Investors, including many who manage environmentally-focused funds, welcomed the U.S. government’s new rule on corporate disclosures of climate-related risk and emissions. It would standardize reports, which are currently voluntary and vary in quality and breadth.
Investors said that the draft regulation of the U.S. Securities and Exchange Commission would allow money managers to evaluate how companies and industries handle the potential risks and opportunities presented by a warming planet.
According to Morningstar, $71 billion was taken in by U.S.-based environmental, social, and governance-focused funds last year. This is an increase of $51 billion in 2020. Experts also noted that shareholders are seeking better data.
The final version of this rule that the SEC might eventually adopt could be shaped by their responses to the draft.
Investors focusing on ESG concerns have found it difficult to analyze corporate disclosures because they lack consistency.
“Right now, you have a lot of disparate information coming in from different places. This will make it easier for all investors to look at the data, and not just ESG-focused ones,” stated Sarah Bratton Hughes from American Century Investments Kansas City.
Dan Abbasi, who manages a $200 million environmentally-focused investment strategy at Douglass Winthrop Advisors, New York, said that the rules could also help fund managers choose companies that can benefit from a shift to a lower-carbon economy.
He said, “It’s going give us additional material for work in terms of how management sees the climate change risks and how they seize the opportunity.”
The draft rule requires companies to disclose their direct or indirect greenhouse gas emissions. These are known as Scope 1 & 2 emissions and supplier and partner emissions.
A GLOBAL RANGE OF REPORTS
Gary Gensler, Chairman of the SEC, stated that the commission is interested in simplifying reporting due to investor interest in climate data. According to Georgeson, proxy solicitor Georgeson, 41 U.S. shareholder proposals required some type of new climate disclosures as of February 41.
Gensler mentioned a report showing that 65% of Russell 1000 companies had published sustainability reports in 2019. The Governance & Accountability institute’s report found that only half of companies in certain sectors, such as communications, published sustainability reports in 2019. These reports were organized using a variety of frameworks.
“The reporting is voluntary right now, so there are companies that don’t report or do more communications or marketing reporting than comparable, reliable material for investors,” stated Gary Levante (senior vice president, corporate responsibility, Berkshire Bank).
He said, “A mixed Bag’ is the best way of describing it.”