Climate Risk Disclosure May Finally See Some Light

This year’s Climate and Society class is out in the field (or lab or office) completing a summer internship or thesis. They’ll be documenting their experiences one blog post at a time. Read on to see what they’re up to.

Robert E. Rubin, Curtis Ravenel and Tom Steyer at an event in June. Credit: Risky Business

By Candice Allouch, C+S ’15

The relationship between climate change and economic development has often been overlooked or deemed improbable. However, as climate change becomes an increasing threat to society’s finite resources and as technological prowess grows, many have begun to uncover the potential between fostering fruitful conversation regarding climate change and our economical future.

I have been lucky enough to be hired by one of the most up-and-coming organizations working on climate change and economic risk and opportunity. The Risky Business Project focuses on quantifying and publicizing the economic risks from the impacts of a changing climate. Much of the organization’s fame has come from its publication of a National Climate Risk Assessment — called the Risky Business Report — which analyzes climate change to better understand the economic risks it poses around the country. The organization is now also hoping to tap into the economic opportunity that comes with a changing climate, like the potential for investment in alternative energies.

In my first month with the Risky Business Project, I have been involved in researching and analyzing the impacts that climate change is having on particular domestic geographies, I have delved into sector-specific risks that climate change poses, and I have conversed with experts in the field who explain that these risks will eventually target (if they haven’t already) America’s bottom line. Climate change becomes an issue for government entities, business leaders and everyone in between.

One particular event that I found extremely pertinent and time-sensitive regarding the nexus between climate change and the economy is the current discussion around stranded assets and the imperative for companies to begin disclosing their risks to climate change. Before I begin, I would like to make it clear that my opinion is not that of the Risky Business Project and that the views in this blog are strictly my own.

In 2010, the Securities Exchange Commission (SEC) issued guidance on the materiality of climate risks. Recently, the SEC has begun to reform its disclosure process; they are now potentially requiring companies to release any information related to their risks regarding climate change. This is a game changer — it will mean that investors can now take climate change into account when identifying fruitful endeavors. It will also mean that climate change may become a national player in how businesses run their operations.

To add, if mitigation efforts were put in place to limit a rise in temperatures to 2°C, it is possible that oil, gas and coal capital expenditures or existing reserves may not end up being used and could become stranded assets. A “stranded asset” refers to an investment made that no longer guarantees an economic return. In other words, a company loses money by investing in a project that no longer reaps success.

To address this topic of stranded assets, the Risky Business Project, in partnership with the Stanford Steyer-Taylor Center for Energy Policy and Finance, hosted an event, “Investing in a New Climate.” The event consisted of a conversation with Tom Steyer, investor, philanthropist and clean energy advocate, and Robert E. Rubin, former U.S. Secretary of the Treasury.

There was also a panel discussion that concentrated on the economic risks of climate change and the opportunities for investors to navigate climate exposure within their portfolios. Secretary Rubin and Steyer had a passionate discussion about the risk that climate change posed to businesses and called for more companies to disclose their material exposure to climate risk.

The event was successful and did a great job at spotlighting the importance of this issue, an issue that lies directly at the complicated corner between climate change and the economy. The question now remains, will businesses actually begin to reveal climate risks to potential investors or is this notion ahead of its time?