Are SEC guidelines driving enough disclosure of climate change risks?

Posted on May 6, 2011 by


In a recent report by CERES entitled “Disclosing Climate Risk and Opportunities in SEC Filings (Feb, 2011), CERES, the coalition of investors, environmental groups and others, indicated that their evaluation of SEC interpretive release and guidance, have shown that climate change disclosures did not have any meaningful improvements to compound as a notable success. In fact, an overall account of the report showed that there was a lot of inconsistency in the manner in which the disclosures were filed.

SEC had framed disclosures along five parameters, namely;

  • Regulatory risk and opportunity
  • Indirect consequences or business trends
  • Physical impacts
  • Green house emissions
  • Strategic analysis of climate risk and emission management

These parameters have been spread over an “11-point checklist” with which firms can utilize to self evaluate during their disclosures. Using the same parameters, SEC would then rate disclosures as poor, fair, good or excellent.

CERES further analyzed the disclosures using the “standard Guide for Financial Disclosure Attribute to Climate Change”, adding three additional parameters, namely;

  • Climate change litigation
  • Greenhouse gas emissions
  • Strategic analysis of climate risk

CERES’ analysis revealed that most firms were unclear about the boundaries of the disclosures to the extent that not a single company’s practice was rated excellent, and only two were rated good. The bulk of the companies were rated in the poor or fair scale due to inadequacy in their reporting. Much of this discrepancy may be attributed to the lack of a standardized guideline from SEC which leaves the door open to irrelevant, non-specific or vague disclosures by most firms.

Rectification of this issue can be achieved by laying specific rules or SEC guidance as to the length, scope and substance of such disclosures that would act as a skeleton on which firms can work.

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