F&C joins coalition to petition SEC

European asset manager F&C has today joined a broad coalition of US investors, US state officials with regulatory and fiscal management responsibilities, and environmental groups to file a landmark petition asking the US Securities and Exchange Commission (SEC) to require publicly-traded US companies to assess and fully disclose their financial risks from climate change.

Also today, the coalition formally asked the Commission's Division of Corporation Finance to immediately begin "closely scrutinising the adequacy of registrants' climate disclosures" under existing law.

In addition to F&C the 22 petitioners include leading institutional investors in the US that collectively manage more than $1.5 trillion in assets as well as groups Environmental Defense and Ceres.

The first-of-its-kind petition cites unequivocal scientific evidence, far-reaching regulatory developments and extensive business recognition that the risks and opportunities many corporations face in connection with climate change are material to shareholder investment decisions and must be disclosed under existing law.

"Smart companies know that profits and jobs come from solving problems, not ignoring them. Investors have a right to know who is paying attention," said Fred Krupp, president of Environmental Defence.

"The SEC needs to do more to protect investors from the risks companies face from climate change, whether from direct physical impacts or new regulations," said Mindy S. Lubber, president of Ceres and director of the Investor Network on Climate Risk. "Shareholders deserve to know if their portfolio companies are well positioned to manage climate risks or whether they face potential exposure."

"We believe the SEC is out of step with emerging best practice related to climate disclosure," said Karina Litvack from London-based F&C. "The EU Modernisation Directive already instructs companies to take account of broader social and environmental risk factors in their business strategy and reporting. And the UK Business Review likewise requires UK-listed companies to make clear narrative disclosures regarding such risk factors when they are material to the business. We would like to see the SEC set a similar standard and provide guidance to US companies. As investors we need clear and consistent information on climate risks and opportunities at US-listed companies, particularly in high risk sectors such as insurance, heavy industry, and extractives."

"As Florida's Chief Financial Officer, I keep a watchful eye on the long-term fiscal health of our state and its 18 million residents," said Florida CFO Alex Sink, who serves on the board of the Florida retirement system which has $140 billion in assets. "Today's petition to the SEC is a critical step forward to providing better protection for our citizens' financial futures."

Climate change can affect corporate performance in ways ranging from physical damage to facilities and increased costs of regulatory compliance, to opportunities in global markets for climate-friendly products or services that emit little or no global warming pollution. Those risks fall squarely into the category of material information that companies must disclose under existing law to give shareholders a full and fair picture of corporate performance and operations, the petition says.

Despite a groundswell of demand from investors for more information in climate risks, corporate disclosure has been scant and inconsistent. ExxonMobil Corporation, the world's largest petrochemical enterprise, included only one cursory reference to climate change in its entire 2006 annual filing with the SEC. Allstate Corporation, which insures 1 in 8 homes in the U.S. and reported over $4 billion in losses from Hurricanes Katrina and Rita, did not mention climate change at all in its latest annual filing. A January 2007 study published by Ceres and the Calvert Group, an asset management firm, found that more than half of the companies in the S&P 500 Index are doing a poor job disclosing climate change risks to their investors. Companies in sectors with low greenhouse gas emissions, including insurance companies and banks, had especially poor disclosure. However, a research paper published last week by F&C highlighted the major risk exposure facing insurers from the effects of climate change.

Poor disclosure prevents investors from getting the full story. Full disclosure by Texas utility TXU on its potential exposure from climate change-related risks would have revealed the extensive financial exposure resulting from the company's proposal to build 11 new coal-fired power plants without limitations on the extensive global warming pollution. TXU's business plan would have increased carbon dioxide emissions 78 million tons annually, and invested considerable capital in long-term high-polluting resources. Investors are entitled to a rigorous assessment of regulatory and financial risks related to climate change so they can evaluate which business plans are prudent in managing these risks.

The petitioners today also called on the Commission to take immediate action on corporate climate disclosure as it develops the new guidance. The petitioners called on the SEC's Division of Corporation Finance to devote close attention to the adequacy of climate risk disclosures under existing regulations. Because the obligation to disclose climate related risks and opportunities exists under current law, the Division of Corporation Finance "need not and should not wait" in immediately increasing "its scrutiny of the adequacy of climate risk disclosures in corporate filings."