As public concern over climate change continues to mount, an increasing number of public companies are addressing the risks of this phenomenon in their SEC disclosures. Although many issuers have appreciated the potential importance of climate change risk to their businesses and financial results, much of the impetus for enhanced disclosure has resulted from a combination of legislative, regulatory, and investor pressures.

Agreement With New York Attorney General

In September 2007, New York Attorney General Andrew Cuomo issued subpoenas under New York’s Martin Act to five of the nation’s largest energy companies (AES Corporation, Dominion Resources, Dynegy, Peabody Energy, and Xcel Energy) requesting information regarding the disclosure of climate change risk in the companies’ public filings. On August 27, 2008, Mr. Cuomo announced an agreement ending the investigation into Xcel contingent upon Xcel’s disclosure of certain climate change risks in its annual report on Form10-K. Mr. Cuomo accompanied this announcement with a statement that the agreement “sets a new industry-wide precedent that will force companies to disclose the true financial risks that climate change poses to their investors.” Under this agreement, Xcel must provide the following disclosures in its Exchange Act reports: 

  • Analysis of material financial risks from present and probable future regulation with respect to climate change, including: 
    • Identification of current regulation and discussion of expected trends in future regulation in jurisdictions in which Xcel operates;
    • Analysis of material financial effects, including discussion of factors that may affect the company’s business; 
  • Analysis of material financial risks from physical impacts of climate change, including sea level, weather conditions and extreme weather, changes in precipitation, and changes in temperature; 
  • Analysis of material financial effects of climate change-related litigation to which Xcel is a party and any climate change-related decisions, judgments, or orders in jurisdictions in which the company operates that may have a material financial effect; 
  • Strategic analysis of climate change risk and emissions management; 
      • The company’s “current position on climate change”; 
      • The company’s estimated greenhouse gas (GHG) emissions; 
      • The company’s expected increase in GHG emissions from new coal-fired generation;
      • The company’s strategies to reduce climate change risk, including actions to limit GHG emissions; 
      • The results of strategies undertaken to date; and 
      • The expected effect of strategies on future GHG emissions and GHG emission reduction goals the company seeks to achieve.

The legal bases for requiring such disclosure include the following provisions of the SEC’s Regulation S-K: 

  • Item 101, which requires a narrative description of the company’s business, including disclosure of the material effects that compliance with federal, state, and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have on the company’s capital expenditures, earnings, and competitive position; 
  • Item 103, which requires disclosure of material pending legal proceedings to which the company is a party or to which its properties are subject, including proceedings in which the company is not directly a party but which may have a material impact on the company’s business or financial condition; 
  • Item 303, which requires disclosure of known trends or uncertainties reasonably likely to have a material impact on the company’s liquidity, capital resources, and results of operations; and 
  • Item 503, relating to risk factor disclosure, which requires a discussion of the most significant factors that make an investment in the company’s securities speculative or risky.

Trends Supporting Enhanced Disclosure

SEC rules do not identify climate change or climate change regulation as line-item disclosures or as phenomena that companies must consider in disclosing risk. Nevertheless, the following emerging trends reflect increasing public concern about climate change that may influence regulatory actions and affect the nature of risk assessment and disclosure by public companies: 

  • An increase in the number of shareholder proposals that seek to require public companies to disclose certain information or undertake certain actions related to climate change risk. 
  • A sharp rise in voluntary disclosures of climate change risk information by public companies, with many companies publishing sustainability reports or participating in such initiatives as the Carbon Disclosure Project. (The Carbon Disclosure Project indicates that over 75% of Fortune 500 companies responded to its 2007 survey, although the nature and completeness of the responses vary widely.) 
  • An apparently heightened consideration by companies in Europe and the United States of voluntary disclosure of climate change risks in the course of satisfying other general disclosure and reporting requirements. Many European companies also publish sustainability reports that go beyond the disclosures required by the mandatory reporting process. 
  • A petition submitted to the SEC in September 2007 (and renewed in June 2008) by a large group of environmental organizations and institutional investors, led by Environment Defense and CERES, urging the SEC to issue a statement that companies should consider climate risk in their review of information that may be material and subject to disclosure. 
  • A request submitted to the SEC in December 2007 by the chairs of the Senate Committee on Banking, Housing and Urban Affairs and the Senate Subcommittee on Securities, Insurance and Investment requesting the SEC to issue an interpretive release ensuring greater completeness and consistency in disclosure of information related to climate change. 
  • The passage by the California Senate in August 2008 of Senate Bill 1550, which would require the Secretary of State to establish standards for climate change disclosure for public companies doing business in California. To date, however, the California Senate has refused to concur in Assembly amendments, and thus it is unclear whether any proposal on the subject will become law in California. 
  • A message issued on September 24, 2008 by former Vice President Al Gore urging state attorneys general to compel publicly traded companies to disclose the risks of climate change. In his message, Mr. Gore expressed the view that “for a carbon company to spend money convincing the stock-buying public that the risk from the global climate crisis is not that great represents a form of stock fraud because they are misrepresenting a material fact.”

Current Disclosure Practice By Public Utilities

To see how the disclosure practice of one sector of SEC-reporting companies has been affected by these and similar trends, Hogan & Hartson reviewed the climate change-related disclosures provided by several dozen major public utilities in their 2008 annual reports on Form 10-K. The following summary reveals the extent to which public utilities are disclosing climate change risk: 

  • 85% of the companies reviewed discuss current and possible future systems of climate change regulation, of which 60% discuss material effects of climate change regulation on their businesses and financial results and 40% acknowledge that climate change regulation could have a material effect; 
  • 30% of the companies reviewed discuss their strategies to address climate change and the results of those strategies, while an additional 10% simply identify a company strategy addressing climate change; 
  • 25% of the companies reviewed disclose actual GHG emissions, while an additional 30% disclose the level of GHG emissions relative to their industry; 
  • 20% of the companies reviewed discuss climate change litigation to which they were not parties that could have a material effect on their businesses and financial results; and 
  • 15% of the companies reviewed disclose financial risks from physical impacts of climate change.


Drafting appropriate disclosures regarding climate change risk can be challenging in view of the many uncertainties regarding climate change and the scope and degree of financial risk to particular companies arising from potential climate change regulation. Nevertheless, either reporting on climate change risk exposure, even in reasonably general terms, or, alternatively, conducting a well-documented process of evaluating and determining not to report on climate change risk exposure, can provide useful protection for public companies from increasing litigation and shareholder challenges associated with climate change reporting.