[HIP POV] SEC Urges Corporate Disclosure of Climate Change Risk

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THE NEWS: The SEC voted on Wednesday, January 27th, 2010, to issue “interpretive guidance” to corporations — essentially requesting that firms include risks pertaining to climate change in their public filings.The Securities and Exchange Commission – and federal law –  has long required the corporate disclosure of “material risk” to potential investors, so this vote does not impose any new legal requirements technically speaking.The SEC guidance advises companies to disclose risks relating to climate change regulation and legislation, international accords, “Indirect Consequences of Regulation or Business Trends,” and the physical effects of climate change.

THE REACTION: The vote was met with great appeal from large institutional investors and environmentalists who have been petitioning the SEC for several years to require an increase in such transparency.Anne Stausboll, CEO of pension fund CalPERS said:

“Investors have a fundamental right to know which companies are well positioned for the future and which are not.”

Some speculation by DailyFinance’s Zac Bissonnette and The Wall Street Journal’s Kara Scannell and Siobhan Hughes have deemed the SEC’s ruling as political feuding and a terrible waste of time, while Triple Pundit touts the vote as a hard fought victory for investors.Reuters and other news stations have been covering the petitions initiated during the George W. Bush administration.

HOW HIP IS IT? The SEC guidance is very HIP.  Investors will benefit from a much higher level of transparency by firms in their portfolios.  It also acknowledges a wide range of risk factors that could drive company revenue and share price performance.This is exactly what HIP has been describing all along. It has long been accepted that new regulation could affect revenue with fines, taxes, or caps, but for the SEC to publicly state that environmental metrics will shape future market trends, consumer tendencies, and investor preferences is a foundation of a HIP portfolio and fundamental analysis.

WHAT’S NEXT? With this new information being published and discussed by corporations, look for a shift of investments towards companies with better environmental performance – and away from those with lesser eco-results. Large institutional investor petitioned for this SEC ruling, so do not be surprised when they shift their portfolios based on increasing disclosure about risks – and opportunities.

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