The Case for Mandating Climate-Risk Disclosure
The US Securities and Exchange Commission is considering a proposal to require some companies to disclose information relating to the risks they face from climate change. But the agency is coming under pressure to scrap or water down the proposal because of a recent Supreme Court decision.
DURHAM, NC/NEW YORK/WASHINGTON, DC – Climate change is usually thought of as an environmental problem. But it also poses serious threats to businesses, investors, and the financial system.
In the United States, the Securities and Exchange Commission (SEC) is currently considering a proposal that would require certain publicly traded companies to disclose information relating to the risks they face from climate change. Troublingly, the agency is coming under increasing pressure from a range of politicians and business interests who often cite the Supreme Court’s recent decision in West Virginia v. EPA as a reason to scrap or water down the proposal.
But the economic, legal, and political arguments against moving forward with this rulemaking are deeply misguided. Climate risk – both the direct risks posed by unmitigated climate change and the risks businesses face from mitigation efforts – is financial risk. Even as extreme events like hurricanes Fiona and Ian rightly get a lot of attention, rising average global temperatures and sea levels may ultimately have even larger economic effects.