A Look at Climate Change Disclosures
Last month we had a post about Pacific Gas & Electric’s disclosures related to California wildfires and to climate change generally. Those disclosures (across multiple filing periods) were fairly extensive: they cited wildfires specifically, and connected the dots from climate change to extreme weather events to wildfires squeezing PG&E ($PGE) operations financially.
So as the 2019 proxy season starts warming up (no pun intended), we wondered what other firms have been saying about climate change lately. By the way, if you want to be able to do some of these look-ups yourself, here is a handy tutorial
Some firms say a lot about current or probable regulation, without saying much about how those regulations affect the firm itself. For example, paper and packaging manufacturer WestRock ($WRK) included more than 1,000 words about climate change in its most recent annual report. The disclosure ranged from requirements under the Paris Accords, to possible changes to Clean Air Act regulations, to greenhouse gas trading schemes in Quebec.
Useful to know, but how do all those rules specifically affect WestRock? The company said only this:
The regulation of climate change continues to develop in the areas of the world where we conduct business. We have systems in place for tracking the GHG emissions from our energy-intensive facilities, and we carefully monitor developments in climate change laws, regulations and policies to assess the potential impact of such developments on our results of operations, financial condition, cash flows and disclosure obligations.
Still, that’s more disclosure than what Tyson Foods ($TSN) had to say. The company cited the existence of environmental regulation and the possibility that more regulation could cost Tyson more money, but that’s about it:
Increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change may result in increased compliance costs, capital expenditures and other financial obligations for us. We use natural gas, diesel fuel and electricity in the manufacturing and distribution of our products. Legislation or regulation affecting these inputs could materially affect our profitability. In addition, climate change could affect our ability to procure needed commodities at costs and in quantities we currently experience and may require us to make additional unplanned capital expenditures.
We were hoping for a statistic about cows and their, um, methane production. No such luck.
Starbucks ($SBUX) mentioned climate change only once, in passing: “The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, such as weather (including the potential effects of climate change)...” Other firms, such as Apple, made similar disclosures that simply noted climate change could cause big weather problems, which could disrupt operations. That’s not wrong, although not particularly detailed, either.
Meanwhile, Air Products & Chemicals ($APD) gives a more precise discussion of how its products and operations create carbon dioxide, and which regulations therefore might affect its business:
We are the world’s leading supplier of hydrogen, the primary use of which is the production of ultra-low sulfur transportation fuels that have significantly reduced transportation emissions and helped improve human health. To make the high volumes of hydrogen needed by our customers, we use steam methane reforming, which releases carbon dioxide. Some of our operations are within jurisdictions that have or are developing regulatory regimes governing emissions of greenhouse gases ("GHG"), including carbon dioxide…
The company goes on for a few more paragraphs. Again, no discussion of possible financial impact from climate change issues, but it’s still more than what other companies say.
We should note here that SEC rules don’t require companies to disclose specific financial implications of climate change anyway. Guidance published in 2010 only directs companies to discuss the potential implications of environmental regulations in response to climate change, or how climate change might increase or decrease demand for the company’s products.
Little surprise, then, that the disclosures above do veer to discussing regulatory regimes; that’s tangible, and fodder for disclosure. So is the generic boilerplate akin to what Starbucks said, that climate change might ruin the coffee beans.
On the other hand, shareholder activists do push for more climate change disclosure, and proxy season (which will start in another six weeks or so) is when they push. So if anyone is curious to see what companies already disclose, to help you understand how a proxy fight might shake out, our Interactive Disclosures database can be a great place to start. Search “climate change” in the text field on the right-hand side, and see what you find.
