Investors Call for Companies to Disclose Climate Change Risks and Opportunities

Institutional investors managing more than $1 trillion in assets have called on the Securities and Exchange Commission (SEC) to provide guidance on the disclosure of climate change risks and opportunities.
The investors’ petition calls for interpretive guidance outlining climate-related ‘material risks’ – such as new regulations, physical impacts, new economic and business opportunities and other climate related trends that companies should be disclosing to investors. Investors consider it impossible to adequately assess the risk to their money if companies don’t tell them how climate change and its impacts might affect their financial performance. Investors need to know if the companies they are investing in are successfully managing climate risk and opportunities.
The request for guidance follows the recent spate of climate change legislation developments in the US, and the US Environmental Protection Agency’s new mandatory greenhouse gas reporting rule. Although SEC has imposed disclosure requirements on companies for environmental liabilities, it has not previously specified what is required for climate-related ‘material risks’’ In October 2009 SEC did, however take a step toward greater corporate disclosure of climate risks’, it decided to allow shareholder resolutions seeking information from companies on the financial risks they face from social and environmental issues, including climate change.
The implications of this petition and the additional SEC requirements will add pressure on companies to be more transparent and accountable, arguably benefiting efficient markets.
The UK Climate Change Act deals with reporting of greenhouse gases, but does not go as far as allowing shareholders resolutions to seek information from companies on the financial risks they face from climate change, environmental and social issues. Globally, companies are being put under more pressure to disclose more information on their environmental impacts, and it does not appear that the trend is going to weaken for now.