A year later, climate change disclosure has improved incrementally, but still leaves a lot to be desired, according to a new report from Ceres that examines the state of disclosure in SEC filings. The report also offers companies a checklist to help them provide the types of material information investors want.
"It was mainly written as a guide for companies. The SEC guidance is excellent, but they also need examples of disclosure that are important to investors," said Jim Coburn, co-author of the report. "It's challenging because there are not that many good examples."
A survey of SEC filings found material climate change disclosure is getting better, but Ceres could not find any that could be considered exemplary. Instead, disclosure fell into three buckets: poor, fair and good.
The nonprofit looked for disclosure in the following areas: regulatory risks and opportunities, indirect consequences or business trends, physical impacts, greenhouse gas emissions data, and strategic analysis of risk and emissions management.
It is extremely helpful for investors when companies quantify the value of a climate change-related risk or opportunity, Coburn said, such as Siemens' disclosure of its goal to generate 25 billion euros in revenue by end of 2011 for environmental products and services. AES Corp. wrote in its 2009 10-K report that it would spend $17.5 million annually from 2010 through 2011 to participate in the mandatory Regional Greenhouse Gas Initiative (RGGI).
In contrast, Dean Foods said it is subjected to various pollution control laws but only mentioned the potential impact in vague, general terms. Southern Company provided slightly better disclosure by discussing specific climate change-related regulations, but only included generic information on the financial impacts.
Coburn noted that foreign companies appear to offer better climate change disclosure, pointing to Siemens and Rio Tinto for their discussion of strategies in public filings, which he called rare.
"There is the fear that the information in SEC filings can lead to lawsuits," Coburn said. "It's not justified in the climate change area" where the information is often already available, such as through the Carbon Disclosure Project.
Ceres included in the report an 11-point checklist to help companies identify, address and disclose business risks and opportunities. Recommendations include creating a climate management team, calculating past and future emissions, and considering investor demands when performing materiality assessments.
Coburn doesn't anticipate sweeping improvements in climate change disclosure without some type of legislation that caps emissions or provides incentives for clean energy.
"To see a massive change in disclosure or performance," Coburn said, "I think something at the federal level would be very meaningful."
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