Why the SEC is Concerned About How Businesses Prepare for Climate Change
The federal government is stepping up its efforts to ensure businesses accurately account for the full financial impact of climate change.
In recent years, new laws and regulations have emerged aimed at reducing greenhouse gas emissions. And with the Paris Agreement set to enter into force in just a few weeks, more policies and mandates for energy efficiency and sustainability are sure to come. Investors have recognized this—along with the other trends making energy strategy a value driver—and have started demanding transparency into business’ energy efficiency and sustainability efforts before making an investment decision.
As a result, sustainability reporting has grown rapidly among large businesses. Earlier this year, a report issued by the Governance & Accountability Institute showed that 81% of companies on the S&P 500 Index published a sustainability or corporate responsibility report in 2015. In 2011, less than 20% of these companies reported their sustainability efforts.
Now, the Securities and Exchange Commission (SEC) is stepping in to make sure these increasingly valuable reports accurately reflect the financial impact of climate change regulations.
Following an investigation into Exxon Mobil’s exposure to climate change, the Wall Street Journal reported last month that the SEC has seen increasing pressure from lawmakers and activists to force large businesses to provide accurate data on how the regulations developed to limit the effects of climate change could affect their market valuations. This pressure has ranged from members of Congress urging the SEC to investigate corporate climate science and reporting practices to former US treasury secretaries pushing for industry-specific sustainability disclosure standards for company filings, according to the Wall Street Journal.
Even without the kind of industry-specific standards that some are pushing the SEC to institute, investors have already developed their own tools for rating corporate sustainability efforts. These tools are becoming increasingly important, as 18% of investors responding to a 2015 PwC survey said they have withdrawn from an investment or withheld capital on environmental, social, and governance grounds.
Andrew Logan, director of the oil and gas program at the nonprofit sustainable business advocacy Ceres, told the Wall Street Journal that the investigation and the forces behind it signify “a potential tipping point” in the way the financial community approaches sustainability.
With increasing pressure from the SEC, businesses will need accurate energy data not only to comply with climate change-related regulations, but to show investors how their strategy accounts for both compliance and profitability. Investors have long been concerned with how businesses are aligning with customers’ expectations for how they are using and managing their energy. Now it’s becoming clear that they will soon have a better view into how businesses are preparing for the regulatory efforts to limit the effects of climate change.