In a development of potentially great significance for climate change disclosure and reporting issues, on August 27, 2008, New York Attorney General Andrew Cuomo announced (here) that Xcel Energy had entered a “binding and enforceable agreement” requiring the company “to disclose the financial risks that climate change poses to investors.” Xcel’s announcement regarding the agreement can be found here.


The agreement follows Cuomo’s September 2007 subpoenas to Xcel and four other utilities companies. As I discussed in a post at the time (here), the subpoenas were directed to the companies’ disclosures to shareholders of the financial risks regarding global warming and climate change. In his August 27 press release, Cuomo stated that his investigations of the other four companies (AES Corporation, Dominion Resources, Dynegy and Peabody Energy) are “ongoing.”



In its agreement, Xcel has undertaken to “provide detailed disclosure of climate change and associated risks” in its annual SEC filing on Form 10-K. Specifically, Xcel will provide “an analysis of financial risks from climate chance,” focused among other things on: 1. “present and probably future climate change regulation”; 2. “climate-change related litigation”; and 3. “physical impacts of climate change.”



In addition, Xcel also committed to a “broad array of climate change disclosures” including current and projected future increases in carbon emissions (particularly from planned coal-fired plants); company strategies for reducing or managing its global warming and climate change emissions; and corporate governance actions related to climate change, “including whether environmental performance is incorporated into officer compensation.”



Although Xcel is the only company that is party to the agreement, Cuomo was very explicit in his press release that his believes that the Xcel agreement has managed to “establish a standard,” and third parties are quoted in his press release as saying that the agreement may have created “an enforceable model for climate change disclosure.”



Perhaps one might imagine that developments involving only Xcel are irrelevant for other companies. However, one could imagine that only by disregarding overwhelming contemporaneous evidence to the contrary. Among other things, Cuomo’s recent auction rate securities settlement, similarly announced to great fanfare, quickly became a model for regulatory settlements with other auction rate securities targets. For that reason, it must be anticipated that the other four companies Cuomo targeted with subpoenas will face enormous pressure to enter similar agreements.



The more interesting question is whether the Xcel agreement will have a broader impact, and influence disclosures at other companies – and not just in the utilities industry, but in manufacturing, transport, mining and energy production and distribution, agriculture, and even insurance. As I noted in my prior post, virtually contemporaneous with Cuomo’s subpoenas to these utilities, several public interest organizations had petitioned the SEC to adopt specific climate change reporting guidelines. It is entirely possible that the Xcel settlement will increase the pressure, from shareholders as well as from regulators, to disclose their own financial risks from global climate change.



As I have previously noted, the danger to publicly traded companies is not just that they may face greater disclosure obligations; the danger arises from the fact that companies undertaking greater disclosure commitments, whether voluntarily or as result of compulsion, may be exposed to later allegations that they engaged in “selective disclosure” or “omission” of unfavorable information. It may only be a matter of time before allegations of this type make their way into civil complaints.



To be sure, a lawsuit must not only allege misrepresentations or omissions, it must also allege causally related damages. In the absence of shareholder losses related to climate change disclosures, plaintiffs’ lawyers would have little incentive to pursue a climate change disclosure lawsuit. But as scrutiny of these issues increases, and as disclosure pressures mount, the opportunity for market moving announcements also increases. To put it another way, as disclosure expectations increase, so do disclosure risks.



I have previously asserted that directors and officers of public companies face growing climate change-related exposure. Though these views have been greeted with some interest, there has also been skepticism. Indeed, there have, in fact, as yet been no climate change disclosure related D&O claims.



However, there are too many politicians who see this topic as a way to enhance their stature. There are too many interest groups that are willing to use all means, including litigation, to advance their agenda. And, indeed, there may even be too many financial risks and uncertainties from the underlying issues. Sooner or later, these forces inevitably will come together in a lawsuit (or perhaps many lawsuits) seeking to hold companies and their directors and officers responsible.



As today’s announcement from the New York Attorney General’s office demonstrates, climate change already is an important governance and disclosure issue. A myriad of forces ensure that its importance will only increase.



An August 27, 2008 New York Times article discussing the Xcel agreement can be found here.