Corporate Governance

The SEC and Climate Change Disclosure: Part 3

By J. Robert Brown

The other dissenting voice on the interpretive release about climate change disclosure came from Commissioner Casey.  Her objection foremost was little more than a sop to special interests.  She questioned "the timing of this release and the priorities underlying our dedication of valuable staff resources to this release."  In addition, it was desired by special interests.

• There is undoubtedly a constituency that is interested in, and has long pressed the Commission to require, more extensive disclosures on environmental issues in order to drive particular environmental policy objectives. The issuance of this release, however, at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux, makes little sense.

As for the legal effects of the release, Commissioner Casey oddly opposed it because it reflected a statement of the law as it currently existed.

• Legal requirements and reputational pressures relating to climate change issues are, fundamentally, no different than those that arise in other regulatory contexts, albeit climate change is currently a 'hotter' and more controversial political topic than most other regulatory issues.  . . . Nevertheless, the disclosure guidance in this release relating to legal requirements and reputational pressures would apply with equal force to any other legal and regulatory regime affecting public companies.

In other words, she did not object to any of the legal principles in the release, only that it was written in the context of climate change disclosure.  In other words, "there is no credible reason to single out climate change issues for discussion."

Its a strange criticism.  While it is true that the release applies a broad set of requirements to a specific type of disclosure, there is nothing new with that.  Moreover, to the extent it brings all of the existing requirements into a single place, there is a certain convenience factor that results.

Commissioner Casey's real objection seems to be the belief that by restating the requirements, they will in fact put pressure on companies to make more and better disclosure in the area.  As she notes:  "Nevertheless, this guidance assumes that man-made global warming and climate change are occurring as a result of greenhouse gas emissions and are likely to result in physical effects that will affect the businesses of registrants."

That may be true.  But whatever the cause, disclosure only needs to occur, presumably, where the change in the climate will have a material effect on the company's business.  There may be difficulties in quantifying the consequences and in the precise cause of the climate change, but shareholders ought to be informed about the impact of these changes if they will be material.

Full post as published by The Race to the Bottom on February 03, 2010 (boomark / email).