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S.E.C. Adds Climate Risk to Disclosure List

By John M. Broder
The New York Times
The Securities and Exchange Commission said on Wednesday for the first time that public companies should warn investors of any serious risks that global warming might pose to their businesses.

WASHINGTON – The Securities and Exchange Commission said on Wednesday for the first time that public companies should warn investors of any serious risks that global warming might pose to their businesses.

Although the agency has long required companies to reveal possible financial or legal impacts from a variety of environmental challenges, it has never specifically cited climate change as bringing potentially significant business risks or rewards.

The S.E.C., on a party-line 3-2 vote, issued “interpretive guidance” to help companies decide when and whether to disclose matters related to climate change. The commission said that companies could be helped or hurt by climate-related lawsuits, business opportunities or legislation and should promptly disclose such potential impacts. Banks or insurance companies that invest in coastal property that could be affected by storms or rising seas, for example, should disclose such risks, the agency said.

Mary L. Schapiro, the S.E.C. chairwoman, who was appointed by President Obama, said that the commission was not creating new legal requirements for companies, nor did it intend to endorse any particular scientific or policy view of global warming. She said that including climate risks among other disclosures was a logical step.

“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,” Ms. Schapiro said in her opening statement before Wednesday’s vote. “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.”

The agency took the action in response to petitions from environmental and investor groups that wanted specific recognition of climate change as an important factor in the present and future business environment.

“We’re glad the S.E.C. is stepping up to the plate to protect investors,” said Anne Stausboll, chief executive of the California Public Employees Retirement System, the nation’s largest public pension fund and one of the parties that petitioned for the guidance. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

According to an S.E.C. staff paper, the new guidance urges companies to consider, for example, whether any new law or international treaty limiting carbon dioxide emissions might increase operating costs and prompt a disclosure requirement. A company might also be well positioned to take advantage of a new law mandating increased production of renewable electricity, again requiring disclosure.

The two Republicans on the commission voted against the proposal, while all three Democrats voted for it. Commissioner Kathleen L. Casey, a Republican appointed by former President George W. Bush, called the new guidance unnecessary because the agency already required extensive disclosure of environmental factors. She also said the decision was driven by the political motives of advocacy groups.

“I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection,” she said.

Ms. Casey said it made little sense to issue such guidance “at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux.”

Ms. Schapiro and the commission staff were careful to avoid expressing an opinion on the issue of global warming itself. Ms. Schapiro emphasized that “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.”

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