Climate-Related Disclosure and Litigation Risk in the Oil & Gas Industry: Will State Attorneys General Investigations Impede the Drive for More Expansive Disclosures?

Abstract

Investors increasingly recognize climate-related risks and opportunities as relevant to the financial health of a company and to their own investment decisions. Investors are demanding more information from energy companies on expected climate-induced physical impacts and their plans for a future with a different energy mix. This growth in interest in climate-related disclosures initially coincided with regulatory and policy efforts in the U.S. and abroad to address climate change. But as the federal government retreats on climate policy, U.S. political leaders at other levels have vowed to pick up the slack. Among them, state attorneys general (AGs) have significant powers to influence federal and corporate actors and have aimed their powers at energy industry targets, including a focus on the adequacy of oil and gas company climate disclosures.

Despite shifts in U.S. climate policy, investor interest in climate planning remains high. Yet, uncertainties about regulatory efforts, legal, and technical concerns have hindered widespread adoption of consistent climate-related disclosure practices. Questions of when climate risks become legally material and how to treat scenario analysis in disclosures remain significant topics of conversation among corporate and financial actors. Meanwhile, state investigations of corporate climate disclosures illuminate a new challenge for companies. Relying on different legal principles, the parallel efforts of investors and the AGs could work at cross-purposes, potentially impeding improved disclosure of climate risks.

This Article explores the parallel legal regimes and actors pressuring energy companies for expanded climate disclosure and whether delicately balanced efforts to increase meaningful climate-risk disclosure are at risk.

Keywords: climate, corporate disclosure, SEC, materiality, climate-related disclosures, securities disclosure, attorneys general, reasonable investor, financially material, material, TCFD, Task Force on Climate-Related Disclosure

JEL Classification: K22, K32