I appreciated the opportunity to bring our panel on SEC Climate Change Disclosure Guidelines to a New York audience last week. When we first presented the topic at the Boston Security Analysts Society last December, several people recommended repeating the session in New York. It took some time to arrange, but the engaged audience made the effort well worthwhile.
The intervening year has, if anything, highlighted the importance of the panel’s central message. These guidelines offer investors, investment managers and analysts a rare opportunity for new insights into the companies they follow, but they have to be prepared and willing to ask the right questions.
Selected takeaways from the panel:
- The guidelines are not “new” – they simply reflect a recognition that climate change may be a material issue and therefore should be evaluated and considered for appropriate disclosure.
- Companies are asked to consider:
- legislative and regulatory risks, including international agreements
- business risks as well as opportunities arising from climate change – increased/decreased demand for products, opportunities for new products
- physical risks to operations and supply chains
- reputational risk
- Climate changes risks and opportunities reach deeply into a company’s operations and supply chains and future profitability. Through and thoughtful disclosure is evidence of the depth of management’s understanding. Boilerplate disclosure should raise questions to management.
- Multiple public frameworks for disclosure exist and provide a wealth of information outside the SEC disclosure process. Investor disclosure should be evaluated with reference to company and industry information provided through these frameworks.
- Early results on disclosure are mixed – more companies are reporting, but the depth of information is limited, with many companies reporting only on legislative & regulatory risks
- Guidelines as well as examples of good disclosure are available – use them as leverage with peer and competitor companies..
- SEC enforcement is all domains is limited and has never been the primary driver of increased disclosure and transparency. Investor and analyst demand is the most effective driver. This is even more true as the agency is fully occupied with Dodd-Frank implementation and a target of political pressure in the current environment.
- More investment firms are incorporating ESG information and disclosure into their investment process.
- If you don’t ask, they won’t tell – Far too few analysts and investment managers ask companies these questions.
- Resources on Climate Change Disclosure referenced during the panel
My thanks go to the New York Society of Security Analysts and the Robert Zicklin Center for Corporate Integrity for co-sponsoring the session, to the Zicklin Center for hosting us and to our outstanding panelists Adam Kanzer of Domini Social Investments, Jim Coburn from CERES and Karoline Barwinski of Clearbridge Advisors.