Now that SEC’s Interpretive Guidance has been published, legal experts are beginning to comment publicly about the Guidance, its meaning and implementation. The legal analyses generally agree that publicly-traded companies will need to significantly change their current environmental risk assessment practices and/or should look to outside experts on risk assessment techniques. Some of these comments were recently published in an article in Law.com. Excerpts from that article are below: Jane Kroesche, head of the West Coast environmental transactions practice at Skadden, Arps, Slate, Meagher & Flom: … meeting the new requirements will not just be a matter of “plugging language” into the business discussion or legal proceedings section, where companies usually make environmental disclosures. “It is a very broad-reaching guidance. It’s important for companies to understand that it’s not just about disclosing the impact from emissions regulations. It goes way beyond that.” Robert O’Connor, head of the clean tech practice at Wilson Sonsini Goodrich & Rosati: … the challenge for corporations under these new guidelines will be twofold. Companies must have the infrastructure in place to know whether there is something to disclose. And, they must find out if they are responsible for carbon emissions along their whole supply chain,
Read more →In 2009, there was a general sense in the US that some regulatory and economic certainty would finally be established relative to greenhouse gases, and CO2 in particular. The current administration made highly public moves and statements to that effect, which were mirrored by action in Congress and the Senate. EPA issued its finding of endangerment. And there was significant optimism that the COP15 Copenhagen meeting would bear fruit. Fast forward to February 2010. There has been quite a shift in direction and now there is arguably more business risk related to CO2/GHG than there was going into 2009. Among recent highlights: Nike formally announced that they are abandoning the use of carbon offsets and Renewable Energy Certificates (RECs), citing, among other concerns: there is substantial scrutiny of the use of RECs, in particular related to whether they in fact help create new renewable power, or whether they are simply payment to a project that would have existed anyway. … Moving forward, however, our preference is to achieve climate neutrality through a combination of energy efficiency and the purchase of more direct forms of renewable energy, through on-site applications and other means. The German Emissions Trading Authority (DEHSt) computer system
Read more →According to EnvironmentalLeader.com, San Francisco’s federal court settled a lawsuit in which environmental groups and four U.S. cities accused the Export-Import Bank of the United States, the country’s official export-credit agency, and the Overseas Private Investment Corp., of financing energy projects overseas without considering impacts on global warming, Santa Monica Daily Press reports. Friends of the Earth, Greenpeace, Boulder, Colorado. and the California cities of Arcata, Oakland and Santa Monica, filed the lawsuit in 2002, claiming that “the two agencies provided more than $32 billion in financing and loan guarantees for fossil fuel projects over 10 years without studying their impact on global warming or the environment as required by the National Environmental Policy Act,” FoxReno.com reports. The cities claimed they would feel the environmental impacts of overseas projects. The two agencies have agreed to provide a combined $500 million in financing for renewable energy projects and take into account GHG emissions associated with projects each company supports. Under the settlement, Ex-Im agreed to develop a greenhouse gas policy and start considering CO2 emissions when evaluating fossil fuel projects for investment. OPIC agreed to reduce the GHG emissions associated with projects it supports by 20 percent over the next 10
Read more →The Securities and Exchange Commission (SEC) today voted to require public companies to disclose the financial risks they face related to climate change. In her opening remarks, SEC Chairman Mary Shapiro emphasized that we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. The Commission is also not considering amending well-defined rules concerning public company reporting obligations, nor redefining long-standing interpretations of materiality. The vote requires that the SEC develop and issue an “interpretive release” – guidance that can help public companies in determining what does and does not need to be disclosed under existing rules. 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
Read more →Word Resources Institute (WRI) recently published a new issue brief titled Accounting for Risk. This publication focused on the myriad issues confronting financial institutions (FIs) when determining and evaluating greenhouse gas (GHG) emission inventories and related risks. The study concludes that there are a number of benefits to FIs for implementing well-thought out processes for assessing GHGs beyond their direct emissions. Key risks discussed include: GHG risk impact on new investment opportunities. This risk may be most prevalent in the power generation sector. WRI noted Investments in carbon-intensive projects are no longer a safe bet. Companies, under pressure from shareholders, have been pulling support and cancelling plans to construct new coal plants. Appropriate scope for emissions measurement. WRI contrasts two different scoping approaches – the Operational Control approach and the Equity Share approach. To illustrate the potential differing results between the two, WRI provided an example. In 2007, Citi reported its total environmental footprint (scope 1 and 2) at about 1.4 million metric tons of CO2, but estimated its share of CO2 emissions from financing just two thermal power plants to be almost 200 million metric tons of CO2 (~3.3 million metric tons on an annual basis based on a
Read more →In several past articles, we discussed various business risks associated with calculating “carbon footprints” and making investments in climate change or CO2 emissions strategies. During the last few weeks, more information has surfaced that illustrates an increased recognition of these risks. The Wall Street Journal reported: Manufacturers and retailers across the globe are working to measure their products’ carbon footprints for a variety of reasons, and all of the efforts have one thing in common: The results have the appearance of precision. But all the decimal points in the world can’t hide the fact that measuring carbon footprints is inexact. It is clouded by varying methodologies and definitions — not to mention guesses. “There are no clear rules for the time being,” says Klaus Radunsky, who co-chairs a group within the Geneva-based International Organization for Standardization that is producing a guideline for measuring products’ environmental impacts. “It depends very much on how you do the calculations.” The well-regarded law firm of McGuireWoods LLP released an article comparing corporate responses to the Carbon Disclosure Project (CDP) to financial risk discussions/disclosures in the same companies’ 10-K reports for SEC. [T]he Carbon Disclosure Project (CDP) in September 2008 released the results of its
Read more →Recently, we published discussions related to various risks associated with certain aspects of corporate carbon management programs – planning, calculations and reporting. But we have had discussions with clients about other risks specifically posed by sequestration techniques. Today, a Reuters report provides stark evidence of the reality of a disastrous threat to forestry sequestration: the tiny pine beetle. Infestations of the insect cause huge impacts: In Colorado, aerial surveys show that from 1996 to 2008 Colorado lost almost 2.5 million acres (1 million hectares) of pine forest to the beetle outbreak, Wyoming 677,000 acres and South Dakota 354,000 acres. Over the same period of time, the spruce beetle, which has also ravaged forests as far north as Alaska, took out 374,000 acres of spruce trees in Colorado and 340,000 in Wyoming. That cumulative total of over 6 million acres (2.5 million hectares) is an area larger than Israel or South Africa’s Kruger National Park. As the excerpt states, this is the impact over 12 years. Commercially-viable forestry sequestion projects typically span 15 to 30 years. The article stated that Colorado-based U.S. Forest Service scientist Mike Ryan is concerned that pine beetle destruction may lead to forests changing from carbon sinks
Read more →Walmart’s announcement about its new supplier sustainability index has generated publicity at a scale that is fitting for the world’s largest retailer. News media, green groups and manufacturers have published numerous articles and discussions about the index – so much so that there is no need for us to post a link here. The proposed program is grand and sweeping as it is intended to catalyze dramatic change in business frameworks. Elm has worked with trade associations in efforts to obtain, aggregate and make available certain types of environmental compliance and sustainability information in a manner similar to what Walmart envisions. These efforts were much smaller in size and scope than Walmart’s yet they provide relevant insight into hidden risks. From our experience, some obstacles to full implementation of the program include: - Potential anti-trust implications from information sharing between competitors - Concerns from suppliers about disclosure of certain information to their competitors - Potential legal liability stemming from the index information – both for Walmart and the suppliers providing the information. Suppliers do not have much time to evaluate the potential risks they face in participating in the index (the response to the initial questionnaire is due October 1,
Read more →Articles from the New York Times and Environmental News Network reported that last month, the world’s largest insurer – American International Group (AIG) – closed its climate change program. AIG was until recently lauded as a leader in the financial services and insurance industry for its GHG activities. According to NYT, AIG had established new goals by inventorying its greenhouse gases and was collecting offsets for a year’s worth of emissions, developing insurance policies for renewable energy providers, and brainstorming for financial instruments that would assist innovators in the green movement. With the closing of their climate program, the company is no longer calculating its emissions, ceased efforts to reduce them and canceled its Be Green program, NYT reported. “Some people were concerned that if you took an advocacy position [on climate change], that might annoy — that’s a good word — clients,” the articles quoted Joseph Boren, the former CEO of AIG Environmental. Both articles quoted Richard Thomas, former senior vice president of AIG, as saying that AIG’s decision about its climate change program ”will retard the development of some of the financial instruments to address some of the issues in climate change.” He pointed out that “AIG was
Read more →WSJ published an interview with Ken Parker, the global head of Deutsche Asset Management, a unit of Germany’s Deutsche Bank AG. The interview focused on Mr. Parker’s views on climate change and his leadership of related investment management activities within Deutsche Bank. Mr. Parker, a member of Deutsche Bank’s group executive committee, oversees $613 billion of assets under management. Four years ago, he launched what are thought to be the first investment products focusing on businesses that will help mitigate the effects of climate change. Those funds currently have about $4 billion in agribusiness, clean technologies, energy efficiency, environmental management and water. A believer that information breeds action, Mr. Parker’s next project is to raise awareness about the daily greenhouse-gas emissions around the world by setting up a second-by-second counter in New York City. An interesting idea. However, there is no standardized method for calculating CO2 or other GHG emissions. Numerous studies have been conducted in recent years comparing the popular on-line “carbon footprint” calculators, including EPA’s. These studies (links to two of them are posted below) consistently demonstrate the significant variation in results from the same inputs. Further, the major engineering trade associations in the US have only now recognized
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