Financial Institutions Get Help in Filing With the SEC on Sustainability, Climate Risk Issues


Feb. 25 — A nonprofit standards-setting organization released voluntary guidelines Feb. 25 to help commercial banks, insurance companies and others in the financial sector report on relevant sustainability issues in annual filings with the Securities and Exchange Commission.

The financial sector standards are part of the Sustainability Accounting Standards Board's work to improve the quality and volume of environmental, social and governance (ESG) disclosure in mandatory SEC filings, including annual 10-K reports, by publicly listed companies in 10 sectors.

More companies in the financial sector have reported on risks posed by climate change and other sustainability issues since the SEC issued disclosure guidance in 2010. But of those that do report, about 10 percent do not go beyond “boilerplate” statements, according to SASB research.

To help companies determine what to report, SASB's standards identify a minimum set of sustainability issues that are considered material, or relevant, to disclose for seven industries within the financial sector. The seven industries are asset management and custody activities; commercial banks; consumer finance; insurance; investment banking and brokerage; mortgage finance and security and commodity exchanges.

The standards—which are supported by data from Bloomberg, the parent company of Bloomberg BNA—will be piloted by financial companies later in 2014.

Reporting on 'Financed Emissions.'

One issue that cut across several industries in SASB's standards was the integration of ESG factors into lending, investments and other financial services.

For commercial banks, such as Bank of America, that means discussing any credit risks in their loan portfolios posed by climate change, natural resource constraints, human rights concerns or other sustainability trends. Commercial banks are also asked under SASB's standards to report to the SEC on their total loans to companies in coal, oil and gas, utilities, raw materials and other carbon-intensive industries.

Jean Rogers, SASB's founder and executive director, said the metric on lending to carbon-intensive industries is designed to show “financed emissions,” or the greenhouse gas emissions of companies in which banks have invested or to whom they provide lending.

“This is something we've seen a lot of shareholder resolutions on recently,” Rogers told Bloomberg BNA. “So we're responding to that interest from investors.”

'Potentially Stranded Assets.'

For the asset management industry, which includes companies like Citigroup, SASB's standards seek disclosure on the embedded carbon content of fossil fuel reserves in total assets under management. This metric “gets at the risk of exposure to potentially stranded assets,” Rogers said.

Investors have raised concerns that stranded assets, also known as a carbon bubble, could occur if fossil fuel reserves are suddenly revalued under future government policies for climate change or greenhouse gas emissions.

Meanwhile, SASB is asking companies in the investment banking industry, such as Goldman Sachs, to report on how much of their business comes from deals that are supported by carbon-intensive industries.

Sustainability in Stock Exchanges

SASB's standards also ask stock exchanges to explain how they encourage or require ESG disclosure among listed companies.

NASDAQ OMX, which participated in an industry working group for SASB's standards, is one of about 10 stock exchanges worldwide that are developing sustainability listing guidelines as part of a United Nations initiative.

Asking listed companies to report on sustainability issues isn't the only thing stock exchanges can do to encourage more disclosure.

“We have two heads,” one as a listing market for other companies and one as a business, Evan Harvey, who directs NASDAQ OMX's sustainability efforts, said. Exchanges should also lead by example by reporting on sustainability in their businesses, Harvey told Bloomberg BNA.


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