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SEC Issues Interpretive Release on Climate-Change Disclosures

Published on: 02 Feb 2010

Today, the SEC issued the anticipated interpretive release that provides guidance to registrants regarding the SEC’s existing rules as they apply to climate-change matters.

The interpretive release addresses four topics involving climate change matters that registrants should consider when assessing what information to provide in their filings under existing SEC disclosure requirements:

  • The impact of existing and potential litigation or regulation
    • This includes specific risks the registrant faces as a result of climate-change legislation or regulation, noting that registrants should avoid generic risk factor disclosure that could apply to any registrant.
    • MD&A disclosure is required for any known uncertainty, such as pending legislation or regulation that a registrant determines is reasonably likely to be enacted and is reasonably likely to have a material effect on the registrant and its financial condition or results from operation.
    • Registrants should not limit their evaluation of disclosure of a proposed law only to negative consequences and should disclose potential positive impacts on the registrant.
  • The affect on the business from international accords and treaties related to climate change and specifically governing greenhouse gas emissions
  • The actual and potential indirect consequences of climate-change-related regulations or business trends (e.g., reduced demand for greenhouse-gas-producing products, higher demand for products with lower emissions than competitor products)
  • The actual and potential impacts of the physical effects of climate change on the business

The interpretive release also highlights the existing SEC rules that would require disclosure of material climate-change matters, such as:

Item 101 of Regulation S-K, Description of Business. Item 101 requires a registrant to describe its business and that of its subsidiaries. Also, among other things, Item 101 expressly requires disclosure regarding certain costs of complying with environmental laws.

Item 103 of Regulation S-K, Legal Proceedings. Item 103 requires a registrant to briefly describe any material pending legal proceeding to which it or any of its subsidiaries is a party. Instruction 5 to Item 103 provides some specific requirements that apply to disclosure of certain environmental litigation.

Item 303 of Regulation S-K, Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 303 includes a broad range of disclosure items that address the registrant's liquidity, capital resources and results of operations. For example, registrants must identify and disclose known trends, events, demands, commitments and uncertainties that are reasonably likely to have a material effect on financial condition or operating performance.

Item 503 of Regulation S-K, Prospectus Summary, Risk Factors, and Ratio of Earnings to Fixed Charges. Item 503(c) requires a registrant to provide where appropriate, under the heading “Risk Factors,” a discussion of the most significant factors that make an investment in the registrant speculative or risky.

In addition to the disclosure requirements of Regulation S-K and Regulation S-X, the Securities Act Rule 408 and Exchange Act Rule 12b-20 require a registrant to disclose “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.”

Please stay tuned for our upcoming publication on this interpretive release.

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