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After years of conference room discussions and think tank white papers calling for new rules to push companies to detail the risk climate change poses to their business, a new era of climate disclosure is finally upon us.
Over the last year, rules requiring companies to publicly outline their climate vulnerabilities and plans to decarbonize have taken off. The European Union’s climate disclosure rule, which goes into effect in January, will require companies to disclose material risks that climate change poses to corporate bottom lines as well as how companies’ operations materially impact the environment. The U.S. Securities and Exchange Commission is finalizing a proposal to make companies disclose their climate risk. And in September, the legislature of California, often an environmental leader, passed its own version of such a policy, which Governor Gavin Newsom has said he will sign in the coming days.
Since most major companies do business in many, if not all, of these jurisdictions, the new rules will ripple across the globe, collectively representing a new regime that doesn’t rely on voluntary disclosure but rather requires companies to deliver the hard facts on how they’re approaching climate change.
The corporate world has been split on this emerging trend. Companies who are already adapting to climate change support it, given that the rules will help the public identify which businesses are doing well and, in doing so, create new benchmarks for companies and industries. But on the other hand, some companies fear these disclosures will uncover negative things about their operations. Companies that claim to be immune to the damage wrought by extreme weather will be forced to look more closely and publicly acknowledge their vulnerabilities. Meanwhile, companies falsely claiming to lead on the transition—greenwashing, in other words—will have their deception revealed.
A paper published in the journal Science earlier this year found a wide gulf between the best- and worst-performing companies on decarbonization. Researchers looked at data from 15,000 public companies around the world and compared the monetary cost of the climate damage they cause relative to the profit they generate. They found that the worst polluters cost the global economy significantly more in climate-related damages than companies that pollute less.
Study author Michael Greenstone, a professor of economics at the University of Chicago, boils it down to: “Some firms are making the same things as peers, but they’re doing it in a much dirtier way.”
The Science study doesn’t name names, but as disclosure rules take effect we’ll soon be able to put names to numbers. From the outset, that information should help consumers and businesses make climate-friendly choices. Perhaps more importantly, it will reveal verifiable climate leaders for others to follow—and provide insight into the low-hanging fruit that others can follow.
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Write to Justin Worland at firstname.lastname@example.org