Are You Carbon Beta Rated?

Yesterday, the Securities and Exchange Commission issued new regulations requiring businesses to disclose information about any risks due to climate change that they may face. As the Washington Post reports:

The commission, in a 3 to 2 vote, decided to require that companies disclose in their public filings the impact of climate change on their businesses -- from new regulations or legislation they may face domestically or abroad to potential changes in economic trends or physical risks to a company.

The biggest climate change risks faced by companies are not shifts in the weather, but arbitrary changes in regulatory schemes. As I noted in my 2008 article for Chief Executive magazine on the topic:

Probably the biggest risk faced by investors is fickle regulators. Agencies and Congress can change the rationing rules at any time. Consider the recent case of EcoSecurities in London, which aimed to create millions of carbon credits to sell in European markets by investing in projects that cut greenhouse gas emissions in developing countries. The United Nations climate change bureaucracy disallowed some of its projects, causing EcoSecurities' share price to crash by 50 percent last November.

The New York-based consultancy Innovest Strategic Value Advisors evaluates the performance of companies with regard to environmental, social and strategic governance issues and their impact on competitiveness, profitability and share price performance. To that end, Innovest has created a proprietary Carbon Beta rating that calculates the net carbon exposure of a firm, taking into consideration current and potential regulatory frameworks faced by companies as they operate around the globe. The Carbon Beta rating also estimates the carbon compliance cost of a company, as a percentage of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). EBITDA is a widely used measure of financial performance that is intended as a measure of the cash generated by the operations of a business. Just like bond ratings, an AAA from Innovest indicates that a company has lower net carbon risk for investors than its same sector peers. According to Innovest president Hewson Baltzell, its analysts look at three different types of risk in a carbon rationed world: (1) direct risks, mainly through carbon caps, (2) indirect risks arising from increased costs of electricity and supplies and (3) market risks stemming from things like changes in consumer behavior, e.g., a shift to smaller, higher mileage automobiles. …

The advent of carbon rationing and permanently higher fuel prices is going to produce far-reaching changes in the way companies do business. In March, Energy and Air Quality Subcommittee member Rep. Mike Doyle told the Capitol Hill newspaper Roll Call, "You are either at the table or on the menu." Mixing his metaphors, Doyle added, "This train is leaving the station." CEOs must now figure out how to make sure that carbon rationing train doesn't run them over.

Here's the question: Are SEC regulations really necessary? If investors actually thought climate change information was relevant to their decisions they could always use Innovest's (or other services') information to evaluate those risks.

Comments

[Max]

It's just a lame attempt to promote environmentalism.

[P Brooks]

I think the SEC is just trying to look busy (and relevant).

[LibertyGal]

Naw. It's not just the SEC trying to look busy. Follow the $$. Someone who will financially benefit from the global warming hoax has lobbied the SEC to do this. It takes a carbon credit trading greedy scumbag to force poor and middle income class taxpayers to pay 42 cents per kw/hr instead of 12 cents for energy under the myth of global warming.

[?]

Are SEC regulations really necessary?

If the point is (and it is) to determine and enforce who's "at the table or on the menu," yes. Markets don't do that.

[Episiarch]

Doesn't this seem strangely anti-environmentalist? Won't companies now be saying officially, in their reports, something to the effect of "climate change regulation will hurt us", a lot more than they would have?

[R C Dean]

The commission, in a 3 to 2 vote, decided to require that companies disclose in their public filings the impact of climate change on their businesses

We regard climate change (whatever that means) as imposing no discernable marginal risk to our operations or profitability, just as we regard unicorn infestations as imposing no discernable marginal risk to our operations or profitability.

However, investors should be aware that regulatory agencies or the legislature are prone to making irrational and arbitrary laws and regulations regarding climate change (whatever that means), and that the regulatory risk in this area may be somewhat greater than in other areas, given the opportunism and low IQ prevalent in such bodies.

[DanD]

I would love to see that in a filing. That would make my decade.

[LibertyGal]

Good. Now the CEOs have a chance to hire Patrick Michaels and climatologists which the lying UN and Climategate scientists' tried to discredit to get the message across that CO2 is life giving. We're not talking about Carbon monoxide, the poison which Gore wants you to think it as.

[Gilbert Martin]

How can companies "disclose" risks that cannot be quantified?

[fresno dan]

"about ANY risks due to climate CHANGE that they MAY face."
So, if you make refrigerators, and there is another ice age, you go bankrupt?
O! Your really suppose to say all the danger is from global warming?

[Old Mexican]

The New York-based consultancy Innovest Strategic Value Advisors evaluates the performance of companies with regard to environmental, social and strategic governance issues and their impact on competitiveness, profitability and share price performance.

Quackery alert!

[Old Mexican]

The advent of carbon rationing and permanently higher fuel prices is going to produce far-reaching changes in the way companies do business.

Yes - they will leave.

[Old Mexican]

The commission, in a 3 to 2 vote, decided to require that companies disclose in their public filings the impact of climate change on their businesses -- from new regulations or legislation they may face domestically or abroad to potential changes in economic trends or physical risks to a company.

Does the SEC know how enormously expensive such gathering of information would be?

Oh . . . they know - they are Obama's lapdogs, so they have to know.

Another issue - how is a company to know the impact climate change will have in their business, if the IPCC's own scientists systematically lie about the impact?

[Tyler]

"Are SEC regulations really necessary?"

Oh heavens yes. Why, how could I sleep at night without these brave public servants restricting greedy capitalist businessmen from sneaking into my bedroom at night and selfishly dumping copious amounts of greenhouse gases on my face? And then exploiting me with their ownership of capital! Exploiting, I say!

[Fred Beloit]

Memo To SEC:

Because the entire scheme to foist a climate scare upon the people of the world has been discovered as a conspiracy, we fully expect MGW to have no impact on our business whatsoever, in spite of what our stateist President says.

From: CEO DEF, Inc