Download - File No. 4-547 - SECThe policy and economic response to climate change has also advanced considerably. In a critical recent development, the U.S. Environmental Protection Agency (EPA)

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).

16

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.

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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.

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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).

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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

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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

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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.

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• 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

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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

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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