01/31/2020 - Legal Analysis - Private Sector Project

The Reasonable Investor And Climate-Related Information: Changing Expectations For Financial Disclosures

by Hana Vizcarra

Download Staff Attorney Hana Vizcarra’s comment in the February edition of ELI’s Environmental Law Reporter here: The Reasonable Investor and Climate-Related Information: Changing Expectations for Financial Disclosures

In recent years, the drumbeat for more expansive climate-related corporate disclosures has grown louder and more consistent within a broader swath of the financial community. Investors want more information from companies about how climate change will impact their business and how the companies are planning for those impacts.

The discussion around what, when, and how companies should disclose this information has included calls for new regulatory requirements, changes to law, or simply extensive voluntary disclosures through various reporting forums. But even absent changes to law or regulation governing corporate disclosures in the US that more explicitly call for the inclusion of climate-related information, investors’ rising interest in that information could influence the law.

What information public companies have to disclose under US securities law often depends on whether the information is financially material. A key component of materiality as defined in US securities law—who is a “reasonable investor”—is evolving when it comes to climate-related information. As more investors demand and use climate-related information, the information that they incorporate into their portfolio management practices could become material. This evolution may soon impact what climate-related information courts consider material.

Understanding how the existing legal standard applies to new types of climate-related information as investors more consistently rely upon it in their investment decisions will be necessary for climate change risk to be properly accounted for in the market as a whole rather than relegated to the concerns of impact investors.

Read Staff Attorney Hana Vizcarra’s comment in the February edition of ELI’s Environmental Law Reporter for a discussion of this topic: The Reasonable Investor and Climate-Related Information: Changing Expectations for Financial Disclosures