Massachusetts Attorney General Joins Multi-State Coalition Investigating Climate Change Disclosures
Massachusetts State Attorney General Maura Healey has joined a coalition of attorneys general from 15 other states and the Virgin Islands—the “AGs United for Clean Power” coalition—who, according to Attorney General Healey, are “working as quickly and as aggressively as we can to fight climate change” by investigating the adequacy of public companies’ statements to their investors and the public about potential impacts of climate change on their businesses.
The coalition was convened by New York State Attorney General Eric Schneiderman and also includes state attorneys general from California, Connecticut, District of Columbia, Illinois, Iowa, Maine, Maryland, Minnesota, New Mexico, Oregon, Rhode Island, Virginia, Vermont, Washington, and the U.S. Virgin Islands.
Federal securities laws and Securities and Exchange Commission (“SEC”) regulations require publicly held companies to make certain disclosures in their SEC filings for the benefit of their investors. When a company is required to file a disclosure document with the SEC, the requisite form will largely refer to the disclosure requirements of Regulation S-K (17 CFR Part 229) and Regulation S-X (17 CFR Part 210). The SEC has promulgated rules that specifically address disclosure of environmental issues and which the SEC maintains may require disclosure regarding certain material risks associated with the impact of climate change. As an example, Item 303 of Regulation S-K requires disclosure of any “known trends or any known demands, commitments, events, or uncertainties . . . that are reasonably likely” to have a material effect on the financial condition or operating performance of the company. 17 CFR §§ 229.303 (a)(1) and (a)(3)(ii).
After pressure from investor advocacy groups, members of Congress, and others, in 2010, the SEC issued interpretive guidance on disclosing climate change risks. According to the guidance, when assessing potential disclosure obligations, a company should consider, and disclose when material, the risks or effects on its business of existing and pending federal and state legislation and regulation and international treaties related to climate change, indirect consequences of climate change related regulatory or business trends and the physical impacts of climate change (e.g., flood or drought), among others. For some companies, the guidance claims that these developments of physical risks “could have a significant effect on operating and financial decisions.”
During the March 2016 climate change press conference, Attorney General Healey remarked on the Commonwealth’s commitment to clean energy, combatting climate change, and holding accountable companies who have purportedly misled the public. Healey has since issued a subpoena to at least one major oil and gas company seeking, among other information, marketing materials, publications, presentations, and other statements made by the company across many forums about climate change-related topics to its investors and the public, as well as the company’s disclosures of climate-change related risks to its business.
The ongoing investigations by Attorney General Healey and the other state attorneys general could impact the SEC’s review of companies’ climate change risk disclosures. Indeed, following the climate change press conference, the SEC published a concept release—a precursor to a potential proposed rule—seeking public comment by July 21, 2016 on potential changes to certain business and financial disclosure obligations in Regulation S-K. (See Alert, Comment Period Closing July 21 on Possible Expansion of Environmental Sustainability Disclosure Requirements.) Among other areas, the SEC specifically requested comment on the adequacy of existing disclosure requirements in eliciting information that would permit investors to evaluate material climate change risk. Companies may wish to consider closely monitoring these developments and commenting on the SEC’s concept release by July 21. With this heightened attention by state attorneys general, companies should carefully evaluate the statements they make across different forums regarding climate change and climate-related risks.