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We talked in January about the SEC's disclosure guidance and noted the relevance of the Carbon Disclosure Project. It's almost as if I have a hotline to 40 Bowling Green Lane in London, where the CDP offices are. I receved earlier this week their announcement of the 2010 questionnaire. It has been sent to 4,500 companies globally. The number of institutional investors behind the mailing is over 500 "with a combined US$64 trillion of assets under management."
The email has this to say about the SEC guidance: "CDP welcomes the recent climate change risk disclosure guidance by the Securities and Exchange Commission (SEC); an important step in helping US companies better report material climate change impacts to their investors."
Following one of the links in the email, I proceeded to the CDP webpage, where I learned more. The CDP recognizes one of the critical weaknesses of climate change data in a global marketplace: "There is currently no global carbon disclosure framework and ... to minimize the financial and reporting burden for companies, guidance on disclosure of climate change information must be as harmonized as possible."
To achieve that end, CDP manages the activities of the Climate Disclosure Standards Board (CDSB). The CDSB has prepared a draft Reporting Framework www.cdsb-global.org/uploads/pdf/CDSB_Reporting_Framework.pdf to further the dialogue of disclosure. In the CDSB's words: "the Reporting Framework provides a workable filter for companies to identify, and for investors to see, the major trends and significant events related to climate change that affect a company’s current or future financial condition."
The interesting question in all this is whether at the beginning of the period of climate change, "a workable filter" can be established. To be honest, we do not know all the effects climate change will visit upon us. Yet any measurement system is required to make assumptions about what is and what is not important. What is important is disclosed, what is not important is ignored, even suppressed.
By way of example, the information from which one could have concluded that sub-prime mortgages and collateralized debt obligations were problematic was available throughout the period leading up to the financial meltdown of 2008. The financial markets, investors, corporations and governments had well-developed systems to identify, process and deliver information concerning the risks and opportunities of certain investments. Somehow, however, all the appropriate signals were missed and billions of dollars disappeared overnight.
We need to be aware of this possibility as we move forward with reporting climate change risks and opportunities. Development of a uniform system is no doubt valuable. But if it leads to a failure to identify certain risks because those risks are invisible because of how the framework is drawn, then it does not help, it hurts.
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