SEC's Climate Change Guidance Is All Hype, No Heat

On Wednesday, the Securities and Exchange Commission announced it would issue guidance to companies on how they should disclose their risks related to climate change.Immediately, the blogosphere was abuzz, and The New York Times reported that "The SEC public disclosure guidance on climate-related risks is seen as a major victory by an army of environmental groups and institutional investors that have pressed the issue since 2007."

The SEC was careful to note that it isn't taking a position on the legitimacy of climate change. It's merely saying that companies should disclose risks to their business related to climate change, if they think such risks exist. In the press release announcing the new policy, the SEC noted that "The Commission's interpretive releases do not create new legal requirements nor modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors."

The absolute best thing that will come of this policy is that some public companies will add a few lines of boilerplate that no one reads to the risk factors section of the 10-Ks they file with the SEC. For those readers with lives, I should explain that that's the section where companies provide earth-shattering details about the micro and macro factors that might effect their businesses. For instance, consider this one from McDonald's latest 10-K: "The trading volatility and price of our common stock may be affected by many factors."

Now wasn't that enlightening?

The SEC's guidance notes that companies should disclose risks related to climate change regulation and legislation, international accords, "Indirect Consequences of Regulation or Business Trends" and the physical affects of climate change. Merely disclosing that changes in those four areas could, in some way, possibly affect business in a way that can't be predicted right now, would be enough to satisfy the guidelines.

Regardless of where you stand on the climate change issue, this is a completely irrelevant development, and looks like a classic case of the SEC grandstanding to make it look like it's relevant in some way.

The longer SEC filings get as they are bogged down with legalese, the easier it becomes for unscrupulous managers to hide bodies in them.
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