In a landmark revelation, the Securities and Exchange Commission has now made it clear that companies must disclose information about climate related effects to the business to all listening investors. This is interpretive guidance and the SEC corporate disclosure finding is one on a rare series of events attributable to the body. It is said that companies were increasingly slow to reveal their positions in relation to climate issues.
A publicly traded company must reveal information about climate issues to its investors as part of the SEC corporate disclosure requirements. Such a disclosure requirement has never been clarified before and this action is sure to bring corporate chiefs to notice as they prepare to be compliant. The commissioners maintained that, as climate matters were becoming of increasing importance to us all, this clarification was only to be expected.
Reports need to be submitted by publicly traded companies on a quarterly and annual basis. As part of the reporting process, management discussions and analysis of the organization’s position are attached as important documents. Investors pay particular attention to these items as they base their decisions on what they may invest in the future. We will now expect to see targeted information about climate related issues and how they affect the business.
Commissioners issued a statement alongside the SEC corporate disclosure clarification noting that this finding did not affect the legal implications of the law as written. Rather it merely drew attention to the fact that a climate related impact on a business should be classified as “material.” The inference that climate issues are material means that any impacts, judged on both quantitative and qualitative merits, must be incorporated.
Within our regulatory process, the Securities and Exchange Commission is pivotal and when it comes to fair operation of the stock markets, it has a vital role to play. This body is needed so that important clarifications may be made from time to time, maintaining the equity and transparency of the system.
A number of high profile investors, public figures and organizations came together to prompt the SEC to make its clarification. The SEC corporate disclosure finding came about as a result of this, as it was pointed out to the SEC that some leading US organizations were rather vague in their interpretation of climate issues, even though these issues could be clearly seen to be impactful.
There are many ways in which a company can view climate related issues. If an insurance company has a significant number of properties in floodplains or other coastal areas that may be vulnerable to weather events, it could have additional exposure. If another company relies on energy produced by fossil fuels, any legislation curbing emissions could likewise affect its position.
Publicly traded organizations must now ensure that they view climate change related issues very carefully and must itemize the effects or potential effects clearly. These additional requirements are likely to represent only a part of an increasing call for corporations to become more sustainable and to be seen to be doing so.
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