New Climate Risk Disclosure Rule Highlights Need For Risk Communicator

The U.S. Securities and Exchange Commission recently adopted new climate disclosure rules that require public companies to take a proactive and transparent stance on climate change’s impact on their stakeholders.

Climate risk management is a key element of corporate stewardship and presents some of the most material financial risks businesses must manage.
The rules aim to support business models that can thrive in a low-carbon economy, contributing to overall sustainability and weather-resilient businesses.

Climate risk management is a key element of corporate stewardship and presents some of the most material financial risks that businesses must manage. While there are ongoing legal battles around the new rule, one thing is clear: the public and shareholders are interested in how companies and government leaders address climate change.

 

What is the SEC Climate Disclosure Rule?

Two years in the making, the new SEC rule states public companies must report “the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules.” This also applies to public offerings.

Climate risk disclosure covers two major types of climate risks:
Transition risks are tied to direct and indirect greenhouse emissions. Transition risks also include total fossil-fuel related assets and the impact on valuation from climate change policy and legislation. These transition risks are where companies have historically focused reporting efforts.

Physical risks are the second part of climate disclosure and include extreme weather events, sea level rise, and changes in climate patterns. Companies counter that these risks are more challenging to quantify and report.
Today, nearly 60% of these companies have at least one asset at high risk of physical climate change impacts.
However, new data shows that extreme weather events linked to increasing average global temperatures represent the biggest physical risks for S&P 500 companies. Today, nearly 60% of these companies have at least one asset at high risk of physical climate change impacts.

While the new rule won’t go into effect until 2026, the SEC recently told an appeals court it would stay the requirements for public companies to report on this new rule, pending judicial review, as many legal challenges are being made from a cross-section of industries and environmental groups.

 

Legal Accountability for Climate Change

Not assessing physical risks due to climate change is a dangerous oversight due to the significant impact weather patterns and events have on business continuity. For example, not only are there structural and safety risks, but also an impact on operational and financial decisions, supply chain disruption and distribution, capital allocation, and potentially future regulations.

Recently, an international court handed down a decision confirming that countries have an obligation to protect people from the effects of climate change. In the U.S., a group in Montana recently won a lawsuit when a judge ruled that the state was violating their constitutional right to “a clean and healthful environment,” as well as rights to dignity, health, safety, and equal protection of the law.

 

Action Companies Can Take Now to Address Climate Change

While U.S. companies wait for legal rulings around the new SEC rules, there are actions companies can take today by using integrated weather analytics to reduce environmental impact, particularly along the supply chain.

For example, ship companies can use optimized weather routing to save fuel and reduce greenhouse emissions. Likewise, airlines can use integrated weather intelligence to reduce adding unnecessary miles and fuel usage to avoid weather risks. And transportation companies can better plan and prepare for delays impacted by severe weather.

The private weather industry already supports climate risks for many customers in high-risk, high-impact sectors and municipalities, as it is a natural extension for risk communicators to devise and consult on the physical risks of weather and future climate risks.
Integrated weather analytics and risk communicators can help bridge the gap between the weather impacts of today and climate impact of the future.
Meteorologists with deep industry expertise develop a tailored strategy to help a business prevent, prepare, and mitigate weather impact, as well as guide decision-makers when risks become imminent. The key is that the plan is based on the company’s individual risk threshold and threats.

Regardless of the final SEC climate risk disclosure regulations, it is certain that companies should prepare to operate in different environments. Integrated weather intelligence and risk communicators can help bridge the gap between the weather impacts of today and climate impact of the future.

Visit DTN.com to understand how weather intelligence is helping organizations better prepare for and report on climate risks.

 

About the author

Renny Vandewege General Manager, Weather and Climate Intelligence

Renny leads strategy, vision, and direction for the commercial organization in delivering innovative and relevant partner solutions. As a meteorologist, he focuses on helping businesses become more resilient to the impact of weather events using actionable intelligence. Renny serves on the PRIMET Board of Directors.