ESG Investing

SEC Proposals Spark Push for Impact Disclosure on Indigenous Communities

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Gaps in new proposed rules from the Securities and Exchange Commission (SEC) show that US progress on ESG largely leaves indigenous communities out of the equation.

Under the SEC proposal tabled this year, firms would be required to disclose information about climate-related risks in their annual reports and registration statements, including details of greenhouse gas emissions and climate-related financial metrics in audited financial statements. For the first time, it would enshrine a legal US requirement for companies to be transparent on the climate’s potential impact on their business, operational results, and financial condition.

Although the proposals are a step in the right direction toward standardizing climate change risks, the SEC is coming under fierce criticism for not accounting for the impacts of climate change on indigenous and tribal communities, who play a critical role in environmental preservation.

Critical to Climate Stability

Indigenous communities control around a quarter of the world’s land surface. Critically, about two-thirds of that land is defined as untouched by development and therefore essential to carbon capture. In South America, indigenous lands alone make up almost half of the Amazon rainforest and store about 34,000 million metric tons of carbon. As such, protecting indigenous communities plays a critical role in climate stability, both for those communities and the global.

Furthermore, indigenous communities help preserve and uncover sustainability solutions drawn from generations of practice and intimate knowledge of the landscape. For example, Aboriginal Australians have long practiced effective techniques to prevent large-scale bush fires, and traditional fishponds point the way to more sustainable aquaculture across the Hawaiian islands.

Indigenous communities control around a quarter of the world’s land surface. As such, protecting indigenous communities plays a critical role in climate stability.

Cocktail of Risks

Indigenous opposition can generate a whole cocktail of risks at once, including reputational, legal, and operational ones. First Peoples Worldwide, a nonprofit affiliated with the University of Colorado, cites the effects of the protests against the Dakota Access Pipeline, which reduced the stock value of Energy Transfer Partners by nearly 20% between 2016 and 2018. Amid intense opposition from the tribe, various banks withdrew their funding. Furthermore, the cost of the project ballooned from a targeted $3.8 billion to an actual cost of over $12 billion by the time it was completed in 2017, with much of the losses owing to delays in construction stemming from social unrest and legal challenges.

In Siberia’s Taimyr peninsula, an oil spill from from a Norilsk Nickel fuel storage tank in 2020 contaminated rivers used for fishing by local and indigenous communities. In one of the biggest disasters of its kind in history, the Russian mining company was forced to pay a fine of around $2 billion in the following year.

Progress and Pushback

Nevertheless, there is some evidence that regulators and investors are recognizing the importance of how to support indigenous communities. Through its Non-Financial Reporting Directive, the European Commission recommends disclosures and efforts to prevent abuses. Meanwhile, in line with World Bank policy, asset management giant BlackRock said in 2021 that companies should obtain the free, prior, and informed consent of indigenous peoples on business decisions that affect their rights.

A letter co-authored by 22 nonprofits called on the SEC in 2021 to reflect the land rights and human rights of indigenous peoples in climate change disclosures. The letter asked for requirements to make firms disclose how their business models impact issues of indigenous or tribal peoples’ rights, including through their supply chains, contractors, and subcontractors. The nonprofits also pushed to require firms to reveal any grievances, legal challenges, and ongoing dispute processes relating to indigenous peoples.

Requiring disclosures around the impacts of climate change on indigenous communities puts companies in a more effective position to manage, mitigate, and assess those impacts against their operations, argue proponents.

Investment in Indigenous Rights

Ignoring indigenous peoples’ rights presents operational, societal, and legal risks as well as a clear environmental hazard. As investors and regulators consider how to support sustainable practices and initiatives, part of due diligence may involve a closer look at how well climate- and sustainability-related funds advocate for indigenous and tribal communities.

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