Climate Change and the S.E.C. (Editorial)
There were predictable howls after the Securities and Exchange Commission told publicly held companies they should warn investors of any potential effects from climate change on their bottom lines. Representative Joe Barton, among the most reliable of the oil, gas and coal industries’ many friends in Congress, complained that the commission’s time would be better spent on “investor protection” rather than imposing new burdens on corporations and promoting the “social agendas” of environmental groups.
Investor protection is exactly what the commission had in mind when it decided, by a 3-to-2 party-line vote, to add global warming to the list of material issues — plant closing, the sale of assets — that companies may have to discuss in their financial filings.
Mary Schapiro, the chairman, said the commission was not adding new “legal requirements” but simply offering guidance to help companies decide when and whether to discuss the potential impact of global warming on their operations and earnings.
It makes good sense to us that companies should disclose whether a new law or international treaty limiting greenhouse gas emissions is likely to require new investments or increase operating costs. A climate change law could also help companies that produce renewable fuels or environmentally friendly technologies, like wind turbines. That, too, should trigger disclosure.
The commission, which took pains to say that it was not expressing an opinion on whether the world’s climate was changing, has long required companies to reveal financial or legal impacts from other environmental challenges — potential liabilities under the Superfund law or the Clean Water Act, for instance. It has also been petitioned by investor groups and environmentalists to add climate change to the list of those challenges.
At the same time, ordinary stockholders and state insurance regulators have begun expressing increasing alarm about the potential cost of unchecked climate change for American businesses. The S.E.C. action is simply one more incentive for investors and managers to better understand the risks — and the opportunities — out there for publicly traded businesses.