Monday, November 16, 2015

A Hint At Where the New York Attorney General's Investigation Of Exxon Will End Up, The Peabody Coal Settlement

Following up on November 8ths "Exxon Might Be in Trouble Over Climate Change" (XOM).

Even under the far-reaching, some have said "draconian", Martin Act, it is very difficult to show criminal liability, much less under the less encompassing Federal securities laws and the '33 and '34 acts, see below.
From the New York Times, Nov. 8:

Peabody Energy Agrees to Greater Disclosures of Financial Risks
Peabody Energy, the world’s biggest private sector coal company, has agreed to make more robust disclosures to its investors about the financial risks it faces from future government policies and regulations related to climate change and other environmental issues that could reduce demand for its product. 
The coal giant’s concessions came in response to a two-year investigation by the New York attorney general that found that Peabody had not been forthright with investors and regulators about threats to its business that the company projected in private. 
The agreement between Peabody and Attorney General Eric T. Schneiderman was expected to be announced on Monday. Days before, Mr. Schneiderman’s office started a separate investigation into Exxon Mobil to determine whether the company lied to the public about the dangers of climate change while its scientists warned about the gathering threat to the environment posed by carbon pollution. 
The Peabody agreement will not include a monetary settlement. Its impact will surely pale in comparison with the other problems Peabody faces as demand for coal plummets, replaced by cleaner-burning natural gas....MORE
Here's the Attorney general's press release.

Five years ago we saw the push to use the Federal securities laws for this stuff and frankly, they are not fit for the purpose and, had I been asked I would have advised exactly that. Better to use the resources on a different approach. Here's a mini-linkfest from our April 2011 post "On to the General Electric Annual Meeting--"We'd Rather not Disclose Our Climate Change Regulatory and Business Risks" (GE)":

...We followed the political effort to enlist the SEC in forcing companies to achieve some folks' political ends.
The SEC's position was not at all what the promoters wanted. *

From January 2010:
SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change

This "guidance" is vague enough to open almost any reporting corporation to legal action under the disclosure provisions of the '33 Act.
Let the good times roll (for the plaintiffs bar).
February 2010
"Should energy companies be worried about the SEC's climate change disclosure rule with EPA regulation on the horizon?" (CVX; XOM)

Those big public employee pension plans* who lobbied for this decision have a fiduciary duty to do their own due diligence and dump those positions that are at risk.

For example CalPERS largest equity poition as of their last annual report was XOM, around a Billion bucks worth.
The seventh largest position was CVX, $400Mil. or so....
...So yeah, the investment professionals at CalPERS had better do all that Prudent Man/fiduciary stuff that they get paid for.
*October 2010
Muni's: "Water Scarcity a Bond Risk, Study Warns"

CERES is made up of the behemoth public employee pension funds, CalPERS, CALSTRS, the New York Common Fund (via the Office of the Comptroller) New York State Teachers Retirement System, New York City Teachers Retirement System, Illinois State Board of Retirement and a half dozen others. Other investor members include the SEIU and AFSCME.
The Environmental and Public Interest members number over 60 organizations.

A few years ago CERES decided to use regulatory pressure on publicly traded companies to press their climate change thinking. They petitioned the SEC to require climate change disclosure in corporate filings.
In January of this year the SEC issued  interpretive guidance. The SEC focused on the impact of regulations, legislation and international accords.
There was one sentence on the physical impacts of climate change:

...Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
* * *
This wasn't at all what CERES wanted.
Ya win some, lose some.