By Taylor Kuykendall

Peabody Energy Corp., the largest U.S. coal producer, has struck a deal with the New York state attorney general's office that forces the company to tweak its disclosures of risks arising from climate change policies.

An investigation by the state began in 2007 with Peabody at first calling the investigation of then-Attorney General and current Gov. Andrew Cuomo an effort to "promote a political message." New York Attorney General Eric Schneiderman said in a Nov. 9 announcement that the settlement requires the company to disclose projections it has made on the impact of certain laws, regulations and policies on its business, including various projections for the future of coal.

The settlement also prevents the company from suggesting it cannot reasonably project the impact of future laws, regulations and policy related to climate change. It also forces the company to include the International Energy Agency's two less favorable projections for coal demand alongside one that only examines climate policy status quo excluding future policies believed to be imminent by the IEA.

"As a publicly traded company whose core business generates massive amounts of carbon emissions, Peabody Energy has a responsibility to be honest with its investors and the public about the risks posed by climate change, now and in the future," Schneiderman's release said. "I believe that full and fair disclosures by Peabody and other fossil fuel companies will lead investors to think long and hard about the damage these companies are doing to our planet."

Peabody has been regularly disclosing an ongoing investigation from the office since an initial 2007 subpoena related to its involvement in the construction of a coal-fired power plant. The investigation received renewed attention when it was mentioned in a Nov. 5 New York Times article focused on a new investigation being launched by the office into claims that Exxon Mobil Corp. lied to investors about how much risk climate change may present to the oil industry.

According to Schneiderman, the office began an investigation into Peabody's financial disclosures in securities filings in 2013, though Peabody has appeared to connect the current attorney general's effort to "an extensive eight-year investigation" that began in 2007. Schneiderman said the investigation found Peabody "repeatedly denied" in its financial filings "that it had the ability to predict the impact that potential regulation of climate change pollution would have on its business, even though Peabody and its consultants actually made projections that such regulation would have severe impacts on the company."

"For example, Peabody internally projected that if specific aggressive regulatory action was implemented on existing power plants and future electricity generation in the United States, it would reduce the dollar value of coal sales in its primary United States markets by 33% or more," the release states. "Peabody also hired an outside consulting firm, which in March 2014 projected that enactment of a $20 per ton carbon tax would reduce the demand for coal as a fuel source in electric power generation in the United States in 2020 by between 38% and 53% compared to 2013 levels."

The attorney general also found that Peabody has presented "incomplete and one-sided discussions" of the findings and projections of IEA by only using the agency's "current policies scenario." When mentioning other scenarios, the release said Peabody did not disclose that the current policies scenario is not IEA's central scenario.

"The company has previously stated that it cannot predict the impact of potential laws or regulations on Peabody due to the uncertainty surrounding those predictions," Peabody said in a Nov. 9 statement. "Nonetheless, the company has agreed that any future statements concerning the difficulty of making particular projections or predictions shall be accompanied by a statement that Peabody has made projections of the impact of scenarios involving certain potential laws and regulations relating to climate change or coal, which could result in materially adverse effects on its markets or company. To evaluate risks and allocate capital, Peabody has examined the potential impact of hypothetical future laws on coal markets."

While the attorney general's release is headlined that Peabody must "disclose risks arising from climate change," the settlement itself does not address direct impacts of climate change, which many companies across a broad range of industries include in disclosures. Instead, the settlement addresses only the projections of impact climate policy may have on coal demand, and thus Peabody's business.

The investigation specifically accuses Peabody of violating New York's Martin Act and Executive Law, which "prohibit false and misleading conduct in connection with securities transactions." Peabody has denied accusations that its disclosures were illegal.

Peabody was disclosing many risks related to climate change concerns and its effect on investor sentiment toward the industry. For example, in its last Form 10-K, filed in February, Peabody includes an entire section on climate risks that addresses potential state and federal legislation, divestment campaigns, decisions by financial institutions to stop funding coal projects and international climate agreements.

"The company has always sought to make appropriate disclosures," Peabody said in a statement.

Coal's climate conundrum

"This is just the tip of the iceberg," Jamie Henn, a spokesman for fossil fuel divestment promoter 350.org told SNL Energy. "The Peabody settlement is going to kick open the door for a whole new wave of activism and investigations looking at how companies are or aren't disclosing their climate risk. It's the fossil fuel industry's nightmare scenario: real, consistent public accountability for the damage they're causing."

Henn said in a statement that the announcement was a "small settlement that will make a huge impact." He predicts that, in a major win for the fossil fuel divestment effort, investors will start moving faster to dump their investments in fuels such as coal, oil and gas.

In June, Greenpeace International filed a letter with the U.S. SEC alleging that CONSOL Energy Inc.'s filings in support of spinning out its Pennsylvania thermal coal operations into a master limited partnership contained "incomplete and misleading" disclosures as well. The complaint was similar to that against Peabody in that Greenpeace was accusing CONSOL of misusing U.S. Energy Information Administration outlooks, relying on outdated Wood Mackenzie reports and exaggerating the quality of their customer base.

While CONSOL dismissed Greenpeace's accusations as "ideologically motivated," the company soon tempered its outlook on the future of coal markets in subsequent filings. Among other changes, CONSOL had updated the Wood Mackenzie forecast, dramatically cutting the predicted room for growth in the coal market.

The coal industry has taken a somewhat mixed view on climate science and the need for policy to address climate change. In a 2014 survey of coal companies by SNL Energy, none of the then-16 leading coal producers would return a request for answers on a few basic questions on climate change and climate policy submitted to their executives.

Cloud Peak Energy Inc. sent SNL Energy a written statement acknowledging climate change as a "political reality." Arch Coal Inc. pointed to a statement on the U.S. EPA's Clean Power Plan that, while not taking a position on climate change science, did warn that climate policies put the economy at risk and urged investment in technologies to pursue a "rational way forward for addressing climate concerns."

Peabody said it believes coal does have a future and it lies in technology as a "bridge to a low-emissions future" as global electricity demand rises. The company claims it has been "among the most vocal companies worldwide in advocating clean coal technologies, including greater deployment of high-efficiency low-emissions coal-fueled plants and development of next-generation carbon capture, use and storage technologies."

Peabody is also backing a campaign called " Advanced Energy for Life," a public relations effort touting coal as a solution to global energy poverty. While Peabody claims that the low-cost nature of coal makes it ideal for electrifying third world countries, critics of the program have denounced it as an "all talk, no action" ploy to influence public opinion and policy. They also claim it goes overboard in conflating the benefits of coal with the benefits of electricity when alternative energy sources are available.

In its recent release, Peabody touted its role as the only non-Chinese equity partner in GreenGen, an integrated gasification combined cycle plant in China expected to add carbon capture controls, and other programs for advancing cleaner ways to burn coal. Peabody did not mention FutureGen 2.0 — a carbon capture project on which it served as a major backer — which was recently shelved after a long list of delays and challenges led the government to pull the project to "best protect taxpayer interest."

Peabody's settlement does not include an admission or denial of wrongdoing and includes no financial penalty. The company said disclosures "evolve over time" and its third-quarter Form 10-Q will address the matters raised by the New York attorney general.