Facebook CEO Mark Zuckerberg testifies before the U.S. House Financial Services Committee during An Examination of Facebook and Its Impact on the Financial Services and Housing Sectors hearing on Capitol Hill in Washington on Oct. 23, 2019.
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A blast of freezing air in the U.S. last winter made Facebook parent Meta Platforms slightly less profitable, the social media company said in a recently released document. It’s a rare instance of a company disclosing the financial impacts of severe weather, and dovetails with a push from the Securities and Exchange Commission to force companies to assess material risks from climate change.
Investors want to know more about risks that can arise from climate change, SEC Chair Gary Gensler said last July, and he has asked staff members to draft rules on mandatory disclosure. The SEC has been increasingly asking public companies on climate concerns, the Wall Street Journal reported last week.
The disclosure appeared after a division of the SEC asked David Wehner, Meta’s finance chief, in a September letter to spell out any material effects of climate change on Meta’s financial results.
Six weeks later a lawyer representing Meta responded by saying the company had not experienced any material physical effects of climate change that would have to be disclosed to investors.
“The company respectfully advises the staff that it regularly monitors its legal exposures and it has not identified any material litigation risks related to climate change that would be required to be disclosed under the applicable disclosure requirements,” the lawyer, Michael Kaplan of New York-based Davis Polk & Wardwell LLP, wrote in the letter, which appeared on the SEC’s website late last week.
The next week the SEC pushed back, saying Meta had not backed up its assertions and asking for more details.
A month later Meta replied, this time with an explanation of its process of deciding if it should release information to investors. Every quarter Meta’s finance organization checks if weather events impacted its results, Kaplan wrote. Legal and finance teams go over the findings in a meeting, looking for cases of events with an impact of at least $100 million, or 0.3% of net income before taxes in 2020.
“We would note that as part of this review in the first quarter of 2021, the company’s finance team identified that the polar vortex wave impacting the United States in February 2021 caused the company to incur increased energy costs of approximately just over 1% of the Company’s net income for the quarter,” Kaplan wrote.
Meta Platforms reported $9.50 billion in net income in the first quarter of 2021, and 1% of that figure works out to $95 million.
The term polar vortex describes winds that keep cold air circulating above the North Pole. In some years these winds become unstable and allow the cold Arctic air to spill downward and bring extreme winter conditions in some places. There isn’t consensus on whether these events can be considered climate disasters, but climate change can make them harder to predict, said Paul Ullrich, a professor of regional climate modeling at the University of California, Davis.
The polar vortex played a central role in a major winter storm in Texas in February 2021, according to the National Weather Service. Facebook maintains a data center in the Texas city of Fort Worth, with others located in Alabama, Iowa, Nebraska, North Carolina, Ohio, Oregon, New Mexico, Utah and Virginia.
While the polar vortex event was not material to Meta’s results, Kaplan wrote, the company did update its risk factors.
“We also have been, and may in the future be, subject to increased energy or other costs to maintain the availability or performance of our products in connection with any such events,” the company said in its quarterly earnings statement on file with the SEC.
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