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Firms May Have To Disclose Climate-Related Risks In Financial Disclosures


Companies like to talk about going green and fighting climate change, but they're not necessarily keen to admit if they have a factory in an area prone to flooding or if their supplier was just hit by a hurricane. NPR's H.J. Mai explains that if regulators get their way, that will change.

HJ MAI, BYLINE: When software company Hewlett Packard Enterprise was looking around Houston for its new headquarters, it took all the usual things into consideration - the location, the cost, and also this.

JOHN FREY: Flood plains, historical weather events. How do the freeways function? Do they go underwater? Do they not?

MAI: Executive John Frey says accounting for the impacts of climate is something the company has been doing for years, like when deciding where to locate its headquarters. HPE learned this the hard way. Frey says he was in Houston when the city got hit by Hurricane Harvey in 2017, flooding the company's IT data centers.

FREY: When you have an actual live event, you discover things that you didn't consider.

MAI: Now regulators like the Securities and Exchange Commission, the Federal Reserve and others are planning to force companies to incorporate those type of climate risks. That's because natural disasters are expected to increase in frequency and intensity. Here's Fed Chairman Jerome Powell.

JEROME POWELL: The reason we're focused on climate change is that our job is to make sure that financial institutions, banks, particularly the largest ones, understand and are able to manage the significant risks.

MAI: Last month, the SEC issued a list of 15 broad questions asking investors and the public what information companies should be required to disclose. The deadline for responses is June. It's a slow and methodical approach. That's because figuring out how climate change impacts businesses is not always easy, says Paula DiPerna, an adviser for nonprofit CDP.

PAULA DIPERNA: If a factory burns down, you see the fire. But if you're dealing with climate change, this is a very insidious, invisible risk.

MAI: And regulators are aware of this challenge. Former SEC chairwoman Mary Schapiro says energy companies, for example, constantly weigh the risks posed by climate change, but not everybody does.

MARY SCHAPIRO: Other companies in different sectors are not as familiar with it. And for them, it is more daunting and a more fearful process for them to engage in.

MAI: A recent Bloomberg law study shows that nearly half of the companies listed on the S&P 500 are disclosing climate risks. But there's no uniform standard, and how much they disclose is up to the companies themselves. Delta Airlines, for example, says that more severe weather could lead to flight delays and increased fuel consumption. The result - loss of revenue and higher costs. Others are more bare-bones, making them less useful. Shapiro says that needs to change.

SCHAPIRO: While voluntary disclosure has been useful and a good way to start, it's now time to make it mandatory so that we have the benefit of consistent and comparable information broadly across industry.

MAI: However, companies are worried about the additional reporting burden. They are pleading for flexibility. Alaska Airlines executive Diana Rakow says even for the airline industry, estimating climate risk can be difficult.

DIANA RAKOW: Where it gets tricky is when it's overly complex because I think we all want to spend our time and our scarce resources doing the work, not just reporting the data.

MAI: But investors welcome the push for enhanced disclosures. Michelle Edkins is a managing director at BlackRock, the world's largest investment firm. She says investors want to know how climate change will impact businesses.

MICHELLE EDKINS: We need to understand how companies are addressing those risks so that we can understand the implications for our clients as investors in companies.

MAI: With investors pushing for this, the SEC and the Fed will likely continue to force the issue, although for now, the exact scope remains unknown. H.J. Mai, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

H.J. Mai
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