Attorneys general from 19 states and the District of Columbia last week endorsed a plan to require publicly traded companies to include climate change risk assessments in their reports to the Securities and Exchange Commission.
The 20 attorneys general sent a letter Friday to voice their support to SEC Secretary Vanessa Countryman.
“Extreme weather events caused or exacerbated by climate change, such as hurricanes, wildfires, extreme heat, and extreme drought, have caused a number of material and costly impacts on company operations. As those events increase in intensity and frequency, their effects on companies will only grow,” the joint letter said.
On March 21, SEC proposed new regulations that would require publicly traded companies to include in their “periodic” SEC reports any information about climate-related risks that could impact their businesses. That would include greenhouse gas emissions, which are a common metric to calculate a company’s exposure to climate change risks, according to a March SEC press release. The rule would cover direct emissions, plus emissions caused by suppliers, transporting materials and distributing products.
The information proposed to be added to SEC filings must look at short- and long-term effects of climate change, how climate change would affect business strategies, how corporate goals are affected, and how climate change would affect financial assumptions.
In the March 21 announcement, SEC Chairman Gary Gensler said: “Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.”
Only 20% of North American companies make any climate-related disclosures, while 52% of companies around the world disclose their climate-related risks, the letter from the attorneys general said.
In 2019, about 53% of U.S. households had invested in stock with an average household value of $371,390. Fifty-six percent of U.S. workers have investments in their health savings accounts, and 37% of households have individual retirement accounts, while 75% of non-retired adults have some retirement savings, according to the letter.
The letter noted that many states have set carbon emissions reduction goals for themselves and the companies and facilities within their borders.
Friday’s letter argued that adding climate change and emissions information in SEC filings would be a weapon against “greenwashing,” the practice of a company portraying itself as a good environmental steward while not following appropriate practices.
The letter cited the Volkswagen emissions scandal that surfaced in 2015 when the U.S. Environmental Protection Agency found that the company activated emissions controls in the cars only during laboratory tests to meet U.S. obligations, while turning off those controls when the vehicles were sold to the public from 2009 to 2015.
“The Volkswagen case is an egregious example, but more insidious are instances of subtle greenwashing, in which registered companies tout their commitment to addressing climate change, while operating in ways that contradict those pronouncements. In one recent study of climate change-related language from BP, Shell, Exxon and Chevron, the authors observed an increase in such language among all four companies. The authors found, however, that ‘the analysis of financial behavior [by the four companies] generated a picture even more sharply misaligned with tendencies toward increased green discourse,’” the AGs said in their letter.
The letter continued: “The analysis ‘failed to show any major [oil company] comprehensively transitioning its core business model away from fossil fuels.’ Registered companies that overstate their commitment to transitioning to lower carbon emissions — or omit contradictory facts about their businesses — may mislead investors into believing they are better positioned to deal with transition risks like current and proposed climate change regulations or market transformation. This kind of greenwashing also confuses the market by undermining the value to investors of similar commitments by registered companies that actually follow through on those commitments.”
The 20 attorneys general who signed Friday’s letter represent California, Colorado, Connecticut, the District of Columbia, Illinois, Maryland, Michigan, Nevada, Delaware, Hawaii, Maine, Massachusetts, Minnesota, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington and Wisconsin.
