Never Mind The Health Care Fallout, Here’s The Climate Change Damage

The ink from the last of 20 Presidential pens used to sign health care reform into law had barely dried when Caterpillar Inc. and Deere & Company, bellwethers

Don Marsh, Editor [email protected]

The ink from the last of 20 Presidential pens used to sign health care reform into law had barely dried when Caterpillar Inc. and Deere & Company, bellwethers of construction and the U.S. economy, disclosed how Obamacare would amount to $250 million in charges against earnings. Securities and Exchange Commission (SEC) rules compelled the announcements in what otherwise appeared to be spontaneous commentary on passage of the radical legislation.

While Caterpillar and Deere investors probably share voters’ overwhelmingly negative view of health care reform as sold from the White House and Capitol Hill, chances are they were not advised of the immediate blow to earnings the tarnished legislation guaranteed. Thanks to the SEC, however, investors in the two equipment makers and many other public companies might be apprised of the impact federal climate change legislation could have on their stock picks.

Recent SEC interpretive guidance on disclosure related to climate change-driven business or legal developments lists these examples for companies to bear in mind when preparing quarterly or annual report fine print: Impact of Legislation and Regulation, covering existing laws or regulations regarding climate change, plus potential impact of pending legislation and regulation; and, Indirect Consequences of Regulation or Business Trends, where regulatory, scientific or other climate change developments might lower demand for greenhouse gas-intensive goods or boost demand for competing, alternative products.

New York Stock Exchange-traded concrete, aggregate and cement companies get the picture, having added global-warming dogma to routine guidance on the effect weather, labor relations and other operational details might have on business. Under risk factors in their annual reports, Eagle Materials, Texas Industries and Vulcan Materials concede that climate change legislation would potentially impact their cement operations. MDU Resources acknowledges that new laws might affect its electric utilities, but does not indicate their potential impact on its Knife River Corp. construction materials subsidiary, whose assets include Hawaiian Cement. Climate change legislation might increase costs for Martin Marietta Materials’ Ohio lime and Michigan magnesia operations, management notes, but have limited effect on core aggregates businesses. Oldcastle Inc. parent CRH Plc cites as risk factors environmental regulations throughout the countries in which it operates, but does not appear to peg climate change legislation specifically. And, Cemex S.A.B. addresses climate change in a Sustainable Development Report, a companion to its annual report.

Issued in late January, the SEC’s guidance bolsters environmental activists’ prodding of public companies to improve their sustainable practices and means of disclosing how they are assessing and mitigating climate change risk. During what Boston-based Investor Network on Climate Risk (INCR) dubs the height of the 2010 proxy season, or annual meeting time, groups have flooded 82 U.S. and Canadian companies with 95 global-warming shareholder resolution filings.

Among those receiving suggested resolutions during this wave of filings are construction materials operators who have heeded SEC climate-change legislation disclosure guidance: Eagle Materials, reduce greenhouse gas emissions (resolution subsequently withdrawn); MDU Resources, adopt quantitative goals for reducing greenhouse gas emissions throughout Knife River; and, Vulcan Materials, begin a program of sustainability reporting.

Private groups and federal agencies are free to fixate on probabilities and shareholder disclosures. Considering the tremendous amount of capital lawmakers expended on health care reform, INCR and SEC might want to revisit climate change legislation prospects.