Litigating Securities Fraud in the Climate-Change Era

Written By Michael P. Theroux, Brent W. Kraus, Thomas W. McInerney and Jennifer Power

Climate change disclosure is receiving greater attention from Canadian public companies and their investors. As various legal claims begin to shape the world of climate change litigation, both in and outside of Canada, activist NGOs, concerned investors, and others are looking for new ways to access the courts and seek redress for insufficient disclosure. Securities legislation may become the new frontier for holding public companies accountable for inadequate disclosure of the impact of climate change on the issuer.

The Ramirez Case

As reported in our recent blogs, "Oil Producers Win Another Round in U.S. Climate Change Litigation" and "Oil Producers Succeed in California Climate Change Action", U.S. courts have continued to dismiss tortious claims against oil and gas producers, citing that the legislative and executive branches of government are better suited to measuring the causes and impacts of climate change for greenhouse gas producers. On August 14, 2018, however, the United States District Court for the Northern District of Texas, (Dallas Division), rejected ExxonMobil's motion to dismiss a civil action launched against the corporation for alleged securities fraud.¹

The lawsuit was filed on behalf of all persons who purchased or acquired ExxonMobil's publicly traded common stock between March 31, 2014 and January 30, 2017. In denying ExxonMobil's motion to dismiss the claim, the court determined that the plaintiffs had sufficiently outlined the material misstatements and drawn a causal connection between the alleged misstatements and subsequent losses in share value. The plaintiffs allege that although ExxonMobil’s internal reports recognized risks associated with climate change, the company failed to consider these risks and their potential costs in evaluating the recoverability of the company’s reserves. The plaintiffs assert that a portion of the company’s reserves should have been written down to reflect these risks and costs.

Climate Change-related Disclosure in Canada

There has not yet been a similar action citing securities fraud for climate-change related disclosures in Canada. However, climate change disclosure has received significant attention from Canadian securities regulators, which may foreshadow similar securities litigation in Canada.

The Canadian Securities Administrators (CSA) announced a project to review the risks and financial impacts of climate change on reporting issuers in early 2017. On April 5, 2018, the CSA published CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project, which reports the findings of their project to review disclosure by reporting issuers of risks and financial impacts associated with climate change. As discussed in our blog “Securities Regulators Anticipate Greater Requirements on Climate Change Disclosure”, the CSA report provided insight on CSA's plans for future work in this area, most notably the consideration of new disclosure requirements regarding corporate governance in relation to business risks, including climate change-related risks, and risk oversight and management.

As new rules, guidelines and industry standards surrounding climate change disclosure develop, it is becoming increasingly important for reporting issuers to focus on developing adequate climate change disclosure to avoid allegations of misrepresentation in the nature of the Ramirez case in the U.S.

Download PDF