Not long ago, the climate change threat was poorly understood by most of the public, and political and corporate leaders committed, at best, to incremental solutions. Today, large majorities around the world view climate change as an emergency and major corporations are committing to align their operations with the Paris Agreement’s aspiration to limit global warming to 1.5°C (2.7°F).
The new corporate commitments represent important progress. But with reports of a “doomsday” glacier collapse and other climate calamities well underway, we need to know now which commitments are real.
Whistleblowers—those with inside information about fraud and other wrongdoing—represent our best hope of piercing through the fog of corporate communications and getting at the truth. Whistleblower programs now at the Securities and Exchange Commission and the Commodity Futures Trading Commission, set up through provisions of the Dodd-Frank Act, set the example.
Corporations Engage in Selective Disclosure
When corruption is unlawful, whistleblowers work confidentially with regulators and prosecutors to achieve accountability, providing evidence, interpreting opaque financial documents and identifying other sources of evidence. When corrupt acts are not prohibited by law or when regulators and prosecutors are unwilling to act, whistleblowers work with NGOs, journalists, and others to expose wrongdoing and build momentum for action.
Perhaps more than any other societal challenge, whistleblowers are needed to help with climate change. A key reason is because many corporate executives associated with carbon-intensive businesses have financial incentives to conceal climate-related risks. By selectively withholding material facts and assumptions, these executives can extract a few more years of profits and bonuses before the shift to a low-carbon economy fully takes hold.
But investors and the public are entitled to all of the facts about how these companies are dealing with declining demand and increasing liabilities. (Fossil fuel companies have massive liabilities for radioactive and other toxic pollution in addition to carbon pollution.) Whistleblowers will be key to determining which companies have a viable plan to transition away from unsustainable business models.
A recent CDP survey of global financial institutions highlights the problem of selective disclosure. It finds that less than 50% of those surveyed have disclosed what actions they are taking to align portfolios with Paris targets. Meanwhile, without securing meaningful disclosures from the fossil fuel companies in their portfolios, the world’s 60 largest banks have poured $3.8 trillion into these high-risk companies since the Paris Agreement was adopted.
Disclosure Must Be Top SEC Priority
As the National Whistleblower Center explained in a July 2020 report, climate risk disclosure must be treated as a top priority of the SEC and other regulators. If fraudulent concealment of climate risks is not addressed, it could produce a cascading collapse of firms tied to carbon-intensive business models, leading to global economic havoc.
Enforcement work must prioritize misleading statements from the fossil fuel industry and its banks, auditors and other enablers. Decades ago, after learning about how their products were disrupting the climate, companies such as ExxonMobil and Shell embarked upon a disinformation campaign aimed at concealing these findings, confusing the public and delaying policy action.
Today, faced with concerns from investors and others about their lack of preparedness for the energy transition, fossil fuel companies are engaging in a new kind of deception.
The new narrative is about how carbon-removal technologies will be deployed to offset emissions and thereby allow continued development of oil, gas, and coal without further damaging the climate.
ExxonMobil, for example, has claimed millions of dollars in tax credits for capturing CO2 from its gas fields, which it then sells to companies that use it to extract more oil from depleted wells. While proclaiming this business is a climate solution, it has lobbied relentlessly to eliminate its duty to disclose the fate of the captured CO2.
The good news is that today’s SEC apparently understands the threats posed by undisclosed climate risks and is addressing them. It recently launched an evaluation of climate risk disclosure rules and an enforcement task force to work with the Office of the Whistleblower and others to address climate-related disclosure gaps.
Dodd-Frank Offers Successful Whistleblower Opportunities
Together with the CFTC, the SEC implements one of the most powerful whistleblower laws in the world, the Dodd-Frank Act. Dodd-Frank prohibits retaliation for disclosing wrongdoing and establishes whistleblower offices at the SEC and CFTC to educate potential whistleblowers around the world about opportunities to address corruption using U.S. laws.
Two features make Dodd-Frank particularly powerful. One, it provides confidential, anonymous channels for disclosures to regulators so that whistleblowers can achieve justice without their identities becoming known and their career opportunities jeopardized. It also guarantees that if whistleblowers contribute to a successful enforcement action, they are entitled to 10% to 30% of the monetary sanctions recovered.
This has proven to be a successful formula for tackling fraud, bribery and other corruption. Since 2012, the SEC has paid over $500 million in whistleblower rewards and the CFTC has paid $120 million. Thanks in large part to whistleblowers, the agencies have concluded hundreds of enforcement actions, creating much-needed accountability and returning billions in sanctions to taxpayers and investors.
Now is the time for regulators and prosecutors around the world to use the Dodd-Frank whistleblower approach to confront the corruption that is undercutting progress on climate change and other threats to the habitability of the planet. In fact, everyone, regardless of ideology or party affiliation, should embrace holding accountable those who evade the law, pollute the environment, and shift the costs of their environmentally harmful activities to the public.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
John Kostyack is senior director of Environmental Innovation at the National Whistleblower Center in Washington, D.C., where he leads NWC’s climate and environmental whistleblowing work. He also is an attorney representing whistleblowers and has served as executive director of the Wind Solar Alliance and vice president of Wildlife Conservation at the National Wildlife Federation.