@Risk

Yesterday, the U.S. Securities and Exchange Commission issued ground-breaking guidance that clarifies what publicly-traded companies need to disclose to investors in terms of climate-related material effects on business operations. These ‘effects’ include new emissions management policies, the physical impacts of changing weather, and/or business opportunities associated with the growing clean energy economy.

This new guidance, the first economy-wide climate risk disclosure requirement in the world, comes after more than a dozen investors managing over $1 trillion in assets –plus Ceres and the Environmental Defense Fund –requested formal guidance in a petition originally filed with the Commission in 2007, and then supported by supplemental petitions filed in 2008 and 2009.

“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for US companies and the urgency for integrating them into investment decision making,” says Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk, a network of 80 institutional investors with $8 trillion in collective assets. “The business risks of climate change cannot be ignored. With this guidance investors can make more sound decisions based on better information – and businesses will have a level-playing field with clear standards and expectations for disclosure.”

The SEC decision is the latest in a series of major policy actions over the past year requiring more robust climate risk disclosure across various industry sectors. Those actions include:

• The Environmental Protection Agency’s new mandatory greenhouse gas (GHG) reporting rule, requiring some 10,000 facilities that are large sources of GHGs to report those emissions to EPA, beginning data collection on January 1, 2010.

• The National Association of Insurance Commissioners’ (NAIC) unanimous approval of a mandatory requirement for insurers with annual premiums of $500 million or more to disclose climate risks to regulators, shareholders and the public beginning in May 2010.

• Increasingly common climate disclosure-related litigation, as well as subpoenas by New York’s Attorney General to five of the nation’s largest power companies regarding their climate disclosure in SEC filings. Three of these cases have been settled, including a major settlement in November, after the companies agreed to boost their disclosure.

• A record number of shareholder resolutions seeking information on companies’ contribution and responses to climate change.

Lubber is right: The business risks associated with changes in climate and resource availability can no longer be ignored. Businesses will need to adapt –if they want to prosper. And now, with this landmark decision, the SEC is providing the necessary guidance so that investors will be able to better decide which companies are best positioning themselves for the future.

For more details on the SEC decision, see this Ceres/EDF fact sheet “SEC: Companies Must Disclose Climate Risks and Opportunities.”