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Shareholders Demand More Disclosure of Climate-Change Risks

One day before the U.S. withdrawal from the Paris Agreement, ExxonMobil shareholders overwhelmingly voted to require increased attention to and disclosure of the future impact of climate change on business expectations, while Chevron’s shareholders defeated similar proposals.

The shareholder proposals called for more transparent reporting and disclosure of the underlying assumptions used to evaluate the long-term reliance on future sales of oil and gas, including the assumptions underlying the valuation of oil and gas reserves. According to shareholders, these assumptions are key to understanding each company’s view of its book value. Various investors have concluded that information about possible market disruptors – like electric vehicle use or other new technologies – are not adequately considered in companies’ current projections, so they are asking for more details.

Increasing the quality of information disclosed to investors increases the efficiency of the markets, according to the Task Force on Climate-related Financial Disclosures, which is charged by the Financial Stability Board (FSB) with reviewing and developing standards for climate-related disclosures. Inadequate information can lead to mispricing of assets and misallocation of capital, both of which can lead to economic instability. The FSB is an international organization that includes governments, financial institutions, and others whose mission is to promote global financial stability by coordinating standards and consistent practices across the global economy. The task force is expected to release recommendations for climate disclosure this summer.

Regardless of the U.S. withdrawal from the Paris Agreement, companies will still need to evaluate and disclose the risks and benefits to a company’s business posed by climate change. As noted in a prior post, U.S. securities laws require disclosure of information that would materially influence an investment decision, and these laws are not going away. The assumptions used in climate-change modeling, market disruptor adoption, international and national regulations, and consumer behavior are complex, and, according to the shareholder requests, could have an impact on an investor’s decision.

Two recent Carbon Disclosure Project reports offer further insight into actions and information that investors find most useful, which can be considered by companies as they evaluate greenhouse gas emissions and exposure to climate change-related risks.

As market forces continue to press for more information about possible climate change impacts on business value, companies can consider the following metrics when evaluating whether a disclosure is warranted:

  • Whether executive pay is linked to greenhouse gas reductions or other sustainability targets

  • Whether business strategies are analyzed against possible global temperature increases

  • Whether a “carbon price” is integrated into business projections

  • Whether the business is engaged in public policy discussions

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About this Author

Jane E Montgomery, Schiff Hardin Law firm
Partner

Jane E. Montgomery concentrates her practice in a variety of matters at the local, state and federal levels. Ms. Montgomery regularly: Counsels many companies with day-to-day compliance issues, including air permitting, NSPS, MACT, and solid and hazardous waste issues. In her work, she often encounters difficult elemental mercury, manufactured gas plant, and PCB issues, and she recently has focused on Reform New Source Review (NSR) compliance for utilities. Counsels clients with respect to climate change issues. Such work has included work on carbon sequestration issues, greenhouse gas...

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David M. Loring, Associate, Schiff Hardin Law Firm
Associate

David M. Loring is a senior associate concentrating his practice in all areas of environmental law. Mr. Loring has counseled and represented electric generating and large industrial clients on a variety of federal, state and administrative litigation and regulatory matters, including:

  • Negotiation of a multi-facility Clean Air Act New Source Review (NSR) settlement agreement between an electric generating utility and the United States
  • Defense of an NSR enforcement action brought by the United States against an electric generating utility
  • Representation of an electric generating utility's petition for a facility-specific multi-pollutant rulemaking before the Illinois Pollution Control Board
  • Responding to United States Environmental Protection Agency investigations under Section 114 of the Clean Air Act on behalf of multiple electric generating utilities
  • Settlement and negotiation of administrative orders by consent involving Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) violations
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