INSIGHT: US SEC orders firms to report on climate change

28 January 2010 17:21  [Source: ICIS news]

By Joe Kamalick

The SEC moves to impose climate change reporting ruleWASHINGTON (ICIS news)--The US Securities and Exchange Commission (SEC) decided this week to require publicly held American firms to report on what impact global warming will have on their business - even if climate change isn’t happening.

On Wednesday the commission voted 3-2 to issue what is called an “interpretive release” to guide publicly held companies on what disclosures they might have to make regarding “the impact that business or legal developments related to climate change may have on [their] business”.

Strictly speaking, an SEC interpretive release is not obligatory.

However, as Congressman Joe Barton of Texas, the ranking Republican on the House Energy and Commerce Committee, noted: “An interpretive release doesn’t have the full force of law but it is considered by corporations as absolutely binding.”

If the SEC suggests that publicly held companies consider reporting this or doing that, woe betide the chief executive or chief financial officer who decides to ignore the suggestion.

An SEC interpretive release, Barton added, “also has the advantage of effectively functioning as a rule without the formal rulemaking process, thereby skirting the collecting, reading and considering of public comments”.

Indeed, there appears to be little or no factual foundation in climate science for the commission’s decision to require companies to begin reporting on the impact of global warming on their operations, profits and current or future value.

SEC Chairman Mary Schapiro said in announcing the interpretive order: “We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes.”

“Nothing that the Commission does today should be construed as weighing in on those topics,” she added.

However, in a speech delivered in Chicago in October last year, Commissioner Elisse Walter - who voted in favour of Wednesday's interpretive rule - indicated that her belief in climate change was driving the commission’s action.

While the SEC is “not an agency populated with climate experts”, she said, “I have recently met with a number of experts who analyze the risks and opportunities posed by climate change”. She did not identify any of those experts.

Those talks with climate experts, she said, “have confirmed my belief that climate change is a very serious issue ... [a]nd I believe that it is time for us to consider issuing interpretive guidance regarding disclosure in this area”.

That interpretive guidance - some might call it a rule in all but name - was delivered on Wednesday. (The SEC said it hopes soon to publish the formal interpretation on its web site, where it should appear in a special section for such interpretations. In the meantime, there is the commission's press release summarizing the action.)

The interpretation requires publicly held companies to consider the impact of climate change or global warming in four areas.

First, a company “should consider whether the impact of certain existing laws and regulations regarding climate change is material” to the firm’s operations, products, value or public image.

In addition, a company “should also evaluate the potential impact of pending legislation and regulation related to this topic”.

Barton honed in on this first area in a letter he fired off to Schapiro, noting that: “Given that there is no current federal law on the subject of global warming and no evident impact on corporate profits and losses, how does a corporation’s actions on global warming relate to the safety and security of its investors?”

The second area of global warming reporting obligation involves the impact of international accords on climate change. 

“A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change,” the SEC directive says.

But the 1997 Kyoto Protocol is the only international treaty on climate change, and that was never ratified, as required by law, by the US Senate. (In fact, the Senate that year rejected the Kyoto proposal with a 95-0 vote.)

The third area of SEC mandate on climate change deals with the “indirect consequences of regulation or business trends”.

“Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies,” the commission states. Such changes might, for example, increase or decrease demand for a company’s products or services.

“As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change-related regulatory or business trends,” the SEC said.

This is the kind of amorphous and vague regulatory language that might be titled “The Lawyer Relief and Guaranteed Employment Act”. 

Companies now required to comply with this SEC climate change reporting requirement likely will have to hire scores of additional attorneys - and a clutch or two of seers, fortune tellers and mystics - in what likely will be a vain effort to figure out what the rule means.

On the upside, this SEC-engendered flood of new legal hires might well end our recessionary unemployment.

Lastly, the SEC says that publicly held companies should “consider” evaluating and reporting on the physical impacts of climate change on their operations, the “actual and potential material impacts of environmental matters on their business”.

For example, perhaps, if the UN is predicting this week that sea levels might rise by 40 feet within a couple of years, what impact would that have on XYZ Company’s production facility on the Texas coast of the Gulf of Mexico?

However, with a rash of disclosures and corrections already eroding the presumptive scientific consensus underlying the UN’s Intergovernmental Panel on Climate Change (IPCC) and other crumbling global warming alarms, how is a publicly traded company to comply with a reporting requirement based on such uncertain criteria?

That was raised by SEC Commissioner Kathleen Casey in Wednesday’s commission hearing on the climate change interpretive rule.

Casey, one of two commissioners to vote against the rule, argued that far from being settled, the debate on climate change and global warming is in full flower.

“There is an intense and fluid debate on the human role in and the risks of climate change,” she said. 

“And even if there is a risk posed by climate change, it is one that is measured in decades rather than months and years,” she added, making it improbable if not flat impossible for a company to evaluate those risks in terms of operations, profits and value.

This rule, said Casey, “fails to advance the interests of investors and will only prove burdensome to companies and the SEC itself.”

Commissioner Troy Paredes, the other vote against the interpretation rule, also challenged the wisdom of imposing such a requirement.

“While the interpretation stresses the risks of climate change, it fails to recognize that the debate remains unsettled,” he said, adding: “I am troubled that it does not strike a more neutral and balanced tone.”

“Now is not the time for this agency to consider this issue,” Paredes said, “and I cannot support this release.”

Congressman Barton was less polite. He termed the commission action "an undertaking which seems transparently political and such a breathtaking waste of the commission's resources".

If it were just a waste of time for all concerned, it might be overlooked. 

But Barton also asked SEC Chairman Schapiro to specify whether companies that fail to report on climate change issues will be subject to civil or criminal actions.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
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