Climate change has been an international talking point for several years. Business sectors are affected by climate change in varying degrees. Some sectors are affected directly, such as agriculture, energy, and insurance and others are affected indirectly, such as banking and investing. There is pressure from investors for companies and governments to acknowledge and begin planning for the effects of climate change.
In reducing greenhouse gas emissions, the economic debate arises from the trade-off between environmental protection and economic prosperity. It is argued that moving away from the use of fossil fuels will hurt economic growth, businesses, and job creation. The problem is that ignoring climate change could have an even more detrimental effect on the economy in the future. In order to address today the future effects of climate change, these risks need to be included in federal budgets and companies need to disclose the impact climate change could have on their business.
In 2010, the Securities and Exchange Commission issued an Interpretive Guidance on climate change disclosure for public companies. Because this is simply guidance, it is not enforceable by the weight of the law. However, it does help to clarify the already existing disclosure requirements as they apply to climate change. Companies are reluctant to make public in their annual 10-K filings the risks that climate change poses to their business. This has become clear in the years following the release of the Guidance as studies show that disclosures have increased in quantity but have decreased in quality. There was an initial 11% increase in the number of climate change disclosures from 2009-2010, but since 2010 each year has only shown a 1% increase in the number of companies mentioning climate change in their annual filing. The companies that are disclosing are mainly providing boilerplate language, which does not provide investors with any real information about company specific climate change risks. This means that either the punishments for not disclosing are not severe enough or that companies are choosing not to invest the time and money to determine the potential effect of climate change.
Simply acknowledging the risk climate change poses is not enough; there must also be action. In order to promote sustainability and clean energy internationally there has to be the creation of new environmentally sound technologies. Intellectual property rights (IPR) have historically been used to encourage the creation of new technologies. There is an argument that they actually hinder climate change technology though, because they (IPR) make affordable access to these technologies more difficult. A 2010 report found that six industrialized countries, including the United States, accounted for 80% of patent filings in clean energy technology. A 2014 United Nations report noted that intellectual property rights could constrain innovation and the transfer of the technologies and skills necessary for use. In order to stall the effects of climate change today, new clean energy technology needs to be provided at affordable prices.
Corporations in the United States need to acknowledge the risks climate change could pose for their company and devote the time and money to prepare. In order to curb the effect climate change is having globally, we need investments to be made in clean energy technology, but it also needs to be made available at a low cost so that it can be implemented immediately. Finding that balance is key. This global climate shift is a time sensitive issue that needs to be addressed sooner rather than later in order to ensure lasting sustainability.
*Emily Morris is a rising second year law student at Wake Forest University School of Law. She holds a Bachelor of Arts in Accounting with minors in Business Administration and Pre-Law from Flagler College in St. Augustine, FL. Upon graduation, she plans to practice corporate and tax law.