U.S. securities regulators on Wednesday nudged companies toward disclosing in their annual reports their risks from climate change, a move that drew quick praise from some investors who in total hold $1 trillion in assets.
For years, big investors have urged the Securities and Exchange Commission to issue guidance telling firms to disclose climate change risks because it could have an impact on their financial results.
In a 3-2 vote, a divided SEC heeded investors' calls and suggested that companies have a responsibility to discuss the effects of the environment and pending rules on their business.
"Climate change and related governmental action can create risks and opportunities for companies," said SEC Commissioner Luis Aguilar.
"It is clear that disclosure of this material information will inform and aid investors in their decision making."
Under SEC rules, companies are required to disclose material information or information that an investor should possess in order to decide whether to buy a company's stock.
Many companies already disclose environmental risks, but investors, such as the largest public pension fund, Calpers, contend that the information is not consistently disclosed.
Now the SEC is giving companies examples of when they may have to disclose climate change risks.
The agency told companies they should consider whether existing or pending laws, rules and international treaties will have a material impact on their business.
The regulator also told companies to consider the actual and potential physical impact of climate change.
For instance, the SEC said an insurance company may consider whether there is a risk of increased insurance claims in coastal regions as a result of severe weather or changes in sea levels.
"Ensuring that investors are getting timely, material information on climate-related impacts ... is absolutely essential," said Calpers CEO Anne Stausboll.
"Investors have a fundamental right to know which companies are well positioned for the future and which are not," she said.
Calpers is part of a group of investors holding more than $1 trillion in assets that petitioned the regulator.
The SEC guidance comes after the Copenhagen climate change summit in December failed to produce a meaningful binding agreement to reduce carbon emissions and stem global warming.
It also comes as the Environmental Protection Agency threatens to regulate carbon emissions if Congress doesn't pass legislation, which seems increasingly unlikely with many lawmakers fearing that it could hike up energy prices in a depressed economy.
Republican commissioners Kathleen Casey and Troy Paredes dissented, saying the SEC was overstepping its bounds and the regulator had better things to do than issue such guidance.
The SEC rarely issues interpretive releases and only does so when there is the potential for misinterpretation and uneven application.
The guidance is effective immediately and does not create new legal requirements or rules.
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