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A Recent UN reportThe climate emergency is described as the following: severe climate impacts today, and existential threats ahead. In the words of the UN Secretary-General António Guterres, the report is an “An atlas of human suffering, and a damning indictment against failed climate leadership,” warning that far worse is coming, including a series of irreversible and potentially catastrophic tipping points as we pass the 1.5 degrees Celsius guardrail for global warming set up by the Paris Agreement. This “fat tail” risk should scare all of us, including investors.
President Biden
Joe BidenDefense & National Security — Biden huddles with allies in Europe On The Money — Unemployment claims at lowest level since late 1960s Energy & Environment — Biden walks tightrope on oil industry messaging LEARN MORE has made climate protection one of his priorities and promised an “all of government” response to the climate emergency. Fittingly, the Securities and Exchange Commission (SEC) last week released a proposed rule that would make it mandatory for corporations to disclose their climate risks to investors, noting the “Tens of Trillions of Dollars [that]Climate-related disclosures are encouraged because they recognize the financial risks climate risks can pose to companies.”
The SEC’s proposed rule comes at a critical time. This is the “do-or-die” decade to slow warming.
The proposal requires companies reporting on the impacts climate change has on their bottom line in the short, medium, long and long term. While this is a significant step, the risk assessment will not take into account the fat tail risks that come with climate change. Nonlinear feedbacks in climate system. Investors need to be fully informed and protected by these often overlooked risks.
Importantly, the proposal requires corporations to inform the public about how their operations impact climate change risk and to outline any transition plans they have in effect. In other words, how much do they contribute to the problem and how can they help to solve it?
Similar challenges have been faced by corporations before. For example, corporations must consider the human rights impact of their supply chains including the use child labor. No matter how profitable a business model may be, child labor is unacceptable. Business practices that worsen the climate crisis are also unacceptable.
The SEC rule proposed would make all corporations subject to public scrutiny. It would require uniform and frequent reporting. This will ensure that investors and other stakeholders have clear, comparable, and useful disclosures. It would expose those who are ignoring climate change and help those who are taking action to reduce it. Investors will know where companies stand in relation to climate and be able make appropriate investments.
The SEC’s final disclosure rules should ensure that all of a company’s climate emissions are disclosed (Scope 1, 2 and 3 — when these are material), along with a transition plan that has sufficient detail to help investors evaluate whether a company has an effective strategy to achieve its short-, medium-, and long-term climate-related goals — and ultimately, whether the company is helping or complicating efforts to alleviate the climate emergency.
In addition to informing investors, corporate climate disclosure also will promote internal corporate culture change that is as important to the bottom line as it is to our collective climate challenge. Corporate climate disclosures are required to identify corporate climate failures and establish policies to address climate impacts. Management teams are hired to steer the company in climate-friendly direction. Emissions reduction targets are tracked and evaluated. This is how innovation and learning happen.
What does this mean for reporting and how is it done? The series of recent UN climate reports from the Intergovernmental Panel on Climate Change (IPCC) make it clear that keeping 1.5 degrees Celsius within reach requires getting to net-zero CO2 emissions as fast as possible, which is essential for stabilizing the climate in the longer term, while also making deep cuts to the short-lived super climate pollutants, including methane, hydrofluorocarbon refrigerants and black carbon — reductions Essential for slowing down the warming process in the near-term.
Companies and the SEC must recognize how different strategies affect warming over different time horizons. This is why it’s important to Separately report short-lived as well as long-lasting pollutantsUse Metrics that align with temperature targetsTo limit global warming to 1.5 degrees Celsius. This would include reporting on how a pollutant will affect the climate over the next 20 year, taking into account the possibility of As soon as the 2030s are here, we will surpass the 1.5-degree guardrail.
Companies must disclose. Climate change is important to everyone, including investors and corporations. Strong SEC disclosure rules can speed up the corporate alignment that is necessary for climate safety.
It took decades for the corporate sector to realize that there were human rights dimensions to their business model. The SEC must ensure companies take immediate action in the face climate-related changes. Otherwise, in the words of Guterres, “We can say goodbye 1.5 if we do more of the same..”
Jorge Daniel TaillantHe is the founder of the Center for Human Rights and Environment and a climate justice policy advisor at the Institute for Governance & Sustainable Development (IGSD).
Gabrielle DreyfusDr. Judith Y. Sullivan, Ph.D. is chief scientist at IGSD. She is also an adjunct professor at Georgetown University.
Durwood Zaelke is president of IGSD Washington, D.C. and Paris, and an adjunct professor at the University of California, Santa Barbara. He is co-author of “Cut Super Climate Pollutants Now!: The Ozone Treaty’s Urgent Lessons for Speeding Up Climate Action.”
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