Investors need to know the impact of the climate crisis on businesses

The bill’s main message: mandating the disclosure of a company’s exposure to climate-related risks. The way forward: directing the U.S. Securities and Exchange Commission to issue not just guidance but rules requiring the disclosure, among other points, as to how the corporation’s valuation would be affected assuming the current pace of climate change or, conversely, if restricting greenhouse gas emissions to the 1.5 degrees Celsius goal is achieved.

Does the market lack information about the climate risk exposure of companies? Yes it does. Can assets be valued in the absence of assessed climate risk? No. Can we contest the bill’s primary assertion that “we can’t afford to wait any longer?” No again.

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Let’s ask ourselves this: how easy is it for investors to build a climate-conscious portfolio?

We can look to the recently tabled report from Canada’s Expert Panel on Sustainable Finance for some guidance. Canadian retail investment is dominated by index-based funds and mutual funds “that are generally absent of emissions or climate considerations,” the report states. “Consultations suggest that this stems from a limited and inconsistent awareness of these factors among individual investors and their investment agents or advisors.” Institutional investors are stuck, or at least dissatisfied with climate-related reporting, “noting a general inability to determine whether non-disclosure reflects legitimate immateriality or a lack of internal focus.”

This is where Warren’s bill comes in. Should mandatory rules be put in place governing climate-risk disclosure, as Warren argues, or can investors find sufficient comfort from the corporate adoption of voluntary disclosure standards, the position taken by the Trudeau government in its 2019 budget?

Which path promises consistent, reliable, transparent and coherent disclosure — the very watchwords of efficient markets?

I have written numerous times about the ways in which Senator Warren has fought the good fight on behalf of fairness and against mendacity. Her performance before the U.S. Senate Banking Committee as she grilled Wells Fargo CEO John Stumpf was a standout, “a deeply principled reminder of what a fine presidential candidate she would have made,” I wrote in 2016. “You should resign,” a furious Warren said then, as Stumpf attempted to absolve himself of responsibility for the two million or so credit cards and bank accounts opened by Wells Fargo agents without customers’ knowledge. “Gutless leadership,” Warren called it.

Stumpf was dumped soon thereafter.

As a Harvard law professor Warren laid the groundwork for what became the Consumer Financial Protection Bureau, writing in 2007 of the need to protect families “steered into overpriced credit products, risky subprime mortgages, and misleading insurance plans.” America was on the cliff of the financial crisis. She wrote about the cost paid in lost homes and broken lives, a theme that has run through her push for an increased minimum wage and in her failed hand-in-hand attempt, with Republican Senator John McCain, for modernized legislation to keep the financial industry in check, an industry marked in McCain’s view by a culture of “dangerous greed and excessive risk taking.”

No wonder Warren carries a wariness when it comes to corporate comportment.

Can we rely on companies voluntarily providing full disclosure?

In the last federal budget, the government announced its support for the voluntary disclosure standards drawn up by the Task Force on Climate-Related Financial Disclosure, a 31-member group chosen from across the G20 to guide consistent, comparable, reliable and clear climate-risk reporting standards. In its most recent report, released last month, the task force found that while some of the results of its disclosure review were encouraging, it raised concerns that not enough companies are disclosing “decision-useful” climate-related financial information.

In fact, not only has the adoption of the guidelines been slow, but detailed results raise considerable concerns over the lack of standardized metrics within industries and a poor showing from companies for whom climate-related risk is material but who “do not disclose information on the resilience of their strategies.” In other words: useless. The task force came up with 11 recommended disclosures. Only a quarter of companies surveyed had aligned themselves with more than five of those.

It is to this that the Trudeau government adheres, supporting a phased (take your time) approach by Canadian companies and encouraging Crown corporations to adopt these standards “where appropriate.”

What comes across is a lack of urgency, out of step with the times.