News Highlights For April 2010

The SEC released interpretive guidance related to the potential impact of climate change and climate change regulation on businesses.

The guidance, which does not create new legal requirements or modify existing ones, outlines four areas where the commission says issuers should examine their disclosure obligations.

The first topic, the impact of legislation and regulation, emphasizes that issuers should look not just at existing regulations, but also at potential regulation that could be implemented in the future.

“It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation—whether that legislation concerns climate change or new licensing requirements—is likely to occur,” said SEC Chairman Mary Schapiro in a prepared statement. “If so, then under our traditional framework the company must then evaluate the impact it would have on the company’s liquidity, capital resources, or results of operations, and disclose to shareholders when that potential impact will be material.”

Second, just as issuers are expected to examine whether legislation and regulations will have a material impact on their businesses, the SEC says a company should also evaluate the effects on its business of international accords and treaties that relate to climate change or govern greenhouse gas emissions.

Third, a company should consider actual and potential indirect consequences of climate change-related regulation or business trends. In comments before the commission, Meredith Cross, director of the Division of Corporation Finance, said the guidance includes examples of indirect consequences such as reduced demand for goods that produce significant greenhouse gas emissions and increased competition to develop innovative new products to satisfy demand for cleaner goods.

And finally, issuers should consider actual and potential impacts of the physical effects of climate change on their businesses.

The interpretive guidance will be posted at sec.gov/rules/interp.shtml.