Companies May Soon Be Required to Disclose Financial Impact of Climate Risk

Companies’ disclosure of risks to their business from climate change could become mandatory in a few years as investor pressure gathers pace, climate finance experts said on Tuesday.

Investors have urged companies, particularly those operating in the oil, gas and coal sectors, to disclose the financial impact of long-term climate change and increase transparency as the world shifts away from fossil fuels.

“I think we are moving towards the disclosure of climate change risks and stress testing of investments by companies. That is something which is gaining traction,” John Roome, senior director of climate change at the World Bank, told an FT climate finance summit in London.

“We are now in the voluntary stage but I suspect that in a few years we may very well see standardized requirements from various regulatory authorities on disclosure of climate risk,” he added.

Last year, a global task force set up by the G20’s Financial Stability Board proposed that companies disclose in their public financial findings how they identify and manage risks to their business from climate change.

Although the measures are voluntary, there are calls for them to become mandatory.

This could happen in a few years and further ahead prudential requirements could be placed on potential stranded assets, Roome said, using a term for assets that no longer provide an economic return because of changes in the market or regulatory environment.

Last year, institutions managing trillions of U.S. dollars of assets called for oil majors Exxon Mobil and Chevron to disclose the impact of curbing global temperature rise on their businesses, although shareholders narrowly voted against resolutions calling for such stress tests.

On Tuesday, Royal Dutch Shell shareholders rejected a proposal by an environmental activist group demanding the oil major sets and publishes annual targets to reduce carbon emissions.

There are also a number of financial regulators who argue that climate risk is not part of companies’ core business, Roome said.

Environmental lawyer Alice Garton at ClientEarth said existing laws apply to company disclosure where climate risks are material, or affect the economic decisions of shareholders.

There have already been lawsuits in the United States against Exxon Mobil and coal miner Peabody Energy Corp. over disclosures related to climate change.

ClientEarth said it had written to energy company BP, miner and trader Glencore and investors this week warning of the risk of investor lawsuits based on statements about future fossil fuel demand in their reporting.

“It is highly likely that more cases like Peabody and Exxon arise in the future. Class action lawyers have become very clever at developing these cases for profit,” said Garton, company and financial project leader at ClientEarth.

(Reporting by Nina Chestney; editing by Susan Thomas)

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