July 07, 2020

Looking beyond ExxonMobil: A focus on effective climate change disclosures

Thomas A. Utzinger

Public-company reporting of risks and liabilities is a long-standing process subject to myriad Securities and Exchange Commission (SEC), accounting, and other requirements. These disclosures convey a broad range of material financial data to investors including information related to environmental risks and liabilities. In addition to SEC reporting, an increasing number of public companies now issue sustainability or corporate social responsibility reports. These largely nonfinancial works address environmental and energy topics from a strategic perspective and are studied by a wider range of stakeholders.

In either case, disclosing climate change-related risks, which is a part of “environmental, social, and governance” (ESG) reporting, has become a significant focus of investors and ratings agencies. As a result, companies are increasingly being benchmarked according to ESG data points based on the theory that poor ESG performance indicates poor management overall. A perceived failure to communicate ESG, and especially climate change–related factors, can result in increased litigation risk in some cases.

While the alleged failure to properly report climate change–related risks has resulted in a small number of high-profile securities fraud cases, these isolated incidents do not drive improvements in the disclosure space. Enforcement cases are sporadic, highly fact-specific, and not always successful. Being fact-specific, any potential “lessons learned” are unlikely to translate into industry-wide reform. Rather, greater analytical sophistication and adoption of reporting by companies is happening organically in the United States.

Climate change disclosure background

Clear, forthright, and comparable disclosures are critical to well-functioning financial systems and healthy capital markets. Investors and stakeholders require the free flow of material information to determine risks and opportunities with respect to individual companies and the economy. These determinations are critical to understanding whether a company’s stock price accurately reflects risks and opportunities.

Climate change–related risks are an increasing factor in this calculus. Physical climate risks (either event-driven, such as property damage related to a storm, or long-term, such as gradual sea-level rise) and transition climate risks (for example, increased government regulation or carbon pricing tied to a lower-carbon economy) are the main categories, with the latter including policy and legal risks, technology risks, and market risks. The urgency of addressing climate change–related risks, however, has heightened since the 2015 Paris Agreement. With this sense of urgency an additional metric has emerged by which business operations and capital planning are assessed and labeled as consistent or inconsistent with Paris-related goals.

Reflections on ExxonMobil

On the one hand, a worthwhile case study could be made of the government investigations and litigation involving Exxon Mobil Corporation (ExxonMobil). Illustrative of a potential worst-case scenario for a company’s public relations, the ExxonMobil cases are indeed notable.

The Attorney General of New York filed a lawsuit against ExxonMobil in the Supreme Court of the State of New York on October 24, 2018. Then-Attorney General Barbara D. Underwood made claims, among other things, under the Martin Act (New York’s blue sky law) that ExxonMobil made false and misleading statements or omissions of fact and did not incorporate climate change regulatory risks into its business processes as represented to investors, resulting in “overvalued” securities that were held or purchased “at artificially inflated prices.” The New York case was dismissed on December 10, 2019, as Judge Barry R. Ostrager found “these allegations to be without merit” because “the Attorney General failed to prove by a preponderance of the evidence that ExxonMobil made any material misrepresentations. . . .” New York did not appeal.

Likewise, the Attorney General of Massachusetts filed a lawsuit in the Superior Court for Suffolk County one year after New York filed, on October 24, 2019, under the Commonwealth’s consumer fraud protection statute (Chapter 93A). Among other things, Attorney General Maura Healey claimed that ExxonMobil “misrepresented, omitted, obscured, and failed to disclose to Massachusetts investors material facts regarding the risks posed by climate change. . . .” ExxonMobil removed this case to federal court but it was quickly remanded. It is possible that some or all the Massachusetts claims could be dismissed because the case relies, in part, on similar grounds as New York’s case.

Note, however, that these cases are (1) isolated incidents of state governments exercising their discretion, (2) highly fact-dependent, and (3) unlikely to happen to many other companies in a similar fashion. Therefore, adverse governmental actions cannot be relied upon as an efficient means of effecting widespread improvements in corporate disclosures. Rather, companies, investors, investor organizations, and other nongovernmental organizations (NGOs) can act now to bring climate change and ESG reporting to its next logical steps: continued improvement, streamlined use of formats, and universal adoption.

The good news is that the state of corporate climate change disclosures has progressed substantially. But despite the glass being more than half full, more can be achieved.

Public company disclosure requirements

In the United States, issuers subject to the Securities Act of 1933 and the Securities Exchange Act of 1934 must disclose material facts necessary for investors to make informed decisions. The SEC’s Regulation S-K prescribes disclosure requirements for registration statements and form 10-Q (quarterly) and 10-K (annual) reports. The concept of materiality (i.e., information to which a reasonable investor would attach importance in deciding whether to buy or sell securities) underlies these reporting requirements. The reader should note that other requirements apply, including Financial Accounting Standards Board accounting rules, Sarbanes-Oxley Act certification requirements, and New York Stock Exchange and Nasdaq Stock Exchange disclosure obligations.

Climate change risk reporting

In 2010 the SEC issued an interpretive release confirming that certain sections of Regulation S-K may be relevant to climate change matters. The Commission has never promulgated regulations, although legislative proposals to that effect have been introduced. In early 2020 the SEC issued proposed amendments intended to modernize and enhance Regulation S-K. The proposed amendments do not apply to ESG and climate change-related disclosures.

In the absence of federal regulations setting forth climate change and other ESG disclosure rules, companies must work with several available voluntary reporting frameworks. Some are more general in scope and well-suited for sustainability reporting, such as the GRI standards (Global Reporting Initiative). Others are more tailored toward investor users, such as SASB (Sustainability Accounting Standards Board), which has identified what ESG factors are material to each major industry sector. The CDP (formerly known as the Carbon Disclosure Project) annually collects and manages self-reported corporate environmental data. The CDSB (Climate Disclosure Standards Board) is an international consortium of businesses and NGOs and offers a framework for environmental reporting that is useful for incorporating climate change information into financial reports. Finally, the TCFD (Task Force on Climate-related Financial Disclosures), an arm of the Financial Stability Board, has issued recommendations for identifying and disclosing material climate-related financial risks and opportunities. The TCFD’s recommendations include analyzing financial impacts under multiple climate change scenarios.

Next steps in climate change risk reporting

With respect to climate change risk reporting, the TCFD deserves special attention. More than 1,000 companies have declared support for the TCFD’s recommendations, and the TCFD framework is being used increasingly by companies in their reporting. This move toward adoption of one framework is a positive development. This is not to say that the other frameworks are unused—in fact, just the opposite—as each one serves a unique purpose. But with increased endorsement of the TCFD recommendations, a gradual trend is developing toward universal adoption and usage of a single reporting standard, or at least a core set of common metrics with respect to climate change factors. Another positive development is increased alignment among standards, such as using CDP data within the CDSB framework in a manner that satisfies TCFD recommendations.


It is remarkable that the environmental disclosure field, while still dominated by numerous—and sometimes competing—systems and protocols, is slowly trending toward a more uniform approach. More companies each year are either making climate change–related disclosures for the first time or more robust disclosures as compared to prior years. More data are becoming available to compare and benchmark companies within and among industries. Companies that proactively address their climate risks get rewarded in the market, at least theoretically. Companies that fall behind face investor skepticism. Notably, this is being done in the United States without governmental regulatory action or targeted, industry-specific enforcement. The next five years will see notable developments in climate change-related disclosures as this trend continues.


Thomas A. Utzinger


Thomas A. Utzinger is the founder and managing principal of GlacierLake Strategies LLC, a Washington, D.C.–based public policy firm focusing on climate change and sustainability issues. He is also the chair of the Section’s Environmental Disclosure Committee.