Climate change is an important issue for the California
Public Employees Retirement System. Rising temperatures
and increasingly volatile weather events pose significant and
growing risks to our $300 billion portfolio. To manage these
risks, CalPERS has long included climate as a key topic for
corporate engagements, whether with electric power providers,
agriculture companies or oil and gas producers. We are also
ramping up efforts to integrate sustainability issues,
climate risks and opportunities, in investment decision
making across all our asset classes. On all these fronts,
consistent and comparable corporate disclosure of material
climate issues is critical.
Thats why CalPERS and dozens of other investors
petitioned the U.S. Securities and Exchange Commission for
climate disclosure guidance in 2007 and applauded the
SECs decision to issue formal interpretive guidance in
2010. Since then, more companies are mentioning climate issues
in financial filings, but the breadth and quality of the
disclosures with the SEC are still lacking.
These shortcomings were a key point in a
major report issued recently, Risky Business: The
Economic Risks of Climate Change in the United States, by
three Wall Street heavyweights: Michael Bloomberg, Henry
Paulson and Robert Rubin. Businesses and investors have
largely been kept in the dark about how climate change will
impact specific industries or specific regions, and that puts
American businesses and the American economy in an extremely
vulnerable position, Bloomberg told reporters earlier
Just as companies need to step up their disclosure efforts,
more investors should be scrutinizing material climate risk
data that are being provided in corporate 10-K filings. But
doing so requires an efficient way to easily find and analyze
climate disclosures in 10-Ks.
A new web-based climate search tool from the nonprofit
sustainability group Ceres and CookESG Research will be helpful
in filling this void. Available at www.ceres.org/secsearchtool it covers
annual SEC filings by all of the largest publicly traded U.S.
companies in the Russell 3000. It automatically excerpts
climate information from 10-K filings, such as reporting on
regulatory risks, renewable energy opportunities and extreme
This tool is valuable for companies, analysts and investors.
For companies, it provides an efficient way to understand how
industry peers view material climate risks. For analysts, it
can demonstrate gaps between voluntary and mandatory reporting
to highlight financially material issues. And investors can be
better equipped to engage directly with companies on the
quality of their responses to climate change.
A new Ceres analysis derived from the tool shows that 62
percent of S&P 500 companies provided climate disclosure in
their 2014 filings. But the tool finds a wide range in the
quality of that disclosure, from quantified information on
financial impacts to less than useful cryptic boilerplate
language. Many of these companies acknowledge climate risks but
provide no information on financial exposure and efforts to
reduce that exposure.
Investors require better climate disclosure in securities
filings to avoid risky investments. Whereas voluntary climate
reporting provides helpful data for investors, it often
contains incomplete information and is not focused on material
issues. Also, some S&P 500 companies and many smaller ones
provide no voluntary disclosure at all.
In truth, securities regulators are the best positioned of
any regulator to obtain comparable, quantified and detailed
information from companies about climate risks. Long-standing
SEC rules require disclosure of forward-looking material risks,
and climate change is one of the biggest such risks that
companies and investors face.
Reflecting such concerns, CalPERSs newly adopted ten
Investment Beliefs are meant to provide a basis for
strategic management of our investment portfolio, inform
organizational priorities and ensure alignment between our
board and staff. Belief No. 9 states that risk to CalPERS
is multifaceted and is not fully captured through measures such
as volatility or tracking error. It expands by noting
that as a long-term investor, CalPERS must consider risk
factors that are slow to develop, such as climate change and
natural resource availability.
Fully incorporating all risks, including climate change,
into the investment-decision-making process will have a
tangible impact in shifting significant capital away from
high-carbon emitters toward clean energy alternatives.
To further accelerate this shift, CalPERS is an active
participant in two important initiatives: carbon asset risk and
green bonds. Climate disclosure is a critical element of both
The carbon asset risk initiative, which
includes 75 investors managing $3.5 trillion in assets, asks
some of the worlds largest oil and gas, coal and electric
power companies to stress-test the financial risks that global
warming poses to their businesses. The issue is especially
relevant to oil and gas firms that are investing billions of
dollars a year developing high-cost, high-carbon projects that
could potentially be stranded as carbon-reducing regulations
and renewable energy take hold globally in the coming decades.
This effort resulted in new, detailed responses from companies
like Exxon Mobil Corp. and Royal Dutch Shell, which illustrate,
unfortunately, their unwillingness to seriously wrestle with
these issues. An expectation that this risk will be discussed
in more detail in SEC filings is part of the solution.
CalPERS is also eager to explore growing opportunities with
fixed-income climate bonds and
green bonds, a market that has exploded in the past two years.
Although many factors are still in play in this emerging
market, it goes without saying that better disclosure around
these bonds is important for achieving even bigger growth and
The bottom line: CalPERS is a big believer in the philosophy
that what gets measured gets managed, and what gets disclosed
gets done. Stronger climate disclosure is a hugely important
step in managing the colossal climate challenge.
Anne Stausboll is CEO of the $300 billion California
Public Employees Retirement System. CalPERS is a member
of the Investor Network on Climate Risk,
a network of 110 institutional investors with collective
assets totaling $12 trillion.
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