Two reports released on June 3 criticize current disclosure of climate change risk by many public companies and call for specific climate change disclosure guidance from the Securities and Exchange Commission (SEC). Reclaiming Transparency in a Changing Climate: Trends in Climate Risk Disclosure by the S&P 500 from 1995 to the Present (pdf), commissioned by the Center for Energy and Environmental Security, Environmental Defense Fund, and Ceres, analyzed approximately 6,400 10-K filings by S&P 500 companies, in the utilities, energy, materials, industrial, financial, consumer products, and IT & technology sectors. The report found that “there is an alarming pattern of non-disclosure by corporations regarding climate risks” and that: (1) 76.3% of 2008 annual reports filed did not include any mention of climate change; (2) only 5.5% of 2007 annual reports identified at least one risk posed by climate change and articulated a strategy for managing and mitigating that risk; (3) less than 10% of companies in the financial sector discussed climate change in their 10-K filings; and (4) the utilities sector had the highest disclosure rate.
The second report, Climate Risk Disclosure in SEC Filings (pdf), prepared by The Corporate Library, assessed climate risk disclosures in the Quarter 1, 2008 filings of 100 global companies in the electric utilities, coal, oil and gas, transportation, and insurance sectors. The report concluded that most companies failed to discuss their greenhouse gas emissions or their position on climate change in their filings. The utilities sector had the highest ranking, of “fair”, because 3 of the 26 companies studied disclosed the risk climate change posed to their businesses and 2 companies disclosed actions to address climate change.
Both investors and regulators are demanding greater disclosure of climate risks. For example, the Global Framework for Climate Risk Disclosure was developed by investors to encourage standardized reporting from companies. The New York Attorney General subpoenaed five major energy companies in 2007 raising concerns that the companies did not disclose material information about increased climate risks. The subpoenas have resulted in two of the companies entering into settlement agreements with the Attorney General’s Office. (See Jeff Gracer’s article, Disclosure of Climate Change Risk to Investors: A Critical Issue in Search of National Standards (pdf) for information.) Unless and until the SEC issues more specific guidance, the New York State Attorney General’s settlement framework may represent the most complete articulation of factors to be considered in connection with disclosure of climate change risk.
