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On February 2, 2010, the Securities Exchange Commission (SEC) published an interpretive release to provide public companies with guidance on existing SEC disclosure requirements as they apply to climate change matters. The purpose of the release, according to SEC Chairman Mary Schapiro, is to "provide clarity and enhance consistency," rather than to impose new legal obligations or modify existing ones. With climate change, more generally known as "global warming," now widely recognized as the major environmental problem facing the globe, it is of no surprise that shareholders of public companies have been increasing calls for climate-related disclosures. This release comes in response to several petitions for interpretive advice submitted by large institutional investors and other investor groups.  

Existing SEC Rules Potentially Requiring Disclosure of Climate Change Issues

The SEC highlighted the following four disclosure rules and regulations as the most pertinent to requiring disclosure related to climate change:

  • Description of Business — Item 101 of Regulation S-K requires a narrative description of the registrant's business, specifically the form of organization, principal products and services, major customers, and competitive conditions. In particular, Item 101(c)(1)(xii) expressly requires disclosure of the material effects that compliance with federal, state and local environmental laws may have on capital expenditures, earnings or the competitive position of a company.
  • Legal Proceedings — Item 103 of Regulation S-K requires a company to describe any material pending legal proceeding to which it is a party, specifically any environmental litigation if it is material to the business or its financial condition, involves a claim for damages, or has a governmental authority as a party and involves potential monetary sanctions.
  • Risk Factors — Item 503(c) of Regulation S-K requires a company to disclose the most significant factors that make an investment in a company risky and how such risks affect the company. A company should avoid generic risk factor disclosures that could apply to any company.
  • Management’s Discussion and Analysis (MD&A) — Item 303 of Regulation S-K requires disclosure of management's view of the company's financial conditions and prospects, and identification and disclosure of known trends, events, demands, commitments, and uncertainties that could reasonably likely occur and materially effect the company's financial condition.
Ways Climate Change Impacts Routine Disclosures

The SEC's interpretive release cited four general areas as examples of where climate change may trigger a company's need for disclosure under the aforementioned existing rules and regulations:

  • Impact of Legislation and Regulation — A company should evaluate, and disclose where material, the effects on the company's business of existing and pending laws and regulations dealing with climate change. For instance, if "cap and trade" legislation is passed, registrants could potentially profit from the sale of allowances if their emissions levels fall below their emissions allotment. Legal developments may trigger disclosure obligations under Items 101, 103, 303 and 503(c) of Regulation S-K.  
  • International Accords — A company should monitor existing and pending international accords and treaties relating to climate change remediation, and disclose where material, the impact of such accords on its business. Companies should consult the MD&A disclosure requirement under Item 303 of Regulation S-K to determine whether there is a need to disclose.
  • Indirect Consequences of Regulation or Business Trends — A company should assess, and disclose where material, the actual and potential indirect consequences of regulation or business trends upon their business. Legal, technological, political, and scientific developments relating to climate change may create new opportunities or risks for companies, which could thereby result in the need for disclosure as risk factors under Item 503(c) or in MD&A under Item 303. Some impacts could also be significant enough to trigger disclosure under Item 101 in the company's business description.
  • Physical Impacts of Climate Change — A company should also consider any material impacts that could result from the physical effects of climate change, including severity of weather (floods, hurricanes), sea levels, arability of farmland, and water availability and quality. Companies which may be susceptible to such severe weather or climate-related events should consider disclosing material risks of, or consequences from, such events as risk factors under Item 503(c).
What Does This Interpretive Guidance Mean To You?

  • When preparing disclosure documents, companies should broadly consider the actual and potential impacts of climate change on their business to ensure full compliance with existing SEC rules and regulations.
  • Companies should continue to regularly assess their potential disclosure obligations as they apply to climate change.  
  • Companies should be aware that disclosure as it applies to climate change matters will be monitored by the SEC and the SEC may take additional steps in the future.

The text of the interpretive release is available at

For questions or more information, contact one of the following members of the firm's Securities/SEC Practice Group:
Lewis U. Davis, Jr. — 412 562 8953;
Jeremiah G. Garvey — 412 562 8811;
Jennifer R. Minter — 412 562 8444;
Brian S. North — 215 665 3828;
Brian S. Novosel — 412 562 5266;