Attorneys general from 12 states sent a letter to the Securities and Exchange Commission (SEC) in June asking it to require companies to provide detailed information about the financial risks their businesses face under a rapidly changing climate.
Those risks would include impacts from new regulations as states set goals to hit net-zero emissions within the next 30 years.
The coalition also demanded the SEC require companies to disclose their GHG emissions annually, as well as any plans to mitigate them.
“Requiring businesses to disclose their exposure to climate risk couldn’t be more important,” said Andrea Ranger, a shareholder advocate with Green Century Funds, a financial advisory firm that specializes in environmentally and socially responsible investing.
A regulation requiring financial climate risk disclosures from the SEC would give investors insight into the total risk of the business and fill a longstanding gap, Ranger told NetZero Insider.
“Then, investors and stakeholders can demand emissions reductions to protect their investments, and more importantly, sustain a livable planet,” she said.
The SEC started developing climate risk disclosures for companies in 2010, but they were never enforced. Now, the Biden’s administration is pressing the SEC to include climate as a risk factor.
But the commission must develop a universal standard to quantify and qualify risks, Ranger said.
Organizations such as the Task Force for Climate-Related Financial Disclosures (TCFD), the Sustainable Accounting Standards Board, the Global Reporting Initiative and CDP Worldwide are working to make those standards the mainstream for companies.
The TCFD recommends companies develop different climate risk scenarios depending on whether emission reduction goals keep global warming below 2 degrees Celsius.
Published evidence of emissions and climate risks provide transparency for investors and stakeholders on what companies are doing to reduce them, Ranger said.
Many oil, gas and steel companies already are quantifying risks internally. Last month, shareholders elected three new members to ExxonMobil’s board of directors to address the financial risks of the company’s climate change planning.
Transportation companies will be forced to quantify their emissions, along with companies that distribute products.
Enforced regulations from the SEC could speed up the adoption of electric vehicles, Ranger said, and push manufacturers to reduce their emissions, as well.
“End consumers don’t really know the names of manufacturing companies, so there may not be as much pressure on them in the public eye,” she said.
The pandemic showed that supply chains are particularly vulnerable to unexpected disruptions. At least $1.26 trillion is anticipated in revenue losses for suppliers within the next five years due to climate change, deforestation and water insecurity, according to a CDP Global Supply Chain Report released earlier this year.
And corporate buyers could inherit $120 billion in increased environmental costs by 2026.
“The climate crisis threatens serious financial harm for U.S. companies, financial markets and the investments our residents have made to fund their retirements or pay for their children’s college,” Massachusetts Attorney General Maura Healey said in a statement.
The attorneys general of California, Connecticut, Delaware, Illinois, Maryland, Michigan, Minnesota, New York, Oregon, Vermont and Wisconsin also signed the letter.
“Climate change is not a distant problem to be dealt with in the future; it is here, and it threatens the U.S. economy and its financial system,” they wrote in the letter. “Demand from institutional and retail investors for American companies to respond to the financial and other impacts of climate change has grown significantly.”
