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G7 and SEC: Mandatory Climate Risk Disclosure Required Now




G7 leaders met in the UK last week and the climate was a priority, as it should be. One area of ​​agreement among leaders of the world’s largest economies may seem new but has been underway for years: mandatory business climate disclosures.

The United States has broad disclosure laws, which allow the Securities and Exchange Commission (SEC), as the regulator of stock exchanges and sales of shares, to require companies to provide to the public information that can help us make decisions, such as regarding a company’s finances, operations, how it compensates executives and how it is managed. Climate change is an issue on which the SEC must demand more disclosure and the SEC chairman has indicated that he and the Commission intend to require companies to disclose how climate change affects risks and risks. opportunities they face. The SEC is expected to issue a rule later this year. We think it’s high time: the NRDC has been pushing for more disclosure on environmental issues since 1971. And that’s important for investors with a recent CFA Institute poll. 40 percent of investment professionals already integrating climate risk to inform their investment decisions.

As part of our advocacy for mandatory climate disclosure, the NRDC comments submitted at Recent SEC Information Request. Only mandatory disclosures will allow the SEC to respond its mandate: protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation. If investors are unaware of the climate risks and opportunities that the companies they invest in may face, it is difficult to see how investors can be protected and markets can function effectively.

As we explained in our comments, new rules must oblige every company to disclose:

  • all of its greenhouse gas (GHG) emissions. This includes the GHG emissions of the assets it owns, such as factories, buildings or transport fleets; GHG emissions from the use of electricity to run its factories and buildings; and GHG emissions linked to the use of the products it manufactures (in the case of manufacturers) or of the investments it makes (in the case of banks or investment companies).
  • the company’s projections of how realistic climate change scenarios will affect the business. Climate change is likely to lead to more powerful floods, wildfires and hurricanes. These events can damage property, disrupt supply chains and injure employees. But climate change can also lead to a shift towards more sustainable products, alternative energy sources and new business opportunities. Investors need to know how companies view these possibilities.
  • how company operations affect communities vulnerable to climate change.

These disclosures would give investors useful information for their decisions, enabling investors to identify companies (and industries) taking the risks of climate change seriously and plan accordingly. Investors would be better able to efficiently allocate capital to companies that responsibly plan for the physical risks that climate change already creates, such as forest fires and sea level rise, as well as the risks of climate change. transition, policy changes, consumer preferences, prices, etc. climate change is likely to impose. And as we know, the costs of climate change will and already aredisproportionately supported by low-income communities and communities of color. The disclosures could provide information and ideas on how different stakeholders may be affected by climate change, including vulnerable communities. In addition, removing financial incentives in relation to climate-damaging investments is a step towards alleviating these burdens on vulnerable communities.

A voluntary system, in force for about 15 years, was a good start. But the voluntary disclosure did not generate important information or facilitate comparison between companies. Requiring companies to disclose the risks they face and contribute to in the face of climate change will produce comparable information across companies and sectors, enabling investors and the public to make more informed decisions.

In their press release Summarizing the G7 meeting, G7 leaders underscored their agreement on the importance of climate disclosures:

We stress the need to green the global financial system so that financial decisions take climate considerations into account. We support the move towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants and that are based on the Framework of the Climate-Related Financial Disclosures (TCFD) Working Group, in accordance with national regulatory frameworks.

Making sure investors know the climate risks of companies they own or plan to buy is an obvious first step towards greening the global financial system. We are happy that the G7 leaders agree and are working to make this happen in the world’s largest economies.

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