Climate:

Md. Treasurer Kopp discusses SEC guidance on corporate climate disclosure

In late January, the Securities and Exchange Commission voted 3-2 to issue interpretive guidance saying companies should explain the impacts of climate change and climate regulation on their financial disclosure forms. Since the ruling, a debate has erupted over whether the SEC is trying to promote the Obama administration's climate agenda through its regulation. During today's OnPoint, Maryland State Treasurer Nancy Kopp explains why she believes information about climate-related risks is so critical for investors. She also gives her take on proposed legislation that seeks to nullify the SEC interpretive guidance.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Maryland State Treasurer, Nancy Kopp. Treasurer Kopp also chairs the board of trustees for Maryland's $33 billion pension fund. Thanks for joining me today.

Nancy Kopp: Monica, it's a pleasure.

Monica Trauzzi: In late January the SEC voted three to two to issue interpretive guidance, saying companies should explain the impact of climate change and climate regulation on their bottom lines. Since the ruling we've seen a huge debate erupt over whether the SEC is trying to promote some kind of political agenda through its regulation. Why do you believe that this is a critical move for the SEC to be making?

Nancy Kopp: I think it was a very, very important, positive move and I say that because I have been working for a number of years with a large number of other investors, people who are responsible for over a trillion dollars in pension funds, endowment funds, and other large investment trusts. And one of our concerns is that when large public corporations file their official filings, that all material risks and material events be disclosed. That is the law. That's going back for some time. But the question is whether the filings are comparable and whether they include the things that are not just for this week or next week, but are very important, significant events and concerns that impact the value of our investments. And the impact of climate change, both the physical impact, you're talking about impact on buildings, impact on coastlines, the regulatory or legislative impact. Are the companies aware of the discussion going on? Do they know, either domestic companies or international, what regulatory things are being talked about right now? We need to know that as investors. We want to know that our companies are well managed and the people are planning ahead. And the problem, the reason we are so pleased with this guidance, it is simply guidance, it's not adding on any new requirement, but it's making clearer to the boards and to the managers of public companies what is expected. So that when we look at their reports we can compare one company to another. And we need that.

Monica Trauzzi: Is it somewhat premature though since there isn't legislation on the books and things are still being discussed, we don't know what kind of regulation we're going to have?

Nancy Kopp: Well, I don't believe so, because there already is a mandate on the books that material events and material impacts should be disclosed. There was no question about that. The question is more a guidance of how to do it and how to make sure that everybody is seen within the same framework. And I think that's what the SEC provided. They didn't do anything new in terms of the law actually.

Monica Trauzzi: So, one of the big questions is, is the SEC trying to push the Obama administration's political agenda through their regulation?

Nancy Kopp: Well, I don't think so. We started talking about this, first of all, before Mr. Obama was anywhere near the White House. No, I think that they are simply trying to clarify what should be reported so that we, the investor, can look at the companies and know that they are all looking at the same impacts, the same investment environment. One of the problems was that a number of companies did make disclosures in the past, not necessarily in their official disclosures, but in reports and other things, a large and growing number of companies, because they know that different aspects of this climate change risk issue, whether you're talking about a physical risk, insurance companies for instance, major energy companies, whether it's the physical risk or the legal, regulatory risk, the international regulatory risk, some reported, some didn't. Some reported one way, some reported another way. And that's not useful for the investor. We have to be able to see something in a context of comparability and that's what this has given us. This is not taking a decision and we don't have a position on the science of climate change. We just want to know that the companies we invest in are looking at both the short term, the medium term, and the long term when they are allocating their resources and making decisions. Let me just fit in one more thing. We're very interested in the next generation of American industry, whether you call it green industry, innovation, whatever. We want to know the companies we are thinking of investing in are also interested.

Monica Trauzzi: So, how does the SEC's guidance then change the game for corporations?

Nancy Kopp: OK, I think it does simply in making things more comparable, putting everything on a level playing field. As I said, it doesn't change the law about what should be disclosed. It helps set out a framework to give guidance on examples of how things, in this area of global climate change risk, should be disclosed. So, to me, once the companies absorb this and begin factoring it into their normal disclosure, which started happening last month, I think they're going to find that it actually helps people compete on a more even basis and allows the investor to have the information that they need to make sure that our free-market economy works. Because the SEC is there to protect the investor and to assure that everyone has the same free flow of information.

Monica Trauzzi: Senator Barrasso has introduced legislation that seeks to nullify the interpretive guidance that the SEC has put out on this. First of all, does Congress have the authority to do that?

Nancy Kopp: Well, Congress created the SEC. I'm not an attorney and I don't know, but I suppose the Congress that created the SEC can undo the SEC. I think it's extremely unwise.

Monica Trauzzi: What are your thoughts on the legislation itself?

Nancy Kopp: Well, we support this disclosure of material risks and if you have legislation saying that the SEC should not inform the investor or protect the investor, that there is an area that's cordoned off, that even though it may be in fact a material risks, it shouldn't be disclosed, I don't think that's in the interest of the investor and all of the funds that are dependent on information.

Monica Trauzzi: OK, we're going to end it right there. Thank you for coming on the show.

Nancy Kopp: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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