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April 18, 2015
Investors Call on SEC to Require Effective Climate Risk Disclosure
    by Robert Kropp

In a letter to SEC Chair Mary Jo White, a coalition of investors organized by Ceres offers specific criticisms of disclosures by major oil and gas companies, and argues that climate risk is changing the economics of the industry.

In 2010, the Securities and Exchange Commission (SEC) published guidance on disclosure of climate change risks and opportunities at publicly traded companies. “Regulations require certain disclosures by public companies for the benefit of investors,” the Commission stated at the time. The guidance addressed what the Commission described as “certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business.”

However, a report published early last year by Ceres not only found that corporate disclosures on climate change remained weak; it also revealed that despite the guidance issued in 2010, the SEC itself was failing to adequately enforce it.

Last week, a coalition of investors organized by Ceres
sent a letter to the Commission, requesting that it require “better disclosure by oil and gas companies of critical climate change-related business risks that will ‘profoundly affect the economics of the industry.’”

In the seven-page letter, the 62 institutional investors, representing nearly $2 trillion in assets under management, wrote, “Since 2005, annual upstream investment for oil has increased by 100%, from $220 billion in 2005 to $440 billion in 2012, while crude oil supply has only increased 3%.” And as oil prices decline, many high-cost exploration projects are being delayed or canceled outright, because the break-even point is far above the current price for a barrel of oil.

“Many of these projects face operational challenges and increasing costs due to the nature of the projects, including Arctic, deepwater, ultra-deepwater, and unconventional production of oil sands, heavy oil, shale oil, extra heavy oil and tight liquids projects,” the letter states.

“Carbon asset risks have undoubtedly become ‘known trends’ within the meaning of the Commission’s regulatory standards and therefore must be discussed in SEC filings,” the letter continues. “The risk of reduced demand for oil, uneconomic projects and stranded assets…is material to the companies and their investors, as it directly affects the profitability and valuation of the companies.”

The letter goes on to document specific failures to disclose climate risks in the annual reporting provided to the Commission by ExxonMobil and Chevron.

“By failing to hold the fossil fuel industry to the same disclosure standards as other industries, the SEC is allowing the sector to hide its true level of risk and impeding investment capital from flowing to the low-carbon projects we desperately need,” said Mindy Lubber, president of Ceres.

The investors’ letter concluded with the request that Commission staff “scrutinize disclosures in annual filings by ExxonMobil, Chevron, Canadian Natural Resources and other oil and gas companies regarding carbon asset risks, and provide comments to these issuers that address reduced demand scenarios, risks associated with capital expenditures on high cost unconventional resource projects and associated stranded asset risks.”

“While some oil and gas companies have begun discussing carbon asset risks with shareholders, it is vitally important to expand relevant reporting in their SEC filings as well as on their company websites and in sustainability reports,” said Tim Smith, Director of ESG Shareowner Engagement at
Walden Asset Management. “Investors urge leadership and more substantive disclosure across the industry."


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