Clyde & Co Resilience Climate Change Risk Liability Report

Liability and the evolving litigation landscape


A recent decision in a securities class action in the US against ExxonMobil suggests that the long-anticipated spectre of a rise in climate-related D&O claims could at last be about to materialise. Like other regulators around the world, the Securities and Exchange Commission (SEC) has recognised that climate change is a material risk that companies should report, and in 2010 it issued interpretative guidance on disclosure requirements. The SEC and state attorneys general have also carried out an investigation into Exxon’s climate change disclosures. In 2016, a securities class actions was filed shortly after Exxon disclosed that it might have to write down 20% of its oil and gas assets. In the action styled Ramirez vs ExxonMobil , the lead plaintiff alleged that Exxon hid and mis-represented the potential costs of climate change. It claimed that certain officers, including its CEO, had made false and materially misleading statements about the value and amount of its oil and gas reserves and its efforts to incorporate proxy costs for greenhouse gases into the investment and valuation process.

However, in August 2018, events took a significant turn. The court denied Exxon’s motion to dismiss the Ramirez action. Ned Kirk, Partner, explains that this is important because around 50% of US securities class actions are dismissed at the pleadings stage. “The fact that this claim made it past a motion to dismiss raises the liability risk and the potential damages could be significant. This test case could give incentives as well as guidance to plaintiffs looking to file other cases against other companies.” There are still many hurdles ahead to establish liability in this case, but if the Ramirez claim succeeds, he warns, “We could see awave of shareholder class actions and/or derivative actions or other types of lawsuits coming off the back of this.” However, Kirk adds, “There could be a favourable impact in that companies will wake up to the fact that they need to be more careful whenmaking disclosures about climate change – if they’re not there already.”

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