Investors deserve better information on climate risks

Bloomberg – There is discontent in some companies and groups in the industrial sector because of the SEC’s plan (second) To demand the publication of information on climate change. They are right that it will add more workload, but it is a small price to pay for important cost and risk information for customers.

In March, cWhen the Securities and Exchange Commission submitted its proposal for new disclosure rules, you should have expected that they would generate strong reactions at a time when polarization is at its peak..

sure Climate change remains a contentious issue even within the Securities and Exchange Commission itselfAs Hester M. said: Pierce, the agency’s commissioner, said, “This is not the SEC.”

And that was before the Supreme Court ruling (6 votes to 3) questioning the extent of the Securities and Exchange Commission’s ability to compel companies to disclose information about pollution from their activities. Although the agency did not rule on the case, many other actors did the same, saying that without permission from the US Congress, the Securities and Exchange Commission would not be able to move forward with the regulations.

implicit to the group of those who consider it Suggestion saidIn addition to most of the work that the Securities and Exchange Commission does When it comes to developing new rules, it is mainly about improving information for investors, which is necessary to fulfill the agency’s mandate that dates back to the 1930s. To say the least, in principle, the Supreme Court’s decision has little consequence, although there are likely to be many lawsuits and delays in its enforcement.

When these controversies unfold, the agency will have to deal with the controversy surrounding its initiative to provide more information about the companies’ environmental impact.

The climate disclosure proposed by the Securities and Exchange Commission focused on two areas: the contribution of companies to pollution, its customers and suppliers; In addition to the exposure of companies to the risks of climate change, For example, more frequent and severe storms, which may affect your business.

In letters to the agency, companies and lobbyists have complained that the additional information required by regulators is exaggerated and expensive to collect. Others, such as ExxonMobil (XOM), that some parts of the information should be protected from liability.

Companies have valid concerns about the new rules, starting with the need to review a nearly 500-page proposal. Attorney Jay Knight, who chairs the American Bar Association’s (ABA) Securities Regulatory Commission, noted that the new rules require an additional 70 working hours per filing.

however, It is already clear that all kinds of businesses are affected by climate change, from rising raw material prices to increased exposure to floods, or a potential increase in spending in the switch to cleaner energy. Forcing companies to provide more detailed information to explain climate-related risks that could have a material impact seems like common sense.

The new regulations will deal with the existing network of information, where some companies disclose a lot and others do not reveal anything practical. This situation is due to the fact that companies are subject to the current guidelines of the Securities and Exchange Commission, which was established in 2010, which leaves a wide margin of interpretation and little detail about what information companies must disclose.

In the absence of standardized information, there is no way for investors to know why the company discloses relatively little about its climate impact.. Is it because the company does not think that the subject is important to its activity? Or was there another reason?

It is very annoying to investors when disclosure practices differ between companies in the same industry, or when companies use different standards or language to measure the same thing.

Consider two major retailers, Home Depot Inc. (HDand Coz Lowea little). The former began discussing climate-related risks in his 2017 10-K filing and significantly increased his disclosures over the past five years to include steps he planned to reduce carbon emissions. Instead, Lowe didn’t launch until 2019, and his revelations were basically just a simple nod to the words “climate change.” The most reasonable thing is to expect two companies in the same sectors to be affected in a similar way and this is where better regulations come in.

I’ve always been a believer that more information, even if it’s slanted in a footnote on a 10-K file, is much better than nothing. Although most investors don’t bother reading this information, it helps those who want to make more informed investment decisions.

Obviously, most companies are affected in many ways when it comes to climate-related situations. Investors in these companies are entitled to obtain consolidated information in order to better assess the impact. Let’s hope the agency is up to the task and reactive.

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