The Climate Risk Disclosure Project promotes transparency about the risks and impacts of climate change to companies and industries.
Carbon constraints, asset revaluations, water security, changing weather patterns, destructive weather events, supply chain impacts, environmental liabilities, competition deriving from energy efficiency and renewable energy innovations will impact all businesses in one way or another. Some industries are already being upended.
Start here to find out what thousands of companies are saying in their annual securities reports to shareholders about climate change, water, hydraulic fracturing and carbon asset risk and their strategies for addressing these.
CLIMATE RISK
Increasingly, investors are demanding disclosure of Climate Risks and strategies for
addressing them in understanding whether their portfolio companies are prepared
for the carbon constrained future envisioned by the Paris Agreement. In December
2015 the
Financial Stability Board (FSB
), an international body that monitors and
makes recommendations about the global financial system, set up the
Task Force on Climate-related Financial Disclosures
to consider the physical, liability and transition
risks associated with climate change and to develop recommendations for financial disclosures that
would improve the quality of climate-related reporting. Climate Risks flagged by the
U.S. Securities and
Exchange Commission (SEC) in 2010
as potentially material include the impacts of federal and state
legislation and regulation, international accords, indirect consequences or opportunities arising out of
regulation or business trends, and the likely impacts on the business of physical forces such as severe
weather or sea level rise. Voluntary disclosure frameworks applicable to large portions of the economy,
including the Carbon Disclosure Standards Board's
Climate Change Reporting Framework
and the Sustainability Accounting Standards Board's
Climate Risk Framework
,
provide general as well as industry specific guidance for integrating
disclosure of climate-related risks into mainstream corporate reporting. These frameworks,
the SEC interpretive guidance and the evolving risk landscape reflected in
shareholder resolutions and media attention are incorporated into the domain of disclosures identified
and analysed by the
Climate Risk Disclosure Project
.
HYDRAULIC FRACTURING RISK
Hydraulic fracturing, or fracking, is an oil and gas extraction technology. It
involves high-pressure injection of water, sand and chemical mixtures into
horizontally drilled wells below the earth's surface, causing cracks in rock
formations. Previously inaccessible deposits are recovered from the cracks and
brought to the surface. While having expanded natural gas production, the
practice has also been associated with risks such as seismic activity, sinkhole
formation, ground and surface water contamination from the
chemicals mixed
with the injected water
and conflict with local communities and other commercial uses over limited
water resources. Through
a large number of resolutions filed since 2010
, investors have sought
disclosure of environmental impacts, community impacts and public opposition, risk assessments and
regulatory risks, including the risk of moratoriums. To the extent that environmental and reputational
impacts are considered material, companies involved in hydraulic fracturing should be disclosing these
risks and strategies for addressing them in their annual communications with shareholders. The Climate
Risk Disclosure Project identifies relevant disclosures in the annual filings of companies involved in
hydraulic fracturing, incorporating risks identified by key industry reviews such as
Disclosing the Facts:
Transparency and Risk in Hydraulic Fracturing Operations
, as well as the more than 55 resolutions that
have specifically addressed hydraulic fracturing since 2010.
WATER RISK
Disclosures relevant to Water Risk cover water resource management, water scarcity,
water pollution, water consumption patterns and, for many companies, the social license to
operate where there are conflicting demands on water resources between the company and local
communities or other water use claims. Many industries such as agriculture, electric power
generation, mining, food and beverage production are directly dependent on water resources.
If not directly dependent, every other industry is indirectly dependent on water security.
The Climate Risk Disclosure Project identifies companies' narrative disclosure of water
risks and strategies in their annual communications with shareholders. The
Ceres Aqua Gauge: A Framework
for 21st Century Water Risk Management
provides a guide to water risk assessment
and reviews a number water risk disclosure tools applicable to a broad section of the economy.
The tool incorporates these frameworks as well as the issues raised in the approximately 110
shareholder resolutions filed since 2004 that address water risk either directly or indirectly.
CARBON ASSET RISK
Carbon Asset Risk is the risk that carbon-based assets (fossil fuels and assets that
generate power from fossil fuels) may suffer a write-down (an unanticipated devaluation)
or become stranded (worthless) due to the imperative to avoid GHG emissions that would
result in catastrophic climate change (global warming above two degrees). Specific channels
through which carbon asset risk is effectuated include carbon pricing or taxation, emission
controls, fuel standards as well as indirectly via increased competitiveness of alternatives
to fossil fuel-based power and transportation and the increased efficiency of existing modes
of fossil fuel consumption. The Climate Risk Disclosure Project identifies narrative
disclosure relevant to understanding increased risks to large power-generating emitters of
GHGs and to companies whose valuations are dependent on their reserves of fossil fuels.
Investors and lenders are increasingly concerned about their exposure to carbon asset risk
across their portfolios. The
, a WRI and UNEP-FI
Portfolio Carbon Initiative, provides a guide for financial stakeholders to assess the ways
in which they are exposed to carbon asset risk, to calculate their financial exposure,
and to manage Carbon Asset Risk. This framework, the various reports published by
The Carbon Tracker Initiative
and the growing
number of shareholder resolutions that
specifically address the financial risks of climate change and call for disclosure of
2-degree scenario stress testing by fossil fuel and power generation companies.