There's growing awareness that climate change threatens the stability of financial markets and presents systemic risks to the U.S. economy. Right now, however, the hundreds of publicly-traded companies in the country are not required to disclose the various ways in which the consequences of a warming planet could threaten their bottom lines. Companies that address climate risks in their annual reports and other public filings choose to do so voluntarily. As a result, many policymakers argue that climate-related disclosures are unreliable, inconsistent, and incomparable across companies, which leaves investors in the dark about the true risks on a company's books.
Those policymakers are beginning to make progress. On Monday, the Securities and Exchange Commission, or SEC, took the first step toward requiring companies to publicly disclose various climate risks. The long-awaited rule requires companies to explain how climate risks may affect their revenues and profitability in public filings they're required by law to submit to the SEC. The independent federal agency, which is intended to protect investors by regulating the stock offerings of public companies, has also proposed requiring that companies disclose any climate-related goals they've set (such as net-zero targets), how climate risks may affect the line items in their financial reports, and whether they're taking action to minimize the effect of climate change on their activities.
