Information Systems for Environmental Sustainability

IT, Resource Productivity, Environmental Preservation, and the Fourth Industrial Revolution

Climate Risk Regulations Vs Enforced Regulations: The IT Elephant in the Room

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In 2010 the SEC published “interpretive guidelines” for corporate disclosure of risks related to climate change, summarized in this table by Ceres (p. 8):

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The Interpretive Guidelines were hailed as an important step forward in providing material information to investors regarding climate change risks.

Did the Guidelines impact corporate disclosures in financial statements (10-Ks)?

Ceres analyzed all S&P 500 10-k filings from 2009 to 2013, finding that:

Most S&P 500 climate disclosures in 10-Ks are very brief, provide little discussion of material issues, and do not quantify impacts or risks. Based on this report’s 0-100 scoring scale, electric power companies received an average score of 16.7 for the quality of their SEC reporting—by far the highest industry average. Even within this group there was high variability in the quality of reporting. (Ceres, p. 5 [my emphasis in bold]).

What to make of these results?

Ceres recommends that the SEC: “devote increased attention to climate risk disclosure by issuing additional comment letters in response to inadequate disclosures, and educate registrants about how to comply with the Guidance.” (p. 28).

Regarding firms, Ceres essentially says: do a better job identifying climate risks and opportunities and disclosing these to the SEC. Ceres refers to the need for “systems, processes and controls to gather reliable information” but misses an important opportunity to address an underlying necessary condition to fulfilling SEC guidance:  implementing and managing specialized information systems for capturing, processing, and analyzing information related to energy, carbon emissions and other important environmental sustainability information.

It would be impossible for firms to comply with financial regulations without such systems, and it’s no different with environmental regulations. Imagine global corporations trying to comply with complex accounting and finance regulations using homegrown spreadsheet models developed and managed by one person: it wouldn’t work. The same applies to environmental regulations.

Here’s the bottom line.

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Guidance, regulations, board-level oversight, internal controls, emission reduction targets, management incentives, and reporting requirements are all well and good. But without addressing the IT elephant in the room – grossly inadequate information systems focused on environmental management information – I don’t foresee any significant changes in actions and impacts.

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Author: nigelpm

Associate Professor of Information Systems, Stephen M. Ross School of Business, University of Michigan - Helping organizations to navigate digital transformation.

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