The Securities and Exchange Commission (SEC) has for the first time released guidelines for public companies that define the extent of the disclosures they should make relating to the issue of climate change. This is good news for investors, who rely on comprehensive and accurate information to make their investment decisions. Institutional investors, such as pension funds, have been active in lobbying the SEC to tighten the rules about what a company needs to report when it comes to the risks and opportunities relating to climate change. Groups active in the disclosure debate include the Environmental Defense Fund and CERES. In June 2009, the Investor Network on Climate Risk petitioned the SEC to issue guidance outlining climate-related 'material risks' - such as new regulations, physical impacts, new economic and business opportunities and other climate-related trends - that companies should be disclosing to investors. According to the SEC's news release, the interpretative guidance highlights four areas as examples of where climate change may trigger disclosure requirements:

• Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
• Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

As the New York Times reports, the new guidelines were welcomed by pension funds and other large institutional money managers:

“We’re glad the S.E.C. is stepping up to the plate to protect investors,” said Anne Stausboll, chief executive of the California Public Employees Retirement System, the nation’s largest public pension fund and one of the parties that petitioned for the guidance. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

In the commercial real estate world, the SEC ruling may provide the impetus for public real estate companies to take seriously the measurement and reporting of energy efficiency and other measures of the sustainability of their real estate holdings. Pension funds are likely to lead the way in pushing for such disclosures from real estate companies with which they undertake joint ventures, as well as from the REITs whose shares they own. Is it only a matter of time before the issuance of a “Sustainability Report” is as commonplace for real estate companies as the annual financial report is today?