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February 2, 2010
The Securities and Exchange Commission (SEC) has for the first time released guidelines for public companies that define the extent of the disclosures they should make relating to the issue of climate change.
This is good news for investors, who rely on comprehensive and accurate information to make their investment decisions. Institutional investors, such as pension funds, have been active in lobbying the SEC to tighten the rules about what a company needs to report when it comes to the risks and opportunities relating to climate change.
Groups active in the disclosure debate include the Environmental Defense Fund and CERES. In June 2009, the Investor Network on Climate Risk petitioned the SEC to issue guidance outlining climate-related ‘material risks’ – such as new regulations, physical impacts, new economic and business opportunities and other climate-related trends – that companies should be disclosing to investors.
According to the SEC’s news release, the interpretative guidance highlights four areas as examples of where climate change may trigger disclosure requirements:
- Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
- Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
- Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
- Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
As the New York Times reports, the new guidelines were welcomed by pension funds and other large institutional money managers:
“We’re glad the S.E.C. is stepping up to the plate to protect investors,” said Anne Stausboll, chief executive of the California Public Employees Retirement System, the nation’s largest public pension fund and one of the parties that petitioned for the guidance. “Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not.”
In the commercial real estate world, the SEC ruling may provide the impetus for public real estate companies to take seriously the measurement and reporting of energy efficiency and other measures of the sustainability of their real estate holdings. Pension funds are likely to lead the way in pushing for such disclosures from real estate companies with which they undertake joint ventures, as well as from the REITs whose shares they own.
Is it only a matter of time before the issuance of a “Sustainability Report” is as commonplace for real estate companies as the annual financial report is today?
January 13, 2010
 Guest author Jasmin Ansar, Ph.D., Union of Concerned Scientists By Jasmin Ansar, Ph.D., Union of Concerned Scientists – There has been a lot of rumor and speculation circulating lately about the economic impact of California’s global warming policies—in particular their impact on small businesses. As an economist who worked in academia and the private sector for more than two decades before joining the staff at the Union of Concerned Scientists last year, I wanted to get to the bottom line, so to speak. Exactly how would AB 32 affect businesses in our state?
To answer this question, the Union of Concerned Scientists commissioned a robust empirical assessment from economists at The Brattle Group, which was then peer-reviewed by independent economists. The results of this first-of-its-kind study show that small business will barely be affected by state policies that bring global warming pollution back down to 1990 levels by 2020.
Why? The answer is not surprising once you look at the data. Most small businesses are not very energy intensive, so even though AB 32 causes some increase in the cost of electricity, natural gas, and transportation fuel, the overall impact for small businesses is small and very manageable. On average, the energy intensity of California small businesses is only 1.4% (energy cost as a percentage of sales revenues). The energy cost increases expected from AB 32, will cause this percentage to increase 0.3 percentage points—from 1.4% to 1.7%.
Even this minuscule impact should be considered an outcome that lies toward the “worst-case” end of the spectrum because the authors of the report made several very conservative assumptions in their calculations, with the result that costs are overstated. For instance, they assumed that businesses do not change behavior and try to save energy–by buying energy efficient lighting or appliances, for example. If these adaptive behaviors had been included in the analysis, businesses could actually cut energy costs—resulting in increased productivity and competitiveness. As they say, green is the new black.
The report also includes a real-world case study estimating the impact of the projected AB 32 energy cost increases on the financial cash flows of a restaurant in Los Angeles—Border Grill. Restaurants have above-average energy intensity and employ the largest share of people of all small businesses (10% of the total state employment). So how will AB 32 impact Border Grill? The restaurant’s energy intensity will increase by only 0.1%. This tiny increase in costs could be covered by increasing the price of a $20 meal by three cents in 2020.
What is clear from this study is that the costs of AB 32 are very manageable for small businesses in California and these small businesses routinely deal with price increases of similar and much larger order of magnitudes.
Furthermore the costs of AB 32, which implements policies to mitigate emissions of greenhouse gases, pale in comparison to the cost of not acting to slow the rate at which our planet is warming. The legacy of the costs of inaction will be a financial and environmental burden which will be crippling and potentially irreversible for generations to come.
December 13, 2009
 Wind turbines in Copenhagen Copenhagen, December 13, 2009 – I am writing this early Sunday morning as my flight arches across the North Sea and begins a slow descent over the Danish Archipelago. It is clear day and the sun is catching the graceful rotations of hundreds if not thousands of windmills that dot the Danish countryside. I am headed to Copenhagen to attend the climate meetings there this week, and as the plane begins its final approach I am thinking about how my journey from Toronto to Copenhagen really began over twenty years ago.
Climate change first burst on the international agenda in the sweltering summer of 1988. Throughout the 1980’s there had been a growing sense of concern among climatologists (scientists who study the physical and chemical processes in that thin layer of life-giving gas that surrounds our planet) that human activities were altering the atmosphere in potentially dangerous ways. In June of 1988 Canada hosted the Toronto Conference on the Changing Atmosphere which brought together climate scientists, energy experts, policy makers and others from around the world to address the problem. I had been working on energy and environment issues for over ten years by then, and the Canadian government asked me if I would organize the energy workshop for the Toronto conference.
Already by 1988 the case for human-induced climate change was strong. The greenhouse effect itself had been understood since the 19th century and the concentration of carbon dioxide in the upper atmosphere was clearly on the rise. Carbon dioxide emissions from fossil fuel combustion were double the level that the ecosphere could absorb, and the surplus was accumulating in the atmosphere. This in turn was enhancing the natural greenhouse effect, and the result would be an increase in the average global temperature. The theory was sound and well established, but in 1988 the signal – the actual increase in global average temperature – was difficult to detect amidst the natural temperature variations.
If the consequence of climate disruption were not so serious, a “wait and see” attitude might have been justified in 1988, but therein lies one of the central dilemmas of this issue. Increases in greenhouses gases today continue to affect climate for decades and even centuries into the future. Every day we continue to emit greenhouse gas emissions at current rates or higher, we lock into place the long term consequences of those emissions. And the consequences of upsetting the global climate system go far beyond simple warming. It’s not unlike the fever we get when suffering from the ‘flu; the average global temperature increase is a symptom of deeper problems. By the time the global atmosphere is running a fever of even one or two degrees Celsius, it represents a significant destabilization of the planetary climate system and anything that is connected to it. And everything is connected to it, including us.
This is where the “precautionary principle” comes into the picture. Read more…
October 8, 2009
This has been a busy week for climate change activity in the U.S. Here are three stories that struck me as particularly interesting:
Debate Commences on Senate Climate Legislation. The Kerry Boxer bill enters the ring, weighing in at over 800 pages (much of taken from the earlier Waxman Markey bill that passed the House in June), this is the bill that will define America’s response to climate change. Climate policy advocates swarmed the bill as soon as it was released and positions and alliances were already starting to form this week. The emission reduction target has been increased from 17% to 20% below 2005 levels by 2020, the provision for the use of international offsets has been cut back, and a ceiling on carbon price has been proposed. Interestingly, there appears to be relatively strong support in the business community for this bill, but there will be a difficult path to passage. The world community convenes in Copenhagen in December to address the increasingly worrisome warnings that dangerous climate change is closer than had been hoped. Virtually nobody expects the bill to pass before the Copenhagen meeting, but the tenor of the US debate between now and then will go a long way to determining the outcome. Watch for more on this story, much more, in the weeks ahead.
Coming to a Post Office Near You! Perhaps realizing that in the absence of a climate law the administration will have to demonstrate its commitment to greenhouse gas reduction in other ways, President Obama issued an Executive Order this week calling for a 20% reduction in GHG emissions from government operations, and federal agencies have just 90 days to show how they will do it. This is a sleeper. The federal government owns 500,000 buildings and is a significant purchaser of just about everything that uses energy. If the government delivers on these targets it will cause a significant shot in the arm to the US efficiency, renewable energy and recycling industries, and it will have wide ranging repercussions for supply chains everywhere.
PG&E Quits U.S. Chamber of Commerce in protest over its position on climate change. The PG&E blog entry announcing the move, entitled “Irreconcilable Differences”, makes for interesting reading. This is a sign of the times if there ever was one. Those of you who were around in the early days of the climate change policy debate will remember how rare it was to find any business support for action on global warming. That has changed in the last few years as the inevitability of an energy transformation has become apparent, and as astute members of the business community begin to appreciate the upside to climate change policy. American business is waking up to the enormity of the clean energy opportunity, and not a moment too soon.
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