Climate Change and Sovereign Debt
THE regulation of climate change as a matter of securities law is very odd. We've talked before about Exxon Mobil, which has been accusedof covering up research about the risks of climate change in order to sell more oil. If those accusations are true, then that was a bad thing to do. But the odd part is that the accusations are being investigated as a matter of securities law: The problem is not that Exxon maybe lied to the public or regulators or legislators or customers or suppliers or anyone else involved in the use or regulation of oil; it's that Exxon maybe lied to its shareholders about how much climate change would cost them. Why would we as a society focus our attention on the effect of climate change on oil company shareholders? Who cares? The answer, of course, is that it is easier to punish companies for lying -- or almost-lying, or being careless, or omitting things -- in securities filings than it is to punish them for lying anywhere else.
Here is an article titled "S.E.C. Is Criticized for Lax Enforcement of Climate Risk Disclosure," and again I find it very odd. I mean, I can understand why the Securities and Exchange Commission's thoughts about climate change might be limited to its effects on investors. (The SEC's thoughts about all issues are, necessarily, limited to their effects on investors.) But the concern is actually that the SEC is not worrying enough about the effects of climate change on investors: "The S.E.C. has been underreacting in the extreme," says Senator Brian Schatz of Hawaii. The goal of the critics seems to be to get the SEC to use securities regulation as a mechanism of envi- ronmental regulation, despite the SEC's apparent lack of interest. In some ways it's a nice compliment to the SEC: Our securities regulatory apparatus is apparently so effective that we use it to address societal problems (climate change, conflict minerals, income inequality) that other regulators can't manage. The SEC is such a model regulator that it will soon do all of our regulating.
To be fair, though, it's not just political; there are also investors who are complaining. While energy companies do make climatechange disclosures, "many of these are vague generalizations that give investors little to work with": Chevron, for example, wrote that "incentives to conserve or use alternative energy sources" might reduce demand for its products. Exxon noted that new laws might "reduce demand for hydrocarbons." Neither company made clear to investors what the financial costs might be. These are issues of a societal, or really planetary, scale. Chevron might be a bit better at predicting the political climate, or the actual climate, than its investors are, but it's hard to imagine Chevron reliably quantifying the future effects of climate change and climate regulation on its business.
"We're not asking for anybody to predict the weather or to become climate scientists," Senator Schatz said. "We're simply asking that the S.E.C. acknowledge that there is real risk for companies, and that it ought to be disclosed." I guess. But it is disclosed. The critics want it to be quantified. Elsewhere in regulatory agencies: "A Legal Battle BrewsOver the Power of America's Consumer Finance Watchdog."
For most of the last 10 years, Argentina had a consistent offer for holders of its defaulted pre-2001 bonds: It would give them new bonds worth about 30 cents for every dollar of the old bonds. Some holders of old bonds objected. They sued, fought Argentina in court for years, and kept racking up victo- ries, even in the U.S. Supreme Court. Once they seized an Argentine navy ship. Facing the imminent prospect of defaulting on its new bonds, Argentina was forced to the negotiating table. Its minister of the economy came to a mediation session in New York, sat down with the holdout bondholders, and offered them: 30 cents on the dollar. The consistency, at least, was impressive. Argentina was happy to negotiate terms with the holdouts, as long as those terms were 30 cents on the dollar.
But that was a year and a half ago, and since then Argentina has gotten a new government and made much more conciliatory noises about settling. Including at Davos: In a bid to end a bitter legal dispute that has effectively barred the country from international capital markets since 2001, Alfonso Prat-Gay, finance minister, told a panel that Argentina would honour the face value of debts owed to the US hedge fund holdouts while seeking to negotiate the costs of accumulated interest.
"We want to put an offer on the table," Mr Prat-Gay said, adding that Argentina was offering 120 cents on each dollar owed. The problem, he said was that the creditors, including Elliott Management, were asking for 350 cents on the dollar, which had spiralled due to accumulated interest payments over the past decade on certain loans. Obviously 120 is quite a bit more than 30. Also this just seems more like negotiation: Argentina says a number, Elliott says a higher number, Argentina raises its number, Elliott lowers its number, etc., you know how this works.