ASTM Releases a New Standard Regarding Disclosure of Financial Impacts Related to Climate Change

Author:Mr Kenneth Kulak, Ronald J. Tenpas, Christopher J. McAuliffe, John McAleese, Catherine G. Vasudevan and Linda L. Griggs
Profession:Morgan Lewis

In March 2010, ASTM International, one of the world's largest voluntary standards development organizations, released a standard guide, ASTM Standard E2718-10, Standard Guide for Financial Disclosures Attributed to Climate Change (the Guide), suggesting processes for the identification, evaluation, and disclosure of financial impacts attributable to climate change. The Guide is intended for use on a voluntary basis by companies and public agencies (collectively, "reporting entities") as a supplement to, rather than a replacement for, any applicable regulatory pronouncements, such as the interpretive guidance issued in February 2010 by the U.S. Securities and Exchange Commission (SEC) related to disclosure by public companies about the impacts of climate change.1

The Guide is the result of a consensus development process, spanning over two years, which involved a wide variety of stakeholders. A key benefit of the Guide is the discussion of processes for identifying and evaluating financial impacts attributable to climate change, a topic some stakeholders felt was lacking in the SEC's interpretive guidance. While the degree of Guide use and acceptance remains to be seen, ASTM has already received requests for a Guide appendix providing a model disclosure.

It is important to note that while the ASTM and SEC guidance documents both identify similar areas of risk that should be considered when drafting disclosures, the Guide states that disclosure about material financial impacts may be presented either in the financial statements or outside the financial statements, whereas the SEC's interpretation discusses disclosures outside the financial statements. We recommend that public companies consider providing forward-looking statements about climate change outside the financial statements so that such disclosures have the benefit of the safe harbor for forward-looking statements under the federal securities laws.2

Identifying Financial Impacts

The Guide identifies various possible financial impacts from climate change.3 To facilitate their identification, the Guide describes major categories of circumstances that might give rise to such impacts. The categories include the following:

Regulatory – The enforcement of laws or regulations regarding greenhouse gas emission levels, investigations, controls, and reporting. This includes predicted changes in federal, state, and local regulations as well as statutory and common law developments. Resources – Predicted...

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