Making companies tell the truth about climate change

Michael Hiltzik writes in the LA Times about pressure on corporations from investors and government to get better data on climate and other ESG risks.

[I]nvestors have been asking for much more from corporate managements — more disclosures about how their activities contribute to climate change, and more about how climate change will affect their destinies. Nor are these demands coming only to fossil fuel producers. They’re being felt by manufacturers, retailers, bankers, almost any company exposed to global climate change. Newsletter

“Investors want to know how a company is preparing for a different world where there’s more regulatory change and more environmental change,” says Ann Lipton, a business law expert at Tulane University who has been tracking corporate responses to these inquiries. “If there are places where they’re building that will be underwater in 10 years, how are they preparing for those risks?” Lipton says. “Or if airplanes can’t take off because it’s too hot, how does that impact your business model?”

The pressure isn’t coming only from investors. In March, the Securities and Exchange Commission issued a call for public comment on climate change disclosure. More than 5,500 comments have come in, most of them endorsing greater disclosure in one form or another….The SEC’s concerns largely evaporated during the Trump administration, which was hostile to any official recognition of climate change as well as to new regulations on business. But as Democratic control of the agency has returned, so has acknowledgement of climate change. But more than politics is involved. Consumers and employees are increasingly interested in how the companies they buy from or work for are dealing with their effect on the environment.

Corporate governance expert Nell Minow points to signs one might see at the seafood counter attesting that the products on display were caught by sustainable methods. “That’s the market speaking,” she told me. She points to a “huge demographic shift — the millennials and Gen Z are much more sensitive on these issues than their parents were, as employees, as consumers and as investors.”

That may be contributing to the dramatically increased interest in so-called ESG investing—for environmental, social and governance. ESG mutual funds, which were designed to exclude tobacco and oil companies and other arguably bad actors, were once a small corner of the investing world. They’re now offered by virtually every mutual fund and asset management firm. More notably, their returns, which used to lag behind funds investing in the broader market, are now competitive. “ESG is the fastest-growing area of investment products I can ever remember seeing,” Minow says. “That shows that the people in charge of marketing financial products realize this is an idea whose time has come.”

…One reason investors are so interested in more information from managements is that the existing standards of corporate disclosure, based on “generally accepted accounting principles” or GAAP, aren’t useful for assessing novel threats such as climate change. “GAAP is based on 19th century notions of value,” Minow says. “It’s very good at telling us about depreciation schedules for equipment or the present value of a revenue stream, but when it comes to risk factors, it’s very bad — how well you’re dealing with Black Lives Matter or MeToo issues. ESG is a way of assessing investment risk that isn’t adequately reflected by current material available to investors.” … “It’s a ticking clock,” Minow says. Speaking of the Exxon Mobil vote, she says: “If shareholders are not seeing progress and feel that the new directors are not being put in key board committee positions, there’s another annual meeting next year, and they’ll get a majority.”

Hiltzik: Making companies tell the truth about climate change – Los Angeles Times

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