Isra-Mart srl:US firms flouting SEC climate change reporting guidance

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Isra-Mart srl news:

A year on from the publication of US Securities and Exchange Commission (SEC) guidance on how companies should report activity to combat climate change, many companies are still failing to follow the new guidelines.

That is the conclusion of a report released this week by sustainable investors' interest group Ceres, which claims that the vast majority of listed companies are falling short of the SEC's best practice guidance.

The report, called Disclosing Climate Risks and Opportunities in SEC Filings, said that companies were largely failing to adequately report on the financial risks they face as a result of climate change.

"For every company we found that had 'poor' or 'fair' disclosure – or no disclosure at all – dozens of similarly situated companies provided similar reporting," said the report. "We found that 'good' disclosure examples were rare, and we found no instances of disclosure we believed should be rated 'excellent'."

In October 2009, the SEC revised legal rules that had previously allowed companies to omit reporting on risks from climate change. The amended rules made it possible for shareholders to call for a vote requiring companies to disclose information on the financial risks posed by climate change.

The SEC then issued specific guidance on reporting the risk impact of climate change on a company in February 2010, breaking down those risks into different areas: legislative impact, the effect of international climate change accords, indirect consequences of regulation or business trends, and physical impact of climate change.

The Ceres report categorised reporting quality into different tiers. In the context of regulatory risk, for example, 'poor' disclosure occurs when a firm fails to mention climate-related regulatory risks, or discusses them only in very general terms. 'Fair' disclosure involves the discussion of legislation without qualifying or assigning value to risks. Similarly, 'good' disclosure discusses in detail the financial impacts of existing and proposed regulatory requirements on the company.

"Although public companies' climate reporting has improved somewhat in recent years, it remains true that disclosures very often fail to satisfy investors' legitimate expectations," the report concluded.

Ceres pointed out that firms still had time to improve on their climate change risk reporting in annual 10-K financial filings next due by March 31, 2011.

The report also included an 11-point checklist detailing steps towards improving climate change risk reporting, including steps such as integrating consideration of climate risk and opportunity throughout the firm, and creating a board oversight committee.