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Corporate Disclosure

SEC Climate Risk Disclosure Update

Securities and Exchange Commission (SEC) rules stipulate that "specific known trends, events or uncertainties that are reasonably likely to have a material effect on a company's financial condition or operating performance" must be discussed as part of a company's SEC filings. Still, SEC rules do not clearly require such disclosure on global warming and carbon dioxide emissions. This results in non-disclosure and uneven disclosure by companies, making it extremely difficult for investors to assess climate risk in their investments.

In April 2004, in coordination with Ceres, 15 leading institutional investors with nearly $800 billion in assets - including eight state treasurers and comptrollers, four labor pension fund leaders and the New York City Comptroller and the California State Teachers' Retirement System (CalSTRS) - called on the SEC to eliminate any doubt that publicly traded companies should be disclosing the financial risks of global warming in their securities filings. In two separate letters to SEC Chairman William Donaldson, the pension fund leaders said that climate change poses material financial risk to many of their portfolio companies and that those risks should be analyzed as a matter of routine corporate financial disclosure to the SEC. While several oil and gas companies have agreed in recent months to include such information in their reports with the SEC, the SEC has not made a formal change in its policy.

In October 2004, in partnership with the Wirth Chair in Environmental and Community Development Policy at the University of Colorado, Ceres convened a leadership forum on "Climate Change Risks and the SEC: Problems and Opportunities" at the Aspen Institute in Washington, DC. Four-dozen participants from public pension funds, business, nonprofits, government, foundations, the United Nations and academia considered the risks climate change poses to companies and investors, the quality of existing climate risk disclosure, and measures the SEC could take to improve it. Participants agreed that companies' lack of rigorous analysis and reporting of climate risk stems from strategic failures at the highest level-top management and the board room-and too much emphasis on short-term results, a trend reinforced by financial markets. Participants also concluded that the SEC should apply its existing requirements for disclosure of material risks to climate risk, and make this clear in an interpretive release. More information is available here: Climate Change Risks and the SEC: Summary Report.

In September 2007, Ceres along with a broad coalition of investors, state officials with regulatory and fiscal management responsibilities, and environmental groups filed a landmark petition asking the SEC to require publicly-traded companies to assess and fully disclose their financial risks from climate change. The first-of-its-kind petition cites unequivocal scientific evidence, far-reaching regulatory developments and extensive business recognition that the risks and opportunities many corporations face in connection with climate change are material to shareholder investment decisions and must be disclosed under existing law. More

In October 2007, leading investors and legal experts testified at a Senate Subcommittee hearing in Washington, D.C. with the message that the SEC needs to take action to require better disclosure by U.S. companies on the financial risks they face from global climate change. The hearing, convened by subcommittee chairman U.S. Senator Jack Reed (D-RI), comes after 18 leading investors, including CalPERS, filed a petition asking the SEC to require companies to assess and disclose "material" financial risks from climate change. Material risks can include financial impacts from emerging carbon-reducing regulations, extreme weather and other climate-related physical events, or growing global demand for low-carbon technologies and products. More

In June 2008, investors filed new evidence indicating the need for an immediate response to the original petition requesting formal guidance from the SEC on climate-related risks and economic opportunities that companies should be disclosing. In the letter filed to the SEC, investors cited a growing body of state, federal and international laws and regulations to limit greenhouse gas emissions that provide extensive economic opportunities for U.S. companies developing climate-friendly solutions and also pose material risks to U.S. companies that decline to innovate. More

Shortly afterwards, the U.S. Senate echoed investor and public interest group pressure by approving language in the Financial Services Appropriations bill that calls on the SEC to issue guidance for publicly-traded companies to assess and fully disclose their financial risks from climate change. The language in the spending bill encourages the SEC to "give prompt consideration to this petition and to provide guidance on the appropriate disclosure of climate risk." More

In September 2008, a group of investors representing over $700 billion called on the SEC to address climate-related risks in its proposed rule revising oil and gas reporting requirements. The investors sent a letter to the SEC in response to Modernization of the Oil and Gas Reporting Requirements (Release Nos. 33-8935; 34-58030; File No. S7-15-08), which proposes to expand the categories of oil and gas resources companies may report, including for non-proven reserves such as oil sands. More

In June 2009, Ceres and Environmental Defense Fund released the report Climate Risk Disclosure in SEC Filings: An Analysis of 10K Reporting by Oil and Gas, Insurance, Coal, Transportation and Electric Power Companies. The report evaluates the current state of climate risk disclosure by 100 global companies in five sectors that have a strong stake in preparing for a low carbon future: electric utilities, coal, oil and gas, transportation and insurance. The report assesses climate risk disclosure in the SEC filings made by these companies in Q1 2008, and finds very limited disclosure. More

In October 2009, the SEC decided to allow shareholder resolutions seeking information from companies on the financial risks they face from social and environmental issues -- including climate change. In the past, the SEC allowed companies to reject these shareholder resolutions as 'no action' requests. With this new decision, investors are able to expressly inquire about the financial implications of critical issues such as climate change in order to obtain the information they need to exercise their fiduciary duties. 

In November 2009, a group of 20 institutional investors filed a supplementary petition to the SEC, asking 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. This petition echoed several earlier requests to the SEC for guidance on climate risk disclosure.

Finally, in January, 2010, the SEC issued ground-breaking guidance requiring corporate disclosure of material climate change risks and opportunities. This new interpretive guidance clarifies what publicly-traded companies need to disclose to investors in terms of climate-related 'material' effects on business operations. This is the first economy-wide climate risk disclosure requirement in the world. 

Contact

For more information on this topic, please contact Jim Coburn, Manager of Investor Programs at coburn@ceres.org.

NEWS & EVENTS

Mutual Funds Boosting Focus on Climate Change When Voting Their Proxies, New Report Finds
June 16, 2010 - The financial world increasingly understands that climate change will have far-reaching business impacts on a wide array of industries. And that’s translating into ever-growing support by many of the nation’s largest mutual funds in favor of climate-related shareholder resolutions filed with U.S. companies. More

Politico on 04/23/10: SEC's Climate Change Transparency
Transparency is a cornerstone of our economy. For investors, that means being entitled to hear about the risks of an investment before making a long-term capital commitment. That’s why the Securities and Exchange Commission’s new climate change disclosure guidance is important. Read More

Investors Globally Call for Greater Transparency on Climate Change Exposure from Oil and Gas Companies
March 18, 2010 - Institutional investors released new climate disclosure guidelines for the oil and gas sector today and called on companies to strengthen their reporting on the risks and opportunities from climate change and evolving regulation. More

Investors Managing $2.1 Trillion in Assets Praise SEC for Climate Disclosure Guidance
March 3, 2010 - More than 50 leading investors today sent a letter to the U.S. Securities and Exchange Commission re-affirming their support for the SEC's recent issuance of interpretive guidance clarifying what publicly-traded companies need to disclose to investors in terms of climate change-related material risks and opportunities they face. More

New Report: Largest Companies Fall Short in Managing, Disclosing Water Scarcity Risks
Despite growing water-scarcity risks in many parts of the world, the vast majority of leading companies in water-intensive industries have weak management and disclosure of water-related risks and opportunities, according to a first-ever report issued today by Ceres, UBS and Bloomberg. More

Download the SEC's Interpretive Guidance on Climate-Related Risk Disclosure

SEC Issues Ground-Breaking Guidance Requiring Corporate Disclosure of Material Climate Change Risks and Opportunities
January 27, 2010 - The U.S. Securities and Exchange Commission today issued new interpretive guidance that clarifies what publicly-traded companies need to disclose to investors in terms of climate-related ‘material’ effects on business operations. More