Warming Up to Climate Change Risk Disclosure
McFarland, Jeffrey M., Fordham Journal of Corporate & Financial Law
Investors are clamoring for companies to include more climate change risk disclosure in their periodic reports filed with the Securities and Exchange Commission (SEC). Yet public companies in the United States do a poor job of disclosing to investors how climate change affects their businesses. Although there have been several proposals for more voluntary disclosure of these risks and one petition for guidance from the SEC, these proposals are not effecting changes in disclosure practices quickly enough. This Article builds on existing proposals to create guidelines for mandatory climate change risk disclosure in periodic securities filings. The guidelines seek to provide investors with meaningful disclosure, without overburdening me companies making the disclosure. This framework could be used by the SEC in formulating guidance regarding climate change risk disclosure under existing disclosure rules, or in creating new rules mandating the disclosure.
Public companies in the United States do a poor job of disclosing to investors how climate change affects their businesses.1 Despite repeated requests from investor groups for more disclosure, and despite increasing public interest in the effects of global warming, poor disclosure persists.2 This Article summarizes some of the efforts to improve disclosure of climate change risks, and recommends elements of a mandatory disclosure system for climate change risk disclosure under the securities laws.
Climate change issues are regularly featured in the pages of the New York Times and on public radio programs.3 It was a topic of debate among candidates for president in 2008.4 Al Gore's film An Inconvenient Truth, which sought to raise awareness of global warming worldwide, won an Academy Award in 2007 for best documentary feature.5 Gore also won a share of the Nobel Peace Prize in 2007, along with the Intergovernmental Panel on Climate Change (IPCC), for their "efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change."6
The IPCC describes climate system warming as "unequivocal" and very likely the result of greenhouse gas concentrations ("GHGs").7 In its Climate Change 2007 report, the IPCC states "[t]here is high agreement and much evidence that with current climate change mitigation policies and related sustainable development practices, global GHG emissions will continue to grow over the next few decades."8 Moreover, climate change is likely to "lead to some impacts that are abrupt or ireversible, depending upon the rate and magnitude of climate change."9
Global warming is also gaining traction among governmental bodies. The United States Supreme Court recently stated:
The harms associated with climate change are serious and well recognized. The Government's own objective assessment of me relevant science and a strong consensus among qualified experts indicate that global warming threatens, inter alia, a precipitate rise in sea levels, severe and irreversible changes to natural ecosystems, a significant reduction in winter snowpack With direct and important economic consequences, and increases in the spread of disease and me ferocity of weatiier events.
In October 2007, Senators Joe Lieberttian (D-CT) and John Warner (R-VA) introduced the America's Climate Security Act of 2007 after approval by a senate subcommittee.11 America's Climate Security Act is designed to direct the Environmental Protection Agency to adopt programs to address GHG emissions.12
In short, climate change is a daily topic of conversation, and is recognized as one of the most significant issues of our time by the media, government, and scientific, international, and business communities.13 Although skeptics remain, human contribution to the harmful effects of climate change is gaining increasing acceptance with each passing year. …