New SEC rules for climate disclosure are a step in the right direction for investors

By Leslie Labruto, Managing Director, Sustainable Finance, Environmental Defense Fund

Today, the Securities and Exchange Commission will vote on a rule that will require publicly traded companies to disclose climate-related risk, in addition to other financial risks they are already required to share with investors.

This is big news, and it’s been a long time coming. But in many ways, it simply formalizes what forward-thinking companies already know and requires them to share their climate risk assessments with shareholders.

1. Risk disclosure is nothing new. Public companies must disclose known and potential risks that might impact their performance so investors can make informed decisions. Unemployment rates, supply chain challenges, pending lawsuits, environmental concerns, geo-political conflicts, changing market demand – companies are very focused on how these could impact their business, and they’re required to share what they know.
2. Around the world, companies already recognize climate change as a real and material risk to their business. Ask property insurers in Florida or utilities in California, or the companies that invest in them. The U.S. suffered more than $600 billion in damages from more than 100 extreme weather events in the past five years alone. Even oil and gas companies know that climate change and the world’s response to it spell dramatic change to their industry in decades to come. Reporting on this makes the data that they already know – or should know – available to you and me.
3. Transparency is a powerful force. From knowing how much a corporation is planning for (or fighting against) real action on carbon reductions to how the company’s bottom line will be impacted by increasing and strengthening extreme weather, investors deserve to know how the companies they invest in are thinking about and preparing for a changing climate, or whether they’re not.

We know wildfires, hurricanes, flooding and heat waves have a staggering financial cost. The SEC’s rule won’t eliminate those costs, but it will give investors – from the mega firms to people saving for retirement – the insight they deserve when deciding where to invest their money. And it just might highlight which companies are best equipped and ready for the long haul in an ever-changing world.