Larger U.S. publicly traded companies tend to be more transparent than smaller ones about their climate risks, and energy, utilities and materials companies generally disclose them more than other industries regardless of their size, a new S&P Global Market Intelligence analysis finds.

The analysis is based on data from Trucost, a part of S&P Global Market Intelligence. For details on Trucost's disclosure ratio methodology, see the accompanying informational box below.

This is one of four stories that review how transparent U.S. companies are being about their operational environmental and climate change-related risks through the lens of Trucost's weighted disclosure ratios for 2018, the most recent year available. The other stories examine how key companies in the media and technology, consumer and food industries stack up against their peers:

Facebook, Apple ramp up environmental reporting amid calls for more transparency

Amazon's emissions increase 15% in 2019 amid efforts to reduce carbon footprint

Beyond Meat trails animal meat peers on reporting environmental effects

Larger companies tend to be more transparent

An analysis of Trucost data shows that larger companies tend to have higher disclosure ratios: 89% of U.S. publicly traded companies with $5 billion or more in market capitalization in the energy and utility sectors had a weighted carbon disclosure ratio above 75%. About 80% of large-cap companies in the materials sector achieved a ratio above 75% while 57% of consumer companies, 44% of financial companies, 37% of healthcare companies and 35% of technology media, and telecommunications companies achieved a ratio in the top quartile.

There were fewer outperformers among mid-size U.S. companies — those with a market cap between $1 billion and $5 billion: 51% of mid-cap companies in the materials sector, 47% in the energy and utilities sectors, 20% in the consumer sector, 10% in technology, media and telecommunications, 4% in the financial sector and 1% in the healthcare sectors achieved a ratio higher than 75%.

Companies have come under increased investor pressure in recent years to review and publish their climate risks and opportunities and develop a plan for addressing those issues. Much of that focus has been on companies in the sectors responsible for the largest amount of greenhouse gas emissions, such as utilities and oil and gas companies. For example, oil and gas companies, utilities and power producers collectively make up 43% of the 161 companies targeted by Climate Action 100+, an initiative involving 450 investors with more than $40 trillion in assets under management.

Bigger companies generally have more resources to work on disclosure and also tend to be targeted more often by investors than smaller ones, noted  Trucost Head of Data Strategy and Operations James Salo. A company's location can also make a difference.

"You're most likely to have disclosure when you're looking at a highly environmental[ly] impactful organization that's a large-cap company in a developed market," Salo said.

Investors need environmental data to understand how well companies in their portfolio are positioned to handle those kinds of risks, said Bruno Sarda, president of CDP North America, a nonprofit that surveys companies each year on their climate, water and forest management risks and opportunities.

"A lack of information starts sending ambiguous signals about governance, about responsibility," Sarda said. "If you're not managing this risk, what other risks aren't you managing?"

Disclosing carbon risks is one of the first steps a company can take to tackle climate change, said Matt Gray, head of the power and utilities team at Carbon Tracker, a think tank that analyzes the clean energy transition. Companies also need to prepare for the costs of climate change and emissions to escalate over time, he said. 

Why power companies are largely ahead of the pack

The electric utility sector has higher direct impacts on the environment than most sectors and is generally further along on disclosures whereas service-based industries with fewer direct impacts "tend to be a little bit more mixed on how much they disclose," Salo said.

Within the energy utility subsector, 93% of electric utilities, all four independent power producers and energy traders, and 93% of multi-utilities that hold both natural gas pipeline and electric generation assets had a 2018 Trucost carbon disclosure ratio of 75% or higher. In comparison, 10 out of 11 gas utilities received a 2018 Trucost carbon disclosure ratio of zero.

Power companies may have an easier time than others in estimating their emissions, Gray suggested. The companies have centralized facilities where, as he put it, "you put coal in one end, it gets burned, and the emissions factors are quite well understood, so disclosure around that is a lot more straightforward."

Moreover, power companies are heavily regulated. "So they are accustomed to having to respond to either government or other stakeholder concerns" about their emissions, said Dan Bakal, senior director of electric power at Ceres, an organization that helps investors engage with companies on climate issues. 

Bakal also noted that publicly traded electric utilities in 2018 launched a template through their trade association, the Edison Electric Institute, that members could use to more uniformly disclose environmental, social and governance information. In August 2019, the ESG template was expanded to include data from natural gas distribution companies.

Val Smith, global head of corporate sustainability at Citigroup Inc., applauded the group’s efforts to create a comprehensive reporting template and methodology that respond to the needs of members and financial institutions.

As Smith put it in a statement at the time: "ESG disclosure continues to evolve from a 'nice-to-have' to a 'must-have.'"

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