D2: Disclosure in Financial Filings
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 billion 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.
Investors have been concerned about the physical risks from climate change for a number of years. 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, Calvert and Oxfam released Physical Risks from Climate Change: A Guide for Companies and Investors on Disclosure and Management of Climate Impacts, which 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.
Ceres Network Company PepsiCo’s 10-K filing is highlighted for looking beyond the potential costs of climate change legislation to examine 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 and 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 pressure peer companies to follow suit.
For more examples on Disclosure, click here.