SEC Decision Requiring Disclosure of Climate Risks Could Have Broad Impact

After years of pressure from investors, environmental organizations and public interest groups, the U.S. Securities and Exchange Commission voted Wednesday to require publicly traded companies to disclose information regarding business risks and opportunities related to climate change.

Some companies already take climate issues into account and disclose their findings to investors, but the "interpretative guidance" issued by the SEC will require all public firms to do so.

This is the first economy-wide requirement that companies disclose their exposure to climate-related risks, according to Ceres, an NGO that has been leading the effort to pressure the SEC to adopt such requirements.

On the day after the standards were released, opinion was divided over the impact the new standards would have, with some critics complaining that they were unnecessary. Others saw it as the start of a broader transformation that would put new pressure on major polluting industries.

SolveClimate spoke with Bob Walker, Vice President of sustainability at Northwest & Ethical Investments LP, whose investment firm has been specifically involved in calling for greater disclosure from energy companies involved in development of the Alberta oil sands.

The oil sands, or tar sands, present an interesting case study for the new SEC regulations. The oil in the Alberta reserve — the second largest in the world — is notoriously costly to extract in terms of financing as well as environmental and social damages.

In December, Walker’s firm released a report warning that oil companies are exposed to “litigious, regulatory, policy and social license risks” and that some of them are doing a poor job of disclosing that risk exposure to shareholders.

Walker says U.S. companies with projects there will now have to prepare some sort of "scenario analysis" that will take into account how a rising price of carbon will affect their projects in both the short- and long-term.

Canadian companies involved with oil sands development that are listed on the New York Stock Exchange will also be affected since they often follow SEC guidelines, though are not always required to. Walker says he hopes this announcement will cause investors to put pressure on those Canadian firms to release similar information on their exposure to climate-related risks.

Outcome of a long fight

The SEC decision stems from a series of reports and other efforts to raise awareness of the risks to investors who have put their money in companies who might be impacted by climate change.

Ceres, the Environmental Defense Fund and other investors and environment groups filed a petition requesting guidance requiring disclosure in 2007 and again in 2008 and 2009. In June, the two organizations plus The Corporate Library issued a report showing that "climate change-related disclosure continues to be weak or altogether nonexistent in SEC filings of global companies with the most at stake in preparing for a low-carbon global economy." A survey of businesses conducted by Ceres and released this month came to a similar conclusion.

Walker, whose firm is based in Toronto, characterizes the decision as "part of a global effort to require disclosure." He cites actions that the Ontario Securities Commission is beginning to take in Canada.

"As a global investor," he says, "I see it as a part of a general trend" and finds it particularly noteworthy that the pressure is coming from the investor community since governments have been slow to respond to climate-related risks.

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