The Magazine of Corporate Responsibility

SEC Votes for Improved Disclosure on Climate Risk

by Michael Connor

In an action hailed by environmental groups as “ground-breaking,” the U. S. Securities and Exchange Commission voted to provide guidance to publicly-listed companies regarding the level and quality of their disclosures on climate change and its "material"  impact on their businesses.

SmokestackCommission attorneys said that under the new guidance shareholder reports should evaluate the potential impact on a company of new climate change laws and regulations, both domestic and international. Other factors to be considered would include the impact of severe weather; a decreased demand for goods that produce significant greenhouse gas emissions; and increased competition to produce products that satisfy consumer demand for greener goods.The SEC action doesn’t change existing disclosure requirements, but it does put pressure on companies to step up the quality of information and analysis on climate risk that they provide to stockholders.

In announcing the action at a hearing in Washington, D.C., SEC Chairman Mary Schapiro said the Commission was “not opining on whether the world’s climate is changing” but only providing guidance on how companies should report.

Pressure from Investor Coalition

The SEC was pressed to provide the guidance by a coalition representing some of the nation’s largest public pension funds – such as the California Public Employees' Retirement System (CalPERS) – and other institutional investors with about $1.4 trillion in assets under management. The coalition was organized and largely driven by Ceres, a national network of investors and environmental organizations working on sustainability issues.

“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for U.S. companies and the urgency for integrating them into investment decision making,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk, a network of 80 institutional investors with $8 trillion in collective assets. “The business risks of climate change cannot be ignored. With this guidance investors can make more sound decisions based on better information – and businesses will have a level-playing field with clear standards and expectations for disclosure.”

In its filings with the SEC, the coalition argued that “climate related risks are material to investors’ decisions” and it asked the Commission to issue formal guidance on what and how companies should disclose information. A “lack of hard data and long‐term planning disadvantages investors, who require this information to make informed investment decisions and protect their portfolios,” the coalition said.  “Furthermore, voluntary disclosures of this type lack the rigor and accountability inherent in 10‐K reports certified by senior management pursuant to enforceable legal requirements.”

The investor group cited two reports which they said showed that S&P 500 companies are providing scant climate-related disclosure to investors.

The first report assessed disclosure by100 global companies in five sectors - electric utilities, coal, oil & gas, transportation and insurance - and found overall limited disclosure: 59 of the 100 companies made no mention of their greenhouse gas emissions or public position on climate change; 28 had no discussion of climate-related risks they face; and 52 failed to disclose actions and strategies for addressing climate-related business challenges.

The second report reviewed over 6,000 SEC filings by S&P 500 companies from 1995 to 2008.   While the study found “some modest improvement” in climate risk disclosure since 1995, it said that in 2008 75% of annual reports filed by S&P 500 corporations “failed to even mention climate change and only 5% articulated a strategy for managing climate-related risks.”

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