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Earlier this month, State Street Global Advisors joined the chorus of money managers urging corporate boards, particularly those in "high-impact sectors" – meaning "oil and gas, utilities and mining" – to do a better job reporting risks related to climate change. SSGA's recent "Perspective on Effective Climate Change Disclosure" is a serious document. To put it in formal technical jargon, SSGA whacks the heck out of most companies in high-impact sectors, particularly companies in the United States. Among the nuggets:
A vast majority of US companies have yet to fully embrace climate-related scenario-planning, which is reflected in the quality of their climate-related disclosure.
In Europe, boards have established dedicated committees to oversee sustainability-related risks, including climate risk. In the US, some companies in high-impact sectors have a dedicated committee but many companies do not explicitly reference oversight of climate risk in their board or committee charters.
Most companies in the high-impact sectors in Europe set 5–10 year goals. In the US, few companies set goals beyond a year, while most companies do not set goals at all.... We believe that long-term GHG goal setting is important because:
- Goals or targets focus companies on managing emissions; without goals, actual emissions cannot be contextualized to evaluate the efficiency of operations
- GHG goals help companies demonstrate that their long-term scenario-planning processes are robust and can inform strategic decision-making
- Costs of controlling emissions to meet targets should be considered when making capital allocation decisions to arrive at the true cost of an asset.
SSGA found that most companies in the US do not disclose their carbon price assumptions, in contrast to European and Australian companies.... We believe that carbon price assumptions are important.
Time will tell whether statements such as this one from SSGA or earlier ones from BlackRock will have an impact. The sceptic in me worries that rich climate deniers will start buying up the stock of high-impact companies in the United States, in the hope that companies that ignore climate risks will be more profitable. I don't think that there are enough rich climate deniers to swing the markets; I sure hope not.
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