A couple months back, I wrote that Exxon Mobil was defending itself in New York state court against allegations that it had misled investors by saying publicly that it estimated higher future costs of climate change regulations when it evaluated potential oil & gas projects – when it was actually basing those decisions on current costs, and assumptions that the regulatory environment wouldn’t change.
Among other things, the complaint by the New York Attorney General alleged violations of the state’s Martin Act, which turns on whether there’s a misrepresentation or omission of material facts. The alleged misrepresentations were made by Exxon in reports that were published back in 2014 in exchange for the withdrawal of two shareholder proposals – and were then repeated in other reports such as the company’s “Corporate Citizenship Report.”
Earlier this week, the judge on the case issued a 55-page opinion in Exxon’s favor. Basically, the decision came down to a finding that investors didn’t care about the info – there was no market impact and the info wasn’t “material” when considered with the total mix available in the company’s 10-K and other disclosures. The judge also accepted Exxon’s argument that the company’s internal practices didn’t impact its financials.
This was a big victory, but it’s pretty fact-specific and you’ve gotta wonder whether the outcome would be the same if the allegations were based on more recent disclosures, since current-day investors keep claiming they care about this stuff. Exxon continues to face other “climate change” lawsuits – including a consumer protection case in Massachusetts. And they aren’t alone. A Davis Polk blog notes that at least one D&O insurer is observing a growing number of climate-related claims – and that it will consider that risk during underwriting. Here’s an excerpt:
Among 28 countries, 75% of climate-related cases brought to date were in the United States alone. The firm anticipates that the failure to disclose climate change risks may drive claims in upcoming years. Moreover, a company’s lack of responsiveness to overall environmental, social and governance (ESG) issues, including ethical topics, can cause brand values to plummet. The insurer warns that, when gauging a company’s reputation, underwriters of D&O insurance will consider the nature and tone of comments made on social media relating to the company.
-Liz Dunshee, TheCorporateCounsel.net December 12, 2019