Photo credit Neubie
A perfect storm consisting of the EPA, the Securities and Exchange Commission (SEC) and investors is pressuring companies to come clean on their environmental risks and performance.
I wrote a post a couple of weeks ago about FaceBook’s decision to use a primarily coal-burning utility to power its new data center where I asked should FaceBook’s investors be worried about the decision.
Now the SEC has started taking an interest in this area as well and recently clarified that companies’ have responsibilities [PDF] to report on:
- the direct effects of existing and pending environmental regulation, legislation, and international treaties on the company’s business, its operations, risk factors, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations
- the indirect effects of such legislation and regulation on a company’s business, such as changes in demand for products that create or reduce greenhouse gas emissions and
- the effect on a company’s business and operations related to the physical changes to our planet caused by climate change ? such as rising seas, stronger storms, and increased drought. These changes to the environment could have a number of material effects on corporations, such as impairing the distribution and production of goods and damaging property, plant, and equipment
In announcing the clarification SEC Commissioner Luis A. Aguilar stated that the SEC will begin to be far more proactive on environmental reporting:
The Commission’s action today is a first step in an area where the Commission will begin to play a more proactive role, consistent with our mandate under the National Environmental Policy Act of 1969, to consider the environment in our regulatory action. The National Environmental Policy Act charged the Federal Government “to use all practicable means” to, among other things, “fulfill the responsibilities of each generation as trustee of the environment for succeeding generations.”
Noting the interest of the SEC and their clarification around companies’ environmental risk reporting requirements, investors are now becoming more vocal and are increasingly asking companies to report more information about their environmental risks and responsibilities. These investors need to look after the long term interests of their funds and the last thing they want is to have their monies disappear in some environment-related mishap like the Kingston Fossil Plant coal fly ash slurry spill or a class action litigation.
Ceres, the non-profit network, reported recently that investors filed a record 95 climate change resolutions, a 40% increase over the 2009 proxy season! And these are serious investors. Jack Ehnes, CEO of CalSTRS for example, manages $131 billion dollars in assets. That’s billion, with a b!
As Ceres notes:
Many of the investors are part of the Investor Network on Climate Risk (INCR), an alliance of more than 80 institutional investors with collective assets totaling more than $8 trillion.
$8 trillion! Investors with a war chest of $8 trillion wield a lot of clout.
Combine this with the fact that on Dec 29th 2009 the EPA’s Mandatory Reporting of Greenhouse Gases Rule came into effect and it states:
suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE).
So, the EPA is requiring the reporting of Greenhouse Gas Emissions from the top 10,000 emitters in the US, the SEC now has environmental risk reporting and transparency in its sights and investors with considerable resources are looking for more details on possible environmental risks from companies they invest in. You have to think that this is not a good time to be in the pollution business!
UPDATE – A reader on the Energy Collective reminded me that I forgot to include reputational risks:
Another climate-related risk called out in SEC’s Interpretive Guidance is reputational risk: “Another example of a potential indirect risk from climate change that would need to be considered for risk factor disclosure is the impact on a registrant?s reputation. Depending on the nature of a registrant?s business and its sensitivity to public opinion, a registrant may have to consider whether the public?s perception of any publicly available data relating to its greenhouse gas emissions could expose it to potential adverse consequences to its business operations or financial condition resulting from reputational damage.”
I had read this but somehow neglected to include it in this post, thanks for the reminder.
Olga Gil says
Una entrada muy interesante, que muestra cómo se consolidan tendencias que hace dos/tres años eran emergentes en el mundo anglosajón. Creo que en España contamos con el problema de que no hay Fiscal de Medioambiente (o al menos no lo había tradicionalmente), con lo que tipificar ciertos comportamientos y enjuiciarlos es complicado.
En cuanto a las tendencias, citaré dos ejemplos que me parecen destacados. En 2007 Shell tuvo que atenerse a las consecuencias del branding engañoso. En ese momento “Shell was rapped over CO2 advert….Shell advert featuring a drawing of flower heads emerging from refinery chimneys, implying the oil company used its waste carbon dioxide to grow flowers, broke industry rules, a watchdog ruled (07-11-2007). [www.guardian.co.uk/environment/2007/nov/07/climatechange.energy?gusrc=rss&feed=networkfront, as published by the Guardian].
Un segundo ejemplo, este positivo, de que hay empresas en el sector financiero que llevan años tomándose estos temas muy en serio es Leo Johnson, co-fundador de la consultoría Sustainable Finance. Esta empresa ofrece servicios de consultoría a empresas y sectores preocupados por la llamada “nueva geografía del riesgo”. Un riesgo que consiste en las nuevas reglas y sanciones impuestas en aspectos medioambientales por reguladores, ONGs, medios de comunicación, fondos de pensiones y opinión pública. Desde su punto de vista “Sustainability performance is becoming a precondition of trust”, según escribía en Open Season, un artículo interesante, publicado en WSJ el 5 de Julio (http://online.wsj.com/article_print/SB118358369267957454.html).
Lo que también resulta interesante es que Sustainable Finance fue seleccionada como asesora técnica en los “premios FT a la entidad bancaria sostenible” (Financial Times’ Sustainable Banking Awards) en varias ediciones.