Alleged deficiencies in climate change-related disclosures have been a target of advocacy groups, shareholders, and regulators. The latest example of this phenomenon is the civil lawsuit the New York Attorney General filed on Wednesday against Exxon Mobil Corporation. The NYAG alleges that the company sought to “systematically and repeatedly deceive investors” about the future impacts climate change regulation could have on the company’s assets and value. The lawsuit underscores the fact that climate change disclosures are and will remain under scrutiny and that the claims alleging insufficient or deceptive climate change-related disclosures remain a significant area of corporate liability exposure. The October 24, 2018 complaint can be found here. The NYAG’s October 24, 2018 press release about the lawsuit can be found here.


The lawsuit, which was filed by current New York Attorney General Barbara D. Underwood, is the culmination of an investigation that began three years ago under the prior state Attorney General, Eric T. Schneiderman. The investigation followed a report that first appeared in the Los Angeles Times that Exxon Mobil’s internal assessment of the risks to the company from climate-related regulatory change and fossil fuels usage were far different that the assessments in the company’s public statements. The attorneys general of several other states supported the investigation or conducted their own parallel investigation. The long-running investigation proved to be very contentious; the company aggressively fought to resist the state’s investigative efforts.


The NYAG filed its lawsuit against Exxon Mobil in New York (New York County Supreme Court). The detailed complaint contains several counts alleging violations of New York’s Martin Act and various counts of fraud. The complaint alleges that the company misled investors about the risks that climate change regulations posed to its business. The company, the complaint alleges, that for years the company was accounting for the likelihood that increasingly stringent regulation of greenhouse gas emissions by applying an escalating cost of those emissions in its business planning, investment decisions, and estimation of the value of its company reserves and resources.


The complaint alleges that company’s disclosures about its climate change vulnerabilities regarding climate change were and are important to institutional investors, including, for example the New York Common Retirement Fund and the New York State Teachers Retirement System. The complaint alleges that investors, including specifically the New York retirement funds, had expressed their concerns to the company about climate change issues and about the company’s climate change statements.


The complaint alleges that the company developed a measure – the “proxy cost” of carbon – to account for the company’s climate change risks. However, the complaint alleges, Exxon frequently did not apply the proxy costs as represented; in many cases, the company used much lower proxy costs or no proxy cost at all. Because, the complaint alleges, that the use of the actual proxy cost would result in “massive” costs and “substantial write downs” the company used an undisclosed “alternative methodology” which allowed the company to report lower costs, avoid write downs, and continue to carry its hydrocarbon assets at valuations that were substantially inflated from the values it would have been used if the higher “proxy cost” measure had been used. The complaint alleged that this “fraud” reached the “highest levels of the company,” including its Chairman, Rex Tillerson.


The complaint seeks an order prohibiting the company from continuing to misrepresent its practices in this area; an award of damages; a disgorgement of all monies obtained in connection with the alleged fraud; and restitution. The complaint also seeks a “comprehensive review” of Exxon’s alleged failure to apply a proxy costs consistent with its representations, and the economic and financial consequences of that failure.



It is important to note what the NYAG’s lawsuit is not – it is not a lawsuit seeking to hold Exxon Mobil liable for causing or contributing to climate change or for causing or contributing to greenhouse gas emissions. It is, as the New York Times put it in its October 24, 2018 article describing the NYAG’s lawsuit, “a fairly straightforward fraud suit, the kind that New York attorneys general have long brought and successfully prosecuted under state law.”


The NYAG’s lawsuit is in many respects important respects similar to the securities class action lawsuit investors filed in federal court in Texas against Exxon Mobil in federal court in 2016. The class action lawsuit, brought by a shareholder against the company and certain of its executives, alleges violations of the federal securities laws based on more or less the same factual allegations as are asserted in the NYAG’s lawsuit. (The NYAG’s lawsuit of course alleges violations under New York state law and the common law, by contrast to the shareholder suit, which alleges violations under federal law). As I noted in a post at the time, earlier this summer, Northern District of Texas Ed Kinkaide denied the defendants’ motion to dismiss the securities class action lawsuit.


The New York AG’s decision press ahead with a lawsuit based on alleged misrepresentations in the company’s climate change disclosure statements stands in contrast to the decision of the SEC based on its own probe of the company’s disclosures decided to close its investigation without initiating an enforcement action. An Exxon spokesperson in a statement to Law 360 about the agency’s closure of its investigation, somewhat huffily, commented that “the SEC is the appropriate entity to examine issues related to impairment, reserves and other communications important to investors. We are confident our financial reporting meets all legal and accounting requirements.”


The current NYAG is, of course, a Democrat, while the Chairman of Exxon Mobil was, of course, for a time a member of the current Republican President’s cabinet as the Secretary of State. Politics, of course, has nothing to do either with the NYAG’s decision to bring the lawsuit or the SEC’s decision to close its investigation.


Whatever may have been the key factors in the NYAG’s decision to bring this lawsuit, the lawsuit itself is the latest example of a claim against a company in connection with the company’s climate change-related disclosures.


As I have noted in prior posts, activists have tried to use legal claims against companies as a way to try to force companies to include climate change related disclosure in their periodic statements to their investors and regulators. For example, in August 2018, the non-profit legal group Client Earth filed complaints with the U.K. Financial Conduct Authority (FCA) against three different U.K. insurers. The legal group contends that the insurers’ annual reports failed to meet the requirements of the Disclosure Guidance and Transparency Rules due to the absence in the reports of any climate change-related disclosures.


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.


Companies will continue to face pressure from shareholders, regulators, and advocacy groups 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 bottom line is that climate change and climate change-related disclosures likely will remain an area of concern for corporate boards and a potential area of corporate liability exposure.