Should Climate Change Disclosure Be Required for Companies? Government Suppliers Are About to Find Out.

July 7, 2016 | 1:23 pm
FEMA/Patsy Lynch
Gretchen Goldman
Research Director, Center for Science & Democracy

The White House’s Acquisition Regulatory Council has proposed a rule that would ask government suppliers to provide more information about their climate change-related risk disclosure.

The rule, which is taking public comment until July 25, would ask companies that do more than $7.5 million of annual business with the government—through the Department of Defense, General Services, and NASA—to indicate whether and where they disclose information on their greenhouse gas emissions, their climate-related risks, and their emissions reduction goals.

Here are five reasons why that’s a big deal.

Climate risks to business are real.

Lest we forget, climate change poses serious risks for businesses.

Climate change impacts, such as sea level rise, changes in precipitation patterns, and extreme heat, pose physical risks for companies and their supply chains. A 2015 Union of Concerned Scientists report found that five major oil companies faced immediate risks from sea level rise and storm surge at their low-lying oil refineries.

Companies also face financial risks from climate-related laws, political or reputational risks from their engagement around climate change policy, and legal risks around climate-related damages to communities.

Given the reality of these risks, it makes sense that the White House is increasingly interested in how well government suppliers are prepared for the financial impacts of climate change.

The Paris climate agreement means business.

This year 175 world leaders signed onto a historic global climate agreement. The agreement comes with expectations for countries to meaningfully reduce their emissions in the coming years.

Companies, too, will need to change their future emissions pathways to meet this new agreement and investors have noticed. This year many public companies faced shareholder resolutions asking for better consideration and disclosure of their future emissions plans.

Investors want to know how companies plan to protect their assets in a carbon-constrained world. More and more, companies are beginning to think about whether their business plan aligns with Paris climate goals. But we must do more. The new rule could signal to companies that the government is scrutinizing how well they are preparing for a low-carbon future.

It expands the climate disclosure landscape.

In the current patchwork of the climate disclosure landscape, the rule would add another mechanism to encourage companies to disclose climate-related information. And this rule might encourage some companies that currently don’t tell us much about their climate-related activities.

For example, another place where the federal government asks for climate-related disclosures is the Securities and Exchange Commission, which asks public companies to consider the impact of climate change on their business, and disclose any risks that are material. Companies’ climate disclosures to the SEC have been inconsistent, as the Union of Concerned Scientists found in reports in 2015 and 2012.

This rule would target government supplies—a list of large multinational companies that don’t necessarily disclose much information about their climate-change-related activities elsewhere. Companies like Boeing, General Electric, Chevron, and ExxonMobil, for example, don’t tell us much about their climate-related business risks in their reports to investors; in fact, Boeing and GE don’t even mention climate change in their SEC filings. This rule could encourage such actors to disclose more if they want to secure business deals with the government.

The White House has weight.

As noted in the White House blog, the President is using the federal government’s purchasing power to drive change. This is significant as it provides an important incentive for companies to better analyze and disclose climate-related information.

There are many voluntary climate disclosure initiatives out there (that I personally love to analyze!) and many companies do disclose a lot of climate-related information to CDP or in their annual sustainability reports, for example. However, the White House asking government suppliers to disclose comes with a different weight.

Disclosure leads to action.

You can’t manage what you don’t measure. The more information we have about the private sector’s climate change-related risks, emissions, and business plans, the better our society can address climate change in smart ways. This is the power of disclosure.

To be clear, the proposed rule doesn’t require company disclosure of climate change-related risks, it asks companies to report on if and where they make climate-related disclosures. But it could.

Calling out climate change as an area the administration is interesting in as it chooses government suppliers will undoubtedly prompt companies to think about how well they disclose when it comes to climate change.

However, the White House should take a step further and require disclosure of such information from companies. The administration is taking comments on the proposed rule through July 25.