United States: Corporate Climate Change Reporting: Recent Developments

As world leaders coalesced in Paris to agree on an historic treaty to commit nearly 200 countries to a global greenhouse gas reduction target, a similar, renewed focus has been brought recently across borders to enhance corporate disclosure to stakeholders on the effects of climate change on their operating and financial results. Corporate climate change reporting remains a fragmented and inconsistent practice around the world and even within many countries, largely because disclosure practices have been driven by ad hoc corporate social responsibility, or CSR, initiatives using any number of voluntary standards such as the Global Reporting Initiative's G4 Sustainability Reporting Guidelines and CDSB's Climate Change Reporting Framework. Of late, however, there has been some push to crystallise and harmonise reporting, at least on the national level. Here, we discuss the most significant recent enforcement, regulation and industry initiative developments as related to corporate climate change reporting to stakeholders.

The Principal US "Requirement" to Date: the 2010 SEC Climate Change Disclosure Interpretive Release

To date, the most significant document at the US federal level calling for corporate climate change disclosure is the 2010 interpretive release issued by the US Securities & Exchange Commission, or SEC. At the time it was issued, the SEC stressed that the guidance was not intended to change existing SEC disclosure requirements, nor was it intended to change long-standing SEC interpretations of materiality. Nonetheless, the mere issuance by the SEC of the guidance resulted in a significant change in the landscape of climate change reporting by public companies in the United States.

In the guidance, the SEC highlighted four areas where climate change may trigger disclosure requirements when evaluating materiality related to a company's business, risk factors, legal proceedings and operating and financial review:

  • The impact of any existing or pending climate change legislation or regulation.
  • The risks or effects of climate change-related international accords or treaties.
  • The actual and potential indirect consequences of climate change-related regulation or business trends, such as increased or decreased demand for goods or services.
  • The actual and potential physical impacts of climate change, such as increased droughts or storms, other changes in weather or rising sea levels.

There has been no new US federal requirement on corporate climate change reporting since the 2010 guidance. Other key US federal reporting requirements did emerge around the same time, such as a 2009 rule by the US Environmental Protection Agency, or EPA, requiring large source emitters of greenhouse gasses and certain fossil fuel suppliers and vehicle manufacturers to disclose their emissions data annually. However, the EPA rule applies only to certain industry sectors or large greenhouse gas emitters, not all public companies listed in the United States, and the requirement is to report to a designated environmental regulator rather than to all stakeholders.

New York Attorney General Enforcement and Settlements on Climate Change Disclosure

So far there has not been any significant SEC enforcement related to climate change reporting. The principal federal effect of the 2010 guidance has been increased but relatively informal SEC correspondence to reporting companies commenting about their disclosure on the subject.

In this context, the New York Attorney General, or AG, has emerged as the most visible US public body policing climate change reporting. Invoking broad anti-fraud state statutes known as the Martin Act and the Executive Law, the AG initially issued subpoenas in 2007—before the SEC interpretive release—to five companies to collect information on what investigations they were historically conducting and what they had concluded at the time about the effects of climate change on their businesses, in order to determine whether their disclosure to investors on these effects was inadequate. The five companies were four power generators, AES, Dynegy, Xcel and Dominion Resources, and Peabody Energy, the world's largest private sector coal producer. Although the SEC guidance had yet to be issued in 2007, media and investor interest in climate change reporting had already gathered considerable steam.

Without the subpoenas progressing to a formal claim or the imposition of fines, three of the four power generators—AES, Dynegy and Xcel—agreed to beef up their climate change disclosure. The more interesting settlement was with Peabody last November, again without a formal claim or the imposition of fines, but in the much more robust disclosure landscape now. The Peabody settlement focussed on two allegations:

  • Peabody's statements that the company could not reasonably predict the future impact of any climate change regulation were inconsistent with the fact that the company and its consultants had looked into the issue at some length and had projected material and severe impacts from certain potential regulations.
  • Peabody "cherry-picked" disclosure of projections by the International Energy Agency, or IEA, on the future of the coal market as impacted by climate change developments. For example, Peabody mostly omitted reduced demand projections based on IEA's "New Policies Scenario," which assumes implementation of announced government carbon commitments/policies and which IEA considers its central scenario. Peabody frequently discussed demand only in the more favourable context of IEA's "Current Policies Scenario," which assumes announced government commitments/policies will not necessarily be implemented and is the scenario likely to result in a rise in global temperatures of 6ºC. This was not black and white—more the case of a significant imbalance in the disclosure.

The Peabody settlement is likely to send industrial companies back to the drafting table to determine whether their disclosure aligns with internal projections or awareness of climate change impacts, including the cost of regulatory compliance, changes in market demands for products, and physical impacts such as weather patterns or changes in the availability of raw materials. Peabody crystallised the notion that it is no longer acceptable for a company to report that it does not know or cannot predict impacts when it is at least aware of a range of meaningful possibilities, even if it is not certain which one will arise.

In addition, companies are likely to revisit points in their disclosure where projections are made as to market/demand for any product, and to consider whether those projections reflect all conventional scenarios on the impact of climate change regulation on demand or are imbalanced in favour of any one scenario.

AG's Subpoena to Exxon Mobil

Days before the Peabody settlement the AG issued its most high profile climate change-related subpoena yet: to Exxon Mobil. Although the subpoena is not public, it reportedly seeks information back to 1977 on what the company knew and when on the impacts of climate change, in order to compare against the company's disclosure. The AG's subpoena reportedly followed an investigative series published by InsideClimate News and the Los Angeles Times that reported that Exxon scientists were warning company executives as far back as nearly four decades ago of the potentially catastrophic consequences of global warming. Exxon Mobil has denied any inadequacy with its historic disclosure on the matter and has, perhaps unsurprisingly, missed a 4 December deadline to hand over documents to the AG going back that far. As a next step, the AG and Exxon Mobil are likely to agree a new schedule for document production in 2016.

Financial Stability Board Task Force on Climate Related Financial Disclosures

In late September, Mark Carney, the normally guarded governor of the Bank of England, surprised many listeners at a Lloyds of London dinner by speaking of the "potentially huge" losses investors faced from climate change regulation that could make vast reserves of fossil fuels "literally unburnable." On the heels of this speech, the Financial Stability Board or FSB, an international body chaired by Mr. Carney that coordinates national financial authorities and international standard-setting bodies to develop financial sector policies, announced on 4 December that it has established a task force to develop "voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders."

The task force is headed by ex-New York mayor Michael Bloomberg and will consider "the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures in this area." In particular, the FSB noted that the "wide range of existing disclosure schemes relating to climate or sustainability highlights the need for companies and relevant stakeholders to reach a consensus on the characteristics of effective disclosures and examples of good practices."

That a mainstream financial organisation, rather than organisations focused on environmental, sustainability or governance issues, has highlighted the importance of uniform climate change reporting marks a turning point in this area. The task force is aiming to publish its recommendations by the end of 2016.

Recent European Developments

The United Kingdom and the European Union as a whole have also seen some noteworthy developments recently in climate change disclosure requirements. The United Kingdom, which already required disclosure of relevant environmental issues by "quoted companies" in their directors' reports, now requires quoted companies to disclose annual greenhouse gas numerical emissions data in their directors' reports. While many public UK companies have already been providing such data in their CSR reports for some time, the disclosure has been a voluntary, industry-led and somewhat ad hoc practice until this requirement, which was introduced by the UK Climate Change Act 2008 and came into effect in October 2013.

Specifically, under the implementing Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, quoted companies are required to disclose the annual quantity of their greenhouse gas emissions in tonnes of carbon dioxide equivalent (i) from the combustion of any fuel or the operation of any facility, and (ii) separately, from the purchase of electricity, heat, steam or cooling by the company for its own use. The regulations do not prescribe a methodology for quantification, but the company must disclose the methodology used. "Quoted companies" are UK-organised companies whose shares are listed on the London Stock Exchange's Main Market, any main exchange in the European Economic Area, or the NYSE or Nasdaq.

The same regulations imposed an expanded requirement on quoted companies to report, in the strategic report part of their annual report, on their environmental policies and the effectiveness of those policies. This is a general environmental requirement and not specific to the subject of climate change.

Meanwhile, the European Union recently adopted a directive calling for large companies Europe-wide to disclose annually non-financial matters to stakeholders, including environmental matters. Whilst this requirement is also not specific to climate change matters, it is the first time company disclosure to stakeholders under the environmental rubric has become a clear, standard requirement as an EU matter.

Specifically, Directive 2014/95/EU on the disclosure of non-financial and diversity information—which amended Accounting Directive 2013/34/EU, and which came into force on 5 December 2014 and requires Member State implementation by 6 December 2016—requires large EU corporates to disclose in their annual report (or in a separate filing that is filed with their management report or made available on their website) relevant and useful information on their policies, main risks and outcomes relating to at least:

  • environmental matters, including greenhouse gas emissions;
  • social and employee-related matters;
  • respect for human rights;
  • anticorruption and bribery issues; and
  • diversity in their board of directors.

There is significant flexibility for companies to tailor the disclosure through the use of recognised international, European or national guidelines, such as the Global Reporting Initiative's Sustainability Reporting Guidelines, the UN Global Compact Principles, the OECD Guidelines for Multinational Enterprises or ISO 26000. In this way again, the EU Directive begins to formally regulate voluntary, widespread but inconsistent CSR disclosure practice by large companies.

The large companies covered by the Directive are companies incorporated in EU Member States that:

  • have more than 500 employees;
  • are "public interest" organisations, which include, among others, EU exchange-listed companies; and
  • have a balance sheet of at least €20 million or a net turnover of at least €40 million.

Subject to certain exceptions, through the EU Transparency Directive, this Directive applies equally to non-EU companies that have a listing of transferable securities on a regulated EU exchange.

What is abundantly clear from the Paris climate agreement is that legal requirements for companies to reduce greenhouse gases will continue to emerge and become more stringent. As they do, so will requirements for corporates to disclose both their carbon footprint and the impact that carbon regulations—and carbon awareness— have on their businesses. Such is the traction in this area that the OECD published in November its report on Climate Change Disclosure in G20 Countries: Stocktaking of Corporate Reporting Schemes, linked here: http://www.oecd.org/daf/inv/mne/Report-on-Climate-change-disclosure-in-G20-countries.pdf. France's Grenelle II legislation and Denmark's Finance Statements Act 2008 are yet further examples, and several other countries or groups of countries such as Australia, Canada and the European Union's Emissions Trading System already require at least reporting of greenhouse gas emissions by regulated entities to a government regulator.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.