Many corporations love to tout their sustainability, green
and ecological initiatives. Now, they are being pushed by the Security and
Exchanges Commission to qualify the potential benefits and risks these efforts
(or lack of them) may have on the bottom line.
Last week, the SEC issued some guidance
as to how companies should warn investors of any potential effects from climate
change on their bottom lines. Essentially, the SEC is asking companies to put
into their annual 10K reports information about the business opportunities and
risks related to greenhouse gas (GHG) emissions control, climate and
environmental issues.
For instance, if a company will be subject to a cap on CO2
emissions, there should be some indication of the pending issue and the costs
to meet the new requirement. Similarly, if a solar panel manufacturer will
benefit from a state’s upcoming tax incentives to use more renewable energy,
there should also be a mention of this.
According to the SEC, this issuance of guidance “does not
create new legal requirements nor modify existing ones,” but is intended to
provide clarity and consistency for public companies and their investors.
There are some very interesting IT and compliance aspects to
this ruling.
From an IT perspective, how will this information be collected,
authenticated and shared? Will companies be looking for utilities to provide
them with more detailed reports (electronically, perhaps) of the percentage of renewable
energy purchased?
Additionally, analysis, business process management (BPM)
and business process improvement (BPI) solutions could play a role in helping
companies meet self-imposed or mandated emission reductions. For instance, an
organization might use BPM and BPI to optimize logistics or a supply chain to
cut their emissions.
From a compliance angle, even though this is a voluntary
effort for now, what are the implications of adding this information into a 10K
report? How will the information be verified and audited?
The controversial SEC ruling (passed 3-to-2 along party
lines of those who appointed the commission’s members) has its detractors. Bloomberg
reported that “U.S. Representative Joe Barton, a Texas Republican who has
said he rejects the idea that humans are contributing to global warming, said
the SEC has more important matters [such as investor protection] to deal with.”
But a Sunday New York
Times editorial noted that this vote was expressly about investor
protection. In particular, the editorial pointed out that it “makes good sense
to us that companies should disclose whether a new law or international treaty
limiting greenhouse gas emissions is likely to require new investments or
increase operating costs.” In other words, organizations should now add global
warming to the list of material issues—plant closing, the sale of assets—that
companies have to discuss in their financial filings.
For many organizations, meeting the SEC request will simply
be a matter of repurposing information they already collect. Some industries,
such as utilities and oil and gas, already have to report their GHG emissions.
And in 2009, 82 percent of Global 500 companies and 66 percent of S&P 500
companies voluntarily reported their GHG emissions to the Carbon Disclosure
Project. Further, a PriceWaterhouseCoopers analysis of these filings found
that 70 percent of Global 500 and 50 percent of S&P 500 companies already
report GHG emissions in their annual reports.
