On Monday, the top financial regulator of the United States, the Securities and Exchange Commission (SEC), announced new regulations that would require disclosures from public corporations about their climate risks and carbon footprints. This marks a huge step towards acknowledging the reality and the risks of climate change, and fits into a global trend among regulators worldwide.
Why do public disclosures matter?
On sunny days in Miami, parts of the city are subject to flooding. New York City deals with the same thing. In the last few years, millions of acres across the Western US have burned. In other parts of the country, flooding has had a similarly disastrous effect. These weather and climate issues have already led to trillions of losses for property owners and business operators, as well as the insurance companies that protect them. Knowing the climate related risks inherent in business as usual is no longer optional. It makes good financial sense.
On the flip side, knowing what companies are doing to address their own emissions and other environmentally impactful processes helps regulators and investors know which companies are leading on environmental and sustainability goals, and which will be required to spend more resources on cleaning up their act in the future.
What’s driving this action?
The White House is a strong supporter of environmental and sustainability goals in American corporate life, and this move is a reflection of these priorities. That said, it turns out investors are some of the loudest voices demanding this type of transparency among public companies.
“When it comes to climate risk disclosures, investors are raising their hands and asking regulators for more,” SEC Chairman Gary Gensler told a forum on green investments last year, as reported by NPR.
He added, “Today, investors increasingly want to understand the climate risks of the companies whose stock they own or might buy.”
As Anne Simpson, Investment director of sustainability at Calpers has pointed out, “Climate change may be one of the world’s best-modeled processes in physics, but in finance, the information is scarce.”
Depending on how these new SEC rules are enforced, there may soon be a lot more information to go on. Sure there’s a long road ahead, but this sort of transparency will help investors understand climate related risks and help businesses have clearer rules to follow.