On the heels of the Risky Business Report that calls on investors to take climate change seriously, a new online tool is making it easier for them to assess corporate exposure to climate-related risks.
While investors and civil society say they welcome this new tool, the database is likely to remain incomplete as long as companies get to choose whether or not they want to share this information.
The platform, released on Monday, will allow users to search the 10-K filings of Russell 3000 companies from 2009 to the present, and to filter this information based on clean energy, renewables, weather risk, climate-related regulatory risks and opportunities.
Public companies in the U.S. are legally required to submit 10-K filings to the U.S. Securities and Exchange Commission (SEC) once a year, which covers their businesses, risks, financial conditions and audited financial statements.
At the request of over 100 institutional investors, representing $7 trillion, the SEC provided Interpretive Guidance in February 2010 on how companies could add climate-related risks and opportunities to their 10-K reports.
The SEC is the key U.S. government body that gives investors the information they need to make smarter financial decisions. But without an online tool, like the one created by Ceres, information related to climate change is difficult to track down.
“For markets to properly account for rising climate-related risks, investors need information on how companies recognize and manage those risks. This tool helps to make that enterprise easier for investors interested in understanding and managing climate risk,” said Julie Gorte, Senior Vice President for Sustainable Investing at Pax World in an online statement.
But, analysis of the Ceres tool shows that voluntary climate change reporting provides little incentive for companies to comply with reporting standards, as “only half of the Russell 3000 filers had something to say about climate change in their 2014 10-K filings,” and those filings “were highly variable in length and quality.”
A report by Ceres last February called Cool Response: SEC and Climate Change Reporting shows that more S&P 500 companies made climate-related disclosures after the SEC issued its guidance in 2010, but participation has slowed since then. And while the number of participating companies has increased overall, the disclosures were less specific in 2013 than they were in 2010, said the report.
Online tools are just as helpful for pointing out gaps in data as they are for analysis, said Michelle de Cordova, Direct of Corporate Engagement and Public Policy at NEI Ethical Funds. It’s an indication that there is a need for engagement to get companies to disclose what they’re already doing or to get them to start doing something, she said.
At a press event last week for the Risky Business Report, Henri Paulsen and Robert Rubin, former U.S. Treasury secretaries, called on the SEC to improve their climate disclosures and do a better job of getting companies to comply with the guidance it implemented. Rubin said companies should be reporting to the SEC assets that could be stranded, or unburnable, due to climate change.
Bloomberg LP released its own tool in November 2013 that helps investors assess how climate-related risks can affect the earnings of oil, coal and gas companies by estimating their ‘unburnable assets.’ This assessment is calculated regardless of the sustainability indicators, using a combination of current reserves and projected carbon prices. The Carbon Tracker Initiative describes unburnable carbon as fossil fuel energy sources which cannot be burnt if the world is to adhere to a given carbon budget.
Investors have a responsibility to pressure the SEC to a better job of enforcing environmental and social reporting because these issues are “critical to the long-term value of companies, ” said de Cordova.
“It’s important for investors to support the SEC to do better, because the SEC is supposed to be there to support us,” she said.
