The U.S. Securities and Exchange Commission (SEC) has not adequately addressed the climate disclosure deficiencies of publicly traded corporations, despite four-year-old formal guidance requiring companies to disclose material climate change risks, according to a report published Thursday by Ceres.
The report, Cool Response: The SEC and Climate Change Reporting, is based on a survey of more than 40,000 SEC comment letters sent to companies in the last four years and an analysis of the state of S&P 500 company reporting on climate disclosure through the end of 2013. It finds that the majority of financial reporting on climate change is too brief and largely superficial, and most companies are failing to meet SEC requirements.
“Investors want greater transparency on the business risks of climate change as a means to protect and increase shareholder value,” said Mindy Lubber, president of Ceres. “Yet the SEC is not adequately enforcing its own requirements.”
The SEC requires material climate change disclosure related to domestic and international regulatory risks; indirect effects of regulation or business trends; and physical risks, and evaluates companies’ filings to ensure compliance. Where a filing is not in compliance, the SEC discusses the issue in a comment letter sent to the company.
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However, despite the low quality of corporate reporting on climate risk, the SEC sent climate-related comment letters to just three companies in 2012 and did not send any letters in 2013. Following the issuance of the guidelines in 2010-2011, some 49 comment letters were sent by the SEC.
“The fact that the SEC is slipping backward rather than driving progress on climate risk disclosure is troubling, especially since a large number of companies failed to say anything at all about climate change in their annual filings last year,” said Maryland State Treasurer Nancy Kopp. “Climate risks and opportunities are greater than ever before, yet it seems the Commission is paying less attention than when formal guidance was issued. It is my hope that the Commission will once again demonstrate leadership on this critical issue.”
Over 100 institutional investors around the world representing $7.6 trillion in assets formally supported the SEC’s issuance of guidance on climate risk disclosure in 2010, seeking to understand the material risks and opportunities for companies in various sectors. The report calls on the SEC to prioritize the disclosure of material climate risks, focusing on companies in the most at-risk sectors and on recent regulatory developments.
Last October, a coalition of 70 global investors managing more than $3 trillion in collective assets launched the first-ever coordinated effort to spur 45 of the world’s top oil and gas, coal and electric power companies to assess the financial risks that climate change poses to their business plans. The investors made up the Carbon Asset Risk (CAR) initiative, coordinated by Ceres and the Carbon Tracker initiative, with support from the Global Investor Coalition on Climate Change.
The SEC ought to pay more attention to climate change. Extreme weather events cost the United States $100 billion in 2012, most of which went towards federal crop, flood, wildfire and disaster relief, according to Ceres.