Investors need climate information to make decisions

Sen. John Barrasso (R-WY) introduced legislation on February 24 that would prevent the SEC from forcing companies to disclose their climate-related risks.  CAP energy policy analyst Richard W. Caperton explains why that is a bad idea in this repost.  In the AP photo, Barrasso, left, is accompanied by Sen. Lamar Alexander (R-TN), center, and Sen. James Inhofe (R-OK).

A group of 56 investment-industry leaders representing $2.1 trillion in assets applauded the U.S. Securities and Exchange Commission yesterday for taking action to ensure that companies disclose their climate-related risks to investors. The leaders stated that the SEC’s Guidance Regarding Disclosure Related to Climate Change “will provide us with significantly improved information about the material risks and opportunities faced by our portfolio companies.” This reinforces a fundamental principle of the American economy: Investors need transparent information on companies to make informed decisions.

Yet there is a movement in the Senate that would deny investors access to that critical information. Sen. John Barrasso (R-WY) introduced legislation on February 24 that would prevent the SEC from forcing companies to disclose their climate-related risks. His bill is just two sentences long, but would have the disastrous effect of allowing companies to hide information that investors need to make smart decisions.

Sen. Barrasso may not be as famous as Sen. James Inhofe (R-OK), but he has built up a solid record in opposition of any action on climate change, no matter how important. He loudly protested the CIA’s establishment of a Center on Climate Change and National Security, saying, “The CIA’s resources should be focused on monitoring terrorists in caves””not polar bears on icebergs.” This ignores the well-documented fact that climate change will breed terrorists, create more conflict requiring U.S. military action, and hinder military operations. The most recent Quadrennial Defense Review states, for example, that climate change “may act as an accelerant of instability or conflict,” a view that is echoed by 11 retired generals and admirals in the CNA Corporation’s report, “National Security and the Threat of Climate Change.”

Sen. Barrasso doesn’t want the CIA to do their job and now he doesn’t want the SEC to do its job, either. In introducing his legislation, the Maintaining Agency Direction on Financial Fraud Act (the acronym is a reference to the massive Ponzi scheme run by disgraced investment advisor Bernard Madoff), he said, “In the aftermath of [the Madoff scandal], it’s clear that the SEC should focus on its core mission of protecting American investors and maintaining fair markets. Instead, the SEC now wants to devote time and resources to climate change. This is absurd.”

Sen. Barrasso’s reasoning is flawed in two ways. First, he misrepresents the goals of the Securities Act of 1933, which requires that investors receive financial and other significant information concerning securities being offered for public sale. Second, he mistakenly thinks that climate change information isn’t relevant to investors.

The fact is that investors need information on the climate-related risks companies face. The SEC recognizes this, which is why it published “interpretive guidance” on disclosure related to climate change. This guidance doesn’t represent new law, but it does clarify what companies should disclose in their annual reports about their exposure to climate-related risk in terms of both climate change legislation and climate change itself. For example, companies whose business models rely on the ability to freely emit carbon or whose supply chains are especially susceptible to weather-related disruptions should make that information available.

As the 56 leaders told the SEC, investors need this information. Financial markets work best when investors have access to information they can trust. This is why the SEC requires companies to publish audited financial statements.

There is ample evidence that investors also need access to climate-related information. For example, Alexander Bassen and Sebastian Rothe have found that carbon-intensive utilities fare worse on European stock markets than low-carbon utilities. That is, European investors reward low-carbon utilities. This is likely driven, at least in part, by the fact that European utilities face a price on carbon, which drives up operating costs for carbon-intensive utilities. There will certainly be some type of carbon emission limits in the United States in the coming years, which will put the same pressures on American utilities. Investors evaluating utility stocks need to know the utilities’ exposure to these limits and how the limits will affect the utilities’ financial performance.

At the same time, Goldman Sachs Sustain has found that carbon intensity is responsible for large proportions of the difference in stock valuations in certain U.S. industries such as airlines, mining, and utilities. Here again, investors are rewarding low-carbon companies. The likely dynamic is that investors are aware that some industries will be affected by carbon emission limits in the future and are including this calculation in their investment decisions within those industries.

But investors only reward low-carbon companies in certain sectors. Most people are aware that electric utilities have some exposure to carbon emission limits that will affect their financial performance, but not everyone is aware that the food and beverage industry is also relatively carbon intensive (as seen on page 12 of the same Goldman Sachs Sustain analysis). This is where SEC guidance is most critical: in areas where investors aren’t aware of the risks. Food and beverage companies are as carbon intensive as automotive manufacturers, yet relative carbon intensity only explains a small part of valuation differences in food and beverage companies, while it’s hugely influential in how automotive manufacturers are valued.

If Sen. Barrasso’s bill were to become law, investors would remain ignorant of the significant risks in sectors such as the food and beverage industry. Sen. Barrasso may not care that the world’s climate is changing, but his legislation unfairly stacks the deck against people who want access to necessary information before making investments. His bill goes well beyond climate change; it discourages corporate risk disclosure and prohibits responsible investing.

As the investors who manage $2.1 trillion in assets accurately write, “The SEC was founded on the principle that the purchase and sale of securities should be an honest bargain based on full and fair disclosure. The climate change disclosure guidance carries that tradition and legal requirement forward to a pressing challenge facing businesses in this century.”

Congress and the SEC must not bow to pressure to modify or withdraw the Guidance Regarding Disclosure Related to Climate Change.

9 Responses to Investors need climate information to make decisions

  1. mike roddy says:

    It’s pretty obvious when these three employees of fossil fuel industries take a stand on legislation. I wish we didn’t take this for granted, because it really is a stain on our democracy, and it was not always thus.

    It’s true that food and agriculture are substantial emitters, but you left out one industry, Joe: industrial logging. It’s responsible for about 7% of our CO2 emissions, something that is disguised in EPA and EIA tables via contortions with internal sequestration offsets.

    Nobody talks about the timber industry’s CO2 emissions because there is a homebuilder or timber company in every Congressional district, and they are the ugliest gorillas in DC. They constantly fight for more logging on public lands, in spite of numerous studies showing the carbon benefits of leaving our forests alone.

  2. Jeff Huggins says:

    Inquiring (and Responsible) Minds Want to Know!

    A Natural and Necessary Question for The New York Times and ExxonMobil …

    In a recent post on Dot Earth, “Fuel Taxes Must Rise, Harvard Researchers Say”, Sindya N. Bhanoo reports about a recent Harvard study, writing:

    “To reduce carbon dioxide emissions in the transportation sector 14 percent from 2005 levels by 2020, the cost of driving would simply have to increase, according to a forthcoming report by researchers at Harvard’s Belfer Center for Science and International Affairs.

    “The 14 percent target was set in the Environmental Protection Agency’s budget for fiscal 2010.”

    I haven’t read the study itself, but let’s assume (for the moment) that Bhanoo got it right about the EPA and also about what the Harvard study concludes.

    Now, at least two years ago, in a formal speech, ExxonMobil’s Rex Tillerson said that ExxonMobil was concerned about the risk of global warming and had been studying whether they (ExxonMobil) think that a carbon tax of some sort would work better than a cap-and-trade approach or other approaches. He said this two or three years ago, in detail. If you’d like to know the title of his speech and get a link to the transcript, let me know and I’ll find them again: I’ve posted them many times on Dot Earth and also, at least once or twice, here on ClimateProgress.

    So that brings us to a simple and clear question or two, that The New York Times (and every single self-respecting news organization) should pose to ExxonMobil and not give up until clear answers are provided:

    Does ExxonMobil agree with the EPA that it is a good and responsible idea that carbon dioxide emissions from the transportation sector should be reduced 14 percent from 2005 levels by 2020?

    It’s a clear question, yes?!

    If so, great. If not, does ExxonMobil think that the reduction should be greater than 14 percent, or less than 14 percent, and why? And, if ExxonMobil thinks that the reduction should be substantially less than the 14 percent that the EPA recommends, is that because ExxonMobil is not concerned about the risks of global warming after all? Please explain.

    These are also simple and clear questions, yes?!

    And, how does ExxonMobil’s current stance (depending on the answers they give) reconcile with what Rex Tillerson said in his speech (to a major group of leaders in the U.K.) several years ago?

    Also, if ExxonMobil thinks that emissions from the transportation sector should be reduced by 14 percent from 2005 levels by 2020, or something close to that, and if ExxonMobil continues to prefer a carbon tax over a cap-and-trade approach (or has that changed?), then what quantitative tax rate would ExxonMobil recommend, in all its wisdom and integrity and savvy, to do the trick and accomplish the necessary reduction? Would the tax rate be similar to that found necessary in the Harvard study, or would it be a bit higher, or would it be lower? Why?

    ExxonMobil has had years to be thinking about this, and Rex Tillerson said publicly, years ago, that they have been thinking about it. So, what’s the answer? Inquiring and responsible minds want to know!

    And, importantly, The New York Times should be pressing and pressing and pressing ExxonMobil with those questions, until ExxonMobil responds honestly and with clarity. I can point you, and The New York Times, to Tillerson’s speech. You and The New York Times can all read the recent Dot Earth post, and also they can read the Harvard study. The New York Times can call ExxonMobil, and call them again, and again, and again. After all, The New York Times runs ExxonMobil advertorials on its front page frequently, including one just yesterday!

    Do you see (I’m asking The New York Times and etc.)? There are questions that can be clearly posed, numerically too, that call for ExxonMobil to give coherent answers that are reconcilable to each other, and consistent with each other, regarding their general stance on global warming; the degree to which they think that carbon dioxide emissions from transportation should be reduced; their preferred policy approach (carbon tax, fuel tax, cap-and-trade, or etc.); and the specific level of whatever approach they recommend (e.g., specific carbon tax or fuel tax) to get the job done. No more “Bop-a-Mole” on ExxonMobil’s part. No more ambiguity. No more saying one thing from one side of your mouth and a different thing from the other. No more of that. Other species are at stake, and the quality of life for future generations is at stake. In short, no more BS!

    I should think that The New York Times would be immensely embarrassed by now that it hasn’t asked these questions and gotten answers to them from ExxonMobil. Indeed, if I were The New York Times, by now I’d be so embarrassed that I’d want to hide my head in a hole. What is The New York Times for, if not to get answers to questions like these?

    Let’s go over this again: ExxonMobil is the largest U.S.-headquartered oil company and the most profitable company in the country. No small cookie! The global warming problem is the largest problem that humankind currently faces. It’s a timely topic, and the politicians are finally getting more and more into considering the various policy options. ExxonMobil (Rex Tillerson) said over two years ago that they were evaluating the policy options and that they were concerned about the risk of global warming. At least, that’s what he said, on record. He talked specifically about the question of a carbon tax versus a cap-and-trade approach. Much time has passed since then. Now it’s time for answers. Who should get them? The New York Times!

    Shall I also remind people that ExxonMobil must certainly be one of The New York Times’ largest advertisers? Shall I also remind people that Bill Keller is the son of George Keller, who was the Chairman of Chevron for many years? (Indeed, George Keller was the Chairman of Chevron when I worked at Chevron Research Company, in the early 80s.)

    I have had it – and this is putting it mildly – with the BS from ExxonMobil and with the obvious in-our-faces negligence on the part of The New York Times. It’s time for answers. ClimateProgress should also be pushing – hard – for answers to questions like this. And so should The Observatory, at CJR.

    This is my targeted and “acute” rant for the day. But I think it’s way overdue. Who in the media is going to pose these questions to ExxonMobil and report back, loudly and prominently, to the public on the answers that are received or on the fact that ExxonMobil would not provide answers, which would be revealing in itself?

    If The New York Times needs help on this, I’ll be happy to call two of the ExxonMobil directors myself! One is at Harvard Business School, and another is at Stanford. But, if The New York Times needs help from little-ole-me on this, that’s yet another reason that they should be pretty darn embarrassed.

    And Andy Revkin, where are you on this? Will you, please, raise this issue with The Times?

    And Thomas Friedman and Paul Krugman: Although my writing skills aren’t always all that clear, I’m sure you can see that there are clear questions that can (and should) be clearly posed to ExxonMobil at this point, by the media, passionately and persistently. There is no more hiding from these questions. They are real and vitally important. If anyone needs any help to clarify them, please let me know. Joe knows how to reach me.

    If The New York Times does not pose and get answers to these questions, and report back to the public, I’m going to start suggesting that people use the paper to clean up dog poop, before reading it, and nothing more. Sorry to vent, but this is not an unimportant problem. And I’ve raised it politely before, to no avail. Ralph Waldo Emerson wrote, “Your goodness must have some edge to it,—else it is none.”

    Be Well,


  3. Bill W says:

    It’s obvious where the Senators from Oil are coming from on this issue. Imagine the impact on ExxonMobil’s shares if they are forced to disclose all the risks to their business from climate change! Firstly, they’ve spent two decades or so putting themselves in the same position as Big Tobacco, so they have a huge exposure to lawsuits. Second, coping with climate change means that over time, probably 90% of their business goes away (we’ll still need some lubricants). Putting those things in their annual report would certainly open some eyes!

  4. Jeff Huggins says:

    To Investors … FYI!

    A simple and approximate calculation, based on a summary ExxonMobil figure, suggests that ExxonMobil products generate well over One Trillion Pounds of CO2 each year, when used. That’s ExxonMobil alone. That’s in one year. That’s over One Trillion Pounds. And yes — that’s Trillion, not Billion.

    The likely weight is more than the weight of the entire human species living on Earth today, i.e., more than all 6.8 billion of us weigh, together!

    And, that amount doesn’t even include the amount of CO2 generated in their own internal operations: exploration, production, logistics, refining, distribution, etc. Those amounts are also VERY large.

    I’ve asked ExxonMobil for the more precise figure, in correspondence, and they’ve refused to provide the figure, in correspondence.

    Also, that figure does not include other GHGs. Just CO2.

    At this point, I believe it is clearly and grossly irresponsible and unwise to continue to hold ExxonMobil stock. That’s just my view, and I’m not giving financial advice, nor is that my expertise, and (besides) you didn’t hear it from me! But, if you want to be a responsible citizen of Planet Earth, and retain any self-respect in that regard, I think you would help yourself by getting rid of ExxonMobil stock, period.

    I’ve studied and followed the matter, and that’s the conclusion that I’ve come to.

    I would also stop buying ExxonMobil products. If you need to buy gasoline as you manage your own transition, over time, to more fuel efficient vehicles and eventually to a hybrid or electric car, then buy it from the number three or number five or number eight company, for now. Yes, yes, yes, I know: Many independents still get their gasoline, most likely, from ExxonMobil or the other large refiners. But nevertheless, signals matter, and purchase decisions matter, and you should place your money where your values are, in my view.

    This goes also for pension funds, large and small.

    This is the time to act. We should have acted five years ago, or many more.

    Send a signal to Rex Tillerson and ExxonMobil. And be happy about it!

    Be Well,


    Jeff Huggins
    U.C. Berkeley, chemical engineering, class of 1981
    Chevron Research Corporation, 1981-84
    Harvard Business School, class of 1986, Baker Scholar
    McKinsey & Company, 1986-90
    The Walt Disney Company, 1994-2001
    Concerned citizen and parent!

  5. George Ennis says:

    The flaws in the Senator’s reasoning are enormous. It is not as though the SEC will be telling the companies to show there is a risk. All it would be asking like many other types of risk, is that they give it some consideration. If the company honestly believes there is no risk they could simply state that as the case. Of course I suspect that many insurance and re-insurance companies might be reluctant to say there is no risk; since risk does not mean there is a 100% certainty of an event but rather some probability of an event occurring along with its impact on the company’s profitability or in extreme cases ability to remain a going concern. An extreme weather event or climate change event could have a low probability of occurring but if it did the cost to an insurance company could be enormous.

    Even Adam Smith (Wealth of Nations) would surely agree that in order for free markets to function efficiently and effectively or even to exist, the maximum amount of information must be made available to everyone. So when he tries to block this type of information from being disclosed he is saying in effect that he does not believe in free markets. He may believe in “private” markets in which a few people know and can act on information not generally available. This is a common error by conservatives and mainly Republicans in conflating free with private when it comes to the market.

    So effectively what this Senator is saying is that he wants to regulate the market in such a way that it is no longer a free market and will put investors at risk.

  6. Jeff Huggins says:

    Regarding Comment 5 (as currently numbered), from George Ennis

    Good point, George … that free markets involve and call for information sharing and availability.

    Presently, important aspects of market dynamics are about as transparent, honest, and clear as mud.

    ExxonMobil, who advertises (often with numbers) routinely on the front page of The New York Times, will not say how much CO2 is generated by the use of their own products. At least, I’ve never seen them convey that figure, and they did not provide it when I asked them for it. That’s about the most basic number you can get when it comes to relevance to all of the global warming considerations.

    Also, The New York Times will not say how much ExxonMobil spends on advertising in The Times.

    The only numbers that are shared by many folks are the numbers that they WANT to share. It’s like being honest only when the honest truth is in your favor, and being dishonest whenever it’s not. So much for honesty. So much for transparency.



  7. SecularAnimist says:

    George Ennis wrote: “The flaws in the Senator’s reasoning are enormous.”

    I don’t see any flaws in their “reasoning”.

    They reason that if they do what they have been bribed to do by the fossil fuel corporations, they will get more bribes to keep doing it.

    No flaws there.

    I suggest the flaw in your reasoning, is that you assume that these Senators are acting in good faith based on “flawed reasoning” rather than acting with blatant, corrupt dishonesty, based on naked, rapacious greed.

  8. James Newberry says:

    Thanks Jeff and everyone for fighting, even though the ice caps and the clathrates are melting. The country has been poisoned from political control by centralized money and physical power (military and the national insecurity state, see e.g. Bomb Power). Everything is “nuked” in the atomic age of secrecy and propaganda, and its all so far gone.

    We would have to redesign “economy” to survive. Even then, maybe 50% chance we could go carbon negative in time, before 100 feet of displaced polar land ice.


  9. prokaryote says:

    As long we have such people at the control desk, we will not make it.
    Get rid of the incompetence, asap.