Posts Tagged ‘Global warming’

Climate Change Is a Wallflower at the Risk Factor Ball

via Wikimedia Commons

via Wikimedia Commons

Rising seas. Extended drought. Raging floods. Market disruptions. Food scarcity. All these, and more, are predicted consequences of global climate change. Last month’s deluge in Colorado was another foretaste of what may be in store for us.

Publicly traded companies are no less immune to the consequences of global climate change than anyone else. Some companies have largely ignored the implications; others have seized on environmental transformation as a business opportunity. The insurance industry has been notably forward thinking in this respect. But then, insurance companies have a vested interest in assessing other companies’ risk factors. Either way, it’s a rare industry which won’t be affected one way or another.

Three years ago, the Securities and Exchange Commission issued guidance on how publicly traded companies should disclose the climate change risks they face. Recognizing the current and potential effects on companies’ performance associated with both climate change and with efforts to ameliorate the change, the commission laid out steps companies should take to inform the public how they intended to deal with future environmental disruption.

The SEC’s guidance seems to be honored in the breach by the great majority of U.S. companies.  According to a report by Inside Climate News, nearly 75 percent of  the nation’s publicly traded companies are ignoring the commission’s disclosure requirements.  This figure comes to us compliments of a retired database developer named Lawrence Taylor, a one-time assessor of air pollution data for the Orange County and San Diego land planning departments. Taylor spent five months and 1,100 hours poring over company filings on the SEC website. Of the 3,895 companies whose most recent annual reports he reviewed, only 27 percent mentioned “climate change” or “global warming” at all. Of the businesses which mentioned climate change, fewer still provided any real specifics. The general exceptions to the rule were carbon-intensive businesses like coal, oil, and natural gas companies, but even they tended to shy away from discussing long-term environmental or regulatory risks. For the most part, the disclosures focused on taxes or changes in market demand.

Seattle’s NPR station, KUOW followed up on Taylor’s research and found that the heavy corporate hitters in Washington State likewise tend to ignore the disclosure requirement. KUOW’s reporter searched the annual 10-K filings of Washington’s biggest companies, looking for the words “climate,” “warming,” “greenhouse” and “carbon.” Of the Fortune 500 firms based in Washington, only Weyerhaeuser revealed how climate change will affect its operations, which makes sense given that it’s a forest products company at heart. Microsoft contented itself with noting that “Changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.”

The SEC guidance covers a sobering list of climate change disclosures, including the impact of legislation and regulation, international accords, the indirect consequences of regulation and business trends, rising insurance costs, and the myriad physical impacts of climate change including violent storms, rising sea levels, the arability of farmland, and the availability and quality of water. The commission points out that the consequences of climate change can cause catastrophic harm to physical plants and facilities and can disrupt manufacturing and distribution processes. In understated terms, the commission concludes that, “Registrants whose businesses may be vulnerable to severe weather or climate related events should consider disclosing material risks of, or consequences from, such events in their publicly filed disclosure documents.”

But apparently the great majority of firms are breezily ignoring the SEC’s guidance. General Mills, for instance, mentions climate change only in passing as one of a list of disruptions (along with fire, terrorism, strikes, and import restrictions) that might “adversely affect” its business. For a company so heavily dependent on grains from a region experiencing record-setting drought, this seems like whistling past the graveyard.

Ignoring the potential impacts of climate change isn’t going to make them go away, and it isn’t doing investors any favors.

I would like to underscore the 1,100 hours Taylor spent searching filings on the SEC website. If he had gone to our Risk Factors page, he could have finished his research in a fraction of the time. 

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