Climate change will profoundly affect the institutions that undergird modern society and will challenge almost every industry and economic sector. Under certain warming scenarios, our best available estimates suggest that climate change will impose tens of trillions of dollars in economic costs over the next 80 years.

In this unprecedented environment, companies and their investors will need to mitigate their potential losses by preparing for the physical and transition risks associated with climate change. Physical risks include, for example, the costs of repairing damaged facilities after extreme weather events, as well as the increased insurance premiums for the facility following repair. Transition risks are associated with the actions society takes in response to those physical risks—actions like taxing carbon emissions, developing green technology, or increasing demand for sustainable goods and services.

While some of these physical and transition risks are increasingly foreseeable, many publicly traded companies still do not disclose sufficient information about the threats that climate change poses to their operations. Insufficient disclosure persists even though (1) the SEC’s Regulation S-K and Regulation S-X require corporations to disclose material financial information to their investors; (2) a 2010 SEC guidance document clarified that climate damages “can have a material effect on a registrant’s business and operations”; and (3) major investors—including behemoths like BlackRock and State Street Global Advisors—have confirmed that climate risks are material to their investment portfolios.

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