Environmental Update

Enhanced Scrutiny of Climate Change Disclosure

September 7, 2007

Recent events have highlighted the need to carefully consider disclosure relating to climate change risks in public filings.


On September 14th, the New York Attorney General issued subpoenas pursuant to the Martin Act (New York's blue sky law) to five energy companies seeking information regarding their analysis of climate change risks and their disclosure of these risks to investors. The Attorney General expressed concern that these companies' public filings contained no or inadequate disclosure relating to the financial, regulatory and litigation risks arising from carbon dioxide emissions from current or proposed power plants, and specifically identified as potentially problematic the absence of projected carbon dioxide emission levels and the failure to discuss the possible effects of future regulations or strategies to reduce future emissions.


Separately, a twenty-two member coalition, consisting of the New York Attorney General, senior investment officials from several states and various public interest groups, filed a petition with the SEC requesting it provide interpretative guidance clarifying that material climate-related information must be included in public disclosures under existing disclosure requirements. The petition requests that the guidance explain that all registrants should review the adequacy of their internal mechanisms for assessing climate risks, which may result in an obligation to determine and disclose current and projected greenhouse gas emissions as well as other information relating to the known or potential effect of climate change on their operations and financial condition.


It is not clear what the outcome of the Attorney General's investigations will be or whether the SEC will take any action in response to the petition. We would, however, expect some increased scrutiny by regulators and shareholders of these issues in the coming years, and would advise registrants to regularly assess the adequacy of their climate change disclosure.


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© 2007 Davis Polk & Wardwell