Transparency in reporting is essential for energy companies but not happening yet

See for complete article on climate risk in business reporting, 9 Dec 2016

Among the issues being investigated by the attorney general of New York, Eric Schneiderman, in his continuing probe of Exxon, is whether the company has adequately disclosed to investors all that it knows about the risks it faces from climate change.

In another development showing how murky current disclosures can be, the World Resources Institute published a template that it said would allow fossil fuel companies to more candidly set forth how much greenhouse gases would be added to the earth’s heat-trapping blanket of pollution if all their reserves were to be produced and burned. As things stand, WRI said, not a single oil or gas company explains this to their investors. If investors fully understood this issue, they might see more clearly that some companies might not be worth as much as thought, because some of their assets are likely to be stranded when emissions are limited.

It’s senseless to brush off the severity of the global warming problem or to fuzz over the problems it poses to investors, the Financial Stability Board’s task force warned. A head-in-the-sand approach invites an eventual economic upheaval along the lines of the recent Great Recession as fossil fuel reserves become the sub-prime mortgages of the next financial crisis.

“Potential shocks and losses in value,” the report said, “include the economic impact of precipitous changes in energy use and the revaluation of carbon-intensive assets—real and financial assets whose value depends on the extraction or use of fossil fuels.”

The task force’s recommendations are aimed not only at big fossil fuel companies, but at the banks, insurance companies, investment managers and shareholders, who “sit at the top of the investment chain and, therefore, have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures,” the report said.