Carbon Tracker says SEC should enforce reporting rules to inform investors on stranding risks

Carbon Tracker, the financial/environmental NGO whose ‘stranded assets’ research has been used to back the burgeoning fossil fuel divestment campaign, has written to the US Securities & Exchange Commission (SEC), arguing that it is not enforcing reporting rules that could protect investors from share value destruction in the light of rapidly changing energy prices and tightening climate regulation.
The letter is one of a number of submissions to an SEC enquiry on disclosure rules (known as Regulation S-K) for public companies as part of the Jumpstart Our Business Start-ups (JOBS) Act. The responses come from organizations including the Investor Environmental Health Network, US SIF, The Interfaith Center on Corporate Responsibility and the American Bar Association.
The publication of the letter comes at the same time as Carbon Tracker has issued a report looking at share value drops in recent years at US coal companies as a result of falling thermal coal prices. The report, titled The US Coal Crash says more than 14GW of coal-fired power plants became ‘stranded’ assets as a result between 2010 and 2012.
Based on its research, Carbon Tracker argues that climate risk is akin to market risk for coal, oil and gas companies.As a result it says fossil fuel companies should include climate change-related information in their regulatory filings in order to conform to Item 303 of Regulation S-K, which obliges them to disclose trends and uncertainties reasonably likely to impact earnings. Item 303 says companies must analyse “known trends, events, demands, commitments and uncertainties that are reasonably likely to have a material effect on financial condition or operating performance.” It says companies should also present such issues in the Management Discussion and Analysis sections of their annual reports, which are supposed to include strategic plans and challenges. Carbon Tracker says the best proxy for companies to measure and report their environmental/financial data is the two degrees CO2 rise versus pre-industrial limits defined by international agreements and included in national and regional energy targets.
The lobby group suggests the SEC could improve fossil fuel company disclosure on financially important environmental data by mandating reporting of future capital expenditure plans by break-even price bands in relation to energy prices. It says companies should also publish the carbon content of fuel reserves and resources to enable investors to compare these to regulatory movements.