Climate Change Disclosures Are Getting Hotter

• Published date: 01 July 2016
• Date: 01 July 2016
• DOI: http://doi.org/10.1002/jcaf.22175

21

© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22175

f

e

a

t

u

r

e

a

r

t

i

c

l

e

Climate Change Disclosures

Are Getting Hotter

Steven Harrast and Lori Olsen

BACKGROUND

In response

to risks related to

weather, climate,

and emissions, the

U.S. Securities and

Exchange Commis-

sion (SEC) pub-

lished the release

titled Commission

Guidance Regarding

Disclosure Related

to Climate Change

in 2010 (SEC,2010).

Whether or not one

believes that climate

change or some other

issue is at fault, it

is true that humans

are inhabiting more

and more space

on this planet and

that weather events

will result in ever

increasing damages to life and

property. Recently, one of the

authors traveled to an event

only to have it canceled due

to a hurricane. While this was

only a small inconvenience for

some, for others it meant a loss

of life and property. The SEC

guidance suggests disclosing

climate change effects that are

“reasonably likely.” The guid-

ance has been published now

for several years, and climate

change disclosures are getting

hotter.

As background, climate

change risks are generally

caused by increases in tem-

perature resulting in increases

in extreme weather and other

natural phenomena,

changes in agricul-

ture resulting in

more or less produc-

tion, polar cap melt-

ing and the resulting

increase in ocean

levels, and increases

in ambient tem-

peratures resulting

in the need for more

power to operate

cooling systems.

Another type of cli-

mate change risk is

the risk of litigation

due to emissions.

Clearly, not every-

one is on board

with this highly

politicized issue,

but most reasonable

individuals agree that

conserving natural

resources and main-

taining a healthy environment

are virtuous pursuits.

As climate change

disclosure is becoming more

mainstream, it is useful to

examine the types of disclo-

sures companies are mak-

ing. By examining current

disclosure practices, companies

may improve their practices

Since the publication of climate change disclo-

sure guidance by the Securities and Exchange

Commission (SEC) in 2010, the number of 10-K

disclosures has seen more than a twofold increase.

Climate change disclosures are disclosures of

risk from severe weather events and pollution,

although a company may also report opportunities

arising from climate change. In general, compa-

nies reporting weather risks disclose the potential

for property damage and/or temporary loss of

business. Companies with significant greenhouse

gas and other nuisance emissions disclose risks

due to litigation and the cost of compliance with

regulations imposed by governmental bodies.

A few companies have disclosed opportunities

arising from climate change including initiatives

to develop plant-based plastics and renewable

energy sources. The article provides a portrait of

compliance with an emerging area of corporate

risk disclosure. © 2016 Wiley Periodicals, Inc.

Editorial Review