The Securities and Exchange Commission is weighing whether to require public companies to disclose climate change vulnerabilities that might affect their future stock performance. Debate is raging about whether companies should be trusted to carry out this due-diligence exercise at their own discretion or whether they should be forced to. Either way, it makes common sense from a fiduciary standpoint. The more open companies are about the risks they face, the less vulnerable they are to lawsuits claiming that they deceived investors about those risks.
Exhibit A supporting the case for greater openness is Exxon Mobil, the behemoth petroleum company whose very existence symbolizes the dangers of fossil fuel-induced climate change. The company is being sued by the states of New York and Massachusetts, claiming Exxon Mobil lied to investors about its knowledge of climate change.
Exxon Mobil for years has listed environmental and climate change dangers as potential risks in its annual reports. But plaintiffs suggest the company downplayed the risks or tried to exaggerate its efforts to reduce the environmental damage its products cause. Exxon Mobil has lost appeal after appeal, including at the federal level, in its effort to quash the lawsuit.
Allison Herren Lee, the Securities and Exchange Commission’s acting chair, posted a March 15 statement on the commission’s website requesting public input about whether the commission’s current disclosure requirements go far enough to keep investors informed.
It’s not just about whether companies are telling investors about the performance and operational risks posed by climate change but also whether companies are actively contributing to the problem and could be subject to the same kinds of expensive litigation that Exxon Mobil currently faces. It’s also arguable that when a company is forced to undergo a warts-and-all assessment of these factors, it would be more likely to revise practices and reduce its environmental footprint voluntarily.
But is it the SEC’s job to make that happen? Commissioner Hester M. Peirce insists it’s not. In a refreshing demonstration of openness and a willingness to entertain opposing points of view, the commission posted Peirce’s rebuttal prominently on its website. She headlined her 534-page rebuttal: “We are Not the Securities and Environment Commission — At Least Not Yet.” She says the SEC already requires climate change disclosures and that new ones might not necessarily yield greater corporate transparency, nor is there an assessment of the costs such a requirement would force on companies, the economy, investors and the SEC itself.
Given the increasing levels of climate change activism among investors, public companies have a stark choice: They can come clean voluntarily and possibly avoid Exxon Mobil’s fate, or they can fight transparency until the SEC or other regulators require them to do what’s right.
