Climate Change Disclosures: Has the SEC Guidance Had an Impact?


Posted on November 19th, 2010 by Greg Wannier
 1 comment  

Bradford McCormick                                                                                                                                                  Fellow

While this post will not attempt to answer the question posed by its title, the Center for Climate Change Law is making it easier for those who want to answer the question themselves. Today we are releasing a catalog [download .xls] of links to and excerpts from the 2009 annual reports and 2010 third quarter quarterly statements filed by 160 Fortune 500 companies across 19 of the 67 industries included in the 2010 Fortune 500.

On February 8, 2010, the Securities and Exchange Commission (“SEC”) published an interpretive release (“SEC Guidance”) clarifying existing disclosure obligations related to climate change for U.S. public companies. The SEC Guidance was published after several years of activity and several petitions to request clarification and strengthening of climate disclosure requirements from state attorneys general, institutional investors, environmental groups, and others. For more background on the SEC Guidance, please see our Climate Change Securities Disclosures Resource Center.

The disclosures catalog provides a simplified way of accessing and comparing disclosures for both a pre-SEC Guidance filing (the 2009 10-K filing) and a post-SEC Guidance filing (the 2010 third quarter 10-Q filing). In most cases, the entries for the 2009 10-K provide the disclosure text related to climate change in addition to a link to the relevant section of the filing. In a few cases, only the link is provided. For the 10-Qs, links are provided.

The SEC Guidance [PDF- see Sec. IV] specifies four subjects that may trigger a requirement of climate change related disclosures. These four topics are “examples of climate change related issues that a registrant may need to consider,” and are intended as a starting point rather than a comprehensive list of subjects a registrant should consider. For all subjects, the Guidance advises registrants to consider positive consequences and potential opportunities, not merely the negative consequences of a particular law, regulation, or business trend. The four subjects identified in the SEC Guidance are: (A) impact of legislation and regulation; (B) the impact of international accords; (C) indirect consequences of regulation or business trends; and (D) physical impacts of climate change. In the spreadsheet, in columns F-I, CCCL has evaluated each of the 2009 disclosures to determine which subjects they discuss.

While many of the disclosures made by companies in 2009 were cursory or not specific to the company’s situation, CCCL found that only 17 of the 151 companies that filed a 2009 10-K failed to mention climate change at all. Around 80% of the companies, 121 in total, made a disclosure regarding subject (A) of the SEC Guidance, the impact of legislation and regulation. This result is not surprising, since the last several years have seen a ramp-up of legislative and regulatory activity on climate change and an increasing awareness of that activity among corporations.

Disclosure on the other three subjects was more uneven. Subject (B), impact of international accords, saw 66 disclosures, and subject (C), indirect consequences of regulation or business trends, saw 79 disclosures. The least frequently disclosed risk was subject (D), physical impacts of climate change. Only 48 companies made a disclosure in this category, and half of this group was made up of insurance and utility companies, which tend to have a more well-developed understanding than other companies of their exposure to the risks of changing weather patterns, storms, and floods—insurance because it is a part of the underwriting of property policies, and utilities because weather has a large effect on customer usage and on operations and reliability.  Nonetheless, several utilities and insurance companies failed to make a disclosure on physical impacts, and some other industries that should have an interest in climatic changes, including Mining and Crude Oil Production, and Petroleum Refining, largely failed to make disclosures on the subject. Some of the most interesting improvements in climate disclosures in the next few years, to the extent that they occur, are likely to occur in this category and in subject (C), which includes decreased or increased demand for products and services because of energy use or emissions and potential reputational risks due to disclosure of emissions and other environmental impacts.

The spreadsheet does not contain any comments by CCCL on the quality or specificity of disclosures, but CCCL will continue to assess these and other disclosures as they become available.

One comment

  1. Excellent read, I just passed this onto a colleague who was doing some research on that. And he actually bought me lunch since I found it for him smile Thus let me rephrase that: Thank you for lunch!

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