More Firms Could Feel Heat from New York AG’s Climate Change Disclosure Win

By Terry Wade and | November 13, 2015

The New York state attorney general’s office, which told Peabody Energy this week to give investors more details about how its sales would suffer from measures to curb global warming, is now mulling whether the tactic it used with the coal firm could be applied to companies beyond the energy sector.

The state investigation into Peabody, which was settled on Monday, found that the company repeatedly denied in public filings it could predict how potential climate change regulations would affect its business, even though its internal studies showed revenue could tumble if coal were targeted in a carbon pollution crackdown.

New York Attorney General Eric Schneiderman seized upon this discrepancy between public and private pronouncements as a violation of securities laws, arguing that material facts were withheld.

While the settlement will pressure other fossil fuel companies to bolster their climate change disclosures, it also could spawn new pressures on a range of companies facing regulatory risks over policy issues from obesity to soaring drug prices, according to corporate governance experts including James Cox, a law professor at Duke University in Durham, North Carolina.

“This is sweeping,” Cox said. “I think there will be a ripple effect from this.”

Schneiderman’s office has considered the effects the Peabody settlement could have on disclosure practices for companies outside the energy industry, though no additional actions are planned at the moment, a person familiar with the matter told Reuters.

At least one other case similar to Peabody is in the works in New York, where Schneiderman’s office last week was reported to have opened an inquiry into whether Exxon Mobil Corp misled shareholders about climate change risks.

U.S. Securities and Exchange Commission disclosure guidelines give companies considerable leeway to make their own judgments about the likelihood that future events, such as tougher regulations, will affect their valuations.


The Peabody settlement, while not binding for corporate America, could prompt companies to reexamine what they are defining as material to shareholders, at a time when demands by investors for more robust disclosures are growing, corporate governance experts said.

For example, soda makers could see a crackdown on sugary drinks by governments worried about public health, or changes in insurance rules might result in lower drug prices paid to pharmaceutical companies, they said

“There is this horrible mismatch between what companies know about their own businesses and what they tell investors in mandatory public filings. That isn’t okay,” said Michael Guttentag, a law professor at Loyola Law School.

He said the New York settlement sets a precedent that could prod companies to make fuller disclosures, though others said firms would still have ample latitude under SEC rules, which they do not see changing.

Andrew Logan of Ceres, a group that advocates for more sustainable business practices, said companies will need to be more forthcoming with investors.

“The Peabody settlement … should be seen as a shot across the bow to any company that faces regulatory risk in its core business, whether you produce junk food, high-priced pharmaceuticals or fossil fuels,” he said.

When it announced on Monday it would amend its disclosures, Peabody said there was no admission or denial of wrongdoing and no financial penalty. It could not be reached for comment on Thursday.

Corporate officers are still digesting the settlement.

A handful of prominent food companies canvassed by Reuters said they were either unaware of the Peabody settlement or not yet prepared to address it. The Pharmaceutical Research and Manufacturers of America trade group said it would be premature to comment.

Exxon and the SEC declined to comment.

Meredith Cross, a former SEC official who now advises companies and their boards on disclosure and securities law as a partner at Wilmer Hale, warned against expecting companies to divulge even the smallest of facts or being asked to reliably predict regulatory changes in the future.

“I do not think it is a good idea to require companies to provide an encyclopedia of data and make people wade their way through it. That doesn’t strike me as a reasonable approach,” she said.

(Additional reporting by Anna Driver in Houston and Ankur Banerjee and Sruthi Ramakrishnan in Bangalore; reporting by Terry Wade and Valerie Volcovici; Editing by Eric Effron and John Pickering)

Topics Legislation New York Climate Change

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