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Illustration: Sarah Grillo/Axios

With financial regulators marching toward rulemaking on the disclosure of risks associated with climate change, scientists have identified some ways new requirements could fall short.

Why it matters: Right now, large institutional investors, such as overseers of pension funds, and ordinary individuals lack a full picture of how much climate change risk is contained in their portfolio.

Driving the news: Interested parties submitted comments to the SEC during a comment period that just closed. An array of parties commented — think investment firms, energy companies, green groups and plenty in between. But one in particular stood out from the crowd: The Woodwell Climate Research Center (WHRC).

  • The WHRC's climate scientists publish research in the peer reviewed literature, but they are also involved in risk assessment projects with financial institutions such as Wellington Management, which has more than $1 trillion under management.
  • Through that partnership, the WHRC is creating maps that integrate climate science data with financial data for better management of climate risks. (The researchers plan to make many of their data sets public.)
  • Also through Wellington, the WHRC is involved in climate risk assessment research work with the California Public Employees’ Retirement System (“CalPERS”), the largest U.S. public pension fund, and the Ontario Teachers’ Pension Plan.

Details: In the comments, made via WHRC external affairs chief David McGlinchey, the WHRC focuses on physical climate risks, which could take the form of climate change-related extreme weather events.

  • The organization of climate scientists, which includes researchers studying everything from changing weather patterns to managing forests, is clear in its view that climate risk disclosure is necessary.
  • Like other commenters, WHRC calls for standardization in the SEC's rule-making, but, being a group of climate scientists, they have a different idea of what that means.
  • Their concerns lie in how the requirements might influence exactly what goes into, and comes out of, risk assessments for disclosure purposes. Will every company, for example, get to choose the models it uses to project future climate scenarios, and will those models and scenarios be disclosed?

Between the lines: According to Philip Duffy, WHRC's president and executive director, standards are needed for how to conduct such analyses.

  • "Say you're an investor and you want to know should I invest in Company A, or B, or C, well you want to be able to compare the risks of Company A to the risks of Company B to the risk of Company C," Duffy told Axios.
  • "If they all estimate those risks independently using different methods and maybe some of the methods are good, maybe some of the methods aren't, then you can't really gain useful information by comparing the disclosure[s]," Duffy said.
  • "It should be done transparently and it should be done using high quality methods and models."

The big picture; Already, multiple companies have sprung up to help firms better understand their climate risk profile, such as Jupiter Intelligence, Cervest, and the First Street Foundation.

Yes, but: Each of these firms each run their own models and present the results differently to clients, which makes apples to apples comparisons difficult. Presumably, they'd stand to benefit from the work created by SEC disclosure rules.

Of note: Jupiter Intelligence also filed comments to the SEC, and they too endorse a scientifically rigorous concept of standardization, with a "common, agreed-upon set of scenarios, time horizons, acceptable risk levels, and metrics," wrote Jupiter chairman and CEO Rich Sorkin.

The bottom line: Duffy said WHRC is pushing for the SEC to write its rule in a way that specifies that climate models used should be restricted to ones that have been published in the mainstream scientific literature.

  • Similarly, specifying the emissions scenarios that should be used, such as those prepared for the U.N. Intergovernmental Panel on Climate Change (IPCC) and widely used in the field, could ensure that assessments have similar baselines, he said.

Go deeper

Gina McCarthy: Extreme heat the "silent killer" from climate change

Photo: Axios

The Biden administration is taking a "whole-government approach" to address the challenges posed by extreme heat, White House climate adviser Gina McCarthy said at an Axios virtual event on Wednesday.

Why it matters: McCarthy's comments come two days after the Biden administration announced a multi-agency plan to combat the threat posed by extreme heat, including addressing inequality in heat exposures.

Updated Sep 23, 2021 - Axios Events

Watch: A conversation on investing in advanced climate tech

On Thursday, September 23rd, Axios business editor Dan Primack and Axios Today host Niala Boodhoo explored how alternative energy investments toward climate solutions function in the private and public sector today, featuring Sen. Ron Wyden (D-Ore.) and Galvanize Climate Solutions co-founder Tom Steyer.

Sen. Ron Wyden explained his support for overhauling the existing tax code to incentivize companies to reduce their emissions, his belief that all Americans should pay their fair share of taxes, and Congressional efforts to increase electric vehicle usage.

  • On his support for modifying the tax code: “One of the little secrets about the tax code is that many billionaires pay little or no income taxes. The way they do that is they don’t take a wage, and so Americans have read all these stories about prominent billionaires paying virtually nothing in the way of income taxes for years and years on end. I don’t think that’s right.”
  • On the future trajectory of electric vehicles: “Getting a critical mass of these electric vehicles on the road is going to bring down costs. It’s going to be good for the environment, good for marketplace forces, and the American economy.”

Tom Steyer highlighted the importance of cleaning up electricity generation across the country, how the climate tech investment landscape has changed over the last decade, and what areas of climate tech he believes need more attention and investment.

  • On the future of the infrastructure and reconciliation bills: “I believe that the Democratic Party will come to a negotiated place which will include very important climate regulations, climate initiatives, and that specifically they will be encouraging the move to clean electricity generation across the United States during this decade.”
  • On the need for more tangible innovations in climate tech: “It’s going to be incredibly important for us too to do well in the businesses like manufacturing, where you can touch the product. We have dominated the kinds of businesses like software that you can’t touch.”

Axios co-founder and CEO Jim VandeHei hosted a View from the Top segment with HSBC’s Group Chief Sustainability Officer Celine Herweijer, who discussed how sustainability is moving to the forefront of many corporations’ long-term goals.

  • “We’ve committed to essentially have a net zero target across all of our finance commissions portfolio. So to be able to do that, that means fundamentally changing how we finance it, fundamentally changing our risk appetite, changing our culture, our policies, our processes of capability.”

Thank you HSBC for sponsoring this event.

Go deeper: Get smarter, faster on the growing field of climate tech with our free short course.

Updated 47 mins ago - World

Biden cleans up comments about Russia invading Ukraine

Photo: Doug Mills-Pool/Getty Images

President Biden sought to clarify his suggestion that a "minor incursion" by Russia into Ukraine may not draw the same response as a large invasion, telling reporters Thursday that "Russia will pay a heavy price" if any troops cross the border.

Why it matters: Some officials in Kyiv saw Biden's comments as inviting Russian aggression.

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