Dynegy Inc. agrees with New York Attorney General Andrew Cuomo to disclose material risks related to climate change
Following in the footsteps of Xcel Energy's August 2008 landmark settlement with New York Attorney General Andrew M. Cuomo, on October 23, 2008, Mr. Cuomo announced an agreement with Dynegy Inc. under which Dynegy will include disclosures of material risks related to climate change in its Form 10-K filings. The agreements with Dynegy and Xcel are the fruits of Mr. Cuomo's innovative use of New York's Martin Act as an environmental enforcement tool, which began with the New York Attorney General's September 14, 2007 letters and accompanying subpoenas to Dynegy, Xcel, AES Corporation, Dominion Resources, and Peabody Energy. Mr. Cuomo's inquiries regarding AES Corporation, Dominion Resources, and Peabody Energy are said to be "ongoing."
According to the October 23, 2008 Assurance of Discontinuance Pursuant to Executive Law § 63(15), Dynegy's disclosures will include an analysis of material financial risks to the company from the physical impacts of climate change, "including the impact of an increase in sea level and changes in weather conditions", as well as material financial risks associated with present and probable future greenhouse gas legislation and regulations. Dynegy has also agreed to a broad climate-change litigation disclosure covering
[a] description of any litigation related to climate change involving the Company the outcome of which will likely have a material financial effect on the Company and any climate change-related decisions issued by the United States Supreme Court, any United States Court of Appeals, or any court in any jurisdiction in which the Company operates that the Company concludes are likely to have a material financial effect on its business.
In addition, to the extent that Dynegy's greenhouse gas ("GHG") emissions materially affect its financial exposure from climate-change risk, Dynegy will disclose
- current and projected increases in GHG emissions,
- corporate strategies to reduce the company's climate-change risk,
- the role of the company's board of directors in Dynegy's corporate governance process as it applies to climate-change issues, and
- the extent (if any) to which "environmental performance factors" are incorporated into officer compensation.
Mr. Cuomo lauded the agreement with Dynegy, noting that it will help “protect investors by ensuring disclosure of potential financial risks that climate change may pose,” and adding:
Today we raise the bar in the industry and ensure transparency and disclosure in the marketplace. Investors have the right to know all the material financial risks faced by coal-fired power plants associated with global warming and I hope and expect that other companies will follow the lead of Dynegy and Xcel.
Much as former New York Governor Eliot Spitzer used the Martin Act’s broad powers to fight Wall Street fraud when he was New York Attorney General, Mr. Cuomo has used that tool to investigate a range of securities-related issues including subprime mortgages and other financial industry practices. In addition to drawing public attention to his political accomplishments, Mr. Cuomo’s efforts to obtain climate-change-related disclosures from operators of coal-fired power plants may also spur the Securities and Exchange Commission to act as it considers climate-change disclosure requirements.
The October 23, 2008 Dynegy agreement came one day after a group of institutional investors sent a letter to the SEC asking that it require improved climate-risk disclosure in SEC filings. In their October 22, 2008 letter, the Ceres-sponsored investor group -- the Investor Network on Climate Risk ("INCR") -- also asked the SEC to consider how material environmental, social and governance (sometimes referred to as "ESG") risks, including "environmental issues such as water-related risks and social issues such as labor and supply chain risks," can be integrated into the SEC's disclosure requirements. The INCR letter was sent in response to the SEC's request for public comment on its 21st Century Disclosure Initiative, announced by Chairman Christopher Cox in June 2008. (Public comments on the SEC initiative are available on the SEC's Web site.)
