SEC Filings Lack Climate Change Disclosures

June 4, 2009

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Climate change-related disclosure continues to be nearly nonexistent in U.S. Securities and Exchange Commission (SEC) filings of global companies with the most at stake in preparing for a low-carbon global economy, according to two new studies by Ceres, Environmental Defense Fund (EDF) and the Center for Energy and Environmental Security (CEES). Key findings of the studies show companies are deficient in meeting the needs of investors, and the SEC needs to respond to investor requests for formal guidance on climate-related disclosures that companies should provide in securities filings.

“Corporate climate disclosure falls short of what CalPERs and other investors need to carry out their fiduciary duties,” stated Anne Stausboll, chief executive officer of the California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund and one of 18 investors who petitioned the SEC in fall 2007 to issue climate disclosure guidance.

In 2007, more than 20 leading U.S. and European institutional investors representing more than $1.5-trillion in assets, filed a petition with the SEC requesting a mandate disclosure of climate-change related financial risks.

According to new research by the Carbon Disclosure Project (CDP), investment decisions are increasingly impacted by climate change information. Of the 80 institutional investors that signed the information request sent out by CDP, three-quarters said they factor climate change information into their investment decisions and asset allocations. More than 80 percent of respondents said they consider climate change to be important relative to other issues impacting their portfolio.

The two new reports — The Climate Risk Disclosure in SEC Filings and Reclaiming Transparency in a Changing Climate — include an in-depth look at SEC filings in 2008 as well as a multi-year longitudinal study.

The Climate Risk Disclosure in SEC Filings, prepared by The Corporate Library for Ceres and EDF, assesses climate risk disclosure in the 10-K and 20-F reports filed in 2008 by 100 global companies in five sectors: electric utilities, coal, oil & gas, transportation and insurance. The study assesses climate risk disclosure for three categories — emissions and climate change position, risk assessment, and actions to address climate risks and opportunities — using the Global Framework for Climate Risk Disclosure as a guide.

Some climate-related disclosure was common in the electric power, coal and oil & gas industries, but most filings in these sectors lacked the level of detail that investors require, according to the report. A recent Electric Utilities Report, sponsored by CalSTRS and conducted by CDP, reveal that only 16 percent of utilities are setting and disclosing absolute targets for reducing greenhouse gas emissions, and less than half disclosed capacity and energy production figures by fuel type.

The Ceres report finds that many companies in the insurance and transportation sectors failed to provide any disclosure on climate-related risks and opportunities. According to a new mandate from the National Association of Insurance Commissioners (NAIC), insurance companies must tell regulators about financial risks brought on by climate change.

The study finds overall limited disclosure with 59 of the 100 companies making no mention of their greenhouse gas emissions or public position on climate change. In addition, 28 had no discussion of climate-related risks they face; and 52 failed to disclose actions and strategies for addressing climate-related business challenges.

The Corporate Library report concludes that although pressure from investors has had some effect on companies’ disclosure practices, companies are unlikely to comprehensively disclose climate risks and opportunities in SEC filings in the absence of clear guidance from the SEC.

The Reclaiming Transparency in a Changing Climate report by CEES, Ceres and EDF reviews over 6,000 SEC filings by S&P 500 companies from 1995 to 2008. The study finds some modest improvement in climate risk disclosure since 1995. In 2008, 75 percent of annual reports filed by S&P 500 corporations failed to mention climate change and only 5 percent provided a strategy for managing climate-related risks.

The Climate Disclosure Standards Board, an international climate change body, has developed a draft proposal to help corporations provide sustainability and environmental information in annual reports. The board is accepting comments until Sept. 25.