SEC Sets Corporate Climate-Change Disclosure Standard (Update1)

Jan. 27 (Bloomberg) -- Companies must consider the effects of global warming and efforts to curb climate change when disclosing business risks to investors, the U.S. Securities and Exchange Commission said.

Guidelines approved today require companies to weigh the impact of climate-change laws and regulations when assessing what information to include in corporate filings, the commission said. The SEC is responding to investors who said companies aren’t providing enough data on the potential risks to their profits and operations from environmental-protection laws.

“I do not believe that public companies today are doing the best job they possible can do with respect to their current mandated disclosures,” SEC Commissioner Elisse Walter said today. The decision “is designed to improve the quality of disclosures filed by U.S. public companies for the benefit of investors.”

In the 3-to-2 vote, the commission said companies in the U.S. should also consider international accords, indirect effects such as lower demand for goods that produce greenhouse gases, and physical impacts such as the potential for increased insurance claims in coastal regions as a result of rising sea levels.

“Everybody knows litigation and regulatory risk,” said Julie Gorte, a senior vice president for sustainable investing at mutual fund company Pax World Management LLC in Portsmouth, New Hampshire, which has about $2.5 billion under management. “The fact that they went to physical risk is a really important step.”

SEC Chairman Mary Schapiro said the SEC’s decision should be viewed as “neither surprising nor especially remarkable.”

Guidance is Premature

The commission voted along party lines with two Republicans, Kathleen Casey and Troy Paredes, rejecting the proposal. Both said scientific claims that man-made emissions are contributing to global warming are “unsettled” and today’s move could swamp investors with unnecessary information.

“This guidance is premature at best,” Casey said. “This interpretive release is unnecessary.”

U.S. Representative Joe Barton, a Texas Republican who has said he rejects the idea that humans are contributing to global warming, said the SEC has more important matters to deal with.

Barton said in a statement yesterday that he is “troubled by an undertaking which seems so transparently political and such a breathtaking waste of the commission’s resources.”

The California State Teachers’ Retirement System, the nation’s second-largest public pension fund, is among investors seeking more data from companies on environmental risks. Efforts to stem climate change may increase costs for utilities that have high emissions of carbon dioxide, and global warming may contribute to floods and hurricanes that lead to increased claims for insurance companies.

Making Better Decisions

The SEC took a “significant step” in clarifying the issue for corporate officers, Nancy Kopp, Maryland’s treasurer, told reporters today.

“All I know as an investor is that it is impacting my ability to make investment decision and that we need information on material impacts and material opportunities,” Kopp said.

Mindy Lubber, president of Boston-based CERES, a coalition of investors with $8 trillion under management that led the petition for greater disclosure, agreed.

“The business risks of climate change cannot be ignored,” Lubber said in a statement today. “With this guidance investors can make more sound decisions based on better information.”

Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc. in New York, said that while more companies are reporting climate-change data in public filings, the information isn’t in a standard form and is difficult to analyze.

“Sometimes there are numbers, but numbers are often not reported in the same way by different companies,” Cohen said in an interview before today’s vote.

Material Risk

Under federal law and SEC regulations, companies must disclose information pertinent to investment decisions. Even under new guidelines, corporate officers would have to decide what constitutes a “material risk” that must be shared with investors, Gorte said.

Some utilities that burn fossil fuels already disclose environmental information, such as the amount of carbon dioxide they emit.

American Electric Power Co., the biggest U.S. producer of electricity from coal, released 148 million metric tons of carbon dioxide in 2008, according to data compiled by Bloomberg. Exelon Corp., the biggest U.S. nuclear-power producer, produced 9.7 million tons of greenhouse-gas emissions in the same year.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.