Friday, February 25, 2011

Ceres Report On Improving Climate Risk & Opportunity Disclosure

Feb 25: Amid growing evidence that climate change is impacting the global environment and the global economy, the Ceres investor coalition announced a new report aimed at improving corporate disclosure of climate-related risks and opportunities they face. The Ceres report, developed with input from its 90-plus member Investor Network on Climate Risk, outlines generally weak climate disclosure to date by businesses and steps for improving such disclosure, especially in annual 10-K financial filings that are next due from companies by March 31, 2011. It comes just a week after the consulting firm Mercer issued a new study warning that climate change could increase investment portfolio risk by 10 percent over the next 20 years. On February 15, Mercer's Responsible Investment (RI) team released, Climate Change Scenarios - Implications for Strategic Asset Allocation.

    Ceres president Mindy Lubber said, "Adjusting to a world profoundly shaped by climate change is a key challenge for all leading companies. Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is essential. This report sets the bar on what investors expect on climate disclosure so that they better understand which companies are well positioned for the future and which are not." Anne Stausboll, chief executive officer of the California Public Employees' Retirement System (CalPERS), the nation's largest public pension fund, which provided input on the report said, "As a long-term investor, we need a clear account of the environmental challenges and opportunities facing the companies we choose to invest in. The roadmap offered by this report will guide all of us -- investors and business alike -- as we incorporate climate risk into our due diligence and our overall investment strategy."

    The Ceres report -- Disclosing Climate Risk & Opportunities In SEC Filings, A Guide For Corporate Executives, Attorneys & Directors -- comes one year after the Securities and Exchange Commission (SEC) issued formal interpretive guidance for companies on climate-related information they should be disclosing to investors in their 10-Ks or 20-Fs, as well as quarterly filings [See WIMS 1/28/10]. The guidance, issued last February, capped a multi-year effort by leading investors, state law enforcement officials and others to boost corporate attention to the quality of their climate-related disclosure. According to a release, the report makes clear that while many more companies are disclosing climate-related information in voluntary reports -- such as annual reports, sustainability reports and Carbon Disclosure Project responses -- the quality of overall disclosure is still less than satisfactory.

    The report concludes that, "Assessments of corporate disclosure practices on climate change show significant improvements in recent years, particularly in voluntary disclosures. However, overall disclosure continues to be highly inconsistent and often inadequate, particularly in mandatory filings, and frequently fails to meet the needs of investors." Still, the report includes a half-dozen concrete examples of "good quality disclosure" in financial filings by companies such as Chiquita Brands International, Siemens, Rio Tinto, AES and Xcel Energy. It also lists examples of "poor" and "weak" disclosure.

    The report also includes an 11-point checklist to help companies to improve the quality of their disclosure and position themselves to respond more effectively. Kevin Parker, global head of Deutsche Asset Management. Kevin Parker, global head of Deutsche Asset Management said, "This document will be an important catalyst in the major shift in attitudes towards climate change that is now taking place in the investment industry. Institutional investors everywhere are recognizing that climate change is a risk they must take full account of in their overall portfolios. As DB Climate Change Advisors demonstrated in its own recent report on this issue, Investing in Climate Change 2011, greater  transparency and better information from companies is essential to enable them to assess the risk effectively. Ceres' report is critical in defining what investors need to know in setting the standard of information companies must aim at."

    Access a release from Ceres with more information and link to the complete report and the Mercer report (click here). Access last year's SEC's interpretive guidance (click here). Access the SEC website for more information (click here).

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