Before the coal giant Peabody Energy filed for bankruptcy and before its stock lost billions in value, the company projected internally that demand for coal would drop and that climate change policies could hurt its business. But it didn't tell investors. The company told the Securities and Exchange Commission that it wasn't possible to predict the effect of climate regulations.
In a November 2015 settlement, the company agreed to update its S.E.C. filings to include the financial risks of new climate policies. It's something that they should have been doing before—in 2010, the S.E.C. published guidance telling companies how to report climate risks to their business.
Some corporations responded. Coca-Cola, for example, reported that climate change might threaten its supply chain of commodities like sugarcane; climate could also threaten its water supply. But many companies, such as Peabody, didn't disclose their risk, and the S.E.C. hasn't been enforcing that disclosure. That might be beginning to change. The agency is currently investigating Exxon, focusing on how the company accounts for the future cost of climate change.
"The S.E.C. . . . has been noticeably quiet in taking enforcement action against companies that did not comply," says Michael Gerrard, a law professor at Columbia University who focuses on environmental and climate change law. "The apparent investigation of Exxon may indicate that they've woken up to this issue."
This investigation is following others. Last September, after Inside Climate News revealed that Exxon knew about the risks of climate change since the 1970s—and then campaigned against potential regulation—New York's attorney general launched an investigation into the company for fraud. Nineteen other state attorneys general followed, considering whether Exxon has misled investors and the public.
Exxon has said, for example, that global action on climate change wouldn't leave it with "stranded assets," or reserves of fuel that it can't sell. But studies have found that if all of the world's reserves are used, we won't be able to avoid catastrophic warming. In the Paris climate agreement, world leaders agreed to keep warming to two degrees Celsius—with a stretch goal of keeping it below 1.5 degrees. Neither is possible if all existing oil and gas is burned and turns into carbon in the atmosphere.
The Paris agreement, and the regulation that will soon follow, was likely a key reason for the S.E.C. to dive into the investigation now. "It's a clear signal and actually investors have recognized that," says Jim Coburn, a senior manager at Ceres, a national network of investors and environmental organizations. "Some huge public pension funds . . . sent letters to the SEC in July and have said explicitly the Paris agreement changes the equation, and we think companies are not saying enough about climate risk in their reporting."
When the S.E.C. first asked companies to start disclosing climate risk, it sent comment letters to some corporations asking for more information. But then it stopped. The investigation—much more serious than a comment letter—is likely to make other companies pay attention and be more careful about their own reporting.
"I think the investigation, along with other signals the SEC has been sending, will make other companies think about what they're saying about climate disclosure in their SEC filings," says Coburn.
Gerrard says that environmental lawyers are already beginning to advise their clients to take more care. Later this year, when a European agency releases another report on climate disclosure, the pressure is likely to increase.
Shareholders are pushing for more disclosure as well. When BP shareholders passed a resolution in 2015 calling for more transparency about climate change, the company agreed to publish more details on everything from its lobbying on climate regulations to whether the value of its reserves will drop. Shell and Total shareholders passed similar resolutions. Exxon and Chevron shareholders have been attempting to do the same thing.
As the pressure rises, perhaps more companies will begin to rethink how they can deal with climate risk, not just report it.
"I definitely look at the investigation as part of a pretty remarkable series of events in the last few years that are sending a stronger signal than ever to the oil and gas companies that they need to think about changing their business models and diversifying into lower-carbon energy sources," says Coburn.
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