Thursday, December 27, 2007

Climate Change Disclosure

In an article titled “Making Impact Disclosure Mandatory” that appeared in the The Hindu Business Line on December 06, 2007, I have argued for imposing mandatory requirements on climate change disclosures by companies. Despite the wide range of risks and opportunities that climate change presents to the corporate sector, the level of disclosure to investors and deliberation of corporate policies in this area are abysmally low.

Climate change, described as a problem with scientific origins, has recently acquired significant political overtones. A less deliberated aspect of climate change, however, is its impact on the corporate sector, and particularly on investors who are primary stakeholders in companies.

As businesses become increasingly vulnerable to climate change, there is a corresponding surge in investor interest for obtaining information pertaining to corporate exposure to these risks. As for the availability of such information, it appears, there is currently a wide gap. The appetite for corporate information on climate change is essentially whetted by socially responsible investors who seek to ensure sustainable development while earning returns, and who thereby exhort companies in which they have investments to improve their environmental and social governance practices.

That apart, climate change information is crucial even to hard-nosed financial investors, whether institutional or retail, as factors such as global warming and green house gases are likely to have a long-lasting impact on the way companies are managed, and consequently on shareholder value.




Since voluntary efforts are proving to be inadequate, regulators may well have to sound a clarion call for mandatory climate change disclosures.

Mandatory disclosures will not only help investors in obtaining better information about climate change risks and opportunities affecting their investments, but would also impel those companies that have fallen behind into action to put in place risk management policies and practices to deal with the situation, as failure to properly address climate change could affect their attractiveness with investors.

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