Disclosure in Financial Filings
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.