Vanguard Group, one of the largest investment firms in the world, with more than $4 trillion in global assets, has begun urging companies to disclose risks associated with climate change, signaling a major shift for a company that previously had been loath to support climate-related risk disclosures. According Reuters, however, the move reflects not a changing ideology, but growing recognition about the risks that climate change poses to their business and investments.
Among other businesses, Vanguard pushed for ExxonMobil, the world’s largest oil and gas company, to disclose how its future business models could be impacted by the global effort to keep temperatures below 2ºC (3.6ºF). In May of this year, 62 percent of Exxon’s stakeholders voted in favor of a resolution requiring the company to disclose climate-associated business risks.
“I think it’s very significant and positive for Vanguard to take this step,” Chris Davis, senior director of the Ceres Investor Network on Climate Risk and Sustainability, told ThinkProgress. “I do think it’s part of a larger trend where a number of the largest asset managers have begun prioritizing climate as a risk issue and an engagement issue.”
Vanguard’s newfound interest in climate disclosures represents a radical shift in perspective for the investment firm — as recently as 2015, the company had yet to support a single sustainability resolution proposed by various stakeholders.
“Our support for these proposals is not a matter of ideology, it’s a matter of economics,” Glenn Booraem, Vanguard’s investment stewardship officer, told Reuters. “To the extent there are significant risks to a company’s long-term value proposition, we want to make sure there is long-term disclosure of those risks to the market.”
While Vanguard’s investment stewardship officer cautioned Reuters that the shift in perspective could seem small at first — warning that this year’s overall voting for the spring proxy season might not change as rapidly as some would expect — it does highlight a small but growing number of major companies that are sounding the alarm about risks to investments and assets brought by climate change.
“It tells corporate boards and management that their largest investors regard this as a significant issue and companies are going to have to improve their strategy and their disclosures on climate-related risks, and also opportunities,” Ceres’ Davis said. “I think it’s a sign that climate change has become mainstream as an investment issue.”
Earlier this spring, Chevron became the first major, publicly-owned fossil fuel company to disclose the risks associated with climate change — specifically, the financial risks that could come with an increase in litigation against the company. And those fears appear to be well-founded: In July, two California counties and one California city sued 37 major fossil fuel companies, including Chevron, for damages associated with climate-fueled sea level rise.
Australia’s biggest bank, the Commonwealth Bank of Australia, is also currently facing a first-of-its-kind climate change lawsuit for allegedly failing to disclose the risks climate change could pose to financial stability. Two investors in the bank, Guy and Kim Abrahams, argue that the company’s 2016 annual report “failed to give a true and fair view of its financial position and performance,” like disclosing that sea level rise could impact prices in the housing market or that global treaties like the Paris agreement might strand fossil fuel assets.
“For banks as well as all companies, this is an area that is moving very quickly,” Emma Herd, chief executive of the Investor Group on Climate Change in Australia, told the Guardian. “And certainly from the investor perspective the bar keeps getting raised in terms of what is considered adequate disclosure in terms of climate-related financial risk.”
Numerous economic studies have tried to estimate the cost associated with climate change, from lost productivity fueled by temperatures that make working outside impossible or increased destruction from more extreme weather events. One 2015 study found that if climate change were allowed to continue unmitigated, global incomes would fall 23 percent by 2100, with 77 percent of countries experiencing a drop in per capita incomes relative to current levels. Another analysis, conducted in 2015 by Cambridge University’s Judge business school, found that even a moderate warming scenario could cost the world $400 trillion.