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The question whether concerns about climate change-related disclosures might lead to regulatory enforcement actions or even liability claims has been around for some time, but though the concerns have remained, the regulatory actions and liability claims have not really materialized. However, in the past week, the service of a subpoena on Exxon Mobil Corp. by New York Attorney General Eric T. Schneiderman has raised the possibility that an enforcement action against the energy giant relating to its climate change-related disclosures may be in the works. The Attorney General’s action also raises the question whether other companies and industries could also be targeted. These possibilities highlight possible corporate climate change-related enforcement and liability exposures.
In a November 5, 2015 press release (here), Exxon acknowledged that it had received a subpoena from the New York Attorney General “for production of documents relating to climate change.” The service of the subpoena follows a series of articles in the Los Angeles Times about the company’s climate change-related disclosures. The articles, and similar articles that appeared on the Inside Climate News website (here), suggest that Exxon knew of the climate change risks from fossil fuel use from its own research since the 1970s, yet extensively funded politicians and campaigns that expressed doubt over climate change science.
For example, in an October 9, 2015 article (here), the Los Angeles Times reported that while the company was developing elaborate efforts to tailor its oil production efforts in the Arctic region to the changing circumstances its scientists believed that climate change would bring there, the company said publicly that the future effects of climate change were uncertain. The newspaper asserted that as the company was making its plans for the Arctic, “the gulf between Exxon’s internal and external approach to climate change from the 1980s and through the early 2000s was evident” in hundreds of internal documents that the article’s authors reviewed.
The New York AG’s subpoena followed days after several Congressman sent SEC Chair Mary Jo White a letter dated October 30, 2015 (here) raising the concern that Exxon “may have omitted or misrepresented material information in official filings.” The Congressmen stated in their letter that they “are deeply concerned that U.S. securities laws may have been violated.” The letter urged the SEC to investigate whether Exxon omitted material information in its filings with the agency. In addition, a host of environmental groups separately sent the U.S. Attorney General a letter calling for a U.S. Department of Justice Investigation of the company’s climate change-related disclosures.
It is worth noting that these attacks against the company for its climate change-related disclosure have a historical context. In April 2014, in response to pressure from activist investors, the company issued a report (here) in which it detailed its views of anticipated impact of climate change on the company’s future operations. In particular, the company responded to critics who expressed concerns that as climate change drives consumers and industry away from fossil fuels that the company’s petroleum assets would be “stranded.”
It obviously remains to be seen whether the subpoena and the letter-writing campaign will actually lead to regulatory or enforcement action against Exxon. If the NYAG were to try to pursue an enforcement action against the company, his office would face many obstacles in trying to establish that the company violated its disclosure obligations, as detailed in a November 6, 2015 Law 360 article (here, subscription required).
But whether or not an actual proceeding of some kind involving Exxon materializes, it is clear that climate change-related disclosures are going to continue to be the source of scrutiny that potentially could affect a wide range of companies. Indeed, in connection with the press coverage of NYAG’s subpoena, the news emerged that the AG’s Exxon inquiry is not his office’s first probe of climate change-related disclosures. The November 5, 2015 New York Times article discussing the New York AG’s subpoena of Exxon (here) states that in a separate inquiry, Peabody Coal, the nation’s largest coal producer has been under investigation by the Attorney General for two years over whether the company properly disclosed financial risks related to climate change. UPDATE: On November 9, 2015, the NYAG’s office announced (here) that it had reached a settlement with Peabody Coal of charges that the company’s climate change related disclosure violated New York law. The company agreed to file revised shareholder disclosures that “accurately and objectively represent these risks to investors and the public. ” The terms of the company’s agreement with the NYAG’s office can be found here.
There is, in fact, nothing new about concerns surrounding climate change-related disclosures. As I noted in a post at the time (here), in February 2010, the SEC published an interpretive release providing guidance to public companies on the SEC’s existing disclosure requirements as they apply to climate change. Since that time, there has been the ever-present but uncertain possibility that the agency might cite this guidance in alleging that a company’s climate change disclosures fell short of requirements. The recent letter to the agency from the Congressmen obviously was meant to encourage the SEC to take up this challenge with respect to Exxon.
The possibility that climate change-related disclosure might emerge as the source of corporate liability exposure has been around for years, but always somewhat in the background. It may yet stay in the background; the current brouhaha about Exxon’s alleged climate change-related omissions may quickly fade. Or it just may be the first of several public skirmishes about climate change disclosure. Certainly, as I have noted in prior blog posts (for example, here), environmental activists have long wanted to try to make climate change disclosure issues a source of liability for directors and officers of energy companies.
In assessing whether or not climate change-related disclosures may represent an emerging area of possible corporate liability exposure, it is important to note that environmental activists are not the only ones agitating to make climate change disclosure a priority. Indeed, for several years now, the National Association of Insurance Commission’s has been actively campaigning to make the disclosure of climate change risks a priority for the insurance industry in the United States. The NAIC’s latest update on the topic can be found here.
In my view, whether or not the NYAG or the SEC take any action now with respect to Exxon’s disclosures, I think it is only a matter of time before regulators or claimant take on a company about its climate change-related disclosures. Elected officials eager to generate publicity and curry favor with interest groups will inevitably find this issue too inviting to ignore. Enterprising plaintiffs’ lawyers seeking to diversify their product line will likely try to determine whether or not climate change disclosure represents a promising new liability area.
In a sense, there arguably would be nothing new about enforcement actions or liability claims based on climate change disclosure. There have been both enforcement actions and liability claims based on traditional environmentally-related disclosures for many years, as I have noted many times on this blog (most recently here). Indeed, it could be argued that the recent cluster of D&O lawsuits filed against Volkswagen represent yet another example of this phenomenon.
Just as the question of future global climate change itself is fraught with uncertainty edged with menace, the question whether climate change-related disclosure represents a potential new source of corporate liability exposure is itself both uncertain and more than a little scary. The issue represents a potential concern for companies in a variety of industries; not just energy companies like Exxon, but also utilities, mining companies, automobile manufacturers, transportation companies, insurance companies, and many others.
It may be that D&O insurance underwriters can decide they don’t need to worry about these issues today. The problem for everyone is the possibility that someday, perhaps someday soon, these issues may move from the background, where they have been, to the front burner.
So, You Want to Start Your Own Blog?: Many readers will recall the recent post on this site in which I published the cartoon avatar depicting me that had been created for me by the website FirstSiteGuide.com. (The avatar can be found here, scroll down).The avatar was a lot of fun, but I wanted to be sure to let readers also know that the website also has a very good resource for anyone interested in trying to start a blog. I had to learn how to blog by trial and error. I am still learning. But it you want to try to avoid the common blogging pitfalls and to create a successful blog, you will want to visit the website and review its how-to manual, “How to Start a Blog: A Guide to Successful Blogging” (here).
Cool Fact of the Day: In a November 5, 2015 Wall Street Journal op-ed piece written in tribute to the 100th anniversary of Albert Einstein’s publication of his theory of general relativity (here), scientist Robbert Dijkgraaf noted, among other things, after first observing that Einstein’s theory was “perhaps the greatest achievement of a single human mind,” that the microwave background noise from the big bang itself can actually be observed right in our own homes, because “roughly 1% of the static on a blank television screen is caused by light particles dating from the beginning of time.”
Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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