Printed from BusinessInsurance.com

Companies take on climate risk in absence of federal action

Posted On: Oct. 10, 2017 7:00 AM CST

Corporations are continuing to take steps to improve their climate risk disclosure despite the absence of U.S. federal leadership to mitigate the risks and impacts of climate change, experts say. 

Other influences such as U.S. state and local level mandates, foreign government requirements and encouragement, and shareholder pressure are some of the key reasons why companies are still ramping up their disclosure and other climate-related efforts even in the face of resistance to such activities by the Trump administration, panelists said at the Society of Environmental Journalists conference in Pittsburgh on Saturday. 

For example, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures — at the request of the G-20 nations — released in June a set of final recommendations to guide companies in assessing the material risks climate change poses to their operations and develop plans to mitigate these risks. The recommendations cover four core elements: governance, strategy, risk management, and metrics and targets. 

In addition, in a shareholder vote in May, a 62% majority voted in favor of a proposal calling on Irving, Texas-based oil and gas giant ExxonMobil Corp. to assess and disclose how it is preparing its business for the transition to a low-carbon future, which reflects the pressure companies are feeling from their shareholders to improve their disclosure of climate risks, experts say. 

“Customers are interested in how companies are doing it and they’re starting to differentiate between greenwashing and reality,” said Bob Perciasepe, president of the Arlington, Virginia-based Center for Climate and Energy Solutions and a former deputy administrator of the U.S. Environmental Protection Agency. “They want to see companies doing real things. Believe it or not, some of these companies are starting to embrace the fact that this is happening. Most companies are buying into the fact that they need to do a better job on disclosure. They like this framework.”

More work will be needed to help companies implement the recommendations, especially regarding tools such as scenario analysis, which could be particularly helpful when reviewing the long-term transition and physical risks related to climate change given the amount of uncertainty involved, according to a report published by the center in September. 

“I think the concept of scenario analysis is extremely important, but it’s an art form that we have to learn a little bit to do it,” he said. “Just because a scenario analysis is done, doesn’t necessarily mean it’s material. Making those decisions in an (U.S. Securities and Exchange Commission) context is going to be another learned experience.” 

Even though the guidelines are voluntary, Mr. Perciasepe said it was “realistic” to expect that many companies will adhere to the recommendations. Swiss Re Ltd., a member of the task force, previously said it would adopt the voluntary recommendations. 

 “I find most companies will be subject to stakeholder and peer pressure to move forward on this,” he said. “Right now, they’re voluntary, but I think we’ll learn a lot from companies that have already committed to start doing them.

“I don’t think it’s realistic to think it will be universally applied to every publicly-traded company, but many, many will start to move in this direction,” he added. 

Meanwhile, New York Attorney General Eric Schneiderman’s office opened an investigation in November 2015 into possible financial fraud by the energy giant under the state’s Martin Act after news surfaced that the company conducted research on climate change and its direct and indirect effects, but failed to include the information in its financial statements to investors and the SEC. 

“Attorneys general are taking on climate issues,” said Ana Unruh Cohen, Washington, D.C.-based government affairs director, Natural Resources Defense Council and former director of energy, climate and natural resources for Senator Ed Markey, D-Massachusetts. “There’s also the public interest groups that are litigating with some success and we’ll keep fighting in the courts to keep in place the good work of the Obama administration and try and turn back the harmful policies the Trump administration will be trying to put in place.”

In addition, several U.S. states and Canadian provinces have implemented cap-and-trade programs to reduce greenhouse gas emissions. In August, the nine Northeast states participating in the Regional Greenhouse Gas Initiative — the first carbon trading program in the United States — announced they would reduce carbon dioxide emissions by an additional 30% by 2030 relative to 2020 levels, which would lower emissions by more than 65% since the launch of the RGGI program in January 2009. 

“Even though these seem like very dark times … in that vacuum, the states are the ones that have tended to step up,” said Vicki Arroyo, executive director, Georgetown Climate Center, Georgetown Law in Washington, D.C.