The Securities and Exchange Commission voted 3-2 to issue an interpretive guidance to publicly traded companies on when they should disclose information to investors on the potential impact of business or legal developments relating to the issue of climate change. According to the Washington Post, the vote was along party lines, and the Republican commissioners “vehemently” opposed the decision.
Chairman Mary L. Schapiro and the two Democrats on the commission supported the new requirements, while the two Republicans vehemently opposed them.
“I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection,” Republican commissioner Kathleen L. Casey said.
Democratic commissioner Elisse B. Walter said the new requirements are “designed to improve the quality of disclosures filed by U.S. public companies for the benefit of investors.”
Here is how a release on the SEC’s website described the decision:
The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company’s risk factors, business description, legal proceedings, and management discussion and analysis. . . .
Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
- Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
- Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
- Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
- Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
The release also quotes SEC Chairman Mary Schapiro on the decision:
“We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics,” said SEC Chairman Mary Schapiro. “Today’s guidance will help to ensure that our disclosure rules are consistently applied.”
Her full statement is here. Megan McArdle comments skeptically here.
Houston Lawyer says:
This directive is totally unnecessary. Oil and gas clients already have this in their disclosure documents. It is difficult to politely write a risk factor that describes how the government is contemplating screwing your industry over.
I should be thankful for the SEC. They announced new rules affecting disclosure of market risk caused by compensation policies and re-writing decades old rules on officer and director disclosure in December that must be included in this year’s proxy statements. In addition, they actually improved the rules regarding disclosure of oil and gas reserves. Anyway, since Sarbanes Oxley was enacted in a fit of pique following the Enron debacle, they have been writing the rules so fast that we have been scrambling to keep up.
Bill, bill, bill …..
January 28, 2010, 6:13 pmSteve says:
The first three bullet points ought to be utterly noncontroversial. The fourth one is the only one impacted by the issue of whether climate change is actually occurring or will occur in the future, and even so, the impact of the guidance is minimal. If a public company feels strongly that climate change is a big ol’ hoax and refuses to conduct any evaluation whatsoever of what the impact of climate change might be on their business, the only way they’ll end up in trouble is if climate change does, in fact, wipe out their operations and the plaintiffs’ lawyers come calling.
From the perspective of investors, more transparency relating to which companies would or would not be impacted by climate change is a good thing. Investors can make up their own minds on how that information should affect their investing decisions.
January 28, 2010, 6:27 pmBlue says:
“We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes.”
I hope some companies take her at her word and respond along the lines of: “Climate isn’t changing, therefore we assess these factors as zero.”
January 28, 2010, 7:19 pmCGG says:
This is probably counter-productive. Investors now will have difficulty whether a disclosure related to climate/regulatory risks are real or merely a statement designed with an abundance of caution given guidance from the SEC.
January 28, 2010, 7:49 pmPeteP says:
” a company should also evaluate the potential impact of pending legislation and regulation related to this topic. ”
So, they should take a SWAG at what legislation MIGHT get passed at some indterminate point in the future ( something NO ONE can do ), and then guess at what the details of it might be ( impossible ), and then project them onto a business forecast ? Insane.
“Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change. ”
And worse yet, do the same thing for ‘International Accords’, none of which exist yet ? Unreal !
“Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends. ”
This is thinly disguised rhetoric for ‘Companies must announce plans to incorporate ‘green’ strategies into their business models and product lines !
Who wrote this crap, the UN ? The Greenies have obviously taken over 3 seats at the SEC, and are using it to push their climate agenda ! CAn this be stopped by lawsuit ???
“Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business. ”
‘Well, let’s see – we’re in NYC – if sea level rises 10 feet, we’re screwed’ …..
January 28, 2010, 8:24 pmMark N. says:
Well, estimating exposure to regulatory risk is always tricky in that way, but SEC rules typically require that companies at least make some broad attempt to estimate what regulatory risks exist that could impact the company, and how they would do so. The first three points here just seems like a restatement of that principle with respect to one particular kind of regulatory risk.
January 28, 2010, 9:25 pmMalvolio says:
The first three requirements seem routine — if the company is aware of any special vulnerability to an imminent policy or regulatory change, yeah, they should tell me. The fourth might be more controversial but I would think even the most hardened warming skeptic would admit there is some chance of a temperature rise, and if most of a corporation’s assets are within 30cm of mean high tide, again, I’d like to know.
January 28, 2010, 9:26 pmBob says:
It’s no wonder that the PC idiots at the SEC missed the Madoff scam after being repeatedly tipped off. How bad does the SEC’s green house emitting BS harm our financial environment? It surely smells in light of fraud charges against the IPCC!
January 28, 2010, 9:28 pmThe Drill SGT says:
And when multiple firms make filings that state “if the proposed cap and trade plan has less than expected impact, it will cause us to raise prices by 10-20%, and will result in shortages of power, coal, oil and gas. If the impact is larger, we’ll go bankrupt” the adminstration will then be happy?
That should help the stock market shake off it’s nervous fears :)
January 28, 2010, 9:48 pmAnthony says:
Given that firms are perfectly free to say that already through their lobbyists, and lobbyists will usually present the worst case scenario as default, it’s effect, if anything, will probably be to make the lobbyists slightly less effective.
January 28, 2010, 10:48 pmMike says:
Why aren’t they going after market manipulation done by Goldman Sachs and other Wall Street banks? Flash orders, anyone? High frequency trading, hello? Dark pool? Anyone? Bueller?
What a corrupt and worthless organization the SEC is.
January 28, 2010, 10:51 pmConstantin says:
Seriously. What if somebody just lists the bullet points and writes the words “Hoax”?
This is beyond stupid. The national death wish gets one step closer to fulfillment.
January 28, 2010, 10:58 pmRich Rostrom says:
The assets of public corporations are exposed to a variety of threats from natural forces: weather, earthquakes, tsunamis, outbreaks of disease, droughts, floods, volcanic eruptions.
A corporation which does business in SE Missouri, or the adjacent parts of Illinois, Kentucky, Tennessee, and Arkansas is at serious risk of major losses if (more accurately when) the New Madrid Fault lets go. An influenza outbreak as contagious and lethal as the Spanish flu of 1918 would be ruinous to airlines.
Yet as far as I know, the SEC has never explicitly required public corporations to address these threats in their filings.
The requirement that special attention be given to “global warming” is clearly a political move.
January 28, 2010, 11:18 pmKenB says:
Will companies be permitted to discuss risks of ill-advised regulatory actions and political pressure arising from possibly fraudulent science. That seems to me a more real risk than adverse effects on business because of climate change.
January 28, 2010, 11:50 pmSteve says:
And when multiple firms make filings that state “if the proposed cap and trade plan has less than expected impact, it will cause us to raise prices by 10–20%, and will result in shortages of power, coal, oil and gas. If the impact is larger, we’ll go bankrupt” the adminstration will then be happy?
There was nothing stopping them from making that statement already, assuming it’s truthful, which is what I mean when I say the first three bullet points are noncontroversial. Public companies are expected to disclose any and all material risks to their business.
A little common sense here. If a company knows that it would have to go out of business if a given piece of pending legislation passes Congress, of course it has to disclose that to investors!
January 29, 2010, 12:38 amLarryA says:
At least someone will be reading the pending legislation.
Not only does the company have to WAG what the legislation is going to do, they then have to WAG how their customers are going to respond to the changes created by the legislation. “We think our customers are going to be so pissed off about this legislation that they’ll do the opposite of what the government expects.”
And, by the way, isn’t information about pending laws and regulations, international meddling, and consumer response just as available to investors and their advisors, who can use it to make their own assessments?
January 29, 2010, 1:46 amAnthony says:
Yes, but investors can’t perform that sort of assessment without certain internal information about the company which the company might not wish to release.
January 29, 2010, 2:59 amEduardo Carreras says:
Reminds me of the Y2K disclosures required by the SEC. Remember? I guess that helped us avoid the end of the world. I’m sure this disclosure requirement will do the same.
January 29, 2010, 6:25 amJoeSixpack says:
The terrorists have won.
January 29, 2010, 1:01 pmA. Criminal says:
We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes.
Illegal Aliens From Outer Space – will they come to serve man? You can’t be too careful when filling out thousands forms is involved.
January 29, 2010, 1:01 pmAlton says:
And when multiple firms make filings that state “if the proposed cap and trade plan has less than expected impact, it will cause us to raise prices by 10–20%, and will result in shortages of power, coal, oil and gas. If the impact is larger, we’ll go bankrupt” the adminstration will then be happy?
Yes, it appears the admnistration would be happy. However, if the same firms decide to place an advertisement that quoted their SEC filings word for word too close to an upcoming election, the same Admnistration believes democracy as we know it would be imperiled.
January 29, 2010, 1:11 pmThales says:
This seems like much ado about nothing. Publicly traded companies can and do evaluate the impact of regulatory change on their business, and if it’s material to investors it should be disclosed. And to the global warming skeptics, I assure you that companies with something to potentially lose are in fact evaluating the impact of change on their bottom lines; if it’s material, again, the rule is to disclose (risks that threaten everyone and everything don’t need to be disclosed (like the possibility of nuclear war), but if a natural disaster/phenomenon that could have particular impact on one industry, then yes, the prudent company and securities lawyer will insist on a risk factor. In a similar vein, those noted unrealistic hippies at the Defense Department have released several studies and white papers about the threat of climate change to national and international security.
January 29, 2010, 5:03 pmlosantiville says:
Citizens United already says corps can attack the Watermelons (green on the outside red on the inside) if they want. This ruling merely commands them to attack the totally destructive regs of the eco nazis. Sounds good to me. “We were only following orders when we told you that you were soon going to be starving and freezing in the dark.”
January 29, 2010, 9:32 pmSteverino says:
Yes, but only because they (formerly we) were tasked to do so by other unrealistic hippies.
I’m sure that the CIA will acquire newfound credibility with people when they start producing “intelligence” on the effects of AGW. Not because they necessarily believe the theory. But because they were told to do so by the President.
And then, we all know the CIA is famous for giving the answer that its political masters want to hear, don’t we? At least, that’s what we were told by the Bush-manipulated-the-intelligence crowd.
This time it’ll be different, I’m sure. No, the CIA isn’t telling you about AGW because the best way to get a big budget is to show you “get it” (and of couse the DoD doesn’t think that way either) on the issues of the day. No, of course not; the same crowd that said the CIA was only telling Bush what he wanted to hear won’t believe the CIA is simply telling Obama and Congress what they want to hear.
In the linked article, Megan McArdle astutely writes about the SEC regulation r.e. AGW effects:
Two points.
1) Well then, since they can’t evaluate this on their own, and they don’t want trouble with the SEC, it looks to me they need to hire consultants. People who study AGW, preferably those who’s work appears regularly in the peer-reviewed journals the IPCC famously relies upon. Remember, the Barack Obama administration is simply Cook County corruption gone nationwide. And to paraphrase what Richard Daley once famously said, what’s the point of being in politics if you can’t take care of your family and friends.
There is plenty of precedent for this; the stimulous steered a lot of money to Obama’s supporters. And the Healthcare bill contains a lot of regulations that doctors and hospitals are currently ill equipped to comply with on their own. Hence business for consultants in market niches that didn’t previously exist.
I do believe Barack Obama’s SEC has just created a government-mandated market. Just as carbon trading itself would’t exist if governments didn’t mandate these exchanges.
2) This is political. Just like tasking the DoD to write threat assessments based upon the assumption that the AGW theory is true allows Thales to say “Look, you global warming deniers, even the DoD thinks AGW is a threat,” having the SEC task corporations will allow Thales to say “Look, you global warming deniers, even private corporations think AGW is a threat.”
Most small investors aren’t going to be aware of the SEC ruling; they won’t realize that they’re being propagandized about AGW by the companies they hold stock only because they were told they had to.
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