On Wednesday, August 27, the State of New York announced it had settled a dispute with Xcel Energy regarding the company’s alleged failure to make adequate climate-change-related risk disclosures in its 2006 10-K filings to the Securities and Exchange Commission (SEC).  Described by State officials as the “First-Ever Binding and Enforceable Agreement Requiring a Company to Detail Financial Liabilities Related to Climate Change,” the Agreement requires Xcel Energy to disclose, as part of its annual Form 10-K SEC filings, the following information:

• Present and probable future climate change regulation and legislation;
• Climate-change related litigation;
• Physical impacts of climate change.
• Current carbon emissions;
• Projected increases in carbon emissions from planned coal-fired power plants;
• Company strategies for reducing, offsetting, limiting, or otherwise managing its global warming pollution emissions and expected global warming emissions reductions from these actions; and
• Corporate governance actions related to climate change, including whether environmental performance is incorporated into officer compensation.

The settlement resolves a dispute between Xcel Energy and the New York Attorney General regarding the adequacy of its climate-change-related disclosures to investors.  Xcel was one of five companies subpoenaed by New York State in September 2007 to address their compliance with SEC risk disclosure obligations to investors.  In the letters accompanying the subpoenas the five companies, the Attorney General alleged that each had failed to disclose climate change risks in their 2006 10-K reports, and asserted that “[s]elective disclosure of favorable information or omission of unfavorable information concerning climate change is misleading.”

The Xcel Energy settlement is notable on several levels.  First, the settlement appears to be one of the first times that a private company has agreed to assume a binding, enforceable obligation to disclose detailed climate-change related operational and risk information as part of the 10-K filing process.

Second, the settlement would appear to strengthen the position of New York State that a company “cannot excuse its failure to provide disclosure and analysis by claiming there is insufficient information concerning known climate change trends and uncertainties.”

Third, while Xcel Energy had not addressed climate change risks in its 10-K filings, it had released detailed public information on climate change issues through the Carbon Disclosure Project, a voluntary program that makes corporate responses to detailed climate-change questions available via the internet.  The Xcel settlement precedent may make it more difficult for other defendants to rely on such voluntary internet filings to third-party sites as a substitute for formal coverage of climate change issues in SEC filings.

Finally, this settlement comes as the SEC continues to review a pending Petition by a national coalition of investors and environmental groups as well as various states to mandate increased climate change disclosure requirements as an SEC.

The Xcel settlement demonstrates that even in the absence of definitive action by the SEC, companies may have good reason to build climate change considerations into their management strategies - and filings.

For further information about this topic, please contact Akin Gump.