In March 2018, Swiss multinational investment bank UBS became the first foreign private investor to file an EU corporate sustainability report with the SEC through Form 6-K. UBS’s report, which was required to be created and filed in the EU countries in which UBS operates under the EU Non-Financial Reporting Directive, contains information that generally falls outside what has been considered material for reporting under the SEC’s 2010 Climate Change Guidance. UBS’s Form 6-K filing also came after the U.S. Government Accountability Office released a report in February 2018 stating that the SEC has no current plans to modify its climate-related disclosure requirements.

In the first half of 2018, several energy companies published reports on their approach to managing climate change risks and the companies’ resilience under a potential low carbon future:

  • ExxonMobil’s February 2018 Energy & Carbon Summary: Positioning for a Lower-Carbon Energy Future includes analysis based on climate scenarios developed by the International Energy Agency (IEA) and other scenarios and states that “it is possible that some higher-cost assets, which could be impacted by many factors, including future climate policy, may not be developed” under certain scenarios but then notes that “the size, diversity, and continued upgrading of [ExxonMobil’s] undeveloped resources, along with technology developments, will enable the ongoing replenishment of our proved reserves under a range of potential future demand scenarios for decades to come.”
  • Chevron’s March 2018 Climate Change Resilience — A Framework for Decision Making includes analysis of Chevron’s resiliency under the IEA Sustainable Development Scenario, a climate scenario designed to assess the potential impact of the Paris Agreement on future global energy supply and demand. Analyzing this scenario, Chevron concluded that “[s]ome assets could be exposed if [it] took no action, although most of [Chevron’s] assets are competitive” and also noted that Chevron’s “ability to adjust is [its] best preparation to limit [its] assets being exposed.”
  • Shell’s April 2018 Energy Transition Report includes analysis of Shell’s own climate scenario, Sky Scenario, which Shell developed to assess one way in which the goals of the Paris Agreement could be achieved. Shell explains in its report that it has, and will continue to, manage its portfolio to “reduce the risk of having assets that are uneconomic to operate, or oil and gas reserves that are uneconomic to produce because of changes in demand or CO 2 regulation,” including by investing in natural gas, electricity generation, wind power, and biofuels.

Several developments have occurred since the Financial Stability Board Task Force on Climate-Related Financial Disclosures (the “TCFD”) released its final recommendations in June 2017. In April 2018, the TCFD launched the TCFD Knowledge Hub, which is a repository of guidance documents and other information on climate reporting that have been created to help companies comply with the TCFD’s recommendations. On May 31, 2018, the European Bank for Reconstruction and Development (“EBRD”) and the Global Centre of Excellence on Climate Adaptation (“GCECA”) hosted a conference to discuss implementation of the TCFD recommendations on physical climate risk and opportunities. During the event, EBRD and GCECA unveiled a report with recommendations on disclosure of physical climate change risks, including disclosure of locations that are critical to companies’ value chains, potential impacts from extreme weather events, and other potential risks associated with climate change.

In February 2018, ISS announced that it would be implementing an Environmental and Social QualityScore and published an FAQ. The QualityScore is a numerical score intended to be consistent with the ISS Governance QualityScore and is based on companies’ implementation of standards published by the TCFD; the Global Reporting Initiative, an international organization that seeks enhanced disclosure of corporate social responsibility and environmental information; and the Sustainability Accounting Standards Board, a U.S.-based organization seeking enhanced disclosure of sustainability information in public financial statements.

ESG and Climate Change Developments: What do they Means?

  • ESG matters have become the “new governance,” and many companies can expect to receive investor interest on these matters as often as they receive investor interest on classic governance matters (e.g., shareholder rights and board composition).
  • Environmental and human rights topics have become among the most frequently addressed matters in Rule 14a-8 proposals. Companies should consider these topics in advance of receiving any investor correspondence. Larger institutional investors also have taken ESG positions in recent years, and while this suggests that ESG matters have gone mainstream, there are still ways for companies to negotiate with investors and other interested parties on these matters.
  • Integrated reporting and changing concepts of materiality are coming, it makes sense for companies to have conversations regarding their risk analysis and disclosure as soon as possible.