Copyright © 2008 The Brattle Group, Inc. Antitrust/Competition Commercial Damages Environmental Litigation and Regulation Forensic Economics Intellectual Property International Arbitration International Trade Product Liability Regulatory Finance and Accounting Risk Management Securities Tax Utility Regulatory Policy and Ratemaking Valuation Electric Power Financial Institutions Natural Gas Petroleum Pharmaceuticals, Medical Devices, and Biotechnology Telecommunications and Media Transportation ASTM International’s Draft Standard: Disclosure of Financial Impacts Attributed to Climate Change Presented to: American Bar Association Presented by: Gayle S. Koch December 4, 2008

2 ASTM International ♦ Develops voluntary, consensus standards for materials, products, systems, and services in numerous industries: Energy (e.g., petroleum products, solar technology) Metals (e.g., steel) Construction (e.g., cement, roofing, green buildings) Consumer products (e.g., playground equipment) Environmental (e.g., pollution control, air and water) ♦ Open to producers, users, consumers, government, and academia ♦ Find out more at

3 E50.05 Climate Risk Management Task Group Scheduled Standards Financial disclosure (2nd ballot just starting) Implementation of climate change management systems (draft in process) Adaptation Sustainability Started about one year ago.

4 Financial Disclosures Attributed to Climate Change ♦ Regulatory (e.g., cap/trade, limits, carbon taxes) ♦ Physical (e.g., effects of storms, sea levels, fires, etc. on facilities, processes, and operations) ♦ Litigation (e.g., suits, claims) Risks

5 Financial Disclosures Attributed to Climate Change ♦ Required (pending litigation, major capital outlays, view of company trends, loss contingencies that are more than remote and material) ♦ Address stakeholder/investor concerns (CERES petition to SEC, Attorney General of NY) ♦ Allay market concerns about risks (under control) Why Disclose?

6 Financial Disclosures Attributed to Climate Change ♦ Guide for climate change-related disclosures accompanying audited and unaudited financial statements ♦ Consistent and comprehensive disclosure of material financial impacts attributed to climate change Purpose

7 Financial Disclosures Attributed to Climate Change ♦ Uncertainty is not eliminated ♦ Subsequent disclosures should not be construed as indicating that earlier disclosures were inappropriate (however, trends are useful) ♦ Disclosures are not necessarily exhaustive (cost-benefit) Principles

8 Financial Disclosures Attributed to Climate Change ♦ Enforcement of environmental laws or regulations ♦ Predicted changes in resource costs/availability that may impact a company’s products, processes, markets, or services ♦ Predicted changes in a company’s assets ♦ Contractual assumptions or risk transfer agreements ♦ Litigation or assertion of a claim ♦ Internal information (e.g., audits, consultant reports) Circumstances

9 Financial Disclosures Attributed to Climate Change Estimation of Costs (refer to ASTM Standard E2137) 1. Contractual costs 2. Expected value 3. High/low range and most likely 4. Known minimum

10 Financial Disclosures Attributed to Climate Change ♦ FASB Statement of Accounting Concepts No.2: An item is material if it would influence or change “the judgment of a reasonable person relying on the information.” ♦ Supreme Court: A disclosure is material if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available” or if there is “a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” Materiality

11 Financial Disclosures Attributed to Climate Change ♦ Supplement (not replace) requirements by GAAP, SEC, or other agency or regulatory body ♦ Disclosures should be made when aggregate exposures/risks are material Disclosure

12 Financial Disclosures Attributed to Climate Change ♦ Statement regarding judgment/assumptions made regarding likelihood of climate change risks and their potential materiality ♦ Statement regarding facilities/product lines affected ♦ Identification of company’s total greenhouse gas emissions Content of Disclosure

13 Financial Disclosures Attributed to Climate Change ♦ Assess: Regulatory/compliance risks Physical risk to facilities and operations Emissions allowances/credits Risks/opportunities related to products/services Legal proceedings ♦ Describe current management position, strategic activities, and corporate governance structure (where the responsibility lies for climate change assessment/management) Management’s Strategic Analysis

14 Financial Disclosures Attributed to Climate Change ♦ Estimation methodology ♦ Method for assessing materiality ♦ Amounts accrued ♦ Separate reporting of expected recoveries ♦ Techniques used for data measurement ♦ Major uncertainties, assumptions, and estimates ♦ Time period covered by disclosure Estimated Magnitude/Timing

15 Financial Disclosures Attributed to Climate Change ♦ Consistent reporting over time to allow trends analysis ♦ Graphics, summary data tables, trend analysis, and benchmarking ♦ Support by documentation to allow auditing Encouraged Features

16 Financial Disclosures Attributed to Climate Change If quantification not possible: ♦ Written description of types of climate change impacts foreseen ♦ Written statement describing problems associated with estimation (why further quantification is not feasible at this time) Climate Change Impacts 1. Climate Change Impacts 1.

17 Schedule ♦ Just finished one year of drafting ♦ First subcommittee ballot ended October 4 ♦ Second subcommittee ballot just starting ♦ Latest version to be distributed widely for comments ♦ Comments accepted through mid-January for this ballot round Schedule