Online tool highlights importance of non-financial information for investors

A new US tool highlights how many companies are failing to report non-financial information and the huge amount of variation in quality in those that do. As climate change risks begin to have a more material impact on companies, this information is becoming increasingly important to investors.

Ceres, a non-profit sustainability advocacy group, and CookESG have launched an online tool for accessing climate change-related disclosures in company filings with the US financial regulator the Securities Exchange Commission (SEC). The tool scans the filings and identifies climate-related texts, such as renewable energy and physical impacts.

Currently the tool covers all Russell 3,000 companies but has plan to extend its reach to include US and non-US companies and cover a broader range of sustainability issues, from hydraulic fracturing to water availability.

When assessing the 2014 fillings only half of the Russell 3000 files mentioned climate change. Whilst this still represents a significant way to go, it is up from a third registered in 2009. The larger S&P 500 companies are more likely to include non-financial information, with 62% providing such analysis.

Mindy Lubber, president of Ceres, commented, “Robust climate related data from companies is a critical need, but it’s lacking. This tool is an important step in making it easier for investors to analyse corporate data that’s available and what’s still missing.”

Users can tailor their search to find specific industries and topics. For example, investors interested in energy can search for keywords, such as energy efficiency, fossil fuel extraction or greenhouse gas emissions reduction.

Nancy Kopp, Maryland state treasurer, said, “Disclosure of material climate risks is crucial for protecting pension fund assets in the long run, which is why we strongly support the SEC interpretative guidance on climate disclosure. This tool will help investors make better decisions based on climate related risk reporting companies provide.”

Accounting for climate risks is becoming more commonplace among investors, particularly where fossil fuel is concerned. A divestment campaign, which has been gathering pace, along with commentators speaking about the possibility of a carbon bubble or stranded assets, means that the issue has moved up the agenda.

This has led to increasing calls for more non-financial information to be provided by companies for investors to ensure that they can make informed decisions.

In April, the European parliament voted through new legislation that requires large companies to disclose non-financial information. The changes were described as “landmark” and will have a positive impact on making corporate information more transparent and assisting sustainable investors.

Prior to the decision an alliance of investors backed the proposal. The group, which represented over 700 institutional investors of financial organisations and managed over €65 trillion (£51tn) in assets, said non-financial reports are “essential”.

Photo: ernadg-via-Flickr 

Further reading:

EU vote on non-financial reporting ‘historic’ for sustainable investment

EY survey: majority of institutional investors considering sustainability

Large firms in Europe must report on non-financial information, say investors

Role of stock exchanges in sustainable investment up for debate

The Guide to Sustainable Investment 2014