Discussions about climate change are no longer confined at political and environmental forums.

For public companies based in the United States, changes in weather conditions, global warming and other ecological problems are now required to be part of the corporate agenda.

Early this year, the US Securities and Exchange Commission ordered reporting corporations to disclose in their annual reports the risks that climate change poses on their financial condition.

At present, the risks that corporate regulators in many countries require to be disclosed by companies that sell securities to the public are those that may directly affect their ability to meet their credit obligations on the promised dates.

These risks include, among others, regulatory supervision over the business, competition, paying capacity of the target market and credit standing of the company.

By stating those risks in the offer documents, the investors can make an informed judgment on whether or not to buy the stocks or securities of the company. As the saying goes, caveat emptor or let the buyer beware.

Thus, if any of the risks happens and sours the investment, the investors cannot blame the company (or the regulator) for their losses.

Adverse effects

Under the US SEC guidelines, the companies are obliged to spell out the actual and potential material impact of environmental matters on their business.

In the case, for instance, of an insurance company, it may have to take into account the possibility of insurance claims going up in coastal areas that may be subjected to severe weather or changes in sea levels.

After identifying those risks, the company has to determine what existing laws and regulations on climate change would have a material effect on its operations.

If there are pending legislation or rules that have the potential of affecting the company’s bottom line, notice to that effect must also be made in the annual report.

In a concession to globalization, the SEC guidelines further provide that the risks or effects on business of international accords and treaties relating to climate change that may be material to the company should be similarly disclosed.

Even technological, political and scientific developments on climate change that may give rise to new opportunities or risks have to be taken into consideration.

Thus, for example, a company may lose the patronage of its ecology-conscious customers if it makes products that produce significant gas emissions, or enjoy higher customer demand if its products meet Greenpeace standards.

Information

The objective of the 'climate change risks' disclosure is to provide investors with timely and material information about the possible impact of the present ecological problem on the businesses they plan to invest in or may have put their money.

Are the companies prepared to meet the challenges of global warming? Will their products remain viable despite the laws that require substantial carbon footprint reduction? Considering the company’s climate change risks, are its projected returns on investment still realistic or achievable?

This disclosure requirement is expected to boost the efforts of environmentalist groups to make companies more conscious about their moral and legal obligation to protect the environment, even if it would, in the short run, result to lower profits.

Without being explicit about it, the SEC guidelines are aimed at making the companies concerned more conscious about their social responsibility to the public.

Local concerns

To the credit of the Philippines' local business community, climate change risks (although not in detail) already form part of the annual reports or information statements of some companies that offer securities to the public.

This practice is most noticeable in companies engaged in the exploitation and development of natural resources, or whose business requires the steady supply of clean water or quality forest products.

Without sounding alarmist, these companies inform their stockholders and creditors that their principal source of profits is finite or subject to environmental factors beyond the corporation’s control.

In the same breath, however, they state the measures being undertaken or will be taken in the future to mitigate the adverse effects of climate or environmental changes on their business.

But the question often asked, here and abroad, of companies that make environment protection part of their business agenda is whether that show of concern is genuine, or is merely a ploy to sweeten the company’s image before the public eye.

The public persona of a company is not necessarily its true self. To gain good publicity (which could translate to higher customer patronage), a company will not hesitate to project itself as an advocate of environment protection even if the truth is otherwise.

If a company has engaged in pro-environment activities long before it was fashionable to “go green", its claim to be a protector of Mother Earth is credible. If it does not have such credential, its environmental advocacy is suspect.