As published January 16, 2020 in Bloomberg Environment
Securities-based lawsuits against energy companies, such as New York’s case against Exxon Mobil, are a poor means of dealing with climate change and have negative consequences, writes the Rainey Center’s Sarah E. Hunt. She says other states considering similar litigation would be better served to instead focus on working with these companies to deploy clean, renewable, carbonless energy solutions.
The New York attorney general’s office pursued a fraud case against Exxon Mobil for the past three years, alleging the energy giant misled the public about the financial costs of climate change. The case sparked a congruent environmentalist social media campaign centered around the #ExxonKnew hashtag.
In an interesting bit of foreshadowing, the assistant attorney general announced Nov. 7, 2019 that it was abandoning two of three far-reaching charges against the company, citing lack of evidence. Then on Dec. 10, 2019, New York Supreme Court Judge Barry Ostrager ruled against the state on the lone remaining charge in People of the State of New York v. Exxon Mobil, finding no evidence that Exxon deceived investors.
The state contended that Exxon committed a violation by issuing misleading statements about the scale of the climate impact of its fossil fuels. Some allege, however, that the prosecutor’s goal in pursuing this charge is ultimately not to defend Exxon Mobil shareholders, but to single out and punish the company for the deteriorating state of our climate. Climate advocates should now recognize that this type of lawsuit is a poor vehicle to settle legal questions of climate change culpability.
Even with Ostrager’s ruling against the state, the decision is only the beginning of this legal battle. The losing party will, no doubt, attempt to elevate the decision to the highest court possible and meanwhile, states across the country are taking similar action. This includes Massachusetts, who filed its own similar case against Exxon in October.
The longer the fight, the bigger and more drawn-out the conversation surrounding the question: What have companies, such as Exxon, told their investors about their role in our changing climate?
The outcomes of these cases will set judicial precedents. Those precedents in turn will have long-ranging aftereffects—many of which cannot be foreseen. In short, we are truly fighting for the future. Climate advocates care not only about the impact of our actions today, but how those actions will affect future generations. We have empathy for those future citizens that we will never meet.
But we must find a better way, because these securities-based lawsuits are a poor means of settling questions of climate change liability. They should not be used to punish companies on the basis of political bias. Doing so will have negative and enduring consequences.
The first such consequence is the demonization of the energy industry, especially firms that work in fossil fuels. As unlikely as it may sound, these companies are well positioned, perhaps better than anyone else, to invest billions of dollars to scale-up climate solutions and clean, renewable energy alternatives. But instead of inviting these companies to the table to find actionable paths forward, lawsuits stoke fears that may stymie the industry’s ability to develop, deploy, and scale zero-emissions technology in the future.
If America’s energy leaders are constantly using resources to defend against what can be cast as frivolous, politically motivated litigation, they may conclude that leading on zero-emissions technology, innovation, and deployment will result in even greater liability exposure.
Second, securities and financial fraud are serious matters. Cases such as these abuse and misuse legal tools, such as New York’s Martin Act, which is designed to protect investors, not demonize companies. Securities claims have nothing to do with liability for climate damage, a point Judge Ostrager explicitly makes in his decision, writing that “ExxonMobil is in the business of producing energy, and this is a securities fraud case, not a climate change case.”
Shockingly, not a single shred of evidence surfaced to support the securities fraud claims of the state. At trial, prosecutors were unable to produce any Exxon shareholders to corroborate allegations of deception. This notable lack of evidence led the state to dismiss two of the fraud charges that required higher standards of evidentiary support. The narrower charges in the Martin Act claim require lower burdens of proof, which were still unmet. It’s no wonder that Ostrager dismissed the case “with prejudice,” which means the case cannot be tried again on the same facts in New York.
The danger of continuing to brandish these claims based on broad assumptions of culpability in order to enable crusades against “climate offenders” cannot be overstated. Such actions muddy the waters of the justice system, confuse the public, create the foundation for bad precedents, and move the conversation about clean energy solutions backwards—away from where the conversations between energy companies and the environmental community should take place.
These cases divert attention and resources away from other climate action priorities. A “win” for Exxon in this specific case does not absolve oil and gas companies from being found liable for climate damages in the future under different legal statutes.
If the state had won, not one penny of the judgment fines would have gone to address climate change, either. Instead, Exxon would have made payments to shareholders. The single finding here is that Exxon did not lie to or mislead investors about how climate change might impact their company. The greater issue of climate liability is an entirely different question. At best, these securities fraud lawsuits confuse the public about climate change and who is responsible.
Finally, New York’s assistant attorney general claims that Exxon’s “fraud” has cost investors between $476 million and $1.6 billion, a range based on the decline in Exxon’s share price after climate impact investigations where announced.
But how much taxpayer money has New York wasted over the past three years on this case? Is it in the millions, or perhaps more? One wonders what could they have accomplished for the advancement of climate solutions in that time and with that money?
Massachusetts and any other state considering similar climate litigation against energy companies via securities fraud would be better served to drop those actions immediately. Instead, help companies concentrate on finding alternative ways to work with these companies to deploy clean, renewable, carbonless energy solutions.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.