July 29, 2020

Global Financial Markets Center and Partners Launch Climate Risk Disclosure Lab

Nicholas Institute for Environmental Policy Solutions

The initiative, a collaboration between the Global Financial Markets Center at Duke Law, the Nicholas Institute for Environmental Policy Solutions, and the National Whistleblower Center, will improve corporate reporting of climate-related risk and facilitate information sharing and policy development.

The Global Financial Markets Center at Duke Law and the Nicholas Institute for Environmental Policy Solutions have partnered with the National Whistleblower Center in an initiative to improve transparency and accountability in corporate reporting of climate-related risks and support individuals and entities working to address the threats climate change poses to the stability of the global financial system.

The Climate Risk Disclosure Lab, launched July 28, will be a hub for the sharing of information and ideas by individuals from multiple disciplines and perspectives, leading to better-informed choices about managing climate risks by industry leaders, policy makers, law enforcement officials, regulators, academics, non-governmental organizations, and other influential actors.

Those choices ultimately will benefit investors, shareholders, and the general public, said GFMC executive director Lee Reiners.

“As the impact of climate change becomes clearer by the day, investors are increasingly looking for consistent, high-quality, information around firm-specific climate risks,” Reiners said. “We believe the Lab can help inform the development of this information.”

Companies face enormous risks from climate change. Severe weather events such as hurricanes and tornadoes can have immediate destructive effects on physical assets, infrastructure, and supply chains and long-term disruptive effects on global financial markets, while the transition away from fossil fuels could render industries and business models obsolete and cause hundreds of billions of dollars in assets to be stranded.

Companies need to be aware of these risks so they can value their long-term investments, project market trends, implement adaptation measures, and identify emerging opportunities. Investors also need to be aware of these risks in order to compare firms, engage in effective risk-management, and ultimately allocate capital more confidently and efficiently, said Tim Profeta, director of Duke’s Nicholas Institute for Environmental Policy Solutions.

“In our transparent capitalist systems, these risks should be disclosed so investors can make the best informed judgments possible,” Profeta said. “The Climate Risk Disclosure Lab will provide an evergreen resource for investors, executives and whistleblowers regarding what is required in the disclosure of climate risk.”

To date, there is neither a standardized framework for climate-related disclosure in the U.S. nor an effective enforcement mechanism to hold companies accountable for failing to disclose material climate risks. To address this gap, the Climate Risk Disclosure Lab aims to facilitate the development of an enforcement, regulatory, and policy agenda around climate risk disclosure.

In-house law and policy experts will assemble available research and contribute their own research papers to highlight current climate risk disclosure standards and proposals to improve them, and work collaboratively with researchers, academics, policy experts, and industry leaders to generate reports. The Lab will also provide a forum for outside experts to submit writings on proposed approaches to climate risk disclosure.

Importantly, the Lab will assist corporate whistleblowers by publicizing the mechanisms for confidentially and anonymously reporting violations of climate risk disclosure laws to the Securities Exchange Commission, Commodity Futures Trading Commission and other regulatory agencies, providing more meaningful policing of both reporting and companies’ overall sustainability strategies. Expert guidance on this function will be provided by NWC, the leading nonprofit in the U.S. dedicated to protecting and rewarding whistleblowers.

“It is encouraging to see investors and other stakeholders pressing companies for answers about how they are addressing the enormous financial risks posed by climate change. But getting satisfactory answers requires robust disclosure rules, with enforcement of those rules by regulators and prosecutors working closely with whistleblowers,” said NWC executive director John Kostyack.

“We are excited to join with our Duke partners in providing an essential hub for research and idea-sharing among those implementing today’s disclosure rules and those designing critically-needed updates.”

Whistleblowers play an especially important role in mitigating climate risk given the current absence of disclosure regulations and lack of standards for corporate reporting, said corporate and securities law expert James Cox, the Brainerd Currie Professor at Duke Law. Currently, companies use their own metrics, choose their own scope, and employ their own calculation methods when disclosing climate risks – if they disclose them at all.

“Because such reporting is fraught with judgments, assumptions and estimates, there unfortunately will be lots of opportunity for less than candid reporting,” Cox said. “Those in charge of providing helpful disclosures are more likely to act responsibly if they know a deceitful disclosure can be exposed by a whistleblower.”

Lawrence Baxter, the David T. Zhang Professor of the Practice at Duke Law and the GFMC’s faculty director, emphasized that whistleblowing is “one of the key ways of providing access to information and activities that are deliberately hidden or obfuscated by companies unwilling to forego profits” – even at cost to the environment.

“Climate change is the great and most urgent issue of our time, yet short term financial incentives serve to prevent scientists and investors from assessing its real impact,” Baxter said.

“We are very proud to make this opportunity available to the public, media, public policy experts, scientists and others who might have vital information but do not know how they can safely share it.”

More information on the Climate Risk Disclosure Lab and its partners can be found at climatedisclosurelab.org.

This news release originally appeared on the Duke Law School's website.