Arbitrary Climate-Related Risk Disclosures... Revised After 10 Years

US SEC Mandates Climate-Related Investment Risk Disclosure for Listed Companies

(Source: Reuters)

[Asia Economy Reporter Yujin Cho] U.S. regulatory authorities are pushing to mandate the disclosure of climate-related risk information by publicly listed companies. This move aims to revise the climate-related investment risk disclosure rules, which have been largely left to corporate discretion, for the first time in 10 years. Recognizing that how companies respond to climate change risks can affect their profits and reputation, Wall Street and related companies are also becoming increasingly active.

According to major foreign media on the 24th (local time), the U.S. Securities and Exchange Commission (SEC) is considering a plan to require the disclosure of relevant information so that the risk levels due to climate change are reflected in the management evaluations of listed companies.

Allison Herren Lee, Acting Chair of the SEC, stated in a press release that day, "We are reviewing the scope of topics that listed companies address related to climate change," and added, "We plan to establish new regulations by strengthening the disclosure items of climate-related management information."

The new regulations are expected to include transparent disclosure of any climate-related risks that listed companies face and whether they comply with related obligations, ensuring that investors can sufficiently recognize relevant information when making investment decisions.

The authorities' move to improve the system comes from the judgment that companies' management environments have become vulnerable physically, economically, and reputationally due to changing perceptions of climate change risks, such as the recent Texas blackout caused by an abnormal cold wave and the large wildfires in California.

Foreign media have evaluated this as a response to growing investor criticism over the lack of clear regulatory guidelines on so-called 'ESG'?environmental, social, and governance attributes of companies.

The SEC is expected to significantly revise the climate-related disclosure rules that have been effectively left to voluntary compliance. Acting Chair Lee explained, "Investors are considering climate-related issues more importantly than ever when making investment decisions," and added, "We judged that there is a need to revise the climate-related guidelines established in 2010."

On Wall Street, movements to reflect climate change risks in corporate evaluations are also spreading. Recently, companies related to investment analysis and financial services on Wall Street have introduced a new risk indicator called 'climate resiliency,' which quantifies the sensitivity of climate change's impact on corporate profits and losses.

This approach analyzes the impact of climate change on corporate activities from physical, economic, and reputational perspectives and reflects the efforts companies make to mitigate these risks in their corporate value assessments.

A Wall Street fund manager explained, "We are incorporating into corporate evaluation items the extent to which the physical locations of tangible assets such as land, buildings, and machinery owned by a company are exposed to climate change risks."

Financial services firm S&P Global recently launched a service that analyzes the potential climate change risks of individual companies for investors. S&P Global also plans to regularly publish reports containing lists of companies in the most disadvantageous positions regarding climate change.

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