News Release

5 Ways Fossil Fuel Firms Should Open Up About Climate Risks
Finance and energy experts call on SEC to balance disclosure with healthy markets

Investors want to know more about the risks of climate change. And they are pushing governments to take action.

These activist investors are calling on the U.S. Securities and Exchange Commission to require more disclosure from oil and gas companies like Exxon Mobil, writes UC Davis Professor Paul Griffin with energy and sustainability expert Amy Jaffe in The Conversation.

In a separate piece, Griffin points out the frustration investors have faced with Exxon over climate plans: “Shareholders and bondholders had no choice but to rely on informed guesswork by outsiders to divine how the nation’s largest fossil fuel company was retooling for the future.”

Griffin and Jaffe warn in an op-ed for the Financial Times that now is the time for action.

“The US has the chance to be a world leader on dealing with damages from climate change,” they write. ”It must act or we risk destabilising legal outcomes and market failures.”

Video: Are Oil and Gas Companies Disclosing Enough? 5 Ways Fossil Fuel Firms Should Open Up About Climate Risks

In a new research paper, Griffin and Jaffe, who is a former UC Davis scholar now with the Council on Foreign Relations, outlined their solutions to this problem of “information asymmetry.” Their article “Are fossil fuel firms informing investors well enough about the risks of climate change?” was published on Aug. 9 in the Journal of Energy & Natural Resources Law. The paper is a culmination of decades of research by Paul Griffin into environmental disclosure from energy companies.  

Their proposal pitches five guiding principles for supporting a new disclosure program:

1. Encourage voluntary disclosure OVER FORCED

They looked back to 1976 and the passage of the Foreign Corrupt Practices Act as a model for how to encourage firms to disclose more, without penalizing them for past harms. Griffin played an instrumental role in providing guidance to the commission drafting that legislation.

With a wave of expensive legal battles being waged by cities, states and communities against fossil fuel companies, this type of shareholder pressure, he points out, recently encouraged Exxon Mobil to change its behavior—a milestone in the ongoing debate over balancing disclosure against a company’s right to privacy.

2. Promise safe harbor

Firms need certain protections from litigation. In these good-faith disclosures, they would be sharing confidential information that has not been previously disclosed but would now be a legal requirement under the new system.

3. Weigh all the information at hand

The SEC would have to abandon a one-size-fits-all approach. Instead, they should allow that some information would be important to some firms but not others, with investor responses to disclosures varying across the board.

4. Recognize the costs and benefits for firms

Griffin points out in a sister paper that firms take on steep costs for processing environmental information for disclosure, as do the market analysts who produce environmental reports based on those disclosures—while investors are the ultimate owners of the expense. In an earlier paper, Griffin also outlines the benefits of environmental disclosure for firms.

Griffin and Jaffe advocate for building a market structure that accounts for these costs. They say the SEC should also emphasize the positive benefits to firms.

5. Start with the biggest companies

Focusing first on the major fossil fuel companies would allow the SEC to test the waters, providing an initial baseline to use in comparing firms who voluntarily disclose later. Encouraging these firms to be the first to experiment with the new paradigm may also prove that disclosure could be an attractive option for them once the SEC lowers the costs and other hurdles.

Griffin and Jaffe argue in their paper that a voluntary program like this would equip “firms, investors, creditors and policymakers with a wealth of new evidence” about the process the SEC must adopt for climate risk disclosure.

“Doing this,” they write, “would pave the way for more permanent rule-making to better serve the needs of investors, companies and, ultimately, the public.”