SEC should not require climate change risk disclosure

The Securities and Exchange Commission should resist calls for it to require, at this time, greater disclosure of the business risks to companies from climate change.
NOV 26, 2007
The Securities and Exchange Commission should resist calls for it to require, at this time, greater disclosure of the business risks to companies from climate change. The current rules are adequate, given the level of uncertainty about the timing and long-term effects of climate change. Yes, the earth seems to be warming. Yes, man's activities may contribute to warming. But how the temperature change will affect particular countries is uncertain; how each country will react to a regulation is uncertain; and thus how the climate change will affect any particular company is uncertain. In addition, it is impossible at present to discern the shape and effect of tighter environmental legislation in the United States. So far the effects of the Kyoto Treaty on U.S. companies have been negligible because the U.S. declined to sign the treaty. Therefore, there is little to report, because the SEC's rules require companies to report items that might have a "material" impact on earnings. In addition, no one knows the shape of post-Kyoto Treaty limits and restrictions. The treaty expires in 2012, and countries already have begun to consider what changes are needed. Therefore, it is impossible for companies to guess at the earnings effect any new treaty might have. At present, China and India are specifically exempted from Kyoto Treaty emissions limits (one reason the United States and Australia refused to sign it). If the exemptions continue, companies might avoid countries on which limits are imposed and send more work to China and India. Thus, while a U.S. company technically might be subject to any new limits negotiated, it might be able to avoid those limits by shifting more work outside the United States. At present, a few companies make an effort to guess at the likely impact of climate change on their earnings. A few others may be able to make such guesses, most notably, auto manufacturers. But, again, these are no more than guesses. Securities analysts can make such guesses almost as well as the auto manufacturers because no one knows for sure what new mileage standards Congress will enact, and no one knows how much it will cost auto companies to meet the new standards. In addition, no one knows consumer reaction to cars that get better mileage but are significantly more costly — or smaller — than current vehicles. Since there are so many un-knowns and so much guessing, the SEC should hold off on any new disclosure requirements until the impact of global warming on companies' earnings is clearer. It also should wait until it discerns that corporate disclosures under current requirements are insufficient. Investors should base investment decisions on more than conjecture, which is why the SEC should not pressure companies into including estimates that are no better than guesses.

Latest News

'Bogged down' advisors just want to have fun (again)
'Bogged down' advisors just want to have fun (again)

Jim Cahn, of Wealth Enhancement Group, lifts the lid on his firm's partnership model, his views on RIA M&A, and the widely slept-on reason why advisors are merging into larger organizations.

Vestwell unveils new emergency savings account offering
Vestwell unveils new emergency savings account offering

The fintech firm is cementing its status in the workplace savings space with its latest ESA offering, which employers can integrate into their existing benefits package.

'Money Mimosas' and other ways to show your Valentine financial love
'Money Mimosas' and other ways to show your Valentine financial love

Wealth managers offer unique ideas for couples to grow closer emotionally and financially.

Limra research finds financial confidence on the rise among Black American workers
Limra research finds financial confidence on the rise among Black American workers

Survey findings suggest increased sense of financial security and more optimistic 2025 outlook, while highlighting employers' role in ensuring retirement readiness.

DOGE efforts sideswipe muni bonds backed by federal lease payments
DOGE efforts sideswipe muni bonds backed by federal lease payments

Falling prices for some securities within the $4 trillion state and local government debt market spotlight how the push to shrink spending is sending shockwaves across the US.

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.