Climate change has been a focus in the United States for quite some time now, and the US Securities and Exchange Commission (SEC) published interpretive guidance on climate change disclosures a decade ago. However, the times are changing—and the potential liability for directors and officers has never been higher. Climate change disclosures have been debated at the highest levels of the SEC, and the plaintiffs' bar can be expected to broaden their lawsuits beyond the usual fossil fuel producer or utility targets.

Here we focus on the evolution of the SEC's position with respect to climate change and describe the latest developments impacting director and officer liability. Norton Rose Fulbright's US offices are especially prepared to assist our firm's global clients with these issues.

The SEC's position

Directors and officers can be subject to government enforcement actions and private civil litigation, including in connection with material misstatements and omissions in securities offering documents under the Securities Act of 1933 and for public disclosures pursuant to the Securities Exchange Act of 1934.

Within that backdrop, the SEC published interpretive guidance in February 2010 regarding disclosures that public companies should make with respect to climate change. The guidance emphasizes that every company should consider how climate change impacts their operations and financial statements, including both direct and indirect impacts such as impacts on suppliers and customers.1 The guidance describes four topics that may require additional climate change disclosures:

  • Impacts of domestic legislation and regulation: The guidance states that public companies should consider the positive and negative consequences of existing and pending legal requirements related to climate change. According to the guidance, potential impacts from legislation and regulation could include costs to upgrade facilities and equipment, changes to profits and losses from increased or decreased demand for goods and services, and changes in the costs of goods.

  • Impacts of international accords: The guidance states that public companies should consider, and disclose when material, the impact on their business of treaties and international accords related to climate change. These impacts can be similar to the impacts of domestic legislation and regulation.

  • Indirect consequences of regulation or business trends: The guidance encourages companies to consider the indirect impacts of climate change on their business. As examples, the guidance states that climate change can create increased or decreased demand for goods, increased competition to develop climate change-related innovations, and consequences to a company's reputation based on data about greenhouse gas emissions.

  • Physical impacts: The guidance reminds companies to consider the physical consequences of climate change. These impacts can result from weather severity, sea levels, and water availability and quality and can include direct effects on operations along coastlines, indirect impacts from disruptions to operations of customers and suppliers, and increased insurance costs.

The guidance makes clear that these topics are not exhaustive and that public companies should evaluate other areas relevant to their specific businesses. Climate change disclosures generally manifest themselves in a number of sections of a company's public filings. For example, many companies disclose risks associated with climate change in their risk disclosures. Companies also disclose climate change information in the company's description of its business and in the management discussion and analysis to the financial statements. In addition, in some cases, potential climate change impact can be quantified and presented in a company's financial statements.

Since 2010, the SEC has continued to consider issues relating to climate change as part of its review of annual and periodic reporting.2 While no new guidance on the subject has been issued since that time, the SEC has signaled its interest in addressing disclosure requirements relating to climate issues by inviting public comment. More specifically, in 2016, the SEC invited comments on a number of issues relating to Regulation S-K's disclosure requirements, including climate change issues, and the SEC received and continues to receive formal and informal comments on this topic.3

While the SEC proposed amendments on January 30, 2020, to simplify certain aspects of disclosures required by Regulation S-K to avoid duplication and modernize aspects of the regulation, the SEC did not use this opportunity to specifically address climate change disclosure issues.4 That being said, SEC commissioners touched on the subject in statements made on the same date as the release of the proposed amendments.

SEC Chairman Jay Clayton noted the SEC's continued efforts in connection with climate change disclosures and dialogue with issuers, investors and non-US regulators, affirming that the SEC's "approach . . . has been consistent with our ongoing commitment to ensure that our disclosure regime provides investors with a mix of information that facilitates well-informed capital allocation decisions."5 He emphasized his viewpoint that "this commitment has been, and . . . should remain, disclosure-based and rooted in materiality, including providing investors with insight regarding the issuer's assessment of, and plans for addressing, material risks to its business and operations."6 He also commented that specific avenues of future engagement that interested him included having discussions with issuers, such as property and casualty insurers, regarding the extent of their use of environmental and climate-related models and metrics in connection with their operations and planning, as well as discussions with asset managers regarding their experience using environmental and climate-related models and metrics to allocate capital on an industry or issuer specific basis.7 In her statement, Commissioner Allison Herren Lee described the SEC's failure to address climate issues as part of its efforts to modernize Regulation S-K as "ignoring the elephant in the room" and advocated for standardized climate change-related disclosures.8 She stated that investors are "overwhelmingly" telling the SEC that they need "consistent, reliable and comparable disclosures of the risks and opportunities related to sustainability measures, particularly climate risks."9 She also opined that "the broad, principles-based 'materiality' standard has not produced sufficient disclosures to ensure that investors are getting the information they need."10 Commissioner Hester M. Peirce stated that the SEC has "face[d] repeated calls to expand the disclosure framework to require ESG and sustainability disclosures regardless of materiality," but she favors "the principles-based approach that has served us well for decades."11 She cautioned that the SEC "ought not step outside our lane and take on the role of environmental regulator or social engineer."12 In the coming months and years, we can expect climate-related issues to receive further attention by the SEC.

In addition, while it is more likely that new disclosure requirements relating to climate issues will come from the SEC and not Congress, Congress could pass legislation that would increase the disclosures that companies need to make regarding climate issues. In the last two years, proposed legislation has been introduced in both the House and the Senate, but there has been little movement of that legislation.13 It is unlikely that this legislation will get much traction given the highly partisan nature of climate change policy.

Director and officer litigation

Individual states, as opposed to the SEC, have taken the lead in investigating companies in connection with climate change matters. These investigations have led to enforcement actions brought by states which, in turn, have spun off private civil litigation against directors and officers.

Specifically, the Attorneys General of New York, Massachusetts, and the US Virgin Islands launched investigations to determine whether Exxon Mobil Corporation (Exxon) misrepresented to investors the risks of how climate change might impact its business. Although the US Virgin Islands Attorney General terminated its investigation, the New York and Massachusetts Attorneys General filed separate suits against Exxon.

The New York Attorney General (NY AG) alleged that Exxon disclosed a higher "proxy cost" of carbon to the investing public – which Exxon created to incorporate the impact on Exxon of future climate change regulations on its business – but for internal purposes, used a lower greenhouse gas price in connection with making investment and business decisions.14 The NY AG dropped its common law fraud claims prior to trial, but proceeded with a claim under New York's Martin Act, which permits the Attorney General to sue for fraud in connection with the marketing of securities without requiring proof of scienter, reliance and damages (which private litigants must prove), as well as under New York's Executive Law that prohibits persistent fraudulent acts. After a trial, the New York court rejected the NY AG's claims in their entirety, and the NY AG has announced it will not appeal the decision.15

The Massachusetts Attorney General's suit expands upon the NY AG's allegations to allege consumer fraud in addition to investor fraud.16 The complaint alleges that Exxon misled consumers regarding its long-standing knowledge of the risk of climate change, deceived consumers and investors about the systemic financial risk of climate change to the global economy by (among other items) advertising Exxon as leading efforts in clean energy research and climate action, and that it misrepresented that it factored the proxy cost of carbon into its financial planning and investment decisions.

The seminal securities class action related to climate change disclosures was filed in 2016 in the Northern District of Texas against Exxon and certain directors and officers, and remains pending.17 Like the NY AG's lawsuit, the shareholders in the dispute allege that Exxon and its executives made materially false statements in its public disclosures by applying a lower (or no) proxy cost for its decision-making and financials, rather than the higher proxy cost that Exxon published in certain reports to investors. The shareholders claim that this, and other changes in oil and gas market conditions, resulted in Exxon artificially inflating the value of its assets, including its oil and gas reserves, in its financial statements. The shareholders contend that the company and its management did not recognize these adverse events in its financial statements in order to maintain the company's stellar credit rating and secure a US$12 billion debt offering on favorable terms.

On August 14, 2018, the court denied defendants' motions to dismiss.18 First, the Court concluded that the shareholder plaintiffs had sufficiently alleged that the defendants had made false and misleading statements because the proxy cost that the company used in its financial statements was different than the one the company used for business planning.19 Second, the court decided that the shareholder plaintiffs had adequately alleged scienter because they alleged that the management team had received and reviewed documents that demonstrated that the proxy costs used for business planning were different than those used in the financial statements and because they alleged that the defendants were sufficiently motivated to maintain Exxon's high credit rating and to conduct a large debt offering.20 The opinion is notable because numerous courts had previously found that general corporate motivations, like the ones alleged, were insufficient to support a strong inference of scienter.

Plaintiff shareholders have also filed derivative suits against certain Exxon directors and officers for common law breach of fiduciary duty, waste of corporate assets and unjust enrichment claims, as well as for contribution and indemnification under the Exchange Act from such directors and officers to Exxon should they be determined to have violated the Exchange Act in the related securities suits.21 In one case, Plaintiffs reason that the directors and officers breached their fiduciary duties of care, loyalty and good faith because they knew, were reckless, or were grossly negligent in not knowing that Exxon's actual investment and asset valuation did not incorporate greenhouse gas or carbon proxy costs consistent with Exxon's public representations or Exxon's own internal policies, Exxon did not incorporate greenhouse gas or carbon proxy costs into its asset impairment evaluation processes, certain Exxon operations were operating at a loss and could not satisfy the SEC definition for proved reserves, and certain gas operations were impaired and required an impairment charge in financial statements.22 Plaintiffs further allege that these wrongful acts and omissions forced Exxon to defend itself in other cases and governmental investigations, as well as that directors and officers were unjustly enriched by receiving remuneration while breaching their fiduciary duties towards Exxon.23

Climate change-related arguments have also arisen in the securities litigation brought against the California utility Pacific Gas and Electric Company (PG&E), its directors and officers, and underwriters arising from the devastating wildfires that the region has encountered.24 Plaintiff noteholders allege that although the offering documents warned that droughts, climate change, wildfires and other events could cause a material impact on PG&E's financial results, such statements were materially misleading because they did not disclose the risks of PG&E's purportedly subpar safety practices that caused wildfires resulting in death, damages and more than US$30 billion in potential liability, resulting in PG&E's bankruptcy. Plaintiffs also alleged that PG&E's disclosures that it was mitigating the risks of climate change and extreme weather – for example, by employing vegetation management activities to help reduce the risk of wildfires –were false and misleading.


The legal landscape for companies relating to climate change continues to develop at a rapid pace. It is only a matter of time before Plaintiffs bring suits against directors and officers in other companies and the time to evaluate that risk is now.

Norton Rose Fulbright's US offices have the expertise to counsel our clients and defend them in all forms of litigation and government investigations in this area.


1   SEC, Comm’n Guidance Regarding Disclosure Related to Climate Change, 17 C.F.R Parts 211, 231, and 241; Release Nos. 33-9106; 34-61469; FR-82 (Feb. 8 2010), available at

2   SEC Chairman Jay Clayton, January 30, 2020, “Proposed Amendments to Modernize and Enhance Financial Disclosures; Other Ongoing Disclosure Modernization Initiatives; Impact of the Coronavirus; Environmental and Climate-Related Disclosure,“ available at

3   Id.; see also SEC, “Concept Release: Business and Financial Disclosures Required by Regulation SK,” available at; the responses are available at

4   January 30, 2020 Proposed Rule, available at; January 30, 2020 SEC Guidance on MD&A, available at; Press Release, available at

5   See n. 2, supra.

6   Id

7   Id.

8   Commissioner Allison Herren Lee, January 30, 2020 “Modernizing Regulation S-K: Ignoring the Elephant in the Room,” available at

9   Id.

10   Id.

11   Commissioner Hester M. Peirce, January 30, 2020, “Statement on Proposed Amendments to Modernize and Enhance Financial Disclosures,” available at

12   Id.

13   See Climate Risk Disclosure Act of 2018, available at; see also Climate Risk Disclosure Act of 2019, available at

14   People v. Exxon Mobil Corp., No. 452044/2018, 65 Misc. 3d 1233(A), 2019 N.Y. Slip Op. 51990(U) (Sup. Ct. N.Y. Cnty. Dec. 10, 2019).

15   Id.; see also Erik Larson, “New York Won’t Appeal Its Defeat in Exxon Climate Trial,” BLOOMBERG GREEN, Jan 10, 2020, available at

16   Commonwealth v. Exxon Mobil Corp., No. 19-3333 (Mass. Super. Ct.).

17   Ramirez v. Exxon Mobil Corp., 334 F.Supp. 3d 832 (N.D. Tex. 2018).

18   Id. at 839.

19   Id. at 847.

20   Id. at 852-53.

21   In re Exxon Mobil Corp. Derivative Litig., No. 3:19-cv-01067-K (N.D. Tex.); see also Saratoga Advantage Trust Energy & Basic Materials Portfolio v. Woods, No. 2:19-cv-16380-ES-SCM (D.N.J.); City of Birmingham Ret. and Relief Sys. v. Tillerson, No. 2:19-cv-20949-BRM-SCM (D.N.J.).

22   In re Exxon Mobil Corp. Derivative Litig., No. 3:19-cv-01067-K (N.D. Tex.).

23   Id.

24   In re PG&E Corp. Secs. Litig., No. 5:18-cv-03509-EJD (N.D. Cal.).



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