The SEC does not currently require companies to disclose climate risks to investorsThe SEC does not currently require companies to disclose climate risks to investors and a new bill aims to change that. Photo credit: Wikimedia

By Karen Savage

A bill that would require public companies to disclose the risks posed to their business by climate change passed a crucial committee vote in the House on Wednesday. 

The House Financial Services Committee passed the Climate Risk Disclosure Act of 2019, which was introduced by Illinois Rep. Sean Casten in 2018. The bill would require the Securities and Exchange Commission (SEC) to develop and implement guidelines for companies on disclosing climate risks. The SEC would be required to make the information available to the public on its website. 

Climate change is a risk to the stability of the global financial system,” Casten said. “This bill presents a market-based solution to understand the impact of a changing climate on companies and provide investors, lenders, and insurers with better information.”

The bill now moves on to a vote by the full House, and if it passes, on to the Senate. With the Senate still controlled by Republicans, it is unlikely to have enough support.

Companies are currently required to disclose the risks that other issues—including lawsuits, significant corporate events and other business trends—pose to their business in annual SEC reports known as 10-Ks. But they are not required to specifically disclose risks posed by climate change.

A study by ClimateWire in 2016 found companies’ voluntary risk disclosures are often vague, with little useful information for investors. Because there are no standard guidelines for measuring and reporting climate risk, comparing risk from company to company is difficult, if not impossible.

The Climate Risk Disclosure Act would require companies in the finance, insurance, transportation, electric power, mining and non-renewable energy sectors to disclose direct and indirect greenhouse gas emissions and to disclose the total amount of fossil fuel-related assets owned or managed by those companies. Companies would be required to use specific parameters for climate scenario analyses and to disclose the methods used in calculating the social cost of carbon. That makes it easier for investors to compare companies based on their climate risk.

Fossil fuel companies have long been accused of not providing complete, consistent or transparent information on the risk climate change poses to their business.

Exxon is currently facing a lawsuit by the New York attorney general’s office for allegedly deceiving investors for years by deliberately downplaying the climate risks to its business and long-term financial health.

In recent years, BP, Exxon, Shell, Chevron and many other major fossil fuel companies have faced intense shareholder pressure to disclose their climate risks. While some have begun to deal more transparently with the issue, many continue to reject shareholder requests.

A law requiring disclosure will help shareholders make better-informed investment decisions, said Danielle Fugere, president of As You Sow, a nonprofit that advocates for corporate responsibility through shareholder advocacy.

“Climate change is very important to investors and shareholders because climate will impact every facet of the economy, from agriculture to supply chains to realty, we’re already seeing those impacts,” Fugere said.

“It’s impossible to predict the next PG&E bankruptcy will be—that was a bankruptcy related to climate change that nobody saw coming last year.” 

PG&E, California’s largest utility, has been found liable for several of the state’s largest wildfires, with climate change intensifying the conditions that lead to them. The company’s shareholders have lost more than $10 billion since the company filed for bankruptcy earlier this year.

More than 50 investor and advocacy groups sent a letter last week to Casten and Sen. Elizabeth Warren, who is a member of the Senate Subcommittee on Securities, Insurance and Investment, in support of the bill.

“Ensuring climate risk disclosure is standardized will allow companies and investors—especially those managing state employee pension funds and other long-term portfolios—to plan for a low-carbon future, and that science and data guide the process,” the groups wrote in the letter.

Casten said residents in his home state are already feeling the effects of climate change and said it’s crucial that investors understand the risks.

“In just the past few decades rising temperatures have worsened extreme weather events; wildfire seasons are longer; in Illinois the painting season has been shortened from seven months to six months. Mosquitoes are expanding their territory, spreading tropical disease. Two feet of sea-level rise is already baked in,” Casten said

“What does that mean if you are a property manager investing in assets on Miami beach? What does that mean if you are a seed developer who has seeds that are not going to be able to germinate at the rising temperatures in my home state of Illinois?

“If you are an investor, you would like to know the answers to those questions.”

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