The Securities and Exchange Commission (SEC) took a significant step last month toward expanding the scope and quality of corporate disclosures as they pertain to the environment. On Jan. 27, the SEC voted to provide guidance "clarify[ing] what publicly-traded companies need to disclose to investors in terms of climate-related 'material' effects on business operations, whether from new emissions management policies, the physical impacts of changing weather or business opportunities associated with the growing clean energy economy."

Periodically, the SEC provides guidance to public companies subject to federal securities laws and SEC regulations interpreting disclosure rules established to provide their investors with a sense of the true financial health of the corporation. In the climate change disclosure guidance, the SEC cited the impact of legislation and regulation, the impact of international accords, indirect consequences of regulation or business trends, and physical impacts of climate change as areas that should be considered by companies in preparing their disclosures to investors. Rather than establish any new reporting requirements, the SEC is attempting to clarify the responsibility companies have under existing disclosure requirements. Since the guidance applies to ongoing disclosure processes, it is immediately in effect.

SEC Chair Mary Schapiro clarified the reporting guidance: "We are not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today's guidance will help to ensure that our disclosure rules are consistently applied." The new reporting is, however, an acknowledgement that climate change and a company's contribution to it are being recognized as genuine investment risks that should be considered.

Pressure on the SEC and on individual companies to disclose climate-risk information – a component of what are referred to as environmental, social, and corporate governance (ESG) issues – began to mount in 2007. After failing to receive a response from the SEC to prior entreaties, environmental and investor groups, as well as several state treasurers, attorneys general and other officials, filed a formal petition asking that the Commission require companies to disclose this information.

In October 2008, the Investor Network on Climate Risk (INCR), a coalition of 80 institutional investors with combined assets of $8 trillion, issued comments in response to the SEC's 21st Century Disclosure Initiative, an effort to modernize its disclosure system in a more transparent manner. This initiative is focused primarily on modern technology, but INCR noted:

Because ESG information is increasingly of interest to investors and other stakeholders, companies are already disclosing it in their annual reports, in sustainability reports, and on their websites. Just as companies have been modernizing their reporting to include ESG issues, it is incumbent upon the SEC to catch up with these trends in order to provide timely, relevant disclosure and to ensure the competitive position of U.S. investors …. For the U.S. disclosure system to remain competitive – and for U.S. investors to be as well informed as investors in other markets – the SEC should integrate reporting of material ESG risks into its new disclosure system.

Concurrent with the efforts of environmental and investor groups to pressure the SEC, in response to subpoenas issued by New York State Attorney General Andrew Cuomo, several energy companies agreed to voluntarily release their climate risk information. Their efforts finally came to fruition with the SEC's decision in January.

Next on the agenda for those groups advocating for increased ESG disclosure? "[A]s rising populations, rapid economic growth in developing countries, climate change and growing regulation are triggering growing water availability concerns in the U.S. and abroad," a new report from the Ceres investor coalition, UBS, and Bloomberg "builds on the SEC's [climate-risk disclosure] guidance with specific recommendations for companies to improve their water-related disclosure."