180 investors with nearly $2.7 trillion in assets under management seek to protect the economy from climate risk
June 10, 2021 /3BL Media/ – During this week’s anniversary of the founding of the U.S. Securities and Exchange Commission (SEC), 180 investors with nearly $2.7 trillion in assets under management joined 155 companies and 58 nonprofit organizations calling on the regulatory agency to fulfill its mission to protect investors from risks including the systemic and financial risks associated with the climate crisis.
In a statement,the signatories document the clear recognition of the economic risks of climate change and its potential disruptive impact on asset valuations, financial markets and global stability. The statement – which was signed by major investors including California State Teachers Retirement System, New York State Common Retirement Fund, and DWS Group and companies including Danone North America, Patagonia, Pirelli Tire North America, and Enel North America, Inc. – says climate disclosure is essential to making sound investment decisions and providing companies clarity about risks they should measure and disclose – and that SEC rules are needed to provide comparable, consistent information.
“We believe that disclosure of the material and systemic risks of climate change will help companies and investors to understand, price, and manage climate risks and opportunities. These activities are at the core of efficient securities markets, and are essential to ensuring a just and thriving economy that works for all people and communities,” it states.
“The climate crisis poses a variety of material risks to companies of all sizes in all industries across our nation,” said Illinois State Treasurer Michael Frerichs. “It is the mission of the SEC to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. Climate change threatens all parts of that mission. I agree with SEC Commissioner Allison Herren Lee that it is time for mandatory climate disclosure.”
The statement, coordinated by Ceres, was submitted as part of the SEC’s public comment period for climate disclosure rulemaking – which closes June 13. It comes as investors and companies continue to make substantial investments in climate disclosures, and as corporate calls for mandatory climate disclosure rules increase. This spring, several major brands announced support for regulatory action by the SEC to mandate climate disclosure.
Read the full statement and see a complete list of signatories here. Investors, companies and organizations may continue signing on since this is just the beginning of the SEC’s rulemaking process.
The statement also shows the growing consensus on how to address the lingering inefficiencies in corporate climate risk reporting. Inadequate SEC rules have led to incomplete and incomparable information, creating a significant cost burden on investors who must wade through fragmented and inconsistent data in an attempt to protect their assets.
The statement specifically calls on the SEC to include the following elements in climate disclosure rules:
- TCFD-based recommendations: The SEC’s work should be based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which have been endorsed by hundreds of investors and companies globally.
- Industry-specific metrics: SEC rulemaking should include industry-specific metrics to account for the ways material climate risks manifest by industry. These metrics should build on existing standards commonly in use by investors and companies. Identifying such industry specific metrics would also allow for comparable disclosures.
- Governance and strategy disclosure: Disclosure rules should provide insights into companies’ climate risk exposure, strategies and scenario planning.
- Emissions disclosure: Disclosure rules should include Scope 1, 2 and 3 emissions, which are needed to assess the full range of climate risks facing companies.
- Inclusion in financial filings: Material climate disclosures, including discussion on risk exposure and business opportunities, impacts on strategy and emissions reporting and management, should be included in annual, quarterly and other appropriate SEC filings.
- Regular updates: Scientific consensus around climate impacts and capital market responses to climate risks are rapidly evolving. SEC rules should be updated regularly in response to these developments, and they should include the development or adoption of new metrics.
“The impacts of the climate crisis on our lives and our livelihoods are worsening at a dramatic rate,” said Steven Rothstein, Managing Director for the Ceres Accelerator for Sustainable Capital Markets at Ceres. “Whether we’re looking at the physical risks to real estate assets from climate-fueled weather events, or transition risks posed by regulatory, technology, economic and litigation changes during the shift to a net-zero economy – we need mandatory climate disclosure in order to have consistent data and protect investment and savings portfolios.”
Ceres has long advocated for increased climate disclosure for decades. In 2010, the SEC issued interpretive guidance in response to a petition filed by Ceres Investor Network members. In 2020, the Ceres Accelerator for Sustainable Capital Markets released a report outlining the systemic risks of climate change and calling on the SEC to mandate climate risk disclosure, among with some 50 other regulatory action steps for federal financial regulators. Investors with more than $1 trillion in assets under management endorsed the report and sent letters to the heads of various financial regulatory agencies, urging them to adopt its recommendations. Ceres also sent its own letter to the SEC today as part of the public comment period detailing the importance of SEC rulemaking to improve climate disclosures.
“As the chief financial officers of two of the largest state economies and representatives of the nation’s largest public pension funds, we believe it is essential to address the financial impacts that climate change could pose to the economies, retirement systems and residents of our respective states,” wrote California State Controller Betty T. Yee and New York State Comptroller Thomas P. DiNapoli in a joint op-ed today. “Investors need material climate disclosures to make informed investment decisions, but for too long, our securities rules have led to incomplete and incomparable climate information, which is insufficient for protecting investors’ assets.”
This call for SEC action also comes on the same day as investors around the globe call on governments to require mandatory disclosure ahead of the G7 Summit and leading up to COP26. The 2021 Global Investor Statement to Governments on the Climate Crisis is the strongest-ever investor call for governments to raise their ambition and implement meaningful policies, or risk missing out on a massive wave of investment in tackling the climate crisis.
In the statement signed by investors with $41 trillion in assets under management, the signatories explain they “are urgently seeking to decrease their exposure to climate risk as a core fiduciary duty and benefit from the opportunities associated with the transition to a net-zero emissions economy.” The investors specifically call for mandatory climate disclosure, saying that “as owners of (or those representing owners of) companies, we need access to adequate information on how these companies are assessing and managing the risks and opportunities presented by climate change.”
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.
Additional quotes from signatories provided here for use in your coverage.
“B Lab, the non-profit behind nearly 4,000 Certified B Corporations globally, is proud to stand together with our partners at Ceres in support of the SEC’s proposed mandatory climate disclosure for the business sector. As the source of the majority of the planet’s greenhouse gas emissions, the business sector is uniquely culpable for the climate emergency – and therefore uniquely positioned to take concrete action to address it. We’re proud of the over 160 companies, including 53 B Corps, that are standing up, together, for this kind of corporate climate transparency. These kinds of disclosures are necessary first steps for businesses to begin doing the hard work to decarbonize their operations and help advance a just, zero carbon future for all.” —Andrew Kassoy, Co-Founder & CEO, B Lab
“After three decades of experimentation, a fragmented standards environment is limiting the impact of reporting, and creating undue confusion and cost for companies and investors. A harmonized ESG reporting framework is an essential way to ensure that business creates long-term value for all, and generates inclusive economic growth that is genuinely sustainable. Today we have a once-in-a-generation opportunity to achieve higher quality and better aligned ESG reporting standards, and we call on the SEC to mandate consistent, comparable, and reliable ESG disclosures. We encourage companies to voice their support too—this is not an opportunity we can afford to miss.” —Aron Cramer, President & CEO, BSR, Business for Social Responsibility
“We welcome the SEC’s interest in this topic because only with consistent and standardized information can we make informed and holistic decisions as stakeholders or investors, and that is the principle behind the urgent need for required and expanded corporate disclosure about ESG-related exposure. Companies today are making bold claims about their ambition to have a reduced or even beneficial impact on the environment, which are material to their performance, however, it is difficult at best for business leaders, investors and shareholders to distinguish on this performance with little if any consistency in data being shared thereafter. Expanded regulation of investor and corporate accountability, transparency, and disclosure will benefit all.” —Jeffrey Hollender, Co-founder & CEO, American Sustainable Business Council
KEYWORDS: U.S. Securities and Exchange Commission, Climate Risk, climate disclosure, CERES