Opinion: 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.
You might not commit, for example, to a computer chip-maker whose silicon costs are about to triple, or a clothing manufacturer whose factories are caught up in civil unrest overseas. Or you might invest and then pressure the company to address its issues.
That’s why the Securities and Exchange Commission’s new climate change disclosure guidance is important. It outlines the type of information that publicly traded companies facing material effects from climate change should be disclosing.
This is what regulators are supposed to do — get ahead of the curve as business risks and opportunities change.
Climate change is a classic material risk to businesses.
It is clear that a changing climate affects virtually all companies. Recent droughts and water shortages in California, for example, have led to dramatic reductions in hydropower use — and more than $1 billion in losses for the state’s agriculture industry. Melting ice in the Arctic is expected to have far-reaching effects on shipping and energy exploration.
Climate change is also a risk because it is altering behavior. Governments at all levels, here and abroad, are mandating greenhouse gas reductions, cleaner electricity generation and energy-efficiency initiatives. Consumers are demanding change. Large emitters are facing lawsuits.
To say that developments like these aren’t altering companies’ business models — and investors’ calculations — is to ignore reality.
But climate change also offers opportunities. Not just for wind turbine or solar panel producers but for construction firms doing retrofits, retailers selling energy-saving products, farmers growing biofuel crops or companies that grab the competitive edge as early adopters of new technology.
Eco-friendly products from companies such as General Electric, for example, are in growing demand. Revenues from GE’s ecomagination business accounted for 9 percent of total sales last year and increased by 21 percent from 2008.