Physical Risks of Climate Change (P-ROCC)
A new framework for corporate disclosures
Wellington Management and CalPERS launch innovative framework to help executive teams better evaluate physical risks of climate change — new P-ROCC (physical risks of climate change) framework aims to facilitate more informed investment decisions through enhanced corporate disclosures
Boston, MA, September 9, 2019 – Wellington Management Company LLP (“Wellington”), the California Public Employees’ Retirement System (“CalPERS”) today announced the launch of a new framework designed to help companies and their executive teams assess and disclose the potential effects of the physical risks of climate change (P-ROCC) on their business. This new P-ROCC framework seeks to improve how companies disclose their physical vulnerabilities, and thereby help asset owners and investment managers better evaluate the ability of the companies they invest in to adapt to or mitigate such risks. For the purposes of the P-ROCC framework, Wellington and CalPERS define physical risks as inclusive of but not limited to extreme heat, drought, wildfires, hurricanes, flooding, and water access.
The development of this framework is the direct result of the collaborative initiative announced in September 2018, which outlined Wellington, CalPERS, and Woods Hole Research Center’s intentions to generate research aimed at connecting the impact of climate change to capital markets. This framework is meant to aid companies in their disclosure practices, whether those practices be voluntary compliance (like in the case of the Task Force on Climate-related Financial Disclosures-TCFD) or, in a growing number of markets, globally required compliance. In this way, the framework can serve as a helpful guide for management teams to disclose how they identify, measure, and manage their exposures to the physical risks of climate change. An improved understanding and disclosure of physical climate risks can help companies:
- Better relay information to capital providers, investors, markets, and regulators;
- Meet new disclosure requirements more effectively;
- Assure investors that they take these risks seriously — absent disclosure, market participants may presume that the company is unprepared for climate-related risks, affecting stock price volatility, cost of capital, confidence in management, and potential litigation;
- Recognize and adapt to the effects of climate change on operations; and
- Form a baseline for comparing and testing their assumptions against industry counterparts and enable them to assess and build competitive advantage.
Chris J. Goolgasian, Director of Climate Research at Wellington Management, said, “Based on our research, many companies overlook and/or underreport climate-related physical risks that can be material and important to disclose to stakeholders. We believe the P-ROCC framework may help executive teams with their strategic planning and communication around potential climate effects on their business lines.”
Beth Richtman, Managing Investment Director-Sustainable Investments at CalPERS, offers “As a global asset owner with a multi-decade time horizon, we think it is critical for us to understand how our companies are planning to adapt to the physical risks of climate change. Absent this information, we are left to wonder what, if any, steps a company has put in place to prepare for the future. To date, we find financial disclosures have a long way to go in order to provide the type of information that we would find impactful to our investment process.”
The P-ROCC Framework can be accessed on Wellington’s website, www.wellington.com.
About Wellington Management:
Tracing its history to 1928, Wellington Management is one of the world’s largest independent investment management firms, serving as a trusted adviser to over 2,200 institutional and private clients located in more than 60 countries and managing over USD 1 trillion of assets.*
Wellington offers comprehensive investment management capabilities that span nearly all segments of the global capital markets. The firm’s only business is investment management and its mission is to exceed the investment objectives and service expectations of its clients worldwide. Wellington’s solutions draw on a robust body of proprietary research and a collaborative culture that encourages independent thought and healthy debate.
*For Wellington Management group of companies as at 30 June 2019.
About CalPERS For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Their pension fund serves more than 1.9 million members in the CalPERS retirement system and administers benefits for more than 1.5 million members and their families in their health program, making them the largest defined-benefit public pension in the US. CalPERS’ total fund market value currently stands at approximately $374 billion. For more information, visit www.calpers.ca.gov.