Securities and Exchange Commission failing to inform US investors of climate risks

The US Securities and Exchange Commission (SEC) is failing to ensure investors are aware of climate risks within a company, according to a new report from Ceres.

Despite formal guidance requiring companies to disclose material climate change risks coming in four years ago, the issue is still not adequately addressed. The study found that the majority of financial reporting on climate change is “too brief and largely superficial”.

The SEC requires material climate change disclosure related to domestic and international regulatory risks, indirect effects of regulation or business trends and physical risks. The organisation then evaluates companies’ filings to ensure compliance. Where a filing is not compliant, the SEC sends a comment letter.

However, Ceres found that just three companies received comment letters in 2012 and none did in 2013. This is despite the “low quality of corporate reporting on climate risk”.

Mindy Lubber, president of Ceres, said, “Investors want greater transparency on the business risks of climate change as a means to protect and increase shareholder value. Yet the SEC is not adequately enforcing its own requirements.”

The report analysed the state of S&P 500 index company reporting on climate disclosure at the end of 2013. Some 41% of companies assessed did not include any climate-related disclosure at all in their annual 10-K filings – reports that must be submitted to the SEC every year. The number of companies referencing climate-related issues in their filings was also found to have only increased by 3% since 2010, despite increasing demand from investors and greater knowledge of the risks.

Nancy Kopp, state treasurer for Maryland, commented, “The fact that the SEC is slipping backwards rather than driving progress on climate risk disclosure is troubling, especially since a large number of companies failed to say anything at all about climate change in their annual filings last year.

“Climate risks and opportunities are greater than ever before, yet it seems the commission is paying less attention than when formal guidance was issued.”

A separate survey has previously found that 82% of Britons are unaware of the financial risks that derive from investing in fossil fuels, despite saying that risk was a vital factor in their investment decision-making. Regulation aiming to slow climate change means that investors could see their returns plummet if they have invested in unsustainable business and the findings suggests a lack of knowledge.

Further reading:

Investors warned of ‘stranded’ carbon assets and work condition risks

Majority of Britons unaware of ‘carbon bubble’ investment risks

Report ‘de-risks’ impact investment to open sector up to mainstream

Ceres: fracking in arid regions poses investors long-term water risks

Carbon Trust report: sustainability and resource efficiency can drive business value