Not Enough Concern About Climate in U.S. Companies?

Not Enough Concern About Climate in U.S. Companies?

Despite growing financial losses in various business sectors from climate change, over half of the nation's 500 largest publicly traded companies are doing a poor job of disclosing climate change risks to their investors, according to a first-ever report analyzing climate disclosure practices among S&P 500 companies last year.

The Ceres/Calvert report [PDF] released yesterday concludes that America's largest companies still aren't taking climate change seriously enough. Less than half (47 percent) of the S&P 500 companies responded to a global survey last year by the Carbon Disclosure Project requesting information about their climate risks and strategies, and those that did respond failed to provide much of the information investors are seeking. Nearly a third (30 percent) of the responders, in fact, declined to publicly release their responses, calling them "confidential."

"Many U.S. companies are still downplaying climate change and its far-reaching business impacts," said Mindy S. Lubber, president of Ceres, a leading coalition of investors, environmental groups and other public interest organizations. "More-extreme weather events, regulatory changes and growing global demand for climate-friendly technologies are just a few of the ways that climate change will ripple across all sectors of the economy."

Lubber added that the report shows many U.S. companies are not addressing these trends and may potentially be leaving investors in the dark about their strategies for mitigating those risks.

Poor survey responses among companies in lower-emission industries -- in particular, retailers, banks and insurers -- was especially conspicuous to the groups. Many companies in these sectors provide insufficient climate disclosure to investors, even after suffering large financial losses from climate-related events, such as the 2005 hurricanes. Lubber said that all companies should disclose their risks using the three most common disclosure mechanisms: SEC filings, CDP, and sustainability reports using Global Reporting Initiative guidelines.

"All companies have a duty to provide shareholders with more analysis and disclosure on climate risks and their strategies for managing or mitigating those risks," said Dr. Julie Fox Gorte, vice president and chief social investment strategist at Calvert. "Lower-CO2-emitting sectors and companies also face potential risks from new regulations, physical changes, and other climate-related impacts. Power and oil companies are improving their climate disclosure and it is now time for retailers, banks and telecommunication companies to start doing the same."

"This report underscores the need for the SEC to take action to include climate risk as part of their 'materiality' standard for corporate reporting, and for the companies of the S&P 500 to take heed," said Howard Rifkin, Deputy Treasurer, State of Connecticut. "The good news is that a coalition of investors have developed a set of reporting guidelines -- the Global Framework for Climate Risk Disclosure -- that corporations can use."

The Ceres/Calvert analysis was based on S&P 500 company responses to a questionnaire distributed last year by the Carbon Disclosure Project (CDP), to obtain more information relating to corporate management of climate change. CDP is a coordinated effort by 225 global investors with total assets of $31 trillion. The report authors used the Global Framework for Climate Risk Disclosure to analyze the quality of responses.

Other key findings from the Ceres/Calvert report include:
  • Poor Greenhouse Gas Emissions Management: 80 percent of the 228 companies that responded to the survey (182 companies) addressed the need to reduce greenhouse gas emissions, but only a quarter (59 companies) disclosed measurable emissions reductions targets and specific time frames for reductions.
  • Physical Impacts Not on Radar Screen: Nearly 75 percent of the responding companies (171 companies) acknowledged bottom-line risks associated with extreme weather events such as hurricanes, fires and floods. However, very few of the companies surveyed link more-extreme weather to climate change and fewer still -- only four percent -- disclosed strategies for mitigating and adapting to the growing physical impacts from climate change.

The report argues that the case for action is clear, since the climate problem for S&P firms -- and the shareholders who invest in them -- is expected to grow even more severe.

Climate change is expected to increase the severity of future hurricanes, as scientific evidence indicates that ocean warming is increasing their intensity. In addition, the energy released by the average hurricane has risen by about 70 percent in the past three decades, just as sea surface temperatures have increased during the same period. Scientists say warming temperatures are also contributing to record heat waves and more damaging wildfires and hailstorms across the U.S.

International, national and state regulations will have a similar rippling effect, as companies will come under increasing pressure to improve their energy efficiency, switch fuels or invest in emission controls. While momentum for mandatory federal climate legislation is growing, California and seven Northeastern states are already taking regulatory action to reduce global warming pollutants.

Meanwhile, much of Europe is pushing to reduce GHG emissions under a cap-and-trade carbon emissions trading program already valued at about $30 billion a year. All companies -- including retailers, banks, oil producers and utilities -- will be affected by these regulations.

Understanding how individual companies and industries incorporate these regulations into capital investment decisions and strategic planning is increasingly critical to a complete understanding of a company's health and financial value.
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