Business Brains

It's coming, folks: The SEC wants to know what risks your company might face from climate change

Posting in Energy

Although most reporting of greenhouse gas emissions is still voluntary, a new SEC ruling suggests public companies may have some explaining to do when it comes to the impact of climate change on their business.

OK, scrutiny by the Environmental Protection Agency is one thing, the Securities and Exchange Commission is another thing entirely -- and more guaranteed to get the attention of business types.

I'm talking, of course, about the move last week by the Securities and Exchange Commission last week to start providing public companies with "interpretive guidance" on how existing disclosure requirements might apply to risks associated with climate change.

The SEC wants to make it clear that it isn't creating any legal requirements in the disclosure rules (at least not yet), but there's a growing school of thought that suggests climate risk equals business risk. So, certain companies may have a fiduciary responsibility, if not an obligation, to start discussing their business risks and investments in the context of the environment.

The development follows several public declarations by the U.S. Environmental Protection in the past year that have pointed to the increasing likelihood that broader reporting of carbon emissions will be a corporate requirement in the future. So far, many of the companies that have begun reporting their footprint and greenhouse gas emissions profile have done so voluntarily, although there ARE some requirements for companies that maintain certain sorts of facilities.

Here's the comment from the SEC Chairman SEC, plucked from the press release referenced above:

"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. Today's guidance will help to ensure that our disclosure rules are consistently applied."

Here's what you need to think about:

  1. The impact of pending climate or energy legislation on your business. So, for example, if you're an oil and gas company and all of a sudden the U.S. government starts funding lots of clean energy investment, what effect would that have on your results?
  2. What impact might international "accords" or treaties (policies adopted by other countries or the European Union) have on your business?
  3. If various trade organizations and industry groups succeed in creating viable ratings systems that rank products on their sustainability merits, how will your company fare?
  4. Could an actual change in the climate have a physical impact?

Are you ready to answer these questions? The more proactive you are, the better the chances you will avoid unwanted scrutiny in the future.

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Heather Clancy

Section Editor

Heather Clancy has written for United Press International, ZDNet, Entrepreneur, Fortune Small Business, the International Herald Tribune and the New York Times. She holds a degree from McGill University. She is based in New Jersey. Follow her on Twitter. Disclosure