While I was on the Baltoro glacier making my way down from K2 in Pakistan earlier this month the Securities and Exchange Commission informed Exxon Mobil Corp. that it closed its investigation into whether the company had misled investors about the risks that climate change posed to its business.
The ending of the probe that began under the Obama Administration was viewed as more political than ‘accounting practices’ by many, is no doubt significant to Exxon, but the decision is specific to that case and does not portend any change in policy at the SEC.
SEC rules generally require public companies to disclose, among other things, known trends, events, and uncertainties that are reasonably likely to have a material effect on the company’s financial condition or operating performance in the annual report and other periodic filings. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision.
The SEC occasionally provides guidance on topics of general interest to the business and investment communities by issuing interpretive releases, which publish the Commission’s views and interpret federal securities laws and SEC regulations. Guidance was published in 2010 by the SEC to provide interpretation for companies on how existing disclosure requirements apply to climate change related matters. My blog post on that 2010 Guidance identifies matters that may be most likely to require climate change related disclosure in companies’ annual filings.
An historical context is relevant because at the time the 2010 Guidance was issued, “cap and trade” legislation was pending in Congress; the Environmental Protection Agency was taking steps to regulate greenhouse gas emissions; and there were efforts to launch an international cap and trade system. However, those Obama period changes did not occur.
Of note, in response to a request from Congressional members, the SEC later issued two reports to Congress in 2012 and 2014 that narrowly examined only variations in climate change related disclosures in select industries. The SEC found that most of those filings included some level of climate related disclosures and reported that there were no notable year-to-year changes.
But today, after announced withdrawal from the Paris Accord, repeal of the power plant rule and with EnergyStar on the ropes, the political climate in Washington DC is very different than it was in 2010.
That observed, public companies must continue to follow the SEC guidance by annually evaluating and considering climate change related matters.
And we continue to assist corporate counsel, both through our law firm and non law subsidiary, in satisfying environmental disclosure obligations under federal and state laws and regulations. But that does not necessarily mean that a determination on a climate-related or other environmental issue triggers a public disclosure. As I recently told Bloomberg, “disclosures that are potentially made associated with climate change are uncertain and speculative when compared to other disclosures made by publicly traded companies.” That is, the majority of public companies we advise, ultimately determine no disclosure is the correct course of conduct.
And as I described in an earlier blog post, data culled from filings of public companies listed on U.S. stock exchanges reveals that in recent years less than 30% of all public companies made a climate change disclosure of any kind.
Again, all are cautioned to not over read that the SEC ended its probe of Exxon, but the current SEC is not pushing companies to make public climate related disclosures.