Young and Invested

As our civilization moves into the future, future generations will have their minds boggled at how our attitude towards Earth was anything but mindful. Luckily, we are standing at a cornerstone of a green revolution where organizations and individuals are beginning to internalize the right attitude to preserve our home; the SEC is fortunately one of these entities.

A few weeks ago, the SEC passed a vote that will require publicly accountable entities to disclose information pertaining to climate related matters to external stakeholders. Whereas a good amount of companies were already disclosing information such as carbon emissions and ISO compliance voluntarily, the move will not be welcomed by many reluctant organizations. But, regardless of the added expenses that about 75% of the companies in the S&P (who neglected any mention of “green” items in the annual reports to date) will incur to provide the respective disclosure, the SEC is making a move that goes beyond finance and investing, and delves into global conservation.

Although the SEC move was taken because of the belief that such “green” information will affect investor decisions, whereas the effects of this disclosure will influence investor behavior is another question. Investors typically already have a good sense of what industries contribute more to pollution and which don’t, and some investors couldn’t care less. But as with most change, those that embrace it will flourish, and those who resent likely aren’t too proud of sharing their story with the public. It was refreshing to note that some of the biggest players in the oil industry, including Chevron, ConocoPhillips and ExxonMobil, were already voluntarily disclosing carbon emissions and other climate-related statistics prior to the SEC vote.

Furthermore, as a specialist at accounting guidelines and regulations, I believe the effects the new SEC requirements will have on financial statements and notes are strictly qualitative. Accounting principles (both current US and Canadian GAAP, and the upcoming global IFRS standards) have strict requirements for companies to assess known and potential liabilities in both likelihood and magnitude. For example, if a potential liability for environmental accidents or environmental clean-up costs will be incurred, there’s a good chance any company must recognize a liability on their balance sheets, or at least disclose it in their notes. For years now, these accounting standards have considered environmental costs such as the one the SEC is concerned with, so the effects of the upcoming regulations will be purely qualitative. Yes, companies affected by the SEC vote will have to provide opinion on how they are influencing global warming and the environment, but financial statements will likely remain the unharmed.

Although minor investment opportunities present themselves at the corner of this milestone, the effects of the SEC vote will have minimal impact. Companies that have already been voluntarily disclosing this information will benefit from the already-absorbed costs of tracking the necessary detail and may be presented in a more favourable light to the investing community. Consider global organizations like Coca-Cola, Hewlett-Packard, IBM and Wal-Mart who have been voluntarily disclosing carbon emissions and climate-related risks for a number of years now; yes, there may be a positive image that comes with such disclosure, but their financial statements will remain unaffected. I strongly commend the SEC for going through with a vote that has responsibility and forward-thinking attached to it, but, will such information affect investing decisions? Not likely; most investors will remain focused on financial statements, and since they will not significantly change from the decision, the effects from the SEC vote will remain buried in notes to the financial statements.

Disclosure: no positions

Image credit: tellytom through a Creative Commons license

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