SEC’s “Interpretive Guidance…Regarding Climate Change” Leaves Many Scratching Their Heads

There are few topics hotter and more controversial these days than climate change.  Opinions and discussion about potential climate change legislation range from “it needs to be quick and broad” to “it’s all a hoax, what are we even worrying about?”

We are not here to opine one way or the other on climate change, and in this era of disinformation, who really knows the absolute truth. Most issues fall somewhere towards the center once all of the posturing and spin is removed, and the most likely truth about climate change is that it falls towards the center too. (But again, who knows?)

Either way, the SEC wants you, the compliance professional, to be on notice that pending climate change legislation could impact what needs to be disclosed to investors.

Earlier today, the SEC issued a press released entitled “SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change” that lays out some of these potential impacts and what it means for disclosure. Among the areas highlighted by the SEC release:

• 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.

A few observers were left scratching their heads at the implications of the SEC’s climate change disclosure guidelines.

Jane Wells, who writes the “Funny Business” blog for MSNBC wrote a post today entitled “Disclose Climate Change Even If It Isn’t Real” in which she says the following:

I consider myself a semi-intelligent person. However, I’ve been reading and re-reading the press release from the Securities and Exchange Commission about plans to advise companies on making disclosures related to their carbon footprints. I expended a lot of my own personal greenhouse gases trying to figure the point.

Her basic point is that SEC is laying out a host of guidelines that companies need to be prepared to consider, yet they go to great lengths to not endorse climate change as being real. Furthermore, climate change legislation isn’t even real, at least not right now.

So as Wells cites blogger Bill Singer as saying, “Okay, so . . . what?”

At his blog BrokeAndBroker.com, Singer is even more brash in his questioning of the purpose behind the SEC’s release. He begins his blog post “SEC Refuses to Admit or Deny Climate Change (but provides guidance)” by saying:

Truly, this one you have to read to believe.  If it were not so pathetic and absurd it would hysterical.

Singer then ends his post by providing his own tongue-in-cheek “disclaimer” about the SEC’s release that is rather clever. This is preceded by the following zinger hurled at the SEC:

Only in government would an idiotic release of this type be prepared — and then, to make matters worse, transmitted to the public!  If there is any comfort that I take from this nonsense, it’s that the SEC must finally have stamped out fraud on Wall Street if it has such spare time on its hands to churn out interpretive releases about climate change disclosure.

So is there a point? Or are Wells and Singer completely justified in framing the SEC’s release as balderdash.

The Wall Street Journal paints a much different picture in its article “SEC Issues Climate-Risk Guidance Despite Tough Political Environment“, citing many people and organizations in favor of the SEC’s release and seeing good in it.

“This is a big step forward,” said Maryland State Treasurer Nancy Kopp, who also chairs the board of trustees for the state’s $33 billion pension fund. “As investors, the information being disclosed isn’t as useful as it ought to be.”

And, of course, on the other side of voices like Kopp’s are Republican voices who oppose climate change legislation and feel that the SEC has more important things to be doing than issuing hypothetical guidelines for hypothetical legislation for climate change that, so far as anyone can definitively prove, is still considered hypothetical.

“Having permitted the now-imprisoned Bernard Madoff to bilk as much as $50 billion from trusting investors, it will now turn its investigative eye to global warming instead of investor protection,” Reps. Joe Barton (R-Texas) and Greg Walden (R-Ore.) said in a letter sent to Schapiro this week. Barton is the top Republican on the House Energy and Commerce Committee.

Barton and Walden hammered the proposal for being “transparently political and such a breathtaking waste of the commission’s resources.”

Regardless of whether the release shows foresight on the part of the SEC, or is merely the result of partisan gamesmanship, what is important from a compliance perspective is to know what regulations and disclosure requirements may be forthcoming. Whether or not you personally believe in climate change or agree with proposed legislation, the SEC has at least communicated that things could change at some relatively near point in the future.

Now do with that what you will.

Tags: Compliance, disclosure, Environmental Compliance, regulations, sec