According to the New York Times, the Attorney General of New York, Andrew M. Cuomo, has opened an investigation of five major utility companies regarding whether their plans to build coal-fired power plants pose undisclosed financial risks that should be disclosed to investors. The investigation is based on the same New York securities law used by former New York AG and now Governor Elliot Spitzer. The AG sent subpoenas to AES Corporation, Dominion, Dynegy, Peabody Energy, and Xcel Energy.
This is apparently one of if not the first securities investigations into climate change disclosure by public companies. The letter stated, "Any one of the several new or likely regulatory initiatives for CO2 emissions from power plants--including state carbon controls, E.P.A.'s regulations under the Clean Air Act, or the enactment of federal global warming legislation--would add significant cost to carbon-intensive coal generation."
The letter also asserted, "Selective disclosure of favorable information or omission of unfavorable information concerning climate change is misleading." The subpoenas were issued under New York securities laws.
The article reports that a group of environmentalists and state officials from the Northeast and the West Coast, including California and New York, are working on a nationwide "anti-coal" effort. Mr. Cuomo is quoted as saying, "The concept here is using the securities laws to investigate whether the economic risks are being disclosed--the economic risks which are dovetailing with the environmental concerns."
Demanding greater mandatory and voluntary environmental disclosure is a growing trend as environmental groups or non-governmental organizations (NGOs) seek to impact corporate activities, and have joined with large institutional investors such a public pension funds. Environmentally concerned investors have been filing shareholder resolutions seeking climate change disclosures by many utilities and other carbon-intensive industries, such as oil and gas companies, oil refineries, cement plants, chemical plants, metals producers, and other large consumers of fossil fuels or electricity. CERES an environmental NGO has been calling for more and more environmental and climate change disclosure for several years.
The disclosure pressure in some ways has become a surrogate for attempting to change corporate behavior, as environmentalists have found it to be tough going in Congress and the White House to marshal any new environmental laws, particularly when it comes to climate change and greenhouse gas emission limitations. The actions by the New York Attorney General may be the first of other suits alleging failure to disclose current and potential future climate change regulatory impacts on their business.
Care should be taken in advising clients about environmental disclosure in securities filings and voluntary disclosures such as sustainability reports or corporate social responsibility reports. We have advised clients on these issues and have recommended changes to their securities filings in terms of climate change disclosure.
