SEC Materiality Guidance

By Lara Greden, Environmental Product Strategist
February 24, 2010

Materiality of Climate Change Brings Carbon Reporting to the Forefront

The Securities and Exchange Commission (SEC) recently captured widespread attention of leaders across organizations with the issuance of guidance on disclosures relating to material effects of climate change. The interpretive guidance outlines the following climate related areas that may impact business:

• Existing regulations
• Pending regulations
• International treaties
• Business trends and other indirect consequences, and
• Physical impacts

These interpretive rulings do not change the existing legal framework. Rather, the SEC’s guidance intends to provide consistency and clarity on the topic of the business impacts around the issue of climate change. For example, for those companies already including climate topics in their material assessments, the SEC guidelines may result in alternative formats for presentation or additional factors to consider. This may include further assessment of indirect consequences on suppliers or the opportunities a business might profit from when trading carbon credits in a cap and trade system.

CFOs will call for further data from business operations to assess the material impacts. Energy use and carbon footprints across an organization’s geographies may be mapped against pending regulations in those different regions. Exposure of supplier’s operations to emissions regulations, energy prices, and carbon taxes may reveal future sources of cost increases. Overlays of climate maps and their associated data can be used to model the physical impacts of increased precipitation or greater variability in day-to-night temperatures.

Companies are already considering climate impacts as part of their corporate sustainability reports, whether they are physical impacts from differences in weather or market impacts due to consumer perceptions, purchasing of voluntary carbon offsets, or requirements to report carbon emissions.

Carbon reporting frameworks provide structure to organizations that aim to understand where their biggest risks from carbon emissions lie. The Climate Registry and its General Reporting Protocol provide guidance on what to include when assessing an organizations’ GHG emissions. EPA’s Climate Leaders program is another voluntary program that many Fortune 500 companies are participating in to gain early insights to how a carbon-constrained regulatory picture will impact their business, and present opportunities.

In the UK, the mandatory CRC Scheme takes affect this year and will require half-hour metered energy consumption data as the input to carbon reporting. From this data, organizations’ carbon footprints will be calculated, taxes issued, and allowances assessed. California’s AB 32 regulations require reporting of all the major GHGs. To meet these regulations, companies are figuring out how to compile data from many areas of the organization, including the various departments responsible for utility bills, real-time energy and equipment monitoring, and procurement.

The SECs actions intend to meet the needs of publicly traded companies and their investors when it comes to gauging the risks a business faces when it comes to the regulatory and business environment driven by climate change. It is another indicator that climate change is a factor for companies to address organization wide, looking at both the financial risks and the market opportunities that matter to shareholders.

About Verisae

Verisae helps measure, manage and reduce equipment and energy costs including the related business and environmental impacts of carbon emissions. The Sustainability Resource Planning (“SRP”) software platform improves operational efficiency, protects brand integrity and helps ensure regulatory compliance for distributed enterprises across many industries. Verisae delivers a broad range of sustainability solutions to dozens of clients globally with thousands of daily users including an extended network of third-party suppliers. Verisae’s integrated sustainability platform actively tracks millions of assets across thousands of sites worldwide.

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