Senators Unveil Bill Requiring Corporate Disclosure of Climate Change Risks

Senate Democrats led by Elizabeth Warren of Massachusetts have introduced the Climate Risk Disclosure Act, which requires every public company to disclose critical information about their exposure to climate change risks.

The bill directs the Securities and Exchange Commission, in consultation with climate experts at federal agencies, to issue rules within one year that that require public companies to disclose:

• Direct and indirect greenhouse gas emissions
• Total amount of fossil fuel-related assets owned or managed
• Valuation expectations if climate change continues at current pace or if greenhouse gas emissions were restricted to meet the goal of the Paris Climate Accord, which is 2 two degrees Celsius below pre-industrial levels, or less
• Risk management strategies related to physical and transition risks posed by climate change

The bill directs the SEC to tailor disclosure requirements to different industries and impose additional requirements for companies involved in the commercial development of fossil fuels.

About 85% of companies in the S&P 500 published a sustainability or corporate responsibility report in 2017, according to the Governance & Accountability Institute, but the information provided in these reports and those from smaller-cap companies can vary widely because there is no reporting standard.

(Related: How to Understand ESG Ratings)

That’s not the case in Europe. The European Union Directive on Non-Financial Reporting, which took effect last year, mandates that companies operating in EU member states and meet certain criteria disclose information on how they manage social and environmental challenges, including climate change.

(Related: Advisors, Not Their Clients, Should Lead on ESG Investing)