January 27, 2010


WASHINGTON – Senate Banking Committee Chairman Chris Dodd (D-CT) and Securities, Insurance, and Investment Subcommittee Chairman Jack Reed (D-RI)  praised  the Securities and Exchange Commission’s decision to encourage companies to appropriately disclose climate-related issues facing their business.
While climate change and laws to deal with climate change have the potential to seriously effect business operations, little information has been available to investors in the past.
“Climate change and efforts to combat it have an undeniable impact on many companies,” said Dodd.  “Investors have a right to know if their investment may be helped or hurt by severe weather, rising sea levels, or new greenhouse gases regulation or legislation.  These new guidelines will help ensure that investors have the guidance they need to make well-informed decisions.”
“I am pleased the SEC has taken the important step of issuing guidelines regarding climate change disclosure that will increase informational transparency.  Climate change is creating new opportunities and risks in the economy.  Major environmental risks and liabilities can significantly impact companies’ future earnings and, if undisclosed, could impair investors’ ability to make sound investment decisions.  At the same time, a corporations or investor can succeed with environmental innovations such as the development of new energy efficient technology,” stated Reed.  “There is an old adage in business: what gets measured gets managed.  Investors and the SEC both recognize this and are calling for greater climate disclosure.”
SEC Chairman Mary Schapiro said in her statement today “The discussions, debates and decisions that are taking place in the U.S. and elsewhere on this topic have implications under our existing, long-standing disclosure rules.  It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation — whether that legislation concerns climate change or new licensing requirements — is likely to occur. If so, then under our traditional framework the company must then evaluate the impact it would have on the company’s liquidity, capital resources, or results of operations, and disclose to shareholders when that potential impact will be material. Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather. These principles of materiality form the bedrock of our disclosure framework.  Today’s guidance will help to ensure that our disclosure rules are consistently applied, regardless of the political sensitivity of the issue at hand, so that investors get reliable information.”
The announcement comes less than two weeks after Chairman Dodd and Senator Reed urged the SEC to set clear climate change disclosure standards in order to better protect investors.  Dodd and Reed first called on the SEC to take these steps in a letter to former Chairman Chris Cox in 2007.     
For more on the SEC decision click here: http://www.sec.gov/news/speech/2010/spch012710mls-climate.htm
The full text of the Dodd Reed letter is below:
January 15, 2009
The Honorable Mary L. Schapiro
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C.  20549
Dear Chairman Schapiro:
Two years ago, the Senate Banking Subcommittee on Securities, Insurance, and Investment held a hearing entitled “Climate Disclosure: Measuring Financial Risks and Opportunities.”  Following that hearing, we wrote to then-Chairman of the SEC Christopher Cox to support adoption of guidance to ensure greater consistency and completeness in the disclosure of material information related to climate change.  Since then, the interest in and demand for such information concerning climate risk continues to grow.
We appreciate the attention that the Commission has begun to give to this issue and have noted with interest the Staff Legal Bulletin (No. 14E) issued this fall by the Division of Corporation Finance regarding shareholder proposals relating to environmental, financial or health risks.  This is an important and significant step.   Nonetheless, we continue to believe that is important for the Commission to issue an interpretive guidance clarifying that existing law requires disclosure of climate-related risks that are material to a registrant and request an update on the Commission’s consideration of climate risk disclosure.
Under the Commission’s Regulation S-K, publicly traded corporations are required to analyze and disclose risks that are material to their financial performance, including the “known trends and uncertainties” that may affect them.  Many investors have repeatedly said that they consider climate-related information critical to their investment decisions (see Petition for Interpretive Guidance on Climate Risk Disclosure, SEC File No. 4-547, filed September 2007, supplemented June 2008 and November 2009).  Yet, according to independent analyses, few corporations are including climate risks in their annual 10-K and other submissions to the Commission.   Those corporations that do include climate information in their corporate filings sometimes omit substantive information that would better inform investors about the risks they face. 
In light of the serious effects of a changing climate and the national, regional, state, and local policy responses, publicly traded corporations have an obligation to disclose climate-related risks that are material to a registrant to investors.  Under the U.S. Environmental Protection Agency’s recent greenhouse gas emission reporting rule, for example, companies nationwide began to collect data on their emissions of heat-trapping greenhouse gases starting on January 1, 2010.  Having this information will enable companies to assess their own contributions to climate change and to evaluate how policy-makers’ responses to a changing climate will affect financial risks and opportunities.  In addition, other regulatory entities are adopting their own standards.  Last year, the National Association of Insurance Commissioners unanimously approved a mandatory requirement for insurers with annual premiums of $500 million or more to disclose climate risks to regulators, shareholders and the public beginning in May 2010.  These are positive steps, but they are not a substitute for definitive guidance from the Commission.
In our December 6, 2007 letter to Chairman Cox we wrote that:  
We believe the SEC should issue definitive guidance in the form of an interpretive release to ensure greater consistency and completeness in disclosure of material information related to climate change and current and probable future governmental regulation of greenhouse gas emissions; provide information for registrants on whether and how to disclose such matters; and ensure that investors have access to material climate change information.   In our view, this is an appropriate time for the Commission to issue such a release. 
This point was reinforced by language in the Senate Appropriations Committee Report for the Fiscal Year 2009 Financial Services Appropriations Act (Senate Report 110-417), which encouraged the Commission to give prompt consideration to pending investor petitions on climate disclosure and to provide guidance on the appropriate disclosure of climate risk.
We know that you have established a committee to assess these issues. As the reporting season approaches for many corporations, we once again request that the Commission issue an interpretive release clarifying the obligation of publicly traded companies to assess and disclose climate-related risks that are material to a registrant and opportunities as quickly as possible.  To that end, we would greatly appreciate an update regarding the Commission’s evaluation of the Petition for Interpretive Guidance on Climate Risk Disclosure.
Thank you for your consideration of these concerns.
Christopher J. Dodd, Chairman                                                                    
Committee on Banking, Housing and Urban Affairs
Jack Reed, Chairman
Subcommittee on Securities, Insurance, and Investment