Disclosure Focus: Climate Change

“Most U.S. Companies Ignoring SEC Rule to Disclose Climate Risk” is a troubling headline that got published more than once at the end of 2013.  It’s certainly the type of headline that might cause the plaintiffs’ bar to look for a juicy disclosure case to bring against a public company. So is now the time for companies to re-examine their approach to climate change disclosure in their SEC filings? Yes.  However, re-examining one’s approach to climate change disclosure is not the same as immediately inserting pages of “me too” disclosure in order to get a compliance checkmark.

Prompting the headlines was the release of a study undertaken by Lawrence Taylor, a retired database developer.  He examined the annual reports of 3,895 US public companies and found that only 27% mentioned climate change.  Mr. Taylor has made his data available on his website, Decision Facts 2014. (If you want to check out his analysis of your company, you can do so using his searchable database.)

Should a lot more than 27% of the examined companies have mentioned climate change in their disclosures? Maybe, maybe not.  Companies are required to disclose material risks to their investors, not every single risk they can possibly imagine.  Nevertheless, as I’ve written in the past, there are companies for whom disclosure about the ways in which climate change may affect a company is warranted.

The SEC has reacted to investor calls for more disclosure on how climate change may impact business by releasing interpretive guidance on climate disclosure.  When it took this step back in 2010, the SEC was clear that the interpretive guidance was intended to provide helpful suggestions to the business community; it did not create “new legal requirements nor modify existing ones.”  Rather, the guidance can be seen as a reminder to companies that the SEC believes companies should ask themselves whether climate change may materially impact their business. This question is not just limited to physical impact; it also includes the impact of things like legislation, regulation, international accords and the like.  If the answer to the material impact question is yes, climate change’s potential impact on a particular company’s business becomes relevant disclosure for shareholders.  The SEC guidance specifically focused on company risk factors, business description, legal proceedings and MD&A.

Thinking again about Mr. Taylor’s data, it’s interesting to note that certain sectors are more likely to make climate change disclosure than others.  For example, 83% of the utility and 88% of carbon mining & processing companies examined by Mr. Taylor made some sort of climate change disclosure.  On the other hand, only 4% of the banks and 6% of the education companies examined by Mr. Taylor provide these types of disclosures to their investors.  In other words, while these statistics may not exactly match the universe of companies who “should” provide their investors with climate disclosure, it may not be as far off as the original headlines may have implied.

Still, it’s prudent for public companies to examine carefully whether and to what extent they should address climate change in their SEC disclosures. Looking at industry peers can be a helpful as well.  After all, there’s probably no glory in being the one company in your sector that doesn’t address this issue if all of your peers do.


The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email:



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