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SEC: Publicly Traded Firms Must Disclose Risks from Climate Change

stock tickerThe Securities and Exchange Commission has ruled that publicly traded companies must warn investors about any serious risks from climate change to their operations, reports the New York Times.

The SEC previously has required public firms to disclose financial and legal risks from environmental challenges, but this is the first time it has singled out climate change.

The SEC voted 3-2 along party lines in favor of an “interpretive guidance” that tells companies when they should be compelled to disclose information related to climate change.

The SEC’s reasoning is that companies can be affected by climate-related lawsuits, business opportunities and legislation, and thus should disclose any potential risks or opportunities.

As one example, banks or insurance companies with holdings in coastal areas could be affected by rising sea levels.

Whether or not climate change disclosure is enforced is a big question, Duke University law professor James Cox told Marketplace on NPR.

“We’ve had a history, for example, on other environmental disclosures of a lack or a failure of compliance. The SEC has beat its chest in saying, you ought to comply, you ought to comply, but very little in the way of enforcement,” Cox told Marketplace.

SEC Chairwoman Mary Schapiro, in a statement before the SEC voted, said, “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. Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather.”

The SEC was pressured by environmental and investor groups to make the decision, reports NYT.

Indeed, Republican SEC commissioner Kathleen Casey said the SEC was bending to “the agenda of the social and environmental policy lobby.”

Casey said that the science of climate change is “increasingly in flux.”

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3 thoughts on “SEC: Publicly Traded Firms Must Disclose Risks from Climate Change

  1. Smart business leaders with a strategic perspective have known the importance of assessing their exposure to climate risks for years. Managing these risks and also identifying sustaiability opportunities is increasingly important.

  2. It is a little disingenuous to state that business are “required” to disclose climate change risks. As SEC Chair Mary Schapiro pointed out in her remarks: “An interpretive release, as this is known, does not create new legal requirements or modify existing ones — it is merely intended to provide clarity and enhance consistency.” So no new legal requirements were instituted, the situation was simply “clarified” as to when businesses must disclose risks to their investors.

  3. Thanks for you comment Steve. Because disclosing risk from climate change was not previously covered by the SEC and now is, that means that businesses wanting to follow the intent of SEC’s regulations are required to disclose their risks. Failure to do so can result in penalties from SEC.

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