SEC Ruling Requires Companies to Report Climate Impacts

On Jan. 27, the United States Securities and Exchange Commission (SEC) voted that all companies must include in their annual reports an assessment of how climate change and other climate-related issues are impacting their business.

Prior to this vote, the SEC did not define whether or not climate-related issues were considered a “material” effect that firms must disclose to their investors. As a result, many companies declined to incorporate information that would reveal the effects of this type of legislation.

The SEC's new regulation will require all firms to report the effects of climate-related legislation to investors, including possible effects on the company’s financial performance. Photo: Flickr/the(?)

SEC rules now mandate that companies should report not only the physical effects of climate change but also how climate-related laws, domestic or international, can influence business performance.

For instance, as populations around the world become increasingly aware of greenhouse gas emissions and the implications behind global warming, corporations that continue to use nonrenewable sources of energy may be edged out of the competition by eco-friendly companies working within the same field.

Mary Schapiro, chairman of the SEC, says these new regulations do “not create new legal requirements or modify existing ones – [they] merely intended to provide clarity and enhance consistency” among companies’ annual reports.

While a number of firms may consider these recent SEC rulings a hassle, others have expressed relief and satisfaction. Mindy Lubber, the president of Ceres, a national investor group, told BusinessGreen.com that the vote “is a clarion call about the vast risks and opportunities climate change poses for U.S. companies and the urgency for integrating them into investment decision making.”

Tom Borelli, director of the Free Enterprise Project at the National Center for Public Policy Research, expressed satisfaction in response to the SEC’s decision, albeit for unexpected reasons.

“Fully disclosing the business risk of cap and trade will embarrass many CEOs who are lobbying for emissions regulations,” he said in a statement. ”Shareholders will discover that these CEOs are pursuing legislation that will negatively impact their company.”