Arguments Used to Sue Investors in Fossil Fuels

Litigation can be used to target the banks, pension funds, and entities that finance fossil fuel extraction. Cases to date have been based upon risk disclosure laws, securities fraud, and fiduciary duties.

Note: This is part of a series on arguments that can be used in climate litigation. For more articles in this series, see the arguments series.

For another great resource on this topic, check out the Action 4 Justice Climate Litigation Guide

Failure to Disclose Climate Risk
Many countries have laws requiring companies and financial institutions to disclose financial risks. Climate change and its associated impacts will impact the world economy and therefore the bottom line of corporations. Climate litigation has been brought against companies and financial institutions seeking to get them to disclose their climate-related risks.
 * Cases: McVeigh v. Retail Employees Superannuation Trust, OECD national point of contact in Japan by Market Forces, O’Donnell v. Commonwealth, Abrahams v. Commonwealth Bank of Australia

Securities Fraud for Misleading Investors about Climate Risk
It is widely known that fossil fuel companies knew about the impact their products were having on the climate decades ago. Despite this, they ran public disinformation campaigns to downplay the risk and lobbied lawmakers in order to prevent regulation. Several climate litigation cases have also alleged that fossil fuel companies mislead investors by failing to accurately disclose the risks that climate change presented for their business.
 * Cases: In re Exxon Mobil Corp. Derivative Litigation, Ramirez v. ExxonMobil, New York v. ExxonMobil, Massachusetts v. ExxonMobil, O’Donnell v. Commonwealth

Fiduciary Duties and Failure to Incorporate Climate Risk in Business Decisions
In many countries, corporate management owes a fiduciary duty to shareholders. Climate change creates enormous risks to many companies, yet many are failing to adapt. This is particularly true of fossil fuel companies which continue to invest huge amounts of investors’ money into fossil fuel exploration and extraction despite the fact that those fossil fuels cannot be burned while meeting the goals of the Paris Agreement. Continuing to invest in fossil fuels which may become illegal to extract or burn under national laws risks creating “stranded assets.” It is in the interest of both investors and the climate to avoid continued investment in fossil fuels. Some environmental organizations or concerned citizens buy shares in companies to bring legal action seeking to prevent the company from undertaking projects or ventures which are risky in climate change terms.

Claims of failing to incorporate climate risks can also be brought against institutional investors. For example, if you are invested in a pension fund that is investing in fossil fuel companies, you can bring a case against the persion fund arguing that it has failed to incorporate climate risk into its investment decisions.
 * Cases: McVeigh v. Retail Employees Superannuation Trust, Harvard Climate Justice Coalition v. Harvard College, Lynn v. Peabody Energy Corp., ClientEarth v. Enea

Export Credit Agencies
Despite the need to rapidly end fossil fuel usage, governments worldwide are still spending huge sums of money funding fossil fuel investments overseas. he biggest form of public support is provided through Export Credit Agencies (ECAs), which exist to support domestic industries in doing business overseas. ECAs are little known to the public and yet they provide almost fourteen times more finance for fossil fuels (USD 40 billion) compared to clean energy (USD 2.9 billion) every year.

The largest state supporters of ECA fossil fuel support in recent years have been Canada, Japan, China, and South Korea. For more on how your country is funding fossil fuels overseas, see this report from Oil Change International.

In May 2021, Oil Change International released a legal opinion outlining how government funding of fossil fuels through ECA's violates international legal obligations and may open the door to litigation against them if they do not take action to reduce their financing of fossil fuel-related activities.

Central Banks
Central banks such as the European Central Bank have supported the fossil fuel industry through "quantitative easing" programs which improve financing conditions for companies by lowering the cost of their debt.

In 2021, ClientEarth announced it was filing a legal action against the Belgian National Bank for its support of companies in greenhouse gas-intensive sectors. For more see ClientEarth v. Belgian National Bank.

Resources

 * Carbon Tracker Initiative - an independent financial think tank that carries out in-depth analysis on the impact of the energy transition on capital markets and the potential investment in high-cost, carbon-intensive fossil fuels
 * Legal opinion on international law obligations of States in relation to their export financing for fossil fuels.