6290 Federal Register / Vol. 75, No. 25 / Monday, February 8, 2010 / Rules and Regulations 

1For 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. 

2For example, in December 2009, Copenhagen, 

Denmark hosted the United Nations Climate Change 

Conference. 

3See 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. 

4See 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. 

5See 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. 

6Companies 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. 

7For 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). 

8See American Clean Energy and Security Act of 

2009. 

9See Clean Energy Jobs and American Power Act 

of 2009. 

10See Mandatory Reporting of Greenhouse Gases, 

Docket No. EPA–HQ–OAR–2008–0508, 74 FR 

56260 (October 30, 2009). 

11See 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. 

12Endangerment 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. 

13One 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. 

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. 

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

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. 

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

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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Federal Register / Vol. 75, No. 25 / Monday, February 8, 2010 / Rules and Regulations 6291 

14See n. 1, supra. 

15The 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 midDecember 2009, are intended to further develop a 

framework to carry on international greenhouse gas 

emission reduction standards beyond 2012. 

16Strategic 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. 

17On 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. 

18See 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-industryresponse. 

19For one view of the anticipated businessrelated 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. 

20See 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, 

Continued 

‘‘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

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

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. 

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 

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6292 Federal Register / Vol. 75, No. 25 / Monday, February 8, 2010 / Rules and Regulations 

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. 

21For 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. 

22For 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. shareholderowned 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. 

23State requirements include CO2 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. 24The 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/publicreports/. 

25The Carbon Disclosure Project’s Web site is at 

http://www.cdproject.net. 

26These figures were provided to the Commission 

staff by representatives of the Carbon Disclosure 

Project. 

27The GRI’s Web site is at http:// 

www.globalreporting.org. 

28Release No. 33–5170 (July 19, 1971) [36 FR 

13989]. 

29See 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]. 

30Release No. 33–6383 (March 3, 1982) [47 FR 

11380]. 

31See 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. 

32See 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). 

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

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

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

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. 

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

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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33Basic at 231, quoting TSC Industries at 449. 

34TSC Industries at 448. 

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/cgibin/getrpt%3FGAO/RCED-93-108+GAO/RCED-93- 

108&cd=1&hl=en&ct=clnk&gl=us. 

36See n. 20, supra. 

37 17 CFR Part 229. 

38 17 CFR Part 210. 

39 17 CFR 230.408 and 17 CFR 240.12b–20. 

40The 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]. 

41 17 CFR 229.101(c)(1)(xii). 

42 17 CFR 229.101(h)(4)(xi). 

43 17 CFR 229.103. 

44 Id. 

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. 

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. 

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

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. 

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: 

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 

material.41

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

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. 

Instruction 5 to Item 103 provides 

some specific requirements that apply to 

disclosure of certain environmental 

litigation.45 Instruction 5 states: 

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; 

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46 17 CFR 229.503(c). 

47 Id. 

48 17 CFR 229.303. 

49 2003 Release. 

50 1989 Release. 

51See, 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. 52See, 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. 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. 

56 Id. 

57 Id. at n.43. 

58Basic at 238, quoting Texas Gulf Sulfur Co., 401 

F. 2d 833 (2d Cir. 1968) at 849. 

59 2003 Release. 

60 Id. 

(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

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: 

• To provide a narrative explanation 

of a registrant’s financial statements that 

enables investors to see the registrant 

through the eyes of management; 

• To enhance the overall financial 

disclosure and provide the context 

within which financial information 

should be analyzed; and 

• 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

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 nonfinancial in nature, but bears on 

registrants’ financial condition and 

operating performance. 

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

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: 

• Consideration of financial, 

operational and other information 

known to the registrant; 

• Identification, based on this 

information, of known trends and 

uncertainties; and 

• 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

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

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, 

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61 Id. 

62Pursuant 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]. 

63 1989 Release. 

64 2003 Release. 

65 Id. 

66 17 CFR 249.220f. 

67 17 CFR 239.31. 

68 17 CFR 239.33. 

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. 

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

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: 

• 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. 

• 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

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

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. 

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: 

• Item 3.D, which requires a foreign 

private issuer to disclose its material 

risks; 

• 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; 

• Item 4.D, which requires a foreign 

private issuer to describe any 

environmental issues that may affect the 

company’s utilization of its assets; 

• 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 

• 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. 

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. 

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 

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70See 1989 Release. 

71Management 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. 

73See 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. 

74For 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). 

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

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: 

• Costs to purchase, or profits from 

sales of, allowances or credits under a 

‘‘cap and trade’’ system; 

• 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 

• 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: 

• Decreased demand for goods that 

produce significant greenhouse gas 

emissions; 

• Increased demand for goods that 

result in lower emissions than 

competing products; 74

• Increased competition to develop 

innovative new products; 

• Increased demand for generation 

and transmission of energy from 

alternative energy sources; and 

• 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 

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75See ‘‘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. 

77Many insurers already have plans in place to 

address the increased risks that may arise as a result 

of climate change, with many reducing their nearterm catastrophic exposure in both reinsurance and 

primary insurance coverage along the Gulf Coast 

and the eastern seaboard. Id. at 32. 

78The 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. 

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. 

Possible consequences of severe 

weather could include: 

• For registrants with operations 

concentrated on coastlines, property 

damage and disruptions to operations, 

including manufacturing operations or 

the transport of manufactured products; 

• Indirect financial and operational 

impacts from disruptions to the 

operations of major customers or 

suppliers from severe weather, such as 

hurricanes or floods; 

• Increased insurance claims and 

liabilities for insurance and reinsurance 

companies ;77

• Decreased agricultural production 

capacity in areas affected by drought or 

other weather-related changes; and 

• 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. 

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 

■ 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 

■ 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 

■ 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 

■ 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 

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