tag:theconversation.com,2011:/ca/topics/corporate-disclosure-4588/articlesCorporate disclosure – The Conversation2019-01-23T11:46:28Ztag:theconversation.com,2011:article/1081412019-01-23T11:46:28Z2019-01-23T11:46:28ZWe can’t save everything from climate change – here’s how to make choices<figure><img src="https://images.theconversation.com/files/254790/original/file-20190121-100292-1h1lpc5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Climate change is increasing flooding caused by seasonal 'king tides' in Florida and other coastal areas.
</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Florida-King-Tide/4e523660f2664f4ea8e6075aafdc65f2/8/0">AP Photo/Lynne Sladky</a></span></figcaption></figure><p>Recent reports have delivered sobering messages about climate change and its consequences. They include the Intergovernmental Panel on Climate Change’s <a href="https://www.ipcc.ch/sr15/">Special Report on Global Warming of 1.5°C</a>; the fourth installment of the U.S. government’s <a href="https://nca2018.globalchange.gov/">National Climate Assessment</a>; and the World Meteorological Organization’s initial report on the <a href="https://environmentalmigration.iom.int/sites/default/files/Draft_Statement_26_11_2018_v12_approved_jk.pdf">State of the Global Climate 2018</a>. </p>
<p>As these reports show, climate change is already occurring, with impacts that will become more intense for decades into the future. They also make clear that reducing greenhouse gas emissions from human activities to a level that would limit warming to 2 degrees Celsius (3.6 degrees Fahrenheit) or less above preindustrial levels will pose unprecedented challenges.</p>
<p>Today, however, there is a large and growing <a href="https://www.unenvironment.org/resources/emissions-gap-report-2018">gap</a> between what countries say they’d like to achieve and what they have committed to do. As scholars focused on <a href="https://scholar.google.com/citations?user=hljgYS4AAAAJ&hl=en">climate risk management</a> and <a href="https://scholar.google.com/citations?user=R0B_kSkAAAAJ&hl=en">adaptation</a>, we believe it is time to think about managing climate change damage in terms of triage. </p>
<p>Hard choices already are being made about which risks society will attempt to manage. It is critically important to spend limited funds where they will have the most impact. </p>
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<a href="https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=703&fit=crop&dpr=1 600w, https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=703&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=703&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=884&fit=crop&dpr=1 754w, https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=884&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/254793/original/file-20190121-100282-1h2ngjv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=884&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Annual average temperature over the continental United States has increased by 1.8 degrees Fahrenheit relative to 1900. Additional increases ranging from 3 degrees Fahrenheit to 12 degrees Fahrenheit are expected by 2100, depending on global greenhouse gas emission trends.</span>
<span class="attribution"><a class="source" href="https://nca2018.globalchange.gov/chapter/2/">USGCRP</a></span>
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<h2>Triaging climate change</h2>
<p>Triage is a process of prioritizing actions when the need is greater than the supply of resources. It emerged on the battlefields of World War I, and is widely used today in fields ranging from <a href="http://dx.doi.org/10.1001/virtualmentor.2010.12.6.cprl1-1006">disaster medicine</a> to <a href="https://doi.org/10.3389/fevo.2017.00168">ecosystem conservation</a> and <a href="https://www.softwaretestingmaterial.com/defect-triage-meeting/">software development</a>.</p>
<p>The projected global costs of adapting to climate change just in developing countries range up to <a href="http://www.unepdtu.org/-/media/Sites/Uneprisoe/News-Item-(pdfs)/UNEP-GAP-report-2016_web-6_6_2016.ashx?la=da&hash=10B5992B026DC85EBFF20B79E786D97C3DCCE516">US$300 billion by 2030 and $500 billion by mid-century</a>. But according to a recent estimate by Oxfam, just <a href="https://d1tn3vj7xz9fdh.cloudfront.net/s3fs-public/file_attachments/bp-climate-finance-shadow-report-030518-en.pdf">$5 billion to $7 billion</a> was invested in projects specific to climate adaptation in 2015-2016.</p>
<p>Triaging climate change means placing consequences into different buckets. Here, we propose three. </p>
<p>The first bucket represents impacts that can be avoided or managed with minimal or no interventions. For example, assessments of how climate change will affect <a href="https://www.energy.gov/sites/prod/files/2017/01/f34/Effects-Climate-Change-Federal-Hydropower-Program.pdf">U.S. hydropower</a> indicate that this sector can absorb the impacts without a need for costly interventions. </p>
<p>The second bucket is for impacts that are probably unavoidable despite all best efforts. Consider polar bears, which rely on sea ice as a platform to reach their prey. Efforts to reduce emissions can help sustain polar bears, but there are few ways to help them adapt. Protecting Australia’s Great Barrier Reef or the Brazilian Amazon poses similar challenges.</p>
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<a href="https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/254809/original/file-20190121-100288-182fkpt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Clare Mukankusi breeds beans for a gene bank in Kawanda, Uganda, with properties including drought resilience to help farmers cope with extreme conditions.</span>
<span class="attribution"><a class="source" href="https://flic.kr/p/JX3FVG">Georgina Smith, CIAT</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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<p>The third bucket represents impacts for which practical and effective actions can be taken to reduce risk. For example, cities such as Phoenix, Chicago and Philadelphia have been investing for years in <a href="https://journals.ametsoc.org/doi/pdf/10.1175/BAMS-85-12-1931">extreme heat warning systems</a> and emergency response strategies to reduce risks to public health. There are a variety of options for <a href="https://theconversation.com/farmers-can-profit-economically-and-politically-by-addressing-climate-change-73585">making agriculture more resilient</a>, from precision agriculture to biotechnology to no-till farming. And large investments in infrastructure and demand management strategies have historically helped <a href="https://water.ca.gov/Programs/State-Water-Project">supply water to otherwise scarce regions</a> and <a href="https://www.designbuild-network.com/features/featurehurricane-katrina-new-orleans-flood-infrastructure/">reduce flood risk</a>. </p>
<p>In each of these cases, the challenge is aligning what’s technically feasible with society’s willingness to pay. </p>
<h2>What triage-based planning looks like</h2>
<p>Other experts have called for climate change triage in contexts such as <a href="https://www.huffingtonpost.com/peter-h-gleick/climate-triage-and-the-ne_b_863218.html">managing sea level rise and flood risk</a> and <a href="https://www.theguardian.com/commentisfree/2016/feb/17/climate-change-admit-we-cant-save-everything">conserving ecosystems</a>. But so far, this approach has not made inroads into adaptation policy. </p>
<p>How can societies enable triage-based planning? One key step is to invest in valuing assets that are at risk. Placing a value on assets exchanged in economic markets, such as agriculture, is relatively straightforward. For example, RAND and Louisiana State University have estimated the costs of <a href="http://dx.doi.org/10.15351/2373-8456.1062">coastal land loss</a> in Louisiana owing to property loss, increased storm damage, and loss of wetland habitat that supports commercial fisheries.</p>
<p>Valuing non-market assets, such as cultural resources, is more challenging but not impossible. When North Carolina’s <a href="https://www.nps.gov/caha/planyourvisit/chls.htm">Cape Hatteras lighthouse</a> was in danger of collapsing into the sea, heroic efforts were taken to move it further inland because of its historic and cultural significance. Similarly, Congress makes judgments on behalf of the American people regarding the value of historic and cultural resources when it enacts legislation to <a href="https://theconversation.com/more-than-scenery-national-parks-preserve-our-history-and-culture-57708">add them to the U.S. national park system</a>.</p>
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<p>The next step is identifying adaptation strategies that have a reasonable chance of reducing risks. RAND’s support for the <a href="http://coastal.la.gov/wp-content/uploads/2017/04/2017-Coastal-Master-Plan_Web-Single-Page_CFinal-with-Effective-Date-06092017.pdf">Louisiana Coastal Master Plan</a> included an analysis of $50 billion in ecosystem restoration and coastal protection projects that ranked the benefits those projects would generate in terms of avoided damages. </p>
<p>This approach reflects the so-called “<a href="https://www.rand.org/pubs/research_reports/RR2129.html">resilience dividend</a>” – a “bonus” that comes from investing in more climate-resilient communities. For example, a recent report from the National Institute of Building Sciences estimated that every dollar invested in federal disaster mitigation programs - enhancing building codes, subsidizing hurricane shutters or acquiring flood-prone houses - <a href="https://www.nibs.org/news/381874/National-Institute-of-Building-Sciences-Issues-New-Report-on-the-Value-of-Mitigation.html">saves society $6</a>. Nevertheless, there are <a href="https://www.ipcc.ch/site/assets/uploads/2018/02/WGIIAR5-Chap16_FINAL.pdf">limits</a> to the level of climate change that any investment can address.</p>
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<figcaption><span class="caption">The ‘Resilience Dividend Valuation Model’ provides communities with a structured way to frame and analyze resilience policies and projects.</span></figcaption>
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<p>The third step is investing enough financial, social and political capital to meet the priorities that society has agreed on. In particular, this means including adaptation in the budgets of federal, state, and local government agencies and departments, and being transparent about what these organizations are investing in and why.</p>
<p>Much progress has been made in improving disclosure of corporate exposure to greenhouse gas reduction policies through mechanisms such as the <a href="https://www.fsb-tcfd.org/">Task Force on Climate-Related Disclosures</a>, a private sector initiative working to help businesses identify and disclose risks to their operations from climate policy. But less attention has been given to disclosing risks to businesses from climate impacts, such as the disruption of <a href="https://www.bsr.org/en/our-insights/report-view/climate-change-and-supply-chain-the-business-case-for-action">supply chains</a>, or those faced by public organizations, such as <a href="http://427mt.com/2018/05/22/assessing-exposure-to-climate-change-in-us-munis/">city governments</a>.</p>
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<figcaption><span class="caption">Advocates say corporate disclosure of climate risks would help investors to make informed decisions, and would allow corporations to prepare for climate change and have a strategy to deal with it.</span></figcaption>
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<p>Finally, governments need to put frameworks and metrics in place so that they can measure their progress. The Paris Climate Agreement calls on countries to report on their adaptation efforts. In response, tools like <a href="http://www.climateplanning.com.au/about-informedcity/">InformedCity</a> in Australia are emerging that enable organizations to measure their progress toward adaptation goals. Nevertheless, many organizations – from local governments to corporate boardrooms – are not equipped to evaluate whether their efforts to adapt have been effective.</p>
<p>There are many opportunities to manage climate risk <a href="https://www.ipcc.ch/site/assets/uploads/2018/02/WGIIAR5-Chap14_FINAL.pdf">around the world</a>, but not everything can be saved. Delaying triage of climate damages could leave societies making ad hoc decisions instead of focusing on protecting the things they value most.</p><img src="https://counter.theconversation.com/content/108141/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin Preston currently receives funding from the California Hospital Association, the Center for Climate and Energy Solutions, Ford Motor Company, the U.S. Department of Homeland Security, and the U.S. Environmental Protection Agency. Previously, he has received funding from the U.S. Department of Energy and the Commonwealth of Australia. </span></em></p><p class="fine-print"><em><span>Johanna Nalau receives funding from Australian Research Council and Griffith University. </span></em></p>Climate change is happening and will intensify in coming decades. Some experts say it’s time for a triage strategy that focuses investments where they are most likely to have an impact.Benjamin Preston, Senior Policy Researcher; Program Director, Infrastructure Resilience and Environmental Policy, Pardee RAND Graduate SchoolJohanna Nalau, Research Fellow, Climate Adaptation, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/988572018-06-28T03:50:31Z2018-06-28T03:50:31ZFrom back office to boardroom: accountants step up in climate risk management<figure><img src="https://images.theconversation.com/files/225244/original/file-20180628-112628-1py2jx6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">To properly consider climate risks for their business, directors need the financial expertise of accountants.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/troubled-businessteam-working-hard-meeting-businesswoman-48606973?src=uwXwMUOwZIdu6kzCV5DHVQ-1-39">StockLite/Shutterstock</a></span></figcaption></figure><p>The implications of climate change risks for corporate stakeholders are often poorly understood. Possibly least understood within this group is the <a href="https://bit.ly/2jEgDBx">role of those with financial expertise</a>. We investigated and have produced a working paper on factors that influence accountants’ involvement in managing climate change risk in Australia.</p>
<p>Companies have been under greater pressure to disclose their exposure to risks of climate change since the 2014 G20 meeting in Australia. This created the Taskforce on Climate Change-Related Financial Risk Disclosure (<a href="https://www.fsb-tcfd.org/">TCFD</a>. Its <a href="https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817.pdf">recommended disclosures</a> were issued in June 2017. </p>
<p>In a <a href="https://cpd.org.au/2018/06/climate-horizons-2/">speech this month</a>, Australian Securities and Investments Commissioner John Price reinforced these recommendations. He made clear climate risk is an ASIC priority. Directors who fail to properly consider and disclose climate risks <a href="https://www.smh.com.au/business/banking-and-finance/asic-warns-on-climate-risk-as-heat-turns-on-directors-20180618-p4zm7j.html">could face lawsuits</a>, he warned.</p>
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Read more:
<a href="https://theconversation.com/company-directors-can-be-held-legally-liable-for-ignoring-the-risks-from-climate-change-68068">Company directors can be held legally liable for ignoring the risks from climate change</a>
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<h2>So where do accountants come into this?</h2>
<p>It can be argued that those with financial expertise, such as accountants, have the tools to provide crucial information to management on potential risks embedded in climate change. </p>
<p>Previous <a href="https://www.emeraldinsight.com/doi/full/10.1108/ARJ-03-2015-0040">research</a> found accountants had a limited role in assessing climate change risk. However, our comparative study reveals shifts in climate management towards those with financial expertise. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=573&fit=crop&dpr=1 600w, https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=573&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=573&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=720&fit=crop&dpr=1 754w, https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=720&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/225243/original/file-20180628-112611-p85z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=720&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">ASIC commissioner John Price’s warning that directors must consider climate risks is a pointer to accountants’ role in quantifying those risks.</span>
<span class="attribution"><a class="source" href="https://www.youtube.com/watch?v=SXhLoqMbjxo">Lisa Creffield/Youtube</a></span>
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<p>A principal conclusion from our research is that, together with engineers and other technical experts on climate change, those with financial expertise are significantly more intertwined in assessing and mitigating the risk than before.</p>
<p>The study involved semi-structured interviews with managers directly involved in emissions management for some of the largest Australian companies. These took place before and after the 2014 repeal of the carbon tax. In 2013, we interviewed 39 managers across 18 companies. In 2016 it was 14 managers and 11 companies. </p>
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Read more:
<a href="https://theconversation.com/carbon-tax-repealed-experts-respond-29154">Carbon tax repealed: experts respond</a>
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<p>The key finding from the 2013 interviews was that engineers and environmental specialists dominated emissions management. Those with financial expertise had minimal involvement. Many interviewees claimed that, because of the complexity and technicalities, only professionals with engineering or environmental science backgrounds had the relevant expertise:</p>
<blockquote>
<p>Because it’s quite a technical thing … it’s not just a number. You need to understand what’s behind the number, and why it’s there.</p>
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<p>Importantly, in that period, one financial professional leading a team in the field asserted that accountants, as risk management experts, could bring significant value to their companies: </p>
<blockquote>
<p>I think that accountants have a lot of credibility … because when it comes to emissions … I think I can put forward the business case of why it’s important … I think, that means … it’s better received within the company than if I was … an engineer or an environmental scientist.</p>
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<p>Both financial and non-financial experts shared this view. One sustainability professional explained how a limited financial understanding leads to an inability to appropriately use techniques common in finance, such as target setting and performance evaluation.</p>
<blockquote>
<p>Well, I think if you had the accounting knowledge … it [the target] would be far more accurate, and probably a lot higher than what we’ve set. </p>
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<p>Australia’s carbon tax was gone from July 2014. Emissions <a href="https://theconversation.com/one-year-on-from-the-carbon-price-experiment-the-rebound-in-emissions-is-clear-44782">have risen</a> <a href="https://theconversation.com/australias-carbon-emissions-and-electricity-demand-are-growing-heres-why-57649">every year</a> since. At December 2017, <a href="http://ageis.climatechange.gov.au/NGGITrend.aspx">emissions were up 1.5%</a> compared to 2016.</p>
<p>With our commitment to the Paris climate agreement, one might have expected companies to more urgently reduce emissions. In general, though, the second round of interviews reveals that companies’ emissions management (and momentum towards urgent action) has significantly diminished. </p>
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Read more:
<a href="https://theconversation.com/direct-action-not-as-motivating-as-carbon-tax-say-some-of-australias-biggest-emitters-64562">Direct Action not as motivating as carbon tax say some of Australia's biggest emitters</a>
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<h2>Financial expertise now coming to the fore</h2>
<p>However, the involvement of those with financial expertise in climate change risk management has increased. Many viewed this as positive and potentially useful for boardrooms. </p>
<p>Whether it was the carbon tax that brought finance team attention, or organisational learning, more recent interviews found evidence of greater acceptance of climate change as a financial (and other) material risk. The ASIC commissioner’s speech advocating TCFD-type disclosures suggests the issue is not merely one of eco-efficiency, but one of commercial substance of relevance to company directors. </p>
<p>From the interview data, one possible explanation for increased collaboration between technical and financial expertise is greater acceptance of climate change issues as material risks to companies: </p>
<blockquote>
<p>Management of carbon is fundamentally a risk-management exercise … It is a material risk … if we don’t think about the long-term risks … and what are the strategies that we need to mitigate…</p>
<p>The best way to present … climate-related information to … management … is in the risk-management process [including] … in terms of reputational risk, commercial risk, strategic risk … it’s all risk.</p>
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<p>Barriers to collaboration between technical and financial experts still exist. These include geographic co-location and some accountants being unable to step outside traditional roles.</p>
<p>With regulators’ increased interest in measurement and disclosure of climate change risk, the landscape is changing again. We anticipate better integration of the assessment and mitigation of climate change risk with strengthened expertise being brought to bear. This includes greater involvement from the technical expert on the ground through to the boardroom.</p><img src="https://counter.theconversation.com/content/98857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jayanthi Kumarasiri received funding from the Accounting & Finance Association of Australia and New Zealand (AFAANZ), and her previous employer, Swinburne University of Technology, to conduct the 2016 interviews.</span></em></p><p class="fine-print"><em><span>Christine Jubb and Keith A Houghton do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Company directors have been put on notice about their duty to consider and disclose climate change risks. And to do that properly they need to call on the expertise of accountants.Jayanthi Kumarasiri, Lecturer in Accounting, RMIT UniversityChristine Jubb, Professor of Accounting, Associate Director Centre for Transformative Innovation, Swinburne University of TechnologyKeith A Houghton, Emeritus Professor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/904272018-05-31T10:43:30Z2018-05-31T10:43:30ZMissouri’s dark money scandal, explained<figure><img src="https://images.theconversation.com/files/221070/original/file-20180530-120487-xxs2ss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Missouri Gov. Eric Greitens, before he resigned amid scandals</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Missouri-Governor/9a8f268c9fe240978eab65b72d8dbc6e/57/0">AP Photo/Jeff Roberson</a></span></figcaption></figure><p><a href="http://time.com/5299261/missouri-governor-eric-greitens-resign-office/">Eric Greitens has resigned</a>, finally. The former Missouri governor’s sex scandal didn’t force him to step down, but rather allegations that “dark money” improperly financed his winning gubernatorial bid.</p>
<p>During the years I’ve spent <a href="https://cap-press.com/books/isbn/9781632847263/Corporate-Citizen">writing about the topic</a>, I’ve seen an uptick in political dark money. As a result, it’s getting harder for voters to identify exactly who is trying to influence their vote.</p>
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<h2>What’s dark money?</h2>
<p><a href="https://www.opensecrets.org/dark-money/basics">Dark money</a> is political cash from a concealed source. This anonymity often happens because a donor’s political money passes through a nonprofit on its way to support a candidate. Dark money is the opposite of the transparent political spending that happens when donors openly support political action committees, political parties and candidate campaigns.</p>
<p>Investigative journalist <a href="https://sunlightfoundation.com/2010/10/18/daily-disclosures-10/">Bill Allison</a> coined the term when he worked at the Sunlight Foundation in 2010. It quickly entered the political lexicon, partly because of a best-selling book on the topic by The New Yorker’s <a href="https://www.penguinrandomhouse.com/books/215462/dark-money-by-jane-mayer/9780307947901/">Jane Mayer</a>. </p>
<p>Typically, political money goes dark when it is funneled through <a href="https://theconversation.com/hillary-clinton-is-starting-a-social-welfare-group-what-does-that-mean-78221">social welfare organizations</a> – commonly known as 501(c)(4) nonprofits because of the relevant section of the tax code – or trade associations that are also called <a href="https://www.irs.gov/charities-non-profits/other-non-profits/business-leagues">501(c)(6) nonprofits</a>. </p>
<p>Political money can also hide when it is obscured through <a href="https://www.opensecrets.org/dark-money/basics">limited liability companies</a>, or LLCs. In some cases, these companies are created <a href="https://www.theatlantic.com/politics/archive/2013/12/theres-no-way-to-follow-the-money/282394/">solely to obscure the source</a> of political spending.</p>
<h2>The Greitens case</h2>
<p>The obscurity inherent in all dark money transactions makes them hard to follow and to keep track when they get politicians into hot water.</p>
<p>For instance, <a href="https://www.yahoo.com/news/stunning-rise-fall-eric-greitens-233305491.html">Greitens announced he would resign</a> within hours of a judge ordering that the real identities of the backers of a social welfare group called A New Missouri Inc. be made public. His exit came amid <a href="https://www.cnn.com/2018/05/03/politics/missouri-lawmakers-special-session-greitens-impeachment/index.html">impeachment proceeedings</a> related to the alleged misuse of <a href="https://www.cnn.com/2018/05/30/politics/eric-greitens-missouri-felony-charge-dropped/index.html">another nonprofit’s donor list</a>, for which he faced a felony charge.</p>
<p><a href="http://www.kansascity.com/news/politics-government/article212102994.html">A New Missouri</a>, which the governor’s close political advisers created in February 2017, operates out of the same building as his campaign committee. There are some people who work for both entities, according to the Kansas City Star.</p>
<p>All told, the Greitens campaign may have benefited from <a href="http://news.stlpublicradio.org/post/former-aide-says-greitens-relied-charity-donor-list-dark-money-kick-start-campaign#stream/0">US$6 million in dark money</a> during his 2016 election, one of his former aides has estimated.</p>
<p>Investigators are trying to learn if any of the donors to the secretive groups supporting Greitens <a href="http://www.ozarksfirst.com/news/missouri-judge-rules-greitens-committees-must-turn-over-supoenaed-documents/1206365413">were foreigners</a>. That would <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2864436">violate federal laws</a>, which only allow Americans to finance political activities.</p>
<p><a href="https://www.cnn.com/2018/05/29/politics/eric-greitens-missouri-governor/index.html">Greitens has admitted no wrongdoing</a>, insisting he had “not broken any laws, nor committed any offense worthy of this treatment” despite acknowledging that his behavior had not been “perfect.”</p>
<h2>Federal and state laws</h2>
<p>The governor’s claim of innocence may not be that far-fetched.</p>
<p>Federal law actually permits the use of dark money in federal elections. Some politicians and political operatives prefer undisclosed spending because the <a href="https://www.law.cornell.edu/uscode/text/26/6103">IRS typically keeps nonprofit taxpayer information confidential</a> and the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1833484">Federal Election Commission’s rules don’t require disclosure either</a>. If a political spender had spent the same funds through a PAC instead of a nonprofit, then the money would be fully reportable. </p>
<p>Political spenders that <a href="https://www.fec.gov/help-candidates-and-committees/making-disbursements-pac/independent-expenditures-nonconnected-pac/">spend more than $200 on independent expenditures</a> or put <a href="https://www.fec.gov/help-candidates-and-committees/making-disbursements-ssf-or-connected-organization/making-electioneering-communications/">more than $10,000 into ads known as “electioneering communications”</a> must report these outlays to the FEC every electoral cycle. But because that agency does not require every entity that spends money influencing elections to name their donors, political money can legally remain in the “dark.”</p>
<p>Meanwhile, <a href="http://www.ncsl.org/research/elections-and-campaigns/election-administration-at-state-and-local-levels.aspx">each state</a> has its own political spending disclosure rules. To get a sense of how good or bad your state’s campaign finance disclosure is, you can see how <a href="https://www.followthemoney.org/research/institute-reports/scorecard-essential-disclosure-requirements-for-contributions-to-state-campaigns-2016">the National Institute on Money in Politics graded them</a> a few years back.</p>
<h2>A growing quandary</h2>
<p>The surge in dark money is a negative development because it thwarts both democratic accountability and responsibility within corporations, which are suspected as being the sources of dark money without informing shareholders that corporate money is being spent on politics. Moreover, dark money can be a perfect cover for illegal foreign spending in American elections. Not everyone agrees with me. <a href="http://prospect.org/article/defense-dark-money">Others</a> find anonymous political spending appealing. </p>
<p>Since the Supreme Court’s 2010 Citizens United v. FEC ruling, which deemed political spending limits on businesses and unions to be unconstitutional, an estimated <a href="https://www.opensecrets.org/outsidespending/nonprof_summ.php">$800 million in dark money has been spent in federal elections</a>, according to the Center for Responsive Politics’ Open Secrets database. Based on what I learned while writing my book “<a href="https://cap-press.com/books/isbn/9781632847263/Corporate-Citizen">Corporate Citizen? An Argument for the Separation of Corporation and State</a>,” I would not be surprised if the total were to hit $1 billion by the time voters cast their ballots in the 2018 mid-term elections.</p>
<p>And the use of nonprofits to hide political slush funds is only growing. A recent report from <a href="https://www.brennancenter.org/publication/elected-officials-secret-cash">the Brennan Center</a>, a think tank housed at the New York University Law School, found that at least two presidents, seven governors – including Greitens – and several mayors have established nonprofits that let them raise unlimited, anonymous funds for political spending while in office.</p>
<h2>What some states and Congress are doing</h2>
<p>Some states have taken steps to diminish the role of dark money in state elections.</p>
<p>California enacted the <a href="http://www.sacbee.com/news/politics-government/capitol-alert/article177659771.html">California Disclose Act</a> in 2017 to improve disclosure. Maryland has a requirement that corporations tell shareholders about their political spending. </p>
<p>At the same time, some states have eased the flow of dark money. For example, <a href="http://www.governing.com/topics/politics/gov-campaign-finance-arizona-tempe-denver.html">Arizona</a> passed a law preventing its cities from fighting dark money, and <a href="https://docs.legis.wisconsin.gov/2015/proposals/ab387">Wisconsin</a> relaxed its campaign finance laws in 2015.</p>
<p>And <a href="http://time.com/4922542/democrats-citizen-united/">Congress has done nothing</a> to improve federal disclosures in elections. This leaves voters in the dark as they choose among candidates in the midterm elections. Unless Missouri tightens up its disclosure rules, the state’s voters may elect their next governor without knowing who is actually supporting the candidates on the ballot.</p><img src="https://counter.theconversation.com/content/90427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ciara C Torres-Spelliscy is affiliated with the Brennan Center for Justice at NYU Law where she is a fellow. </span></em></p>Embattled Gov. Eric Greitens resigned over allegations tied to political contributions from concealed sources.Ciara Torres-Spelliscy, Leroy Highbaugh Sr. Research Chair and Professor of Law, Stetson University Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/825782017-08-30T20:06:39Z2017-08-30T20:06:39ZWe tracked how investors read company reports and here’s how they’re misled<figure><img src="https://images.theconversation.com/files/183549/original/file-20170828-27564-jnov8i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The study used an eye-tracking device to ensure that all information included in the management report was read and considered in light of judgment formation. </span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Investors would have spent a fair amount of time over the last few weeks poring over financial documents, as listed companies report their earnings and plans for the year to come. But our research shows they could have been misled just by the order of information in these reports. </p>
<p><a href="http://www.tandfonline.com/doi/full/10.1080/00014788.2016.1271737">We found that</a> investors place more emphasis on the last piece of information in the management report included in company documents. Non-professional investors also ranked the performance of the company higher on more occasions, if the <a href="http://www.tandfonline.com/doi/full/10.1080/00014788.2016.1271737">last piece of information is positive</a>. </p>
<p>We invited 66 non-professional investors in our laboratory to read a management report of a fictitious mining company containing a short series of complex and mixed information. The positive information contained in the report told of increases in financial profitability and a strong operating cash flow. Negative information included a declining share price and increases in costs.</p>
<p>We randomly assigned the participants to two groups. The first group read the textual information included in the report in a sequence of positive information first and negative last. The second group read exactly the same information, but for them it was presented in the opposite way, negative before positive. We used an eye-tracking device to ensure that all information included in the management report was read and considered in light of judgement formation. </p>
<p>The investors we studied actually used the fictitious information in their investment decisions. Over 60% of participants were less inclined to invest in the fictitious company when negative information was presented last. </p>
<h2>Easily mislead</h2>
<p><a href="http://www.tandfonline.com/doi/full/10.1080/00014788.2016.1271737">Research</a> into the behaviour of investors shows that the presentation order of financial information influences their judgements on company performance. </p>
<p>Because of the <a href="https://doi.org/10.1016/j.jbef.2017.03.003">limited attention span and working memory capacity of the human mind</a>, investors give more weight to information received later in a sequence. </p>
<p>So although financial information is often regarded as objective, neutral and value-free, the deliberate presentation ordering of information is able to influence non-professional investors. Companies could use this to try and hide negative information in the middle sections of a narrative and disclose positive information at the end of a sequence for the greatest effect.</p>
<p>Presentation ordering is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1089447">not the only trick companies may use</a> to influence the perceptions of annual report readers. </p>
<p>Graphs can attract investor’s attention and can be more easily retained in their memory than other narratives. Because of this, companies use significantly more graphs <a href="http://www.sciencedirect.com/science/article/pii/S0155998211000147?via%3Dihub">highlighting favourable rather than unfavourable performance</a>. </p>
<p>One concern that arises from our findings is that readers of financial information may be mislead into believing there is more objectivity in practice than actually is the case. <a href="http://www.sciencedirect.com/science/article/pii/S2214635016000071?via%3Dihub">With regulatory efforts</a> largely related to quantitative information, companies have much more flexibility in terms of how they present narrative information accompanying the financial statements in their reports. </p>
<p>Perhaps further guidance on the presentation of the management commentary is required by the global regulators to restrict the possibility that companies may influence the impressions conveyed to users of accounting information.</p>
<p>Maybe next reporting season investors should take another look at what information companies include in their reports.</p><img src="https://counter.theconversation.com/content/82578/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andreas Hellmann does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research shows investors could have been misled just by the order of information in financial reports.Andreas Hellmann, Senior Lecturer in Accounting, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/743662017-03-15T19:15:47Z2017-03-15T19:15:47ZThe case for holding politicians to the same disclosure standards as company directors<figure><img src="https://images.theconversation.com/files/160626/original/image-20170314-9606-5epyhl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cory Bernardi was recently caught up in a dispute over whether he had correctly disclosed a property he owns.</span> <span class="attribution"><span class="source">AAP/Mick Tsikas</span></span></figcaption></figure><p><a href="http://www.canberratimes.com.au/federal-politics/political-opinion/cory-bernardis-1m-secret-show-why-the-parliamentary-rules-are-broken-20170308-gut9jo.html">Recent commentary</a> on the rules governing politicians’ declaration of financial interests has highlighted the ease with which they are circumvented and the laxity with which they are enforced.</p>
<p>Senator Cory Bernardi was recently <a href="http://www.canberratimes.com.au/federal-politics/political-opinion/cory-bernardis-1m-secret-show-why-the-parliamentary-rules-are-broken-20170308-gut9jo.html">caught up in a dispute</a> over whether he had correctly disclosed a A$1 million commercial property he owns in South Australia. He denies any wrongdoing and says he complied with the rules.</p>
<p>There are differences between the regimes governing politicians and directors of public companies; the former relate to assets whereas the latter govern transactions. But they both serve the same end – ensuring transparency and reducing the risk of conflicts of interest.</p>
<p>Why, then, are the rules so lax for politicians?</p>
<h2>Why MPs aren’t pursued</h2>
<p><a href="http://www.aph.gov.au/Senators_and_Members/Members/Register">Parliamentary rules require</a> MPs declare a broad range of interests. They must also declare interests they are “aware” are held by their spouses and dependant children. </p>
<p>Politicians file interests late – sometimes only after media exposure. They frequently disregard the rules relating to minor assets and <a href="http://www.canberratimes.com.au/federal-politics/political-opinion/cory-bernardis-1m-secret-show-why-the-parliamentary-rules-are-broken-20170308-gut9jo.html">defy the rule</a> relating to reporting spousal assets. The requirement of awareness in relation to family assets makes ignorance an easily available defence.</p>
<p>However, the chief problem is enforcement. The <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ppa1987273/s16.html">relevant law</a> says events occurring within parliament, which would include breaches of financial disclosure rules, cannot be judged by the courts. </p>
<p>This rule is important because it protects free debate. But it ultimately makes the enforcement of internal parliamentary rules subject to political forces rather than purely legal considerations. This is because of how parliament’s internal processes work.</p>
<p>The initial decision on whether an MP has acted in contempt of parliament – for example, by failing to declare assets – is made by the relevant house’s privileges committee. </p>
<p>The government has a majority on the House of Representatives committee, so there is obviously little chance it will find against one of its own MPs. And even if a committee does make an adverse finding, it amounts only to a recommendation. It is up to the entire house (in which, again, the government has a majority) to make the final decision as to whether contempt has occurred and, if so, what punishment to impose. </p>
<p>Where an opposition MP is under the spotlight, a finding of contempt is theoretically more likely. But the reason this is only theoretical is that a party with a majority is aware the time will come when it will lose that majority. For this reason, it will not want to establish a precedent that can later be used against it. </p>
<p>So, it is in the interests of both major parties not to pursue contempt matters too vigorously.</p>
<p>This was strikingly illustrated in 2002, when former defence minister Peter Reith <a href="http://www.smh.com.au/articles/2002/07/31/1027926912621.html">refused to appear</a> before a Senate committee investigating the “children overboard” affair. On the face of it this amounted to contempt. Also, the Coalition parties did not hold a Senate majority. But Labor <a href="http://www.smh.com.au/articles/2002/10/23/1034561546910.html">refrained from compelling</a> Reith to give evidence or face contempt proceedings. </p>
<p>The upshot is there is no real likelihood MPs will face punishment for breaching financial disclosure rules. All that happens is they are allowed to “correct the record” – which makes failure to disclose essentially risk-free. </p>
<h2>Company directors face stringent requirements</h2>
<p>Contrast this with <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s208.html">the requirements</a> imposed on directors of public companies. </p>
<p>If any <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s228.html">“related party” of a company</a> – including a director, their spouse, child, parent or other company that any of these parties controls – wants to enter into a transaction with the director’s company, the shareholders’ permission has to be obtained in advance.</p>
<p>So, for example, if the father of a director wanted to purchase a vehicle owned by the company of which she was a director, the shareholders would have to approve the transaction before it took place.</p>
<p>Most importantly, any person involved in a breach of the rules is <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s209.html">subject to</a> a <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1317g.html">civil penalty</a> of up to A$200,000 if the breach is not dishonest (that is, if it is unintentional), and <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/sch3.html">faces</a> criminal prosecution and a fine of up to A$200,000 and/or imprisonment for five years if the breach is intentional. </p>
<p>The consequences of MPs breaching financial disclosure rules could easily be toughened by amending the <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ppa1987273/">relevant law</a>. Breaches should be subject to normal court proceedings, rather than being left to parliament’s dubious procedures. There should also be a penalty regime mirroring that applicable to company directors.</p><img src="https://counter.theconversation.com/content/74366/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bede Harris does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Politicians should be subject to a penalty regime similar to the far more stringent one that applies to company directors.Bede Harris, Senior Lecturer in Law, Charles Sturt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/725622017-02-16T03:20:34Z2017-02-16T03:20:34ZAre fossil fuel companies telling investors enough about the risks of climate change?<p>Prior to President Donald Trump taking office, <a href="https://ag.ny.gov/sites/default/files/2016.10.26_ny_v._pwc_and_exxon_decision_and_order.pdf">there was a push</a> to require oil and gas companies to inform their investors about the risks of climate change. As governments step up efforts to regulate carbon emissions, the thinking goes, fossil fuel companies’ assets could depreciate in value over time. </p>
<p>The Securities and Exchange Commission, for example, <a href="http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593">was probing</a> how ExxonMobil discloses the impact of that risk on the value of its reserves. And <a href="http://www.sasb.org/investors-sec-sustainability-disclosure/">disclosure advocates</a> <a href="http://www.cdsb.net/news">have been pressing</a> the agency to <a href="https://www.institutionalinvestor.com/article/3558720/investors-endowments-and-foundations/michael-bloomberg-pushes-companies-to-reveal-climate-risk.html">take more decisive action</a>. </p>
<p>Now that Republicans control Congress and the White House, will the SEC reverse course? And should it? </p>
<p>The Trump administration’s apparent skepticism regarding climate change may portend such a change in direction. And Congress’ <a href="http://www.cnn.com/2017/01/31/politics/oil-industry-regulations/">decision to roll back transparency rules for U.S. energy companies</a> in the <a href="https://www.wsj.com/articles/republicans-are-poised-to-roll-out-their-roll-back-of-dodd-frank-law-1486315341">Dodd-Frank Act</a> suggests transparency policy more broadly is being loosened. </p>
<p>The terms of this debate, however, remain premised on the notion that investors don’t have enough information to accurately assess the impact of climate change on company value. A growing body of academic research, including our own, suggests they already do and that a compromise path that improves the terms and conditions for voluntary disclosure might be optimal.</p>
<h2>‘Stranded’ assets</h2>
<p>Such a change in direction would be good news for ExxonMobil in its fight with the SEC over climate change disclosure. </p>
<p>Last year, <a href="http://www.nytimes.com/2016/10/29/business/energy-environment/exxon-concedes-it-may-need-to-declare-lower-value-for-oil-in-ground.html">ExxonMobil announced</a> that 4.6 billion barrels of oil and gas assets – 20 percent of its current inventory of future prospects – may be too expensive to tap. That would be the largest asset write-down in its history. So far, the company <a href="http://www.reuters.com/article/us-exxon-mobil-results-idUSKBN15F1JR">has written down</a> US$2 billion in expensive, above-market cost natural gas assets. More write-downs – this time possibly oil sands – may be forthcoming.</p>
<p>It’s not clear how much of that are tied to the risks of climate change, but some took it <a href="https://www.ft.com/content/1d719e1e-9f41-11e6-86d5-4e36b35c3550">as evidence</a> that the fossil fuel industry is not doing enough to inform investors about those risks.</p>
<p>Disclosure advocates in the United States and Europe have been urging oil and gas companies to say more about the potential for their booked assets to become “stranded” over time. <a href="https://www.theguardian.com/environment/2015/mar/03/bank-of-england-warns-of-financial-risk-from-fossil-fuel-investments">Stranded assets</a> are mainly oil and gas reserves that might have to stay in the ground as a result of a combination of new efficiency technologies and policy actions that seek to limit greenhouse gas emissions.</p>
<p>The <a href="http://fortune.com/2016/01/15/decline-us-coal-industry/">collapse in coal equities last year</a> highlighted that concern. Intensifying price competition from cleaner energy sources such as natural gas and solar energy and the increasing cost of developing cleaner coal overwhelmed the industry’s already declining revenue.</p>
<p>Whatever policy direction the SEC takes on climate risk, it is unlikely to deter those investors who believe the present system of voluntary and mandatory disclosure has failed to provide them with sufficient information on the risks of climate change. And some market participants, such as <a href="http://www.huffingtonpost.ca/2015/09/30/mark-carney-climate-change_n_8222008.html">Bank of England Governor Mark Carney</a>, worry that the underreporting of climate change information is creating a big risk for financial markets – a carbon bubble – that could lead to a major market failure.</p>
<p>Currently, the SEC requires mandatory disclosure of all “<a href="http://irwebreport.com/20110121/when-information-is-material/">material</a>” information, while everything else is voluntary. This system has created a <a href="https://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">vast amount</a> of <a href="http://dx.doi.org/10.1016/j.jaccpubpol.2013.02.002">publicly available information</a> on the costs and risks of climate change. </p>
<p>But as the recent ExxonMobil revelations highlight, the market clearly does not have all information. There are good reasons for this. For competitive reasons and business survival, certain company information is kept confidential and private. </p>
<p>The courts and the SEC have always acknowledged a company’s right to privacy regarding certain information. Companies, moreover, argue it could be harmful to shareholders if disclosed prematurely. An appropriate balance is required.</p>
<h2>Costs of carbon</h2>
<p>Our own research confirms that financial markets already price climate risk into oil and gas company stocks based on company reports and <a href="https://ir.citi.com/E8%2B83ZXr1vd%2Fqyim0DizLrUxw2FvuAQ2jOlmkGzr4ffw4YJCK8s0q2W58AkV%2FypGoKD74zHfji8%3D">other data available</a> from public and proprietary sources. These data allow investors to estimate reasonably accurately the effects of climate change on companies, including the expectation of write-downs.</p>
<p>For example, our work suggests that investors first began pricing in this kind of data as early as 2009, <a href="http://www.sciencedirect.com/science/article/pii/S0140988315002546">when the scientific climate change evidence</a> about stranded assets first became known. Our <a href="http://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">latest research</a>, soon to be published in <a href="http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1911-3846">Contemporary Accounting Research</a>, shows that the share price of the median company in the Standard & Poor’s 500 reflects a penalty of about $79 per ton of carbon emissions (based on data through 2012). This penalty considers all S&P 500 companies, not just oil and gas firms. Importantly, this research also shows that investors are able to assess this penalty from company disclosures and the noncompany information available on climate change risk.</p>
<p>This penalty comprises the expected cost of carbon mitigation and the <a href="https://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">possible loss of revenue</a> from cheaper energy sources.</p>
<p>Exxon, for its part, says <a href="http://www.climatechangenews.com/2016/10/19/exxon-ceo-world-needs-oil-of-five-saudi-arabias-by-2040/">it prices the cost of long-term carbon</a> internally at $80 a ton, matching our market model. </p>
<h2>The right mix</h2>
<p>All this begs the question of what level of additional mandatory disclosure is needed to improve the “total mix of information available” for investors on which to base decisions. </p>
<p>With climate change a pressing concern, investors certainly have a right to demand more disclosure, and we agree with that. But at what cost? </p>
<p>Indeed, the cost of disclosure can be significant, and it’s not just the direct out-of-pocket costs that policymakers should consider when drawing up <a href="https://wagner.house.gov/media-center/press-releases/wagner-regulatory-reform-bill-passes-us-house">new regulations</a>. Indirect costs, such as forcing oil and gas companies to disclose vital confidential information to rivals, could be particularly burdensome to particular companies. And society could pay a heavy price if new rules lead companies to make unwise operating or investment decisions or postpone investment unnecessarily. Energy costs could increase or supplies decrease because of miscalculations. </p>
<p>Additionally, the private sector is trying to fill the gap on its own. Moody’s Investor Service, for example, <a href="https://www.moodys.com/research/Moodys-to-use-greenhouse-gas-emission-reduction-scenario-consistent-with--PR_351269">announced</a> in June that it will now independently assess carbon transition risk as part of its credit rating for companies in 13 sectors, including oil and gas.</p>
<h2>SEC voluntary disclosure program</h2>
<p>Given these and other factors, rather than mandate any new disclosures now, we urge the SEC to first implement a voluntary program along the lines of <a href="https://www.sec.gov/spotlight/fcpa/sec-report-questionable-illegal-corporate-payments-practices-1976.pdf">its successful 1976 program</a> for the disclosure of sensitive foreign payments (like bribes). The <a href="http://3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclosure.pdf">SEC’s report</a> on this program showed no harm to the stock prices of participants after they disclosed payments. </p>
<p>In fact, it is often the lack of participation that invites a negative stock price response, as markets often view nondisclosing businesses as those with something to hide.</p>
<p>This voluntary program also helped pave the way for the <a href="https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act">Foreign Corrupt Practices Act of 1977</a>, which <a href="https://www.justice.gov/opa/blog/criminal-division-launches-new-fcpa-pilot-program">formalized</a> the accounting requirements for bribery payments to foreign officials. </p>
<p>We would hope that a voluntary disclosure program for climate change would achieve a similar goal: that is, formal SEC disclosure requirements that consider the interests of all parties. </p>
<p>Such a program could initially target a defined group, such as the 50 largest SEC-registered oil and gas firms. That would give the SEC and private organizations like Moody’s the additional hard data and experience needed to examine the costs, benefits and financial market impacts of climate change risk disclosures.</p>
<p>Doing this would pave the way for more permanent rule-making to better serve the needs of investors, companies and, ultimately, the public.</p>
<p><em>This is an updated version of an <a href="https://theconversation.com/should-oil-companies-like-exxon-be-forced-to-disclose-climate-change-risks-66961">article originally published</a> on Nov. 2, 2016.</em></p><img src="https://counter.theconversation.com/content/72562/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amy Myers Jaffe also serves as a senior advisor for energy and sustainability for Office of the Chief Investment Officer of the University of California. She recently published a study on methodologies for 2 degree scenario analysis for Ceres, an NGO that advocates for sustainability leadership. Her research at the University of California Davis is funded by grants from California government agencies, the Sloan Foundation and an industry consortium including automobile and oil and gas companies.
</span></em></p><p class="fine-print"><em><span>Paul Griffin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Trump administration may reverse a recent push to require oil companies to disclose more information about climate change risks to investors. Is that a good thing?Paul Griffin, Professor of Management, University of California, DavisAmy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/723562017-02-08T18:56:21Z2017-02-08T18:56:21ZWhat’s behind the rise in shareholder class actions<figure><img src="https://images.theconversation.com/files/155788/original/image-20170207-27185-36n7sc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shareholders are left in the dark if CEOs overstate their firms' prospects or conceal negative information.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>There’s <a href="http://www.lawyersweekly.com.au/news/18598-class-actions-australia-s-fastest-growing-species-of-litigation">been several high profile</a> class actions launched by unhappy shareholders against the companies they invest in, otherwise known as securities class actions, lately in Australia. The common theme is a claim these companies have not been straight with investors, issuing falsely optimistic information or concealing negative information. </p>
<p>If it’s proved to be true, this sort of conduct does indeed damage market confidence and harms shareholders. The issue is then how shareholders and boards might mitigate the risk of these class actions occurring. This comes down to what types of executive (and board) characteristics are associated with the risk of litigation and what actions accentuate this risk.</p>
<p>To further understand what is driving these class actions <a href="http://dx.doi.org/10.2139/ssrn.2436264">we looked at a set of nearly 1,400 securities class actions targeted against</a> US listed companies. We wanted to see how much of a role CEO overconfidence played in these actions, after controlling for other corporate factors. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=397&fit=crop&dpr=1 754w, https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=397&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/155531/original/image-20170204-18294-1ddfwtc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=397&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">SCA statistics in the United States.</span>
<span class="attribution"><span class="source">SCAC at http://securities.stanford.edu/charts.html and Cornerstone at http://securities.stanford.edu/litigation-activity-indices.html</span></span>
</figcaption>
</figure>
<p>We found that overconfident CEOs seem more prone to overstate their firms’ prospects or conceal negative information in the erroneously overconfident belief that future performance can make up for past failures. </p>
<p>One of the most recent examples of a company accused of misleading shareholders in Australia <a href="https://www.mauriceblackburn.com.au/current-class-actions/bellamy-s-class-action/">is a class action against</a> infant formula maker Bellamy’s Organics.</p>
<p>Bellamy’s CEO was recently <a href="http://www.afr.com/business/retail/fmcg/bellamys-stands-down-ceo-laura-mcbain-20170111-gtpbj9">stood down</a> after the company’s share price fell more than 50%. Similar action has also been launched against <a href="http://www.reuters.com/article/australia-dairy-mg-unit-tr-idUSL3N18E1MH">Murray Goulburn</a>, <a href="https://www.mauriceblackburn.com.au/current-class-actions/slater-and-gordon-shareholder-class-action">Slater & Gordon</a>, and <a href="http://www.abc.net.au/news/2016-02-22/newcrest-settles-shareholder-class-action/7189390">Newcrest</a>.</p>
<p>Securities class actions are also more common in the United States. For example, <a href="http://securities.stanford.edu/research-reports/1996-2016/Cornerstone-Research-Securities-Class-Action-Filings-2016-YIR-Press-Release.pdf">270</a> were initiated in 2016. In Australia, class actions are arguably one of the <a href="http://www.lawyersweekly.com.au/news/18598-class-actions-australia-s-fastest-growing-species-of-litigation">fastest growing areas</a> of litigation, albeit from a rather <a href="http://dx.doi.org/10.1177/0312896213512320">low base</a>. </p>
<h2>When do securities class actions usually occur?</h2>
<p>The general rules governing these sorts of class actions are similar in the <a href="https://www.gpo.gov/fdsys/pkg/CFR-2016-title17-vol4/xml/CFR-2016-title17-vol4-sec240-10b-5.xml">US</a> and in <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1041e.html">Australia</a>. Someone can sue if they have suffered a loss as a result of the defendant making a false statement that alters share prices, when the defendant knew it was false or was reckless. </p>
<table>
<tbody><tr>
<td> <b> Defendant Company</b> </td>
<td> <b> Claim </b> </td>
<td> <b> Law Firm </b> </td>
</tr><tr>
<td>Bellamy’s</td>
<td>Alleged breaches of continuous disclosure obligations between 14-Apr-2016 and 9-Dec-2016, culminating in its price falling nearly 50% and its market capitalisation falling more than A$500 million. </td>
<td> <a href="https://www.mauriceblackburn.com.au/current-class-actions/bellamy-s-class-action/">Maurice Blackburn</a></td>
</tr>
<tr>
<td>Murray Goulburn</td>
<td>It’s alleged Murray Goulburn misled investors about its likely revenue in its Product Disclosure Statement (PDS) issued on 2 July 2015. It forecast net profit after tax (NPAT) of A$85.8 million. Murray Goulburn downgraded this to A$63 million on February 29, 2016. The company noted Chinese regulators had tightened regulations and denied an impact on profitability. On April 27, 2016, the company downgraded NPAT forecasts to A$39-42 million. The share price fell more than 40%. </td>
<td> <a href="https://www.slatergordon.com.au/class-actions/current-class-actions/murray-goulburn-class-action-investigation">Slater & Gordon</a> </td>
</tr>
<tr>
<td>Slater & Gordon</td>
<td>The class action alleges Slater & Gordon’s management misled investors about its profitability and about the risks involved in its acquisition of Quindell in April 2015. In December 2015 the company withdrew its 2016 profit guidance, which it had reaffirmed in November 2015. It reported a net loss of A$1.02 billion in 2016, attributable in part to a A$879.5 million impairment charge. It restated its 2015 profit from A$82 million to A$62 million. </td>
<td><a href="https://www.mauriceblackburn.com.au/current-class-actions/slater-and-gordon-shareholder-class-action/">Maurice Blackburn</a> </td>
</tr><tr>
<td>Newcrest</td>
<td>It’s alleged Newcrest misled investors about production and profit. It downgraded production forecasts, wrote-off all goodwill and impaired the value of its mining operations. The case settled out of court for A$36 million. </td>
<td>
<a href="https://www.slatergordon.com.au/class-actions/current-class-actions/newcrest-mining">Slater & Gordon</a>
</td>
</tr>
</tbody></table>
<p>Securities class actions typically follow large falls in share prices. They usually involve alleged breaches of listed companies’ obligations to inform the market of information that might have a material impact on its share price. Often this involves concealing negative information, such as declines in sales or profitability. Such obligations exist in <a href="http://www.asx.com.au/documents/about/abridged-continuous-disclosure-guide-clean-copy.pdf">Australia</a>, <a href="http://www.osc.gov.on.ca/en/Companies_continuous-disclosure_index.htm">Canada</a>, and the <a href="http://nysemanual.nyse.com/lcm/sections/lcm-sections/chp_1_3/chp_1_3_2/default.asp">US</a>, for example. </p>
<p>These class actions can also <a href="http://www.afr.com/business/legal/250m-class-action-against-slater--gordon-just-got-harder-20161222-gtgn8u">coincide with regulatory investigations</a>. </p>
<h2>What’s behind the surge in class actions?</h2>
<p>An increase in the amount of litigation funding options for these class actions, coupled with encouragement from regulators has spurred the amount of class actions. </p>
<p>Litigation funding helps to facilitate securities class actions. Individual shareholders in a class action will recover only small damages, which will be insufficient to pay for their litigation costs and class members do not want to be personally liable for costs. So litigation funding agencies step in by offering to pay the legal costs in return for a share of the winnings if the class action is successful. </p>
<p>The number of cases funded has increased recently. Bentham IMF, a listed funder, has seen strong growth in the number of cases funded. JustKapital has also seen strong growth since its <a href="http://www.justkapital.com.au/wp-content/uploads/2015/11/Investor-Presentation-March-2015.pdf?target=blank">listing by reverse merger</a> in 2015. It announced that it acquired a <a href="http://www.justkapital.com.au/wp-content/uploads/2015/09/JKL-AR2016-final-v-2.pdf?target=blank">portfolio of five cases in July 2016</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=513&fit=crop&dpr=1 754w, https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=513&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/155708/original/image-20170206-23515-am9q0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=513&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Number of cases funded by Bentham IMF. These are not all Securities Class Actions. The Graph focuses on Bentham IMF, which has the longest track-record as a listed company; and thus, the logest record subject to public and regulatory scrutiny.</span>
<span class="attribution"><span class="source">Bentham IMF</span></span>
</figcaption>
</figure>
<p>Litigation funding has also become more profitable for the companies involved. IMF Bentham, one of the largest litigation funders, <a href="http://www.imf.com.au/about">claims</a> to have recovered more than A$2 billion in damages with a 90% success rate. <a href="http://www.lcmfinance.com">Litigation Capital Management</a>, <a href="http://www.benthamimf.com">Bentham IMF</a>, and <a href="http://www.justkapital.com.au/">JustKapital Litigation Partners</a> have been successful enough to list on the ASX and perform strongly in 2016. </p>
<p>Regulators in Australia have been <a href="http://www.theaustralian.com.au/business/opinion/asics-nod-to-class-actions-may-backfire/news-story/4b2ee2aa619539bea0cae5ee33eb5e42">relatively encouraging to litigants</a>. For example, ASIC and the <a href="http://dx.doi.org/10.2139/ssrn.2109739">SEC</a> can pursue companies for civil penalties for failing to disclose. This also enables class actions, because it helps litigants to prove their case, or tip-off litigants about conduct that could give rise to a case. </p>
<p>For example, in 2016 ASIC announced that it would investigate whether Slater & Gordon <a href="http://www.afr.com/business/legal/new-slater--gordon-investigation-unsurprising-given-long-history-of-accounting-problems-20161221-gtfu0z">deliberately manipulated financial reports</a>. Such a finding would help litigants establish that Slater & Gordon misled the market. </p>
<h2>What companies should do to avoid a class action</h2>
<p>The evidence suggests that lax governance and poor oversight can drive securities class actions. This is especially the case in the presence of overconfident CEOs. </p>
<p>A key example is the case against property developer Centro, where directors allegedly <a href="http://www.austlii.edu.au/au/cases/cth/FCA/2011/717.html">failed</a> to properly familiarise themselves with the company’s books, and financial statements were issued without the directors’ scrutiny. This resulted in a <a href="https://www.mauriceblackburn.com.au/past-class-actions/centro-class-action/">class action</a> with a A$200 million settlement. The regulator, ASIC, <a href="http://www.afr.com/business/legal/250m-class-action-against-slater--gordon-just-got-harder-20161222-gtgn8u">is investigating</a> whether Slater & Gordon deliberately falsified books.</p>
<p>Our <a href="http://dx.doi.org/10.2139/ssrn.2436264">research shows</a> overconfident CEOs tend to overestimate their own abilities and the performance of their companies. Because of this, they <a href="http://dx.doi.org/10.1111/j.1540-6261.2005.00813.x">overinvest</a>, overestimating the returns and underestimating the risks, of projects. This manifests, for example, in overconfident CEOs doing <a href="https://doi.org/10.1017/S0022109013000392">worse takeovers</a>.</p>
<p>The issue is then what shareholders and company boards can do to reduce the risk of such distortions. Increased regulatory scrutiny can help, but regulators lack resources to proactively prevent disclosure lapses and typically respond after wrongdoing becomes apparent.</p>
<p>One clear remedy for companies is to improve corporate governance. Improved <a href="https://doi.org/10.1093/rfs/hhv034">governance</a> and appropriate <a href="http://dx.doi.org/10.1016/j.jfineco.2016.01.022">compensation</a> schemes for executives, can help to manage overconfident CEOs. They can help to align overconfident CEOs’ interests with those of their companies, and greater board independence, can both restrain their actions and force them consider outside perspectives that can attenuate their overconfident beliefs. </p>
<p>Board independence can also help. However, independent directors must themselves be encouraged and incentivised to monitor firms: in the Centro case, independent directors <a href="http://www.austlii.edu.au/au/cases/cth/FCA/2011/717.html">had not done so</a>. One such avenue would be through compensation schemes tied to the company’s performance over an extended period of time. </p>
<p>With improved governance, and structuring incentives to align directors’ and executives’ interests with those of shareholders, companies may avoid damaging and costly securities class actions in the future.</p><img src="https://counter.theconversation.com/content/72356/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner receives funding from the Australian Research Council Grant DE150100895. He owned shares in Slater & Gordon; however, is not partaking in the class action.</span></em></p><p class="fine-print"><em><span>Suman Banerjee and Vikram Nanda do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s a common theme in the rise of class actions against companies: CEOs have not been straight with investors, issuing falsely optimistic information or concealing negative information.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneySuman Banerjee, Associate Professor of FinanceVikram Nanda, Pofessor of Finance, University of Texas at DallasLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/689992016-11-18T12:02:10Z2016-11-18T12:02:10ZWhat is a ‘blind trust’ and will it remove Donald Trump’s conflicts of interest?<figure><img src="https://images.theconversation.com/files/146548/original/image-20161118-19365-dmz2ek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Donald Trump's sons are at the ready.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-386610478/stock-photo-las-vegas-nv-february-23-2016-donald-trump-is-flanked-by-sons-eric-right-and-donald-jr-left-during-mr-trumps-victory-speech-after-nevada-caucus-las-vegas-nv-at-treasure-islan.html?src=hSNzfW5w-BB0GQ6X4Ym9nw-1-47">Joseph Sohm / Shutterstock.com</a></span></figcaption></figure><p>The US president-elect, Donald Trump, has made his name as a businessman. His empire extends <a href="http://europe.newsweek.com/donald-trump-blind-trust-foreign-business-deals-500398?rm=eu">well beyond American shores</a>, as far afield as Azerbaijan, Turkey, the UAE and Indonesia. The potential this brings for possible conflicts of interest to both Trump and his administration, both home and abroad – whether it’s legislating tax breaks for business or negotiating trade deals – are incredibly wide ranging.</p>
<p>To overcome the problem, Trump has said he will use a “blind trust”. Of course, nobody can unknow what they already know about their company’s dealings. But, in a bid to show non-corruption, blind trusts involve severing ties with your business dealings, putting them all under somebody else’s control and having “no knowledge” of what is happening in the business. </p>
<p>This is not a legal requirement for presidents, but it is a longstanding convention. Reagan and Bush used this kind of arrangement – both appointing independent parties to administer of their business affairs. The Clintons also created one when they entered the White House in 1993. They then dissolved it in 2007, converting all their stocks to cash <a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/06/14/AR2007061400474.html">to avoid financial conflicts when Hillary ran for president</a>.</p>
<p>The difference with Trump is that he has said his blind trust will be run by his son, Donald Trump junior. It will certainly be efficient, in terms of keeping Trump business stationery pretty much the same. But is it sufficient to prevent conflicts of interest? </p>
<h2>Full disclosure</h2>
<p>Conflicts of interest are a regular risk in business. With many people holding multiple jobs and positions – whether it is on boards or in voluntary work – managing this is a standard task for the executives and the HR function of an organisation. Even <a href="https://www.admin.ox.ac.uk/researchsupport/integrity/conflict/policy/illustrativeexamples/">within higher education</a>, considering this potential for conflict of interest is commonplace when staff of a university serve on other bodies such as research council committees or grant review panels. Similarly, researchers must disclose any “significant financial interest” or other relationship with the manufacturers of any commercial products or providers of commercial services discussed in the manuscript – and any financial supporters of the research.</p>
<p>Full disclosure tends to be the first port of call when it comes to circumventing conflicts of interest. In the UK parliament, disclosure rules are a key part of the <a href="http://www.publications.parliament.uk/pa/cm201516/cmcode/1076/107602.htm#a1">code of conduct for MPs</a>. The general principles are this code are described as selflessness, integrity, objectivity, accountability, openness, honesty and leadership. Whether the disclosure register has achieved this trust among the UK public in their politicians is debatable, however. </p>
<p>Interestingly, the first principle “selflessness” states that holders of public office must make decisions “solely in terms of public interest … and avoid any financial or other material benefits for themselves, their family, or their friends”. This again puts the spotlight on Trump’s decision to have a family member run his business and appoint <a href="http://www.wsj.com/articles/donald-trumps-son-in-law-could-get-key-white-house-role-1479343696">friends or relatives to his administration</a>.</p>
<h2>Complex business</h2>
<p>The Trump empire is diverse and – surprisingly despite a highly personal presidential campaign – it is still not entirely understood by most people. Of the 515 companies that Trump has a part in running, only just over half (268) bear his last name, according to a <a href="https://www.documentcloud.org/documents/2175187-trump.html">filing with the Federal Election Commission</a>.</p>
<p>This is compounded by the complexity of the Trump business model which has been involved in selling many products, but in recent years has sold its brand to companies across the world in exchange for franchise or royalty benefits. <a href="https://www.theguardian.com/world/2015/dec/11/donald-trump-towers-istanbul-condemns-anti-muslim-stance">Trump Towers Istanbul</a>, for example, is not owned by Donald Trump, but his company has sold the franchise to property developer Aydin Dogan.</p>
<p>With business arrangements across the world, even if Donald senior has nothing to do with his business going forward, distancing the business’s interests from foreign policy might be difficult for the administration and its international counterparts. Particularly if it has a significant Trump investment in its country.</p>
<p>The same applies domestically. Trump’s mandate to “Make America Great Again” must apply to the country across the board. Business plays a big part in this, especially with infrastructure and regulation high on Trump’s agenda. So his administration must be careful to show they are making decisions based on the whole country, not the president’s business interests. </p>
<p>It’s not just Trump who must manage his conflicts of interest. An estimated 6,000 government and high-profile appointments, including supreme court judges, are up for grabs. For these roles, a complex set of <a href="https://www.oge.gov/web/oge.nsf/Financial%20Conflicts%20of%20Interest/34F1CF2FAF392D7D85257E96006364EB?opendocument">conflict of interest rules exist</a> to prevent executive branch officials from profiting from their responsibilities – or even appearing to profit. Managing this will be a major HR challenge. </p>
<p>For the public to have faith in Trump’s blind trust, it will require clarity and robustness from the new administration to distance itself from any decisions that benefit the business interests of the Trump empire and its partners across the world.</p>
<p>On a practical level, any discussions at the Trump dinner table will either be very muted or will need a team of lawyers present. National Security will significantly constrain what the president can bring home from his day at the Oval Office. And a requirement of the blind trust will completely shut down any talk surrounding the business that Donald senior spent 45 years growing.</p><img src="https://counter.theconversation.com/content/68999/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Horan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trump must demonstrate that his presidential decision making will not be influenced by his business interests across the US and the globe.Mark Horan, Senior Lecturer Human Resource Management, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669612016-11-03T02:06:58Z2016-11-03T02:06:58ZShould oil companies like Exxon be forced to disclose climate change risks?<p><a href="http://www.nytimes.com/2016/10/29/business/energy-environment/exxon-concedes-it-may-need-to-declare-lower-value-for-oil-in-ground.html">Exxon Mobil announced</a> on Oct. 28 that it may have to take the largest asset write-down in its history. The company said that 4.6 billion barrels of oil and gas assets – 20 percent of its current inventory of future prospects – may be too expensive to tap. </p>
<p>Some took Exxon’s statement <a href="https://www.ft.com/content/1d719e1e-9f41-11e6-86d5-4e36b35c3550">as evidence</a> that the fossil fuel industry is not doing enough to inform investors about climate change risk. As governments step up efforts to regulate carbon emissions, the thinking goes, fossil fuel companies’ assets are worth less. </p>
<p>It follows the opening of a <a href="http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593">Securities and Exchange Commission (SEC) investigation</a> into how Exxon discloses the impact of that risk on the value of its reserves. That probe and <a href="https://ag.ny.gov/sites/default/files/2016.10.26_ny_v._pwc_and_exxon_decision_and_order.pdf">others</a> build on the claim that the present system of voluntary and mandatory disclosure has failed investors by not providing enough information on the risks of climate change. <a href="http://www.sasb.org/investors-sec-sustainability-disclosure/">Disclosure advocates</a> <a href="http://www.cdsb.net/news">are pressing</a> the SEC to <a href="https://www.institutionalinvestor.com/article/3558720/investors-endowments-and-foundations/michael-bloomberg-pushes-companies-to-reveal-climate-risk.html">take more decisive action</a>. </p>
<p>But what’s the proper policy that balances the need for disclosure with its costs and impact on confidentiality? </p>
<p>This debate matters not only to investors but to the public as well. <a href="http://www.huffingtonpost.ca/2015/09/30/mark-carney-climate-change_n_8222008.html">Bank of England Governor Mark Carney</a> and others worry that the underreporting of climate change information is creating a big risk for financial markets – a carbon “bubble” – that could lead to a major market failure. Some, like Carney, are worried about a financial crisis similar to 2008-2009.</p>
<p>All this is premised, however, on the notion that investors don’t already have enough information to accurately price in the impact of climate change. A growing body of academic research, including our own, however, suggests markets have access to substantial climate risk information, and that the SEC and others would be wise to tread carefully.</p>
<h2>The problem of stranded assets</h2>
<p>Regulators in both the United States and Europe have been urging oil and gas companies to say more about the potential for their booked assets to become “stranded” over time. </p>
<p><a href="https://www.theguardian.com/environment/2015/mar/03/bank-of-england-warns-of-financial-risk-from-fossil-fuel-investments">Stranded assets</a> are mainly oil and gas reserves that might have to stay in the ground as a result of policy actions that seek to limit greenhouse gas emissions. Those limits hinge on keeping global warming to no more than 2 degrees Celsius over preindustrial levels, although some have warned that even warming of 2 degrees is <a href="https://theconversation.com/a-matter-of-degrees-why-2c-warming-is-officially-unsafe-42308">unsafe.</a></p>
<p>The <a href="http://fortune.com/2016/01/15/decline-us-coal-industry/">collapse in coal equities</a> last year highlighted that concern. Intensifying price competition from cleaner energy sources such as natural gas and solar energy and the increasing cost of developing “clean coal” to satisfy government criteria overwhelmed the industry’s already declining revenue.</p>
<p>In the U.S., the SEC and the New York attorney general are pressing Exxon hard to disclose more of this information in its financial statements. Both inquiries raise the fundamental issue of whether the current system has, in fact, <a href="https://www.sec.gov/rules/interp/2010/33-9106.pdf">failed investors</a> and the public at large.</p>
<h2>Full disclosure</h2>
<p>Currently, the SEC requires full disclosure of all information deemed “<a href="http://irwebreport.com/20110121/when-information-is-material/">material</a>” for investors in companies’ regulatory filings, while everything else is voluntary. </p>
<p>It is far from obvious how much the current system is failing to price risks accurately. As Exxon’s disclosure shows, the market already has a lot of information. And new details are quickly absorbed. </p>
<p>Exxon’s share price fell 2.5 percent after the write-down, but that was <a href="https://www.ft.com/content/1d719e1e-9f41-11e6-86d5-4e36b35c3550">more likely a reaction to the sharp drop</a> in third-quarter profit from a year earlier. It was hardly an extreme reaction that suggested investors were taken aback by the asset disclosure.</p>
<p>While that gave investors more clarity about how Exxon is valuing its oil sands assets, information on the risks of that investment had already been widely available from a <a href="https://insideclimatenews.org/news/29092016/exxon-mobil-change-change-investigation-oil-sands-tar-sands-alberta-canada-sec">variety of sources</a>. And regardless of what Exxon says, its share price will partially reflect the disclosures of rival companies. Chevron and Chesapeake, for example, <a href="http://www.bloomberg.com/news/articles/2016-09-16/n-y-said-to-be-probing-exxon-s-valuation-of-oil-reserves">have already cut the value of their oil and gas reserves</a> by billions of dollars, while Total, <a href="http://www.statoil.com/en/NewsAndMedia/News/2016/Pages/17aug-ncs2030.aspx">Statoil</a> and <a href="http://www.conocophillips.com/sustainable-development/environment/climate-change/Pages/default.aspx">ConocoPhillips</a> have volunteered information on how they incorporate climate change risk into their strategies. </p>
<p>A growing body of academic research also supports this view, concluding that, in general, investors are already pricing stocks based on the <a href="https://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">vast amount</a> of <a href="http://dx.doi.org/10.1016/j.jaccpubpol.2013.02.002">publicly available information</a> on the costs and risks of climate change. </p>
<p>As the Exxon revelation highlights, however, the market clearly does not have all information. There are good reasons for this. For competitive reasons and business survival, certain company information is kept confidential and private. Companies argue it could be harmful to shareholders if disclosed prematurely. </p>
<p>But the fact that Exxon’s stock did not collapse when it volunteered its write-down news is also evidence that it knew what the markets already knew: namely, that its oil sands operations were risky and expensive. </p>
<h2>Costs of carbon</h2>
<p>The stock market reaction to Exxon’s possible write-down is also an indication that the climate-related market crisis <a href="https://www.theguardian.com/environment/2014/dec/01/bank-of-england-investigating-risk-of-carbon-bubble">that some fear</a> is not around the corner. </p>
<p>Our research confirms that financial markets already price much of this climate risk into oil and gas company stocks based on company reports and a vast array of data from public and proprietary sources. These data allow investors to estimate reasonably accurately the effects of climate change on companies, including the expectation of write-downs.</p>
<p>For example, our work suggests that investors first began pricing in this kind of data as early as 2009, <a href="http://www.sciencedirect.com/science/article/pii/S0140988315002546">when the scientific climate change evidence</a> about stranded assets first became known. <a href="http://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">Our latest research shows</a> that the share price of the median company in the Standard & Poor’s 500 reflects a penalty of about US$79 per ton of carbon emissions (based on data through 2012). This penalty considers all S&P 500 companies, not just oil and gas firms. </p>
<p>This penalty comprises the expected cost of carbon mitigation and the <a href="https://www.pagriffin.com/papers/GHGpaper_march_2016_final.pdf">possible loss of revenue</a> from cheaper energy sources.</p>
<p>Exxon, for its part, says <a href="http://www.climatechangenews.com/2016/10/19/exxon-ceo-world-needs-oil-of-five-saudi-arabias-by-2040/">it prices the cost of long-term carbon</a> internally at $80 a ton, matching our market model. </p>
<h2>The right mix</h2>
<p>All this begs the question of what level of additional mandatory disclosure is needed to improve the “total mix of information available” for investors on which to base decisions. </p>
<p>With climate change a pressing concern, investors certainly have a right to demand more disclosure, and we agree with that. But at what cost? </p>
<p>Indeed, the cost of disclosure can be significant, and it’s not just the direct out-of-pocket costs that policymakers should consider when drawing up <a href="https://www.congress.gov/bill/114th-congress/house-bill/5429">new regulations</a>. Indirect costs, such as forcing oil and gas companies to disclose vital confidential information to rivals, could be particularly burdensome to particular companies. And society could pay a heavy price if new rules lead companies to make unwise operating or investment decisions or postpone investment unnecessarily. Energy costs could increase or supplies decrease because of miscalculations. </p>
<p>Additionally, the private sector is trying to fill the gap on its own. Moody’s Investor Service, for example, <a href="https://www.moodys.com/research/Moodys-to-use-greenhouse-gas-emission-reduction-scenario-consistent-with--PR_351269">announced</a> in June that it will now independently assess carbon transition risk as part of its credit rating for companies in 13 sectors, including oil and gas.</p>
<p>Given these and other factors, rather than mandate any new disclosures now, we urge the SEC to first implement a voluntary program along the lines of <a href="https://www.sec.gov/spotlight/fcpa/sec-report-questionable-illegal-corporate-payments-practices-1976.pdf">its successful 1976 program</a> for the disclosure of sensitive foreign payments (like bribes). The <a href="http://3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclosure.pdf">SEC’s report</a> on this program showed no harm to the stock prices of participants after they disclosed payments. </p>
<p>In fact, it is often the lack of participation that invites a negative stock price response, as markets often view nondisclosing businesses as those with something to hide.</p>
<p>This voluntary program also helped pave the way for the <a href="https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act">Foreign Corrupt Practices Act of 1977</a>, which <a href="https://www.justice.gov/opa/blog/criminal-division-launches-new-fcpa-pilot-program">formalized</a> the accounting requirements for bribery payments to foreign officials. </p>
<p>We would hope that a voluntary disclosure program for climate change would achieve a similar goal. That is, formal disclosure requirements that consider the interests of all parties. </p>
<p>Such a program could initially target a defined group, such as the 50 largest SEC-registered oil and gas firms. That would give the SEC and private organizations like Moody’s the hard data and experience needed to examine the costs, benefits and financial market impacts of climate change risk disclosures.</p>
<p>Doing this would pave the way for more permanent rule-making to better serve the needs of investors, companies and, ultimately, the public.</p><img src="https://counter.theconversation.com/content/66961/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amy Myers Jaffe also serves as a senior advisor for energy and sustainability for Office of the Chief Investment Officer of the University of California. She recently published a study on methodologies for 2 degree scenario analysis for Ceres, an NGO that advocates for sustainability leadership. Her research at the University of California Davis is funded by grants from California government agencies, the Sloan Foundation and an industry consortium including automobile and oil and gas companies. </span></em></p><p class="fine-print"><em><span>Paul Griffin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The SEC and others are pressing Exxon to disclose more climate change risks to investors. But new research suggests shareholders are already pricing in those costs on their own.Paul Griffin, Professor of Management, University of California, DavisAmy Myers Jaffe, Executive Director for Energy and Sustainability, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/371082015-02-12T03:24:51Z2015-02-12T03:24:51ZUniversities are (slowly) feeling their way forward on divestment<figure><img src="https://images.theconversation.com/files/71734/original/image-20150211-25700-11mukql.jpg?ixlib=rb-1.1.0&rect=2%2C2%2C797%2C594&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The University of Sydney is hoping to chart a path to climate-safe investment.</span> <span class="attribution"><span class="source">University of Sydney</span></span></figcaption></figure><p>Another Australian university has outlined plans to reduce the exposure of its investments to climate change, and is taking a contrasting approach to the Australian National University’s <a href="https://theconversation.com/anus-resources-blacklist-social-activism-or-the-shape-of-things-to-come-32803">high-profile divestment plan</a> announced in October. The University of Sydney on Monday <a href="http://sydney.edu.au/news/84.html?newscategoryid=9&newsstoryid=14575">released plans</a> to reduce the carbon footprint of its investment portfolio by 20% over three years.</p>
<p>That will see the university reduce its carbon footprint to <a href="http://sydney.edu.au/news/84.html?newscategoryid=9&newsstoryid=14576">20% below the average</a> of Australian, international and emerging markets, rather than divesting from a particular sector such as the coal industry. </p>
<p>The stated rationale for this is that “divesting entirely from all companies with an interest in fossil fuels could result in divesting from companies that are also committed to building renewable energy sources. In addition, there are many companies that do not produce fossil fuels who are nonetheless heavy emitters”. This is an approach which the London-based <a href="http://aodproject.net/">Asset Owners Disclosure Project</a> (AODP) acknowledges. </p>
<h2>Universities exposed to climate risk</h2>
<p>The <a href="http://aodproject.net/images/docs/AODP_GUI.pdf">Global University Index</a> recently released by the AODP ranks and rates 278 universities on their efforts to disclose their investments exposed to climate risk. </p>
<p>The <a href="http://aodproject.net/">Project’s</a> objective is to protect members’ retirement savings from the risks posed by climate change. It does this by seeking improvements in disclosure and raising the bar on what is considered best practice. The AODP claims to examine “how asset
owners are preparing for the repricing of climate-exposed assets and the physical impacts on climate change” (see page 20 <a href="http://aodproject.net/images/docs/AODP_GUI.pdf">here</a>). </p>
<p>This is indeed a serious issue. </p>
<p>I struggled somewhat to work out what was done by the AODP, how it was done and what the various ratings mean. All but the top five universities were rated D (meaning that their climate change risk management is “poor”, see page 5 <a href="http://aodproject.net/images/docs/AODP_GUI.pdf">here</a>) or X (no information disclosed by any means). </p>
<p>The top 12 places were taken by US universities, with Charles Sturt being the top Australian University, ranked 13th. The University of Sydney, which was ranked before it unveiled its current plans, is ranked equal-28th and scores a D rating. </p>
<p>A Vice Chancellor (who provided a comment on the basis that it would be anonymous) from a British university with a strong reputation for innovation and commitment to sustainability, but which received an X rating in the index, told me: </p>
<blockquote>
<p>this seems a rather pointless league table, when most universities aren’t in it and of those that are almost all are harangued for not meeting even the basic criteria for the table. In reality while I guess universities recognise that climate change will have investment implications, and indeed may be looking at their investment portfolio in this context, as we are, the logical link from climate change via investments to future pension funding (which is what this organisation is focused on) is fairly obscure in the strategic priorities for most universities.</p>
</blockquote>
<h2>Time for action</h2>
<p>Of course, the issue is broader than universities, although this does not get universities off the hook. </p>
<p><a href="http://www.accaglobal.com/content/dam/acca/global/PDF-technical/sustainability-reporting/tech-tp-ca.pdf">Research</a> published by the Association of Chartered Certified Accountants and the Carbon Tracker Initiative has found that companies don’t typically disclose information on climate change risk that impacts on investors. </p>
<p>Simon O'Connor, CEO of the <a href="http://www.australiansustainability.com.au/home/">Responsible Investment Association Australasia</a> told me:</p>
<blockquote>
<p>Much of the discussion around investors managing climate risk has focused narrowly on the largest of Australia’s super funds. But beyond the large super funds, there are pools of capital across the economy that need to be considering the risks from a changing climate, and subsequent shifts in policy and technologies. </p>
<p>Universities are a case in point, as are a long list of public sector pools of capital - federal, state and territory- as well as funds managed by charities, corporates and individuals. In reality, too few investors are taking this issue seriously enough, as highlighted by the responses to the AODP universities survey.</p>
</blockquote>
<p>There is no doubt that universities, like many other sectors, ought to be doing more. In the case of universities, it is ultimately likely to be students and staff who push for the leadership required to drive the significant change which will inevitably come. </p>
<p>If the AODP is to be a driver of change, I would suggest that it needs to state exactly what it is that universities should do and disclose, and to consider rewarding public commitments that are an important, not to mention difficult, step along the way. </p>
<p>The challenges are abundantly clear from the <a href="https://theconversation.com/divestment-backlash-shows-companies-need-to-improve-sustainability-reporting-33079">criticisms</a> directed at the Australian National University, including from Prime Minister Tony Abbott, over its divestment decision. The University of Sydney’s approach cleverly sidesteps a backlash from the coal industry and its backers.</p>
<p>Last year, the University of Glasgow became the <a href="http://www.theguardian.com/environment/2014/oct/08/glasgow-becomes-first-university-in-europe-to-divest-from-fossil-fuels">first in Europe</a> to divest from fossil fuels. This is not an easy decision for an ancient institution (founded in 1451) with a range of stakeholders who will inevitably have diverse views. </p>
<p>But the University of Glasgow’s commitment is not reflected in its D rating (poor) by the AODP. Points were awarded points for “actual performance”, not commitments – even, apparently, where these commitments have been made public (a form of disclosure, I would argue). </p>
<p>Given the slow pace of change in integrating sustainability and climate risk in universities, it seems unlikely that Sydney University was influenced by its AODP rating. Its approach is a good example to follow. Continued slowness by universities leaves them exposed to reputation risk as well as climate risk.</p><img src="https://counter.theconversation.com/content/37108/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carol A Adams is a former Professor of Accounting and current visiting professor at the University of Glasgow and a part time professor at Monash University.</span></em></p>Another Australian university has outlined plans to reduce the exposure of its investments to climate change, and is taking a contrasting approach to the Australian National University’s high-profile divestment…Carol A Adams, Professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/150832013-06-13T04:47:27Z2013-06-13T04:47:27ZMind the gap: company disclosure discrepancies not sustainable<figure><img src="https://images.theconversation.com/files/25393/original/bj73f8n9-1371016239.jpg?ixlib=rb-1.1.0&rect=19%2C11%2C967%2C619&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Civilians rescue an injured worker after the eight-storey Rana Plaza garment factory collapsed in Dhaka, Bangladesh, on April 24.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The recent decision by two Australian retailers to sign an accord protecting suppliers in Bangladesh has highlighted discrepancies in company disclosure of sustainability issues and the need for clearer reporting guidance. </p>
<p><a href="http://www.abc.net.au/news/2013-06-07/kmart-target-sign-up-to-safety-accord-for-bangaldeshi-workers/4739436">Kmart and Target</a> became the first Australian companies to sign the Global Union Federations’ building and safety <a href="http://www.uniglobalunion.org/Apps/UNINews.nsf/vwLkpById/EC90FA91A0DB11C0C1257B6B0028A4DE/$FILE/2013-05-13%20-%20Accord%20on%20Fire%20and%20Building%20Safety%20in%20Bangladesh.pdf">accord</a>, following the collapse of the Rana Plaza garment factory in Bangladesh. According to Oxfam Australia, Big W and Cotton On are also making moves to sign the accord; however, a lack of information on which companies have suppliers in Bangladesh means a potential lack of other Australian signatories. </p>
<p>Recent research by <a href="http://www.catalyst.org.au/">Catalyst Australia</a>, a collaborative policy network, shows that this lack of supply-chain information is not an isolated incident and that significant gaps exist in sustainability reporting by Australian companies.</p>
<h2>Sustainability reporting</h2>
<p>Many ASX-listed companies are increasingly reporting on sustainability alongside financial matters. In a 2012 report, the Australian Council for Superannuation Investors (ACSI) found that 83% of companies listed on the ASX 200 to some extent <a href="http://www.acsi.org.au/images/stories/ACSIDocuments/generalresearchpublic/Sustainability%20Reporting%20Journey%202012.pdf">reported on sustainability matters</a>.</p>
<p>Sustainability, a term often interchangeably used with corporate social responsibility, represents a commitment to operate in an economically, socially and environmentally sustainable manner. The <a href="https://www.globalreporting.org/">Global Reporting Initiative</a> (GRI) provides the most well-known reporting frameworks. However, previous research has shown that <a href="http://cfmeu.com.au/sites/default/files/downloads/%5Bfield_download_state-raw%5D/%5Bfield_download_type-raw%5D/banarracfmeu2010labourpracticesreviewreport29mar2011.pdf">significant gaps</a> exist between claimed levels of GRI reporting and the information found in company reports. </p>
<p>Catalyst Australia developed a <a href="http://csr.catalyst.org.au">CSR dashboard</a> to gauge the quality of sustainability reporting by Australian companies. It analysed 32 companies across six topics - gender equality, environmental impact, labour standards, supply chains, community engagement and community investment - and found great variation in how they reported on their social and environmental activities. </p>
<p>Some of these differences can be attributed to the tendency of companies to concentrate on those areas that affect their performance, while meeting stakeholder demands for transparency and disclosure. At the same time, discretionary reporting can lead to highlighting achievements that reflect well on companies while overlooking other important areas.</p>
<h2>Clear expectations</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&rect=7%2C8%2C992%2C1462&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/25447/original/99ky4yxr-1371081046.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Workers layout cable as part of the NBN roll-out, which has caused controversy with recent revelations of asbestos mismanagement.</span>
<span class="attribution"><span class="source">AAP</span></span>
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<p>However, Catalyst also found that clearly defined reporting expectations lifted reporting and performance. Gender equality, carbon emissions, energy efficiency, and worker health and safety were well-covered topics, compared to other areas. The majority of companies addressed these topics in their public reports, even when disclosures revealed negative performance outcomes. </p>
<p>It is significant that these areas have strong external reporting guidance. For example, disclosures around gender diversity have recently benefited from the increased guidance of a <a href="http://www.asxgroup.com.au/media/asx_diversity_report.pdf">new reporting regime</a>, established through Australian Securities Exchange (ASX) Corporate Governance Principles. Doubtless, the CSR diversity reporting results reflect the clear guidance provided by the ASX Principles, along with a more activist approach by the federal government in spearheading the new <a href="http://www.wgea.gov.au/">Workplace Gender Equality Agency</a>.</p>
<p>External policy underpinning environment topics also helps steer public disclosures. In addition to a growing number of companies voluntarily reporting to the <a href="https://www.cdproject.net/">Carbon Disclosure Project</a>, corporations registered under the commonwealth government’s <a href="http://www.cleanenergyregulator.gov.au/National-Greenhouse-and-Energy-Reporting/Pages/default.aspx">National Greenhouse and Energy Reporting Act 2007</a> are required to report carbon emissions and energy consumption. This has focused attention on reporting in these areas, particularly when compared with other environmental indicators such as waste production and water consumption.</p>
<p>Worker health and safety disclosures are stimulated by the impact of legislation and by bodies such as <a href="http://www.safeworkaustralia.gov.au/">Safe Work Australia</a>, which encourages companies to collect and analyse detailed data, report targets and compare performance against industry peers and benchmarks. Union focus on workplace safety is also critical, as seen in the recent crisis surrounding asbestos in the <a href="http://www.abc.net.au/7.30/content/2013/s3775579.htm">National Broadband Network roll-out</a>.</p>
<h2>Overlooked areas</h2>
<p>But Catalyst found that supply chains and labour standards were the most under-reported topics, with the majority of companies providing no or very limited information about their policy, management and approach. This lack of focus confirms other <a href="http://www.acsi.org.au/board-composition-and-non-executive-director-pay-in-the-top-100-companies72/700-supply-chain-labour-and-human-rights.html">research</a> findings about Australian firms’ comparatively poor standard of reporting about human rights issues. </p>
<p>The absence of clear reporting guidance in these areas is notable. Unlike their global peers, few Australian companies reference the <a href="http://www.ilo.org/global/standards/introduction-to-international-labour-standards/conventions-and-recommendations/lang--en/index.htm">International Labour Organisation (ILO) Core Conventions</a>. This suggests a need to better contextualise the intent and purpose of the ILO Conventions by developing proxies that can be applied in the Australian context.</p>
<h2>Improving standards</h2>
<p>Disclosure inconsistencies can be avoided by introducing clear, persuasive minimum reporting standards, which should be mandated in areas where there are significant gaps in social and environmental reporting.</p>
<p>There is evidence that companies will embrace common standards for sustainability reporting when mandatory guidelines exist, or when expectations concerning disclosure are well defined and understood. In short: clear guidance contributes to greater transparency around social and environmental matters, and it encourages improved monitoring and performance.</p>
<p>Regulatory agencies, investors and industry bodies should consider minimum content guidelines for sustainability reporting. The ASX can play a pivotal role by spearheading improvements in disclosures that are particularly weak, through select amendments to the ASX Corporate Governance Principles.</p>
<p>Trade unions, civil society organisations and others with an interest in the human rights performance of companies have a vital role to play in creating decent and secure work standards by developing Australian proxies that reflect global sustainability principles. </p><img src="https://counter.theconversation.com/content/15083/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martijn Boersma works for Catalyst Australia.</span></em></p>The recent decision by two Australian retailers to sign an accord protecting suppliers in Bangladesh has highlighted discrepancies in company disclosure of sustainability issues and the need for clearer…Martijn Boersma, Researcher in Corporate Governance, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/116242013-01-20T19:34:09Z2013-01-20T19:34:09ZContinuous disclosure: social media and the two sides to trading halts<figure><img src="https://images.theconversation.com/files/19350/original/3f4q4q4k-1358468275.jpg?ixlib=rb-1.1.0&rect=76%2C47%2C3836%2C2545&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Whitehaven Coal hoax showed changes to continuous disclosure guidelines to address the role of social media and trading halts are needed, but the guidelines are not without their problems.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>In a fragile world and with a particularly fragile share market, Australia’s corporate regulators have seen their role in policing the area of continuous disclosure multiply.</p>
<p>Disclosure requirements are certainly not new to company law. At the end of the 19th century, companies listing on the Sydney stock exchange were required to promptly notify alteration of capital, calls, or other material information. </p>
<p>The formation of a national stock exchange in 1987 to facilitate trading of electronic securities inadvertently heralded several changes in the framework for monitoring disclosure. Early share price fluctuations effected investor confidence which in turn led to a review of the legislative framework surrounding disclosure. </p>
<p>From this initiative came the introduction of the continuous disclosure regime for listed companies in 1994. Investor confidence was the goal and it remains so today.</p>
<p>But from this fairly slow start, the profile of the continuous disclosure provisions has grown dramatically. </p>
<p>The Australian Securities and Investment Commission (ASIC) and the Australian Securities Exchange (ASX) are in the process of reforming disclosure laws, and released some revision to Guidance Note 8 of the ASX Listing Rules, which governs disclosure, in October last year. </p>
<p>The overall area is regulated in Chapter 6CA (ss674-678) Corporations Act and through the ASX Listing Rules (Chapter 3). Section 674 requires notification of information not generally available that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the securities. </p>
<p>Listing Rule 3.1 adds a layer of obligation by requiring that ASX be immediately told once the company becomes aware of such information. </p>
<p>In particular, the Australian Securities and Investment Commission (ASIC) has increasingly made use of the infringement notice procedure in Pt. 9.4AA Corporations Act to enable it to deal with breaches of s 674 more swiftly. Compliance with the infringement notice means that the entity avoids further legal proceedings and perhaps any adverse publicity that may result from such proceedings. </p>
<p>But the two vexing problems surrounding the current interest in continuous disclosure are the place of social media in disseminating information and opinion and the wisdom - or otherwise - of trading halts.</p>
<p>In 1994 when the framework of the continuous disclosure provisions was introduced, social media was infant and the need to monitor such sites by companies not a disclosure issue. </p>
<p>However the recent revisions to Guidance Note 8 of the ASX Listing Rules make it an issue today. </p>
<p>Speaking at the <a href="https://www.asic.gov.au/asic/asic.nsf/byHeadline/Continuous%20disclosure%20speech%20December%202012?opendocument">Chartered Secretaries Australia Annual Conference</a> last month, ASIC Commissioner John Price said he believed companies needed to be more aware of what information the market was trading on, although he conceded that it would be impractical to monitor every social media outlet.</p>
<p>The revised guidance note brings the definition of “officer” into line with the Corporations Act. This may unwittingly create uncertainty and chain of command difficulties for disclosing entities. </p>
<p>Under the Listing Rules a company becomes “aware” of information as soon as an officer has, or ought reasonably to have, come into the possession of the information. This is a broad category extending to senior company executives, receivers and administrators. </p>
<p>This means that monitoring what information is “reasonably” available is necessary across a number of possible positions and responsibilities, and this in turn is related to two very difficult ideas to tie down – the reasonable person, and the social media.</p>
<p>Another issue to arise from the revised guidance Note is that of trading halts. </p>
<p>The recent Whitehaven Coal hoax, for instance, set off a sell-down of the company’s shares resulting in a sudden fall in share price. </p>
<p>Whitehaven did call a trading halt and Whitehaven’s shares recovered. But the incident brought the relationship between the power of media information, and the difficulties with deciphering and reacting to false announcements, to the fore. </p>
<p>Trading halts elicit diametrically opposed responses from regulators and big business. Recent media has focused on the concern of big companies such as BHP and Telstra, which have expressed concern a more active approach to trading halts could result in a negative market reaction.</p>
<p>Trading halts can obviously cause some investor concern, particularly with institutional investors. However the relatively low proportion of companies the requirement would apply to, and the upside to investor confidence if a more supportive environment for trading halts exists, suggest the argument has a stronger claim to long term market stability. In the larger picture, the differing perspectives are merely an aspect of the regulation/deregulation dichotomy. </p>
<p>Although there is varying evidence on the effect of trading halts on trading volume and price volatility it is more certain that where an efficient trading halt procedure quarantines the downsides of negative market information the possibility of enhanced confidence during normal trading periods increases.</p>
<p>There are many ways the market can be misinformed. Revising the continuous disclosure provisions will not necessarily remove them all, but in a market where risk, complexity and technology are obvious, the refining, and redefining, of the idea of disclosure, is crucial. </p><img src="https://counter.theconversation.com/content/11624/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Quilter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In a fragile world and with a particularly fragile share market, Australia’s corporate regulators have seen their role in policing the area of continuous disclosure multiply. Disclosure requirements are…Michael Quilter, Senior Lecturer, Department of Accounting and Corporate Governance, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.