Exclusive: Companies face a financial risk from the climate crisis. States want them to reveal just how much

Corporate America must be compelled to fess up about the financial risks posed by the climate crisis, a coalition of state attorneys general told the Securities and Exchange Commission on Monday.

In a comment letter obtained exclusively by CNN Business, California and nearly a dozen other states warn that the SEC’s current disclosure rules are inadequate given the gravity of the climate crisis and the transparency investors crave.

“Climate change is not a distant problem to be dealt with in the future,” the letter to the SEC reads. “It is here, and it threatens the US economy and its financial system.”

31 May 2021, Berlin: Cars, trucks and delivery vehicles drive into the city on Kaiserdamm in the capital. An ECJ ruling on the exceeding of the limit values for nitrogen dioxide is expected. The EU Commission has sued Germany for exceeding the annual and hourly limits for nitrogen dioxide in numerous areas since 2010. Germany is thus systematically violating the EU air quality directive and has done too little to keep this violation to a minimum.

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The letter, signed by the Democratic attorneys general of Connecticut, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Oregon, Vermont, Maryland and Wisconsin, calls for “comparable, specific and mandatory” climate-related disclosures by SEC-regulated firms.

Specifically, the states urged the SEC to require companies to make annual disclosures of their emissions and any plans to address them; analyze and disclose the potential impacts of both climate change and climate regulation; and disclose policies on corporate governance and risk management related to climate change.

The pressure from states comes ahead of Tuesday’s deadline set by the SEC for the public to weigh in on the agency’s climate change disclosure rules.

The SEC has already received more than 5,000 comments in response to its mid-March request for public input. The agency has also held more than two dozen meetings with companies and business groups, including with the representatives of Apple (AAPL), JPMorgan Chase (JPM), Uber (UBER), Walmart (WMT), Royal Dutch Shell (RDSA), ConocoPhillips (COP), the US Chamber of Commerce and Business Roundtable.

The costs of the climate crisis

In its 22-page comment letter, the California-led coalition argues that mandatory climate disclosures are “essential” not only to the SEC’s mandate to protect investors but also to “ensure efficient capital formation and allocation.”

“Given the demand from investors for such disclosures, the significance of climate change risk to companies, and the importance of efficient capital allocation to climate-resilient companies, such disclosures are squarely in the public interest,” the letter reads.

The states note that many US companies do not make climate-related disclosures and have no plans to do so in the future. Others issue “boilerplate” disclosures that “suggest that they are not thoroughly evaluating or disclosure their exposure,” the letter said.

States say they have a vested interest here because climate change is causing extreme weather events that damage local communities and sap public resources. California in particular has been rocked by deadly wildfires that could worsen as the climate crisis deepens. Rising sea levels threaten coastal communities and risk severe flooding.

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At the same time, climate change and the transition to clean energy poses legal, business and physical risks to companies — including ones that states and their residents invest in directly or through retirement accounts and pension programs.

The comment letter points out that climate-related weather events have imposed