Disclosure by public companies of greenhouse gases ("GHG")?

Pressure is building toward increased disclosure by public companies of greenhouse gas (“GHG”) emissions and the possible effects of climate change on business. SEC disclosure rules do not require specific disclosure of GHG emission levels or climate-related risks beyond that generally applicable to all environmental issues and to the required disclosure regarding business operations, risk factors and financial aspects of the business.

In the past, existing disclosure rules have prompted climate-related disclosures by companies in industries already subject to regulation (e.g., coal-fired generators intates that have enacted GHG emission regulation) or other businesses particularly vulnerable to effects of GHG emissions or climate control, such as oil refining, petrochemical production and transportation.

Meanwhile, companies in industries thought to be less directly affected have tended to rely on general disclosure regarding environmental and regulatory risks. Although the disclosure rules may stay the same, many are now arguing that the regulatory environment is changing and risks are increasing, resulting in the need for more disclosure.

A recent flurry of activity aimed at increasing disclosure of GHG emission information and risks illustrates this view and may motivate public companies to analyze more losely these risks and increase disclosure in future filings.

On September 18, 2007 a coalition of environmentalists, institutional investors and state investment officers filed a petition with John W. White, director of the SEC’s Division of Corporation Finance, asking that the SEC issue interpretative guidance clarifying the obligations of public companies under existing SEC rules to disclose material information concerning regulation of GHG emissions and potential effects of climate change on the company’s financial condition and results of operations.

The coalition further requests that the SEC enhance its scrutiny of existing disclosures in these areas in its filings eview and comment letter process. The petition argues that increased federal, state and regional regulation is likely, and that the effects of GHG emission regulation and climate change are a material risk to the performance and operation of many businesses and important to investors. The SEC has yet to respond.

New York, however, has not waited for the federal government to act. There, the state Attorney General issued a subpoena to five energy companies focusing on the adequacy under state securities laws of disclosures of potential economic risks of carbon dioxide emissions.

What should public companies do? Most public companies have disclosure committees to assist in raising and addressing disclosure issues in quarterly and annual filings. With the changing regulatory environment and investor focus on these issues, the public company should:

Closely analyze the risks of GHG emissions and climate change on the company and its business. Businesses such as oil refineries, electric power plants, and cement plants, and those in the agriculture, transportation and building sectors, are easy to identify as having GHG emission-related risks, but many other businesses such as insurance, manufacturing and others may be directly or indirectly affected.

Evaluate the scope of risk. Depending on the company, these risks may include possible operational changes, capital expenditures, litigation, changes to customers or suppliers and any number of effects. Consider these issues from both an environmental and nonenvironmental perspective.

Consider whether disclosure is required as a risk factor, a general business disclosure or a financial disclosure, or some combination. Compare your public statements in other contexts (e.g., sustainability reports, announced policies) with your SEC disclosure to confirm consistency.

Be prepared to respond intelligently to questions on these issues from investors and regulators. Demonstrate that your company has thoroughly assessed the impact of these issues and implemented appropriate policies.

Continue to monitor carefully developments in state and federal GHG emission regulations, as well as evolving investor expectations that public companies identify and report GHG-related risks.

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