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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Statement at Open Meeting — Interpretive Release Regarding Disclosure of Climate Change Matters


Commissioner Kathleen L. Casey

U.S. Securities and Exchange Commission

Washington, D.C.
January 27, 2010

Thank you very much, Madam Chairman.

Like you, I also want to thank the Division of Corporation Finance, and the other Divisions and Offices that participated in drafting this release for your work in drafting this guidance.

Regrettably, because this interpretive release is unnecessary, and addresses concerns unrelated to investor protection, I am unable to support it.

In addition, I question the timing of this release and the priorities underlying our dedication of valuable staff resources to this release, in light of the significant issues facing the Commission, such as securities market structure, proxy “plumbing,” securitization, credit rating agencies and IFRS, among others. As we begin to emerge from the worst financial crisis in generations, our consideration of this release today sends a curious signal to the investment community about what we view as the most pressing issues facing the Commission.

Furthermore, I believe that the release is premised on the false notion that registrants may not recognize that disclosure related to “climate change” issues may be required. In truth, our disclosure regime related to environmental issues including climate change is highly developed and robust, and registrants are well aware of, and have decades of experience complying with, these disclosure requirements. In fact, notably, the release does not attempt to make the case that disclosures relating to climate change have been consistently deficient.

There is undoubtedly a constituency that is interested in, and has long pressed the Commission to require, more extensive disclosures on environmental issues in order to drive particular environmental policy objectives. The issuance of this release, however, at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux, makes little sense.

Most importantly, I do not believe that this release will result in greater availability of material, decision-useful information geared toward the needs of the broad majority of investors.

In light of these facts, I can only conclude that the purpose of this release is to place the imprimatur of the Commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection.

The Release

Turning to the release itself, the guidance discusses the requirement under the Commission’s existing rules that registrants discuss the costs, risks and opportunities they face in two broad areas:

  • First, the legal requirements and reputational pressures on companies arising from climate change issues; and
  • Second, the potential effects of physical changes that, it is theorized, may result from the accretion of so-called “greenhouse gasses” in the atmosphere.

Legal Requirements and Reputational Pressures

Legal requirements related to climate change that registrants may need to discuss include existing and potential legislation, regulation, and litigation that affect registrants directly or indirectly, including by virtue of their effect on customers and suppliers. The release notes that reputational pressures would include the risk, depending on the nature of a registrant’s business and its sensitivity to public opinion, that the public’s perception of any publicly available data relating to its greenhouse gas emissions might expose it to adverse consequence in its business operations or financial condition.

Legal requirements and reputational pressures relating to climate change issues are, fundamentally, no different than those that arise in other regulatory contexts, albeit climate change is currently a “hotter” and more controversial political topic than most other regulatory issues. Granted, the Commission has promulgated rules requiring disclosure of specified information relating to environmental regulation, which it has not done in other regulatory areas, and has issued more guidance relating specifically to environmental issues than it has with respect to other individual regulatory issues.

Nevertheless, the disclosure guidance in this release relating to legal requirements and reputational pressures would apply with equal force to any other legal and regulatory regime affecting public companies.

Nor, as I previously mentioned, does the release attempt to suggest that registrants’ disclosures in this area have been chronically or disproportionately insufficient compared to their disclosures in other areas, or that our disclosure requirements in this area are poorly understood. Simply stated, there is no credible reason to single out climate change issues for discussion.

Furthermore, although the release does a fine job summarizing existing disclosure obligations that may apply to climate change issues, I do not believe that the release changes or clarifies in any meaningful way the common understanding of these disclosure obligations.

As a result, 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.

Potential Physical Effects of Climate Change

Of far greater concern to me is the disclosure guidance relating to the potential physical effects of climate change. Examples cited in the release include:

  • changes in the availability of natural resources on which a registrant relies, and
  • hazards to coastal properties securing loans made by a registrant, such as a bank.

This guidance is premature at best, as the science surrounding global warming remains far from settled. In fact, rather than the scientific community coalescing around a consensus, the debate remains vigorous, and revelations in recent months have called into question the integrity of key data and the credibility of the science underlying some climate change theories and predictions.

I do not pretend to be an expert on climate change issues and, indeed, the mission of the Commission is not to opine on climate change issues or other matters of science. Nevertheless, this guidance assumes that man-made global warming and climate change are occurring as a result of greenhouse gas emissions and are likely to result in physical effects that will affect the businesses of registrants.

I recognize the value, under appropriate circumstances, of Commission guidance on disclosure when emerging issues — where registrants do not yet have significant experience drafting disclosure — may have a material effect on registrants’ businesses. For instance:

  • in 1988, the Commission issued disclosure guidance — primarily for issuers that were reliant on defense contracts with the federal government — relating to the government’s ongoing investigation of defense contract procurement practices; and
  • in 1998, the Commission issued disclosure guidance relating to the anticipated “Y2K” phenomenon.

There are significant differences between climate change and those emerging issues, however, that make those precedents inapt. In particular, the risks to registrants presented by those emerging issues were unambiguous, virtually undisputed, and imminent. A defense contractor that employed the procurement practices under investigation in 1988 unquestionably faced risks to its business, financial condition and results of operations within months or, at most, a few years. Similarly, companies whose businesses were reliant on computer systems — indeed, the global economy — faced the risk that these systems would fail, potentially crippling some businesses on a date certain in the very near future — January 1, 2000.

By contrast, there is an ongoing, intense and fluid scientific debate about the relative contribution of human activity, especially the emission of greenhouse gases, to climate change, and about the risks that climate change poses. And even assuming that a consensus on the science of climate change existed, the time-horizon for any potential effects are widely acknowledged to be measurable in decades if not centuries.

No Advancement of Investor Interests; Risk of Harm

I have previously stated that my governing principle in deciding whether to support any interpretive guidance or new disclosure rules — relating to climate change or in any other area — is that the Commission’s action must be driven by investor needs and designed to elicit material, decision-useful information for investors, rather than advancing an agenda unrelated to investor protection.

I believe that this release fails to advance the interests of investors. Indeed, if as a result of this release, issuers increase climate change-related disclosures that are not truly decision-useful for investors, ironically we will have harmed investors by increasing registrants’ regulatory burden and diverting company resources, making disclosure more cumbersome, and diverting the resources of the Commission itself.

Future of Climate Change Disclosures in Commission Filings

Finally, the release makes reference to potential additional interpretive guidance or rulemakings related to climate change disclosure in the future. While I will, of course, consider any proposed guidance or rules on their merits, my concerns about the appropriate priorities and focus of the Commission and the use of the securities laws to promote an agenda unrelated to investor protection would of course apply with equal force to this analysis.

Again, I very much appreciate the staff’s work, but I cannot support the release. I have no questions.



Modified: 01/27/2010