31 March 2022. Climate | Science
New rules on climate disclosure for American businesses. Well, at least they’re on the table | Good viruses.
Welcome to Just Two Things, which I try to publish daily, five days a week. Some links may also appear on my blog from time to time. Links to the main articles are in cross-heads as well as the story. Recent editions are archived and searchable on Wordpress.
1: New rules on climate disclosure for American businesses. Well, at least they’re on the table.
Over at Columbia University’s Climate Law Blog, Romany Webb has been making sense of the American Securities and Exchange Commission proposals on climate change disclosure.
The proposals run to 500 pages and 15,000 words, which I suspect is because if you are going to require American businesses to identify their climate change risks, you’re going to end up defending this position in court sooner or later. It’s one of the costs of a low-trust society.
Back to the proposals in a moment, but it’s worth noting that on the one hand Morningstar welcomed the proposals as providing
investors with much-needed information that will help them make better decisions. Far from being an unnecessary burden on businesses, as some have suggested, it will concentrate the attention of many public companies on how they are going to manage their climate risks between now and midcentury.
On the other hand, at the conservative financial magazine Forbes Steve Forbes—the chairman and CEO of the family-owned magazine—was already railing—under a headline that yelled “Watch Out! SEC Climate Change Disclosure Rule Will Hurt Stocks And Our Economy”—that
the proposed regulation would impose serious and unreasonable burdens not only on businesses but also on their suppliers and customers.
It would also present an irresistible invitation for extreme activist groups to exert litigious pressure on how companies operate.
Certifying estimates of emissions for companies and their suppliers and customers will be a bonanza for accountants and other auditing bodies...
This scheme of the SEC is a gross and destructive overreach of power.
Well, Steve, get off the fence.
The SEC’s rationale for the rule is that
“climate-related risks have present financial consequences that investors in public companies consider in making investment and voting decisions.
As a result of this, as Webb summarises, the rule
aims to ensure that investors have access to “consistent, comparable, and reliable” information on climate-related risks so they can “make investment or voting decisions in line with their risk preferences.”
This probably won’t seem like an extreme position for European readers, and it follows a line of travel on climate-related financial risk that the world’s central banks have been on for some time—much of this down to the work of Mark Carney when he was Governor of the Bank of England.
It is certainly true that the SEC proposals extend the amount of disclosure that businesses have to do.
Here’s some of Webb’s summary list of headings:
- Disclosure of physical risks: Registrants need to disclose “any climate-related risks that are reasonably likely to have a material impact on the registrant’s business or consolidated financial statements” over the short, medium, or long term;
- Financial impact metrics: ... if they identify climate-related risks that have impacted or are reasonably likely to impact a registrant’s consolidated financial statements, they need to disclose them—notably weather-related risks;
- Expenditure metrics: a registrant would have to separately disclose, in its financial statements, amounts of expenditure expensed and capitalized costs incurred in connection “with climate-related events... and . . . transition activities, specifically, to reduce GHG emissions”;
- Disclosure of internal carbon price: ‘Under the proposed rule, registrants would be required to disclose any carbon price used internally.’
- Disclosure of transition plans: ‘if a registrant adopts a transition plan (defined as a “strategy and implementation plan to reduce climate-related risks”), it would be required to disclose “as applicable, how it plans to mitigate or adapt to any identified physical risks . . . (and) transition risks.”
There’s a bit more. For example, businesses that conduct scenario analysis around climate risks are also required to disclose it. There’s a materiality threshold—if risks represent less than 1% under a given heading then it doesn’t need to be disclosed.
Reading the list, you can’t help but think that prudent investors might want to know this information anyway. And I wonder if that might be the strategy anyway, even if the proposals get bogged down in the courts.
Since we live in an age of asset management capitalism, as I discussed a couple of weeks ago, where most stocks are held by global scale investors like Blackrock on behalf of large investors (such as pension funds), even publishing this list acts a kind of checklist for investors as they read through company accounts and listen in to earnings calls.
While it is easy to make fun of Steve Forbes, he’s actually a symptom of a particular problem—that as the business academic Peter Drucker once observed, businesses get stuck with an outdated ‘theory of the business’. I wrote something about this in a report a couple of years ago:
All organisations are poor at absorbing new information. In stable business environments it barely matters. The heuristics that help us to make decisions quickly continue to work over time... In turbulent environments, however, this strength becomes a weakness. The (business) rules change, but the heuristics and mental models don’t.
As Drucker notes, “Every theory of the business becomes obsolete”. This happens faster in turbulent environments... But businesses get trapped by their existing mental models, and by outdated theories of the business. They also get stuck with theories of capitalism that are no longer useful. But this received wisdom takes a long time to shift.
2: Good viruses
At the OUP blog, Dorothy Crawford asks: what are viruses for? It’s not a rhetorical question.
It’s a kind of beginner’s guide to virology. Viruses, for example, aren’t made of cells, unlike plants and animals. Scientists disagree on whether they are alive or not:
viruses are obligate parasites; the particles that carry their genetic code as either DNA or RNA... are inert until they infect a living cell. Then they highjack the cell’s organelles to download viral genes and translate them into virus proteins from which new viruses can be assembled.
There is a vast number of viruses out there: 200,000 virus species on earth, with something like 200 billion trillion individual viruses on the planet. Yet only 220 of the species—around one in a thousand—infect humans.
But viruses do infect all living things—which mostly means microbes:
every litre of sea water contains around 10 billion bacteria and approximately 100 billion viruses, mostly bacteriophages (phage for short).
There’s a sightly technical passage in the article that describes the way in which viruses control the growth of marine phytoplankton, which are essential to creating oxygen and extracting CO2 from the atmosphere. And this is a good thing—because otherwise the phytoplankton would grow uncontrollably.
(Bacteriophages attached to a bacterial cell wall, magnified 200,000 times. Image Professor Graham Beards via Wikipedia. CC BY-SA 3.0)
These marine phage have a short lifespan—we’re talking hours—and respond rapidly to imbalances in their environment. It’s viruses that bring algae blooms under control, and also help bacteria evolve by swapping genes, helping them respond to changing water conditions.
Scientists are now trying to replicate this gene-swapping trick in the lab and the clinic to generate vaccines:
Certain designer vaccines consist of a harmless carrier virus genetically engineered to carry pieces of DNA or RNA that, when administered to a new host, will express the chosen vaccine sequence and induce the desired immune response. Several new COVID-19 vaccines presently in clinical trials have been engineered in this way, as has the Ebola vaccine that played a key role in ending a recent large outbreak in the Democratic Republic of Congo.
Crawford says that she wrote the piece after her grandson had asked her what viruses what for. He probably didn’t want all of this answer. But it’s a reminder both of how much we now know, and also how we little know. From memory, we didn’t even see the ‘virus’ until 1933, when the electron microscope was developed.
But as she points out, what we do now know means that if the next pandemic is driven by bacteria rather than viruses—and that is a possibility—we could use viruses to bring it under control, copying the marine phage:
This type of treatment has been used experimentally in people infected with multidrug resistant bacteria and may still come to our aid if such organisms become more widespread.
j2t#291
If you are enjoying Just Two Things, please do send it on to a friend or colleague.