Rules/Regulations Environmental Disclosures Kathleen Brennan de Jesus Edison International

Sources Federal securities laws/rules Generally Accepted Accounting Principles

General Goal of Federal Securities Laws Disclosure of all material facts necessary for investors to make informed investment decisions Reasonable investor Materiality

Materiality Underlies most disclosure requirements Information to which a “reasonable investor” would attach importance in deciding whether to buy/sell securities Look at the potential effect on the company’s business, liquidity or financial condition

Federal Securities Laws Disclosure Sources 1933 and 1934 Acts Regulation S-K Guidance on Climate Change Disclosure (2010) SEC Proposals Regulation S-K Concept Release (April 2016) Mining companies proposed rules (June 2016) Disclosure Reform (July 2016 proposal) .

Regulation S-K Sets out disclosure requirements for disclosure documents Items that potentially relate to environment are: Item 101 Item 103 Item 303 Item 503

Item 101 – Description of Business Generally describe the development of the business. Specific disclosure requirement on material effects of compliance environmental laws on financial position and forward-looking information on future financial impact of environmental compliance

Item 103 – Legal Proceedings Requirement to disclose material legal proceedings that are NOT “ordinary, routine litigation incidental to the business” Carve out for damages, cap ex or charges to income that are expected to be <10% of consolidated, current assets Environmental legal proceedings are NOT considered ordinary, routine $100,000 damages/sanctions disclosure threshold for govt. proceedings

Item 303 – Management’s Discussion and Analysis Known trends and uncertainties that may have a material effect on the company’s financial condition Contractual obligations Critical accounting policies Cost of compliance with environmental regs?

Item 503 – Risk Factors Company-specific risks that make investment in the company speculative Significant environmental risks could include climate change, contamination, non-compliance, litigation, or hazardous material exposure

GAAP and Liabilities Actual liabilities appear on balance sheet Contingent liabilities may be accrued in the form of charges to income, aka: reserves or only disclosed Reserve when a loss is both probable and estimable (if a range, use lowest end) Disclose when a loss is probable but not estimable

Practical Tips Environmental Legal Proceedings Consider explanatory intro: The following proceeding was [previously] reported to comply with SEC regulations, which require disclosure of certain information about proceedings arising under federal, state or local environmental provisions if a company reasonably believes that such proceedings might result in monetary sanctions of $100,000 or more. Maintain good communications with internal environmental compliance

Practical Tips contd. Develop process for environmental team to communicate with management/SEC reporting team (law and accounting) Regular review of disclosure Regular request for new developments/regulations Awareness of lower reporting threshold for governmental environmental actions