Mar. 27, 2022
It is important that the US SEC realize that the \"whole\" of materiality from physical climate risks (comprised of floods, natural hazards, extreme weather, and climate impacts, etc.) for any company with real assets is comprised of the \"sum of its parts\". Unless a company understands the materiality of the physical climate risks for each major assets, it cannot understand the materiality of these risks to the current and future revenues and profits of the \"whole\" company and all of its assets. To accurately determine the materiality of physical climate risks at a larger, real asset, the owner must determine the (1) hazards (using a system like RiskFootprint - https://www.prnewswire.com/news-releases/riskfootprint-releases-version-10-of-its-software-as-a-service-solution-with-new-comprehensive-hazard-assessments-empowering-commercial-real-estate-organizations-and-investors-to-make-informed-site-risk-decisions-301506310.html), then determine (2) the vulnerability of the asset, depth-in-structures, and the (3) value-at-risk, etc. This process takes some time and may cost up to $15,000/large asset or more. Looking at a company's CO2 emissions is a small part of the materiality of current and future physical climate risks. The unfortunate truth is that reducing CO2 emissions will not prevent material harms from occurring to a large percentage of real assets owned and operated by public companies in the foreseeable future. https://protect2.fireeye.com/v1/url?k=31323334-50bba2bf-3132d782-4544474f5631-e6de592a15021fd7&q=1&e=d1340095-d094-4d52-9173-f1738098a58c&u=https%3A%2F%2Fwww.theinvadingsea.com%2F2022%2F03%2F21%2Fdont-be-confused-about-climate-change-we-all-need-to-become-more-resilient-now%2F. Specifically, the SEC should definitely require registrants to disclose physical climate risks that are reasonably likely to have a material impact on the registrant. Short term impacts (every year), Medium-term impacts (2030-2050), and long-term impacts (2100) are important, depending on the hold times of the assets by the registrants. Physical risk disclosures should include both acute and chronic risks. A major storm (\"acute\") severely damaging the company's coastal properties in 2022 is more important from an investor disclosure standpoint than what happens in 2100. Looking at a company's combined risks and the interactions of hazards such as increased temperatures, drought and water stress is quite important, also. The location of registrants' \"at risk\" assets is easy enough to find on Google and, they should be disclosed with Google compliant addresses, not zip codes, unless there is a substantial need for confidentiality. You ask: \"If a registrant determines that the flooding of its buildings, plants, or properties is a material risk, should we require it to disclose the percentage of those assets that are in flood hazard areas in addition to their location, as proposed?\" Answer: Yes. But, do not rely exclusively on FEMA flood maps to satisfy this requirement. FEMA flood maps are not actually holistic, flood hazard maps. They are primarily an underwriting tool for NFIP. The true flood risk to an asset needs to be determined holistically from a variety of databases that include: pluvial flooding maps, tidal flooding and sea level rise, NOAA storm surge, etc. It is not the SEC's job to scientifically define \"flood hazard areas\". This will lead to problems and under or misreporting. The obligation is on the registrant to do their homework and identify their own assets \"holistic\" risks from flooding and damage from other natural hazards. It makes sense for the registrant to identify or revea l any methods it used or technologies used to inform it of holistic flood and other natural hazards. Also, please keep in mind that most current natural hazards that impact \"materiality\" are not scientifically correlated with RCP global warming scenarios, yet. Examples: landslides, tornados, tsunamis, earthquake, volcanic activity, cold wave, hail, winter weather, and lightning. So, it does not make sense to try to make registrants estimate the future impacts (negative or positive) for such hazards due to climate change. These types of hazards are present day, current hazards and make up the bulk of the risks to registrants' revenues and profits - not CO2 emissions. Finally, it is possible that some registrants may report that such hazards are not material because they are adequately insured. But, in our experience, many owners/operators of these real assets have not done a \"residual risk\" analysis that attempts to quantify the risks that fall on the company from impacts of hazards and extreme weather after the application of insurance proceeds. This can also include reputational risks. Kind regards, Albert Slap, Pres. RiskFootprint(tm) https://protect2.fireeye.com/v1/url?k=31323334-50bba2bf-3132d782-4544474f5631-1f3cd8084b0ed200&q=1&e=d1340095-d094-4d52-9173-f1738098a58c&u=http%3A%2F%2Fwww.riskfootprint.com%2F end