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Disclosure in Financial Filings

The Road to 2020 Key Findings: Disclosure in Financial FilingsIn 2010, the Investor Network on Climate Risk (INCR), a coalition of 100 institutional investors with $10 trillion in assets under management, successfully worked with the U.S. Securities and Exchange Commission (SEC) to issue guidance requiring the disclosure of climate-related risk in financial filings where climate change posed material risks to the business. This sent a signal that companies should take a look at all potential material sustainability risks and determine what should be disclosed.

Disclosure in Financial Filings Expectation

In 2010, the Investor Network on Climate Risk (INCR), a coalition of 100 institutional investors with $10 trillion in assets under management, successfully worked with the U.S. Securities and Exchange Commission (SEC) to issue guidance requiring the disclosure of climate-related risk in financial filings where climate change posed material risks to the business. This sent a signal that companies should take a look at all potential material sustainability risks and determine what should be disclosed.

For example, PepsiCo’s FY2010 10-K filing looks beyond the potential costs of climate-change legislation and examines the risk of climate-change itself. The company identifies possible supply chain disruptions, including decreased supply and increased prices concerning water and agricultural output, which may occur following rises in temperature and the increased frequency of extreme weather conditions. PepsiCo also identifies the reputational risk, and subsequent negative impact on sales, of failing to maintain high ethical, social and environmental standards. This includes failing to meet goals concerning energy use, waste management, as well as sodium, saturated fat and sugar reduction in its products. PepsiCo’s proactive identification of these material risks better positions the company to address them, while prompting its investors to demand continued improvement and putting pressures on peer companies to follow suit.

Some companies also identify opportunities for capturing new markets through the development of products and services that are more sustainably manufactured or provide solutions to sustainability challenges. In its annual financial filings, Weyerhaeuser discloses to investors its longer-term business strategy for taking advantage of new market opportunities and the demand for sustainable forestry products. In General Motor’s financial filings, the company details its research and development strategy focused on fuel efficiency and alternative fuel vehicles — highlighting this work as its top research priority and stating its objective to be a recognized industry leader in fuel efficiency.

Case Study: Physical Risk Disclosure in the 10-K

Increasingly, climate-related severe weather events are having negative impacts on businesses. Last year alone saw a record 14 natural disasters in the U.S. that each caused more than $1 billion in damage. Extreme heat waves, hurricanes, tornadoes, floods and droughts have affected the bottom lines of businesses in a range of sectors from apparel companies to insurers.

Investors have been concerned about the physical risks from climate change for a number of years and following the SEC’s interpretive guidance on climate change disclosure, there is a growing expectation that companies will discuss these material risks in their financial filings.

To help companies and investors navigate these evolving disclosure expectations, in 2012 Ceres, Calvert and Oxfam released Physical Risks from Climate Change: A Guide for Companies and Investors on Disclosure and Management of Climate Impacts. The report provides real world examples of business impacts, as well as key questions and steps to consider in disclosing the assessment and management of the physical impacts of climate change.

To see how companies are performing on Disclosure, click here.

How are companies performing?

Four ArrowsClick the links below to view interactive graphs detailing companies' progress on the Ceres Roadmap expectations for Disclosure.

Overall Disclosure Performance

Standards for Disclosure

Disclosure in Financial Filings

Vehicles for Disclosure

Verification and Assurance