Climate change presents serious physical and financial risks as well as opportunities that should be factored into businesses' and investors' decision-making, said a number of speakers at the Council of Institutional Investors' Winter Conference in Washington Feb. 27 to March 1.
Stressing the need for climate-competent company boards, Elisse B. Walter, a director at Occidental Petroleum Corp. and the Sustainability Accounting Standards Board, pointed to a 2016 SASB bulletin that reported 72 out of 79 industries, representing $27.5 trillion or 93% of U.S. capital markets, are significantly affected in some way by climate risk.
Seeing climate change risk “as a fundamental part of the corporate governance agenda is very important,” agreed Anne Simpson, investment director, sustainability, at the $311.7 billion California Public Employees' Retirement System, Sacramento, speaking on a separate panel on climate-related financial disclosure. “Companies which intend to be in business for the long term must address these risks and these opportunities.”
Driving the discussion on Ms. Simpson's panel were the recommendations, released in December, of the Financial Stability Board's Task Force on Climate-Related Financial.
The task force was formed in 2015 to “develop voluntary, consistent disclosures for companies to use to provide information about climate-related financial risks to their investors and other market participants,” said Kristen Spalding, director of the investor program at sustainability advocacy group Ceres and moderator of the panel.
The task force's recommendations focus on four themes — corporate governance, strategy, risk management, and metrics and targets.
While executives at some companies might feel they already have a grip on corporate governance or metrics and targets, task force member Neil Hawkins believes the risk management piece will force a closer look at physical risks to property and other impacts of climate change that he doesn't see a lot of companies reporting now.Mr. Hawkins, corporate vice president and chief sustainability officer at Dow Chemical Co., was on the panel with Ms. Spalding and Ms. Simpson.
The other big new piece of information, Mr. Hawkins believes, will be strategy — how companies are dealing with climate change “both as a negative trend and for profits.”
Ms. Simpson applauded the task force's work, saying it “gives us the chance to have a common language around climate risk and opportunity, and that will enable the financial markets to deploy capital and exercise stewardship in a way that's going to support the Paris Agreement (on climate change).”
Mr. Hawkins added: The task force's recommendations “provide a common platform within a sector ... to say which of these companies actually have good governance, which of these companies have a strategy to manage this, and which of these companies have a value-created approach to managing it.”
A public comment period on the task force's recommendations closed Feb. 12. The final recommendations are expected to be published in July.