Two closely related reports released this week by Ceres reveal that major corporations are largely failing to disclose to investors their risk exposure to climate change consequences and policy developments, typically sharing “minimal information” on how climate disruption is likely to impact their bottom lines.  Ceres, along with the Environmental Defense Fund (EDF) and the Center for Energy and Environmental Security (CEES), analyzed company filings with the US Securities and Exchange Commission (SEC), and discovered that major oil and gas companies, coal companies, electric utilities, even insurance companies (whose bottom line is highly vulnerable to climate change impacts) scored low points in reporting their overall vulnerability to an altered environmental and economic climate.  Wouldn’t it be better for businesses and investors/shareholders alike if everyone came clean and we earnestly got down to the business of reducing risk to our environment and economy, simultaneously?   

post by Anne Polansky

There should be no doubt in anyone’s mind that climate change is posing and will continue to pose some serious challenges, and significant opportunities as well, to the business community.  Of course no two private sector entities will be affected in precisely the same way—we will certainly see economic “winners and losers.”  It will be important for large corporations and small businesses alike to identify, understand, and, most importantly, plan and prepare for these challenges and opportunities.  It will also be important for the investor community, as part of normal due diligence, to understand how climate change will affect their investments going forward; so meaningful disclosure of these expected effects, positive or negative, will be crucial.  That investors have a right to know which companies are best positioned for the emerging clean energy global economy, and which are most vulnerable to climate change impacts, should be a given. 

However, this is not happening nearly to the degree that it needs to in order to properly assess investment risks and opportunities, according to two reports released yesterday by a group of three organizations—Ceres, the Environmental Defense Fund (EDF) and the Center for Energy and Environmental Security (CEES).  While blame for this can be widely spread, it is noted in these reports that, overall, the paltry climate risk disclosures in SEC filings results from the SEC’s failure to recognize the importance of this risk category and to provide any sort of clear guidance to companies.  To the extent that there is disclosure, it has largely resulted from pressure from the investment community.

Ceres president Mindy Lubber declared, “These findings are a clarion call for quick SEC action to require better climate risk disclosure from publicly-traded companies.”  The SEC is managed by five commissioners, chaired by Mary L. Shapiro.  If the Obama administration will not require SEC to provide clear guidance, then Congress should act.

The twin reports are available here (see Ceres press release):

Climate Risk Disclosure in SEC Filings

This report, prepared by The Corporate Library for Ceres and EDF, assesses climate risk disclosure in “10-K” and “20-F” reports filed with the SEC in 2008 by 100 global companies in five sectors: electric utilities, coal, oil & gas, transportation and insurance.  The study found overall limited disclosure: 59 of the 100 companies made no mention of their greenhouse gas emissions or public position on climate change; 28 had no discussion of climate-related risks they face; and 52 failed to disclose actions and strategies for addressing climate-related business challenges. Even more telling, the very best disclosure for any of the 100 companies could only be described as “fair,” and only a handful of companies achieved this ranking.


Trends in Climate Risk Disclosure

A joint effort by Ceres, EDF, and CEES, this multi-year longitudinal study reviewed over 6,000 SEC filings by S&P 500 companies from 1995 to 2008.  It found some modest improvement in climate risk disclosure since 1995, but in 2008, 75% of the annual reports filed by S&P 500 corporations failed to even mention climate change (!), and only 5% of these articulated any sort of strategy for managing climate-related risks. 

While this revelation should set off alarms for investors, businesses, and, frankly, all of society, the reports got almost no media coverage.  Though the Associated Press and PR newswire covered it, and it got decent play in the environment and insurance industry trade press, the only two major newspapers to pick up the story were the LA Times (Environmental and investor groups push for more SEC disclosure on exposure to climate change)  and the Guardian (UK) (Big business ‘failing to disclose climate risks’ to investors).  And Bloomberg Press reporter Simon Lomax has a good article posted.  But the New York Times, the Wall Street Journal, the Washington Post, and all the other big papers looked the other way, or just didn’t pay any attention.  This is a real problem, in general—-  our view is that climate change impacts are insufficiently covered in the mainstream media—and worse, when there is extreme weather or some other newsworthy climate condition to report, either climate change isn’t mentioned at all as a likely or potential contributing cause, or it is described inaccurately.  Failing to cover the content of these reports and note their significance was a missed opportunity. 

The reports looked at three categories of disclosure:  1) emissions and climate change position, 2) risk assessment, and 3) actions to address climate risks and opportunities. 

Specific key findings for the five sectors studied include:

Electric Utilities: Disclosure was widespread but minimal. None of the 26 companies studied achieved a “Fair” rating on disclosure of emissions and climate change position, only 3 out of 26 companies (12%) ranked “Fair” on climate risk assessment, and only 2 out of 26 companies (8%) provided “Fair” disclosure of actions to address climate change. Nevertheless, the electric power sector ranked higher than the other sectors and had three of the highest disclosing companies in the study—AES, Xcel, and PG&E.

Coal: All six coal companies surveyed included some disclosure of climate change issues in their 10-K filings, though only one achieved a “Fair” score in any of the three categories analyzed. Coal companies’ strongest disclosure was in the area of risk assessment; five of the companies provided disclosure in this category that was rated “Limited” or “Fair.” Rio Tinto provided the best disclosure, including valuable information on emissions, while Yanzhou Coal Mining Co. performed the worst overall.

Oil and Gas: The majority of the 23 companies studied provided some disclosure on climate risk assessment, but disclosure was weak with none ranking “Fair” and 22 out of 23 (96%) scored as “Limited” or “Poor.” Twelve out of 23 companies (52%) provided no disclosure on actions to address climate change, while 17 out of 23 companies (74%) disclosed no information on their emissions or climate change position. Apache, Exxon Mobil and Anadarko were noted for particularly weak overall disclosure, while Shell scored best across the board.

Transportation: Only 5 of 19 (26%) disclosed their emissions or their climate change position, and none were ranked as “Fair” for this disclosure. General Motors was the only company to provide information on past emissions from its operations, while not a single company disclosed emissions associated with vehicle use. More companies provided disclosure on climate risk and actions to address climate change, however, the disclosure was weak with only 3 companies scoring “Fair” on climate risk assessment and 2 scoring “Fair” on their actions to address climate risks. Honda, Daimler and General Motors scored the highest overall.

Insurance: Although prudent risk assessment is the basis for a viable insurance industry, the 27 companies studied in this sector provided the least disclosure compared to other sectors.  Eighteen (67%) had no mention of climate change or related risks anywhere in their SEC filings; 24 out of 27 companies (89%) omitted disclosure on actions to address climate change, despite the wide range of opportunities for new, climate-related insurance products. The handful of companies that did provide more informative disclosure—Swiss Re, Munich Re and Zurich Financial—were all non-U.S. companies.

The overall poor reporting of climate change risks by insurance companies, with some notable exceptions, is a big and worrisome surprise, especially since hurricanes, floods, and other extreme weather events exacerbated by climate change have a significant impact on their bottom line. 

Other related (and very good) Ceres reports:

•  2008 Ceres-ACCA North American Awards for Sustainability Reporting: Report of the Judges

•  From Risk to Opportunity 2008: Insurer Responses to Climate Change

•  Water Scarcity & Climate Change: Growing Risks for Business & Investors

About the three organizations who collaborated on this highly informative exercise:

Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Ceres also coordinates the Investor Network on Climate Risk, comprised of 80 institutional investors with $7 trillion in collective assets.

The Center for Energy & Environmental Security (CEES) works to develop practical strategies and solutions for moving international society toward a global sustainable energy future.  Located at the University of Colorado Law School, CEES provides an effective and nonpartisan forum for the development of innovative ideas dealing with issues of energy and environmental security. CEES moves beyond research to create practical real?world strategies and solutions. 

The Environmental Defense Fund, a leading national nonprofit organization, represents more than 500,000 members. Since 1967, Environmental Defense Fund has linked science, economics, law and innovative private-sector partnerships to create breakthrough solutions to the most serious environmental problems.