File No. 4-547 - SECThe policy and economic response to climate change has also advanced...
Transcript of File No. 4-547 - SECThe policy and economic response to climate change has also advanced...
BEFORETHEUNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
BritishColumbiaInvestmentManagementCorporation(Canada)DougPearceChiefExecutiveOfficer/ChiefInvestmentOfficerCaliforniaPublicEmployees’RetirementSystemCaliforniaStateControllerJohnChiangCaliforniaStateTeachers’RetirementSystemCaliforniaStateTreasurerBillLockyerCeresConnecticutStateTreasurerConnecticutRetirementPlansandTrustFundsDeniseL.NappierEnvironmentalDefenseFundF&CManagementLtd.ElizabethE.McGeveranSeniorVicePresidentGovernance&SustainableInvestment
FloridaChiefFinancialOfficerAlexSinkFriendsoftheEarthLaborers’InternationalUnionofNorthAmericaRichardMetcalfDirector,CorporateAffairsDepartmentMarylandStateTreasurerNancyK.KoppTheNathanCummingsFoundationNewYorkStateAttorneyGeneralAndrewM.Cuomo
File No. 4-547
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NewYorkStateComptrollerThomasP.DiNapoliNorthCarolinaStateTreasurerJanetCowellOregonStateTreasurerBenWestlundPaxWorldManagementCorporationJulieGorteSeniorVicePresidentforSustainableInvestingVermontStateTreasurerJebSpaulding
SUPPLEMENTALPETITIONFORINTERPRETIVEGUIDANCEONCLIMATERISKDISCLOSURE
Thelongstandingrequirementthatpubliclytradedcorporationsdisclosematerial
informationtotheirshareholdersisbasedonthesimplepropositionthatknowledgeis
power.Armedwithaccurateandreliableinformationaboutthefactorsthataffecta
corporation’svalue,investorshavethepowertomakerationaldecisionsaboutwhereto
investtheirmoney.Thisdynamicsequenceofdisclosure,comparisonamonginvestment
optionsandthedecisionwhethertoinvestordivestownershipofacorporationis
fundamentaltoefficientfunctioningofcapitalmarkets.
Morethantwoyearsago,abroadcoalitionofthenation’slargestinstitutional
investors,assetmanagersandenvironmentalgroupsfiledapetitionseekingguidancefrom
theSECclarifyingcorporations’obligationtodisclosematerialinformationabouttherisks
andopportunitiestheyfaceinassociationwithclimatechange.1Sincethattime,
1RequestforInterpretiveGuidanceonClimateRiskDisclosure(Sept.18,2007)(FileNo.4‐547),submittedbytheCaliforniaPublicEmployees’RetirementSystem;CaliforniaState
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knowledgeaboutthepace,scopeandeffectsofclimatechangehasgrowndramatically.
Thepolicyandeconomicresponsetoclimatechangehasalsoadvancedconsiderably.
Inacriticalrecentdevelopment,theU.S.EnvironmentalProtectionAgency(EPA)in
Septemberissuedafinalrulerequiringlargesourcesofgreenhousegasemissionstoreport
thoseemissionstoEPAeachyearbeginningwith2010emissions.2Datafromthesereports
willprovideabasisforcompaniestoassesstheirexposuretotheconsiderablephysical,
policy,andeconomicdevelopmentsassociatedwithachangingclimate.This
groundbreakingregulatorydevelopmentandotherssetforthinthissupplementalpetition
constitute a “known trend” within themeaningofRegulationS‐KItem303,andtheytrigger
theobligationforcompaniestoassessanddisclosematerialemissionsdataandtheir
analysisofclimaterisksandopportunities.
Theserecentdevelopmentschangethelandscapeofclimateriskdisclosure,and
makeiturgentthattheCommissionacttoassurethatemissionsdataandassociatedrisks,
opportunitiesandmanagementstrategiesareanalyzedbycorporationsanddisclosedin
SECfilings.Wesubmitthissupplementalpetitiontoaddressimportantnewregulatory
developments,tosummarizesomeofthemostsignificantdevelopmentsinclimatescienceControllerJohnChiang;theCaliforniaStateTeachers’RetirementSystem;CaliforniaStateTreasurerBillLockyer;Ceres;EnvironmentalDefense;F&CManagement;FloridaChiefFinancialOfficerAlexSink;FriendsoftheEarth;KentuckyStateTreasurerJonathanMiller;MaineStateTreasurerDavidG.Lemoine;MarylandStateTreasurerNancyK.Kopp;TheNathanCummingsFoundation;NewJerseyStateInvestmentCouncil,OrinKramer,Chair;NewYorkCityComptrollerWilliamC.Thompson,Jr.;NewYorkStateAttorneyGeneralAndrewM.Cuomo;NewYorkStateComptrollerThomasP.DiNapoli;NorthCarolinaStateTreasurerRichardMoore;OregonStateTreasurerRandallEdwards;PaxWorldManagementCorporation;RhodeIslandGeneralTreasurerFrankT.Caprio,andVermontStateTreasurerJebSpaulding.MarylandComptrollerPeterFranchotjoinedthepetitionshortlyafteritwasfiled.Asupplementtothepetition,containinginformationonsubsequentdevelopmentsinclimatescience,greenhousegasregulation,andclimateriskdisclosurewasfiledonJune12,2008.2EnvironmentalProtectionAgency,“MandatoryReportingofGreenhouseGases,”74Fed.Reg.56,260(October30,2009).
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thathaveoccurredinthepasttwoyears,andtodemonstrateboththegrowingdemandfor
disclosureandthecontinuingfailureofcorporationstofulfilltheirexistingobligationto
disclosematerialinformationabouttheirexposuretoclimatechange.
ActiononthispetitionwillmeettheCommission’scurrentstrategicgoalof
encouragingandpromotinginformedinvestmentdecisionmaking3aswellastherecently
proposedstrategicgoalof“facilitat[ing]accesstoinformationinvestorsneedtomake
informedinvestmentdecisions,”andwilladvancetowardtheproposedoutcomethat
“investorshaveaccesstohigh‐qualitydisclosurematerialsthatareusefultoinvestment
decisionmaking.”4Weincorporateintothissupplementalpetitiontheoriginalpetitionfiled
onSeptember17,2007,andthesupplementalpetitionfiledonJune12,2008.
I. CLIMATERELATEDRISKSAREMATERIALTOINVESTORS’DECISIONS.A. ExistingCommissionRulesRequireDisclosureofMaterialClimate
RelatedInformationtoInvestors. Thedefinitionofmaterialityisdirectlylinkedtothequestionofwhatareasonable
investorwouldconsiderrelevanttoitsinvestmentdecisions:
Afactismaterialifthereisasubstantiallikelihoodthatthedisclosureoftheomittedfactwouldhavebeenviewedbythereasonableinvestorashavingsignificantlyalteredthe‘totalmix’ofinformationmadeavailable.5Weshowbelowthattheinvestorsresponsiblefortrillionsofdollarsofassetshave
concludedthatthegrowingweightofscientific,economicandregulatoryevidenceabout
theimpactofclimatechangeonbusinessesishighlyrelevanttotheirinvestmentdecisions.
AstheDivisionofCorporationFinancenotedinitsrecentStaffLegalBulletinNo.14E(CF)3SecuritiesandExchangeCommission,2004‐2009StrategicPlan,August2004,http://www.sec.gov/about/secstratplan0409.pdf4SecuritiesandExchangeCommission,DraftStrategicPlanforFiscalYears2010‐2015,September2009,http://www.sec.gov/about/secstratplan1015.pdf5SECStaffAccountingBulletinNo.99,64Fed.Reg.45,150(August12,1999)(quotingTSCIndustriesv.Northway,Inc.,426U.S.438,449(1976)).
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(October27,2009)onshareholderproposals,“theadequacyofriskmanagementand
oversightcanhavemajorconsequencesforacompanyanditsshareholders.”Formany
companiesacrossallsectorsoftheeconomy,climaterisksimpactsarematerialforthe
purposeoftheCommission’sdisclosurerequirements.
AssetforthingreaterdetailintheSeptember2007petition,variousaspectsof
climate‐relatedinformationfallunderthefollowingprovisionsofRegulationS‐K:
Item101:DescriptionofBusiness
Item103:LegalProceedings
Item303:Management’sDiscussionandAnalysisofFinancialConditionsandResultsofOperations(MD&A)Inparticular,therecentscientific,economic,regulatoryandlegaldevelopments
relatingtoclimatechangecomprisea“knowntrend”thatmustbeaddressedinMD&A.
Item303requiresdisclosureof:
[A]nysuchknowntrendsoruncertaintiesthathavehadorthattheregistrantreasonablyexpectswillhaveamaterialfavorableorunfavorableimpactonnetsalesorrevenuesorincomefromcontinuingoperations.Iftheregistrantknowsofeventsthatwillcauseamaterialchangeintherelationshipbetweencostsandrevenues(suchasknownfutureincreasesincostsoflaborormaterialsorpriceincreasesorinventoryadjustments),thechangeintherelationshipshallbedisclosed.6
AstheCommission’sDecember2003InterpretiveGuidanceonManagement’sDiscussion
andAnalysisstates,theMD&Ashould“provideinsightintomaterialopportunities,
challengesandrisks,suchasthosepresentedbyknowntrendsanduncertainties,onwhich
thecompany’sexecutivesaremostfocusedforboththeshortandthelongterm,aswellas
617C.F.R.Sec.229.303(a)(3)(ii).
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theactionstheyaretakingtoaddresstheseopportunities,risksandchallenges.”7Climate‐
relatedinformationfallssquarelywithinthisdescription,andthereforemustbedisclosed
underexistingCommissionrequirements.
B. ClimateChangeWillHaveProfoundImpactsonHumanHealth,thePhysicalEnvironmentandEconomiesAroundtheWorld.
Inthelasttwoyears,numerousscientificstudieshaveaddedfurtherweighttothe
consensusthatourphysicalenvironmentwillundergodramaticchangesinconnection
withclimatechange.Policy‐makersandeconomistshaveincreasinglyfocusedonthe
impactthesechangeswillhaveonentireindustriesandeconomies.Theseobservedand
imminentimpactswillhaveprofoundconsequencesforbusinesses,andinvestorsneedto
knowhowcompaniesproposetorespondtothischangingenvironment.
1. ScientificStudiesContinuetoShowObservedandImminentImpactstoOurPhysicalEnvironmentfromClimateChange.
The2007Petitionpresentedthescientificconsensusconcerningclimatechangeas
reportedbytheFourthAssessmentReportoftheIntergovernmentalPanelonClimate
Change(IPCC).InpreparationfortheupcomingnegotiationsinCopenhagenonan
internationalclimatechangetreaty,manyoftheworld’spreeminentclimatescientists
gatheredatCopenhageninMarchtoassessandreportontheprogressofclimatesciencein
thepasttwoyears.Thereportofthatgatheringconcludedthat“[r]ecentobservations
showthatgreenhousegasemissionsandmanyaspectsoftheclimatearechangingnearthe
7Interpretation:CommissionGuidanceRegardingManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,SecuritiesActReleaseNo.8350,ExchangeActReleaseNo.48,960,68Fed.Reg.75,056(December29,2003).
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upperboundaryoftheIPCCrangeofprojections.”Putsimply,“theworst‐caseIPCC
scenariotrajectories(orevenworse)arebeingrealised.”8
2. TheImpactsofClimateChangeWillHaveSubstantialEconomicEffectsforEntireEconomiesandIndividualCompanies.
TheU.S.GlobalChangeResearchProgramcoordinatesandintegratesfederal
researchonchangesintheglobalenvironmentandtheirimplicationsforsociety.Itsreport
publishedthisJune,GlobalClimateChangeImpactsintheUnitedStates,9examinedboth
observedandpredictedphysicalimpactsofclimatechangeintheU.S.includingincreases
inairandwatertemperature,reducedfrostdays,increasedfrequencyandintensityof
heavydownpours,andrisingsealevels.Alongwiththesephysicalimpacts,theGlobal
ClimateChangeImpactsreportidentifiedsubstantialeconomicrisksassociatedwith
climatechange,includingthefollowing:
• Agriculture:“higherlevelsofwarmingoftennegativelyeffectgrowthandyields...pos[ing]adaptationchallengesforcropandlivestockproduction.”10
• Coastalinfrastructure:Sealevelriseandassociatedstormsurgeriskthreatens“[s]ixofthenation’stop10freightgateways...[s]evenofthe10largestports...[and]theU.S.oilandgasindustry.”11Approximatelytwo‐thirdsofallU.S.oilimportsaretransportedthroughthisregion,andsea‐levelrisecouldaffectthisandothercommercialactivity“valuedinthehundredsofbillionsofdollarsannuallythroughinundationofarearoads,railroads,airports,seaports,andpipelines.”12
8PressRelease,ClimateChangeCongress,KeyMessages,Mar.12,2009,availableathttp://climatecongress.ku.dk/newsroom/congress_key_messages/;www.climatecongress.ku.dk/pdf/synthesisreport/ 9GLOBALCLIMATECHANGEIMPACTSINTHEUNITEDSTATES,ThomasR.Karl,JerryM.Melillo,andThomasC.Peterson,(eds.).CambridgeUniversityPress,2009[hereinafterGLOBALCLIMATECHANGEIMPACTS].10Id.at72.11Id.at66.12Id.
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• Airlinetraffic:Increasesinheatresultinpayloadrestrictions,flightcancellations,servicedisruptionsandeconomiclossataffectedairports.13
• Insurance:Insuredlossesfromcatastropheshaveincreaseddramaticallybetween
1980and2005,14andthereportprojectsthatclimatechange‐relatedinsurancelosseswillgrowinthefuture.
InMassachusettsv.EPA,549U.S.497(2007),theSupremeCourtdirectedEPAto
determinewhethergreenhousegasemissionsthreatenthepublichealthandwelfare
withinthemeaningofSection202(a)oftheCleanAirAct.Earlierthisyear,EPAresponded
byissuingaproposed“endangermentfinding”accompaniedbyanextensiveTechnical
SupportDocument15containingitsanalysisoftheeffectsofgreenhousegasemissions,
includingsubstantialeconomiceffectssuchasthefollowing:
• Croplossesassociatedwithfloodingandreducedfarmerprofitsassociatedwithdelayedspringplanting;
• Significantlossesoftheforestresourcebaseduetowarmertemperaturesandelevatedinsectactivity;
• PropertyLosses‐ofthe$19trillionvalueofallinsuredresidentialandcommercial
propertyintheU.S.exposedtoNorthAtlantichurricanes,$7.2trillion(41%)islocatedincoastalcounties.Thiseconomicvalueincludes79%ofthepropertyinFlorida,63%ofpropertyinNewYork,and61%ofthepropertyinConnecticut.
• Significantlossesintheenergysector,whichheavilyreliesonwaterforhydropower
andcoolingcapacity;
• Increasingcostassociatedwithwaterinfrastructure–includingdrinkingwaterandwastewatertreatment;
13Arecentillustrativeanalysisprojectsa17percentreductioninfreightcarryingcapacityforasingleBoeing747attheDenverairportby2030anda9percentreductionatthePhoenixairportduetoincreasedtemperatureandwatervapor.14In1980,catastrophelosseswerelessthan5billion(in2005dollars),whilein2005,catastrophelosseswereroughly80billion(in2005dollars).15ENVIRONMENTALPROTECTIONAGENCY,TECHNICALSUPPORTDOCUMENT:ENDANGERMENTANDCAUSEORCONTRIBUTEFINDINGSFORGREENHOUSEGASESUNDERSECTION202(a)OFTHECLEANAIRACT,April17,2009availableathttp://epa.gov/climatechange/endangerment/downloads/TSD_Endangerment.pdf;seealso74Fed.Reg.18,886(April24,2009)(“ProposedEndangermentandCauseorContributeFindingsforGreenhouseGasesUnderSection202(a)oftheCleanAirAct.”).
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• Increasedshippingcostsassociatedwith“lightloading,”apracticenecessitatedby
decliningwaterlevels;and
• Adverseaffectsonthetourismindustry.
Thesemacroeconomiceffectsofachangingclimateposeriskstoindividual
companies.Institutionalinvestorshavesentaclimateriskquestionnaireto500ofthe
world’slargestcorporationsforthelastsevenyears.Thelatestsurveyresponsesprovidea
sampleofhowindividualcompaniesperceiveclimaterisks.16PG&E,forinstance,has
identifiedapotentialphysicalriskofreducedhydroelectricgenerationduetoreductionsin
snowpackintheSierraNevada.17ItsCEOhasstatedthat“...PG&Econsidersclimatechange
tobeamongthemostseriousissueseverforourcompany,ourcountryandtheworld.”18
Likewise,SprintNextelisattemptingtodevelopportablerenewableenergy
generatingunitstohelpcounterserviceinterruptionsbroughtonbyclimatechangerelated
dropsinenergyoutput.19Cobham,adefensecontractor,notedthat“thephysicalrisk
assessmentofthreeofourFlorida‐basedbusinessunitsidentifiedsimilarlevelsofrisk
arisingfromhurricanesandflooding.Asaresult,flooddefenseshavebeenimprovedand
roofingreinforcedattheselocations.”20Manyrespondentsacrossallsectorsidentified
changesanddevelopmentsintheregulationofgreenhousegasesasafactorinplanningfor
theirfinancialfuture.
16CARBONDISCLOSUREPROJECT,2009GLOBAL500REPORT(2009)availableathttps://www.cdproject.net/CDPResults/CDP%202009%20Global%20500%20with%20Industry%20Snapshots.pdf[hereinafterGLOBAL500REPORT].17Id.at168.18LetterofPeterA.Darbee.Chairman,PG&ECorporation,toThomasJ.Donohue,PresidentandCEO,U.S.ChamberofCommerce,September18,2009,http://www.pewclimate.org/docUploads/PGE‐letter‐to‐chamber‐09‐18‐09.pdf192009GLOBAL500REPORT,supranote16,at155.20Id.at116.
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Theselimitedvoluntarydisclosuresunderscorethatclimatechangeisaknown
trendthatwillhavesignificantimpactonentireindustriesandeconomiesandalsoon
individualcompanies.Itisclearfromvoluntarydisclosuressuchassustainabilityreports
andquestionnaireresponsesthatcompanieshavebeguntoanalyzetheseimpactsand
foundthemmaterialinmanyinstances.
3. ThreatstoWaterSupplyIllustrateHowChangingEnvironmentalConditionsCanMateriallyAffectCorporatePerformance.
Wateriscriticalfortheeconomy,anditprovidesoneexampleofhowclimate
changeposesmaterialrisksthatshouldbedisclosedtoinvestors.Sectorsfromagriculture
toenergyrelyonanaffordable,cleanandreadily‐availablefreshwatersupply.21Climate
changeiswidelypredictedtoexacerbatewatersupplyshortagesintheU.S.andaroundthe
world.Climatechangewillintensifydemandforwaterashighertemperaturesand
droughtrequiremoreirrigation,andtheenergyandindustrialsectorsrequiremore
coolingwater.22Floodsanddroughtswillresultindegradedsurfacewaterqualityand
groundwaterquantity.23Finally,climatechangewillreducecriticalwaterstoragein
snowpackandcausewatershortagesinmanyoftheareasthatdependonsnowmeltfor
watersupply.24
Companies’climatedisclosuresreflecttheirawarenessofwater‐relatedrisksand
opportunitiesandtheirpotentialimpactsoncompanies’bottomlines.Forinstance,clean,
affordablewateristheprimaryingredientinbeveragecompanies’manufacturingprocess,
21CERES&PACIFICINSTITUTE,WATERSCARCITY&CLIMATECHANGE:GROWINGRISKSFORBUSINESSES&INVESTORS,1(2009)availableathttp://www.ceres.org/Document.Doc?id=406[hereinafterWATERSCARCITY].22Id.at6.23GLOBALCLIMATECHANGEIMPACTS,supranote9,at44.24WATERSCARCITY,supranote21,at6.Forinstance,higherwatertemperatureswillbeconducivetomorerapidbacteriadevelopment,makingwaterpurificationmoredifficult.
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andwaterscarcityposesseriouschallengestofuturebeverageproduction.25TheCoca‐
ColaCompanydisclosedthiswater‐relatedinformationinbothitssustainabilityreports
andinits200710‐Kfiling,stating“[a]sdemandforwatercontinuestoincreasearoundthe
world,andasthequalityofavailablewaterdeteriorates,oursystemmayincurincreasing
productioncostsorfacecapacityconstraintswhichcouldadverselyaffectourprofitability
ornetoperatingrevenuesinthelongrun.”26Waterscarcitylikewiseaffectsthe
agriculturalsector,whereHeinznotedthat“droughtreducestheavailabilityofwater,[and]
Heinzisatriskdespiteourfocusonsustainableagriculturalpractices.”27Themining
sectorreliesonlargequantitiesofwaterinitsoperations,whichmakesitparticularly
susceptibletoclimaterisk.28TheminingconglomerateAngloAmericanstatedthat
“[c]limatechangehasthepotentialtoimpactourassets,people,andoperationsthrough
thelong‐termavailabilityofwaterforoperations,energysecurity,disruptiontolinear
infrastructure,floodingaffectingmines,stormsaffectingportavailabilityandrailpower
supply,andchangesinlife‐of‐mineprojections.”29
Thesedisclosuresproperlyidentifycompany‐specificrisksassociatedwithclimate
change.Theyshowthatclimatechangeimpactscanhavedirectconsequencesforthecore
ofacompany’soperations.Investorsareentitledtoknowaboutthesematerialrisks,and
howthecompanyintendstoadjustitsoperationsinresponse.
25Id.at23.26Id.at33.27GLOBAL500REPORT,supranote16,at34.28WATERSCARCITY,supranote21,at25.29GLOBAL500REPORT,supranote16,at145.
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C. RegulatoryLimitsonGlobalWarmingPollutionareaKnownTrendthatisGainingMomentum.
Sincetheinvestorclimateriskpetitionwasfiledin2007,effortstoregulate
greenhousegasemissionsandamelioratetheharmfuleffectsofachangingclimatehave
proceededateverylevelofgovernment.Regulationofgreenhousegasesisaknowntrend
thatisgainingmomentum.Investorsneedtoknowhowcompaniesareaffectedbythese
regulatorychanges,howtheyintendtodealwiththem,andwhatopportunitiesthese
changescreateforcompanies.
1. EPA’sGreenhouseGasReportingRuleNowRequiresCorporationstoCollectDataAboutTheirGreenhouseGasEmissions.
Foracompanythatdirectlyemitsgreenhousegases,accurate,reliableand
comparableemissionsdataisthecornerstoneofmeaningfulassessmentofitsexposureto
themanyphysical,regulatoryandeconomicdevelopmentsthatareassociatedwithclimate
changeandourcollectiveeffortstoslow,stopandreverseit.Assessmentanddisclosureof
emissionsisthefirstoffourelementsofdisclosurecalledforintheGlobalFrameworkfor
ClimateRiskDisclosurethatwasproposedbyleadinginstitutionalinvestorsin2006asa
modelforcorporatereportingonclimaterisk.30ThefourelementsofGlobalFramework
reportingare:
• Totalhistorical,current,andprojectedgreenhousegasemissions• Strategicanalysisofclimateriskandemissionsmanagement• Assessmentofphysicalrisksofclimatechange• Analysisofriskrelatedtotheregulationofgreenhousegasemissions
Thefirststepofevaluatingacompany’sownemissionsenablesitthentomoveforwardto
considertheadditionalelements–strategicanalysisofclimateriskandemissions
30InvestorNetworkonClimateRisk,GlobalFrameworkforClimateRiskDisclosure,http://www.incr.com//Document.Doc?id=167
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management,assessmentofphysicalrisks,andtheeffectofregulations–thattaken
togetheryieldthecriticalinformationinvestorsneedtoassessinvestmentchoices.
InitsConsolidatedAppropriationsActof2008andOmnibusAppropriationsActof
2009,CongressdirectedEPAtopublishafinalrule“torequiremandatoryreportingof
greenhousegasemissionsaboveappropriatethresholdsinallsectorsoftheeconomy....”
EPAhasnowfinalizedamandatorygreenhousegasreportingrulethatwillrequirelarge
stationarysourcesofgreenhousegasestoreporttoEPAannuallytheamountoftheir
emissions.31Beginningwithemissionsduringcalendaryear2010,thisrulewillforthefirst
timeprovidecomprehensive,verified,cross‐comparabledataongreenhousegasemissions
acrosstheU.S.economy.
EPA’snewmandatorygreenhousegasreportingruledramaticallychangesthe
landscapeofcorporateclimatechangeriskdisclosure.Whilesomecorporationsalready
collectthisinformation,manymoredonot,andthedifferentmethodologiesandformatsin
whichemissionsdataarecollectedcanmakecomparisonsamongdifferentsources
challenging.WhenEPA’sreportingruletakeseffect,nocorporationthatemitssubstantial
amountsofgreenhousegasescansaythatitdoesnothavethedatatoundertakethe
analysisthatinvestorshaveincreasinglysought.
Thisdatawillalsoshinealightonclimate‐relatedrisksandopportunitiesofother
companiesthatdobusinesswiththelargeemitters,suchasfinancialandinsurance
31Therulerequires“suppliersoffossilfuelsorindustrialgreenhousegases,manufacturersofvehiclesandengines,andfacilitiesthatemit25,000metrictonsormoreperyearofGHGemissionssubmitannualreportstoEPA.Thegasescoveredbytheproposedrulearecarbondioxide(CO2),methane(CH4),nitrousoxide(N2O),hydrofluorocarbons(HFC),perfluorocarbons(PFC),sulfurhexafluoride(SF6),andotherfluorinatedgasesincludingnitrogentrifluoride(NF3)andhydrofluorinatedethers(HFE).”http://www.epa.gov/climatechange/emissions/ghgrulemaking.html
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companies,aswellasothercompaniesthatbuyfromandselltothelargeemitters.Prompt
SECactiontoclarifycorporations’responsibilitytoassessthematerialityofgreenhouse
gasemissionsdatawillspeedtheprocessofgettingthiscriticalinformationbefore
investors.
2. ProposedCapandTradeLegislationIsProgressingthroughCongress.
Congressisactivelyworkingonbillstolimitgreenhousegasemissions.Whilethe
preciseprovisionsaresubjecttonegotiationandvote,thereisstrongmomentumtowarda
nationalcapandtradeprogramthatwillachievescience‐basedreductionsingreenhouse
gasemissions.TheHouseofRepresentativesapprovedtheAmericanCleanEnergyand
SecurityAct,H.R.2454,onJune26,2009.Thebillestablishesanenforceabledecliningcap
ongreenhousegasemissionsat17percentbelow2005levelsby2020and83percent
below2005levelsby2050.Theprogramwouldrewardcleanenergyinnovation,spur
investmentincleanenergytechnologies,andcreatenewjobsmanufacturingcleanenergy
solutionsforthenationandtheglobalmarketplace.
OnNovember5,2009,theU.S.SenateCommitteeonEnvironmentandPublicWorks
approvedtheCleanEnergyJobsandAmericanPowerAct(S.1733)thatwouldsimilarly
establishamandatorycaponU.S.globalwarmingpollutionandgivetheprivatesectorthe
flexibilitytopursuethemostaffordableemissionsreductionopportunitiesthroughthe
tradingofemissionsallowances.ThelegislationcallsforreducingU.S.emissionsby20
percentfrom1990levelsin2020,and83percentby2050.
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3. EPA’sProposedEndangermentDeterminationUndertheCleanAirAct.
OnApril17,2009,EPAAdministratorLisaJacksonproposedtofindthatthe
followingsixgreenhousegasesendangerthehumanhealthandwelfareofcurrentand
futuregenerations:carbondioxide,methane,nitrousoxide,hydrofluorocarbons,
perfluorocarbons,andsulfurhexafluoride.32Afteranexhaustivereviewoftheexisting
science,theEPAdeterminationdocumentedabruptclimatechangeimpactsaswellas
climate‐relatedhumanhealthperils.TheAdministratoralsoproposedtofindthat“the
combinedemissionsofcarbondioxide,methane,nitrousoxide,andhydrofluorocarbons
fromnewmotorvehiclesandnewmotorvehicleenginesarecontributingtothismixof
greenhousegasesintheatmosphere.”Id.TheproposedEPAdetermination,when
finalized,establishesthepredicateforcompletingnationalgreenhousegasemission
standardsfornewmotorvehiclesandnewmotorvehicleengines.
4. EPA’sProposedRulesTriggeringGreenhouseGasPermittingProgramsforLargeStationarySources.
OnSeptember30,2009,EPAannouncedtwointer‐relatedproposalstoaddress
greenhousegasemissionsfromnewandmodifiedlargestationarysources.Inthefirst
action,theAgencyannounceditsreconsiderationofanInterpretiveMemorandum
addressingtheapplicabilityoftheCleanAirAct’spre‐constructionreviewandoperating
permitprogramsforgreenhousegases.33EPAproposedtofindthatcompletionofthe
nationalgreenhousegasemissionstandardsforpassengervehiclesinMarch2010,
discussedbelow,wouldtriggertheobligationsfornewandmodifiedstationarysourcesto32See 74 Fed. Reg. 18,886 (April 24, 2009) (“Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act”).33PreventionofSignificantDeterioration(PSD):ReconsiderationofInterpretationofRegulationsThatDeterminePollutantsCoveredbytheFederalPSDPermitProgram,74Fed.Reg.51,535(Oct.7,2009)(tobecodifiedat40C.F.R.pt.52).
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addressgreenhousegasesunderthesepermitprograms.Inthesecondaction,EPA
proposedto“tailor”theapplicabilityoftheCleanAirAct’spre‐constructionreviewpermit
programtoaspecifiedcategoryoflargesources,includingproposinga25,000tonperyear
carbondioxideequivalent(CO2e)applicabilitythresholdfornewsources.34Theagency’s
finalactiononthesedualproposalswouldtriggerpermittingobligationsincludingthe
applicationofbestavailablecontroltechnologytoaddressgreenhousegasesfromnewand
modifiedstationarysourcesofgreenhousegasemissionswhilepointedlylimitingthe
obligationstolargeemittingfacilities.
5. DepartmentofTransportationandEPAProposedFuelEconomyandGreenhouseGasRegulation.
TheEPAandtheDepartmentofTransportationhaveproposedgreenhousegas
emissionsstandardsapplicabletocarsandlighttrucks.35TheSeptember28,2009
proposalrequiresvehiclestomeetanestimatedcombinedaverageemissionslevelof250
gramsofcarbondioxidepermileinmodelyear2016,comparabletofueleconomyof35.5
milespergallon.Theproposedstandardswouldapplytomodelyear2012to2016
vehicles,andtheEPAestimatesthattheproposalwillreduceU.Scarbondioxideemissions
by950millionmetrictonsandsave1.8billionbarrelsofoiloverthelifeofthevehicles.
Thenationalproposalrespondstothe2007U.S.SupremeCourtmandate,supraatpart
I.B.2,andwillcarryoutPresidentObama’slandmarkMay19accordwithmajor
automakers,theGovernorofCalifornia,theUnitedAutoWorkersUnion,and
environmentalists.Passengercarsandlight‐trucksemitnearly20percentofthenation’s
34SeePreventionofSignificantDeteriorationandTitleVGreenhouseGasTailoring74Fed.Reg.55,292(Oct.27,2009).35See“ProposedRulemakingToEstablishLight‐DutyVehicleGreenhouseGasEmissionStandardsandCorporateAverageFuelEconomyStandards,”74Fed.Reg.49,454(Sept.28,2009).
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greenhousegasesintheformofcarbondioxide,methane,nitrousoxide,and
hydrofluorocarbons.Asnotedabove,inApril,EPAprovisionallyfoundthatthesefour
contaminantsandtwoothergreenhousegasesendangerhumanhealthandwelfare.
6. TheCleanAirActSection209(b)WaiverandtheImplementationofCalifornia’sComprehensiveProgramstoLimitGreenhouseGasEmissions.
In2004,theCaliforniaAirResourcesBoard(CARB),implementingAssemblyBill
1493,adoptedlandmarkregulationstocontrolemissionsofgreenhousegasesfrommotor
vehicles.Implementationofthoseregulationswaslongdelayed,however,becauseofthe
U.S.EnvironmentalProtectionAgency’sfailuretograntthenecessary“waiverof
preemption”pursuanttoSection209(b)oftheCleanAirAct.
Inamajordevelopment,onJune30,2009,EPAAdministratorLisaJacksongranted
CaliforniatheauthorityunderSection209(b)toimplementitsregulations,whichapplyto
newpassengercars,pickuptrucksandsportutilityvehicles.36CARBprojectsthatthe
CaliforniaregulationswillsignificantlyreduceGHGemissionsfromCaliforniapassenger
vehicles.37
TheeffectsofEPA’sdecisionstretchwellbeyondCalifornia.Section177ofthe
CleanAirActallowsotherstatestoadoptandenforceregulationsidenticaltoCalifornia
regulationsforwhichEPAhasgrantedaSection209(b)waiver.Thirteenstates–Arizona,
Connecticut,Maine,Maryland,Massachusetts,NewJersey,NewMexico,NewYork,Oregon,
Pennsylvania,RhodeIsland,Vermont,Washington–andtheDistrictofColumbiahave
36SeeNoticeofDecisionGrantingWaiverofCleanAirActPreemptionforCalifornia’s2009andSubsequentModelYearGreenhouseGasEmissionStandardsforNewMotorVehicles,74Fed.Reg.32,744(July8,2009).37SeeCARB,CleanCarStandards‐Pavley,AssemblyBill1493,http://www.arb.ca.gov/cc/ccms/ccms.htm
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alreadyadoptedtheCaliforniagreenhousegasemissionsstandardsformotorvehiclesand,
withEPA’srecentwaiverdecision,thoseregulationsmaynowgointoeffect.38
California’sGlobalWarmingSolutionsActof2006(AssemblyBill32)callsformajor
reductionsingreenhousegasemissionsfromallsectorsofCalifornia’seconomy.On
December12,2008,theCaliforniaAirResourcesBoardapprovedaScopingPlan,as
requiredundertheAct,whichoutlinesthenumerousanddiverseprogramsandinitiatives
thatwillbeundertakentoachievethenecessaryemissionsreductions.39ThePlancallsfor
thestatetoreducegreenhousegasemissions,asrequiredinthestatute,to1990levelsby
2020(a15percentreductionbelowtoday’slevels).ConsistentwithExecutiveOrderS‐3‐
05,thePlancontemplatesmuchdeeperreductionsinemissions–to20percentof1990
levels–by2050.40
UndertheScopingPlan,CARBhasidentified73diversemeasures–rangingfroma
programtoreduceemissionsfromshipsidlingatports,tolowcarbonfuelstandards,to
standardsforindustrialrefrigeration,togreenbuildingprograms,toenergyefficiency
measures,torenewableportfoliostandards–thatwill,incombination,achievemajor
reductionsinstatewideemissions.41Manyofthesemeasureswillbedevelopedin2009
and2010andgointoeffectbythestartof2011.42TheScopingPlanidentifiesacap‐and‐
tradeprogramasoneoftheprincipalmeansCaliforniawillemploytoreducegreenhouse38See74Fed.Reg.32,745n.9.39SeeCaliforniaAirResourcesBoard,ClimateChangeScopingPlan(December2008)(availableathttp://www.arb.ca.gov/cc/scopingplan/document/adopted_scoping_plan.pdf)(hereinafterAB32SCOPINGPLAN).40SeeAB32SCOPINGPLANatES‐2.41SeeCaliforniaAirResourcesScopingPlan,ScopingPlanMeasuresImplementationTimeline(October12,2009)(availableathttp://www.arb.ca.gov/cc/scopingplan/sp_measures_implementation_timeline.pdf)(hereinafterAB32IMPLEMENTATIONTIMELINE).42SeeAB32SCOPINGPLANat1;AB32IMPLEMENTATIONTIMELINE.
19
gasemissions;CARBisengagedinpublichearingsandotherprocessesinpreparationfor
adoptingacap‐and‐traderegulationbyJanuary1,2011.43
7. OtherStateandRegionalActionstoControlGreenhouseGasEmissions.
Otherstateandregionalclimateinitiativeshavesignificantlyadvanced.The
RegionalGreenhouseGasInitiative(RGGI),acooperativeeffortbytenNortheastandMid‐
AtlanticStatestolimitgreenhousegasemissions,isthefirstmandatory,market‐basedCO2
emissionsreductionprogramintheUnitedStates.ThesetenstateshavecappedCO2
emissionsfromthepowersector,andwillrequirea10percentreductioninthese
emissionsby2018.Theprogramisnowunderway.
Westernandmidwesternstatesaredevelopingregionalprogramstoreduce
greenhousegases.SevenwesternstatesandthreeCanadianprovinceshavejoinedthe
WesternClimateInitiativeandcommittedtoreducingglobalwarmingpollution15percent
below2005levelsby2020.AsimilarinitiativeisunderwayintheMidwestthroughthe
leadershipofthe“MidwestGreenhouseGasReductionAccord”includingIowa,Illinois,
Kansas,Michigan,Minnesota,WisconsinandtheCanadianprovinceManitoba.
Inthelasttwoyears,manyindividualstateshaveadoptedsignificantnewlawsand
regulationsrelatingtothecontrolofgreenhousegasemissions.Measuresadoptedbyone
ormultiplestatessofarin2009include,amongmanyothers,newormorestringent
renewableportfoliostandards;lawsestablishing“feed‐intariffs”thatrequireutilitiesto
purchaseelectricitygeneratedbyrenewablesourcesatapremium;renewablefuel
43SeeAB32SCOPINGPLANat15;CaliforniaAirResourcesBoard,CapandTrade,http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm.
20
standards;newormorestringentgreenhousegasemissionstargets;emissionsstandards
fornewpowerplants;andregulationsgoverningcarboncaptureandsequestration.44
8. ClimateRelatedLitigation.
TheU.S.CourtofAppealsfortheSecondCircuitrecentlyallowedacoalitionofstates
andprivatelandtruststomaintainclaimsunderthecommonlawofnuisanceagainstfive
ofthenation’slargestemittersofgreenhousegases.45Connecticut,NewYork,California,
Iowa,NewJersey,RhodeIsland,Vermont,WisconsinandCityofNewYorkandthreeland
trusts(OpenSpaceInstitute,OpenSpaceConservancy,andAudubonSocietyofNew
Hampshire)tooklegalactionagainstfivemajorpowercompaniesthatareamongthe
largestemittersofcarbondioxideinthenation:AmericanElectricPower,Southern
Company,TennesseeValleyAuthority,XcelandCinergy.Thesepowercompanydefendants
arecollectivelyresponsibleforabout650milliontonsofcarbondioxideemissions
annually,approximatelyonequarteroftheU.S.electricpowersector’scarbondioxide
emissions,andapproximately10percentofallmanmadeemissionsinthenation.
Theplaintiffsaskedthecourttoabatethesecompanies’heat‐trappingcarbon
dioxideemissionsunderthefederalcommonlawofnuisance–seekingtocapandannually
loweremissions.In2005,afederaldistrictcourtheldthatthecasepresentednon‐
justiciablepoliticalquestions.ButtheU.S.CourtofAppealsfortheSecondCircuitvacated
thelowercourtdecisionandremandedthemattertothedistrictcourttoconsiderthe
claimsonthemerits.TheSecondCircuit’sdecisionprovidesabasisforrequiringlarge
44SeePewCenteronGlobalClimateChange,StatesNews(availableathttp://www.pewclimate.org/states‐regions/news?page=1).45StateofConnecticut,etal.v.AmericanElectricPowerCompany,Inc.,2009U.S.App.LEXIS20873(2dCir.September21,2009).
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greenhousegasemitterstoreducetheiremissionsevenwithoutanyactionbyCongressor
EPA.
InComerv.MurphyOilCo.,46theFifthCircuitCourtofAppealsfollowedtheSecond
Circuitprecedent,andheldthatprivateplaintiffshadstandingtomaintainanactionfor
damagesbasedonpublicandprivatenuisance,trespass,andnegligenceagainstmajorcoal,
oilandchemicalcompanieswhoseemissions,plaintiffsargued,exacerbatedHurricane
Katrina’sdevastatingeffects.
9. InternationalDevelopments. Nearly100worldleadersgatheredinNewYorkonSeptember22,2009forthe
UnitedNationsSummitonClimateChange.Thesummithelpedtostrengthenmomentum
forafair,effective,andprotectiveclimateagreementwhenheadsofstateandenvironment
ministersfromaroundtheworldmeetfortwoweeksofclimatetalksinCopenhagenthis
December.TheCopenhagentalkswillattempttonegotiateasuccessortotheKyoto
Protocol,whichcalledforcountriestoreducetheirgreenhousegasemissionsbelow1990
levels.
II. THEGROWINGINVESTORDEMANDFORCLIMATEDISCLOSUREREMAINS
LARGELYUNMET.
Whilethephysical,economicandregulatorydevelopmentsassociatedwithclimate
changedescribedabovestronglysupporttheconclusionthatclimatechangeposesmaterial
risktomanycorporations,thegrowinginvestordemandforclimaterelateddisclosure
462009WL3321493;2009U.S.App.LEXIS22774(5thCir.Miss.Oct.16,2009).ButseeVillageofKivalinav.ExxonMobilCorp.,2009WL3326113[No.08‐01138](N.D.Cal.,Sept.30,2009)(concludingthataNativeAlaskanvillagelackedstandingtomaintainanuisancesuitagainsttwodozenoilandelectricpowercompaniesandthatitsclaimswerebarredbypoliticalquestiondoctrine).
22
providesyetmoreevidenceinsupportofdisclosure.Theinvestorcommunityhasmadeit
increasinglyclearthatinformationonclimateriskisanecessarypartofinvestment
decisions.Andyetpublicly‐tradedcompanieshavenotrespondedwiththemeaningful
disclosureinvestorsseek.
A. InvestorsContinuetoSeekClimateRiskDisclosure.
ShareholderResolutions.In2009,investorsfiled68shareholderresolutions
seekinginformationonvariousaspectsofclimaterisk,includinggreenhousegasemissions,
emissionreductionstrategiesandtargets,energyefficiencystrategies,corporateresponses
toclimatechange,andtheimpactofclimatechangeonemergingmarkets.47In2008,
investorsfiled57resolutionsseekinginformationonclimatechange.48
InvestorNetworkonClimateRiskLetter.InJuneof2009,forty‐onemembersof
theInvestorNetworkonClimateRiskandotherleadingglobalinvestorsrepresenting$1.4
trillioninassetscalledontheSECtoimprovedisclosurebyissuingformalinterpretive
guidanceonmaterialclimatechangerisks,enforcingexistingdisclosurerequirements,
recognizingshareholderrightstosubmitresolutionsonissuesincludingclimatechange,
andusingtheGlobalReportingInitiativeasaframeworkforrequiringdisclosureof
materialenvironmental,social,andgovernanceriskssuchasclimatechange.49
InvestorQuestionnaire.Thisyear,theCarbonDisclosureProjectsurveyed500of
theworld’slargestcorporationsonbehalfof475institutionalinvestorswith$55trillionin
assetsundermanagement.Fourhundredandninecompaniesresponded,providing47Ceres,InvestorsAchieveMajorCompanyCommitmentsonClimateChange,August24,2009,http://www.ceres.org/Page.aspx?pid=1121.48InvestorNetworkonClimateRisk,ClimateResolutionsToolkit–2008,Mar.6,2008,http://www.ceres.org/Page.aspx?pid=1061.49InvestorNetworkonClimateRisk,Investorswith1.4TrillioninAssetsCallonSECtoImproveDisclosureofClimateChangeandOtherRisks,June12,2009,http://www.incr.com/Page.aspx?pid=1107
23
informationonemissions,risksandopportunitiesrelatedtoclimatechange,andstrategies
formanagingthoseissues.50Despitethehigh(82%)responserate,only51%of
respondingcompaniesreportedemissionreductiontargets,andonly36%reportedcarbon
reductiontargetsbeyondtheyear2012.Inaddition,ofthe328respondentstoasimilar
surveyofS&P500companies,only34%disclosedemissionreductiontargets.51
Thislackofharddataandlong‐termplanningdisadvantagesinvestors,whorequire
thisinformationtomakeinformedinvestmentdecisionsandprotecttheirportfolios.
Furthermore,voluntarydisclosuresofthistypelacktherigorandaccountabilityinherent
in10‐Kreportscertifiedbyseniormanagementpursuanttoenforceablelegal
requirements.
MarketResearchServices.BloombergProfessionalServicebillsitselfas“providing
themostcomprehensiveandadvancedsetoffinancialdata,realtimemarketcoverage,
news,analytictools,portfoliosolutionsandresearch.”Inatellingindicationofthe
importanceofclimate‐relatedinformationtoinvestors,Bloomberg’sservicenowfeaturesa
“carbonemissions”tabonitsequityresearchhomepage.Thefactthattheleadingresearch
toolusedintheinvestmentcommunitynowincludescarbonemissionsonitsmenuof
corporateinformationspeaksvolumesabouttheimportanceofemissionsandclimaterisk
totoday’sinvestor.Andthefactthatthistaboftencontainsnodataspeakstotheneedfor
SECactiontoassurethatinvestorshaveaccesstothiscriticalinformation.
B. Legislators,LawEnforcement,Regulators,andStandardSettingOrganizationsHaveAllJoinedtheCallforGreaterClimateDisclosure.
SincetheclimateriskpetitionwasfiledwiththeSECinSeptember2007,
CongressionalleadershavecalledforSECactiononclimatedisclosure,theNewYork50GLOBAL500REPORT,supranote16.51CarbonDisclosureProject2009,S&P500REPORT,p.7.
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AttorneyGeneralhasenteredintothreelandmarksettlementssettingforthaframework
forclimatedisclosure,andthreeorganizationshavedevelopedclimateriskdisclosure
frameworksorguidance.Thesesettlementsandframeworks,inadditiontotheGlobal
FrameworkforClimateRiskDisclosureandthe2007petition,togetherprovideaconsistent
baselineofinformationinvestorsrequire,andprovidemodelsfortheCommissionasit
considershowtoprovideguidancetoregistrantsaboutdisclosingmaterialclimate‐related
information.
CongressionalRequestforActiononClimateRelatedDisclosure.OnDecember6,
2007,SenatorChrisDodd,ChairmanoftheSenateCommitteeonBanking,Housing,and
UrbanAffairsandSenatorJackReed,ChairmanoftheSubcommitteeonSecurities,
InsuranceandInvestment,wrotealettertothen‐ChairmanCoxurgingthattheCommission
issueguidanceonclimatedisclosure,askingforongoingupdatesabouteffortstoenhance
guidance,andrequestingareportontheadequacyofdisclosurerelatingtoclimatechange
andtheregulationofgreenhousegasemissions.TheletteraskedtheCommissiontoissue
interpretiveguidanceto“ensuregreaterconsistencyandcompletenessindisclosureof
materialinformationrelatedtoclimatechangeandcurrentandprobablefuture
governmentalregulationofgreenhousegasemissions,provideinformationforregistrants
onwhetherandhowtodisclosesuchmatters;andensurethatinvestorshaveaccessto
materialclimatechangeinformation.”
NewYorkAttorneyGeneralEnforcementActionandSettlements.In2007,New
YorkAttorneyGeneralAndrewCuomosubpoenaedfivelargeenergycompanies—AES,
DominionResources,XcelEnergy,DynegyInc,andPeabodyEnergy—toinvestigate
whethertheyhadadequatelydisclosedrisksfromclimatechangeinSECfilings.In2008
and2009,NewYorkannouncedgroundbreakingagreementswithXcelEnergy,Dynegyand
25
AESthatrequirethosecompaniestoimprovetheirdisclosureofclimaterisksinSECfilings.
Theseagreementsrequirethecompaniestodiscloseintheir10‐Kfilings(a)analysisof
financialrisksfromregulation,includingbothpresentlawandprobablefuturelaw,(b)
analysisoffinancialrisksfromlitigation,(c)analysisoffinancialrisksfromphysical
impactsofclimatechange,and(d)totheextentthecompanies’GHGemissionsmaterially
affecttheirfinancialexposurefromclimatechangerisk,astrategicanalysisofclimate
changeriskandemissionsmanagement,includingestimatedgreenhousegasemissionsfor
thereportingyear,expectedincreasesingreenhousegasemissionsfromplannednewcoal‐
firedgenerationprojects,strategiestoreduceclimatechangeriskandtoadapttothe
physicalimpactsofclimatechange,theresultsofstrategiesundertakentodateandthe
expectedeffectofsuchstrategiesonfuturegreenhousegasemissions,andcorporate
governanceofclimatechange.
NationalAssociationofInsuranceCommissioners’MandatoryDisclosure
Requirement.TheNationalAssociationofInsuranceCommissioners(NAIC),the
organizationofinsuranceregulatorsfromthe50states,assistsregulatorsinservingthe
publicinterestandachievingfundamentalinsuranceregulatorygoals.52ThisyeartheNAIC
unanimouslyapprovedamandatoryrequirementforinsurerswithannualpremiumsof
$500millionormoretodiscloseclimateriskstoregulators,shareholdersandthepublic
beginninginMay2010.53TheNAICdisclosuresurveyrequiresreportingonissuesrelevant
toanypubliclytradedcompanies:emissionsreductionplans,climatechangerisks,and
climateriskmanagementactions,andonissuesmostrelevanttotheinsuranceindustry:
thecompany’sclimatechangepolicyforinvestmentmanagement,theimpactofclimate52Formoreinformation,seehttp://www.naic.org/index_about.htm53NAICInsurerClimateRiskDisclosureSurvey,availableathttp://www.naic.org/committees_ex_climate.htm
26
changeonitsinvestmentportfolio,andengagementwithpolicyholders.Thesurvey,the
firstofitskindinanyindustry54,wasdevelopedthroughaconsensusprocessincluding
representationfromregulators,investors,andregulatedcompanies.
ClimateDisclosureStandardsBoard.TheClimateDisclosureStandardsBoard
(CDSB)isaconsortiumofsevenbusinessandenvironmentalgroupswhosejointmissionis
toadvanceclimatechange‐relateddisclosureinmainstreamreportsbydevelopingglobal
guidanceforcorporatereporting.TheCDSB’sdraftreportingframework,releasedfor
publiccommentinMay,wasdevelopedbyaworkinggroupincludingrepresentativesof
thebigfouraccountingfirmsandprofessionalaccountingbodies,andwillbefinalizedin
2010.55Theframeworkcallsfordisclosureonfourtopics:greenhousegasemissions,
strategicanalysisofclimatechange,regulatoryrisks,andphysicalrisks.AsofOctober,
publiccommentshadbeenreceivedfromover20organizationsincludingaccountingfirms,
publicpensionfunds,andcorporations.
ASTMInternational.ASTMInternational,oneofthelargestvoluntarystandards
developmentorganizationsintheworld,hasdevelopedadraftstandard,expectedto
becomefinalinJanuary2010,fordisclosurerelatedclimatechangeexposuresandrisks56.
Thestandardisdesignedtohelpreportingentitiesprovidedisclosureinfinancial
statements“regardingmaterialfinancialimpactsattributedtoclimatechange.”57Itasks
54TestimonyofWisconsinInsuranceCommissionerSeanDilwegonbehalfoftheNAIC,atSenateCommitteeonCommerce,ScienceandTransportationhearing,ClimateScience–EmpoweringOurResponsetoClimateChange,March12,2009.55CDSBReportingFramework,ExposureDraft,availableathttp://www.cdsb‐global.org/reporting‐framework/56ASTMWorkItem21096:NewGuideforDisclosureRelatedtoClimateChangeExposures/Risks,availableathttp://www.astm.org/DATABASE.CART/WORKITEMS/WK21096.htm57LewisB.Jones,ASTMIssuesDraftStandardonClimateChangeDisclosure,pp.5‐7,AmericanBarAssociation,EnvironmentalDisclosureCommitteeNewsletter,March2009.
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for,amongotherinformation,disclosureofastrategicanalysisofrisksandopportunities,
relevantregulatoryrequirementsrelatedtoclimatechangeandtheirfinancialimpacts,and
theestimatedlikelihood,magnitude,andtimingoffinancialimpactsattributedtoclimate
change.LikeanyASTMstandard,thisstandardisbeingdevelopedthroughaconsensus
processthatfullyconsiderscommentsbothforandagainstandincludesballotingofselect
ASTMmembers.
C. CurrentCorporateDisclosuresDoNotProvideInvestorstheInformationTheyNeedtoAssessClimateRisks.
AtleastthreerecentreportshaveextensivelyreviewedSECfilingstogaugethe
currentstateofclimatedisclosure,andonereporthasexaminedthelevelofdisclosure
providedinvoluntarysustainabilityreports.ThedisappointingresultsshowthatSEC
actiontoclarifytheobligationtodiscloseclimaterisksisurgentlyneededbecause
corporationshaveyettorespondtothegrowinginvestordemandsforclimatedisclosure.
Boththequantityandthequalityofclimatereportingremainstrikinglylow.
1. ReclaimingTransparencyinaChangingClimate,TrendsinClimateChangeDisclosureform1995tothePresent,CEES(theCenterforEnergyandEnvironmentalSecurityattheUniversityofColorado),Ceres,andEnvironmentalDefenseFund(June2008).
Thisreport,jointlypreparedbytheCenterforEnergyandEnvironmentalSecurity
attheUniversityofColorado(CEES),CeresandEnvironmentalDefenseFund,includedan
exhaustivereviewofnearly640010‐KfilingsbyS&P500companiesfrom1995through
2008.58Itskeyfindingsincludedthefollowing:
58ThisstudyispartofalargerresearchprojectentitledClimatePledgesrunbyCEES.Aspartofthislargerproject,CEEShasmadeavailableonlinetheentiredatasetforthestudy,inafullysearchabledatabase.TheCoyote10‐Kdatabasecovers750companiesthatarecurrentandformermembersoftheS&P500,6,35410‐Kfilings,and79,012associatedexhibitsfrom1995tothesecondquarterof2008.Availableonlineathttp://coyote.climatepledges.org.
28
• ThevastmajorityofS&P500companiesremainsilentwithrespecttotherisksandopportunitiesposedbyclimatechange.76.3%ofannualreportsfiledbyS&Pcompaniesin2008failedtoincludeanymentionofclimatechange.
• Whiletherehasbeenanincreaseinthequantityof10Kfilingsthatcontaindiscussionsofclimaterisksandopportunities,thequalityofthesediscussionsislow.Only5.5%ofannualreportsfiledbytheS&P500in2008identifiedatleastoneriskposedbyclimatechangeandarticulatedastrategyformanagingandmitigatingthatrisk.
• Lessthan10%ofS&Pcompaniesinthefinancialsectordiscussedclimate
changein10Kreportsfiledin2008.Thisanemicreportingrateisparticularlytroublinggiventheenormousrisksposedbyclimatechangetotheinsuranceindustry,andtheroleofmajorbanksinfinancinginfrastructureprojects.In2008,globaladvisoryfirmErnst&Youngindicatedthat“climatechangeisthegreateststrategicriskcurrentlyfacingtheproperty/casualtyinsuranceindustry.”
• TheutilitiessectorledallotherS&P500sectorsindiscussingclimate
changein10Kreportsfiledin2008.Only3.2%ofutilitiessectorcompaniesfailedtomentionclimatechangein10‐Kreportsfiledin2008.Despitethislowfailure‐to‐mentionrate,however,utilitiessectordisclosuresstillfailedtoprovidehighinformationalvaluetoinvestorsasonly35.5%ofthesecompaniesidentifiedatleastoneclimatechangeriskandarticulatedamanagementormitigationstrategyforaddressingthatrisk.
2. ClimateRiskDisclosureinSECFilings,AnAnalysisof10K
ReportingbyOilandGas,Insurance,Coal,TransportationandElectricPowerCompanies,CeresandEnvironmentalDefenseFund(June2009)59
Thisreport,authoredbytheCorporateLibrary,evaluatedthestateofclimaterisk
disclosureby100globalcompaniesinfivesectorsthathaveastrongstakeinpreparingfor
thepolicyresponsestoachangingclimate.Evenamongthisgroupofcompaniesmost
directlyaffectedbyclimatechange,therewasonlylimiteddisclosure:Fiftynineofthe100
companiesmadenomentionatalloftheirgreenhousegasemissionsortheirpositionson
climatechange,28hadnodiscussionoftheclimateriskstheyface,and52failedtodisclose
59CeresandEnvironmentalDefenseFund,http://www.ceres.org/Document.Doc?id=473
29
anyactionstoaddresstherisksofclimatechange.Forthosecompaniesthatdidmention
climatechange,theinformationalqualityofthereportingwasoftenlow.
3. ClimateChangeDisclosure:OutWiththeOld;InwiththeNew?McGuireWoods,LLP60(January2009)
ThelawfirmofMcGuireWoods,LLPreviewedapproximately35010‐Kdisclosures
filedin2008toassessthestateofclimaterelateddisclosure,includingwhatwasbeing
disclosedandwhereintheirreportscompanieswereplacingclimaterelateddisclosure.
Theirfindingsincluded:
[V]eryfewcompaniesmadeanytypeof10‐KdisclosureregardingGHGemissionsorclimatechange.Outofapproximately350companiesreviewed,only42,or12.2%madeanydisclosurewhatsoeverregardingGHGemissionsorclimatechange.Ofthe[42]companiesmakingdisclosure:
• 34addressedimpacts/risksrelatedtocurrentorproposedregulation
ofGHGemissions;• 20discussedeffortsrelatedtoreducingGHGemissions;• 8provideddisclosureregardingtheamountoftheirGHGemissions;• 6discussedphysicalimpacts/risksrelatedtoclimatechange;and• 2disclosedlegalproceedingsrelatedtoGHGemissionsorclimate
change.
Thesethreerecentreviewsofcurrentandpastdisclosureofclimaterisksshowthat
boththequantityandthequalityofreportingfailtocomplywithcurrentdisclosure
regulations,whichrequirecompaniestoaddressclimaterisks–oranyotherrisks–ifthose
risksarematerialtotheiroperations.Amongthethinranksofcompaniesthathavebegun
toaddressclimatechangeintheirfilings,thequalityoftheinformationconveyedisoften
quitelow.Investorsarenotwellservedbyboilerplatelanguagethatmerelymentionsthe
existenceofclimatechangeandthegenericrisksthatitposestotheeconomy.Boththe
letterandthespiritofthedisclosurerulesrequireacorporationtoanalyzeriskstoitsown
60McGuireWoods,LLP,http://www.mcguirewoods.com/news‐resources/publications/climate%20change%20disclosure.pdf
30
operations,todisclosethoserisksiftheyarematerial,andtoexplainhowitplanstodeal
withtherisks.Thecurrentpoorstateofdisclosuredemonstratesthatguidancefromthe
SEConclimatedisclosureisnecessarytoimproveboththequantityandqualityof
disclosure.
Voluntarydisclosurespursuanttothevariousinvestorrequestsandin
sustainabilityreportshavebeguntoprovidethemarketsomeinformationaboutclimate
risks.Butasshownina2007reportpreparedbyKPMGfortheGlobalReportingInitiative,
thesevoluntarydisclosuresdonotcontainthesamelevelofrigororaddressthefullrange
ofinformationrequiredinreportsfiledpursuanttomandatorySECrulesandcertifiedby
seniormanagement.InReportingtheBusinessImplicationsofClimateChangein
SustainabilityReports,61KPMGreviewed50sustainabilityreportsfromFinancialTimes
500companiesaroundtheworld.Itfoundthatalthoughmostofthese50companies
addressedclimatechangeintheirreports,themajoritydidnotaddressriskstotheir
businessesandinsteadreportedextensivelyonnewbusinessopportunitiesassociated
withclimatechange.Thefailuretoexamineemissions,risksandanassociated
managementstrategyprovidedanincompletepicturetoinvestors.Thereportalsofound
thatthereportsexamined“didnotreportonthefinancialimplicationsofrisksor
opportunitiesrelatedtoclimatechange,forexampleexpectedcostsofcomplyingwith
futureregulationsorexpectedprofitsfromthesaleofnewclimatechangerelated
products.”
61KPMG,ReportingtheBusinessImplicationsofClimateChangeinSustainabilityReports,(2007)http://www.globalreporting.org/NR/rdonlyres/C451A32E‐A046‐493B‐9C62‐7020325F1E54/0/ClimateChange_GRI_KPMG07.pdf
31
III. INTERPRETIVEGUIDANCEISNEEDEDTOCLARIFYTHEEXISTINGREQUIREMENTTODISCLOSEMATERIALINFORMATIONRELATINGTOCLIMATECHANGE.Climatechangeisprofoundlyalteringthephysical,economicandregulatory
environmentinwhichcompaniesoperateinwaysthatposematerialrisksand
opportunitiesovertheshort‐medium‐andlong‐rangeperspective.Despitethe
increasinglyurgentnatureoftheseknowntrends,mostcompanieshavenotrespondedby
disclosingintheirSECfilingsthematerialrisksandopportunitiestheyfaceinconnection
withclimatechange,ordescribinghowtheyintendtodealwiththesechanges.While
voluntarydisclosureregimeshaveprovidedanimportantstartineducatingthemarket,
theyhavenotbeeneffectiveatprovidinginvestorsthereliable,cross‐comparable
informationrequiredbySECdisclosurerules.
Existingdisclosurerulesprovidethemandatoryframeworkfordisclosureof
materialrisksandopportunitiescompaniesfaceinconnectionwithclimatechange,and
analysisoftheirplanstodealwiththesechanges.Inlightoftheongoingandwidespread
failuretocomplywiththesedisclosurerequirements,werespectfullyrenewtherequest
thattheCommissionactpromptlytoclarifythatexistingdisclosurerequirementsapplyto
climatechange.
Respectfullysubmitted,
DougPearceChiefExecutiveOfficer/ChiefInvestmentOfficerBritishColumbiaInvestmentManagementCorp.(Canada)CaliforniaPublicEmployees'RetirementSystemJohnChiangCaliforniaStateControllerCaliforniaStateTeachers’RetirementSystem
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BillLockyerCaliforniaStateTreasurerMindyLubberPresidentCeresCounselforCeresJimCoburnDeniseL.NappierConnecticutStateTreasurerConnecticutRetirementPlansandTrustFundsVickiePattonDeputyGeneralCounselEnvironmentalDefenseFundCounselforEnvironmentalDefenseFundNancySpencerElizabethE.McGeveranSeniorVicePresident,Governance&SustainableInvestmentF&CManagementLtd.AlexSinkChiefFinancialOfficerStateofFloridaMichelleChanProgramDirector,GreenInvestmentsFriendsoftheEarthRichardMetcalfDirector,CorporateAffairsDepartmentLaborers’InternationalUnionofNorthAmericaNancyK.KoppTreasurerStateofMarylandLanceE.LindblomPresident&CEOTheNathanCummingsFoundationAndrewM.CuomoAttorneyGeneralStateofNewYork
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ThomasP.DiNapoliNewYorkStateComptrollerJanetCowellStateTreasurerNorthCarolinaDepartmentofStateTreasurerBenWestlundTreasurerStateofOregonJulieGorteSeniorVicePresidentforSustainableInvestingPaxWorldManagementCorporationJebSpauldingTreasurerStateofVermont
DATE:November23,2009