Energy & Sustainability Litigation Updates — September 2022
Climate Change Tort Litigation
Beginning in 2017, an array of state and local governments have pursued claims against major fossil fuel producers — particularly the major oil companies (Chevron, Exxon, BP, Shell, and ConocoPhillips) — alleging common law claims of nuisance based upon the contributions of these companies to the impact of climate change. On August 17, 2022, the Third Circuit rejected an appeal brought by the major oil companies of the decisions by the federal district courts in Delaware and New Jersey, which held that the litigation brought by state and local authorities in their respective jurisdictions would proceed in state court rather than federal court. This is the fifth decision by federal circuit courts of appeal — the First, Fourth, Ninth, and Tenth Circuits have also issued similar rulings on this legal question — that these issues are rightfully heard in state court rather than a federal forum. The major oil companies have consistently sought to have the federal courts exercise jurisdiction over these claims, as that has been perceived as a more favorable forum for their various legal defenses. To date, these efforts have been unsuccessful (except when the plaintiffs filed their claims in federal court as an initial matter, such as the case brought by the City of New York). It is expected that the oil companies will seek to appeal this decision to the Supreme Court, but a grant of certiorari in the absence of an active circuit split among the courts of appeals appears unlikely.
Regulatory Developments at the SEC
In August, the SEC published its draft five-year strategic plan. In this document, the SEC reiterated its commitment to climate disclosures, noting that the proposed disclosures are a product of investor demand.
The SEC has also increased its enforcement activities in an effort to combat “greenwashing” — i.e., when companies and investment funds falsely portray themselves as environmentally-conscious. In particular, with respect to SEC enforcement activity, it would be important to note a $1.5 million penalty against an investment advisor; a complaint filed against a company based upon “false and misleading claims” in connection with “its environmental, social, and governance (ESG) disclosures”; and numerous public reports of active investigations of investment managers. Further, the SEC has also recently proposed a set of two rules that would expressly target “greenwashing.” (The prior enforcement actions were undertaken pursuant to the SEC’s existing authority.) In essence, the newly proposed rules would provide that only funds with an ESG purpose would be permitted to label themselves accordingly, and a new set of mandatory disclosures for ESG-focused funds would enable outside parties to confirm whether such a purportedly ESG-focused fund is in compliance with its stated investment purpose. Based on these rulemaking and enforcement actions, it seems likely that the issue of “greenwashing” will be a significant area for future SEC activity.