On January 27, the U.S. Securities and Exchange Commission (SEC) ruled that climate change is a category of risk that companies should consider when disclosing material risk and opportunities. Along with this, the SEC is providing interpretive guidance for disclosing climate risks on key issues such as the:

  • impact of legislation and regulation
  • impact of international accords
  • indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments)
  • physical impacts of climate change

In her statement, SEC Chairman Mary Schapiro pointed out that these issues can cut straight to investor concerns about companies’ liquidity, capital resources, and results of operations, and therefore companies have the obligation to determine their material impacts, and then reliably communicate that information to investors. This is, she said, the “bedrock of our disclosure framework.”

The SEC will release detailed guidance on its website soon. Until then, the Global Framework for Climate Risk Disclosure (PDF) offers insights on how companies will address such disclosure in practice.

Many companies (PDF) already disclose climate issues in their SEC reports, and this guidance will encourage them to provide more robust information. It will also likely spur other companies to start reporting on climate issues. Company reporting for the SEC will come in addition to existing efforts, such as annual voluntary submissions to the Carbon Disclosure Project, which offers a standardized way to communicate broad climate issues to investors outside the United States.

While the SEC decision is in step with scientists’ increasing confidence in the mechanics of climate change, and with the growing number of investors asking for details on how climate change will affect their business, the ruling may nonetheless leave it to companies to figure out what to report. That is because the SEC is explicitly taking no position related to the evidence of climate change itself, but rather saying that companies must make their own judgment.

As more details become available about the SEC’s instructions to specify climate risks and opportunities, we will be working closely with our members and clients to navigate this emerging framework, understand the best practices and benchmarks for climate reporting, and help companies get the most out of their investor-related disclosure efforts.