Sep 21, 2021 - Economy

Climate disclosures linked to capital

Illustration of a document and money.

Illustration: Sarah Grillo/Axios

The relationship between a company’s climate disclosure and its potential future performance is becoming easier to see.

Why it matters: The SEC is readying new rules around mandatory risk and climate commitment disclosures, which will likely help investors compare companies on an equal footing.

State of play: More than 90% of S&P 500 companies have sustainability reports on their website, Wes Bricker, PwC co-leader of US Trust Solutions, tells Axios.

  • But voluntary reports often lag and are disconnected from required financial reports — making it hard for investors to see the impact of climate goals and issues on capital expenditure and operations, he adds.

Between the lines: Very few companies have tallied up full costs, says Bricker.

  • That’s because there are so many factors at play, such as whether an existing business model can absorb the cost of carbon, he adds.
  • Yes, but: Through reporting, companies can show how their sustainability investments meet business performance, he says.

One example: Companies that build resilience against climate hazards will have competitive advantages that will drive shareholder return, Harry Bowcott, senior partner at McKinsey, said on Monday during Climate Week NYC.

  • “Investor, regulator and customer assessment of resilience will impact valuations, capital raises, balance sheet risks, brand strength, supplier footprints as well as customer willingness to pay,” says Bowcott.

The big picture: Efforts to fight climate change and transition to a green and circular economy will mean at least $4 trillion to $5 trillion in annual global investments (financed mostly by the private sector) — "a COVID event every year for the next 30 years," Dickon Pinner, senior partner at McKinsey, also said on Monday.

  • "It's a complete restructure of the [global] economy — a massive, massive deal."
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