By: Tiffany Richmond
In the past several years the creation of new international, federal, and state regulations clearly indicate that government agencies are addressing concerns regarding the effects of greenhouse gas emissions.
Demonstrated by measures, such as, the European Union Emissions Trading System, the U.S. Environmental Protection Agency’s policy for large emitters to collect and report greenhouse gas emissions, the Waxman-Markey Bill, currently pending in Congress, and international efforts to replace the Kyoto Protocol, exhibited by event such as the United Nations Climate Change Conference.
With myriad regulatory actions in effect or pending, many public companies are facing pressure from shareholders to understand and communicate the impact that climate change is having on their organizations. Several petitions have been submitted to the Securities and Exchange Commission requesting detailed explanations of disclosure requirements relating to climate change. The Commission responded to these petitions on January 27th, 2010, voting to provide public companies with interpretive guidance towards existing disclosure rules that may require organizations to disclose their impact on climate change.
Below highlight some of the ways climate change may trigger disclosure, as discussed in the Securities and Exchange Commissions’ interpretive release.
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.
A company should evaluate whether these regulations will have an impact on capital expenditures related to the discharge of environment materials. For example, a company may need to improve facilities or equipment to comply with regulations.
An organization should evaluate the overall impact of risks factors (financial, physical, reputational, etc.) resulting from climate change and regulatory rules. A company should also evaluate whether any existing or pending regulations will have a material effect on its financial and/or operational conditions. For example, did or might a regulation effect revenue by increasing or decreasing demand for a product or service?
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
It’s important for a company to consider the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For example, 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.
A company should consider how its position on climate change is perceived by the public, and the potential effects on its business operations or financial conditions.
Physical Impacts of Climate Change
Significant physical effects of climate change, such as severe weather (floods, hurricanes), sea levels, and water available and quality, have the potential to affect a company’s operations. Companies should evaluate the actual and potential material risks of environmental factors on their business.
At minimum, this release should bring awareness to existing climate change issues and motion organizations to monitor legislation and regulations changes regularly. I will continue to watch for further guidance ruling regarding climate change from the Securities and Exchange Commission.
*The Commission’s interpretive releases do not create new legal requirements or modify existing ones, but are intended to clarify and ensure consistency for public companies and their investors.
Tiffany Richmond is an enthusiastic marketing guru and is responsible for online marketing strategies at Energy Advantage Inc.