January 06, 2015
Report Calls for Climate Resilient Stock Exchanges
by Robert Kropp
Arguing that risks associated with climate change are increasingly likely to destroy value, the
Climate Disclosure Standards Board calls on stock exchanges to mandate corporate reporting that
includes climate risk assessments.
Evidence of climate change is “unequivocal,” as a report published last month by the Climate
Disclosure Standards Board (CDSB) begins. Also unequivocal is the fact that not nearly enough
is being done to construct a climate resilient society.
The CDSB report notes that
private investment is critical for building climate resilience, but investors insist that a greater
degree of certainty is needed for the scale of investment required. One important source of
information would be consistent corporate reporting on the possible impacts on business operations
of climate change, and to that end the Securities and Exchange Commission issued interpretative guidance governing
corporate climate change reporting.
Unfortunately, as Ceres reported early last year, “Most S&P 500 climate
disclosures in 10-Ks are very brief, provide little discussion of material issues, and do not
quantify impacts or risks.” Furthermore, Ceres continued, “Forty one percent of S&P 500 companies
did not include any climate related disclosure at all in their 10-K filings in 2013.”
According to CDSB, “Stock exchanges have a powerful role to play in protecting stock market
creating the conditions for low-carbon investment and promoting incentives for the
practices that protect natural resources and strengthen climate resilience.” A
number of the world's exchanges do address climate change proactively already, in that they either
“require or encourage” listed companies to disclose relevant environmental information.
increasing number of exchanges are developing sustainability indexes as well, “to identify
companies that meet certain sustainability standards or subsets thereof.” In November, for example,
reported that Borsa Istanbul launched the BIST Sustainability Index, the first sustainability
index in Turkey. “The BIST Sustainability Index methodology is based on ESG criteria including
biodiversity, climate change, environment, human rights, health and safety, bribery and board
practice,” EIRIS stated.
Also, networks of exchanges such as the Sustainable Stock Exchanges (SSE) provide forums for
enhancing corporate transparency.
But as CDSB reports, “Although some stock exchanges are
engaging in and leading environmental, climate change and sustainability reporting, there are
various challenges to be addressed before those actions result in optimal outcomes for financial
market actors.” Yet historically, stock exchanges have intervened in cases of financial stability
and corporate governance; the same approach, CDSB argues, can be adapted for addressing climate
change as well.
Since, as last year's report from Ceres demonstrates, too many
corporations are failing to comply with voluntary measures such as the SEC's interpretive guidance,
the solution arrived at by CDSB is mandatory reporting. The report concludes with a comprehensive
description of what form such reporting might take; as well-tested models such as the CDP have been refined over a period of many years,
such a transition should not be onerous to corporations that have thus far resisted reporting as a
“In the same way that they have responded decisively to corporate
governance irregularities and to the
financial stability agenda, stock exchanges are starting
to respond to the new risk landscape presented by climate change,” the report concludes. “The
infrastructure and leadership is in place for stock exchanges to build on the progress they have
already to support and introduce climate change reporting requirements.”