Maria Castañón Moats is Leader and Mira Best is Technology Impact Leader at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forum here).
Corporate boards are experiencing the impact of climate change on multiple fronts. Mounting pressure from regulators, investors, shareholders, consumers, and their workforce is forcing companies to rethink their carbon emissions. Worsening droughts, fires, floods, and storms have prioritized the need to focus on the health of our communities and ecosystems. Beyond social responsibility, there’s also economic cost tied to each of these challenges.
Studies have repeatedly shown that companies that take climate change risks seriously report better financial results and post stronger stock market performance than their peers that do not. As a newer focus area, shareholders are increasingly probing the integration of climate-related risks into strategy and operations, and are allocating capital to help companies increase the sustainability of their supply chains. Regulators and lawmakers are similarly responding to this sentiment with plans to bolster disclosure requirements.
Hundreds of companies worldwide have made “net zero” pledges to balance their greenhouse gas emissions with the amount they remove from the atmosphere. However, such pledges may not be taking into account the emerging issue of emissions from company supply chains. Greenhouse gas emissions from a company’s supply chain can be 5.5 times higher than from its enterprise operations, according to the Climate Disclosure Project. Although difficult to track, focusing comprehensively on the end-to-end supply chain should be a priority for companies that truly want to mitigate their climate impact.
Fortunately, advanced technologies are emerging to help companies address their carbon footprint. Blockchain and artificial intelligence technologies are powerful tools for companies that want to tackle not just their own climate impact but those caused by suppliers, transportation networks, and warehouses. It’s important for board directors to understand how these technologies work in order to best fulfill their role in overseeing corporate strategy—particularly as it pertains to climate risk.
The Enhancement and Standardization of Climate-Related Disclosures for Investors
More from: Leo Strine
Leo E. Strine, Jr. is the Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; of counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware. This post overviews a comment letter that was submitted to the SEC by Mr. Strine and five other academics and practitioners.
Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and For Whom Corporate Leaders Bargain (discussed on the Forum here), both by Lucian A. Bebchuk and Roberto Tallarita; Stakeholder Capitalism in the Time of COVID (discussed on the Forum here), by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forum here).
This post overviews a comment letter that was submitted to the SEC by Alan L. Beller, Daryl Brewster, Robert G. Eccles, David A. Katz, Carmen X. W. Lu, and Leo E. Strine, Jr.
We are a group of commentators with diverse experience in securities and corporation law, business management, accounting, and corporate governance generally. Combined, we bring to bear well over a century’s work in areas bearing on these important issues, and although we have diverse experiences and viewpoints on many issues, we have a shared interest in helping the Securities and Exchange Commission (the “Commission” or the “SEC”) grapple with, and propose a cost-effective approach to, the urgent issue of providing American investors with important information on the effect climate change has on the companies in which they invest.
It is in that spirit that we express our gratitude for the opportunity to comment on the Commission’s proposal to require public disclosure to investors of meaningful information about the substantial risks that climate change poses for the issuers of publicly traded securities. These important disclosures will protect investors in those securities and help promote efficiency, competition, and capital formation.
To frame our comments, we wish to underscore our starting position. If the only choice were to have the rule adopted as proposed, or to not have the rule, we would support adoption of the rule “as is.” Our reasoning is simple. The rule as proposed will help provide investors with uniform, more comprehensive disclosures and greatly enhance the availability of comparable, reliable data and information regarding climate change and its risks. A more than sufficient number of investors of all types have credibly claimed and demonstrated that these disclosures will allow them to make more informed and better decisions regarding risks facing and valuation of the companies making these disclosures, and are therefore material to them and appropriate for their protection.
In our view, the proposed rule is a core exercise of the SEC’s well-established authority to require disclosure necessary and appropriate to protect the integrity of our nation’s securities markets and the investors in those markets. Indeed, to conclude otherwise would upend settled understandings of securities law, and deny investors of all classes access to quality disclosures to make prudent investing and voting decisions on issues that affect the future of American companies and the American economy.
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