Investors and Business Leaders Urge Passage of California Climate Risk Disclosure Legislation
May 11, 2021 /3BL Media/ - Institutional investors with more than $88 billion in assets under management and a coalition of business leaders are calling on the California State Legislature to pass legislation that would require state-incorporated corporations, financial institutions, and insurers to report on climate-related financial risks.
In a letter sent today to legislative leaders, nearly two dozen investors shared their support for SB 449, a bill that would set a standard for climate risk disclosure in the U.S. They believe that in order to address the climate crisis, more and higher quality disclosure is needed to drive informed decisions that will safeguard the economy and communities from its impacts.
"Currently in California, there is no uniform framework for investors to have a clear view of which companies are exposed to climate-related risk or best positioned to benefit from climate-related opportunities,” said Kate Monahan, Director of Shareholder Advocacy at Trillium Asset Management, LLC, at a hearing of the Senate Environmental Quality Committee on April 29. “The ability to pursue smart and informed decision making on climate risks is made more challenging by inadequate and inconsistent disclosure. Without clear and complete data, investors may over or underestimate the climate risks embedded in investments."
SB 449 would align with the disclosure framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD), a group that has created comparable and consistent disclosure standards that companies can use to show climate resilience to their investors. More than 1,440 organizations from a variety of economic sectors and industries with a $12.6 trillion market capitalization support the TCFD recommendations.
"With SB 449, California would set the standard for TCFD-aligned disclosure, providing us and our peers with robust and actionable information,” said Julie Gorte, senior vice president for sustainable investing at Impax Asset Management at a hearing of the Senate Banking and Financial Institutions Committee on April 21. “This is especially critical for physical climate risks and environmental justice risks or opportunities. Specific disclosure of these risks will allow us to put the capital we manage towards a more resilient and equitable California, allowing our clients and our peers to better invest in clean air and green jobs."
E2, a national, nonpartisan group of business leaders and investors, also sent a letter in support of SB 449 on behalf of their network of more than 2,600 California business leaders, writing: “Robust and high-quality disclosure of financial risk is critical to preparing for catastrophic climate change as well as navigating the early-stage impacts we are currently experiencing. While voluntary climate risk disclosures are growing as companies, firms, and institutions recognize its materiality and investors call for more transparency, the current voluntary approach is inadequate.”
A recent study of 215 of the world's 500 largest companies found nearly $1 trillion in reported financial risk from climate change, many of which were expected to materialize in the next five years. While voluntary climate risk disclosure is growing, investors say that robust, standardized disclosure is needed to allow for informed and smart decisions on the systemic impacts of climate change on capital markets.
“Investors know that the climate crisis is affecting our economy, people, and planet,” said Rev. Kirsten Snow Spalding, senior director of the Ceres Investor Network at Ceres. “They are already taking steps to address the risks of climate change, but they need more and higher quality information. Requiring consistent climate risk disclosure will provide investors with the tools they need to make informed decisions that support a net-zero emissions future and ensure solutions benefit the needs of vulnerable communities.”
“Thanks to our early, ambitious climate commitments, California has led the country when it comes to climate action,” said Jennifer Helfrich, senior manager of state policy at Ceres. “With SB 449, we have an opportunity to set the bar for the rest of the country when it comes to climate risk disclosure, which will give investors and companies clear rules of the road so they can direct their capital toward efforts to build a more resilient and equitable future for all Californians.”
“E2 members understand that climate change is a business risk and our economy is increasingly vulnerable,” said Andy Wunder, Western States Advocate at E2 (Environmental Entrepreneurs). “This climate risk reaches deeply into our financial markets, yet it is not adequately understood by investors. As the business adage holds, you can’t manage what you don’t measure. A critical step to safeguarding our economy is measuring and understanding climate risk, and making that information available to financial markets, investors, regulators, and consumers.”
Momentum for climate risk disclosure is building in the U.S. In March, the U.S. Securities and Exchange Commission (SEC) directed agency staff to gather public comments on emissions and climate risk disclosures. And just last month, major tech giant Apple became the first publicly-traded company to announce its support for regulatory action by the SEC to mandate climate disclosure rules. Salesforce and HP followed with similar announcements highlighting their support for the rules. SB 449 will be a complementary policy to any action taken by the SEC.
Ceres’ CEO & President Mindy Lubber recently wrote a column in Forbes.com calling for corporate disclosure rules.
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.
E2 (Environmental Entrepreneurs) is a national, nonpartisan group of business leaders, investors, and professionals from every sector of the economy who advocate for smart policies that are good for the economy and good for the environment. Our members have founded or funded more than 2,500 companies, created more than 600,000 jobs, and manage more than $100 billion in venture and private equity capital. For more information, see www.e2.org or follow us on Twitter at @e2org.