The original piece by Roger Ballentine appeared on the Business Council for Sustainable Energy (BSCE) blog.

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Securities and Exchange Commission Chairman Gary Gensler has gone out of his way to argue that the Commission is not making “climate policy” in the way that the EPA or other energy or environmental regulatory agencies might. And he is correct – the SEC’s proposed disclosure rule mandates no changes to business energy use nor sets any targets related to greenhouse gas emissions. The Commission is doing what it is supposed to do: ensure that the market has access to consistent and comparable information that may be deemed financially relevant to investors. Certainly, the world’s largest asset manager thinks it is relevant – Larry Fink says that “[c]limate change has become a defining factor in companies’ long-term prospects.”

Smart investors and smart companies look at climate change as they do any other business issue. It presents risks such as acute physical risks like extreme weather, heat waves, and drought; chronic physical risks like rising seas and loss of arable land; regulatory risks that could impose direct costs on companies; stranded assets; and reputational risks that grow with a changing climate and changing demographics. For companies that offer goods and services to serve climate change mitigation and adaptation it presents opportunities for profit. And for companies that minimize risks and demonstrate leadership it offers opportunities in the form of lower costs of capital and the attraction of talent.

So why is the SEC’s disclosure rule likely to be so impactful? Because markets are really good at doing what markets do: rewarding risk management and value creation. No investor prefers to invest in a company that is doing less to manage risk and create opportunity than its peers. And no CEO wants to rank behind her competitors in any comparison. Voluntary disclosure regimes and the increasing number of investors who consider ESG factors (of which climate change is arguably the first among equals) have already driven behavior change by companies. But investors only have the insights they can glean from the subset of companies that voluntarily disclose climate-related information and the information they do get is often difficult to assess and fully compare.

Enter the SEC.

By mandating consistent and comparable disclosure of climate risk factors (and opportunities presented by managing the climate and low-carbon transition), the Commission is simply providing more and better information about more companies to the growing number of investors who are asking climate-smart questions about their asset allocations. And information moves markets. Investors can choose (or not) to use this information to assess value and allocate capital. All issuers will need to ask questions about themselves (How are we managing climate risk? How are we anticipating and seizing opportunities?). And they will be able (as will the marketplace) to compare themselves to their peers. This question-and-answer process, along with public disclosure, will impact how companies seek to address climate change.

And it is implausible that that process will lead any rational company to determine that they need to do less to mitigate climate risk or do less to demonstrate that they understand the opportunities of taking greater climate leadership. This is what I call “Climate Capitalism.” Like any other business issue, if managed well and with an eye toward innovation and improvement, integration of climate change into business strategy will yield value accretion and competitive advantage. Mandatory disclosure will put Climate Capitalism on steroids.

About the Author: Roger S. Ballentine is the President of Green Strategies Inc.

For a recent Forbes article on Roger and Climate Capitalism, read here.

For a recent presentation deck on the SEC Rule, see here.

Many of our clients are raising questions about the Security and Exchange Commission’s proposed rule on mandatory climate disclosures: How do I need to prepare? What information will I have to report? Is this really necessary?

Our main advice: mandatory climate disclosure is coming, and companies with robust sustainability strategies are poised to gain from this new rule. And, the SEC is implementing a rule because it is necessary – for the climate, and for investors.

For our full thoughts, please view our slide deck below on what the SEC’s proposed climate rule will mean for companies and investors.

SEC Proposed Rule - Climate Disclosures_Green Strategies

Amir Hegazi’s How Business Can Fight Climate Change: Building Companies that Combine Profit and Sustainability compiles insight and ideas from 35 thought and action leaders on how to mobilize the private sector to address climate change and reduce carbon emissions.

The conversations captured in this book provide a guide to business leaders on how to do their part to mitigate climate change, a threat to the system that business depends on. The private sector can, and has the responsibility to, contribute to climate solutions both from the perspective of sustainability and from the perspective of self-preservation.

How Business can Fight Climate Change is a call to action for companies looking to make a positive impact in the world and increase company value. Entrepreneurs, executives, and innovators show that harnessing the power of the private sector to win against climate change is a real possibility through examples of companies and individuals doing what they can to slow climate change.

Roger Ballentine is grateful and excited to be included with this group of climate visionaries. In his interview with Amir Hegazi, Roger discusses the “tremendous opportunity for dual value” within the climate transition. Companies can be both more competitive and more resilient by pursuing sustainable business strategy to create value for the planet and for the company.

Roger believes that there is no one-size-fits-all strategy for businesses to reach these goals. In the interview, Roger discusses his process when working with companies: align with company leadership, work through benefits of sustainability, and design a plan to incorporate sustainability throughout the DNA of the company.

Roger also provides his answer to why this shift towards sustainability is happening. Companies are starting to realize climate strategy is a smart business decision. There are now more visionary, forward-thinking CEOs making this happen. We are also seeing a paradigm shift taking place with customers, investors, and stakeholders. Being a leader in sustainability can now improve customer and employee loyalty. This is climate capitalism at work.

The caveat to all this is that we will not solve every aspect of the climate problem with just capitalism. We also need direct government intervention in the form of incentives, such as for renewable energy and carbon capture, as well as to step in to ensure capitalism is operating equally and mitigating climate damage in poorest parts of the world. But we cannot wait for government alone to instigate these crucial changes.

Amir Hegazi has compiled a selection of inspiring words from climate thought leaders ranging from entrepreneurs to global NGO leaders, including Robin Rix at Verra, Dominic Waughray of the World Economic Forum, and Kevin Moss of the World Resources Institute.

Thank you again to Amir for his crucial and inspiring questions, and for providing this link to the free eBook version of How Business Can Fight Climate Change: Building Companies that Combine Profit and Sustainability.

The following op-ed by Roger Ballentine appeared in the Colorado Sun on May 3, 2022.

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Among my great joys is an annual pilgrimage to the trout streams of Colorado. Last summer, the rivers were low, and fishing restrictions were in place to not further stress the fish. While walking the banks of the Roaring Fork, worrying about what climate change will mean for my favorite pastime, I found another unpleasant surprise: plastic bottles strewn along the bank.

That was a double-whammy. Those bottles were despoiling Colorado’s natural beauty, and they will be replaced by new plastic bottles.

With proper recycling, these bottles would not be along the riverbank, and new bottles made from recycled ones would result in roughly a third of the greenhouse gas emissions of a virgin bottle. But recycling rates are stubbornly low and plastics are one of the fastest growing segments of our waste stream, currently making up more than 18%.

Nationally, we recycle almost a third of our waste, but the 2020 rate in Colorado was only about 10%. Before it banned the practice in 2018, China purchased one in three plastic bottles in our waste stream to feed its own recycling industry. That demand made post-consumer plastic more valuable and created incentives for it to be collected and sold. Without that demand, those incentives are lost and more plastic ends up in our environment.

The good news is that Colorado is considering legislation meant to boost the state’s recycling performance. The bad news is the bill pursues a sub-optimal solution to the problem.

HB 22-1355 would create a “Producer Responsibility Program for Statewide Recycling.” Such “extended producer responsibility,” or EPR, policies rest on the idea that the companies that put plastic in the marketplace should be responsible for it through end of life. HB 22-1355 would place a fee on producers and use the money to cover the costs of implementing an EPR program, which would result in new funding to boost recycling programs.

The issue is not whether EPR is “fair” — it is — but whether it is the best way to solve the problem. It is not.

The record of EPR laws is mixed, at best. In Canada, for example, EPR policies have increased recycling program costs by roughly 26% while performance, measured by percentage of tons diverted from landfills, has increased only 1%.

Such a shortcoming reflects the fundamental flaw of EPR approaches: they do not directly address the single greatest problem facing the recycling industry: a lack of demand for waste to be recycled.

That’s where Minimum Recycled Content Standards, or MCS, come in. Under MCS policies, producers are required to increase the recyclable content of their packaging products and therefore must source and purchase recycled materials. As the percentages of required recycled content increases, these investments grow. As a result, suddenly-valuable post-consumer plastics find their way into recycling supply chains, greenhouse gases are reduced, new recycling jobs are created, and key steps toward a circular economy are made.

California, New Jersey, and Washington each have recently adopted MCS laws with various phase-in timelines. MCS approaches have garnered a range of support from local environmental groups to industry, including the American Chemistry Council. Ocean Conservancy, a prominent organization at the forefront of plastics pollution, recently released a report calling for MCS as a key component of keeping plastic waste out of the environment.

We need to focus our energy and political will on policy solutions that are achievable and effective. HB 22-1355, unfortunately, is not nearly as direct and effective a solution as simply increasing demand through a mandatory recycled content standard.

With mandated demand, today’s waste is tomorrow’s valuable product. The fishermen that proceeded me along the Roaring Fork most certainly would not have tossed dollar bills onto the bank of the river.