Does the SEC Need to Beef Up Enforcement of Climate Reporting?


Feb. 6 —  The Securities and Exchange Commission isn't doing enough to enforce its requirement for corporate reporting on climate risk, according to a Ceres report.

The new report said the majority of financial reporting on climate change from S&P 500 companies is too brief and largely superficial, but the SEC has “paid minimal attention to climate risk reporting in the last four years” and hasn't made climate disclosure a priority in its process for reviewing companies' reporting.

“Investors want greater transparency on the business risks of climate change as a means to protect and increase shareholder value,” Ceres President Mindy Lubber said in a statement. “Yet the SEC is not adequately enforcing its own requirements.”

The SEC issued guidance in 2010 directing companies to disclose material risks and opportunities of climate change and related regulations in their annual 10-K reports and other filings.

The report looked at climate disclosure in 10-Ks from S&P 500 companies and found that while the rate of disclosure has improved slightly since the guidance was issued, the quality of disclosure hasn't.

About 59 percent of companies made climate-related disclosures in their 10-Ks in 2013, up from 45 percent in 2009, according to the report.

Ceres also scored the quality of the disclosures on a scale of 0 to 100. The average quality score of the disclosures dropped from 4.94 in 2010 to 4.18 in 2013.

'Not Quantifying Risks'

“Most companies are not discussing company specific material information and are not quantifying risks or past impacts,” the report said. “Most are briefly discussing climate change using boilerplate language of minimal utility to investors, providing few material details about climate risks and opportunities facing them.”

The report also analyzed the SEC's oversight of climate disclosure by companies.

The SEC has reviewed some companies' climate disclosure and provided feedback through comment letters that recommend areas for improvement.

In 2010 and 2011, the commission sent 49 letters related to climate change to companies and asset managers but only sent three such letters in 2012 and none in 2013, according to the report. The report said these letters resulted in little or no improvements in companies' reporting.

“Another indication of the SEC's lack of attention to climate risk lies in the absence, in the comment letters, of much discussion of the nature of good climate risk disclosure, or of questions reflecting an appreciation of the kinds of risks typically faced by companies in various sectors,” the report said.

SEC Needs 'Infrastructure'

It's difficult for the SEC to tell companies how to disclose climate risks without having a way to gauge the quality of disclosure, Jean Rogers, founder and executive director of the Sustainability Accounting Standards Board (SASB), told Bloomberg BNA.

“The SEC needs to be able to point to something” and say “this disclosure is appropriate or this disclosure is boilerplate,” Rogers said. “It's that infrastructure that SASB is creating.”

SASB is developing a set of sector-specific standards for disclosing nonfinancial information as part of SEC filings.

The Ceres report called on the SEC to make better use of its review and comment letters process by focusing on companies in the most “at-risk” sectors.

At-risk sectors include high-emitting sectors that are already subject to regulation, such as fossil fuels; firms whose financial performance is tied to global climatic changes, such as the insurance sector; and firms whose business operations and operational infrastructures are most likely to be disrupted by changing weather patterns, the report said.

Recent Developments

The SEC also should look for recent regulatory developments, such as state and federal greenhouse gas controls, in corporate disclosures.

An interagency working group also should be created so that other agencies, such as the Energy Department and the Environmental Protection Agency, could share their climate expertise to examine and improve corporate reporting, the report said.

The SEC declined to comment.


Follow @alvittorio and @BBNAclimateTwitter Logo

For more information on Energy and Climate Report, including a free trial subscription, click here.

To sign up for email highlights, click here.