On Monday, the U.S. Securities and Exchange Commission (SEC) proposed a new rule that would require companies to disclose some of their greenhouse gas emissions in a standardized way, and to convince investors that climate change could affect their financial health. How can it affect performance.
According to the National Oceanic and Atmospheric Administration, extreme weather events in the United States caused at least $145 billion in damage in 2021; Rising global temperatures are expected to increase the severity of hurricanes and the frequency of wildfires, destroying property owned by both publicly traded companies and ordinary families around the world.
Researchers from the IMF and the University of Cambridge predict that climate change, in the absence of a substantial reduction in global emissions, will reduce real per capita GDP by 2.5% in 2050 and 7.2% in 2100. Since Millennials and Gen-Z savers won’t affect retirement age until nearly 2050, it is clear that greenhouse gas emissions pose a serious risk to their retirement portfolios. Vanguard currently offers target-date funds that run until the year 2065.
Rick Alexander, CEO of Shareholder Commons, said, “When companies emit greenhouse gases, they end up in debt, as if they took a loan from a bank.” Diversified investment portfolio. “The difference is that all investors—really all participants in the economy—are on the hook because carbon-intensive business practices threaten the imposition of unmanageable climate debt on nearly all investment portfolios. The proposed new disclosure rules allow investors to use this for their savings. Will provide necessary information to tackle the growing threat.”
Although some of the largest publicly traded companies disclose greenhouse gas emissions, including Microsoft, Coca-Cola and Amazon, the disclosure varies from company to company, which can be frustrating for investors, according to the Interfaith Center for Corporate said Christina Hermann, program director at Responsibility. , an investor network whose members manage assets worth more than $4 trillion. “Standardized reporting, mandated by the SEC, will give investors what they need, a common place where this information can be found, and consistent and comparable data for use in making investment decisions,” Harman said.
What’s in the rule, and what’s missing
Scientists, economists and policy makers have classified greenhouse gas emissions into three categories: scope one, scope two and scope three.
Scope One emissions are direct emissions from company facilities and vehicles owned by it. Scope to emissions is emissions from any electricity the company has purchased, as well as heating and cooling. But for many companies, scope three emissions is the biggest category. They are emissions that result from the use of products sold by the company, or goods and services (other than electricity) purchased by the company.
According to S&P Global, for a major oil or gas company, Scope Three emissions would typically be 85% of the total. And it’s understandable. For example, ExxonMobil’s biggest contribution to climate change comes when businesses and consumers burn the fuel the company sells, not when ExxonMobil practices for oil.
Scope Three emissions could be even higher for retailers like Amazon or Target that sell goods made by other manufacturers, such as Samsung, Procter & Gamble or Unilever. As reported by Will Evans at grain to grind, target at present Involved These Scope Three Emissions When They Report Greenhouse Gases To Investors, While Amazon Not included Same emissions.
The proposed SEC rule calls for companies to disclose their Scope One and Two emissions (along with the financial risks faced by the company due to climate change), but states that companies must disclose Scope Three emissions only if He has publicly stated a scope of three goals, or “if content.”
This worries some lawyers. Lena Moffitt, Chief of Staff of Evergreen Action, told politician, “Scope Three would allow issuers to omit most of their emissions from their disclosure, leaving issuers to determine the materiality of emissions, and to protect those issuers from liability for providing false information.” Ceres, a Boston-based coalition of more than 500 investors, found that 65% of investors who submitted public comments to the SEC asked the agency to require disclosure of Scope One, Two and Three emissions.
What will the rules mean for investors
Investors who are concerned that climate change will have a negative impact on their portfolios, or who are personally concerned about the impact of climate change on the planet, will have more information when these rules are finalized. That information could help them make better investment decisions — or change the way these investors vote in shareholder elections. Under current securities law, shareholders can vote for corporate directors if they are unhappy with a company’s strategy or risk appetite, although most retirement savers and retail investors do not exercise their voting rights.
And as a growing number of companies have promised they will be “net zero,” this new information will help investors gauge whether companies are making progress — or if they may cost a significant amount of attention or attention. is to reach your goal.
In a statement released Monday, SEC Chairman Gary Gensler said, “Investors with $130 trillion in assets under management have requested that companies disclose their climate risks,” indicating a high level of investor interest in the issue. . In 2021, shareholders of AutoZone, General Electric and Sysco won a majority stake in “Say on Climate” shareholder proposals.
How Investors and Retirement Savers Can Talk
Although wall street journal Reported on Tuesday that investors are “largely supportive” of the SEC’s proposal, the rule also faces powerful opposition from special interest groups. Trade unions and state officials are expected to sue to prevent the rule from taking effect, which is why proponents of the rule encourage other investors to express their opinions to the SEC.
The proposed SEC rule will be open for public comment after it is published in the Federal Register, and will remain open until at least May 20, 2022. Because the mission of the SEC is to protect investors, commentators are encouraged to explain how they think the rule may affect their investment decisions, investment performance, or how they will vote in shareholder elections.
Investors and retirement savers concerned about climate change can also:
- Shareholders vote in favor of proposals that call on companies to disclose (and in some cases, set reduction targets) greenhouse gas emissions; Upcoming companies to vote on greenhouse gas emissions include UPS and Dominion Energy
- Choose index funds and mutual fund providers that hold corporate directors accountable for greenhouse gas emissions
- Ask your employers to include green investment options in their 401(k) plans