Companies Cannot Sweep Climate Change Under the Rug
Pick your place.
In Australia, epic floods and drought have caused billions of dollars in economic losses and helped send food, coal and other global commodity prices through the roof. In China, melting glaciers have contributed to a drop in water supplies comparable to the entire flow of the Mississippi River. In the western U.S., warmer temperatures and the spread of destructive insect pests have ravaged millions of acres of valuable forest; Colorado alone lost 100,000 spruce trees a day last year from spruce tree infestation.
Scientists have been warning for years that the frequency of these extreme weather events will only increase as we continue to emit more carbon pollution into the atmosphere.
And while U.S. policymakers run away from carbon-reducing policies, the rest of the world embraces them. India is now levying a carbon tax on coal producers. Brazil passed a law requiring 32 emission-reducing activities. And China, of course, is already dominating the wind and solar industries and its largest industries have low-carbon strategies in place.
Those who think climate change is an illusion, and that it's not causing worldwide economic and business ripples already, need to look at the world around them.
Most of mainstream business is well beyond such debate. Global giants such as Dow, General Electric, Nike and Siemens are moving aggressively to reduce emissions, ramp up low-carbon products and decarbonize their supply chains. Consulting firm Mercer issued a study last month concluding that climate change could increase investment portfolio risk by 10 percent and that opportunities for low-carbon technology investment could be as high as $5 trillion by 2030.
Investors understand these trends. That's why they've been pushing for years for better disclosure from companies about the material risks and, yes, the opportunities they face from climate change, including regulatory, physical and competitive impacts.
After investors petitioned, the Securities and Exchange Commission took a bold and smart step last year by issuing interpretive guidance on the types of climate related disclosure companies must provide in their financial filings, including annual 10-Ks which are next due from companies by March 31.
Still, investors aren't getting the disclosure they need to evaluate which companies are best positioned for this mega trend and which are not. While more companies are disclosing climate-related information in voluntary reports -- such as annual reports, sustainability reports and Carbon Disclosure Project responses -- the quality of overall disclosure is still falling short.
"Disclosure continues to be highly inconsistent and often inadequate, particularly in mandatory filings, and frequently fails to meet the needs of investors," concludes a new Ceres report on this topic, "Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors." The report, prepared for the 95-member, $9 trillion Investor Network on Climate Risk, outlines specific types of climate disclosure investors expect from companies.
"Climate change is a material risk and needs to be disclosed," Bruce Kahn, a senior investment analyst at Deutsche Asset Management, told Institutional Investor this week.
"Investors are looking for more (disclosure), and this report gives companies critical information on what 'more' should look like," added Julie Gorte, senior VP for sustainable investing at Pax World Management, a sustainable investing firm.
It's pretty obvious what investors want on this issue. It remains to be seen whether companies will step to the plate.