In light of a recent agreement that sets new precedents for disclosure of climate change risks, companies ought to review their current periodic reports and determine whether additional disclosure is warranted, warns an alert from the law firm Nixon Peabody.

An Aug. 27, 2008 agreement with the New York attorney general by utility Xcel Energy Inc. that requires the company to provide detailed disclosure of global climate change risks to its business is significant for two reasons, according to Bradley Kamlet, author of the Nixon Peabody alert.

The agreement—the first enforceable agreement requiring public disclosure of potential financial liabilities related to climate change—is “likely to have an impact on public company disclosure not only in the utility industry, but among a host of industries who are affected by climate change and whose carbon emissions could be affected by regulations and legislation aimed at reducing greenhouse gas emissions,” Kamlet writes.

Second, it occurred absent an initiative by the Securities and Exchange Commission to require more fulsome disclosure of the financial risks associated with climate change in public reports filed by reporting companies. Rather, Kamlet notes that the action resulted from September 2007 subpoenas issued by the Attorney General to Xcel Energy and four other utility companies.

“As both federal and state legislatures turn their attention to regulating GHG emissions, the efforts by the New York attorney general highlight the risks public companies should be aware of even in areas outside their home jurisdiction or geographic area,” says Kamlet.

While most public utility companies’ increased disclosure of risks due to environmental factors in recent years has focused on the costs associated with increased regulation, Kamlet notes that agreement requires extensive disclosure of Xcel’s potential financial risks due to climate change and requires that disclosure in its annual report.

Among the disclosures required are an analysis of:

Any material financial and business risks due to present and probable future regulation of GHG emissions;

A description of any litigation involving Xcel Energy related to climate change and the impact of any climate change-related judicial decisions that would have a material adverse effect on its business; and

The material financial risks due to the physical impact, if any, of changes to the climate.

While several of the required disclosures would be placed within the “Risk Factors” section of a 10-K, the alert notes that current SEC regulations dictate that material disclosure relating to the impact of climate change shouldn’t necessarily be limited to the risk factors. For instance, Item 101(c)(1)(xii) of Regulation S-K requires disclosure of the material impact that compliance with environmental regulations has on a company’s capital expenditures or competitive position, while Item 103 requires disclosure of any material legal proceedings and would include those related to climate change, and Management’s Discussion and Analysis requires disclosure of any known trends, uncertainties, or events that would have a material impact on a company’s business or operations. “Climate change disclosures similar to those required by the attorney general may appear in one or more of these sections,” the alert notes.

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