In a "groundbreaking" complaint, environmental NGO Global Witness asked the Securities and Exchange Commission (SEC) Climate and ESG Task Force to investigate oil major Shell for possible violations of federal securities laws. The complaint, filed this February, alleges Shell misled its investors by including some of its gas-related spending in its "Renewables and Energy Solutions" (RES) reporting segment. Global Witness claims that, while Shell reports spending 12% of its annual expenditures on RES ($2.4 billion), removing expenditures related to integrated power, hydrogen, and carbon capture and storage reduces that percentage to only 1.5% ($288 million).
According to Global Witness, Shell's actions give rise to two possible violations. First, it questions whether Shell's RES segment complies with accounting standards for reporting segments. Second, the activist group claims that Shell's "exaggerated" and "obscured" RES segment disclosure misstates or omits material facts, misleading its investors as to the extent of Shell's transition to renewable energy sources.
Global Witness's novel SEC complaint may be the first, but it won't be the last, as it comes amid a wave of allegations, lawsuits, and regulatory investigations arising from alleged greenwashing. As such, publicly traded companies should give greater consideration to the content of their reporting segments and utilize experienced counsel to assist in content development and the subsequent compliance with the "E" in ESG.
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