In August, Senator Elizabeth Warren (D-MA), a member of the Senate Banking Committee, sent a letter to the U.S. Securities and Exchange Commission (SEC) urging the agency to implement climate risk disclosure requirements for public companies. According to Senator Warren, requiring climate risk disclosures would help ensure that the public and investors “can accurately assess and address climate-related environmental and financial threats.”
Senator Warren’s letter follows a July report by the National Whistleblower Center (NWC) entitled Exposing a Ticking Time Bomb: How Fossil Fuel Industry Fraud is Setting Us Up for a Financial Implosion – and What Whistleblowers Can Do About It. Senator Warren cites the NWC report extensively in her letter.
The NWC report details how fossil fuel companies have consistently downplayed and concealed the risks climate change poses to their financial condition and to the economy at large. Because of fossil fuel companies’ tight integration with the financial system as a whole, the report warns that “the potential for rapid asset deflation at large fossil fuel companies is a ticking time bomb that, if not detected and addressed, could make the global financial system implode.”
The NWC report also outlines the key role whistleblowers can—and should—play in fighting climate risk fraud. Withholding information and downplaying risks to investors are prosecutable offenses of securities laws. The SEC Whistleblower Program is a highly successful program with strong incentives (monetary awards) and protections (including anonymity) for whistleblowers. According to the report, whistleblowers are in a unique and essential position to uncover fraud and can play a leading role in transforming the fossil fuel industry, like they did in the tobacco, healthcare, and banking sectors. The report points to Bradley Birkenfeld, UBS bank whistleblower, as a prime example of the transformative role whistleblowers can play.
“Although improvements to climate risk disclosure rules and whistleblower laws are needed in the U.S. and around the world, the existing U.S. whistleblower legal regime offers great promise for producing near-term results in the battle against climate risk fraud by fossil fuel companies,” the report states.
Drawing upon the NWC report, Senator Warren urges the SEC to take immediate measures to implement climate risk disclosure rules. Senator Warren proposes a bill, the Climate Risk Disclosure Act, that would require these disclosures but notes that the SEC does not need new legislation to implement them. According to Senator Warren, by ignoring climate risks and not fighting climate risk fraud, the SEC “is not fulfilling its mission to ‘protect investors’ and ‘maintain fair, orderly, and efficient markets.'”
Senator Warren quotes the NWC report, which states “the fossil fuel sector is a prime example of an industry sector with incentives to commit fraud given that its financial stability and profitability are greatly threatened by industry conditions and larger economic trends.” Senator Warren then asks the SEC “without standard, mandatory climate risk disclosures, how is the SEC addressing potential harmful incentives and conflicts of interest in the disclosure of material climate-related risks in the fossil fuel industry?”