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.
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.
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 Carbon Asset Risk: Discussion Framework, 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.