Hawaii Lawmaker Presses SEC Chairman on Climate Change

Senator Brian Schatz (D-HI) urged SEC Chairman Jay Clayton to review the agency's seven-year-old guidance on climate change, during a Senate Banking Committee hearing on Tuesday.

"My current thinking is that the guidance is good, but we should continue to look at it," said Clayton, who was sworn in as chairman of the Securities and Exchange Commission in May. "There are industries that need to pay close attention to these trends."

Recent severe weather events, including Hurricanes Harvey, Irma, Jose and Maria, have brought increased attention to the potentially disastrous effects of climate change.

In the last 35 years, the average number of inflation-adjusted, billion-dollar severe weather events was about 5.5 per year, Schatz said, citing data from the National Oceanic and Atmospheric Administration's National Centers for Environmental Information. For the most recent five years, that's doubled.

"It's becoming increasingly clear that we cannot ignore these severe weather events and the impact they have on publicly-traded companies," he said, asking Clayton what he intended to do about it.

"I do believe, and there are a number of industries where, if there are patterns and changes in weather events and those types of things, those developments do have impacts on companies that should be disclosed, and they have impacts in many ways," Clayton, who was appointed by President Donald Trump, who has often publicly doubted climate change, said.

Clayton said that trends in increased loss and regulatory responses to severe weather events are "something investors should know about" and companies should discuss. "We have issued guidance around this," he said.

The SEC in 2010 released guidance, "Commission Guidance Regarding Disclosure Related to Climate Change," in an effort to increase transparency to investors on the material risks posed by climate change.

"I don't think that 2010 guidance suffices, and I'd just encourage you to maintain an open mind in this space," Schatz said.

He pointed specifically to the fallout of Hurricane Harvey, which made landfall in Texas in August. As a result, oil prices tumbled, and companies such as Motiva, ExxonMobil (XOM) , and ConocoPhillips (COP) shuttered refining operations. So did oil refiner Valero Energy Corporation (VLO) , upon which Schatz focused part of his remarks on Tuesday. 

The San Antonio, Texas-based company in its 2016 annual report warned investors that its business could be adversely affected by "increased frequency and severity of storms, droughts, and floods and other climatic events" as a result of climate change. Months later, Hurricane Harvey forced it to shutter five of its oil refineries, Schatz said, representing one-third of its total capacity.

"I don't know the numbers, but it would not surprise me if an event of that type would have an adverse effect on a company's financial condition," Clayton said.

Clayton is not the first SEC chair that Schatz, who was appointed to the Senate to replace Senator Daniel Inouye after his death in 2012 by Governor Neil Abercrombie and won his first six-year term in 2016, has pushed on climate change. He has made similar appeals to former SEC Chair Mary Jo White in the past.

"Under the law, investors have a right to know what risks publicly traded companies may face, including risks from climate change," Schatz said in a 2015 letter to White pushing for increased climate change guidance enforcement. "The political impasse surrounding climate action does not make climate change any less of a risk to businesses nor any less important that the SEC ensure these risks are lawfully disclosed."

He struck a similar tone on Tuesday.

"It seems to me that part of the problem is politics...and the other problem is, just institutionally, the SEC measures risk that can be measured, that is customarily measured, and that this is a relatively new risk that people are, scientists are, essentially stipulating to," he said. "Climate risk, in the financial context, is new."

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