ALI-ABA Course of Study Global Warming: Climate Change and the Law. Cosponsored by the Environmental Law Institute April 7-8, 2011 Washington, D.C.

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1 1 ALI-ABA Course of Study Global Warming: Climate Change and the Law Cosponsored by the Environmental Law Institute April 7-8, 2011 Washington, D.C. Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors By Sean H. Donahue Suriya Jayanti Ceres Boston, Massachusetts Submitted by

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3 3 DISCLOSING CLIMATE RISKS & OPPORTUNITIES IN SEC FILINGS A GUIDE FOR CORPORATE EXECUTIVES, ATTORNEYS & DIRECTORS February 2011 Authored by Sean H. Donahue Suriya Jayanti FEATURING INVESTOR EXPECTATIONS FOR QUALITY DISCLOSURE

4 4 Ceres is a national coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Ceres directs the Investor Network on Climate Risk, a group of 95 institutional investors with assets exceeding $9 trillion, by identifying the financial opportunities and risks in climate change and by tackling the policy and governance issues that impede investor progress toward more sustainable capital markets. ACKNOWLEDGEMENTS This report was made possible through grants from the Libra Foundation, Kresge Foundation and Oak Foundation. The opinions expressed in this report are those of the authors and do not necessarily reflect the views of the sponsors. The authors would like to thank Mindy Lubber, Amy Augustine, Barry Borak, Sue Burrows, Chris Davis, Peyton Fleming, Andrea Moffat, Sean Pears, Tracey Rembert, Veena Ramani, and Meg Wilcox of Ceres for their valuable insights and editing suggestions. The authors also express their sincere appreciation to the following group of outside reviewers who provided valuable feedback on a draft of this report: Michelle Chan, Friends of the Earth Julie Desjardins, Desjardins & Associates Consulting Inc. Nick Edgerton, Colonial First State Global Asset Management Graham Erion, Climate Change Lawyers Network Michael Gerrard, Columbia Law School Julie Fox Gorte, Pax World Management LLC Lois Guthrie, Carbon Disclosure Project Kit Kennedy, Natural Resources Defense Council Gayle Koch, Axlor Consulting LLC Sanford Lewis, Investor Environmental Health Network Bill McGrew, California Public Employees Retirement System Brian Rice, California State Teachers Retirement System Peter Safirstein, Milberg LLP William Thomas, Skadden, Arps, Slate, Meagher & Flom LLP Alan Willis, Alan Willis & Associates Ian Woods, AMP Capital Investors Peter Zalzal, Environmental Defense Fund All views expressed in this report represent the views of the authors. This report does not provide legal advice on what any particular company should disclose in its SEC filings, but instead provides general recommendations on good disclosure practices. Each company s operations and business circumstances differ, and disclosure decisions and materiality judgments are fact- and context-specific. Companies should seek advice from their legal counsel and other advisors on what they should and are required to disclose. Patricia Robinson designed and produced the final report Ceres. All rights reserved.

5 DISCLOSING CLIMATE RISKS & OPPORTUNITIES IN SEC FILINGS: A GUIDE FOR CORPORATE EXECUTIVES, ATTORNEYS & DIRECTORS Table of Contents 5 TABLE OF CONTENTS FOREWORD EXECUTIVE SUMMARY CLIMATE CHANGE DISCLOSURE AND THE NEW SEC GUIDANCE Climate change science and policy Risks and opportunities for businesses Determining materiality Which companies should disclose climate risks and opportunities? Disclosure of material ESG issues in addition to climate change SEC DISCLOSURE EXPECTATIONS AND HOW COMPANIES ARE RESPONDING.. 17 Methodology for selecting companies and rating disclosures Regulatory risk & opportunity: Impact of domestic legislation and regulation Regulatory risk & opportunity: International accords Indirect consequences of regulation or business trends Physical Impacts OTHER KEY ELEMENTS OF STRONG CORPORATE DISCLOSURE Climate change litigation GHG emissions Strategic analysis of climate risk and emissions management CONCLUSION POINT CHECKLIST: DEVELOPING A CLIMATE CHANGE STRATEGY & DISCLOSING RISKS & OPPORTUNITIES IN SEC FILINGS