By GUEST AUTHOR Lee Barken, IT practice leader at Haskell & White, LLP

While President Obama drew 48 million viewers for his State of the Union address, another noteworthy – albeit quieter – presentation was being made across town at the Securities and Exchange Commission (SEC).  The SEC, not particularly known for its marketing prowess, used the same day that Obama took the podium to announce that the SEC commissioners had voted to approve the release of interpretive guidance on financial disclosures related to climate change.  

In what might be characterized as the pin drop heard around the world, the SEC highlighted four areas where climate related disclosures may be required:

• Impact of Legislation and Regulation
• Impact of International Accords
• Indirect Consequences of Regulation or Business Trends
• Physical Impacts of Climate Change 

Science and Environment Commission?

 SEC Chair Mary Shapiro was quick to point out that the interpretive guidance is not an official position on climate change.  “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,” said Schapiro.

 In addition, it was noted that a guidance document does not create new laws or requirements, but rather provides direction on how existing laws should be interpreted in light of an emerging issue.  Guidance documents, similar to the one issued in 1998 related to Y2K disclosures, are intended to promote consistency between company reports and provide decision useful information to investors related to company risks.

Serious Pressure 

According to CERES (pronounced “Series”), a coalition of over 80 institutional investors with over $8 trillion under management, “The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies.”  CERES had been petitioning the SEC to promote climate disclosures since 2007. 

 One CERES member, the California Public Employees Retirement System (CalPERS) publicly praised the move.  “We’re glad the SEC is stepping up to the plate to protect investors,” said Anne Stausboll, CEO of CalPERS. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

 A Partisan Divide

 Support for releasing the guidance was far from unanimous.  The 3-2 vote fell squarely along party lines, with 3 democratic commissioners voting in favor and 2 republican commissioners opposed.  According to Commissioner Kathleen Casey, “I do not believe that interpretive guidance relating to disclosure of the effects of legal requirements and reputational pressures on registrants in the context of climate change is necessary or appropriate.”

 Another concern, expressed by Commission Troy Paredes, was the potential for confusion.  Said Paredes, “What triggers a ‘reputational damage’ or ‘physical effects’ disclosure is far from certain, as is the scope of any such disclosure if and when required.”

 Climate Disclosure Standards Board

 For most companies, climate change disclosures are not a new phenomenon.  For years, shareholders have been putting pressure on companies to provide more transparency regarding Corporate Social Responsibility (CSR).  A number of resources exist to provide assistance to companies trying to address these issues. 

 Most notably, a consortium of business, environmental and accounting groups have come together to form the Climate Disclosure Standards Board (CDSB).  In 2009, the CDSB published an extensive guide to help companies develop climate change disclosures.  The “CDSB Reporting Framework” report, along with accompanying Reporting Templates, focuses on how to make disclosures that provide investors with decision useful information related to climate change.

 Let the Sun Shine In

 There’s an old saying that sunshine is the best disinfectant.  By encouraging companies to provide greater transparency, the SEC ruling will result in better disclosures.  These disclosures, in turn, will help investors make better capital allocation decisions.  As companies adjust to the new guidelines, efforts such as the CDSB can help ease the transition.

 Reporting climate change disclosures will provide incentives for companies to monitor and manage their sustainability efforts.  It also provides an opportunity for companies to publicly highlight their ongoing activities and leadership positions.  While this may be one small step for the SEC, the move is one giant leap forward in recognizing that business and environmental issues are deeply interconnected.

 Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of carbon accounting, green building, IT audit compliance, enterprise security and wireless LAN technology. You can reach him at 858-350-4215 or lbarken@hwcpa.com.

Tags: Haskell & White, Lee Barken

This entry was posted on Thursday, February 4th, 2010 at 4:59 pm and is filed under Climate change, Guest Author . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.