An Inconvenient Risk: Climate Change Disclosure and the Burden on Corporations
On January 27, 2010, the SEC voted to require companies to disclose potential impacts of matters related to climate change. This Recent Development addresses the complexity of disclosing impacts that can be diverse, far-reaching, potentially permanent, and above all, hard to quantify. Corporations’ definition and measurement of risks in accordance with their obligations under the SEC’s guidance will require additional and strenuous effort to consider the wide-ranging risks in the required situation-based, fact-driven analysis.
This Recent Development explores the task ahead of companies when filing reports with the SEC. First, it discusses the relationship between climate change and corporations and lays out the recent SEC Climate Change Guidance. Second, it discusses how, in light of the limited information about climate change risks previously contained in 10-K filings and even in the various voluntary disclosure mechanisms, the SEC Climate Change Guidance requires more from companies to provide investors with all relevant information. Third, it raises concerns about the additional burden placed on corporations by the SEC Climate Change Guidance to identify and measure risks, arguing the nature of climate change makes the materiality determination more difficult than other recently identified disclosure requirements. Finally, the piece evaluates the potential cost to companies of disclosing in light of the potential maximum liability for risks related to climate change, concluding the additional cost of thorough evaluation risks is entirely justified.