Companies face growing pressure to disclose their climate change risks

How can you tell if climate change represents a big financial risk for a business or your investments? For now, Wall Street’s top regulator doesn’t offer much help. That’s because there are no set rules for what companies must disclose to the Securities and Exchange Commission about their potential financial exposure to global warming.

As a step toward filling that void, the SEC this spring asked for feedback on what such requirements should entail. The regulator is how sifting through thousands of comments from companies, lobbyists, legal experts, banks, investors and others.

“The current state of climate change disclosure does not meet our needs,” a group representing $2.7 trillion in assets led by the California State Teachers Retirement System (CalSTRS), various state funds, state treasurers and nonprofits wrote detailing their requests. They want, among other things, companies to disclose greenhouse gas emissions in a way that make it easy to compare businesses.

Many companies said they support the idea of an SEC rule on climate change disclosures, with one group led by Bank of America and Dell Technologies calling current reporting “complex and fragmented.”

Other parties, like the lobbyist group Investment Company Institute (ICI), noted the SEC itself found the growth of Environmental, Social and Governance investing (ESG) has meant higher costs for companies, which must respond to individual investor questions about the impact of climate change on their business. A federal disclosure standard could help lower those costs.

What should companies disclose — and when?

Google-parent Alphabet, Amazon, eBay, Facebook, Intel and other companies said in a joint letter that, unlike with quarterly and annual financial statements, climate forecasts aren’t as concrete or predictable as what goes into a spreadsheet.

“Given that climate disclosures rely on estimates and assumptions that involve inherent uncertainty, it is important not to subject companies to undue liability, including from private parties,” they wrote.

Investors need details beyond carbon emissions, like how and where companies get their supplies, sources of water and energy they use, and even where buildings and offices are located, said Madison Condon, a Boston University law professor who also researches climate change and financial regulation.

“This is the type of information needed to assess climate risk exposure but is not the type of information currently disclosed in financial reports,” she told the SEC in a letter on potential disclosure rules.

Also at issue is how often companies should disclose their climate risks. The National Association of Manufacturers, for instance, argues that climate disclosures should be annual “at most” to give companies the time to compile information in line with other regulatory requirements. It also argued that the SEC should take steps to limit liability for public companies.