Members of the Investor Network on Climate Risk (INCR) and other leading global investors sent a letter to the U.S. Securities and Exchange Commission (SEC) last week requesting that the Commission address corporate disclosure of climate change and other material environmental, social, and governance (ESG) risks in securities filings.
The letter’s 41 signatories include some of the nation’s largest public pension funds, state treasurers, controllers and comptrollers, asset managers, foundations and other institutional investors with approximately $1.4 trillion in assets under management.
The letter was sent to SEC Chairman Mary Schapiro, Commissioner Luis Aguilar, Commissioner Kathleen Casey, Commissioner Troy Paredes, and Commissioner Elisse Walter.
Among other requests, the letter asks the SEC to issue formal guidance on material climate-related risks that companies should disclose and enforce existing disclosure requirements for climate change and other risks.
“Recognizing that information is the foundation of efficient markets, we … strongly encourage the Commission, in setting its priorities for the year, to acknowledge the financial implications of climate change and other environmental, social and governance risks for investors and take steps to address them,” states the letter, which is the investors’ first appeal to the new SEC leadership on corporate risk disclosure.
The letter comes on the heels of two recently released reports that examine climate risk disclosure in corporate 10-K filings. The reports showed that S&P 500 companies–including those with the most at stake in responding to the risks and opportunities from climate change–are providing scant climate-related disclosure to investors.
“Climate change and other environmental and social issues pose bottom line risks, and investors have a right to know which businesses are best positioned to compete in the emerging low-carbon global economy,” said Mindy S. Lubber, president of Ceres and director of the Investor Network on Climate Risk. “We are optimistic that the new SEC understands the importance of corporate risk disclosure and will do what is necessary to protect investors’ interests.”
The letter cites climate change as the leading example of a material ESG risk, and mentions other material risks such as water scarcity and labor practices.
“As fiduciaries with a long-term view of capital appreciation that must meet the interests of multiple generations of beneficiaries, we have concluded that seeking, interpreting, and integrating such ESG information into our investment decision-making process is becoming ever more necessary and prudent,” states the investor letter.
Under current securities law, companies must disclose forward-looking information that is material to their business. Despite the fact that climate change will have far-reaching financial impacts, most companies fail to include assessments of material climate change risks and opportunities in their filings.
“Institutional investors are directly affected by corporate mismanagement of climate and ESG risks,” said Cllr. Ian Greenwood, Chair of the Local Authority Pension Fund Forum (LAPFF) in the United Kingdom. “Adequate oversight, transparency, and accountability of these risks are key to preserving the long-term value and security of our members’ investments.” LAPFF represents 49 public pension funds with combined assets worth $124 billion.
The letter asks the SEC to take the following steps to improve disclosure:
- Issue formal interpretive guidance on the materiality of risks posed by climate change that companies should be disclosing
- Enforce existing disclosure requirements for material environmental, social or governance risks such as climate change
- Recognize shareholders’ right to submit resolutions related to climate change and material environmental, social and governance issues
- Require disclosure of material environmental, social, and governance risks using the Global Reporting Initiative as a framework.
The letter was coordinated by INCR and the Institutional Investors Group on Climate Change, an investor group based in the U.K.
In Related News…
The Climate Disclosure Standards Board issues a proposed framework that would align corporate reporting of climate change with principles and objectives of financial reporting rules.
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