The Securities and Exchange Commission last month approved guidance encouraging companies to disclose the effects of global warming on their businesses.

The commission's decision split along party lines, mirroring the divide on Capitol Hill over climate change legislation. Under the guidance, companies should consider whether existing or pending laws and regulations carry a potential cost and whether climate accords carry some financial risk. It also directs companies to consider whether actual and potential physical impacts should be disclosed, such as the possibility that an existing facility will be rendered obsolete because it might not comply with environmental requirements.

The agency's two Republican commissioners opposed the guidance. "I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise," said Republican Commissioner Kathleen Casey. "As we begin to emerge from the worst financial crisis in generations, our consideration of this release today sends a curious signal to the investment community about what we view as the most pressing issues facing the commission," she said during the Jan. 27 meeting.

The move also rankled Republican lawmakers, who agreed that the initiative has more to do with politics than investor protection and is a distraction that the agency can ill afford while it tries to regroup from the Madoff scandal.

In a Jan. 26 letter to SEC Chairwoman Mary Schapiro, Reps. Joe Barton, R-Texas, and Greg Walden, R-Ore., called the climate change effort "a breathtaking waste of the commission's resources." But Schapiro countered that the guidance "is merely intended to provide clarity and enhance consistency" regarding an issue that has increasing potential to affect companies' bottom lines.

Michael Littenberg, a partner at Schulte Roth & Zabel LLP, argues that the SEC guidance is not a new burden on companies, but simply a road map for complying with requirements they already face. He notes that many companies may conclude that the impact on operations and bottom line is not material and they won't have to make additional disclosures.

Groups focused on socially beneficial investing, including Boston-based Ceres and its Investor Network on Climate Risk, along with the Environmental Defense Fund, have long sought more guidance on climate-related disclosures. "Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential," said Anne Stausboll, chief executive of the California Public Employees' Retirement System, the nation's largest public pension fund and a member of a coalition pushing for the guidance.

Insurance companies will be among the most affected by the SEC action. The agency says insurers may want to consider disclosing whether there's a risk of increasing insurance claims in coastal areas due to severe weather or sea level changes.

Business trends matter, too. "Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies," says the SEC's guidance. The SEC notes that companies shouldn't ignore how climate change affects their competitive positions. For example, a company over time might see less demand for energy-intensive goods whose production creates heavy industrial emissions. On the flip side, "green" goods and services that produce less emissions could enjoy rising demand.

But Littenberg says the guidelines raise some interesting challenges. "Not all companies will have in place the infrastructure or expertise to evaluate the potential impact of climate change," he says. This may mean that they will have to work more closely with outside counsel and other experts. Additionally, public companies and their investors also have to question whether the disclosures they make are meaningful to investors. Says Littenberg: "That's the unanswered question: Does this result in additional disclosure that helps investors to make better decisions, or does it result in an increase in generic and technical boilerplate in filings?"

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Donna Block covers accounting regulation for The Deal.