SEC Ruling Requires Companies to Tell Shareholders if Climate Laws Are Bad for Business

January 29, 2010 - 7:27 PM
A new SEC ruling would require corporations to inform their shareholders of the business risks and potential impacts of climate change legislation, environmental regulation, and international climate treaties. This is the first time the SEC has required companies to make such information available to shareholders.
(CNSNews.com) – A new ruling by the Securities and Exchange Commission (SEC) would require corporations to inform their shareholders of the business risks and potential impacts of climate change legislation, environmental regulation, and international climate treaties. The ruling marks the first time the SEC has required companies to make such information available to shareholders.
 
The ruling – known formally as an interpretive guidance – was handed down Wednesday by Chairwoman Mary Schapiro and is intended to inform companies what information they must include on their annual report to the SEC.
 
That report, known as a 10-K filing, provides the public with, among other things, information on the company’s business model, executive compensation, market outlook, and the potential risk factors facing the company.

Tom Borelli, Ph.D., director of the Free Enterprise Project at the National Center for Public Policy Research – a conservative think tank – told CNSNews.com that the SEC ruling, long sought by liberal environmentalists, contained a silver lining because companies must now make public how climate legislation might hurt their business.
 
“The left is using this as a way to try to intimidate companies that they really have to take this issue [global warming] seriously. But there’s a flipside to this, as part of the disclosures – and this is really, really important – companies should also disclose the business risk of regulation like cap and trade,” he said. “Now, we all know – the economic studies show – that under cap and trade, energy prices go up, job losses go up, economic growth goes down and people have less disposable income.”

The new guidance from SEC instructs businesses to include risks from climate legislation and climate change in its annual assessment of business risk – which means that companies will now have to assess how potential climate change legislation, international agreements, or climate change itself might help or hurt their business, and share that information with the public.
 
“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,” Schapiro said Wednesday.
 
“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.”
 
The new guidance would have companies disclose the risks from four new areas: climate change legislation and regulation, international accords, indirect consequences of regulation or business trends, and actual climate change. 
 
Borelli said companies must now look at all angles of the climate change debate, not just the environmental angle but the business and economic angle as well, and that will provide a fuller, more equal level of information to the public.
 
“Now they have to look at the whole issue of climate change from all angles to see how it could affect their company,” he explained. “If you have a company that is, let’s say, completely renewable energy, let’s say you’re a company that only makes wind turbines or solar panels. Your business is almost solely based on the fact that climate change is happening, because if it isn’t happening we don’t need to subsidize this stuff.
 
“If things like Climate-Gate and the most recent IPCC [Inter-Governmental Panel on Climate Change] report that cited fake data about the Himalayan glaciers melting, if the whole science of global warming unwinds, like it is, then those companies should be disclosing that our business risk is if climate change is not verified, sales of our product could go down.”
 
Borelli said the SEC ruling boiled down to “honesty and transparency.”
 
Kert Davies, research director for GreenPeace USA, agreed but for different reasons, saying that the ruling was “a long time coming” and that investors had a right to know the impacts of climate change.
 
“It’s a long time coming, actually,” he said. “What it means is ultimately the security of investments. If investors have a right to information on how well the companies they’re invested are prepared for things like climate change they presumably will make better investments.”
 
Davies said that hopefully companies who have to disclose the risks of climate change legislation and global warming will move away from “dirty” sources of energy and towards “clean” sources.
 
“Ultimately what this points to is, hopefully, companies looking at their own portfolios of internal investments and internal stranded capital and assets and rearranging so that they are less addicted to oil and less involved in dirty technology and more involved in clean technology,” Davies said.
 
“That’s the goal here, full disclosure of those vulnerabilities and or advantages for other companies,” Davies continued. “Maybe this helps to level that, at least in investors’ minds and then we get to a more sane economy that makes the right choices.”