When Hurricane Harvey stalled over Houston and dumped about 3 feet of rain in 2017, Hewlett Packard Enterprise Co. ’s largest campus was heavily flooded. Its global data center was inundated, along with buildings where the tech company’s servers and data-storage gear were assembled. After the floodwaters receded, Chief Executive Antonio Neri, then the company’s newly appointed president, toured the facility where diesel generators ran machinery drying out rooms to prevent mold. Two months later, HPE announced it was moving all manufacturing operations out of the Houston area to locations less exposed to extreme weather.
HPE also did something few companies do: It disclosed what it said were climate-related risks to its investors. More companies may soon be required to make more substantive climate disclosures amid growing pressure from investors and from regulators for businesses to think more about the future physical impact of changing climate patterns.
Under the Biden administration, the Securities and Exchange Commission is expected to issue rules compelling companies to do a better job of disclosing their climate-related risks.
Such disclosures pose difficult questions for companies. What is a climate risk versus a normal extreme-weather risk? The Houston region has always been prone to heavy flooding and hurricanes, for example, though some scientific research has begun to link higher ocean water temperatures with increased storm intensity.
Mr. Neri, who became HPE’s CEO in February 2018, said HPE decided to do more to estimate its potential exposure to build trust with investors.
“This was a wake-up call to force us to think much more broadly” about the risks HPE faced, Mr. Neri recalled recently. The company said it has spent the past 3½ years identifying existing and future vulnerabilities.
Companies are required to inform investors about all material risks they face, but the climate is often addressed in generalities. The current SEC guidance on climate disclosure is more than a decade old and focuses on the potential impact of regulations and international accords. The acting SEC chair has promised to re-examine this issue and update the guidance.
“The quality of disclosures is highly uneven and generally lousy,” concluded research published last year by the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. The number of companies disclosing climate-change risk has been rising over the past few years, it said, but details were often too vague to help investors determine which companies faced real problems.
“The big blind spot is the physical risk of climate change,” said David Victor, professor at the University of California, San Diego and co-author of the Brookings paper. He added that very few companies disclose specific risks, or what they are doing to mitigate their vulnerabilities.