Climate Change: From the Parlor to the Boardroom
On the November 6, 2015, President Obama announced that the U.S. Department of State rejected the application for the Keystone XL pipeline as not being in the national interest. On November 9, 2015, Peabody Energy, Inc., the largest U.S. coal producer, agreed to disclose climate change and climate-related regulatory risks to its business in response to a probe by the New York Attorney General. These unrelated events coming less than a month before the opening of the international meeting on climate change, COP21, in Paris illustrate that climate change has progressed from a topic of social and political debate (and often disagreement) to an issue that corporate America should carefully consider in boardrooms across our country.1
In explaining that the Keystone XL pipeline would hinder the nation’s shift toward a clean energy economy, President Obama noted:
Today, the United States of America is leading on climate change with our investments in clean energy and energy efficiency. America is leading on climate change with new rules on power plants that will protect our air so that our kids can breathe. America is leading on climate change by working with other big emitters like China to encourage and announce new commitments to reduce harmful greenhouse gas emissions. In part because of that American leadership, more than 150 nations representing nearly 90 percent of global emissions have put forward plans to cut pollution.
Presumably, this announcement will give the President credibility and momentum when he attends COP21 and attempts to lead other countries into a meaningful, international agreement.
Peabody’s securities filings will resolve accusations by the New York Attorney General that Peabody violated New York’s formidable securities laws by failing to include internal projections Peabody had made. Peabody projected that climate change regulations would cause financial harm but repeatedly denied in SEC filings that it had the ability to predict how much increased climate change regulation would hurt its business even though the company had actual studies purporting to quantify the harm.
Over the last decade, climate risk disclosure has ensnared other energy companies including Xcel Energy, Inc., Dynegy Inc. and AES who entered into agreements with the New York Attorney General in 2008 and 2009 (AES) requiring full disclosure to investors of the risks of climate change to their investments. Then Attorney General Andrew Cuomo (who became governor of New York in 2011) explained in a 2009 press release:
“As efforts to curb climate change continue, it is important that the investing public know the financial risks of companies that produce large quantities of global warming pollution. My office’s initiative to make sure companies are up front with investors continues and I applaud AES for joining other energy companies in setting an industry standard to benefit both the environment and the marketplace.”
Climate change is no longer just a political lightning rod. Utilities, coal companies and island nations are not the only ones who should be aware of the impacts of climate change to their business models or survival. Next month we may see whether and how an international agreement on climate change will impact the rest of us. Stay tuned.
1 These events also follow the issuance of the Clean Power Plan by the Obama Administration which will have a dramatic impact on our nation by putting us on a “carbon diet.”