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With the threat of climate change gaining greater recognition in the scientific, political, and businesses communities, investors are applying increased pressure on publicly traded corporations to study, analyze, and disclose the risks associated with this threat.

As a result, more publicly traded companies are including environmental risks in their annual reports, which may help investors more accurately judge the physical and financial effects of climate change on these businesses.

The "Call to Action" coalition, which includes the California Public Employees' Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS), the two largest public pension funds in the United States, is lobbying the U.S. Securities and Exchange Commission (SEC) to standardize its rules for risk reporting. The recommended changes would require publicly traded companies to assess the risks and opportunities associated with climate change.

The SEC currently requires companies to disclose as risk any trends, events, or uncertainties likely to cause a material effect on their financial position or performance in the present or foreseeable future. This definition does not yet specify that companies must include the risks inherent in climate change in their filings.

Jim Coburn, a representative of CERES, a network of environmental organizations and investors and a member of the coalition, said the coalition is asking the SEC to clarify that climate change be included in areas of potential risk for companies. Because the SEC already requires companies to assess risks in other areas, he said, an order requiring corporations to include climate risk in their reports would not require any legislation.

A 2007 study by CERES and the Calvert Group, an asset management firm, found that half of the 500 largest U.S. corporations were doing a "poor" job of disclosing the risks of climate change to their investors, mentioning them little or not at all. Many companies, however, have voluntarily chosen to include climate change in their risk assessments. An analysis by the publication Politico found that in the first quarter of 2008, the words "climate change" were mentioned 7,634 times in companies' SEC filings. In the first quarter of 2007, that phrase was used only 536 times.

Companies around the world are facing similar pressure. A global survey by the Economist Intelligence Unit found that, of 320 risk managers questioned, the majority said they are increasing the amount of resources dedicated to environmental risk management, which includes climate change. However, fewer than half of the respondents said they undertake a formal environmental assessment when developing new products or services, and only one-fifth said they do this when considering mergers and acquisitions. In a press release, survey editor Robert Mitchell described many companies as in the "early stages of addressing this issue."

Last October, the U.S. Senate Subcommittee on Securities, Insurance, and Investment held a hearing to address these growing concerns. At this hearing, Russell Read, Chief Investment Officer of CalPERS, described reporting on climate risk as "a legal obligation and a necessity for investors" because of its potential financial effects.

In its recent petition, the Call for Action coalition noted that one of the companies that has not openly addressed the risks of climate change is ExxonMobil, the world's largest producer of petrochemicals. ExxonMobil mentioned climate change only once in its 2007 Form 10-K report to the SEC, saying it is a possible risk that cannot be quantified.

Alan Jeffers, a spokesman for ExxonMobil, described climate change as a potential risk that his company is "unable to quantify" and chose not to analyze. "Our annual filing covers what is required by SEC regulation, so if something is not required by SEC regulation, we don't include it," he said.


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