[Federal Register Volume 75, Number 25 (Monday, February 8, 2010)]
[Rules and Regulations]
[Pages 6290-6297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2602]



[[Page 6289]]

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Part III





Securities and Exchange Commission





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17 CFR Parts 211, 231 and 241



Commission Guidance Regarding Disclosure Related to Climate Change; 
Final Rule

Federal Register / Vol. 75 , No. 25 / Monday, February 8, 2010 / 
Rules and Regulations

[[Page 6290]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 211, 231 and 241

[Release Nos. 33-9106; 34-61469; FR-82]


Commission Guidance Regarding Disclosure Related to Climate 
Change

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is publishing this interpretive release to provide 
guidance to public companies regarding the Commission's existing 
disclosure requirements as they apply to climate change matters.

DATES: Effective Date: February 8, 2010.

FOR FURTHER INFORMATION CONTACT: Questions about specific filings 
should be directed to staff members responsible for reviewing the 
documents the registrant files with the Commission. For general 
questions about this release, contact James R. Budge at (202) 551-3115 
or Michael E. McTiernan, Office of Chief Counsel at (202) 551-3500, in 
the Division of Corporation Finance, U.S. Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background and Purpose of Interpretive Guidance

A. Introduction

    Climate change has become a topic of intense public discussion in 
recent years. Scientists, government leaders, legislators, regulators, 
businesses, including insurance companies, investors, analysts and the 
public at large have expressed heightened interest in climate change. 
International accords, federal regulations, and state and local laws 
and regulations in the U.S. address concerns about the effects of 
greenhouse gas emissions on our environment,\1\ and international 
efforts to address the concerns on a global basis continue.\2\ The 
Environmental Protection Agency is taking action to address climate 
change concerns,\3\ and Congress is considering climate change 
legislation.\4\ Some business leaders are increasingly recognizing the 
current and potential effects on their companies' performance and 
operations, both positive and negative, that are associated with 
climate change and with efforts to reduce greenhouse gas emissions.\5\ 
Many companies are providing information to their peers and to the 
public about their carbon footprints and their efforts to reduce 
them.\6\
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    \1\ For a listing of state and local government laws and 
regulations in this field, see http://www.epa.gov/climatechange/wycd/stateandlocalgov/index.html. Two significant international 
accords related to this topic are the Kyoto Protocol, which was 
adopted in Kyoto, Japan, on December 11, 1997 and became effective 
on February 16, 2005, and the European Union Emissions Trading 
System (EU ETS), which was launched as an international ``cap and 
trade'' system of allowances for emitting carbon dioxide and other 
greenhouse gases, built on the mechanisms set up under the Kyoto 
Protocol. See http://unfccc.int/kyoto_protocol/items/2830.php and 
http://ec.europa.eu/environment/climat/pdf/brochures/ets_en.pdf for 
a more detailed discussion of the Kyoto Protocol and EU ETS, 
respectively.
    \2\ For example, in December 2009, Copenhagen, Denmark hosted 
the United Nations Climate Change Conference.
    \3\ See e.g., Current and Near-Term Greenhouse Gas Reduction 
Initiatives, available at http://www.epa.gov/climatechange/policy/neartermghgreduction.html, for a discussion of EPA initiatives as 
well as other federal initiatives.
    \4\ See e.g., American Clean Energy and Security Act of 2009, 
H.R. 2454, 111th Cong., 1st Sess. (2009), passed by the House of 
Representatives on June 26, 2009, and Clean Energy Jobs and American 
Power Act of 2009, S. 1733, 111th Cong., 1st Session (2009), 
introduced in the Senate September 30, 2009.
    \5\ See Appendix F to the Petition for Interpretive Guidance on 
Climate Risk Disclosure submitted September 18, 2007, File No. 4-
547, for a sampling of comments by business leaders relating to 
climate change regulation and disclosure, available at http://www.sec.gov/rules/petitions/2007/petn4-547.pdf.
    \6\ Companies are assessing and reporting on their greenhouse 
gas emissions and other climate change related matters using 
standards and guidelines promulgated by organizations with specific 
expertise in the field. Three such organizations are the Climate 
Registry, the Carbon Disclosure Project and the Global Reporting 
Initiative. We discuss this in more detail below.
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    This release outlines our views with respect to our existing 
disclosure requirements as they apply to climate change matters. This 
guidance is intended to assist companies in satisfying their disclosure 
obligations under the federal securities laws and regulations.

B. Background

1. Recent Regulatory, Legislative and Other Developments
    In the last several years, a number of state and local governments 
have enacted legislation and regulations that result in greater 
regulation of greenhouse gas emissions.\7\ Climate change related 
legislation is currently pending in Congress. The House of 
Representatives has approved one version of a bill,\8\ and a similar 
bill was introduced in the Senate in the fall of 2009.\9\ This 
legislation, if enacted, would limit and reduce greenhouse gas 
emissions through a ``cap and trade'' system of allowances and credits, 
among other provisions.
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    \7\ For example, in California, the Global Warming Solutions Act 
of 2006 and regulatory actions by the California Air Resources Board 
have resulted in restrictions on greenhouse gas emissions. In 
addition, state and regional programs, such as the Regional 
Greenhouse Gas Initiative (including ten Northeast and Mid-Atlantic 
states), the Western Climate Initiative (including seven Western 
states and four Canadian provinces) and the Midwestern Greenhouse 
Gas Reduction Accord (including six states and one Canadian 
province) have been developed to restrict greenhouse gas emissions. 
For a more detailed list of state action on climate change, see Pew 
Center on Global Climate Change, States News (available at http://www.pewclimate.org/states-regions/news?page=1).
    \8\ See American Clean Energy and Security Act of 2009.
    \9\ See Clean Energy Jobs and American Power Act of 2009.
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    The Environmental Protection Agency has been taking steps to 
regulate greenhouse gas emissions. On January 1, 2010, the EPA began, 
for the first time, to require large emitters of greenhouse gases to 
collect and report data with respect to their greenhouse gas 
emissions.\10\ This reporting requirement is expected to cover 85% of 
the nation's greenhouse gas emissions generated by roughly 10,000 
facilities.\11\ In December 2009, the EPA issued an ``endangerment and 
cause or contribute finding'' for greenhouse gases under the Clean Air 
Act, which will allow the EPA to craft rules that directly regulate 
greenhouse gas emissions.\12\
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    \10\ See Mandatory Reporting of Greenhouse Gases, Docket No. 
EPA-HQ-OAR-2008-0508, 74 FR 56260 (October 30, 2009).
    \11\ See EPA Press Release ``EPA Finalizes the Nation's First 
Greenhouse Gas Reporting System/Monitoring to begin in 2010'' dated 
September 22, 2009, available at http://yosemite.epa.gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/194e412153fcffea8525763900530d75!OpenDocument.
    \12\ Endangerment and Cause or Contribute Findings for 
Greenhouse Gases Under Section 202(a) of the Clean Air Act, Docket 
ID No. EPA-HQ-OAR-2009-0171, 74 FR 66496 (December 15, 2009). The 
Clean Air Act is found in 42 U.S.C. ch. 85.
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    Some members of the international community also have taken actions 
to address climate change issues on a global basis, and those actions 
can have a material impact on companies that report with the 
Commission. One such effort in the 1990s resulted in the Kyoto 
Protocol. Although the United States has never ratified the Kyoto 
Protocol, many registrants have operations outside of the United States 
that are subject to its standards.\13\ Another important international 
regulatory system is the European Union Emissions Trading System (EU 
ETS), which was launched as an international

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``cap and trade'' system of allowances for emitting carbon dioxide and 
other greenhouse gases, based on mechanisms set up under the Kyoto 
Protocol.\14\ In addition, the United States government is 
participating in ongoing discussions with other nations, including the 
recent United Nations Climate Conference in Copenhagen, which may lead 
to future international treaties focused on remedying environmental 
damage caused by greenhouse gas emissions. Those accords ultimately 
could have a material impact on registrants that file disclosure 
documents with the Commission.\15\
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    \13\ One of the major features of the Kyoto Protocol is that it 
sets binding targets for industrialized countries for reducing 
greenhouse gas emissions. These amount to an average of five per 
cent against 1990 levels over the five-year period 2008-2012.
    \14\ See n. 1, supra.
    \15\ The terms of the Kyoto Protocol are set to expire in 2012. 
Ongoing international discussions, including the United Nations 
Climate Change Conference held in Copenhagen, Denmark in mid-
December 2009, are intended to further develop a framework to carry 
on international greenhouse gas emission reduction standards beyond 
2012.
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    The insurance industry is already adjusting to these developments. 
A 2008 study listed climate change as the number one risk facing the 
insurance industry.\16\ Reflecting this assessment, the National 
Association of Insurance Commissioners recently promulgated a uniform 
standard for mandatory disclosure by insurance companies to state 
regulators of financial risks due to climate change and actions taken 
to mitigate them.\17\ We understand that insurance companies are 
developing new actuarial models and designing new products to reshape 
coverage for green buildings, renewable energy, carbon risk management 
and directors' and officers' liability, among other actions.\18\
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    \16\ Strategic business risk 2008--Insurance, a report prepared 
by Ernst & Young and Oxford Analytica. See Ernst & Young press 
release dated March 12, 2008, available at http://www.ey.com/GL/en/Newsroom/News-releases/Media_Press-Release_Strategic-Risk-to-Insurance-Industry.
    \17\ On March 17, 2009, the NAIC adopted a mandatory requirement 
that insurance companies disclose to regulators the financial risks 
they face from climate change, as well as actions the companies are 
taking to respond to those risks. All insurance companies with 
annual premiums of $500 million or more will be required to complete 
an Insurer Climate Risk Disclosure Survey every year, with an 
initial reporting deadline of May 1, 2010. The surveys must be 
submitted in the state where the insurance company is domesticated. 
See Insurance Regulators Adopt Climate Change Risk Disclosure, 
available at www.naic.org/Releases/2009_docs/climate_change_risk_disclosure_adopted.htm.
    \18\ See Klein, Christopher, Climate Change, Part IV: 
(Re)insurance Industry response, May 28, 2009, available at 
www.gccapitalideas.com/2009/05/28/climate-change-part-iv-reinsurance-industry-response.
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2. Potential Impact of Climate Change Related Matters on Public 
Companies
    For some companies, the regulatory, legislative and other 
developments noted above could have a significant effect on operating 
and financial decisions, including those involving capital expenditures 
to reduce emissions and, for companies subject to ``cap and trade'' 
laws, expenses related to purchasing allowances where reduction targets 
cannot be met. Companies that may not be directly affected by such 
developments could nonetheless be indirectly affected by changing 
prices for goods or services provided by companies that are directly 
affected and that seek to reflect some or all of their changes in costs 
of goods in the prices they charge. For example, if a supplier's costs 
increase, that could have a significant impact on its customers if 
those costs are passed through, resulting in higher prices for 
customers. New trading markets for emission credits related to ``cap 
and trade'' programs that might be established under pending 
legislation, if adopted, could present new opportunities for 
investment. These markets also could allow companies that have more 
allowances than they need, or that can earn offset credits through 
their businesses, to raise revenue through selling these instruments 
into those markets. Some companies might suffer financially if these or 
similar bills are enacted by the Congress while others could benefit by 
taking advantage of new business opportunities.
    In addition to legislative, regulatory, business and market impacts 
related to climate change, there may be significant physical effects of 
climate change that have the potential to have a material effect on a 
registrant's business and operations. These effects can impact a 
registrant's personnel, physical assets, supply chain and distribution 
chain. They can include the impact of changes in weather patterns, such 
as increases in storm intensity, sea-level rise, melting of permafrost 
and temperature extremes on facilities or operations. Changes in the 
availability or quality of water, or other natural resources on which 
the registrant's business depends, or damage to facilities or decreased 
efficiency of equipment can have material effects on companies.\19\ 
Physical changes associated with climate change can decrease consumer 
demand for products or services; for example, warmer temperatures could 
reduce demand for residential and commercial heating fuels, service and 
equipment.
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    \19\ For one view of the anticipated business-related physical 
risks resulting from climate change, see Industry Update: Global 
Warming & the Insurance Industry--Will Insurers Be Burned by the 
Climate Change Phenomenon?, available at http://www.aon.com/about-aon/intellectual-capital/attachments/risk-services/will_insurers_be_burned_by_the_climate_change_phenomenon.pdf. Another 
example of how physical risks attributable to climate change are 
changing business and risk assessments is the Federal Emergency 
Management Agency's plan to update its risk mapping, assessment and 
planning to better reflect the effects of climate change, such as 
changing rainfall data, and hurricane patterns and intensities. See 
``Risk Mapping, Assessment, and Planning (Risk MAP): Fiscal Year 
2009 Flood Mapping Production Plan,'' Version 1, May 2009, available 
at http://www.fema.gov/library/viewRecord.do?id=3680.
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    For some registrants, financial risks associated with climate 
change may arise from physical risks to entities other than the 
registrant itself. For example, climate change-related physical changes 
and hazards to coastal property can pose credit risks for banks whose 
borrowers are located in at-risk areas. Companies also may be dependent 
on suppliers that are impacted by climate change, such as companies 
that purchase agricultural products from farms adversely affected by 
droughts or floods.
3. Current Sources of Climate Change Related Disclosures Regarding 
Public Companies
    There have been increasing calls for climate-related disclosures by 
shareholders of public companies. This is reflected in the several 
petitions for interpretive advice submitted by large institutional 
investors and other investor groups.\20\ The New York

[[Page 6292]]

Attorney General's Office recently has entered into settlement 
agreements with three energy companies under its investigation 
regarding their disclosures about their greenhouse gas emissions and 
potential liabilities to the companies resulting from climate change 
and related regulation. The companies agreed in the settlement 
agreements to enhance their disclosures relating to climate change and 
greenhouse gas emissions in their annual reports filed with the 
Commission.\21\
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    \20\ See Petition for Interpretive Guidance on Climate Risk 
Disclosures, dated September 19, 2007, File No. 4-547, available at 
http://www.sec.gov/rules/petitions/2007/petn4-547.pdf; supplemental 
petition dated June 12, 2008, available at http://www.sec.gov/rules/petitions/2008/petn4-547-supp.pdf; second supplemental petition 
dated November 23, 2009, available at http://www.sec.gov/rules/petitions/2009/petn4-547-supp.pdf. For other petitions on point, see 
also Petition for Interpretive Guidance on Business Risk of Global 
Warming Regulation, submitted on behalf of the Free Enterprise 
Action Fund on October 22, 2007, File Number 4-549, available at 
http://www.sec.gov/rules/petitions/2007/petn4-549.pdf. One petition 
urges the Commission to issue guidance warning companies not to 
include information on climate change that may be false and 
misleading; see Petition for Interpretive Guidance on Public 
Statements Concerning Global Warming and Other Environmental Issues, 
submitted on behalf of the Free Enterprise Action Fund on July 21, 
2008, File No. 4-563, available at http://www.sec.gov/rules/petitions/2008/petn4-563.pdf. While not a formal petition, Ceres has 
provided the Commission with the results of a study it commissioned 
in conjunction with the Environmental Defense Fund regarding climate 
risk disclosure in SEC filings and suggests that the Commission 
issue guidance on this topic. See Climate Risk Disclosure in SEC 
Filings: An Analysis of 10-K Reporting by Oil and Gas, Insurance, 
Coal, and Transportation and Electric Power Companies, June 2009, 
available at http://www.ceres.org/Document.Doc?id=473.
     The Subcommittee on Securities, Insurance, and Investment of 
the Senate Committee on Banking, Housing, and Urban Development held 
a hearing on corporate disclosure of climate-related issues on 
October 31, 2007; representatives of signatories to the September 
19, 2007 petition, among others, testified in that hearing. See 
``Climate Disclosure: Measuring Financial Risks and Opportunities,'' 
available at http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing& Hearing--ID=ed7a4968-1019-
411d-9a22-c193c6b689ea. Following the hearing, Senators Christopher 
Dodd and Jack Reed wrote to Chairman Christopher Cox urging the 
Commission to issue guidance regarding climate disclosure. See 
http://dodd.senate.gov/multimedia/2007/120607_CoxLetter.pdf.
    \21\ For information about the settlement agreements, see the 
New York Attorney General's Office press releases relating to: Xcel 
Energy, available at http://www.oag.state.ny.us/media_center/2008/aug/aug27a_08.html; Dynegy Inc., available at http://www.oag.state.ny.us/media_center/2008/oct/oct23a_08.html; and AES 
Corporation, available at http://www.oag.state.ny.us/media_center/2009/nov/nov19a_09.html.
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    Although some information relating to greenhouse gas emissions and 
climate change is disclosed in SEC filings,\22\ much more information 
is publicly available outside of public company disclosure documents 
filed with the SEC as a result of voluntary disclosure initiatives or 
other regulatory requirements. For example, in addition to the 
disclosure requirements mandated in several states \23\ and the 
disclosure that the EPA began requiring at the start of 2010, The 
Climate Registry provides standards for and access to climate-related 
information. The Registry is a non-profit collaboration among North 
American states, provinces, territories and native sovereign nations 
that sets standards to calculate, verify and publicly report greenhouse 
gas emissions into a single public registry. The Registry supports both 
voluntary and state-mandated reporting programs and provides data 
regarding greenhouse gas emissions.\24\
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    \22\ For example, in the electric utility industry, we have been 
informed by the Edison Electric Institute that 95% of the member 
companies it recently surveyed reported that they included at least 
some disclosure related to greenhouse gas emissions in their SEC 
filings, with 34% discussing quantities of greenhouse gases emitted 
and 23% discussing costs of climate-related compliance. Registrants 
include this type of disclosure in the risk factors, business 
description, legal proceedings, executive compensation, MD&A and 
financial statements sections of their annual reports. The Edison 
Electric Institute is an association of U.S. shareholder-owned 
electric companies. Their members serve 95 percent of the customers 
in the shareholder-owned segment of the industry, and represent 
approximately 70 percent of the U.S. electric power industry. The 
EEI also has more than 80 international electric companies as 
affiliate members, and nearly 200 industry suppliers and related 
organizations as associate members. The EEI described the results of 
its survey in a presentation to staff members of the Division of 
Corporation Finance.
    \23\ State requirements include CO<INF>2</INF> emissions 
disclosure requirements for electricity providers, greenhouse gas 
registries for reporting of entity emissions levels and emissions 
changes, and required reporting of greenhouse gas emissions. For a 
discussion of specific state requirements, see http://epa.gov/climatechange/wycd/stateandlocalgov/state_reporting.html.
    \24\ The Climate Registry's Web site is at 
www.theclimateregistry.org. Reports are publicly available through 
their Web site at no charge. See http://www.theclimateregistry.org/resources/climate-registry-information-system-cris/public-reports/.
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    The Carbon Disclosure Project collects and distributes climate 
change information, both quantitative (emissions amounts) and 
qualitative (risks and opportunities), on behalf of 475 institutional 
investors.\25\ Over 2500 companies globally reported to the Carbon 
Disclosure Project in 2009; over 500 of those companies were U.S. 
companies. Sixty-eight percent of the companies that responded to the 
Carbon Disclosure Project's investor requests for information made 
their reports available to the public.\26\
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    \25\ The Carbon Disclosure Project's Web site is at http://www.cdproject.net.
    \26\ These figures were provided to the Commission staff by 
representatives of the Carbon Disclosure Project.
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    The Global Reporting Initiative has developed a widely used 
sustainability reporting framework.\27\ That framework is developed by 
GRI participants drawn from business, labor and professional 
institutions worldwide. The GRI framework sets out principles and 
indicators that organizations can use to measure and report their 
economic, environmental, and social performance, including issues 
involving climate change. Sustainability reports based on the GRI 
framework are used to benchmark performance with respect to laws, 
norms, codes, performance standards and voluntary initiatives, 
demonstrate organizational commitment to sustainable development, and 
compare organizational performance over time.
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    \27\ The GRI's Web site is at http://www.globalreporting.org.
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    These and other reporting mechanisms can provide important 
information to investors outside of disclosure documents filed with the 
Commission. Although much of this reporting is provided voluntarily, 
registrants should be aware that some of the information they may be 
reporting pursuant to these mechanisms also may be required to be 
disclosed in filings made with the Commission pursuant to existing 
disclosure requirements.

II. Historical Background of SEC Environmental Disclosure

    The Commission first addressed disclosure of material environmental 
issues in the early 1970s. The Commission issued an interpretive 
release stating that registrants should consider disclosing in their 
SEC filings the financial impact of compliance with environmental laws, 
based on the materiality of the information.\28\ Throughout the 1970s, 
the Commission continued to explore the need for specific rules 
mandating disclosure of information relating to litigation and other 
business costs arising out of compliance with federal, state and local 
laws that regulate the discharge of materials into the environment or 
otherwise relate to the protection of the environment. These topics 
were the subject of several rulemaking efforts, extensive litigation, 
and public hearings, all of which resulted in the rules that now 
specifically address disclosure of environmental issues.\29\ The 
Commission adopted these rules, which we discuss below, in final and 
current form in 1982, after a decade of evaluation and experience with 
the subject matter.\30\
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    \28\ Release No. 33-5170 (July 19, 1971) [36 FR 13989].
    \29\ See Interpretive Release No. 33-6130 (September 27, 1979) 
[44 FR 56924] (the ``1979 Release''), which includes a brief summary 
of the legal and administrative actions taken with regard to 
environmental disclosure during the 1970s. More information relating 
to the Commission's efforts in this area is chronicled in Release 
No. 33-6315 (May 4, 1981) [46 FR 25638].
    \30\ Release No. 33-6383 (March 3, 1982) [47 FR 11380].
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    Earlier, beginning in 1968, we began to develop and fine-tune our 
requirements for management to discuss and analyze their company's 
financial condition and results of operations in disclosure documents 
filed with the Commission.\31\ During the 1970s and 1980s, materiality 
standards for disclosure under the federal securities laws also were 
more fully articulated.\32\ Those standards provide that

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information is material if there is a substantial likelihood that a 
reasonable investor would consider it important in deciding how to vote 
or make an investment decision, or, put another way, if the information 
would alter the total mix of available information.\33\ In the 
articulation of the materiality standards, it was recognized that 
doubts as to materiality of information would be commonplace, but that, 
particularly in view of the prophylactic purpose of the securities laws 
and the fact that disclosure is within management's control, ``it is 
appropriate that these doubts be resolved in favor of those the statute 
is designed to protect.'' \34\ With these developments, registrants had 
clearer guidance about what they should disclose in their filings.
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    \31\ See Release No. 33-6835 (May 18, 1989) [54 FR 22427] (the 
``1989 Release'') and Release No. 33-8350 (December 19, 2003) [68 FR 
75055] (the ``2003 Release'') for detailed histories of Commission 
releases that outline the background of, and interpret, our MD&A 
rules.
    \32\ See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 
(1976) (adopting a standard for materiality in connection with proxy 
statement disclosures supported by the Commission, see id. at n. 10) 
and Basic Inc. v. Levinson, 485 U.S. 224 (1988).
    \33\ Basic at 231, quoting TSC Industries at 449.
    \34\ TSC Industries at 448.
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    More recently, the Commission reviewed its full disclosure program 
relating to environmental disclosures in SEC filings in connection with 
a Government Accountability Office review.\35\ The Commission also has 
had the opportunity to consider the thoughtful suggestions that many 
organizations have provided us recently about how the Commission could 
direct registrants to enhance their disclosure about climate change 
related matters.\36\
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    \35\ ``Environmental Disclosure: SEC Should Explore Ways to 
Improve Tracking and Transparency of Information,'' United States 
Government Accountability Office Report to Congressional Requesters, 
GAO-04-808 (July 2004). Eleven years before, at the request of the 
Chairman of the House Committee on Energy and Commerce, the GAO had 
prepared a report relating to environmental liability disclosure 
involving property and casualty insurers and Superfund cleanup 
costs. See ``Environmental Liability: Property and Casualty Insurer 
Disclosure of Environmental Liabilities,'' GAO/RCED-93-108 (June 
1993), available at http://74.125.93.132/search?q=cache:tWeHLDHoIcUJ:www.gao.gov/cgi-bin/getrpt%3FGAO/RCED-93-108+GAO/RCED-93-108&cd=1&hl=en&ct=clnk&gl=us.
    \36\ See n. 20, supra.
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III. Overview of Rules Requiring Disclosure of Climate Change Issues

    When a registrant is required to file a disclosure document with 
the Commission, the requisite form will largely refer to the disclosure 
requirements of Regulation S-K \37\ and Regulation S-X.\38\ Securities 
Act Rule 408 and Exchange Act Rule 12b-20 require a registrant to 
disclose, in addition to the information expressly required by 
Commission regulation, ``such further material information, if any, as 
may be necessary to make the required statements, in light of the 
circumstances under which they are made, not misleading.'' \39\ In this 
section, we briefly describe the most pertinent non-financial statement 
disclosure rules that may require disclosure related to climate change; 
in the following section, we discuss their application to disclosure of 
certain specific climate change related matters.
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    \37\ 17 CFR Part 229.
    \38\ 17 CFR Part 210.
    \39\ 17 CFR 230.408 and 17 CFR 240.12b-20.
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A. Description of Business

    Item 101 of Regulation S-K requires a registrant to describe its 
business and that of its subsidiaries. The Item lists a variety of 
topics that a registrant must address in its disclosure documents, 
including disclosure about its form of organization, principal products 
and services, major customers, and competitive conditions. The 
disclosure requirements cover the registrant and, in many cases, each 
reportable segment about which financial information is presented in 
the financial statements. If the information is material to individual 
segments of the business, a registrant must identify the affected 
segments.
    Item 101 expressly requires disclosure regarding certain costs of 
complying with environmental laws.\40\ In particular, Item 
101(c)(1)(xii) states:
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    \40\ The Commission first addressed disclosure of material costs 
and other effects on business resulting from compliance with 
existing environmental law in its first environmental disclosure 
interpretive release in 1971. See Release 33-5170 (July 19, 1971) 
[36 FR 13989]. The Commission codified that interpretive position in 
the disclosure forms two years later. See Release 33-5386 (April 20, 
1973) [38 FR 12100]. The Commission provided additional interpretive 
guidance in the 1979 Release. With some adjustments to reflect 
experience with the subject matter, the requirements were moved to 
Item 101 in 1982, and they have not changed since that time. See 
Release No. 33-6383 (March 3, 1982) [47 FR 11380].

    Appropriate disclosure also shall be made as to the material 
effects that compliance with Federal, State and local provisions 
which have been enacted or adopted regulating the discharge of 
materials into the environment, or otherwise relating to the 
protection of the environment, may have upon the capital 
expenditures, earnings and competitive position of the registrant 
and its subsidiaries. The registrant shall disclose any material 
estimated capital expenditures for environmental control facilities 
for the remainder of its current fiscal year and its succeeding 
fiscal year and for such further periods as the registrant may deem 
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material.\41\

    \41\ 17 CFR 229.101(c)(1)(xii).
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    A registrant meeting the definition of ``smaller reporting 
company'' may satisfy its disclosure obligation by providing 
information called for by Item 101(h). Item 101(h)(4)(xi) requires 
disclosure of the ``costs and effects of compliance with environmental 
laws (federal, state and local).'' \42\
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    \42\ 17 CFR 229.101(h)(4)(xi).
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B. Legal Proceedings

    Item 103 of Regulation S-K \43\ requires a registrant to briefly 
describe any material pending legal proceeding to which it or any of 
its subsidiaries is a party. A registrant also must describe material 
pending legal actions in which its property is the subject of the 
litigation.\44\ If a registrant is aware of similar actions 
contemplated by governmental authorities, Item 103 requires disclosure 
of those proceedings as well. A registrant need not disclose ordinary 
routine litigation incidental to its business or other types of 
proceedings when the amount in controversy is below thresholds 
designated in this Item.
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    \43\ 17 CFR 229.103.
    \44\ Id.
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    Instruction 5 to Item 103 provides some specific requirements that 
apply to disclosure of certain environmental litigation.\45\ 
Instruction 5 states:
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    \45\ Instruction 5 in its current form was the product of the 
Commission's experience with environmental litigation disclosure. In 
1973, we added provisions to the legal proceedings requirements of 
various disclosure forms singling out legal actions involving 
environmental matters. See Release No. 33-5386 (Apr. 20, 1973) [38 
FR 12100]. The new rules required disclosure of any pending legal 
proceeding arising under environmental laws if a governmental entity 
was involved in the proceeding, and any other legal proceeding 
arising under environmental laws unless it was not material, or if 
in a civil suit for damages, unless it involved less than 10% of the 
current assets of the registrant on a consolidated basis. The 
Commission provided additional interpretive guidance regarding 
environmental litigation in the 1979 Release. When the Commission, 
in connection with its development of the integrated disclosure 
system, moved these rules out of various forms and into Item 103 of 
Regulation S-K, the Commission modified the requirements related to 
actions involving governmental authorities to allow registrants to 
omit disclosure of a proceeding if they reasonably believed the 
action would result in a monetary sanction of less than $100,000. 
See Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380]. At the time, 
the Commission noted that the reason for the revision was to address 
the problem that disclosure documents were being filled with 
descriptions of minor infractions that distracted from the other 
material disclosures included in the document.

    Notwithstanding the foregoing, an administrative or judicial 
proceeding (including, for purposes of A and B of this Instruction, 
proceedings which present in large degree the same issues) arising 
under any Federal, State or local provisions that have been enacted 
or adopted regulating the discharge of materials into the 
environment or primary for the purpose of protecting the environment 
shall not be deemed ``ordinary routine litigation incidental to the 
business'' and shall be described if:
    (A) Such proceeding is material to the business or financial 
condition of the registrant;

[[Page 6294]]

    (B) Such proceeding involves primarily a claim for damages, or 
involves potential monetary sanctions, capital expenditures, 
deferred charges or charges to income and the amount involved, 
exclusive of interest and costs, exceeds 10 percent of the current 
assets of the registrant and its subsidiaries on a consolidated 
basis; or
    (C) A governmental authority is a party to such proceeding and 
such proceeding involves potential monetary sanctions, unless the 
registrant reasonably believes that such proceeding will result in 
no monetary sanctions, or in monetary sanctions, exclusive of 
interest and costs, of less than $100,000; provided, however, that 
such proceedings which are similar in nature may be grouped and 
described generically.

C. Risk Factors

    Item 503(c) of Regulation S-K \46\ requires a registrant to provide 
where appropriate, under the heading ``Risk Factors,'' a discussion of 
the most significant factors that make an investment in the registrant 
speculative or risky. Item 503(c) specifies that risk factor disclosure 
should clearly state the risk and specify how the particular risk 
affects the particular registrant; registrants should not present risks 
that could apply to any issuer or any offering.\47\
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    \46\ 17 CFR 229.503(c).
    \47\ Id.
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D. Management's Discussion and Analysis

    Item 303 of Regulation S-K \48\ requires disclosure known as the 
Management's Discussion and Analysis of Financial Condition and Results 
of Operations, or MD&A. The MD&A requirements are intended to satisfy 
three principal objectives:
---------------------------------------------------------------------------

    \48\ 17 CFR 229.303.
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    <bullet> To provide a narrative explanation of a registrant's 
financial statements that enables investors to see the registrant 
through the eyes of management;
    <bullet> To enhance the overall financial disclosure and provide 
the context within which financial information should be analyzed; and
    <bullet> To provide information about the quality of, and potential 
variability of, a registrant's earnings and cash flow, so that 
investors can ascertain the likelihood that past performance is 
indicative of future performance.\49\

    \49\ 2003 Release.
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    MD&A disclosure should provide material historical and prospective 
textual disclosure enabling investors to assess the financial condition 
and results of operations of the registrant, with particular emphasis 
on the registrant's prospects for the future.\50\ Some of this 
information is itself non-financial in nature, but bears on 
registrants' financial condition and operating performance.

    \50\ 1989 Release.
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    The Commission has issued several releases providing guidance on 
MD&A disclosure, including on the general requirements of the item and 
its application to specific disclosure matters.\51\ Over the years, the 
flexible nature of this requirement has resulted in disclosures that 
keep pace with the evolving nature of business trends without the need 
to continuously amend the text of the rule. Nevertheless, we and our 
staff continue to have to remind registrants, through comments issued 
in the filing review process, public statements by staff and 
Commissioners and otherwise, that the disclosure provided in response 
to this requirement should be clear and communicate to shareholders 
management's view of the company's financial condition and 
prospects.\52\
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    \51\ See, e.g., the 2003 Release; Release No. 33-8182 (Jan. 28, 
2003) [68 FR 5982]; Release No. 33-8056 (Jan. 22, 2002) [67 FR 
3746]; Release. No. 33-7558 (Jul. 29, 1998) [63 FR 41394]; and 1989 
Release.
    \52\ See, e.g., speech by Commissioner Cynthia A. Glassman to 
the Corporate Counsel Institute (Mar. 9, 2006) available at 
www.sec.gov/news/speech/spch030906cag.htm; and speech by 
Commissioner Elisse B. Walter to the Corporate Counsel Institute 
(Oct. 2, 2009) available at www.sec.gov/news/speech/2009/spch100209ebw.htm.
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    Item 303 includes a broad range of disclosure items that address 
the registrant's liquidity, capital resources and results of 
operations. Some of these provisions, such as the requirement to 
provide tabular disclosure of contractual obligations,\53\ clearly 
specify the disclosure required for compliance. But others instead 
identify principles and require management to apply the principles in 
the context of the registrant's particular circumstances. For example, 
registrants must identify and disclose known trends, events, demands, 
commitments and uncertainties that are reasonably likely \54\ to have a 
material effect on financial condition or operating performance. This 
disclosure should highlight issues that are reasonably likely to cause 
reported financial information not to be necessarily indicative of 
future operating performance or of future financial condition.\55\ 
Disclosure decisions concerning trends, demands, commitments, events, 
and uncertainties generally should involve the:
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    \53\ 17 CFR 229.303(a)(5).
    \54\ ``Reasonably likely'' is a lower disclosure standard than 
``more likely than not.'' Release No. 33-8056 (Jan. 22, 2002) [67 FR 
3746].
    \55\ 2003 Release.
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    <bullet> Consideration of financial, operational and other 
information known to the registrant;
    <bullet> Identification, based on this information, of known trends 
and uncertainties; and
    <bullet> Assessment of whether these trends and uncertainties will 
have, or are reasonably likely to have, a material impact on the 
registrant's liquidity, capital resources or results of operations.\56\
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    \56\ Id.
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    The Commission has not quantified, in Item 303 or otherwise, a 
specific future time period that must be considered in assessing the 
impact of a known trend, event or uncertainty that is reasonably likely 
to occur. As with any other judgment required by Item 303, the 
necessary time period will depend on a registrant's particular 
circumstances and the particular trend, event or uncertainty under 
consideration. For example, a registrant considering its disclosure 
obligation with respect to its liquidity needs would have to consider 
the duration of its known capital requirements and the periods over 
which cash flows are managed in determining the time period of its 
disclosure regarding future capital sources.\57\ In addition, the time 
horizon of a known trend, event or uncertainty may be relevant to a 
registrant's assessment of the materiality of the matter and whether or 
not the impact is reasonably likely. As with respect to other subjects 
of disclosure, materiality ``with respect to contingent or speculative 
information or events * * * `will depend at any given time upon a 
balancing of both the indicated probability that the event will occur 
and the anticipated magnitude of the event in light of the totality of 
the company activity.' '' \58\
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    \57\ Id. at n.43.
    \58\ Basic at 238, quoting Texas Gulf Sulfur Co., 401 F. 2d 833 
(2d Cir. 1968) at 849.
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    The nature of certain MD&A disclosure requirements places 
particular importance on a registrant's materiality determinations. The 
Commission has recognized that the effectiveness of MD&A decreases with 
the accumulation of unnecessary detail or duplicative or uninformative 
disclosure that obscures material information.\59\ Registrants drafting 
MD&A disclosure should focus on material information and eliminate 
immaterial information that does not promote understanding of 
registrants' financial condition, liquidity and capital resources, 
changes in financial condition and results of operations.\60\ While 
these materiality determinations may limit what is actually disclosed,

[[Page 6295]]

they should not limit the information that management considers in 
making its determinations. Improvements in technology and 
communications in the last two decades have significantly increased the 
amount of financial and non-financial information that management has 
and should evaluate, as well as the speed with which management 
receives and is able to use information. While this should not 
necessarily result in increased MD&A disclosure, it does provide more 
information that may need to be considered in drafting MD&A disclosure. 
In identifying, discussing and analyzing known material trends and 
uncertainties, registrants are expected to consider all relevant 
information even if that information is not required to be 
disclosed,\61\ and, as with any other disclosure judgments, they should 
consider whether they have sufficient disclosure controls and 
procedures to process this information.\62\
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    \59\ 2003 Release.
    \60\ Id.
    \61\ Id.
    \62\ Pursuant to Exchange Act Rules 13a-15 and 15d-15, a 
company's principal executive officer and principal financial 
officer must make certifications regarding the maintenance and 
effectiveness of disclosure controls and procedures. These rules 
define ``disclosure controls and procedures'' as those controls and 
procedures designed to ensure that information required to be 
disclosed by the company in the reports that it files or submits 
under the Exchange Act is (1) ``recorded, processed, summarized and 
reported, within the time periods specified in the Commission's 
rules and forms,'' and (2) ``accumulated and communicated to the 
company's management * * * as appropriate to allow timely decisions 
regarding required disclosure.'' As we have stated before, a 
company's disclosure controls and procedures should not be limited 
to disclosure specifically required, but should also ensure timely 
collection and evaluation of ``information potentially subject to 
[required] disclosure,'' ``information that is relevant to an 
assessment of the need to disclose developments and risks that 
pertain to the [company's] businesses,'' and ``information that must 
be evaluated in the context of the disclosure requirement of 
Exchange Act Rule 12b-20.'' Release No. 33-8124 (Aug. 28, 2002) [67 
FR 57276].
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    Analyzing the materiality of known trends, events or uncertainties 
may be particularly challenging for registrants preparing MD&A 
disclosure. As the Commission explained in the 1989 Release, when a 
trend, demand, commitment, event or uncertainty is known, ``management 
must make two assessments:
    <bullet> Is the known trend, demand, commitment, event or 
uncertainty likely to come to fruition? If management determines that 
it is not reasonably likely to occur, no disclosure is required.
    <bullet> If management cannot make that determination, it must 
evaluate objectively the consequences of the known trend, demand, 
commitment, event or uncertainty, on the assumption that it will come 
to fruition. Disclosure is then required unless management determines 
that a material effect on the registrant's financial condition or 
results of operations is not reasonably likely to occur.'' \63\
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    \63\ 1989 Release.

Identifying and assessing known material trends and uncertainties 
generally will require registrants to consider a substantial amount of 
financial and non-financial information available to them, including 
information that itself may not be required to be disclosed.\64\
---------------------------------------------------------------------------

    \64\ 2003 Release.
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    Registrants should address, when material, the difficulties 
involved in assessing the effect of the amount and timing of uncertain 
events, and provide an indication of the time periods in which 
resolution of the uncertainties is anticipated.\65\ In accordance with 
Item 303(a), registrants must also disclose any other information a 
registrant believes is necessary to an understanding of its financial 
condition, changes in financial condition and results of operations.
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    \65\ Id.
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E. Foreign Private Issuers

    The Securities Act and Exchange Act disclosure obligations of 
foreign private issuers are governed principally by Form 20-F's \66\ 
disclosure requirements and not those under Regulation S-K. However, 
most of the disclosure requirements applicable to domestic issuers 
under Regulation S-K that are most likely to require disclosure related 
to climate change have parallels under Form 20-F, although some of the 
requirements are not as prescriptive as the provisions applicable to 
domestic issuers. For example, the following provisions of Form 20-F 
may require a foreign private issuer to provide disclosure concerning 
climate change matters that are material to its business:
---------------------------------------------------------------------------

    \66\ 17 CFR 249.220f.
---------------------------------------------------------------------------

    <bullet> Item 3.D, which requires a foreign private issuer to 
disclose its material risks;
    <bullet> Item 4.B.8, which requires a foreign private issuer to 
describe the material effects of government regulation on its business 
and to identify the particular regulatory body;
    <bullet> Item 4.D, which requires a foreign private issuer to 
describe any environmental issues that may affect the company's 
utilization of its assets;
    <bullet> Item 5, which requires management's explanation of factors 
that have affected the company's financial condition and results of 
operations for the historical periods covered by the financial 
statements, and management's assessment of factors and trends that are 
anticipated to have a material effect on the company's financial 
condition and results of operations in future periods; and
    <bullet> Item 8.A.7, which requires a foreign private issuer to 
provide information on any legal or arbitration proceedings, including 
governmental proceedings, which may have, or have had in the recent 
past, significant effects on the company's financial position or 
profitability.
    Forms F-1 \67\ and F-3,\68\ Securities Act registration statement 
forms for foreign private issuers, also require a foreign private 
issuer to provide the information, including risk factor disclosure, 
required under Regulation S-K Item 503.
---------------------------------------------------------------------------

    \67\ 17 CFR 239.31.
    \68\ 17 CFR 239.33.
---------------------------------------------------------------------------

IV. Climate Change Related Disclosures

    In the previous section we summarized a number of Commission rules 
and regulations that may be the source of a disclosure obligation for 
registrants under the federal securities laws. Depending on the facts 
and circumstances of a particular registrant, each of the items 
discussed above may require disclosure regarding the impact of climate 
change. The following topics are some of the ways climate change may 
trigger disclosure required by these rules and regulations.\69\ These 
topics are examples of climate change related issues that a registrant 
may need to consider.
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    \69\ In addition to the Regulation S-K items discussed in this 
section, registrants must also consider any financial statement 
implications of climate change issues in accordance with applicable 
accounting standards, including Financial Accounting Standards Board 
(``FASB'') Accounting Standards Codification Topic 450, 
Contingencies, and FASB Accounting Standards Codification Topic 275, 
Risks and Uncertainties.
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A. Impact of Legislation and Regulation

    As discussed above, there have been significant developments in 
federal and state legislation and regulation regarding climate change. 
These developments may trigger disclosure obligations under Commission 
rules and regulations, such as pursuant to Items 101, 103, 503(c) and 
303 of Regulation S-K. With respect to existing federal, state and 
local provisions which relate to greenhouse gas emissions, Item 101 
requires disclosure of any material estimated capital expenditures for 
environmental control facilities for the remainder of a registrant's 
current fiscal year and its succeeding fiscal year and

[[Page 6296]]

for such further periods as the registrant may deem material. Depending 
on a registrant's particular circumstances, Item 503(c) may require 
risk factor disclosure regarding existing or pending legislation or 
regulation that relates to climate change. Registrants should consider 
specific risks they face as a result of climate change legislation or 
regulation and avoid generic risk factor disclosure that could apply to 
any company. For example, registrants that are particularly sensitive 
to greenhouse gas legislation or regulation, such as registrants in the 
energy sector, may face significantly different risks from climate 
change legislation or regulation compared to registrants that currently 
are reliant on products that emit greenhouse gases, such as registrants 
in the transportation sector.
    Item 303 requires registrants to assess whether any enacted climate 
change legislation or regulation is reasonably likely to have a 
material effect on the registrant's financial condition or results of 
operation.\70\ In the case of a known uncertainty, such as pending 
legislation or regulation, the analysis of whether disclosure is 
required in MD&A consists of two steps. First, management must evaluate 
whether the pending legislation or regulation is reasonably likely to 
be enacted. Unless management determines that it is not reasonably 
likely to be enacted, it must proceed on the assumption that the 
legislation or regulation will be enacted. Second, management must 
determine whether the legislation or regulation, if enacted, is 
reasonably likely to have a material effect on the registrant, its 
financial condition or results of operations. Unless management 
determines that a material effect is not reasonably likely,\71\ MD&A 
disclosure is required.\72\ In addition to disclosing the potential 
effect of pending legislation or regulation, the registrant would also 
have to consider disclosure, if material, of the difficulties involved 
in assessing the timing and effect of the pending legislation or 
regulation.\73\
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    \70\ See 1989 Release.
    \71\ Management should ensure that it has sufficient information 
regarding the registrant's greenhouse gas emissions and other 
operational matters to evaluate the likelihood of a material effect 
arising from the subject legislation or regulation. See n. 62, 
supra.
    \72\ In 2003 we issued additional guidance with respect to how 
registrants could improve MD&A disclosure, including ideas about how 
to focus on material issues and how to present information in a more 
effective manner to be of more value to investors. See 2003 Release.
    \73\ See 2003 Release for a discussion of how companies should 
address, where material, the difficulties involved in assessing the 
effect of the amount and timing of uncertain events.
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    A registrant should not limit its evaluation of disclosure of a 
proposed law only to negative consequences. Changes in the law or in 
the business practices of some registrants in response to the law may 
provide new opportunities for registrants. For example, if a ``cap and 
trade'' type system is put in place, registrants may be able to profit 
from the sale of allowances if their emissions levels end up being 
below their emissions allotment. Likewise, those who are not covered by 
statutory emissions caps may be able to profit by selling offset 
credits they may qualify for under new legislation.
    Examples of possible consequences of pending legislation and 
regulation related to climate change include:
    <bullet> Costs to purchase, or profits from sales of, allowances or 
credits under a ``cap and trade'' system;
    <bullet> Costs required to improve facilities and equipment to 
reduce emissions in order to comply with regulatory limits or to 
mitigate the financial consequences of a ``cap and trade'' regime; and
    <bullet> Changes to profit or loss arising from increased or 
decreased demand for goods and services produced by the registrant 
arising directly from legislation or regulation, and indirectly from 
changes in costs of goods sold.
    We reiterate that climate change regulation is a rapidly developing 
area. Registrants need to regularly assess their potential disclosure 
obligations given new developments.

B. International Accord

    Registrants also should consider, and disclose when material, the 
impact on their business of treaties or international accords relating 
to climate change. We already have noted the Kyoto Protocol, the EU ETS 
and other international activities in connection with climate change 
remediation. The potential sources of disclosure obligations related to 
international accords are the same as those discussed above for U.S. 
climate change regulation. Registrants whose businesses are reasonably 
likely to be affected by such agreements should monitor the progress of 
any potential agreements and consider the possible impact in satisfying 
their disclosure obligations based on the MD&A and materiality 
principles previously outlined.

C. Indirect Consequences of Regulation or Business Trends

    Legal, technological, political and scientific developments 
regarding climate change may create new opportunities or risks for 
registrants. These developments may create demand for new products or 
services, or decrease demand for existing products or services. For 
example, possible indirect consequences or opportunities may include:
    <bullet> Decreased demand for goods that produce significant 
greenhouse gas emissions;
    <bullet> Increased demand for goods that result in lower emissions 
than competing products; \74\
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    \74\ For example, recent legislation will ultimately phase out 
most traditional incandescent light bulbs. This has resulted in the 
acceleration of the development and marketing of compact fluorescent 
light bulbs. See Energy Independence and Security Act of 2007, 
Public Law 110-140, 121 Stat. 1492 (2007).
---------------------------------------------------------------------------

    <bullet> Increased competition to develop innovative new products;
    <bullet> Increased demand for generation and transmission of energy 
from alternative energy sources; and
    <bullet> Decreased demand for services related to carbon based 
energy sources, such as drilling services or equipment maintenance 
services.
    These business trends or risks may be required to be disclosed as 
risk factors or in MD&A. In some cases, these developments could have a 
significant enough impact on a registrant's business that disclosure 
may be required in its business description under Item 101. For 
example, a registrant that plans to reposition itself to take advantage 
of potential opportunities, such as through material acquisitions of 
plants or equipment, may be required by Item 101(a)(1) to disclose this 
shift in plan of operation. Registrants should consider their own 
particular facts and circumstances in evaluating the materiality of 
these opportunities and obligations.
    Another example of a potential indirect risk from climate change 
that would need to be considered for risk factor disclosure is the 
impact on a registrant's reputation. Depending on the nature of a 
registrant's business and its sensitivity to public opinion, a 
registrant may have to consider whether the public's perception of any 
publicly available data relating to its greenhouse gas emissions could 
expose it to potential adverse consequences to its business operations 
or financial condition resulting from reputational damage.

D. Physical Impacts of Climate Change

    Significant physical effects of climate change, such as effects on 
the severity of weather (for example, floods or hurricanes), sea 
levels, the arability of farmland, and water availability and

[[Page 6297]]

quality,\75\ have the potential to affect a registrant's operations and 
results. For example, severe weather can cause catastrophic harm to 
physical plants and facilities and can disrupt manufacturing and 
distribution processes. A 2007 Government Accountability Office report 
states that 88% of all property losses paid by insurers between 1980 
and 2005 were weather-related.\76\ As noted in the GAO report, severe 
weather can have a devastating effect on the financial condition of 
affected businesses. The GAO report cites a number of sources to 
support the view that severe weather scenarios will increase as a 
result of climate change brought on by an overabundance of greenhouse 
gases.
---------------------------------------------------------------------------

    \75\ See ``Climate Change: Financial Risks to Federal and 
Private Insurers in Coming Decades Are Potentially Significant: U.S. 
Government Accountability Office Report to the Committee on Homeland 
Security and Governmental Affairs, U.S. Senate,'' GAO-07-285 (March 
2007).
    \76\ Id. at p.17.
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    Possible consequences of severe weather could include:
    <bullet> For registrants with operations concentrated on 
coastlines, property damage and disruptions to operations, including 
manufacturing operations or the transport of manufactured products;
    <bullet> Indirect financial and operational impacts from 
disruptions to the operations of major customers or suppliers from 
severe weather, such as hurricanes or floods;
    <bullet> Increased insurance claims and liabilities for insurance 
and reinsurance companies ;\77\
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    \77\ Many insurers already have plans in place to address the 
increased risks that may arise as a result of climate change, with 
many reducing their near-term catastrophic exposure in both 
reinsurance and primary insurance coverage along the Gulf Coast and 
the eastern seaboard. Id. at 32.
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    <bullet> Decreased agricultural production capacity in areas 
affected by drought or other weather-related changes; and
    <bullet> Increased insurance premiums and deductibles, or a 
decrease in the availability of coverage, for registrants with plants 
or operations in areas subject to severe weather.
    Registrants whose businesses may be vulnerable to severe weather or 
climate related events should consider disclosing material risks of, or 
consequences from, such events in their publicly filed disclosure 
documents.

V. Conclusion

    This interpretive release is intended to remind companies of their 
obligations under existing federal securities laws and regulations to 
consider climate change and its consequences as they prepare disclosure 
documents to be filed with us and provided to investors. We will 
monitor the impact of this interpretive release on company filings as 
part of our ongoing disclosure review program. In addition, the 
Commission's Investor Advisory Committee \78\ is considering climate 
change disclosure issues as part of its overall mandate to provide 
advice and recommendations to the Commission, and the Commission is 
planning to hold a public roundtable on disclosure regarding climate 
change matters in the spring of 2010. We will consider our experience 
with the disclosure review program together with any advice or 
recommendations made to us by the Investor Advisory Committee and 
information gained through the planned roundtable as we determine 
whether further guidance or rulemaking relating to climate change 
disclosure is necessary or appropriate in the public interest or for 
the protection of investors.
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    \78\ The Investor Advisory Committee was formed on June 3, 2009 
to advise the Commission on matters of concern to investors in the 
securities markets, provide the Commission with investors' 
perspectives on current, non-enforcement, regulatory issues and 
serve as a source of information and recommendations to the 
Commission regarding the Commission's regulatory programs from the 
point of view of investors. See Press Release No. 2009-126, ``SEC 
Announces Creation of Investor Advisory Committee,'' available at 
http://www.sec.gov/news/press/2009/2009-126.htm.
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VI. Codification Update

    The ``Codification of Financial Reporting Policies'' announced in 
Financial Reporting Release No. 1 (April 15, 1982) [47 FR 21028] is 
updated by adding new Section 501.15, captioned ``Climate change 
related disclosures,'' and under that caption including the text in 
Sections III and IV of this release.
    The Codification is a separate publication of the Commission. It 
will not be published in the Federal Register/Code of Federal 
Regulations.

List of Subjects

17 CFR Part 211

    Reporting and recordkeeping requirements, Securities.

17 CFR Parts 231 and 241

    Securities.

Amendments to the Code of Federal Regulations

0
For the reasons set forth above, the Commission is amending Title 17, 
Chapter II of the Code of Federal Regulations as set forth below:

PART 211--INTERPRETATIONS RELATING TO FINANCIAL REPORTING MATTERS

0
1. Part 211, Subpart A, is amended by adding Release No. FR-82 and the 
release date of February 2, 2010 to the list of interpretive releases.

PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
2. Part 231 is amended by adding Release No. 33-9106 and the release 
date of February 2, 2010 to the list of interpretive releases.

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
3. Part 241 is amended by adding Release No. 34-61469 and the release 
date of February 2, 2010 to the list of interpretive releases.

    By the Commission.

    Dated: February 2, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-2602 Filed 2-5-10; 8:45 am]
BILLING CODE 8011-01-P