[co-author: Laura Jarvis]
The buzz around climate change is expanding to include the potential effects it could have on businesses’ physical operations and value in the marketplace. Climate-related business risks typically fall into two categories: physical risks (extreme weather events, changes in climate patterns that can affect physical facilities and supply chains) and transition risks (the cost of transitioning to a low-carbon economy, including reputational effects).[1] As climate change can directly and indirectly impact a company’s present value and prospects for the future, the natural question follows: should companies have to disclose a broader range of risks to the public? A bill passed in the House, a recent Biden Executive Order, and actions by the Securities and Exchange Commission ("SEC") signal that the answer to that question is shifting toward "yes."