In just the past two months, record-shattering torrential rains have wreaked havoc on homes and businesses in Texas, the west coast and the Midwest, along with Pakistan, Australia, China and other parts of the globe. In a cruel twist traceable to climate change, these same regions have also been reeling from withering heat and droughts that have devastated crops and water supplies and halted supply chains.
The financial hits from these dry-and-deluge double whammies will be consequential. In the first half of 2022 alone, climate-linked extreme weather caused an estimated $65 billion in losses worldwide. That's double the losses from the same time period in 2018. And, with global greenhouse gas emissions and average temperatures continuing to rise, these numbers will continue to grow. The impacts of climate change could slash U.S. GDP by 7% by 2050, according to global insurer SwissRe.
These and other financial impacts from the systemic climate trends are hugely relevant as the U.S. Securities and Exchange Commission considers its next move in its push to significantly strengthen corporate climate disclosure rules. The proposal, released in March, would require all U.S. publicly traded companies to disclose annually how they assess and manage climate change financial risks. That followed a detailed SEC request for information on climate risk disclosure, from March 2021, that garnered 6,580 responses.
Tomorrow, SEC Chair Gary Gensler will testify before the Senate Banking Committee and this issue will likely be on the agenda.
To be sure, the SEC's push for "consistent, comparable and reliable" climate disclosure for investors hasn't been without controversy. More than 14,000 letters were submitted during the public comment period, and while 80% of them were either generally or very supportive of climate standard-setting in general, that shouldn't be read as wholesale support for the SEC's specific proposal, according to a KPMG analysis.
Nevertheless, given the accelerating risk of climate-related losses, and the overwhelming support from investors and the American public for this approach, we hope the SEC can find common ground for a mandatory climate disclosure rule that can be issued this year, so the marketplace can start focusing on implementation.
The SEC should also ensure that the final rulemaking language is legally defensible, given the complex legal and political world we live in, and the wide-ranging concerns raised in comment letters. Some opponents have already forecast likely litigation challenges, and we have also seen unfortunate court decisions recently, such as the decision in a climate regulatory case just a few months ago to restrict the U.S. Environmental Protection Agency's ability to regulate climate pollution from power generators.
Drafting new rules is by its nature a process that relies on give and take. That is why the SEC asked for public comments. The recently enacted Inflation Reduction Act, which did not contain all of the climate provisions many advocates pushed for, was still a truly historic step in tackling the global climate threat.
For all the same reasons, while we would prefer everything we outlined in a June comment letter, we hope the SEC can find common ground for a mandatory climate disclosure rule that can be issued this year, so the marketplace can start focusing on implementation.
Standing pat as climate losses mount and corporate climate disclosures fail to meet investor needs is simply not acceptable. As the international community moves forward with their own disclosure rules, slow regulatory movement on our domestic front will hurt U.S. competitiveness. There are also trillions in potential new business opportunities that are important for investors to consider.
The SEC has an almost 90-year history of ensuring that investors receive reliable, consistent financial information from companies. Such transparency is a key bedrock for this country's remarkable record of strong capital growth that has enabled economic prosperity and full employment like no other country in the world.
For nearly 20 years, Ceres and a growing number of investors have been pushing the SEC for stronger corporate disclosure on climate risks.
When the SEC issued the first-ever climate disclosure guidance in 2010, it was seen as an important step forward. But that guidance has not provided the information that investors need.
Recent data from the climate disclosure non-profit CDP showed that only 1% of companies were providing information that investors need to assess whether businesses have credible plans for mitigating climate risks and transitioning to a low-carbon future.
Last fall, 733 investors with $52 trillion in collective assets issued a statement calling for mandatory climate disclosure. Eight countries have already put in place these disclosure rules. The investors also made clear that disclosure mandates, like the SEC's proposal, should align with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the leading global reporting framework supported by more than 3,000 companies in 95 jurisdictions around the world.
Among the investors pushing in this direction is State Street Global Advisors, one of the world's largest investment managers. In January, its CEO, CEO Cyrus Taraporevala wrote:
"We expect companies in major indices in the US, Canada, UK, Europe and Australia to align with climate-related disclosures requested by TCFD, including whether the company discloses: 1) board oversight of climate-related risks and opportunities; 2) total direct and indirect GHG emissions (scopes 1 and 2 emissions); and 3) targets for reducing GHG emissions."
Ceres continues to strongly believe in all of the recommendations outlined in June. But we also appreciate Voltaire's famous aphorism: "The perfect is the enemy of the good."
It won't be helpful for investors, companies, and capital markets to have this issue tied up in the courts, or on Capitol Hill, for months, or even years.
The urgency is for the SEC to act now and have a rule it can implement to protect investors by providing the information they are requesting to maintain fair, orderly, and efficient markets and to facilitate capital formation.