SEC to look at sustainability disclosure in corporate filings
In a further sign of the rapid rise in concern around climate risk for investors, the U.S. Securities and Exchange Commission (SEC) has published a ‘concept release’ seeking “public comment on modernizing certain business and financial disclosure requirements” by publicly listed businesses.
As part of a broader “disclosure effectiveness project” initiated by Chair Mary Jo White, the SEC is looking to understand the level of corporate disclosure on risk around Environmental, Social and Governance (ESG) factors, against the public’s appetite for it.
“We received a number of comment letters on a variety of sustainability and public policy matters, including climate change. Sustainability disclosure encompasses a range of topics, including climate change, resource scarcity, corporate social responsibility and good corporate citizenship. These topics often are characterized broadly as ... ‘ESG’ concerns. Many commenters noted a growing interest in ESG disclosure among investors and many recommended increased sustainability disclosure requirements” writes the SEC in its release.
Timely, relevant and material information is critical to investors and companies,” said SEC Chair Mary Jo White. “The concept release establishes a thoughtful framework for better understanding investors’ and companies’ experiences with the disclosure requirements and whether investors are receiving the information they need to make informed investment decisions.”
The SEC is seeking public input into the project until Jul. 21.
According to the Sustainability Accounting Standards Board (SASB), as much as $27.5 trillion in market capitalization of listed companies in the U.S. could be exposed to climate change risk. But 27 percent of companies identify no climate risk at all in their annual securities filings, and more than 40 percent file ‘boilerplate’ disclosures.
The demand for information around climate risk is growing rapidly. The fourth Global Climate 500 Index, the annual benchmark report just out on the industry from the Asset Owners Disclosure Project (AODP), finds that a fifth (97) of the world’s 500 biggest investors with $9.4 trillion in funds are taking tangible action to mitigate climate change risk. Last year saw a big rise in support for shareholder resolutions and low carbon investment, it says.
Another 157 investors worth $14 trillion are taking the first steps. But very few investors are acting on warnings from Mark Carney, Governor of the Bank of England and chairman of the international Financial Stability Board, that climate action could leave fossil fuel and other high-carbon investments as worthless stranded assets, says the report. Some 246 investors with $14.3 trillion in funds are ignoring climate risk completely.
AODP rates the world’s 500 biggest investors – pension funds, insurers, sovereign wealth funds, foundations and endowments with $38 trillion of assets under management (AUM) on their success at managing climate risk within their portfolios, based on direct disclosures and publicly available information. They are graded from AAA to D while those taking no action are rated X.
“Climate change risk is now a mainstream issue for institutional investors and last year has seen many significantly step up their action to manage this. However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking that nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk” said AODP CEO Julian Poulter.
“Pensions funds and insurers that ignore climate change are gambling with the savings and financial security of hundreds of millions of people around the world and risking another financial crisis” he added.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com