April 22, 2022
The proposed climate risk disclosure rule is based on an existing disclosure framework called the Task Force on Climate-Related Financial Disclosures (TCFD) developed in 2015, which Gensler said is a widely used framework that will provide standards for reporting climate risk. This disclosure will help companies prepare for climate change impacts, and help investors understand risks so that they can make more informed investment decisions.
With the effects of climate change becoming increasingly pronounced, disclosure of climate risks is critical for businesses. Failure to make a disclosure can facilitate poor investment decisions, asset losses, and the continuation of trade practices that lead to climate change. Increased awareness of the effects of climate change has created the need for useful climate change information. Businesses investors, customers, and other stakeholders are demanding greater transparency through the disclosure of their climate change risks. This demand has become so strong that businesses that fail to disclose their climate change risks could jeopardize their reputations. In 2015, Exxon Mobil was investigated for deceiving both investors and the public about its climate change risks.
According to the November 2015 study Global Non-Linear Effect of Temperature on Economic Production, unmitigated global warming is expected toreduce average global incomes roughly 23% by 2100 and widen global income inequality, relative to scenarios without climate change. Climate risk disclosure makes good business senseit drives businesses to adopt sustainability measures that will help address climate change. When climate change is managed, profitability is more likely.
It is of my opinion, requiring companies to report climate risk data in their SEC filings, it will provide investors with reliable, accurate information. Climate risk is a financial risk. Investors need transparency from U.S. companies on their greenhouse gas emissions and how theyre addressing climate risk. By meeting investor demands for disclosure, transparent companies will be more competitive, innovative, clean. Climate disclosure is a critical step to help companies get ready for a net zero carbon economy.
Uniform, mandatory disclosure will establish rules of the road, benefiting both companies and investors. Companies will gain the insight they need to assess their climate footprint and exposure so that they protect themselves from climate risk and embrace opportunities. Investors will have access to the information they need to accurately analyze and make smart investing decisions.