voluntary disclosure protocols, the Guidance would require expanded
disclosure of “all relevant informationâ€; (2) there are legitimate concerns that the added burdens
of identifying and measuring climate change-related risk would exacerbate the challenges of
determining what disclosures are material;17 and (3) in the context of potential corporate
“maximum liability†for risks related to climate change, the added cost of comprehensively
assessing climate change risks as dictated by the Guidance would appear to be justified.18
Studies on the Guidance’s Impact
The Guidance has been in effect since early February 2010. Several studies examined its impact
for the initial year. This section examines three such studies, which reflected, respectively,
investor, corporate, and finance perspectives.
The Quality of Disclosures After the Guidance, from an Investor’s
Perspective
One impact study after the Guidance’s first year was done by Ceres, a nonprofit coalition of
institutional investors, environmental organizations, and other public interest groups. Ceres works
with companies to address what it calls sustainability challenges, such as global climate change
and water scarcity. Ceres was also one of several entities that petitioned the SEC in 2007 to “issue
an interpretive release clarifying that material climate-related information must be included in
corporate disclosures under existing law.†Other entities included the California Public
16 U.S. Congress, Office of Spencer Bachus, “Congressman Bachus Criticizes Back-Door Climate Change Rule,†press
release, February 3, 2010, http://bachus.house.gov/index.php?option=com_content&task=view&id=935.
17 A former SEC Commissioner characterized the concept of “materiality†thus “The crux of our federal disclosure
system is that all material information must be disclosed… [T] he Supreme Court has said that something is material if
‘there is a substantial likelihood that a reasonable shareholder would consider it … as having significantly altered the
“total mix†of information made available.’†“Remarks to the ‘SEC Speaks in 2008’ program of the Practising Law
Institute by SEC Commissioner Paul S. Atkins,†February 8, 2008, available at http://www.sec.gov/news/speech/2008/
spch020808psa.htm.
18 Camden D. Burton, “An Inconvenient Risk: Climate Change Disclosure and the Burden on Corporations,†The
Administrative Law Review, vol. 62, no. 4, 2010, pp. 1287-1290.
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Employees’ Retirement System, California state controller, Friends of the Earth, New York City
comptroller, New York state attorney general, Rhode Island general treasurer, Vermont state
treasurer, North Carolina state treasurer, and Maine state treasurer.19 The SEC Guidance
essentially reflects many of the recommendations from the 2007 petition.
The Ceres report, Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for
Corporate Executives, Attorneys & Directors, examined various public company disclosures after
the Guidance went into effect, with a focus on the quality of climate change risk disclosures from
an investor perspective. The study’s central conclusion was that most corporate filers needed
more experience at communicating the risks associated with climate change. Overall, it found that
large public companies have improved their climate change risk disclosures in recent years, but
recommended that more work be done.20
In assessing the quality of companies’ disclosures, Ceres rated such disclosures as either
• good—detailed disclosure of the financial impacts of existing and proposed
regulatory requirements on the company;
• fair—disclosure of regulatory risk discusses legislation and its possible effects on
the company, but makes no attempt at quantifying or assigning a value to the
risks, or fails to place such values in a meaningful context; or
• poor—disclosure of regulatory risks does not mention existing or proposed
regulations, or mentions them without analyzing possible effects on the company.
The study concluded that good climate change risk disclosures were rare and that the vast
majority of climate change risk disclosures were either fair, poor, or involved no such disclosure.
Summarizing its findings, Ceres observed,
Although public companies’ climate reporting has improved somewhat in recent years, it
remains true that disclosures very often fail to satisfy investors’ legitimate expectations.
Ensuring adequate disclosure will require commitment from management, as well as
continued attention from regulators - and it will require that investors continue to make their
needs heard. Greater attention to risks and opportunities will help companies themselves, and
improved disclosure will help investors and the broader public.21
Climate Change-Related Filings After the Guidance, from a
Corporate Securities Law Firm’s Perspective
Another study on the impact of the Guidance was published by Davis Polk & Wardwell, a law
firm with a significant corporate securities practice. The study, Environmental Disclosure in SEC
Filings, 2011 Update, examined a large number of 2010 corporate disclosure filings after the
Guidance’s first year. Some of its findings were as follows:
19 “Petition for Interpretive Guidance on Climate Risk Disclosure,†September 20, 2007, available at
http://www.sec.gov/rules/petitions/2007/petn4-547.pdf.
20 Jim Coburn, Sean H. Donahue, and Suriya Jayanati, “Disclosing Climate Risks & Opportunities in SEC Filings: A
Guide for Corporate Executives, Attorneys & Directors,†Ceres, February 2011, p. 32, available at
http://www.ceres.org/resources/reports/disclosing-climate-risks-2011.
21 Ibid, p. 33.
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• Regarding concerns of some critics that the Guidance would lead to extraneous
and unimportant disclosure that might distract investors from focusing on
significant disclosures, the Guidance did not appear to have had as significant an
impact on disclosure as various critics had feared.
• Disclosures appeared to feature more generic weather risk factors.
• New disclosures emerged on potential changes in demand for products and
services and on increases in fuel prices.
• There was relatively little disclosure of actual or potential reputational harm that
may result from climate change.
• Companies in greenhouse gas intensive industries, especially energy companies,
have expanded their disclosure. For example, they have added longer factual
updates of legislative, regulatory, and litigation developments. Left unclear,
however, was whether the increase in energy company climate change-based
disclosure was largely due to the Guidance, earlier electric utility settlements
with the office of the New York attorney general,22 or the historical growth in
climate change regulation in general.23
Changes in the Number of Climate Change-Related Disclosures
After the Guidance, and Financial Professionals’ Perceptions of
Those Disclosures
Davis Polk & Wardwell took a granular approach in its study of post-guidance filings by focusing
on the nature of individual filings. By contrast, an article in an American Bar Association (ABA)
newsletter looked at (1) changes in the number of climate change-related disclosures during the
Guidance’s first year; and (2) the views of corporations and finance professionals on those
disclosures.
Among other things, Davis Polk found that prior to the Guidance in 2009, of the 75,000 Form 10-
Ks filed with the SEC, about 800, or 1.8%, included some reference to climate change or
greenhouse gas. Immediately after the Guidance in the first quarter of 2010, the article in the
ABA newsletter observed a significant increase in the percentage of such filings to 2.8%.
However, by the third quarter of the year, it found that the percentage of climate change or
greenhouse gas referenced in 10-K filings had fallen below the 2009 level to 1.6%.24
In addition, in its survey of how various corporations and finance professionals thought about the
disclosures, the article also reported that
22 In 2008, the New York attorney general’s office reached separate agreements with two utility companies, Xcel and
Dynegy, which required each of them in public filings with the SEC to provide investors with detailed information on
the financial risks posed by climate change on their operations.
23 “Environmental Disclosure in SEC Filings, 2011 Update,†Davis Polk & Wardwell LLP, January 11, 2011, available
at http://www.davispolk.com/files/Publication/eb800a1e-df86-43c6-9905-012267585822/Presentation/
PublicationAttachment/722ad6f8-0e42-4e5c-988e-088be83f9219/011111_env_disclosure.pdf.
24 Tom Karol, “SEC Climate Change Disclosure Cooling Off,†ABA Environmental Disclosure Community Newsletter,
March 2011, available at http://www.americanbar.org/content/dam/aba/publications/nr_newsletters/ed/
201103_ed.authcheckdam.pdf.
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• Many companies saw little upside and even less downside in climate change
disclosures.
• Many companies saw no meaningful business opportunities coming from climate
change disclosures, but felt that they carried a potential for creating risks.
• Often disclosing uncertain climate change-related information was frequently
seen as a speculative process that was driven by guidelines that lacked any
recognized standards or had not resulted in any standardized practices.
• Investor relations professionals reportedly observed a general lack of interest in
climate change from the financial community or other constituencies.
• Financial analysts had generally shown a small amount of interest in climate
change-related issues.
• About half of the asset managers surveyed indicated that they did not analyze
climate risks because no investor clients requested that they do so.
• Many companies appeared to believe that there were few, if any, penalties from
the SEC for nondisclosure of climate change matters, a perception that was
reinforced by observations that also characterized the SEC’s level of enforcement
in this area as negligible.25
Author Contact Information
Gary Shorter
Specialist in Financial Economics
gshorter@crs.loc.gov, 7-7772
25 The ABA article noted that SEC staff involved in reviewing Form 10-Ks accepted many corporate filings without
any references to climate change, while some firms in the same industries made such disclosures. A view that SEC
enforcement has been limited can be found elsewhere. For example, an assessment of the impact of the Guidance after
one year came from two environmental attorneys at the law firm of Debevoise & Plimpton LLP: “[SEC] enforcement
of any perceived violations has been limited. Based on a review of publicly available information, there are fewer than
a dozen comment letters in which the SEC sought additional information concerning climate disclosure in registrants’
2010 filings ... †Stuart Hammer and Lauren M. Boccardi, “Climate Change Disclosure,†Directorship, July 26, 2011,
available at http://www.directorship.com/climate-change-disclosure-in-sec-filings/.
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