There is no escaping the global conversation about climate change. It was even referenced by Pope Francis in his recent address to the U.S. Congress. Increasingly, shareholders and regulators are trying to involve public companies in addressing the issue.
There has been a recent slew of shareholder letters to the SEC and to certain companies, pushing for additional disclosure on how climate change might affect their businesses and how their businesses might affect climate change.
So what are the current rules for disclosure? And, how are the companies meeting those requirements?
SEC Rules and Required Disclosures
In 2010, the SEC noted that “climate change has become a topic of intense public discussion,” and the SEC released guidance describing how companies were expected to meet their disclosure obligations for climate change. It detailed the parts of the financial statements which could possibly require climate change disclosures, and listed the things that would trigger the need for those disclosures. These triggers are grouped into 3 different categories:
1. Impact of Legislation and Climate Accords
These include the costs to improve facilities, costs of cap and trade programs, or change in demand for products as a direct result of rule changes.
2. Indirect Impacts
Situations where the company is not directly affected by climate change considerations, but the companies they do business with, or compete against, are affected. Possible indirect effects include changes in input or sales prices due to industry demand changes from climate change impacts.
3. Physical Impacts
Includes the direct effects of climate change itself. Possible material impacts, including those of weather patterns, sea level rises, resource availability and decreased demand from physical climate change.
To determine how many companies are actually reporting these potential impacts, we used AlphaSense to find all the 10Ks filed since 2010 that contain a discussion of climate change or closely related concepts. We found that the percentage of companies who had climate change related disclosures has increased slowly:
Not surprisingly, the prevalence of disclosure also varies from industry to industry. All of the energy and utility companies disclose a potential impact from climate change, while low commodity oriented sectors, such as healthcare (36%), have the lowest need for disclosure:
Energy and utilities also have the most lengthy and intensive disclosures of any industries:
We also used AlphaSense to quickly find examples of how companies are specifically being impacted by climate change and by the disclosure of that impact. Here are a few notable examples:
Source: Using AlphaSense, a search for “climate change” and related concepts across all industries, global companies and document types, including SEC and global filings returned results in seconds.