United States: SEC Petitioned To Require Climate Risk Disclosure By All Public Companies; New York State Attorney General Subpoenas Records On Carbon-Related Risks

Petition seeks to have SEC require disclosure of financial risks from climate change by all publicly traded companies.

On September 18, 2007, a group of 22 organizations petitioned the U.S. Securities and Exchange Commission (SEC) to require all publicly traded companies to assess and fully disclose their financial risks from climate change. Citing the U.S. Supreme Court’s decision in Massachusetts v. EPA (2007) and pending legislation proposing greenhouse gas (GHG) limitations, the petitioners argue that climate change is without question material to corporate performance, and therefore must be included in corporate disclosures (see related On the Subjects). Although focused in part on the energy industry, the petition advocates for full disclosure by all publicly traded entities regardless of industry. Previous informal requests to the SEC requesting mandatory disclosure have received no response.

The petitioners include investors, environmental groups and state officials, such as California State Treasurer Bill Lockyer and New York State Attorney General Andrew Cuomo.

The group also filed a separate request that the SEC’s Division of Corporation Finance immediately begin reviewing 10-K and 10-Q filings for the adequacy of climate risk disclosures under existing regulations. The petitioners state that current disclosure in SEC filings are inconsistent and inadequate. Although some companies have voluntarily provided disclosure of climate-related matters, others are not as forthcoming.

The petitioners argue that the SEC should require disclosure of several categories of information and analysis. The disclosure could include "corporate policies and governance structures relating to climate change; a tabulation of the registrant’s current and forecast GHG emissions; physical risks to corporate facilities or operations arising from climate change; financial risks and opportunities arising from enacted or imminent GHG regulation; and climate-related litigation."

The petition focuses particularly on energy companies, which have been argued to be some of the largest emitters of carbon dioxide. The petition posits that because oil and gas production and consumption accounts for more than half of carbon dioxide emissions in the United States, and because the industry is characterized by long-term capital investment horizons, the industry faces substantial financial risk from regulatory developments including limits on GHG emissions. Physical changes from climate change also carry risks for the oil and gas sector.

The petition further notes the increasing difficulty of building coal-fired generation, citing examples of proposed coal-fired projects in several states that have been cancelled because states have deemed such plants to be "too dirty" to build. Many utilities and electric generation companies have pointed to the financial risk from current and future carbon regulations as justification for incorporating cost estimates for carbon abatement into long-term planning.

In a related development, on September 14, 2007, New York State Attorney General Cuomo subpoenaed five energy firms, requesting internal documents for an investigation on whether the companies accurately disclosed the financial risks of carbon dioxide emissions from new coal-fired power plants. The attorney general’s office indicated that the companies may be affected financially if lawmakers place further controls on coal-fired plants that emit carbon dioxide, which scientists have linked to global warming.

Click here to see a copy of the SEC petition and letter.

U.S. Climate Change Legislative Initiatives Overview
May 1, 2007

Proposed SEC Climate Change Disclosure Requirements For ’34 Act Companies
April 30, 2007

Two U.S. Supreme Court Rulings Pave the Way, Maybe
April 5, 2007