Watch Companies Ahead of the Climate Curve

The Securities & Exchange Commission was designed to require public companies to make material disclosures for investors. Although SEC filings are known for dense and daunting legalese, those filings are a major tool to help investors perform in-depth analysis.

However, the SEC has been slow to implement climate change disclosure, which has been in the works for years. Although more and more companies are addressing sustainability and climate change, many still lag on revealing the information investors really need to know: the potential for related financial and business impacts.

For those investors who don't feel this is an important factor, consider that the topic relates to risks and opportunities. Strong SEC disclosure rules would push public companies that are ignoring the ramifications to address the topic, and they would also standardize the information to help investors make more informed decisions.

Hot-button issue gets a cool-down
Ceres, a nonprofit organization that seeks to drive business and investor leadership on climate change, water scarcity, and other sustainability challenges, has released a report called "Cool Response: The SEC and Corporate Climate Change Reporting: SEC Climate Guidance & S&P 500 Reporting: 2010-2013" (download the full report here).

Extreme weather events, resource scarcity, and other changes can impact many industries, including insurance, oil and gas, transportation, agriculture, and many more. For investors with a close eye on public companies and their own investments over the long term, we can glean two things:

  • Companies that aren't addressing these issues will be slammed with costs, including physical damage and dwindling key resources.
  • Companies that are aware and prepared will reduce costs by preserving resources for their businesses through innovative means.

Responsibility in oil and gas
Although many companies discuss environmental initiatives in their annual corporate social-responsibility reports, it's rarely as robust a discussion as it could be.

The oil and gas industry doesn't have a great reputation among socially conscious investors. However, Ceres noted that the oil and gas industry actually has the best response rate on the topic in their form 10-Ks.

Noble Energy (NYSE: NBL  ) provided the most detailed disclosure on climate change and its business ramifications. Noble Energy's climate change disclosure in its latest Form 10-K is about 1,200 words -- that's longer than this column.

Much of Noble Energy's disclosure focuses on risks. However, here's an interesting nugget from the filing that bears noticing: "In terms of opportunities, the regulation of GHGs and introduction of formal technology incentives, such as enhanced oil recovery, carbon sequestration and low carbon fuel standards, could benefit us in a variety of ways."

The risks related to crude oil, nuclear power, and the possible increase in renewable energy that would likely need backup to maintain electricity supply, and the need for alternative transportation fuels would all positively benefit its natural gas business, which represented 54% of its total sales volumes from operations in 2012.

Stealth sustainability
Ceres' report called out Lockheed Martin (NYSE: LMT  ) as lacking much discussion on climate change in its Form 10-K, with just three lines addressing the issue. This is odd, as Lockheed has plenty of interesting "green initiatives," and the Carbon Disclosure Initiative named Lockheed one of the top companies among 56 it surveyed in addressing climate change in its operations.

Through its "Go Green" goals, Lockheed Martin generated $20.6 million in reinvestment opportunities through its work cutting energy and water use, and it has established more aggressive goals for 2020, including more cuts in carbon emissions and the amounts of waste to landfills and use of water.

It's interesting that while Lockheed appears to be strongly tackling the issue, it hasn't done much to disclose climate change's impacts in its Form 10-K.

A noble stock idea?
Given the SEC's "cool response" to climate change disclosure, as Ceres points out, it's not surprising that 41% of S&P 500 companies didn't mention climate change at all in their Form 10-K annual reports last year. The SEC's limited efforts don't exactly push companies to push forward in this area.

However, although the concept of increased regulation of any kind spooks many people, 100 institutional investors representing $7.6 trillion in assets have supported guidance for such disclosures. This is not exactly a fringe concern.

There's no perfect in investing in companies taking sustainability and social issues into serious account. Few companies have designed themselves to boost sales and profits by hitting on all cylinders on concerns like these.

If one is interested in investing in the oil and gas industry, Noble Energy's particular style here makes it an interesting candidate for further analysis. Its management has obviously been thinking long and hard about this issue, and analyzing at length both the risks and the opportunities. This signals a management team that has a big-picture, strategic view -- and could serve as inspiration for others in its industry and beyond. On the other hand, those who are terribly concerned about the controversial fracking issue should keep that in mind, too.

Regardless, there should be increasing emphasis on giving investors the information to make sure the companies they own are prepared for risks and envisioning the benefits of responsibility. Then investors' portfolios will be prepared -- and growth opportunities will be increased, too.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2014, at 8:58 PM, damilkman wrote:

    I would be curious if companies define their telecommuting policies in their SEC filings. I find it hilarious that some companies will declare their "greeness" by having battery recycling drives yet corporate insists that everyone drive to the office every single day. Oil companies may be evil. But so is 99% of corporate America who believe business only gets done in the bathrooms and water coolers and thus forces their entire employee base to drive to remote offices even if there is no one of relevance for them to communicate with.

  • Report this Comment On February 17, 2014, at 7:30 AM, Mathman6577 wrote:

    I'd like to know the carbon footprint of former and present members of the Government-Hollywood climate preaching society like Obama, Gore, Kerry, Damon, Penn, etc. And do they provide an accounting of their private jet and Air Force One travels? Don't think so.

  • Report this Comment On February 17, 2014, at 3:25 PM, lemoneater wrote:

    I'd imagine that companies such as Compass Minerals (sells salt for de-icing roads, and minerals for pools) and Douglas Dynamics (sells snow plows and turf machines) both of which I have are much more seasonally savy and much more aware of the curve balls climate can throw since weather is an opportunity/risk for them.

  • Report this Comment On February 21, 2014, at 6:40 AM, sabertoothtiger2 wrote:

    On the opportunity side of the equation, it appears that clean energy investments may finally have some good traction after crashing a few years ago. I decided to invest 10 percent of my net worth in clean energy starting the end of 2012 and have nothing but solid gains from my main choices: TSLA, SPWR, and SCTY. Motley Fool advice has been extremely valuable for me in this area -- thank you, MF, and thank you Alyce for continuing to cover this important topic.

  • Report this Comment On February 21, 2014, at 6:45 AM, sabertoothtiger2 wrote:

    On the risk side, I would note that there's a real possibility we will need to leave 75-80% of known fossil fuel reserves in the ground to prevent unacceptable levels of global warming and its various harmful impacts.

    Anyone wanting to manage their investment risks should consider that possibility.

    How likely is it? Make your best judgement and act accordingly. Those who are closest to the truth will come out ahead.

  • Report this Comment On February 21, 2014, at 8:14 AM, Mathman6577 wrote:

    @sabertoothtiger2: The oil and nat gas will never be left in the ground. There's a funny thing called the U.S. Constitution which would get in the way of the greenies if they tried to prevent that from happening. There is nothing wrong with developing and investing alternative sources of energy either if it is feasible or doesn't involve the government picking and choosing the winners and losers (their track record is dismal in this area: Solyndra, A123 Systems, etc.) and taxing companies and individuals to get their way. The market will sort it out in the end. Solar, wind power, etc. are not yet economically viable (yet) on a big scale. Some companies are doing it (e.g. Apple w/ solar farms powering their data centers).

  • Report this Comment On February 21, 2014, at 9:13 AM, BillFromNY wrote:

    I'm afraid that public concern in the U.S. has left the room with Al Gore.

    This, from a 2011 poll:

    What may surprise some, given the broad exposure the issue has received in recent years, is that global warming ranks lowest — consistent with other Gallup polling — with barely half of Americans concerned and 48% only a little or not at all concerned.

    And from last year:

    • A January 2013 Pew poll found that only 28 percent of Americans believe that dealing with global warming should be a top priority for President Obama and Congress. Global warming ranked last among the 21 issues Pew asked about.

    Really, how can you expect Americans to be concerned about global warming in the midst of the coldest winter in years? And global warming, if it plays out as predicted by many scientists, is coming on very gradually and would not have any serious deleterious effects until after all of us have been in the ground for many years.

    I get more upset when I see the images of millions of impoverished poor living in poor countries dying of starvation, AIDS, malaria, and many other diseases. This is a problem that we could be addressing right now, but there is no constituency for it, partly because of the current slowness of the US economy that has forced many people to downsize their new flat screen HD television from 55 inches to 48.

  • Report this Comment On February 21, 2014, at 3:53 PM, isringhou wrote:

    Climate curve, which curve should we analysis for; the natural evolution of the planet, or the political GHG curve which has been a dominating factor since the Pelosi congress of 2007. Political economics is very real and needs to be studied by all investors and politicians. If government engages in policies which are designed to double the cost of energy (2007), that increase in cost of operations will effect the investment in that national market. When those investments are diverted to other regions of the competitive planet, promotions will be cancelled, jobs will be lost, and the ability to pay the mortgage will be lost. The resulting impact on the banking industry will destroy the credit system. There will be economic repercussions with these political efforts. If the economy is in trouble where new housing or new commercial construction can not be justified, trying to expand the solar industry will be impeded. If the existing architecture can not justify upgrades and new construction is being delayed for better economic conditions, solar demand will also be delayed until the economy improves and architects go back to work to design optimal use for the solar technology (Solyndra). There are real factors to be included in the analysis of our investments. Bill Nye, representing the green side of the argument, recently claimed that the CO2 ratio was at 250 at the beginning of the steam engine age. Other reports claim that trees die at CO2 ratios of 250. Hansen reported that for our environment to develop and survive the CO2 ratio should be 450 +/- 100. Since CO2 is necessary for plant life and we must plan to feed this planet with the growing population of 7 billion, what level of CO2 is optimal? The GHG agenda is pushing for a ratio of 350. Will this ratio support the demand for food? The oceans will rise due to the melting ice caps. Since the ice cap extended to the Ohio river during the last ice age, the melting has been occurring for a long time. The develop of Venice and Istanbul are both over 500 years old and the development of both cities was to the waters edge. What has been the rise of sea water over the past 500 years of ice cap melting? Indonesia has over 7000 islands, what is the change of sea level for these islands over the past 500 years? There are real factors to be considered in our investment decisions and being good steward of the environment should be one. Efforts to be politically correct with a political agenda should be based on accurate information and based on long term impact that correlate with the investment in question.

  • Report this Comment On February 21, 2014, at 4:01 PM, tortoise33 wrote:

    @ Mathman6577, this is an investment site, it's about making money, not about arguing political points of view.

  • Report this Comment On February 21, 2014, at 11:55 PM, isringhou wrote:

    "this is an investment site, it's about making money, not about arguing political points of view." The economy was in a double recession in 2000 - 2001. The economy recovered from 2002 thru 2006 and reach a success level of 4% unemployment and home ownership changed from 62% to 73%. Those numbers are impressive and reflect the investment opportunities of millions of US citizens. The decline from 2007 thru 2012 reveals the home ownership fell from the 73% back to 62%. That number indicates that the investment of 20 million US citizens into the home of their choice was lost along with their credit ratings. Another example is a state teacher retirement fund. That fund had a return on investment from 2001 through 2006 of 12%. From 2007 through 2012 that fund dropped to a return of 1%. Trying to make up the lost earnings from increased contribution is impossible. You can not take politics out of investments.

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