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D2: Disclosure in Financial Filings

CERES ROADMAP EXPECTATION

Companies will disclose material sustainability issues in financial filings.
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Disclosing the Physical Risks of Climate Change

Increasingly, extreme weather events exacerbated by a changing climate are having negative impacts on businesses. Last year’s spate of extreme weather saw losses of $119 in the U.S. alone, fueled in large part by Super Storm Sandy. Hurricanes, tornadoes, extreme heat waves, wild fires, floods and droughts are affecting the bottom lines of businesses in a range of sectors from apparel companies to insurers. Read More...


Check out Roadmap in Action for more examples of how companies are implementing the Ceres Roadmap.

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.  Disclosure should be complete, including risks, strategy, performance data, and forward-looking information as appropriate.  In the U.S., material sustainability risks that companies are starting to include in 10-Ks and other financial disclosures include climate change, water availability, and human rights.

HOW ARE COMPANIES PERFORMING?

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In The Road to 2020: Corporate Progress on The Ceres Roadmap For Sustainability, we evaluated 600 of the largest U.S. companies on their progress towards meeting the expectations laid forth in The Ceres Roadmap for Sustainability using data compiled and analyzed by Sustainalytics.

Tier description - 3Of the 600 companies assessed, 39 percent (232) are at least minimally addressing ESG risks within their financial filings, though for most this translates to briefly addressing the risks that emissions regulation or more comprehensive climate legislation could present.

Those companies included in Tiers 1 and 2, representing nearly 20 percent (118) of the companies evaluated, are beginning to provide a more comprehensive assessment of ESG risks including water scarcity or the potential impacts that climate change could have on material sourcing and the stability of supply chains, as well as the demand for more sustainable products and services. 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.

Interactive Data

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[23] Companies in Mediocre in 2012