SEC Should Require Disclosure of Risk to Fossil Fuel Investors

The Securities and Exchange Commission (SEC) has a major role to play in addressing climate change.

While that may surprise some, leading institutional investors have already reached that conclusion. That’s why leading investors managing more than $700 billion in assets sent a letter this week to the SEC asking it to require oil and gas companies to provide better disclosure in their 10-K filings about their potential liabilities associated with climate change.

The letter was a response to the SEC’s call for public comment on its proposed rule (33-8935) to modernize oil and gas reporting requirements. The SEC rule proposes to expand the categories of oil and gas resources that companies should report, including additional reserves such as Canada’s massive oil-sand fields that are attracting enormous interest these days from oil companies.

Oil sands are vastly different than traditional oil reserves. They are a sticky mud-like substance that requires enormous amounts of energy to extract, and their production generates three times the amount of global warming pollution as traditional oil drilling. Oil-sands production, which already exceeds more than 1 million barrels a day, will be especially vulnerable to emerging climate change regulations that limit greenhouse gas emissions.

Investors believe that, just as oil companies should provide better information about their oil and gas reserves, they should also be providing more information about their financial exposure to climate-related regulations.

For investors, climate change poses risks to oil and gas companies that fall into the category of known trends requiring company disclosure.

Investors want to know to what extent oil sands are part of a company’s reserves—and more importantly, how foreseeable carbon-reducing regulations will impact the bottom lines of oil and gas companies they invest in.

These are germane questions given the explosion of production in Canada’s oil sands. Oil production there has soared over the past 10 years to roughly 1.3 million barrels a day and output is expected to double or triple by 2015,
making it one of the biggest producing oil fields on Earth.

In their letter, investors ask the SEC to allow disclosure of additional oil and gas reserves only if descriptive and categorical information is required, in addition to the potential liabilities that could be expected, such as from regulatory risks.

This week’s letter, signed by several of the nation’s largest public pension funds, including CalPERS and CalSTRS, is consistent with a petition from investors last fall asking that the SEC require publicly-traded companies to assess and fully disclose the material economic opportunities and risks from climate change.

The petition is backed by $6 trillion of investors, as well as Congressional leaders such as Senators Christopher Dodd and Jack Reed, who sent a letter in December urging the SEC to issue interpretive guidance on the types of information companies should be disclosing about climate-related risks.

The SEC hasn’t yet responded to the petition, but this week’s investor letter is another indication that the climate disclosure issue isn’t going away.

• ‹ previous
• up
• next ›