Sustainable investing has faced a barrage of criticism from both the left and right. This attention, alongside government efforts to crack down on greenwashing, makes one thing clear: investors are demanding transparency about corporate behavior. Investors – and this includes every Californian with a retirement account – have the right to know about the climate risks companies face and their plans for managing them.
Just because a risk isn’t disclosed doesn’t mean it doesn’t exist. Californians are already living the reality of climate change: 2023 began with extreme rainfall, flash floods, and mudslides, causing over $30 billion in damages by the end of January. Fast forward to August and we’ve blown through air and ocean temperature records across the country. Severe weather events, fueled by a warming ocean, are just some of the ways that the climate crisis is ruining homes, lives, and businesses. Coastal communities are bearing the brunt, and it’s costing us dearly. Across the U.S., climate-driven disasters caused over $175 billion in damages in 2022.
Our two organizations, Generation Investment Management and Ocean Conservancy, are stewards of valuable resources others rely on – one of financial assets, the other of the ocean. To do this work in a rapidly changing world, our actions must be grounded in reliable data about climate risks. And it’s the same for the financial community as a whole.
Voluntary company disclosures are not enough. The current system fails to provide consistent information on either the risks of climate disasters, or those related to the clean energy transition. Companies are left struggling with a patchwork of disclosure guidelines that produce irregular and incomplete information, far short of what investors need.
That’s why we welcome California’s leadership on climate risk reporting (SB 253 and SB 261) for large companies operating in the state. SB 253 requires a company to report its emissions of climate-damaging greenhouse gasses in regulatory filings. It would be the first in the nation to require reporting on emissions from a company’s entire value chain – suppliers, clients, or customers – in producing and using its products or services. This is critical: these “Scope 3” emissions represent the lion’s share of greenhouse gas pollution for large companies. SB 261 mandates reporting on climate-related financial risks, such as physical threats like extreme weather, or transition risks like changing policies.
Imagine your retirement account has significant holdings in the plastics industry. Most production facilities in the United States are located along the Gulf Coast, where climate-driven disasters like Hurricane Harvey, the Texas Freeze, and Hurricane Ida have devastated coastal communities and caused major disruptions in plastics supply. Plastics are made from oil and are energy-intensive to produce, responsible for 3-4% of global greenhouse gas pollution. This means they’re vulnerable to volatility in fossil fuel prices and under increasing scrutiny in the clean energy transition. Investors need comparable and reliable data to evaluate these risks and protect their assets. These two bills would make reporting on climate risks consistent and mandatory. Likewise, we welcome the U.S. Security and Exchange Commission’s decision to mandate climate risk disclosures by U.S. public companies and encourage the Commission to release a strong rule soon.
The clean energy transition is creating some of the biggest growth opportunities in our economy, boosted by last year’s Inflation Reduction Act that brought major incentives for building sustainable companies. Improved disclosure will equip investors to identify and support those companies that are innovating to meet the needs of our society, manage the risks involved, and reward their investors.
By requiring transparency about how companies and asset managers are making decisions that affect the future of their businesses and the planet, California is leading the way. Only then can investors make informed decisions and work together with companies to build a clean energy economy that protects the climate, our coastal communities, and the ocean.
Colin le Duc is a board member of Ocean Conservancy and a founding partner at Generation Investment Management. Janis Searles Jones is CEO of Ocean Conservancy.
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