The fear of being sued for contributing to climate change was once confined to the boardrooms of oil and gas companies. Now those concerns are spreading to other corporations as the Biden administration prepares to release regulations that could expose the polluting liabilities of every large firm in the United States.
More than a dozen companies outside of the oil industry have disclosed climate-change-related legal risks to investors over the last three years, indicating what experts say is a growing sensitivity among businesses to the prospect of facing legal challenges for releasing large amounts of carbon dioxide into the atmosphere. They include American defense contractor Lockheed Martin Corp., Brazilian financial services giant Itaú Unibanco Holding SA and China Eastern Airlines Corp. Ltd.
“We’re consistently seeing all these companies disclosing litigation risk around climate change,” said George Georgiev, a professor at Emory Law who reviewed the filings at the request of E&E News. “That’s significant because it’s new. Something is changing — companies are paying more attention.”
The emerging trend comes as the Securities and Exchange Commission and regulators in other countries are developing rules that would require large companies to disclose their climate-related risks (Climatewire, Jan. 9). Such efforts might expose a broad array of firms to litigation if they are believed to have downplayed their risks to legal challenges or misled investors and consumers about their contribution to rising temperatures.
Climate suits are still relatively rare. Nearly two dozen cases have been filed against oil, gas and coal producers by U.S. cities, counties and states. None have yet gone to trial, although they have gained the attention of the Supreme Court, which may soon address whether the cases should be heard in state or federal court (Climatewire, March 17).
Outside of the U.S., the pace of litigation is accelerating more quickly and is being used to highlight the climate impacts of companies involved in the production of energy, food and plastics, according to an analysis published last year by researchers in the United Kingdom.
Concerns among companies operating in the U.S. appear to be rising since President Joe Biden indicated shortly after his election victory that he would push financial regulators to increase their scrutiny of businesses that are jeopardized by climate change or federal efforts to lower emissions (Climatewire, April 9, 2021).
Thirty-two companies have disclosed risks related to “climate litigation” or “climate change-related litigation” since 2020, according to an E&E News review of SEC filings. Half are fossil fuel companies, such as European oil and gas producers Shell PLC and Equinor ASA, both of which have already been named in climate lawsuits (Climatewire, July 21, 2021). The other 16 firms are involved in aviation, mining, agriculture, insurance and other industries.
“While many of the climate change related actions are in preliminary stages of litigation, and in some cases assert novel or untested causes of action, there can be no assurance that legal, societal, scientific and political developments will not increase the likelihood of successful climate change related litigation against energy producers including us,” Canadian oil sands developer Cenovus Energy Inc. warned investors in March 2020.
A Cenovus spokesperson said in an email that the company has included climate change in its regulatory filings since 2010.
Last year, climate lawsuits began appearing as risk factors in SEC filings of fossil fuel dependent companies such as China Eastern Airlines, JetBlue Airways Corp. and Royal Caribbean Cruise Ltd.
Lockheed Martin — the producer of combat ships, helicopters and tanks — disclosed its risks from climate change for the first time this January.
“Climate change-related litigation and investigations have increased in recent years and any claims or investigations against us could be costly to defend and our business could be adversely affected by the outcome,” the defense contractor said in its most recent annual report.
Lockheed spokesperson Kaleb Bennett declined to elaborate “since we’re currently in an earnings quiet period.”
Similar disclosures have also started appearing in the securities filings of companies seemingly far afield from the fossil fuel industry. Some examples include cable-maker Amphenol Corp., the world’s largest gold miner Newmont Corp. and Itaú, which is Latin America’s biggest bank.
“We face increased climate change-related litigation risk with respect to our operations,” the agricultural cooperative CHS Inc. told shareholders in August, noting the rash of cases filed against fossil fuel producers. “Although we are not currently a party to any of these lawsuits, they present a high degree of uncertainty regarding the extent to which we face an increased risk of liability stemming from climate change.”
CHS declined to elaborate. The other companies mentioned in this story didn’t respond to requests for comment.
‘Reading the tea leaves’
The uptick in disclosure is driven in part by increased scrutiny from the Biden administration. The president has called climate change “an existential threat to our nation and to the world.”
Last year, the SEC proposed a rule that would require large companies that do business in the U.S. to provide detailed information to investors about their contributions and vulnerabilities to climate change (Greenwire, March 21, 2022). The agency is aiming to finalize that landmark regulation as soon as next month (Climatewire, Jan. 9).
Before it began that rulemaking, the SEC ramped up its oversight of some companies’ climate disclosures (Climatewire, May 12, 2022). The agency specifically pressed China Eastern Airlines, Royal Caribbean and Amphenol for more information on why they didn’t consider climate litigation a major risk to their lines of business.
Royal Caribbean and Amphenol defended their decision to not include it as a top risk but both promised to closely monitor the issue. China Eastern Airlines, on the other hand, responded by moving to amend its 2021 annual report to include a section on climate lawsuits.
“This is a product of companies in vulnerable industries and their lawyers reading the tea leaves,” said Emily Strauss, who teaches securities litigation and enforcement at Duke Law. “Everybody can see that the SEC is working in multiple ways on being aggressive on climate issues. So it’s an attempt to kind of get out in front of that, and to get out in front of some of the litigation that’s likely to follow on SEC activity.”
The Biden administration isn’t the only government stepping up its scrutiny of companies that are damaging the climate. In Brazil, for example, President Luiz Inácio Lula da Silva ran on a pledge to end deforestation in the Amazon by 2030 (Greenwire, Dec. 23, 2022). Since taking office, he has doubled the budget of the Brazilian environmental agency’s enforcement program and set up a task force to investigate fraud in the timber trade, according to Reuters.
Those efforts abroad could be pushing foreign companies that operate in the U.S. to tell American regulators about the threats they face from litigation related to rising temperatures.
“Some of this disclosure may be motivated by their domestic regulators or where else they are operating,” said Jennifer Schulp, the director of financial regulation studies at the Cato Institute, a conservative think tank. “So it’s kind of difficult to draw blanket conclusions about what’s happening.”
It’s also unclear the extent to which the new disclosures signify greater climate litigation risk for the individual companies.
Part of preparing annual reports is to “pull all of the disclosures of your competitors and look at them and sometimes even copy and paste language,” said Emory’s Georgiev, who previously worked as a corporate lawyer. He has seen similar risks emerge and then proliferate in securities filings, such as when Russia invaded Ukraine and the United Kingdom voted to leave the European Union.
“You don’t want to be the one not disclosing this risk because, if everybody else is disclosing it, maybe there is something to this,” Georgiev said.
Right now, he added, climate litigation is “part of the zeitgeist.”