Investors step up calls for SEC climate risk reporting guidance

Institutional investors stepped up their campaign to force the US Securities and Exchange Commission (SEC) to introduce rules requiring listed firms to report on their climate risk exposure, issuing a supplemental petition urging the watchdog to provide "interpretive guidance" on how businesses should disclose climate-related risks.

The petition, which was organised by the Ceres sustainable investors group, was signed by 20 institutional investors with more than $1tn in assets under management, including the largest US public pension fund the California Public Employees' Retirement System (CalPERS).

The petition calls on the SEC to provide guidance to firms detailing how climate-related risks such as carbon regulations, environmental impacts and new business opportunities and threats qualify as "material risks" and therefore should be disclosed in quarterly and annual reports.

The group argued that investors urgently require access to such information if they are to make informed investments. "CalPERS protects workers' retirement benefits, and climate change poses both great risks and opportunities to these investments," said CalPERS chief executive Anne Stausboll. "Current SEC regulations require companies to disclose material risks such as climate change, but many companies haven't examined these risks. The SEC should strengthen and enforce its current requirements so investors’ decisions fully account for climate change’s financial effects."

Investors have tabled a number of similar petitions in the past, but enjoyed little success under the Bush administration. However, Ceres argued that the latest climate science, coupled with the Environmental Protection Agency's (EPA) new emission reporting rules for carbon-intensive businesses and the anticipated introduction of a US climate bill, meant that it was increasingly disingenuous for firms to fail to report on climate-related risks.

"Climate change is without question a material risk to businesses, and ignoring it is a disservice to investors," said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk. "We need to measure and disclose these risks so that both investors and companies can make financially sound decisions."

There is also growing optimism that the SEC could respond positively to the petition, after the watchdog changed rules that had previously allowed firms to easily block shareholder resolutions demanding information on climate risks from reaching a shareholder vote.

The SEC declined to comment on the specific petition, but SEC Commissioner Elisse Walter has in the past signalled her support for the idea of providing better guidance on climate risk reporting.

David Martin, a former SEC director of corporation finance, told Reuters that he expected the petition to be taken seriously by the regulator. "This will be… one more piece of influence on the commission, to perhaps get a bit more instructive on considering these issues," he said.