The Securities and Exchange Commission recently proposed amendments to their existing disclosure policy that would require publicly traded corporations to disclose more information regarding climate change related risks, and how those risks may impact the company’s business and outlook (read, “bottom line and stock value”). While the SEC regulates publicly traded corporations, privately held companies need to also track these proposed rule amendments:
- The SEC has been requiring reporting on climate change / greenhouse gas emission information since 2010, so this overall concept is not new. However, the proposed disclosures would expand these obligation by requiring the publicly traded corporation to disclose (among other things):
- The company’s process for identifying, managing, measuring and managing climate change risks;
- If the company uses (“best,” “worst” and “most-likely” case) scenarios to assess risk, what assumptions and analytical choices the company uses to reach these outcomes;
- The Company’s “direct” and “indirect” emissions (the latter, from purchased electricity or other forms of energy); and, of particular significance; and – possibly of greatest significance,
- The Company’s indirect emissions from upstream and downstream activities.
This last bullet is far-reaching and likely to be controversial due to its impact on upstream privately held companies that sell products or services to publicly traded companies. Should this proposal be promulgated:
- Publicly traded companies will be obliged to make heightened demands upon their upstream vendors and suppliers to measure and disclose information re carbon dioxide (or other greenhouse gas) emissions associated with the sourcing, manufacture and transport of products to the SEC-regulated customer;
- Commercial counter-parties should anticipate new terms in contracts that would require such disclosures from private companies – including possibly indemnification for misstatements about carbon emissions;
- Small and medium-sized enterprise are likely not going to have in-house capabilities to perform such assessments, so an increased potential for out-sourcing this would be necessary if vendors want to remain on their customers’ “preferred provider” lists.