As I noted in a prior post, earlier this month I participated in a panel in a climate change liability event sponsored by Clyde & Co in collaboration with Willis Towers Watson as part of the Mayor of London’s Climate Action Week. In connection with the event, on July 11, 2019 the Clyde & Co law firm published an excellent, comprehensive paper on climate change developments and risks, entitled “Climate Change: Liability Risks for Businesses, Directors and Officers – The Coming Wave of Litigation” (here). This paper provides an overview of the challenges that businesses face as a result of climate change-related developments and of the potential areas of liability that may arise as a result of these developments.


As the paper explains, climate change presents businesses with three areas of risk. The first has to do with the physical risk, as climate change changes the circumstances and conditions in which businesses must operate. The second is the transition risk, as operating conditions and regulation require businesses to adapt to a lower-carbon economy. The third is the liability risk, as companies face actions brought by claimants who have been adversely affected by climate change.


The paper extensively reviews the physical risk and transition risk elements of that businesses face, and readers will want to review those sections of the paper closely. However, the section of the paper that will be of most interest to this site’s readers is the portion focused on the third area of risk, the liability risk.


The paper identifies a number of kinds of allegations that companies may face as a result of climate change: failure to mitigate greenhouse gas emissions; failure to adapt to the physical impacts of climate change; failure to adapt investment strategies; failure to disclose climate change risks; failure to adapt professional advice or services; and failure to comply with environmental laws and regulatory obligations.


With respect to the possibility of D&O claims, the paper notes that “as knowledge of climate risk grows and great information and standards develop, it will become increasingly important for directors and officers to demonstrate that these risks have been considered, that actions have been taken to mitigate them where necessary, and that asset values are represented fairly on their balance sheets, including assets which could become stranded when these is a shift to a low-carbon economy.”


The paper goes on to note that “the increasing interest in this area from investors, action groups, regulators, governments and plaintiff law firms … evidence a direction of travel which seems increasingly likely to result in more climate change-related claims and regulatory investigations against directors and officers in the coming years.”


As an example of the kinds of claims that companies may face, the paper cites, among other things, the securities class action lawsuit pending in the Southern District of Texas against ExxonMobil. The plaintiffs in the case allege that the defendants failed to adjust or delayed the adjustment of the “proved reserves” the company carried on its balance sheets. The plaintiff alleged that the proved reserves should have been adjusted or adjusted earlier because at the relevant times it was no longer economically feasible to realize the value of the assets as a result of usage and regulatory changes brought on by and anticipated due to climate change. As discussed here, in August 2018, the federal district court judge presiding over the case denied the defendants’ motion to dismiss in the case. In October 2018, the New York Attorney General brought a related action against the company, alleging 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 report concludes its discussion of liability issues by noted that “the rising tide of climate litigation shows no sign of turning. As loss and damage due to climate change increases, the science becomes more certain, new laws are enacted, and regulatory standards and duties of care are delineated, more claims will be brought.”


The law firm’s paper is quite lengthy and detailed but for anyone interested in emerging D&O issues or in climate change-related issues, it is worth reading at length and in full.



I think that the paper’s authors are right to cite climate change-related issues as a potential source of D&O claims, something that in fact I have long-predicted. Indeed in addition to the ExxonMobil cases cited above, there have been other high profile cases as well.


Late last year, just after the devastating California wildfires, two of its leading California electrical utilities were sued in management liability lawsuits. In each case, the utilities’ electrical facilities or operations were alleged to have been involved in starting the wildfires, leaving the companies vulnerable to litigation based upon alleged wrongful deaths or property damage. For example, in the securities class action lawsuit filed in November 2018 against the utility company Edison International, the plaintiff shareholder alleges that investors were misled about the company’s fire safety readiness and vulnerability if there were to be a wildfire.


In a separate November 2018 development, a shareholder of PG&E, another California electrical utility, filed a shareholder derivative lawsuit referring to the company’s involvement in a series of wildfires, and alleging that the company had made misrepresentations about its fire safety management and fire readiness. PG&E had actually been the subject of another securities class action lawsuit filed earlier in 2018 relating to the company’s involvement in the 2017 California wildfires.


These cases arguably represent examples of the kind of management liability litigation that could emerge as a result of physical changes arising from climate change. Companies whose operations will be affected by the changing physical conditions arising from climate change could find themselves the target of claims from investors and other constituencies for failure to anticipate and guard against climate change-related conditions — not just with respect to wildfires alone, but also (for example) relating to coastal flooding, drought, supply chain disruption, political unrest, and the many other kinds of effects and consequences that climate change may cause.


Climate change related disclosure is likely to remain a focus for climate change advocates as well. Various advocacy groups have filed litigation aiming to try to encourage reporting companies to beef up their climate change disclosure. For example, On August 2, 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. A similar action seeking increased climate change-related disclosure was filed in Australia against one of the leading banks. These lawsuits 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.


While I have long predicted and continue to believe that climate change-related issues represent a significant area of potential D&O claims exposure, the reality is that so far the claims volume has not yet materialized in significant volume. Just as climate change itself is a gradual phenomenon, the rise of climate change litigation has been gradual as well. Nevertheless, the potential for these kinds of claims means that climate change disclosure is and will continue to be a significant focus.