SEC Inching Closer to Mandated Carbon Disclosure
March 29, 2010
By Mike Antich
A growing number of investors, state officials, and environmental groups are lobbying the U.S. Congress to mandate climate change disclosures in Securities and Exchange Commission (SEC) filings. Presently, the SEC doesn't require companies to disclose financial risks related to greenhouse gas (GHG) emissions. This issue has been closely followed by Chuck Kukal, supervisor, administrative services for Infinity Insurance Co.
"I believe fleet managers will have to deal with carbon disclosure in the not-too-distant future," said Kukal.
Recently, Kukal notified me that carbon disclosure and reporting had taken a giant leap forward with the SEC's new interpretative guidance clarifying climate change-related disclosure requirements. Federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors. On Jan. 27, the SEC voted 3-2 to issue an interpretive release (Release Nos. 33-9106; 34-61469; FR-82) that provides guidance to publicly traded companies regarding "the applicability of the existing SEC disclosure requirements to climate change-related risks." The release, issued Feb. 2, reviews existing rules and regulations that could require or involve climate change disclosure. The SEC stressed the interpretive release does not create new legal requirements or modify any existing legal requirements. However, critics argue this is one step closer to ultimately mandating corporate carbon disclosure. Specifically, the interpretive guidance outlines four specific areas where risks may exist and should be publicly disclosed:
- Impact of legislation and regulation.
- Impact of international accords.
- Indirect consequences of regulation or business trends.
- Physical impacts of climate change.
Corporate Carbon Disclosure Growing
The SEC interpretive release caught the attention of the corporate fleet community, especially in the wake of a record number of global warming resolutions filed with 58 U.S. companies during the 2009 proxy season. These resolutions were part of a growing, organized effort by investor groups to compel companies to voluntarily disclose data about their carbon footprints, namely the total set of GHG emissions caused directly and indirectly by their operations. These investors are concerned future government GHG regulations will have a significant financial impact on corporations. They further argue companies that disclose and mitigate GHG emissions will be rewarded with higher valuations and a lower cost of capital. Coca-Cola has begun to voluntarily include "climate risk factors" in its annual 10-K report filed with the SEC. Hertz committed to report to investors efforts to improve the fuel economy of its 500,000-vehicle global rental fleet and provide sustainability reporting. This investor movement appears to be gathering momentum. On Feb. 17, the Carbon Disclosure Project (CDP) commenced its eighth annual global request to 4,500 companies for information on GHG emissions and climate change strategies. The number of institutional investors that signed CDP's annual request for climate change information has risen from 475 in 2009 to a record 534 in 2010.
According to Gartner Inc., a global research and advisory company, approximately 110 companies have already implemented a formalized reporting structure of their carbon footprints. At many of these companies, fleet represents a sizeable percent of their carbon footprints. Green fleet initiatives present for them a significant opportunity to demonstrate carbon reduction accountability. Examples of companies that have already established fleet emission baselines include Wal-Mart, PepsiCo, Abbott, USG, sanofi-aventis, U.S. Foodservice, and Novartis.
Multipronged Pressure for Carbon Disclosure
A leading proponent of corporate disclosure is Ceres, a network of investors, environmental organizations, and public interest groups, which believes "climate change is a bottom-line issue and investors have a right to know which companies are best positioned for the emerging clean energy global economy."
In addition, federal legislation could make corporate carbon disclosure the law of the land. The American Clean Energy and Security Act (known as Waxman-Markey) was passed by the U.S. House of Representatives June 26, 2008 and is currently in the U.S. Senate. There is also a companion Senate bill.
Regardless of your personal views, there is a growing possibility that mandated fleet carbon disclosure may become a reality. "Now is the time for fleet managers to get our 'ducks in a row,' if they haven't started to do so already," said Kukal.
Let me know what you think.
Posted @ Monday, March 29, 2010 6:28 PM