Why Climate Business Risk Disclosures are the New Norm
A new emissions disclosure rule, proposed by the White House this week, would require companies with federal contracts to report on their greenhouse gas emissions, efforts and targets to limit such releases and their climate-change related business risks.
“It’s the responsible thing to do to take steps to understand the sustainability — and challenges — associated with your supply chain; and that’s especially true when you’re the Federal Government and that supply chain exceeds $400 billion per year,” the White House said in a blog post, adding that the proposal “sends another clear market signal that there is strong interest for disclosure of greenhouse gas emissions and climate-related risk data.”
The rule would add two questions for federal contractors to answer in their bid responses: whether they disclose their GHG emissions and whether they disclose any GHG emissions reductions goals, explains attorney Maureen Gorsen, a partner in Alston & Bird’s Environment, Land Use & Natural Resources group.
But while the impact on businesses on the outset is minimal, the broader implications for climate-related disclosure could be substantial, Gorsen told Environmental Leader.
“With all these such GHG reporting rules, the first aim is to establish a baseline,” Gorsen said. “But in the years following, each federal agency will be motivated to see a reduction in the GHG emissions associated with their contracting activities and this will weigh into their future selection criteria. Thus, the impact on businesses could be substantial.”
The rule, expected to be finalized this fall, would affect about 90 percent of all federal contracts, representing more than $400 billion in annual contracting expenditures, the Wall Street Journal reports. It also points out that the federal government is a huge purchases of petroleum products and oil majors like ExxonMobil and Chevon routinely compete for and win these multi-million-dollar contracts.
The White House proposal coincided with ExxonMobil and Chevron’s annual shareholders meetings on Wednesday, which saw record levels of support from investors on climate-related resolutions. Only one of the 11 such resolutions won shareholder approval. But the unprecedented levels of support should put companies on notice that climate-related disclosures are the new norm, according to some.
CDP’s chief executive officer Paul Simpson said the Exxon and Chevron votes “put out the message loud and clear. Climate change poses clear financial risks, and investors require better disclosure to be able to price those risks.”
The White House proposal follows similar climate disclosure requirements from other federal agencies. Last month the US Navy asked its 100 largest suppliers to disclose their greenhouse gas emissions, as well as strategies for cutting them, via CDP (formerly Carbon Disclosure Project). And the US federal government’s largest procurer of goods and services, the US General Services Administration, began utilizing the CDP supply chain disclosure platform in 2014.
The message to companies seem clear: get used to reporting on climate-related business risks. Or be prepared to lose market shares to those firms already disclosing greenhouse gas emissions and plans to reduce them.
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