Study Reveals Cost of Climate Disclosure for Issuers and Investors
Corporate Issuers are currently spending an average of more than $675,000 per year on climate-related disclosures, and institutional investors are spending nearly $1.4 million on average to collect, analyze and report climate data, according to a new survey released by the SustainAbility Institute by ERM.
The new study, aimed at informing climate disclosure guidelines and methods being developed by regulators, standard setters and firms, explored the costs and benefits perceived by corporate issues and institutional investors of climate-related disclosures. The report was based on results from a survey, commissioned by sustainability-focused nonprofit Ceres and Climate Management & Accounting Platform company Persefoni, and designed by ERM practitioners. The survey gathered data from 39 corporate issuers from across multiple U.S. sectors, with a market cap range of under $1 billion to over $200 billion, and 35 institutional investors representing a total of $7.2 trillion of AUM.
The survey comes as companies are facing increasing pressure to provide climate-related disclosures from multiple stakeholders, and particularly from regulators, who are increasingly introducing mandatory climate reporting rules. In March, the SEC became the latest to unveil its proposed climate disclosure rules.
The survey found that the corporate issuers on average are spending $677,000 per year on climate-related disclosure activities, with the largest cost categories including greenhouse gas (GHG) analysis and disclosure ($237,000 on average), climate scenario analysis ($154,000) and internal climate risk management controls ($148,000).
The SEC has released its own estimates for complying with its proposed rules, predicting first year costs at $640,000, and annual ongoing costs for issuers at $530,000. The study explored the specific elements covered by the SEC requirements, and found that issuers on average spend $533,000 on these, in line with the SEC estimates. Elements not included in the SEC requirements included costs related to proxy responses to climate-related shareholder proposals, and costs for activities including developing and reporting on low-carbon transition plans, and for stakeholder engagement and government relations.
Kentaro Kawamori, CEO of Persefoni said:
“There has been considerable discussion regarding the potential costs associated with compliance with the SEC’s proposed rule on climate disclosures. Helping fill the information gap, ERM’s survey found that what corporate issuers already spend on the climate-related disclosure activities that would be required by the SEC is comparable to the SEC’s own assessment.”
Institutional investors are spending $1.372 million on average to collect, analyze, and report climate data, according to the survey. The major spend categories for the investors included external ESG ratings, data providers and consultants ($487,000 on average), in-house, outside counsel, and proxy solicitor analysis ($405,000) and internal climate-related investment analysis ($357,000).
The survey also asked the issuers and investors to rank the benefits provided by climate-related disclosures and impact assessments. For issuers, the top-ranked benefits included better performance in meeting sustainability, climate, ESG and SDG goals, followed by better access to data capable of enhancing corporate strategy, and better relationships and reputation with NGOs, non-profits and civil society. For investors, the top-ranked benefit was meeting client demand for climate disclosure and related products, followed by better performance in meeting sustainability, climate, ESG, and SDG goals, reduced risk, and improved financial performance.
The top 3 uses of climate data reported by investors included shareholder engagement, proxy voting decisions, and the management of portfolio-wide risks.
Mark Lee, Director of the SustainAbility Institute by ERM said:
“This survey shows that both companies and investors recognize the benefits of disclosing their climate-related activities. It also offers a rare glimpse into issuer and investors’ current investments in measurement, analysis, and disclosure of climate-related information, which will be a valuable resource for organizations considering their response to the proposed SEC rules.”
Click here to access the survey results.