Friday, September 21, 2018

Warren bill would require disclosure of climate-change exposure

By John M. Jascob, J.D., LL.M.

Senator Elizabeth Warren (D-Mass) has introduced legislation that would amend the Exchange Act to require public companies to report their exposure to climate-related risks. Co-sponsored by seven other Democratic senators, the Climate Risk Disclosure Act of 2018 would mandate that the SEC issue rules within one year requiring public companies to report their direct and indirect greenhouse gas emissions and the total amount of fossil-fuel related assets that they own or manage. Public companies would also be required to report their strategies for managing physical and transition-related risks as well as the impact on their valuations from climate change under specified scenarios.

"Climate change is a real and present danger - and it will have an enormous effect on the value of company assets. Investors need more information about climate-related risks so they can make the right decisions with their money," said Sen. Warren in a news release. "Our bill will use market forces to speed up the transition from fossil fuels to cleaner energy - reducing the odds of an environmental and financial disaster without spending a dime of taxpayer money."

Joining Warren as co-sponsors of the bill are Sens. Brian Schatz (D-Hawaii), Edward J. Markey (D-Mass), Cory Booker (D-NJ), Sheldon Whitehouse (D-RI), Jeff Merkley (D-Ore), Kamala Harris (D-Calif), and Kirsten Gillibrand (D-NY).

Stranded assets. The text of the bill notes that many sectors of the U.S. economy are exposed to multiple channels of climate-related risk. These risks include not only the physical damage and economic disruption caused by effects such as flooding, desertification, and drought, but also the transition impacts that result when fossil fuel assets become stranded due to the global move to a clean energy, low-emissions economy. A summary of the legislation quotes a study published in Nature Climate Change which projects that the “stranding” of these assets could involve a discounted global wealth loss of between $1 trillion and $4 trillion, with the U.S. at risk of seeing its fossil fuel industry “nearly shut down.”

The bill directs the SEC, in consultation with the heads of the EPA, the Department of Energy, and other federal agencies, to establish climate-related risk disclosure metrics and guidance in issuing its final rules. The metrics and guidance are to be tailored for industries within specific sectors of the economy, including finance, insurance, transportation, electric power, and non-renewable energy. Among other things, the reporting standards must provide for the estimation and disclosure of direct and indirect greenhouse gas emissions by a covered issuer and its affiliates. Issuers must also disclose the total amount of fossil fuel-related assets owned or managed by the issuer and establish a "minimum social cost of carbon" for use in preparing climate-related disclosure statements.

A group of 29 environmental and social activist organizations issued a letter in support of the Warren bill, noting that the international financial community has already taken steps to meet global commitments to rapidly transition to a low-carbon economy. For example, the letter references last year’s vote by a majority of ExxonMobil shareholders demanding that the company report on its business plans for a world in which the global temperature increase is kept below 2 degrees Celsius to avoid the worst effects of climate change. Organizations signing the letter include Greenpeace USA, Public Citizen, the Sierra Club, and the Union of Concerned Scientists.