Many companies are facing new and expanding regulatory compliance risks resulting from an increasing number of international, national and regional programs. In a recent Ernst & Young study, of 300 global executives from organizations with revenues of US$1b or more, 94% of respondents see national policies as important or very important in shaping their climate change strategies, although 81% recognize the importance of global or international policies. In the past year alone, over 250 climate change-related government actions were implemented globally − including state and provincial action across North America. In the US, for instance, the Environmental Protection Agency declared carbon dioxide a danger to human health and announced that it would require reporting of greenhouse gas emissions starting in 2010 for heavy emitters — on a per-facility basis. As another example, the Federal Trade Commission has indicated its intentions to crack down on "greenwashing" in marketing claims (i.e., misleading consumers and stakeholders about environmental claims). This not only opens up new regulatory compliance risks for companies, but also reputational ones, given that specific facilities will be under the microscope. The key risk areas resulting directly or indirectly from regulatory measures are varied and can include: - health and safety
- human rights and labor laws
- anti-bribery
- environmental risks.
Environmental risks can include direct impacts (e.g., emissions trading cost exposures) and indirect impacts (e.g., energy price increases and accompanying reporting and compliance costs). Audit and verification activities will also be required under certain programs, resulting in additional cost exposures. Companies in unregulated jurisdictions face additional risks around policy uncertainty. In the US, the SEC recently provided public companies with interpretive guidance on existing SEC disclosure requirements. The SEC’s interpretive guidance highlights the following areas as examples of where climate change may trigger disclosure requirements: - Effects of legislation and regulation. When assessing potential disclosure obligations, a company should consider whether the effect of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential effect of pending legislation and regulation.
- Effect 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. Physical effects of climate change. Companies also should evaluate, for disclosure purposes, the actual and potential material effects of environmental matters on their business.
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