SEC faces pressure to deliver climate change reporting law

Influential coalition of investors calls on Congress to force companies to disclose climate change risks in public reports

A group of major US investors stepped up pressure on Congress yesterday to introduce new legislation forcing companies to disclose risks and opportunities associated with climate change.

Testifying before a Senate Banking Subcommittee, members of the Ceres coalition of investors and environmental groups argued that legislation was required to ensure businesses properly disclose environmental risks and provide investors with information on the impact to their operations of climate change and mitigation measures.

Russell Read, chief investment officer of the US' largest public pension fund, California Public Employees' Retirement System, said that improved environmental disclosure was required if investors were to properly assess firms' risk profiles.

"There are many companies that do not provide voluntary disclosure of their climate risk," he added.

Jeffrey A. Smith, an environmental law partner at Cravath, Swaine & Moore and former chairman of the American Bar Association's Committee on Environmental Disclosure, agreed that while voluntary corporate disclosure on climate risks had increased in recent years, there was still a pressing need for wider disclosure.

"It would be a mistake to believe that this voluntary activity – no matter how sophisticated and well intentioned – could be a permanent substitute for mandatory reporting," Smith said in his written testimony, adding that the SEC should move to eliminate "the wide variation in the depth, quality and format of formal SEC reporting" by companies on climate change.

The hearing comes in the wake of a petition sent to the SEC by 18 leading US investors responsible for $1.5 trillion of investor assets asking the watchdog to force companies to assess and disclose "material" financial risks from climate change, such as "financial impacts from emerging carbon-reducing regulations, extreme weather and other climate-related physical events, or growing global demand for low-carbon technologies and products".

The move is the latest in a line of initiatives from institutional investors designed to lobby lawmakers worldwide into introducing more stringent environmental reporting legislation. They argue such rules would help investors better assess risks and also encourage firms to develop more coherent and effective climate change policies.

Recent research from the Bill Clinton-backed Carbon Disclosure Project also found an apparent link between environmental and financial performance whereby the companies boasting the best green initiatives also delivered stronger financial performances than their rivals.