Client Alert

On February 2, 2010 the SEC issued an interpretative guidance (“SEC Guidance”) which addresses risk disclosure arising from climate change. See Commission Guidance Regarding Disclosure Related to Climate Change, 75 Fed. Reg. 6290 (February 8, 2010). The SEC Guidance does not create new legal requirements but is intended to provide clarity and enhance consistency in making public disclosures to investors as required by the existing disclosure rules. For more information regarding the SEC Guidance, see Womble Carlyle February 10, 2010 Client Alert, SEC Issues Interpretive Guidance on Climate Change Disclosure.

On March 26, 2010, ASTM¹ International released a standard guide, ASTM Standard E2718-10, Standard Guide for Financial Disclosures Attributed to Climate Change (“ASTM Guide”). The ASTM Guide contains voluntary guidelines for determining whether there may be “financial impacts attributed to climate change that may be subject to disclosure” and the content of the disclosure.
 

The ASTM Guide provides examples of “major circumstances” that might result in financial impacts associated with to climate change that may need to be disclosed. These include:

The ASTM Guide identifies “standard sources” of information that should be reviewed to determine if there have been impacts. These sources include: publicly available environmental records, internal records regarding greenhouse gas emissions and financial impacts due to climate change, current and proposed climate change laws and rules and publicly available and internal studies on benchmarking, modeling, trends and forecasts.
 

If financial impacts are identified, the ASTM Guide states the reporting entity should determine whether the impacts:

If these three criteria are met, the reporting entity should estimate the likelihood, magnitude, and timing of the potential impacts to its financial position. Once financial impacts are identified, the materiality of the impacts should be evaluated in the aggregate to determine whether disclosure is warranted. The ASTM Guide states that while there is no bright-line test for materiality, the ASTM Guide contains statements from the FASB and the U.S. Supreme Court regarding what constitutes materiality.²

Disclosure of Financial Impacts

If climate change impacts are determined to be material, the ASTM Guide describes the content of the disclosures that should be made. The ASTM Guide disclosures are meant to supplement, rather than replace, the disclosure requirements prescribed by GAAP, SEC or other regulatory requirements. The ASTM Guide contains six categories of disclosures which include:

If you have any questions regarding this Client Alert, please contact Jimmy Kirkland via email (jkirkland@wcsr.com) or via telephone at 404.879.2460 or the Womble Carlyle attorney with whom you work.
 

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Notes
1. ASTM International is one of the largest voluntary standards development organizations in the world. ASTM International has significant experience in developing environmental consensus standards. ASTM International developed a Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for conducting an “all appropriate inquiry” prior to purchasing property to establish an “innocent purchaser” defense under CERCLA which has been incorporated into the U.S Environmental Protection Agency’s regulations.

2. FASB, Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information, Original Pronouncements as Amended, 2008 (an item is material if “the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.”; TSC Industries Inc. v. Northway, Inc., 426 U.S. 438, 448 (1976) (a disclosure is material if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available” or if there is “a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”)