Mixed reviews on SEC climate risk guidance
Feb 02, 2010
IROs run hot and cold on global warming disclosures
Last week’s interpretative release from the SEC requiring every company ‘to disclose the impact that business or legal developments related to climate change may have on its business’ has some IROs waiting for the other shoe to drop, others rolling their eyes and yet others seeing it as an opportunity to show their ‘green’ side.
According to the SEC release, the relevant rules cover disclosure in a company's risk factors, business description, legal proceedings, and management discussion and analysis.
‘I don’t think there are many ‘serious risks’ out there for the majority of public companies that the investment community hasn’t already taken into consideration in their valuation models,’ says Keith Mabee, vice chairman at IR consultancy Dix & Eaton in Cleveland. ‘Mandated disclosure around climate change risks strongly suggests more costs and cumbersome compliance requirements with potentially little real return.’
Based on his own client experience, Mabee also says that ‘the majority of boards and senior management teams are keenly focused on sound global enterprise risk management policies and practices, and are strategically focused on technologies to address climate change.’
John Chevalier, director of IR at Procter & Gamble, sees the requirement as an opportunity for P&G to showcase the work it is already doing and thinks compliance will be fairly painless for the Cincinnati-based consumer goods giant.
Chevalier doesn’t foresee any substantial change to P&G’s current disclosure practices: ‘P&G does a very thorough sustainability report, so the content that we would draw from for a more extensive discussion already exists.’
He says the new disclosure requirements should increase consistency and comparability of information among different companies, so he sees this ‘as an opportunity for investors to appreciate the good work being done by P&G... to reduce the environmental impact of its manufacturing processes.’
He points out that the progress made by P&G is often ‘not visible to consumers or investors whose only interaction with the company is buying and using’ their products. He cites a new paper manufacturing plant that uses half the energy of a traditional plant, a new, thinner Pampers diaper and an industry-wide effort to concentrate liquid detergents. These are all ways P&G is reducing product and packaging materials and energy use.
Don De Laria, IRO at Regal Entertainment Group in Knoxville, Tennessee, chairs the NIRI board’s emerging issues committee. He says the committee discussed the new SEC requirement but is waiting on further clarification from the regulator, perhaps as soon as this week.
De Laria observes that any company’s approach is going to be ‘highly dependent on the industry you are in and how [climate change risk] relates to your overall brand strategy. At the end of the day, that’s how companies are going to look at it.’
At Providence, Rhode Island-based Textron, IRO Doug Wilburne echoes the sentiment of most IROs weighing in on the topic when he says climate change risk is not a high priority for him right now. ‘I don't get many questions from investors or analysts about this issue, so it really isn't top of mind.’
Wilburne goes on to opine that the ‘new requirement is yet another administrative inefficiency being placed upon US public companies and we need to be more mindful of the competitiveness of American business.’
By Brad Allen