As I have previously noted on this site, climate change-related disclosure is a hot button issue for certain activist investors and non-governmental organization. A series of recent actions underscores the extent to which some groups are attempting to escalate these disclosure issues, with significant impact. As described below, a number of companies have joined collaborative efforts to advance climate change disclosure initiatives within their industries. These developments have relevance not only for companies’ disclosures to investors, but they may also have liability implications as well.


In prior posts, I noted the formation of the Financial Stability Board’s Task Force on Climate-Related Finance Disclosures (TCFD), an international body created at the request of the G20 and chaired by Michael Bloomberg. (An overview of the task force’s recommendations can be found here.) A group of 16 international banks has now formed joined a United Nations Environment Program Finance Initiative pilot project to help banks disclose their climate related financial risks in line with the TFCD’s recommendations. As described in a July 9, 2018 memo from the Davis Polk law firm (here), the member banks published a methodology on April 26, 2018 to “increase understanding of the role of climate change and climate action on bank operations and to provide guidance on the transition to a low-carbon economy.”


In addition, on July 3, 2018, Climate Action 100+, a group of more than 280 activist institutional investors, announced that it had increased from 100 to 161 the list of companies that the group will target regarding climate change disclosure. Climate Action 100+, which was launched in December 2017,  is a five-year global initiative to encourage its list of focus companies with significant potential to reduce greenhouse gas emissions, promote the transition to clean energy or to reduce exposure to environmental risk to implement strong governance frameworks, reduce greenhouse gas emissions and provide enhanced disclosure.


I note these developments not only to highlight the increasing importance of climate change disclosure generally, but also to underscore the related possibility of climate change disclosure litigation. Any time company disclosures come into focus, the possibility arises that investors or others will claim that the disclosures are inadequate or misleading.


The possibility of this type of litigation is not mere conjecture on my part. As I discussed here, last year, investors filed a lawsuit in Australian court against Commonwealth Bank, alleging that the company’s annual report did not adequately report on the company’s climate change business risk or its management of climate change risks. The obvious purpose of the lawsuit was to try to force changes to the company’s climate change disclosure practices. Activist investors seem likely to continue to use litigation as another means to try to oblige companies to address climate change issues.


Along with the activist driving litigation focused on corporate practices will be more traditional type litigation, focused on alleged damages. There is also already an example of the damages-type litigation. As I noted in a prior post (here), in November 2016, shareholders filed a climate change-related securities class action lawsuit against ExxonMobil, in which the claimants allege that the company’s did not adequately disclose the impact from climate change-related issues on its ability to realize the value of its hydrocarbon assets.


Some readers undoubtedly are skeptical about the extent to which climate change-related litigation represents a substantial risk. Litigation seeking to hold companies financially liable for causing climate change through their greenhouse gas emissions has been comprehensively unsuccessful. At the end of last month, Northern District of California Judge William Alsup dismissed the public nuisance case that the City of Oakland and the State of California filed against five major oil companies. This dismissal follows a long line of similar outcomes in these kinds of lawsuits. My comments here about possibility of future climate change litigation is not concerned with this type of litigation seeking to hold companies responsible for causing climate change. I am more concerned with litigation against specific companies related to the company’s own climate change disclosure and other corporate practices.


At a minimum, companies will continue to face pressure from shareholders and NGOs about their climate change-related disclosures. Along with pressures to alter or improve disclosures may come claims that prior disclosures were inadequate or misleading. The 2016 ExxonMobil securities class action lawsuit that I mentioned above is an illustration of the form that this type of lawsuit might take. In addition, the possibility of future claims in this area includes the risk of a regulatory enforcement action as well. The bottom line is that climate change and climate change-related disclosures likely will remain an area of concern for corporate boards.


In the spirit of full disclosure, I acknowledge that for quite some time I have been suggesting the possibility that climate change-related issues could become a significant source of D&O claims. Even with the ExxonMobil securities class action lawsuit, the fact is that there has not been a significant level of D&O claims activity in this area. Whether or not there will in fact be any significant level of climate change-related activity in the future of course remains to be seen. All of that said, I continue to believe that boards will find that climate change-related disclosure issues are going to be important areas of concern.