Climate change-related disclosure continues to be weak or altogether nonexistent in SEC filings of global companies with the most at stake in preparing for a low-carbon global economy, according to two major studies released today by Ceres, Environmental Defense Fund (EDF) and the Center for Energy and Environmental Security (CEES). The reports' findings highlight the need for the Securities and Exchange Commission (SEC) to respond to repeated investor requests for formal guidance on climate-related disclosure companies should be providing in securities filings.
The two new studies - an in-depth look at SEC filings in 2008 as well as a multi-year longitudinal study - show companies are seriously deficient in meeting the needs of investors:
Climate Risk Disclosure in SEC Filings prepared by The Corporate Library for Ceres and EDF assesses climate risk disclosure in the 10-K and 20-F reports filed in 2008 by 100 global companies in five sectors: electric utilities, coal, oil & gas, transportation and insurance. The study found overall limited disclosure: 59 of the 100 companies made no mention of their greenhouse gas emissions or public position on climate change; 28 had no discussion of climate-related risks they face; and 52 failed to disclose actions and strategies for addressing climate-related business challenges. Even more telling, the very best disclosure for any of the 100 companies could only be described as "fair," and only a handful of companies achieved this ranking.
Reclaiming Transparency in a Changing Climate by CEES, Ceres and EDF reviews over 6,000 SEC filings by S&P 500 companies from 1995 to 2008. While the study finds some modest improvement in climate risk disclosure since 1995, in 2008 75% of annual reports filed by S&P 500 corporations failed to even mention climate change and only 5% articulated a strategy for managing climate-related risks.
Climate Risk Disclosure in SEC Filings finds that while some climate related disclosure was common in the electric power, coal and oil & gas industries, most filings in these sectors lacked the level of detail that investors require. Many companies in the insurance and transportation sectors failed to provide any disclosure on climate-related risks and opportunities whatsoever.
Reclaiming Transparency in a Changing Climate finds a troubling pattern of silence on climate-change-related issues in filings across major sectors of the economy. "To effectively build the new energy economy, investors need to know who's planning for the future and who isn't," said Kevin Doran, co-author of the report. "Investors should not have to guess at the meaning of corporate silence." Based on review of over 6,000 10-K filings spanning more than a dozen years, the report finds: "Despite the clear imperative for prudent oversight, the SEC has failed to protect investors from enduring inadequacies in corporate disclosure concerning the material risks and opportunities posed by climate change."
Detailed Findings on Climate Risk Disclosure in SEC Filings
The study assessed climate risk disclosure for three broad categories using the Global Framework for Climate Risk Disclosure as a guide. The categories studied include 1) emissions and climate change position, 2) risk assessment, and 3) actions to address climate risks and opportunities. Specific key findings for the five sectors studied include:
Electric Utilities: Disclosure was widespread but minimal. None of the 26 companies studied achieved a "Fair" rating on disclosure of emissions and climate change position, only 3 out of 26 companies (12%) ranked "Fair" on climate risk assessment, and only 2 out of 26 companies (8%) provided "Fair" disclosure of actions to address climate change. Nevertheless, the electric power sector ranked higher than the other sectors and had three of the highest disclosing companies in the study -- AES, Xcel, and PG&E.
Coal: All six coal companies surveyed included some disclosure of climate change issues in their 10-K filings, though only one achieved a "Fair" score in any of the three categories analyzed. Coal companies' strongest disclosure was in the area of risk assessment; five of the companies provided disclosure in this category that was rated "Limited" or "Fair." Rio Tinto provided the best disclosure, including valuable information on emissions, while Yanzhou Coal Mining Co. performed the worst overall.
Oil and Gas: The majority of the 23 companies studied provided some disclosure on climate risk assessment, but disclosure was weak with none ranking "Fair" and 22 out of 23 (96%) scored as "Limited" or "Poor." Twelve out of 23 companies (52%) provided no disclosure on actions to address climate change, while 17 out of 23 companies (74%) disclosed no information on their emissions or climate change position. Apache, Exxon Mobil and Anadarko were noted for particularly weak overall disclosure, while Shell scored best across the board.
Transportation: Only 5 of 19 (26%) disclosed their emissions or their climate change position, and none were ranked as "Fair" for this disclosure. General Motors was the only company to provide information on past emissions from its operations, while not a single company disclosed emissions associated with vehicle use. More companies provided disclosure on climate risk and actions to address climate change; however, the disclosure was weak with only 3 companies scoring "Fair" on climate risk assessment and 2 scoring "Fair" on their actions to address climate risks. Honda, Daimler and General Motors scored the highest overall.
Insurance: Although prudent risk assessment is the basis for a viable insurance industry, the 27 companies studied in this sector provided the least disclosure compared to other sectors. Eighteen (67%) had no mention of climate change or related risks anywhere in their SEC filings; 24 out of 27 companies (89%) omitted disclosure on actions to address climate change, despite the wide range of opportunities for new, climate-related insurance products. The handful of companies that did provide more informative disclosure -- Swiss Re, Munich Re and Zurich Financial -- were all non-U.S. companies.
The Corporate Library report concludes that, despite the clarity of climate science and the host of policies being enacted to combat global warming's ill effects, climate-related disclosure in SEC filings still falls short. Furthermore, climate risk disclosure in SEC filings is insufficient to meet investors' needs largely because the SEC has failed to take actions to highlight its importance. Although pressure from investors has clearly had some effect upon companies' disclosure practices, companies are unlikely to comprehensively disclose climate risks and opportunities in SEC filings in the absence of clear guidance from the SEC.