The US Security and Exchange Commission (SEC) announced yesterday (March 21) that it requires companies to publicly disclose their greenhouse gas emissions and other climatic financial information..
SEC regulations already require public companies to disclose their financial situation, as well as the potential threats to their business. With the new information, investors will also be better able to understand the specific risks that climate change poses to these companies.
“Our entire economic system is at risk, it’s not just individual business,” said Simon Fischweicher, head of firms and supply chains for the CDP climate revelation platform. “Climate change poses risk on a planetary scale, which is why you see the entire financial sector talking about the importance of climate change.”
Companies have both physical and transitional climate risks
There are two main categories of climate change risk that companies may face: physical and transition.
Physical risks are those related to the physical impact of climate change, including:
🌪 Increased number and severity of extreme weather events
🌧 Changes in precipitation patterns and weather patterns
🌊 Going up ant mirror
. Rising average temperatures
Transition risks have fallen through the transition to a carbon economy, including:
🏭 Increase price of greenhouse gases
👩⚖️ Mandates on and regulation of existing products and services
Änneren Change consumption behavior
🚫 Stigmatization of the sector
Climate risk releases by Unilever, Shell, and Stanley Black & Decker before SEC climate rule
While the SEC now requires U.S.-based companies to make climate risk publications, some organizations already do so through frameworks such as CDP and the Task Force on Climate-Related Financial Disclosures.
Companies that already share their risks often use case studies and scenarios to explain the impact on the business itself. Unilever (pdf), for example, provides a case study for how an extreme weather event can affect palm oil production. The company is one of the largest buyers of palm oil in the world.
Transition risks will be particularly difficult for large polluted industries to address. Some are beginning to articulate these concerns, such as Shell, one of the world’s largest fossil fuel companies.
Stanley Black & Decker’s climate revelations show that the company sees risks not only from climate change, but also from other companies adapting. It expects a fuller market for its key components as more businesses transition to green technologies.
Climate change presents business opportunities as well as risks
For companies that are now committed to and acting for a carbon economy, there are also opportunities (pdf), not just to take risks.
They have the chance to pioneer less carbon-intensive markets, create innovative products, and if they proactively change their business, they will see less disruption when and when regulations are introduced.
“The first movers ahead of their peers will benefit more and they will incur less costs in terms of disrupting their business model, and they will be recognized by clients and investors as the leaders,” says Fischweicher. “So as others follow, they are one step ahead.”
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