Analysis of Climate-Related Information in S&P 500 Companies’ 10-Ks
The CAQ analyzed S&P 500 companies’ Form 10-Ks to understand the extent of climate-related disclosures in those SEC filings.
The CAQ, using data by ESGAUGE, looked at the most recent SEC Form 10-Ks for S&P 500 companies available as of June 2024.1 We analyzed 10-Ks from S&P 500 companies to understand what companies disclosed in their SEC filings about climate-related information, including
- Greenhouse gas emissions (scope 1, 2, and 3)
- Net zero, carbon neutral, and other emissions reduction commitments
- Related reporting standards, frameworks, or requirements
We compared the data with similar climate-related data gathered in prior years.
This analysis was solely focused on information disclosed in an S&P 500 company’s SEC Form 10-K, and does not contemplate climate-related information communicated by companies outside of their SEC Form 10-K.
The CAQ observed that most S&P 500 companies mentioned climate-related information in their 10-K. The number of S&P 500 companies mentioning climate-related information in their 10-K increased almost 4%, from 477 companies in 2022 to 494 companies in 2023.
Climate-Related Information Mentioned in 10-K
From 2022 to 2023, we observed increases in companies disclosing climate-related information in Item 1A. Risk Factors, Item 1. Business, Item 7. MD&A and Item 8. Financial Statements. We noted the greatest percentage increases in the disclosure of climate-related information in Item 7. MD&A and Item 8. Financial Statements (more on that later). The majority of S&P 500 companies that mention climate-related information in their 10-K continued to do so in Item 1A. Risk Factors or Item 1. Business.
Similar to prior years, less common sections of Form 10-K where S&P 500 companies mentioned climate-related information included, Item 2. Properties, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Item 3. Legal Proceedings, Item 11. Executive Compensation, and Item 14. Principal Accountant Fees and Services.
Section of 10-K Climate is Mentioned
Overall, we found that when disclosures in an S&P 500 company’s 10-K included mention of climate-related information, the types of information included in the climate-related disclosures varied from company to company.
- A number of companies associated dollar amounts with their climate-related information. These disclosures varied and included capital expenses, research and development (R&D) costs, losses associated with severe weather events, investments, green bonds or sustainability-linked debt, and regulatory and compliance costs. Specific examples include investments or capital expenditure plans related to a transition to a low-carbon economy through renewable energy or other emissions reduction efforts. Additionally, companies shared costs or insurance settlements associated with natural disasters like hurricanes, wildfires, and tornados.
- Some companies disclosed the use or sale of carbon offsets or renewable energy certificates (RECs) often in relation to their discussion around GHG emissions reductions or other related goals.
- We observed that some companies disclosed actual emissions and reduction amounts, and others only disclosed their goals for future emissions reductions.
- In 2023, we observed a roughly 7% increase in companies that disclosed a net zero or carbon neutral commitment compared with 2022. The net zero and carbon neutral commitments disclosed in 10-Ks varied from company to company.
- Some S&P 500 companies disclosed net zero or carbon neutral commitments over scope 1 and 2 GHG emissions by a certain date, whereas others also disclosed goals for certain or all scope 3 emissions categories.
- While the target dates of the net zero or carbon neutral commitments varied, we observed that the most common target date was 2050 for both net zero and carbon neutral commitments.
- In addition to the companies that disclosed a net zero or carbon neutral commitment, roughly 90 companies indicated that they had a GHG emissions reduction goal (e.g., a goal to reduce scope 1 and 2 emissions by 50% by 2031).
Net Zero or Carbon Neutral Commitment Mentioned in 10-K
Climate-related mentions in the financial statements roughly doubled from the prior year. While companies increased disclosures across a variety of footnotes, we observed the greatest increase in disclosures related to debt or borrowing arrangements.
Most mentions of climate-related information in Item 8. Financial Statements continued to fall within one of the following types of footnotes:
- Debt or Borrowing arrangements – some companies described revolving credit agreements that contained a sustainability-linked pricing component which provided for interest rate and facility fee reductions or increases based on the company meeting or missing targets related to environmental sustainability key performance indicators (e.g., related to greenhouse gas emissions or renewable electricity usage). Other companies described the terms of sustainability bonds or green bonds.
- Significant accounting policies – Climate-related topics were noted in a variety of different accounting policies. They were most often mentioned in relation to accounting policies regarding RECs, and GHG emissions allowances or credits or current or future climate-related regulations like the SEC climate rule. When discussing the SEC climate rule, companies provided background information on the requirements, and some noted that they were still “evaluating the impact of these new rules”.
- Commitments and contingencies or Litigation – examples of matters described in these footnotes included climate-related lawsuits against companies alleging damages as a result of climate change, descriptions of the uncertainty of the potential impacts on companies that could result from physical risks, or the risks associated with climate-related policy or regulatory changes.
- Income taxes – companies discussed renewable or clean energy tax credits and other climate-related tax incentives, often mentioning these in relation to the U.S. Inflation Reduction Act (“IRA”). Companies received these incentives for their investments in or the production of renewable energy like wind and solar, carbon recapture efforts, and other initiatives to promote a lower carbon economy.
- While less common, we also observed the mention of climate-related matters in footnotes covering segment information, acquisitions and dispositions, regulatory matters, revenue, variable interest entities, and various others. We also observed some mention of climate-related matters in the critical audit matters (CAMs) section of the auditor’s report.
Examples of CAMs that mentioned climate-related matters
Long-lived Asset Impairments and Re-evaluation of Useful Lives:
“…auditing the Company’s identification of impairment indicators and re-evaluation of useful lives involved a high degree of subjectivity, particularly given the Company’s decarbonization initiatives and shift towards clean energy platforms.”
Regulatory Assets and Liabilities - Impact of Rate Regulation on the Consolidated Financial Statements:
“These analyses are generally based on … considerations around the likelihood of impacts from events such as unusual weather conditions, extreme weather events and other natural disasters, and unplanned outages of facilities.”
From 2022 to 2023, we observed an approximately 9% increase in the number of companies that mentioned scope 1, 2, or 3 GHG emissions, status, or objectives in their 10-K. Some S&P 500 companies that disclosed their scope 1, 2, or 3 emissions also provided quantitative GHG emissions information such as their actual carbon emissions for a period of time or their actual reductions in emissions.
Scope 1, 2 or 3 GHG Emissions, Status or Objectives Mentioned in 10-K
For the first time this year, we looked at whether S&P 500 companies mentioned any ESG reporting standards and frameworks or any upcoming ESG reporting requirements, beyond the SEC Climate Rule, in their 10-Ks. We looked at whether the companies mentioned using any of the following ESG reporting standards and frameworks: Sustainability Accounting Standards Board (SASB) Standards, Global Reporting Initiative (GRI) Standards, Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations, Integrated Reporting Framework or the IFRS® Sustainability Disclosure Standards. We also looked at whether companies made any mention of the European Union Corporate Sustainability Reporting Directive (EU CSRD) or the California Climate Laws (SB 253, SB 261 or AB 1305). We observed the following:
- Approximately 17% of S&P 500 companies mentioned using specific ESG reporting standards or frameworks for their sustainability reporting, in their 10-K. Many companies mentioned using more than one standard or framework for their sustainability reporting with the most commonly mentioned being the TCFD recommendations followed by the SASB standards.
- Roughly 13% of S&P 500 companies mentioned the EU CSRD in some way and 15% mentioned the California Climate Laws. This discussion mostly occurred in Item 1. Business and Item 1A. Risk Factors where companies were providing a regulatory update or describing risks related to new regulation.
Endnotes
- The data herein reflects the S&P 500 index from 2024 and the company’s most recent SEC Form 10-K as of June 30, 2024.
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