Transition or Trial: Fossil Fuel Companies Face Stark Climate Change Choice
Transition or trial? Response or responsibility? Fossil fuel companies must face these choices head on as they increasingly find themselves in the cross hairs of climate-related litigation. The harms of a warming climate are no longer theoretical — or in someone else’s backyard — but are quite literally hitting home in the United States. 2017 was the costliest year on record for weather-related disasters in the U.S. with 16 events resulting in damages of over $1 billion each. Total costs were over $306 billion in wasted money, resources, and lives.
Since responsibility for climate change can now be assigned, so too can the costs. Courts appear poised to take a greater role in reshaping the responsibilities of companies and governments related to climate change impacts, which could mean tremendous costs for companies. According to a recent U.N. report on climate litigation, as of March 2017, over 880 climate-change cases were filed worldwide, with 654 cases filed in the U.S. alone. The theories, remedies, and subjects of these cases vary widely, but companies are at the receiving end of larger numbers of lawsuits. Just today, New York City joined a growing list of cities seeking to hold major companies in the fossil fuel industry accountable for foreseeable damage caused by climate change. This trend is not likely to go away as the cost of climate-related harms increase.
This litigation wave is of great concern to long-term energy company investors and adds to the growing list of climate risks investors must consider. To reduce climate risk, investors are seeking action from companies in a variety of ways: information, analysis, and disclosure of growing carbon risks; preparedness for the physical risks of climate change; active board oversight; and, critically, a plan for reducing those risks (see our recent ExxonMobil shareholder resolution for an example).
The last bullet is key — a plan by companies to reduce and avoid the risks of climate change. Investors are beginning to realize that business-as-usual production of fossil fuels means more climate-related harm, more lawsuits, and inevitably and undeniably — more and growing risk. Given this unambiguous and increasingly unwelcoming landscape for fossil fuel companies, shareholders are demanding action. Investor representatives As You Sow and Arjuna Capital recently filed resolutions calling on ExxonMobil and Chevron Corporation, as leaders in the U.S. oil and gas industry, to produce a report explaining how the companies can transition their business models to reduce climate change risk and align with an increasingly decarbonizing energy market.
This low carbon business model resolution reflects the fact that business-as-usual for Exxon and Chevron stands in stark contrast to the opportunities afforded by diversification into cleaner energy sources, buying or merging with companies that have assets or technologies in clean energy, or winding down or otherwise strategically shrinking fossil fuel business components.
For investors, the choice is clear: investors seek transition and opportunity for their companies over literal trials and tribulation any day of the week.