New Report Says Small and Midcap Companies Vulnerable on Climate Risk
Rates sectors on their companies' communication of climate change-related risk to investors
PORTSMOUTH, N.H.///January 5, 2011/// Pax World Management LLC, investment adviser to Pax World Funds (Pax World) and a leader in the field of Sustainable Investing, and Clean Air-Cool Planet (CA-CP), a non-profit organization dedicated to delivering solutions to global warming, have released a new report, "Risk and Opportunity in a Low-Carbon Business Climate: Small & Mid-Caps and Climate Change." The report assesses the degree to which smaller companies inform their investors of business risks and opportunities related to climate change.
The report notes that reporting on any of several types of climate-related risk is generally inadequate among smaller companies, and that what reporting is done is generally limited to only regulatory risk, while ignoring other potential risks (e.g. physical, business interruption or supply chain, etc.).
Disclosure of the potential impacts of climate change on business viability and plans has been growing steadily for several years among larger companies, partly in response to several prominent voluntary initiatives, including the annual survey of the Carbon Disclosure Project (CDP) and shareholder campaigns on the part of asset managers and owners through groups like the Investor Network on Climate Risk (INCR). Among smaller companies in the United States, reporting is far from the norm and often cursory when it does exist. Yet these companies face new regulatory requirements and possible risks already. Sectors that tend to emit higher amounts of greenhouse gases are likely to be affected by the fast-developing regulatory environment. Moreover, any company may be vulnerable to the effects of more severe weather, such as the increased likelihood and/or persistence of droughts, floods, fires, or sea level rise.
The report makes several recommendations:
Industry trade groups should undertake an effort to develop reporting guidelines for smaller companies.Asset managers and investment counselors should make a practice of noting the absence of climate-risk reporting, thus creating an enhanced incentive for smaller companies to report – and pointing out the potential investment advantages of acting on climate change risks and reporting that action.Investment organizations and businesses and groups working on sustainability or climate issues should offer guidance to smaller companies in order to promote reporting standards, efficiency and effectiveness.
"The regulatory environment is becoming more challenging for companies that have not yet undertaken assessments of the potential risks associated with climate change and regulations aimed at mitigating emissions," said Pax World President and CEO Joe Keefe. "As investors, we believe those companies that are transparent about the risks as well as opportunities as the climate changes are better positioned to thrive in the long run than their less forthcoming competitors."
In 2011, many businesses will be obliged to report greenhouse gas emissions under new Environmental Protection Agency regulations, and the agency has also announced the first of what promises to be a much larger set of regulations aimed at curbing actual emissions. Also, in 2010, the Securities and Exchange Commission issued interpretive guidance discussing how companies could report on climate-related risks and opportunities. In addition, while mitigation of emissions is still a primary focus, all companies – and their investors – must begin to think about adapting to the physical realities of climate change.
"Forward-looking businesses understand the need for greenhouse gas reporting under regulation or legislation," said CA-CP CEO Adam Markham. "Businesses want transparency, predictability and clarity, and the sooner the better. They do not want to see a patch work of laws or regulations and reporting requirements."
The report can be downloaded from www.cleanair-coolplanet.org/documents/risk.pdf.
About Pax World Management LLC
Pax World Management LLC, the investment adviser to Pax World Funds, is a recognized leader in Sustainable Investing, the full integration of environmental, social and governance (ESG) factors into investment analysis and decision making. Pax World launched the financial industry's first socially responsible mutual fund in 1971. Today, Pax World offers a wide range of investment products including a family of no-load mutual funds across a range of asset classes; ESG Managers ™ Portfolios, a family of asset allocation funds with asset allocation, manager selection and portfolio construction by Morningstar Associates; ESG Shares, the first family of ETFs devoted exclusively to a Sustainable Investing approach; and separately managed accounts for institutional investors. For more information, visit www.paxworld.com/.
About Clean Air – Cool Planet
Clean Air-Cool Planet is the leading science-based, non-partisan, non-profit organization dedicated solely to delivering solutions to global warming, by developing and promoting economically efficient and innovative climate policies and providing hands-on assistance to companies, campuses, and communities to help them reduce their carbon emissions. Find out more at www.cleanair-coolplanet.org/.
Separately managed accounts and related advisory services are provided by Pax World Management LLC, a federally registered investment adviser. ALPS Distributors, Inc. is not the distributor for Pax World's separately managed accounts.