December 10, 2009
Institutional Investors Ask SEC to Clarify That Climate Change is a Material Risk
by Robert Kropp
Despite regulatory and legislative progress, the failure of companies to disclose risks remains
widespread, according to the request for interpretive guidance.
A group of 20 major US and Canadian institutional investors, with combined assets under management
of more than $1 trillion, has asked the Securities and Exchange Commission (SEC) for interpretative
guidance regarding the material risks that companies should be disclosing to investors.
The Climate Risk
Petition was submitted to the SEC as a second update to an initial request, entitled Request for
Interpretive Guidance on Climate Risk Disclosure, filed with the SEC in September 2007. The
first update was filed in June 2008.
In their most recent update, the institutional
investors summarized regulatory and legislative developments that, according to the petition,
“change the landscape of climate risk disclosure.” A recent regulatory action undertaken by the
Environmental Protection Agency (EPA) requires companies that emit large amounts of greenhouse
gases (GHGs) to report on their emissions. The EPA also recently issued a finding under the Clean
Air Act, that GHGs endanger the human health and welfare of current and future generations.
Another recent rule proposed by the EPA would require large emitting facilities to deploy the
best technology available for controlling emissions when constructing new plants or expanding
On the legislative front, the passage by the House of a climate change
bill, and the Senate’s current deliberations on its version, suggest that “there is strong momentum
toward a national cap and trade program that will achieve science‐based reductions in
greenhouse gas emissions,” according to the petition.
Despite such signs of progress, and
despite developments in climate science strongly suggesting that the impacts of climate change will
affect not only individual companies but entire economies as well, “publicly‐traded companies
have not responded with the meaningful disclosure investors seek,” according to the petition.
Less than 34% of S&P 500 companies made any mention at all of climate change in annual reports
filed in 2008, and only 5.5% of reports “identified at least one risk posed by climate change and
articulated a strategy for managing and mitigating that risk.”
Furthermore, although 97%
of high emitting utilities companies made reference to climate change in their annual reports, only
35.5% identified specific risks and included strategies for mitigating that risk.
“existing disclosure rules provide the mandatory framework for disclosure of material risks and
opportunities companies face in connection with climate change,” the petition concluded, the
failure of companies to comply with disclosure rules remains widespread. The petition asks “that
the Commission act promptly to clarify that existing disclosure requirements apply to climate
Among the 20 signatories to the petition are the State Treasurers of Oregon,
Vermont, California, Maryland, and North Carolina; the State Controllers of California and New
York; the Attorney General of New York; the California Public Employees' Retirement System (CalPERS); Ceres; and Pax World Management.
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